<PAGE>
As filed with the Securities and Exchange Commission on September 2, 1999
Registration No. 333-85437
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
iVILLAGE INC.
(Exact name of registrant as specified in its charter)
--------------------
<TABLE>
<S> <C> <C>
Delaware 7375 13-3845162
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
170 Fifth Avenue
New York, New York 10010
(212) 206-3100
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
--------------------
Candice Carpenter
Co-Chairperson of the Board and Chief Executive Officer
iVillage Inc.
170 Fifth Avenue
New York, New York 10010
(212) 206-3100
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
Copy to:
Richard V. Smith, Esq.
Orrick, Herrington & Sutcliffe LLP
Old Federal Reserve Bank Building
400 Sansome Street
San Francisco, California 94111
(415) 392-1122
Approximate date of commencement of proposed sale to the public:
From time to time after this Registration Statement becomes effective.
If any of the securities being registered on this form are to be offered on
a delayed or a continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. /X/
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. / / __________
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / / __________
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration number of the earlier effective registration statement for the same
offering. / / __________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. / /
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
Proposed Maximum Proposed Maximum
Title of Each Class of Amount to be Offering Price Per Aggregate Offering Amount of
Securities to be Registered Registered Share (1) Price Registration Fee
- ---------------------------- ------------ ------------------ ------------------ ----------------
<S> <C> <C> <C> <C>
Common Stock, $.01 par value 2,676,266 shares(2) $29.6875 $79,451,646 $22,088(2)
</TABLE>
(1) Estimated solely for purpose of calculating the registration fee and based
on the average of the high and low prices of the common stock on the Nasdaq
National Market on August 11, 1999.
(2) The Registrant previously registered 2,676,364 shares and paid a
registration fee of $22,100.
The registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until this Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
================================================================================
<PAGE>
2,676,266 Shares
iVillage Inc.
Common Stock
The selling stockholders identified in this prospectus are offering up
to 2,676,266 shares of iVillage's common stock. iVillage's common stock is
traded on the Nasdaq National Market under the symbol "IVIL." The last reported
sale price for the common stock on the Nasdaq National Market on August 31, 1999
was $36.31 per share.
We will not receive any of the proceeds from the sale of shares by the
selling stockholders and we are not offering any shares for sale under this
prospectus. See "Selling Stockholders" and "Plan of Distribution" for a
description of sales of the shares by the selling stockholders.
--------------------
Please see "Risk Factors" beginning on page 8.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
September 2, 1999
<PAGE>
No dealer, salesperson or other person is authorized to give any information or
to represent anything not contained in this prospectus. You must not rely on any
unauthorized information or representations. This prospectus is an offer to sell
only the shares offered hereby, but only under circumstances and in
jurisdictions where it is lawful to do so. The information contained in this
prospectus is current only as of its date.
TABLE OF CONTENTS
Page
PROSPECTUS SUMMARY............................................................2
THE OFFERING..................................................................5
RISK FACTORS..................................................................8
FORWARD-LOOKING STATEMENTS...................................................20
USE OF PROCEEDS..............................................................22
DIVIDEND POLICY..............................................................22
PRICE RANGE OF COMMON STOCK..................................................22
CAPITALIZATION...............................................................23
SELECTED CONSOLIDATED FINANCIAL DATA.........................................24
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS...............................................26
BUSINESS.....................................................................42
MANAGEMENT...................................................................65
CERTAIN TRANSACTIONS.........................................................75
PRINCIPAL STOCKHOLDERS.......................................................79
SELLING STOCKHOLDERS.........................................................81
PLAN OF DISTRIBUTION.........................................................82
DESCRIPTION OF CAPITAL STOCK.................................................85
SHARES ELIGIBLE FOR FUTURE SALE..............................................88
LEGAL MATTERS................................................................89
EXPERTS......................................................................89
AVAILABLE INFORMATION........................................................90
INDEX TO FINANCIAL STATEMENTS...............................................F-1
-i-
<PAGE>
PROSPECTUS SUMMARY
You should read the following summary together with the more detailed
information and iVillage's consolidated financial statements and the notes to
those statements appearing elsewhere in this prospectus.
iVillage Inc.
Our Business
iVillage Inc., The Women's Network, is a leading online network for
women and one of the most demographically targeted online communities on the
World Wide Web. iVillage.com is an easy-to-use, comprehensive online network of
sites tailored to the interests and needs of women aged 25 through 54. We
provide advertisers and merchants with targeted access to women using the Web.
Our network of sites consists of 17 channels organized by subject
matter. The channels cover leading topics of interest to women online, such as
family, health, work, money, food, computers, relationships, shopping, travel,
pets and astrology. We facilitate channel usage by providing common features and
functionality within each channel, including experts, chats, message boards and
services. Although some features of our Web sites are restricted to members,
membership in iVillage.com is free.
As of June 30, 1999, iVillage's membership and its core audience was
approximately 82% female and consisted of approximately 2.1 million unique
members, up from approximately 170,000 unique members as of January 31, 1998.
Unique members refers to the actual number of individual iVillage.com members
after the exclusion of any multiple membership accounts opened by those members.
For the quarter ended June 30, 1999, iVillage.com averaged approximately 102
million page views. Page views are the total number of complete pages retrieved
and viewed by visitors to the iVillage network. For the month of July 1999,
iVillage estimates it had 7.3 million unique visitors. A unique visitor or
person is an individual visitor to the iVillage network.
We believe that iVillage.com appeals to advertisers, consumers and
merchants because it combines the following attributes to create a powerful
environment for advertising and commerce:
o a highly targeted and attractive demographic user group;
o a high degree of member involvement within the network, including
a greater level of page views and repeat visits than non-members and
greater participation within the community than the average user
through polls, message boards, chats and community challenges; and
o an interactive sponsorship model that integrates advertising and
commerce into the content of each of the sites.
Our Market Opportunity
We believe that women are one of the principal driving forces behind
the growth of the Internet. As of January 1999, women made up 47.5% of the
online population according to Jupiter
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Communications. We believe that women also represent an attractive demographic
group for advertisers and businesses. Consumers spend $3 trillion annually, and
women control or influence 80% of all purchase decisions.
To effectively reach women online, advertisers, merchants and Web sites
that develop and provide content need to address the differing uses of the
Internet by men and women. We believe that women are interested in
problem-solving, community, researching product information and simple
navigation. They appear to spend less time "surfing" the Internet than men and
more of their time online at fewer destinations.
We have developed innovative sponsorship relationships that go beyond
traditional banner advertising to support broad marketing objectives of brand
promotion, awareness, product introductions, online research and the integration
of advertising with editorial content. These sponsorships and highly targeted
marketing opportunities attract advertisers and sponsors from whom we derive a
majority of our revenues.
We generate e-commerce revenues from sales through iBaby, Inc., an
online retailer of baby gifts and products, iMaternity, an online retailer of
maternity clothing, Knowledge Web, Inc. d/b/a Astrology.Net, an Internet content
provider, and agreements with leading online merchants.
Our Strategy
Our objective is to be the leading online network for women. Our
strategy includes:
o building strong brand recognition;
o aggressively growing membership and usage;
o enhancing and expanding our network;
o pursuing strategic acquisitions and alliances;
o increasing sponsor and advertising revenues; and
o generating e-commerce revenues.
We actively promote our brand awareness and site usage through a
variety of online and traditional media, including through agreements with AOL,
NBC and AT&T to provide both online and offline advertising.
Recent Developments
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 571,000 shares of iVillage common stock valued at approximately
$30.0 million under the purchase method of accounting.
3
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On August 20, 1999, iVillage acquired all of the outstanding stock of
Lamaze Publishing Company, Inc., a multimedia provider of education information
to expectant and new mothers. The total purchase price consisted of 1,748,693
shares of iVillage common stock and approximately $5 million to repay debt.
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
International, Inc., the owner of the Lamaze family of marks.
Through our acquisition of Lamaze Publishing, we intend to further
extend our brand offline which we believe will lead to increased traffic to
iVillage.com. Lamaze Publishing currently estimates that it reaches more than
75% of all women giving birth in the United States through its magazines, videos
and the Newborn Channel, its satellite television network broadcasting in over
800 hospitals in the United States. This presents attractive opportunities for
advertisers to have access, across multiple platforms, to the majority of U.S.
parents and prospective parents through one single source. In addition, we
expect to offer Lamaze-licensed products through iBaby and other retailers,
further enhancing our commerce business.
In accordance with a merger agreement dated as of August 31, 1999,
iVillage acquired Family Point, Inc., the operator of a leading online meeting
place for families, friends and groups. The aggregate purchase price paid to
acquire Family Point consisted of $3.75 million in cash and approximately
550,000 shares of iVillage common stock valued at approximately $26.0 million
under the purchase method of accounting.
Our Offices
Our executive offices are located at 170 Fifth Avenue, New York, New
York 10010. Our telephone number at that location is (212) 206-3100 and our
Internet address is www.ivillage.com.
4
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common stock to be offered by the selling stockholders............ 2,676,266 Shares
Common stock to be outstanding after the offering (1)............. 26,124,266 Shares
Use of proceeds................................................... We will not receive any proceeds from sales of common
stock by the selling stockholders. See "Use of Proceeds".
Nasdaq National Market symbol..................................... IVIL
</TABLE>
- -----------
(1) Based on the number of shares actually outstanding on August 26, 1999.
5
<PAGE>
Summary Consolidated Financial Data
The following table summarizes the financial data for our business.
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, and
Astrology.Net in February 1999. The financial data reflect the results of
operations of these subsidiaries since their dates of acquisition. 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.
<TABLE>
<CAPTION>
July 1, 1995
(inception) to Six Months
December 31, 1995 Year Ended December 31, Ended June 30,
----------------- ----------------------------------- --------------------------
1996 1997 1998 1998 1998 1999 1999
---- ---- ----
Pro Pro
Actual forma(1) Actual forma(1)
------ -------- ------ --------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Consolidated Statement of Operations
Data:
Revenues.............................. $ -- $ 732 $ 6,019 $ 15,012 $ 27,072 $ 4,838 $ 14,572 $21,165
Cost of revenues...................... 508 3,468 5,530 12,403 18,095 5,437 9,112 12,629
-------- -------- --------- --------- --------- --------- --------- -------
Gross margin.......................... (508) (2,736) 489 2,609 8,977 (599) 5,460 8,536
-------- -------- --------- --------- --------- --------- --------- -------
Operating expenses:
Product development and technology.... 121 1,053 2,076 2,118 2,118 986 3,038 3,038
Sales and marketing................... 329 2,709 8,771 28,523 31,316 12,054 23,206 24,562
General and administrative............ 656 3,104 7,841 10,612 13,961 4,206 7,872 9,397
Depreciation and amortization......... 17 109 2,886 5,683 27,356 2,658 7,519 14,349
-------- -------- --------- --------- --------- --------- --------- -------
Total operating expenses......... 1,123 6,975 21,574 46,936 74,751 19,904 41,635 51,346
-------- -------- --------- --------- --------- --------- --------- -------
Loss from operations.................. (1,631) (9,711) (21,085) (44,327) (65,774) (20,503) (36,175) (42,810)
Interest (expense) income, net........ (7) 28 (216) 591 591 237 1,513 1,510
Loss on sale of Web site.............. -- -- -- (504) (504) -- -- --
Minority interest..................... -- -- -- 586 -- -- -- --
-------- -------- --------- --------- --------- --------- --------- -------
Net loss.............................. (1,638) (9,683) (21,301) (43,654) (65,687) (20,266) (34,662) (41,300)
Preferred stock deemed dividend....... -- -- -- -- -- -- (23,612) (23,612)
Net loss attributable to common
stockholders....................... $(1,638) $(9,683) $(21,301) $(43,654) $(65,687) $(20,266) $(58,274) $(64,912)
-------- -------- --------- --------- --------- --------- --------- -------
-------- -------- --------- --------- --------- --------- --------- -------
Basic and diluted net loss per
share.............................. $ (1.51) $ (8.90) $ (13.65) $ (21.10) $ (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(2).................. $ (2.59) $ (3.10) $ (2.77) $ (2.75)
--------- --------- --------- -------
--------- --------- --------- -------
Shares of common stock used in
computing pro forma basic and
diluted net loss per share......... 16,854 21,160 21,027 23,644
--------- --------- --------- -------
--------- --------- --------- -------
</TABLE>
- --------------
(1) Pro forma giving effect to:
o the acquisition of Lamaze Publishing;
o the acquisition of Astrology.Net; and
o the purchase of the minority interest in iBaby.
(2) Pro forma basic and diluted net loss per share is calculated assuming the
conversion of all outstanding preferred stock as of the beginning of each
respective period.
The following table indicates a summary of our balance sheet at June 30, 1999;
o on an actual basis; and
6
<PAGE>
o on a pro forma basis giving effect to the acquisition of Lamaze
Publishing.
<TABLE>
<CAPTION>
June 30, 1999
Actual Pro forma
-------- ---------
<S> <C> <C>
Consolidated Balance Sheet Data:
Cash and cash equivalents.................. $ 85,279 $ 80,644
Working capital............................ 76,504 69,303
Total assets............................... 158,072 262,078
Stockholders' equity....................... 145,292 241,895
</TABLE>
iVillage(Registered); the iVillage logo(Registered); Parent
Soup(Registered); Astrozine(Registered); iVillage.com; Real Solutions For Women;
The Woman's Network; The double oval design; Click!; Community Challenges;
Community Challenge; Armchair Millionaire; Never Say Diet; allHealth;
Parentsplace; and Parentsplace.com are marks of iVillage, Inc.
iBaby(Registered); Internetbaby and iMaternity are marks of iBaby, Inc.
KnowledgeWeb(Registered); Astrology.Net(Registered); Astrozine(Registered);
Kelli Fox, and the Kelli Fox Likeness are trademarks of KnowledgeWeb, Inc.
OnLine Psych is a mark of OnLine Psychological Services, Inc. The Newborn
Channel is a mark of Lamaze Publishing. Lamaze(Registered); and Lamaze.com are
marks of Lamaze International, Inc., exclusively licensed to Lamaze Publishing
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. All other trademarks and service marks in this prospectus
are the property of their respective owners. The information on our Web sites
is not a part of this prospectus.
Unless otherwise specifically stated, information throughout this
prospectus excludes as of August 31, 1999:
o 4,404,962 shares issuable upon the exercise of outstanding options
and warrants;
o 266,327 shares reserved for future issuance under our stock option
and stock purchase plans; and
o the approximately 550,000 shares issued in the Family Point
acquisition.
7
<PAGE>
RISK FACTORS
This offering involves a high degree of risk. You should carefully
consider the risks described below and the other information in this prospectus
before deciding to invest in the shares of common stock.
We have a limited operating history and may face difficulties encountered by
early stage companies in new and rapidly evolving markets
We have a limited operating history and face many of the risks and
difficulties frequently encountered by early stage companies in new and rapidly
evolving markets, including the Internet advertising market. These risks include
our ability to:
o attract a larger audience to our online network;
o increase awareness of our brand;
o strengthen user loyalty;
o offer compelling content;
o maintain our current, and develop new, strategic relationships;
o attract a large number of advertisers from a variety of industries;
o respond effectively to competitive pressures;
o continue to develop and upgrade our technology; and
o attract, retain and motivate qualified personnel.
Please see "Management's Discussion and Analysis of Financial Condition
and Results of Operations" for detailed information on our limited operating
history.
We lack significant revenues and have recent and anticipated continuing losses
We have not achieved profitability and expect to continue to incur
operating losses for the foreseeable future. We incurred net losses of $11.3
million for the period from July 1995 (inception) through December 31, 1996,
$21.3 million for the year ended December 31, 1997, $43.7 million for the year
ended December 31, 1998 and $34.7 million for the six months ended June 30,
1999. As of June 30, 1999 and December 31, 1998, our accumulated deficit was
$134.5 million and $76.3 million, respectively. We expect to continue to incur
significant operating and capital expenditures and, as a result, we will need to
generate significant revenues to achieve and maintain profitability.
Although our revenues have grown in recent quarters, we cannot
guarantee that we will achieve sufficient revenues for profitability. Even if we
do achieve profitability, we cannot guarantee that we can sustain or increase
profitability on a quarterly or annual basis in the future. If revenues grow
slower than we anticipate, or if operating expenses exceed our expectations or
8
<PAGE>
cannot be adjusted accordingly, our business, results of operations and
financial condition will be materially and adversely affected. Because our
strategy includes acquisitions of other businesses, acquisition expenses and any
cash used to make these acquisitions will reduce our available cash. Please see
"Selected Consolidated Financial Data" and "Management's Discussion and Analysis
of Financial Condition and Results of Operations".
We are dependent on barter transactions which do not generate cash revenue
Revenues from barter transactions represented approximately 20% and 12%
of total revenues for the year ended December 31, 1998 and the six months ended
June 30, 1999, respectively. Barter revenues may continue to represent a
significant portion of our total revenues in future periods. Barter transactions
do not generate any cash revenues and are entered into by us to promote our
brand and generate traffic to our Web sites, without any expenditure of our cash
resources. Please see "Management's Discussion and Analysis of Financial
Condition and Results of Operations".
We may not be able to integrate the operations from our recent and future
acquisitions
As part of our business strategy, we have completed and expect to enter
into additional business combinations and acquisitions, such as our February
1999 acquisition of Astrology.Net and June 1999 acquisitions of Online
Psychological Services, Inc. and Code Stone Technologies, Inc., as well as our
acquisition of Lamaze Publishing in August 1999.
Acquisition transactions are accompanied by a number of risks,
including, among other things:
o the difficulty of assimilating the operations and personnel of the
acquired companies;
o the potential disruption of our ongoing business;
o the inability of management to maximize the financial and
strategic position of iVillage through the successful
incorporation of acquired technology or content and rights
into our products and media properties;
o expenses associated with the transactions;
o additional expenses associated with amortization of acquired
intangible assets;
o the difficulty of maintenance of uniform standards, controls,
procedures and policies;
o the impairment of relationships with employees and customers
as a result of any integration of new management personnel; and
o the potential unknown liabilities associated with acquired
businesses.
9
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Our failure to adequately address these issues could have a material
adverse effect on our business, results of operations and financial condition.
Our acquisition of Lamaze Publishing poses a number of risks that could
materially adversely affect our business strategy
The acquisition of Lamaze Publishing is our first acquisition of a
non-Internet company. There are a number of risks in operating Lamaze
Publishing, including:
o competitiveness of the media and publishing industry;
o our inexperience in operating a multi-media publishing company;
o our ability to sell advertising and sponsorships on our Web
sites and in Lamaze Publishing's magazines, videos and the
Newborn Channel;
o our ability to commercialize and protect the Lamaze mark; and
o our ability to build and market Lamaze.com.
Our quarterly revenues and operating results are not indicative of future
performance and are difficult to forecast
As a result of our limited operating history, we do not have historical
financial data for a significant number of periods upon which to forecast
quarterly revenues and results of operations. We do not believe that
period-to-period comparisons of our operating results are necessarily meaningful
nor should they be relied upon as reliable indicators of future performance. In
one or more future quarters our results of operations may fall below the
expectations of securities analysts and investors. In such event, the trading
price of our common stock would likely be materially adversely affected. Please
see "Management's Discussion and Analysis of Financial Condition and Results of
Operations - Quarterly Results of Operations".
Our revenues for the foreseeable future will remain dependent on user
traffic levels and advertising activity on our Web sites. Such future revenues
are difficult to forecast. In addition, we plan to increase our sales and
marketing operations and to expand and develop content. We also plan to upgrade
and enhance our technology and infrastructure development in order to support
our growth. We may be unable to adjust spending quickly enough to offset any
unexpected revenue shortfall.
If we have a shortfall in revenues in relation to our expenses, or if
our expenses precede increased revenues, then our business, results of
operations and financial condition would be materially and adversely affected.
This would likely affect the market price of our common stock in a manner which
may be unrelated to our long-term operating performance.
Seasonal and cyclical patterns may affect our business
We believe that advertising sales in traditional media, such as
television and radio, generally are lower in the first and third calendar
quarters of each year. If our market makes the transition from an emerging to a
more developed market, seasonal and cyclical patterns may
10
<PAGE>
develop in the future. As a result, if our industry follows the same seasonal
patterns as those in traditional media, we may experience lower advertising
revenues in the first and third calendar quarter of each year. Seasonal and
cyclical patterns in Internet advertising may also affect our revenues. In
addition, traffic levels on our Web sites typically fluctuate during the summer
and year-end vacation and holiday periods and we anticipate that sales from
iBaby, and any other future consumer goods we may sell, will typically increase
during the fourth quarter as a result of the holiday season and may decline
during other periods. Please see "Management's Discussion and Analysis of
Financial Condition and Results of Operations" for detailed information on our
quarterly operating results.
The market for Internet advertising is uncertain
We continue to derive a substantial portion of our revenues from
sponsorships and advertising for the foreseeable future, and demand and market
acceptance for Internet advertising solutions are uncertain.
There are currently no standards for the measurement of the
effectiveness of Internet advertising, and the industry may need to develop
standard measurements to support and promote Internet advertising as a
significant advertising medium. If such standards do not develop, existing
advertisers may not continue their levels of Internet advertising. Furthermore,
advertisers that have traditionally relied upon other advertising media may be
reluctant to advertise on the Internet. Our business would be adversely affected
if the market for Internet advertising fails to develop or develops more slowly
than expected.
Different pricing models are used to sell advertising on the Internet
and it is difficult to predict which, if any, of the models will emerge as the
industry standard. This makes it difficult to project our future advertising
rates and revenues. Our advertising revenues could be adversely affected if we
are unable to adapt to new forms of Internet advertising. Moreover, software
programs that limit or prevent advertising from being delivered to an Internet
user's computer are available. Widespread adoption of this software could
adversely affect the commercial viability of Internet advertising.
We may be unable to adequately measure the demographics of our user base and
delivery of advertisements on our web sites
It is important to our advertisers that we accurately measure the
demographics of our user base and the delivery of advertisements on our Web
site. We depend on third parties to provide certain of these measurement
services. If they are unable to provide these services in the future, we would
need to perform them ourselves or obtain them from another provider. This could
cause us to incur additional costs or cause interruptions in our business until
we replace these services. We are currently implementing additional systems
designed to record demographic data related to our users. If we do not implement
these systems successfully, we may not be able to accurately evaluate the
demographic characteristics of our users. Companies may choose to not advertise
on our Web sites or may pay less for advertising if they perceive our
demographic measurements are not reliable.
11
<PAGE>
We are currently experiencing a period of significant growth which is placing a
significant strain on our resources
If we are unable to manage our growth effectively, our business could
be adversely affected. We have experienced and continue to experience
significant growth, both internally and through acquisitions. This growth has
placed, and our anticipated future growth in our operations will continue to
place, a significant strain on our resources. As part of this growth, we will
have to implement new operational and financial systems, procedures and
controls.
Several members of senior management have only recently joined iVillage
Several members of our senior management joined us in 1998 and 1999 and
have not previously worked together. As a result, our senior managers are
becoming integrated as a management team and may not work together effectively
as a team to successfully manage our growth.
We may not attract a sufficient amount of traffic and advertising without our
channels being carried on AOL
AOL has accounted for a significant portion of our online traffic based
on the delivery to us of a guaranteed number of impressions. A significant
amount of our visitors and members reach our Web sites through AOL. Our
agreement with AOL does not prohibit AOL from carrying online sites or
developing and providing content that compete with our sites, and AOL currently
carries additional competing Web sites. Our agreement with AOL expires on
December 31, 2000 and, even though either party may extend it for an additional
year, AOL does not have any obligation to renew the agreement. If the carrying
of our channels on AOL is discontinued, our business, results of operations and
financial condition would be materially adversely affected.
AOL investments may result in conflicts of interest for AOL that are adverse to
iVillage
AOL has invested in Oxygen Media, Inc. a new Internet and television
company that is developing cable and interactive content for women and children.
In addition, Oxygen Media has acquired from AOL the assets of electra.com, an
online women's network, and Thrive Partners LLC, the operator of
thriveonline.com, a health site. In addition, AOL has invested in Excite, Inc.
and, in November 1998, acquired Netscape Communications Corp. The relationship
between AOL and Oxygen Media and AOL and other internet companies may result in
potential conflicts of interest for AOL, which may not be resolved in our favor.
In addition, other principal investors in iVillage may have similar conflicts of
interests by virtue of their other investments. Please see "Certain
Transactions".
When we assume inventory and storage responsibilities for iBaby in November 1999
we will face inventory risk between the time we order products and the date of
receipt.
Starting in November 1999, we will begin handling inventory and
fulfillment for iBaby. As a result, changing trends in consumer tastes in
baby-related products will subject us to inventory risks. It is important to our
success that we accurately identify and predict these trends and do not
overstock unpopular products. The demand for specific products can change
between the time the products are ordered and the date of receipt.
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If products do not achieve sufficient consumer acceptance, we may be
required to take inventory markdowns, which could reduce our sales and gross
margins. We believe that this risk will increase as we open new departments or
enter new product categories due to our lack of experience in purchasing
products for these categories. In addition, to the extent that demand for iBaby
products increases over time, we may be forced to increase inventory levels.
We have a small number of customers and the loss of a number of these customers
could adversely affect our financial condition and results of operations
We depend on a limited number of customers for a significant portion of
our revenues. Consequently, the loss of even a small number of these customers
at any one time may adversely affect our business, financial condition and
results of operations. Although no advertiser accounted for more than 10% of
total revenues for the year ended December 31, 1998 or the six months ended June
30, 1999, our five largest advertisers accounted for 17% and 22% of total
revenues, respectively. At December 31, 1998, one advertiser accounted for 11%
of net accounts receivable.
Lamaze Publishing also depends on a limited number of customers for a
significant part of its revenues. As of December 31, 1998 and June 30, 1999, one
advertiser accounted for approximately 17% of Lamaze Publishing's total
revenues. Additionally, revenues from Lamaze Publishing's ten largest
advertisers accounted for approximately 63% and 65% of Lamaze Publishing's total
revenues for the year ended December 31, 1998 and the six months ended June 30,
1999, respectively.
We anticipate that our results of operations in any given period will
continue to depend to a significant extent upon revenues from a small number of
customers. In addition, we anticipate that such customers will continue to vary
over time, so that the achievement of our long-term goals will require us to
obtain additional significant customers on an ongoing basis. Our failure to
enter into a sufficient number of large contracts during a particular period
could have a material adverse effect on our business, financial condition and
results of operations. Please see "Management's Discussion and Analysis of
Financial Condition and Results of Operations".
We may not find sufficient acquisition candidates to implement our business
strategy.
As part of our business strategy, we have completed and expect to enter
into additional business combinations and acquisitions. We compete for
acquisition candidates with other entities, some of which have greater financial
resources than we have. Increased competition for acquisition candidates may
make fewer acquisition opportunities available to us and may cause acquisitions
to be made on less attractive terms, such as higher purchase prices. Acquisition
costs may increase to levels that are beyond our financial capability or that
would adversely affect our results of operations and financial condition. Our
ability to make acquisitions will depend in part on the relative attractiveness
of shares of iVillage common stock as consideration for potential acquisition
candidates. This attractiveness may depend largely on the relative market price
and capital appreciation prospects of iVillage common stock compared to that of
other bidders. If the market price of iVillage common stock were to decline
materially over a prolonged period of time, our acquisition program could be
materially adversely affected.
We may be sued for information retrieved from the web
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<PAGE>
We may be subject to claims for defamation, negligence, copyright or
trademark infringement, personal injury or other legal theories relating to the
information we publish on our Web site. These types of claims have been brought,
sometimes successfully, against online services as well as other print
publications in the past. We could also be subjected to claims based upon the
content that is accessible from our Web sites through links to other Web sites
or through content and materials that may be posted by members in chat rooms or
bulletin boards. We also offer e-mail services, which may subject us to
potential risks, such as liabilities or claims resulting from unsolicited
e-mail, lost or misdirected messages, illegal or fraudulent use of e-mail or
interruptions or delays in e-mail service. Our insurance, which covers
commercial general liability, may not adequately protect us against these types
of claims.
We may incur potential product liability for products sold over the Internet
Consumers may sue us if any of the products that we sell online are
defective, fail to perform properly or injure the user. To date, we have had
very limited experience in the sale of products online and the development of
relationships with manufacturers or suppliers of such products. We plan to
develop a range of products targeted specifically at women through our iBaby and
iMaternity sites, Astrology.Net, and other e-commerce sites that we may acquire
in the future. We also may foster relationships with manufacturers or companies
to offer these products directly on iVillage.com. Such a strategy involves
numerous risks and uncertainties. Although our agreements with manufacturers
typically contain provisions intended to limit our exposure to liability claims,
these limitations may not prevent all potential claims. Liability claims could
require us to spend significant time and money in litigation and to pay
significant damages. As a result, any such claims, whether or not successful,
could seriously damage our reputation and our business.
There is intense competition among Internet-based businesses and publishing
companies focused on women
The number of Web sites competing for the attention and spending of
members, users and advertisers has increased and we expect it to continue to
increase. Our Web sites compete for members, users and advertisers with the
following types of companies:
o online services or Web sites targeted at women, such as Women.com Networks and
Oxygen Media's Web sites;
o Web search and retrieval and other online service companies,
commonly referred to as portals, such as Excite, Inc., Infoseek
Corporation, Lycos, Inc. and Yahoo! Inc.;
o e-commerce companies such as eToys, Inc. and its wholly-owned
subsidiary, BabyCenter, Inc.; and
o publishers and distributors of traditional media, such as
television, radio and print.
Increased competition could result in price reductions, reduced margins
or loss of market share, any of which could adversely affect our business,
results of operations and financial condition.
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Lamaze Publishing's magazines are in direct competition with publishers
of pre and postnatal publications such as Gruner and Jahr, Primedia and Time
Warner. These publishers have substantially greater marketing, research and
financial resources than Lamaze Publishing. Increased competition may result in
less advertising in Lamaze Publishing's magazines and a decline in Lamaze
Publishing's advertising rates, which could adversely affect its business,
results of operations and financial condition.
Our uncertain sales cycles could adversely affect our business
The time between the date of initial contact with a potential
advertiser or sponsor and the execution of a contract with the advertiser or
sponsor, is often lengthy, typically ranging from six weeks for smaller
agreements to nine months for larger agreements, and is subject to delays over
which we have little or no control, including:
o advertisers' and sponsors' budgetary constraints;
o advertisers' and sponsors' internal acceptance reviews;
o the success and continued internal support of advertisers' and
sponsors' own development efforts; and
o the possibility of cancellation or delay of projects by
advertisers or sponsors.
During the sales cycle, we may expend substantial funds and management
resources and yet not obtain sponsorship or advertising revenues. Accordingly,
our results of operations for a particular period may be adversely affected if
sales to advertisers or sponsors forecasted in a particular period are delayed
or do not otherwise occur.
Our business is dependent on our chief executive officer and editor-in-chief
Our future success depends to a significant extent on the continued
services of our senior management and other key personnel, particularly, Candice
Carpenter, Chief Executive Officer, and Nancy Evans, Editor-in-Chief. We have no
employment agreements with either of these executives and we do not maintain
"key person" life insurance for any of our personnel, other than Ms. Carpenter.
The loss of the services of Mdmes. Carpenter or Evans, or other key employees,
would likely have a significantly detrimental effect on our business.
Competition for personnel in the Internet industry is intense
We may be unable to retain our key employees or attract, assimilate or
retain other highly qualified employees in the future. We have from time to time
in the past experienced, and we expect to continue to experience in the future,
difficulty in hiring and retaining highly skilled employees with appropriate
qualifications as a result of our rapid growth and expansion. In addition, there
is significant competition for qualified employees in the Internet industry. As
a result, we incurred increased salaries, benefits and recruiting expenses
during 1998 and 1999. If we do not succeed in attracting new personnel or
retaining and motivating our current personnel, our business will be adversely
affected. Please see "Business - Human Resources" and "Management" for detailed
information on our key personnel.
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We are dependent on continued growth in use of the Internet
Our market is new and rapidly evolving. Our business would be adversely
affected if Internet usage does not continue to grow, particularly usage by
women. A number of factors may inhibit Internet usage, including:
o inadequate network infrastructure;
o security concerns;
o inconsistent quality of service;
o lack of availability of cost-effective, high-speed service; and
o consumers returning to traditional or alternative sources for
information, shopping and services.
If Internet usage continues to grow significantly, the Internet infrastructure
may not be able to support the demands placed on it by this growth and its
performance and reliability may decline. In addition, Web sites have experienced
interruptions in their service as a result of outages and other delays occurring
throughout the Internet network infrastructure. If these outages and delays
frequently occur in the future, Internet usage, as well as the usage of our Web
sites, could grow more slowly or decline.
We may be unable to respond to the rapid technological change in our industry
Our market is characterized by rapidly changing technologies, frequent
new product and service introductions and evolving industry standards. The
recent growth of the Internet and intense competition in our industry exacerbate
these market characteristics. To achieve our goals, we need to effectively
integrate the various software programs and tools required to enhance and
improve our product offerings and manage our business. Our future success will
depend on our ability to adapt to rapidly changing technologies by continually
improving the performance features and reliability of our services. We may
experience difficulties that could delay or prevent the successful development,
introduction or marketing of new products and services. In addition, our new
enhancements must meet the requirements of our current and prospective users and
must achieve significant market acceptance. We could also incur substantial
costs if we need to modify our services or infrastructures to adapt to these
changes.
Government regulation and legal uncertainties could add additional costs to
doing business on the Internet
There are currently few laws or regulations that specifically regulate
communications or commerce on the Internet. However, laws and regulations may be
adopted in the future that address issues such as user privacy, pricing,
content, copyrights, distribution, antitrust matters and the characteristics and
quality of products and services. For example, the Telecommunications Act sought
to prohibit transmitting various types of information and content over the
Internet. Several telecommunications companies have petitioned the Federal
Communications Commission to regulate Internet service providers and online
service providers in a manner similar to long distance telephone carriers and to
impose access fees on those companies. This could increase the cost of
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<PAGE>
transmitting data over the Internet. Moreover, it may take years to determine
the extent to which existing laws relating to issues such as property ownership,
obscenity, libel and personal privacy are applicable to the Internet or the
application of laws and regulations from jurisdictions whose laws do not
currently apply to our business. Any new laws or regulations relating to the
Internet could adversely affect our business.
In addition, it has been reported that the Labor Department has
recently begun an investigation of the use of volunteers on Web sites. We
utilize volunteers as Web site community leaders and there can be no assurance
that new government regulations will not require us to cease using volunteers
or, alternatively, treat them as employees.
Due to the global nature of the Internet, it is possible that, although
our transmissions over the Internet originate primarily in New York, the
governments of other states and foreign countries might attempt to regulate our
business activities. In addition, because our service is available over the
Internet in multiple states and foreign countries, these jurisdictions may
require us to qualify to do business as a foreign corporation in each of these
states or foreign countries, which could subject us to taxes and other
regulations.
Our systems may fail or experience a slow down and our users depend on others
for access to our Web sites
Substantially all of our communications hardware and some of our other
computer hardware operations are located at Exodus Communications, Inc.'s
facilities in Jersey City, New Jersey and Verio, Inc.'s and AT&T CERFnet's
facilities in California. Fire, floods, earthquakes, power loss,
telecommunications failures, break-ins and similar events could damage these
systems. Computer viruses, electronic break-ins or other similar disruptive
problems could also adversely affect our Web sites. Our business could be
adversely affected if our systems were affected by any of these occurrences. Our
insurance policies may not adequately compensate us for any losses that may
occur due to any failures or interruptions in our systems. We do not presently
have any secondary "off-site" systems or a formal disaster recovery plan.
Our Web sites must accommodate a high volume of traffic and deliver
frequently updated information. Our Web sites have in the past experienced
slower response times or decreased traffic for a variety of reasons. These
occurrences have not had a material impact on our business. These types of
occurrences in the future could cause users to perceive our Web sites as not
functioning properly and therefore cause them to use another Web site or other
methods to obtain information.
In addition, our users depend on Internet service providers, online
service providers and other Web site operators for access to our Web sites. Many
of them have experienced significant outages in the past, and could experience
outages, delays and other difficulties due to system failures unrelated to our
systems.
We may not be able to deliver various services if third parties fail to provide
reliable software, systems and related services to us
We are dependent on various third parties for software, systems and
related services. For example, we rely on Doubleclick Inc.'s software for the
placement of advertisements and WhoWhere? Inc. for personal home pages and
e-mail. Several of the third parties that provide software and services to us
have a limited operating history, have relatively immature technology
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<PAGE>
and are themselves dependent on reliable delivery of services from others. As a
result, our ability to deliver various services to our users may be adversely
affected by the failure of these third parties to provide reliable software,
systems and related services to us.
We may be liable if third parties misappropriate our users' personal information
If third parties were able to penetrate our network security or
otherwise misappropriate our users' personal information or credit card
information, we could be subject to liability arising from claims related to,
among other things, unauthorized purchases with credit card information,
impersonation or other similar fraud claims or other misuse of personal
information, such as for unauthorized marketing purposes. In addition, the
Federal Trade Commission and state agencies have been investigating various
Internet companies regarding their use of personal information. We could incur
additional expenses if new regulations regarding the use of personal information
are introduced or if our privacy practices are investigated.
Internet security concerns could hinder e-commerce
The need to securely transmit confidential information over the
Internet has been a significant barrier to electronic commerce and
communications over the Internet. Any well-publicized compromise of security
could deter people from using the Internet or using it to conduct transactions
that involve transmitting confidential information. We may incur significant
costs to protect against the threat of security breaches or to alleviate
problems caused by such breaches.
Satellite transmissions over the Newborn Channel may be interrupted.
Lamaze Publishing is the operator of the Newborn Channel, a satellite
television network broadcast in over 800 hospitals in the United States. There
is a risk that the satellite from which the transmission is sent may
malfunction, interrupting Lamaze Publishing's broadcasts. In the event this
occurs, there may be a period of time before Lamaze Publishing can transmit to
and from another satellite. Any interruption in Lamaze Publishing's ability to
transmit the Newborn Channel could have an adverse impact on its business. In
addition, extreme adverse weather could damage receivers and transmitters on the
ground, thereby hindering transmissions.
Consumer protection privacy regulations could impair our ability to obtain
information about our users
Our network captures information regarding our members in order to
tailor content to them and assist advertisers in targeting their advertising
campaigns to particular demographic groups. However, privacy concerns may cause
users to resist providing the personal data necessary to support this tailoring
capability. Even the perception of security and privacy concerns, whether or not
valid, may indirectly inhibit market acceptance of our network. In addition,
legislative or regulatory requirements may heighten these concerns if businesses
must notify Internet users that the data may be used by marketing entities to
direct product promotion and advertising to the user. Other countries and
political entities, such as the European Economic Community, have adopted such
legislation or regulatory requirements. If consumer privacy concerns are not
adequately addressed, our business, financial condition and results of
operations could be materially harmed.
Our network currently uses cookies to track demographic information and
user preferences. A cookie is information keyed to a specific server, file
pathway or directory location that is stored
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on a user's hard drive, possibly without the user's knowledge, but is generally
removable by the user. Germany has imposed laws limiting the use of cookies, and
a number of Internet commentators, advocates and governmental bodies in the
United States and other countries have urged the passage of laws limiting or
abolishing the use of cookies. If such laws are passed, our business, financial
condition and results of operations could be materially harmed.
Possible infringement of intellectual property rights could harm our business
We cannot be certain that the steps we have taken to protect our
intellectual property rights will be adequate or that third parties will not
infringe or misappropriate our proprietary rights. Any such infringement or
misappropriation could have a material adverse effect on our future financial
results. In addition, we may from time to time become involved in intellectual
property disputes with third parties which may not result in a favorable outcome
for us.
We could be subject to possible infringement actions based upon our use of
domain names, our content and content licensed from others
We have invested resources in acquiring domain names for existing and
potential future use. We cannot guarantee that we will be entitled to use such
names under applicable trademark and similar laws or that other desired domain
names will be available. Furthermore, enforcing our intellectual property rights
could entail significant expense and could prove difficult or impossible. In
addition, third parties could assert claims of patent, trademark or copyright
infringement or misappropriation of creative ideas or formats against us with
respect to our use of domain names, our content, Web page formats, Web business
methods or any third-party content carried by us. We expect that participants in
our markets increasingly will be subject to infringement claims as the number of
services and competitors in our industry segment grows. Any such claims, with or
without merit, could be time consuming to defend, result in costly litigation,
divert management attention, require us to enter into costly royalty or
licensing arrangements or prevent us from using important technologies, ideas or
formats, any of which could materially harm our business, financial condition or
results of operations.
We are involved in litigation with a former employee which may be costly and
divert the efforts and attention of our management
On January 8, 1999, a complaint was filed in the Chancery Court for
Williamson County, Tennessee by a former employee against iVillage and three of
its officers. The complaint was subsequently amended to withdraw all claims
against two of those officers. The complaint alleges breach of an alleged
employment agreement and fraudulent inducement to accept a job in New York and
to move from Tennessee to New Jersey. In addition to unspecified damages, the
complaint seeks an award of options to purchase 100,000 shares of common stock.
In addition, there is pending a motion by the plaintiff for leave to add as new
plaintiffs two former executives who allege that iVillage breached certain
obligations to them and seek an award of an aggregate 560,000 stock options. In
addition, on August 11, 1999, the plaintiff filed a complaint with the Equal
Employment Opportunity Commission alleging gender discrimination. We believe
that the claims and the proposed new claims are without merit and we are
vigorously defending against these claims. This litigation, whether or not
determined in our favor or settled by us, may be costly and may divert the
efforts and attention of our management from normal business operations.
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Failure of computer systems and software products to be year 2000 compliant
could negatively impact our business
Many currently installed computer systems and software products only
accept two digits to identify the year in any date. Thus, the year 2000 will
appear as "00", which the system might consider to be the year 1900 rather than
the year 2000. This could result in system failures, delays or miscalculations
causing disruptions to our operations. The failure of systems maintained by
third parties to be Year 2000 compliant could cause us to incur significant
expense to remedy any problems, reduce our revenues from such third parties or
otherwise seriously damage our business. A significant Year 2000-related
disruption of the network services or equipment that third-party vendors provide
to us could also cause our members or visitors to consider seeking alternate
providers or cause an unmanageable burden on our technical support.
Our failure to correct a material Year 2000 problem could result in an
interruption in, or a failure of, some of our normal business activities or
operations. Please see "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Year 2000 Compliance".
Shares eligible for public sale after this offering could adversely affect our
stock price
Sales of a substantial number of shares of common stock in the public
market, or the perception that sales could occur, could adversely affect the
market price for our common stock. As of August 26, 1999, there were 26,124,226
shares of our common stock outstanding. Of these shares, 4,197,500 shares are
freely tradeable except for any shares held by our "affiliates" as defined in
Rule 144 under the Securities Act. The remaining 21,926,726 shares of common
stock are "restricted securities" and may be sold only if registered or if
eligible for sale under Rule 144 under the Securities Act. Of these restricted
shares, the 2,676,266 shares offered by this prospectus have been registered
under the Securities Act. Of such shares, 927,753 shares offered by this
prospectus are subject to lock-up agreements with the underwriters of our public
offering and are eligible for resale on September 14, 1999. In addition,
12,987,723 shares subject to lock-up agreements will become eligible for resale
under Rule 144 on September 14, 1999.
FORWARD-LOOKING STATEMENTS
iVillage has included in this filing certain "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995 concerning iVillage's business, operations and financial condition. The
words or phrases "can be", "expects", "may affect", "may depend",
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"believes", "estimate", "project", and similar words and phrases are intended to
identify such forward-looking statements. Such forward-looking statements are
subject to various known and unknown risks and uncertainties and iVillage
cautions you that any forward-looking information provided by or on behalf of
iVillage is not a guarantee of future performance. iVillage's actual results
could differ materially from those anticipated by such forward-looking
statements due to a number of factors, some of which are beyond iVillage's
control, including (i) the volatile and competitive nature of the Internet
industry, (ii) changes in domestic and foreign economic and market conditions,
(iii) the effect of federal, state and foreign regulation on iVillage's
business, (iv) failure of iVillage, its vendors or other third parties to
achieve Year 2000 compliance, (v) the impact of recent and future acquisitions
on iVillage's business and financial condition, (vi) intellectual property and
other claims and (vii) the impact on iVillage of its branding strategy and other
factors discussed under "Risk Factors" and elsewhere in this prospectus. All
such forward-looking statements are current only as of the date on which such
statements were made. iVillage does not undertake any obligation to publicly
update any forward-looking statement to reflect events or circumstances after
the date on which any such statement is made or to reflect the occurrence of
unanticipated events.
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USE OF PROCEEDS
We will not receive any proceeds from the sales of common stock by the
selling stockholders pursuant to this prospectus.
DIVIDEND POLICY
iVillage has never declared or paid any cash dividends on its capital
stock. iVillage presently intends to retain future earnings, if any, to finance
the expansion of its business and does not expect to pay any cash dividends in
the foreseeable future.
PRICE RANGE OF COMMON STOCK
Our common stock has been traded on the Nasdaq National Market since
March 19, 1999 and trades under the symbol "IVIL". Prior to that time, there was
no public market for the common stock of iVillage. The following table sets
forth, for the periods indicated, the high and low prices per share of the
common stock as reported on the Nasdaq National Market.
1999 High Low
---- ---- ---
First Quarter (from March 19, 1999).............. $109.69 $64.38
Second Quarter................................... $130.00 $31.25
Third Quarter (through August 31, 1999).......... $67.88 $25.50
On August 31, 1999, the closing sales price of our common stock was
$36.31 per share. There were 196 holders of record as of August 30, 1999.
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CAPITALIZATION
The following table sets forth iVillage's capitalization as of June 30,
1999:
o on an actual basis; and
o on a pro forma basis to reflect the acquisition of Lamaze
Publishing.
You should read this information together with iVillage's consolidated
financial statements and the notes to those statements appearing elsewhere in
this prospectus.
<TABLE>
<CAPTION>
June 30, 1999
----------------------------------
Actual Pro forma
------------ -------------
(in thousands, except share data)
<S> <C> <C>
Long-term liabilities..................................... $ -- $ --
Stockholders' equity:
Preferred stock, par value $.01; 5,000,000
shares authorized, no shares issued or
outstanding, actual and pro forma................... -- --
Common stock, par value $.01; 243 260
65,000,000 shares authorized, 24,324,218
and 26,073,009 shares issued and outstanding,
actual and pro forma, respectively.................. 243 260
Additional paid-in capital.......................... 302,430 399,016
Accumulated deficit................................. (134,549) (134,549)
Stockholders notes receivable....................... (14,681) (14,681)
Unearned compensation and deferred advertising...... (8,151) (8,151)
------------ -------------
Total stockholders' equity.......................... 145,292 241,895
------------ -------------
Total capitalization................................ $145,292 $241,895
============ =============
</TABLE>
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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 iVillage's consolidated financial statements and notes to those
statements and other financial information included elsewhere in this
prospectus. 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 prospectus. 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 the
unaudited consolidated financial statements of iVillage which are included in
this prospectus. 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 the audited
financial statements of iVillage not included in this prospectus. 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.
<TABLE>
<CAPTION>
July 1, 1995 Six Months
(inception) to Year Ended December 31, Ended June 30,
December 31, -------------------------------- --------------------
1995 1996 1997 1998 1998 1999
-------------- ------ ------ ------ ------ ------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C>
Consolidated Statement of Operations Data:
Revenues........................................... $ -- $ 732 $ 6,019 $ 15,012 $ 4,838 $ 14,572
Cost of revenues................................... 508 3,468 5,530 12,403 5,437 9,112
--------- -------- --------- --------- --------- ---------
Gross margin....................................... (508) (2,736) 489 2,609 (599) 5,460
--------- -------- --------- --------- --------- ---------
Operating expenses:
Product development and technology.............. 121 1,053 2,076 2,118 986 3,038
Sales and marketing............................. 329 2,709 8,771 28,523 12,054 23,206
General and administrative...................... 656 3,104 7,841 10,612 4,206 7,872
Depreciation and amortization................... 17 109 2,886 5,683 2,658 7,519
--------- -------- --------- --------- --------- ---------
Total operating expenses...................... 1,123 6,975 21,574 46,936 19,904 41,635
--------- -------- --------- --------- --------- ---------
Loss from operations............................... (1,631) (9,711) (21,085) (44,327) (20,503) (36,175)
Interest (expense) income, net..................... (7) 28 (216) 591 237 1,513
Loss on sale of Web site(1)........................ -- -- -- (504) -- --
Minority interest.................................. -- -- -- 586 -- --
--------- -------- --------- --------- --------- ---------
Net loss........................................... (1,638) (9,683) (21,301) (43,654) (20,266) (34,662)
--------- -------- --------- --------- --------- ---------
Preferred stock deemed dividend.................... -- -- -- -- -- (23,612)
--------- -------- --------- --------- --------- ---------
Net loss attributable to common stockholders....... $(1,638) $(9,683) $(21,301) $(43,654) $(20,266) $(58,274)
--------- -------- --------- --------- --------- ---------
--------- -------- --------- --------- --------- ---------
Basic and diluted net loss per share............... $ (1.51) $ (8.90) $ (13.65) $ (21.10) $ (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(2).................................... $ (2.59) $ (2.77)
--------- ---------
--------- ---------
Shares of common stock used in computing pro
forma basic and diluted net loss per share(2)... 16,854 21,027
--------- ---------
--------- ---------
</TABLE>
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<TABLE>
<CAPTION>
December 31,
------------------------------------------ June 30,
1995 1996 1997 1998 1999
-------- -------- -------- -------- --------
Consolidated Balance Sheet Data: (in thousands)
<S> <C> <C> <C> <C> <C>
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>
- ------------------
(1) Please see note 5 to iVillage's consolidated financial statements.
(2) Please see note 2 to iVillage's consolidated financial statements.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with iVillage's
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 17 channels organized by
subject matter. The channels cover leading topics of interest to women online,
such as family, health, work, money, food, computers, relationships, shopping,
travel, pets and astrology. We facilitate channel usage by providing common
features and functionality within each channel, including experts, chats,
message boards and services.
To date, iVillage's revenues have been derived primarily from the sale
of sponsorship and advertising contracts. Sponsorship and advertising revenues
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 iVillage's Web sites
and the design and development of customized sites that enhance the promotional
objectives of the sponsor. An impression is the viewing of promotional material
on a Web page, which may include banner advertisements, links, buttons or other
text or images. The portion of sponsorship revenues related to the delivery of
impressions is recognized ratably in the period in which the advertisement is
displayed provided that none of iVillage's significant obligations remain, at
the lesser of the ratio of impressions delivered over total guaranteed
impressions or the straight line basis over the term of the contract.
Accordingly, to the extent that minimum guaranteed impressions are not met,
iVillage defers recognition of the corresponding revenues until the guaranteed
impressions are met. The portion of sponsorship revenues related to the up-front
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 iVillage typically guarantees a minimum number of
impressions to be delivered to users over a specified period of time for a fixed
fee. Advertising rates, measured on a cost per thousand impressions basis, or
CPMs, are dependent on whether the impressions are for general rotation
26
<PAGE>
throughout iVillage's 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 iVillage of advertising space on iVillage's Web
sites for reciprocal advertising space or traffic on other Web sites. Revenues
from these barter transactions are recorded as advertising revenues at the
estimated fair value of the advertisements delivered, unless the fair value of
the goods and services received is more objectively determinable, and are
recognized when the advertisements are run on iVillage.com. Barter expenses are
recognized at the value of advertisements received when iVillage's
advertisements are run on the reciprocal Web sites, which is typically in the
same period as when the advertisements are run on iVillage.com. Barter expenses
are included as part of sales and marketing expenses. iVillage does not receive
cash for the advertisements delivered, nor do we pay for the advertisements
received. Typically, these barter transactions have no impact on iVillage's cash
flows and results of operations. Barter transactions enable iVillage to continue
to build strong brand recognition as part of its overall business strategy
without expending cash resources. Please see "Business - Business Strategy".
Commerce revenues are derived principally from sales through iBaby,
iMaternity (a new commerce channel launched during the second quarter of 1999)
and Astrology.Net. Commerce revenues received from iBaby consist of the sale of
baby-related products, including strollers, high chairs, bedding, toys and
accessories. iBaby takes all orders for iBaby products, collects the payment and
ships the items to the customer. Kid's Warehouse, iVillage's former joint
venture partner in iBaby, presently handles inventory and fulfillment for iBaby.
Effective November 1, 1999, the inventory and services agreement between iBaby
and Kid's Warehouse will terminate and iBaby will become responsible for all
inventory and order fulfillment functions. In order to fulfill these functions,
iVillage recently signed a two year lease for approximately 40,000 square feet
of warehouse space for iBaby at a facility located in San Diego, California. The
failure of iVillage to assume effectively and in a timely manner the
merchandising, inventory management and order fulfillment functions currently
being performed by Kid's Warehouse could result in the disruption of the
operations of iBaby, including shipment delays.
Commerce revenues received from iMaternity consist of the sale of
maternity clothing and products through its Web site. All orders for iMaternity
products are taken through its channel on the iBaby Web site, and iBaby collects
the payment for product sales. The fulfillment 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. iVillage recognizes revenues from iBaby, iMaternity and
Astrology.Net product sales, net of any discounts, when products are shipped to
customers and the collection of the receivable is reasonably assured.
With the acquisition of Lamaze Publishing, iVillage will generate
additional revenues principally through advertising placements in its
publications, videos and Newborn Channel satellite broadcasts. 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.
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<PAGE>
Results of Operations
The following table sets forth the results of operations for iVillage
expressed as a percentage of total revenues:
<TABLE>
<CAPTION>
Six Months Ended
------------------------
Year Ended December 31, June 30,
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>
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<PAGE>
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 iVillage's ability
to generate significantly higher sponsorship and advertising revenues during the
1999 period, as well as the development of its commerce strategy through its
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
iVillage's 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, iVillage's 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 iVillage's Internet operations are content costs, payroll and
related expenses for the editorial staff, Web site design and production staff
and the cost of communications and related expenses necessary to support
iVillage's Web sites. Cost of commerce revenues consist primarily of the cost of
products sold to customers and outbound and inbound shipping and handling costs.
Cost of advertising, sponsorship and other revenues 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 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.
29
<PAGE>
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 iVillage's 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 iVillage's advertising campaign on the Internet and television
in accordance with its agreement with NBC. Sales and marketing expenses as a
percentage of revenues decreased between the 1998 and 1999 periods as result of
the growth in revenues.
Included in sales and marketing are barter transactions which amounted
to approximately 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 iVillage's
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 iVillage's acquisitions of iBaby and
Astrology.Net, as well as depreciation on a greater base of fixed assets owned
by iVillage during the 1999 period.
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Interest Income, Net
Interest income, net includes interest income from iVillage's cash
balances and interest expenses related to iVillage's financing obligations.
Interest income, net for the six months ended June 30, 1999 was $1.5 million, or
10% of total revenues. For the comparable period in 1998, interest income, net
was $0.3 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 iVillage's initial
public offering of common stock in March 1999.
Net Loss
iVillage 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, the
Company 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 iVillage's ability to generate significantly
higher sponsorship and advertising revenues, and the development of its 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 iVillage's Web sites.
Commerce revenues accounted for $2.6 million in 1998, with no revenues in 1997.
During 1998, iVillage expanded its sales force and the number of impressions
available on its 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, iVillage's 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 iVillage's 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.
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<PAGE>
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
the joint venture between iVillage and iBaby in 1998.
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 iVillage's 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. iVillage 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 iVillage sites. Sales and marketing
expenses as a percentage of revenues increased due to iVillage's 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 iVillage's business. General and administrative expenses
decreased as a percentage of total revenues because of the growth in revenues
relative to the growth in iVillage's general and administrative expenses. This
is due to the development of iVillage's infrastructure in 1997 which was
necessary for future growth of revenues. iVillage expects that it will incur
additional general and administrative expenses as iVillage continues to hire
personnel and incurs expenses related to the growth of the business and its
operations as a public company.
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<PAGE>
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 iVillage's
cash balances and interest expense related to iVillage's 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, iVillage completed its
purchase of all of the outstanding shares of iBaby held by the minority
stockholders of iBaby.
Income Taxes
As of December 31, 1998, iVillage had approximately $69.9 million of
net operating loss carryforwards for federal tax reporting purposes available to
offset future taxable income. iVillage's 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 iVillage's earnings history.
33
<PAGE>
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, iVillage's 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, iVillage 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, iVillage 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 iVillage's 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 iVillage 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
$7.9 million, or 130% of revenues, and $3.1 million, or 424% of revenues, for
the years ended December 31, 1997
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and 1996, respectively. The increase in general and administrative expenses was
primarily due to increases in the number of general and administrative personnel
and professional services and facility expenses to support the growth of
iVillage's 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), 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.
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<PAGE>
Recent Events
Family Point. In accordance with a merger agreement dated as of
August 31, 1999, iVillage 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 consisted of $3.75 million in cash and
approximately 550,000 shares of iVillage common stock valued at approximately
$26.0 million under the purchase method of accounting. The aggregate purchase
price is subject to adjustment based on certain performance thresholds. The
aggregate increase in the purchase price shall not exceed $5.0 million. 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.
Lamaze Publishing. On August 20, 1999, iVillage 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
1,748,693 shares of iVillage 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.
According to the terms of the agreement, iVillage directed a portion of
the common stock it issued in the transaction to redeem certain stock
appreciation units of Lamaze Publishing, to pay the fees and expenses of Lamaze
Publishing's investment banker, Brown Brothers Harriman & Co., and to pay
certain fees to Lamaze International, Inc. iVillage also directed a portion of
the shares into an escrow account as security for the indemnification
obligations of the selling shareholders of Lamaze Publishing. The holders of the
stock appreciation units of Lamaze Publishing received their shares immediately
prior to the effectiveness of the registration statement of which this
prospectus is a part. iVillage has put a portion of their shares into the
indemnification escrow account, and another portion is expected to be sold to
cover applicable withholding taxes.
OnLine Psych. On June 30, 1999, iVillage acquired OnLine Psychological
Services, Inc. and Code Stone Technologies, Inc. As a result of the
acquisitions, OnLine Psych and Code Stone became wholly-owned subsidiaries of
iVillage. OnLine Psych operates a Web site focusing on mental health issues
while Code Stone provides much of the interactive technology used on OnLine
Psych's Web site.
The aggregate purchase price paid to acquire OnLine Psych and Code
Stone consisted of $1.5 million cash and approximately 577,000 shares of
iVillage common stock valued at approximately $30.0 million under purchase
accounting rules. The difference between the purchase price and the fair value
of the acquired net assets of OnLine 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.
iVillage also issued to certain stockholders of OnLine Psych options to
purchase shares of iVillage common stock under its Acquisition Stock Option Plan
and Employee Stock Option Plan. Each of these 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.
We have been approached by a potential purchaser for the assets
associated with Armchair Millionaire, a site located on our Money channel, and
have begun negotiations. We do not believe that the sale of the Armchair
Millionaire assets would have a material adverse impact on our business, results
of operations or financial condition.
36
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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 the audited consolidated financial statements and
unaudited financial statements for the six months ended June 30, 1999 of
iVillage and the notes to those statements appearing elsewhere in this
prospectus.
37
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended
------------------
September December March June September December March June
30, 31, 31, 30, 30, 31, 31, 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>
Liquidity and Capital Resources
Until its initial public offering in March 1999, which raised net
proceeds of $91.4 million, iVillage financed its operations primarily through
the private placement of its convertible preferred stock. As of June 30, 1999,
iVillage had approximately $85.3 million in cash and cash equivalents.
Management believes its existing cash balances are sufficient to enable iVillage
to meet its obligations through at least the next 12 months.
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 iVillage's 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 the Company's 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 iVillage's series E convertible preferred
stock, series D convertible preferred stock and
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common stock as compared to the $24.8 million of net cash proceeds from the sale
of shares of iVillage's series C convertible preferred stock in 1997, inclusive
of convertible notes. In 1996, iVillage received net cash proceeds of $11.3
million from the sale of shares of iVillage's series B and B-1 convertible
preferred stock, inclusive of convertible notes.
iVillage 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.
iVillage has begun the build-out of the warehouse in anticipation of the
termination of iVillage's inventory and fulfillment relationship with Kid's
Warehouse, which is effective November 1, 1999.
iVillage's capital requirements depend on numerous factors, including:
o market acceptance of iVillage's services;
o the amount of resources iVillage devotes to investments in the
iVillage.com network, including acquisition of other entities;
o the resources iVillage devotes to marketing;
o the resources iVillage devotes to selling its services and brand
promotions; and
o other factors.
iVillage has experienced a substantial increase in its expenditures
since its inception. The increase in expenditures is consistent with the growth
in iVillage's operations and staffing. iVillage anticipates it will continue to
evaluate possible investments in businesses, products and technologies, and
continue to expand its sales and marketing programs and conduct more aggressive
brand promotions, any of which could reduce its liquidity.
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 iVillage's 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 iVillage has
expensed these costs historically, the adoption of this standard did not have a
significant impact on iVillage's 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
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as derivatives) and for hedging activities. SFAS No. 133 is effective for all
fiscal quarters beginning fiscal year 2001. The adoption of SFAS No. 133 is not
expected to have an impact on iVillage's 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
iVillage is engaged in an ongoing assessment of the Year 2000 readiness
of its operating, financial and administrative systems, including the hardware
and software that support iVillage's systems. iVillage's assessment plan
consists of:
o quality assurance testing of its 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 iVillage's services to
its 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.
iVillage has engaged Keane, Inc., a consulting firm with Year 2000
experience, to assist it with its Year 2000 compliance program.
iVillage's Year 2000 task force has conducted an inventory of and
developed testing procedures for all software and other systems that it believes
might be affected by Year 2000 issues. Since third parties developed and
currently support many of the systems that iVillage uses, a significant part of
this effort will be to ensure that these third-party systems are Year 2000
compliant. iVillage plans to confirm this compliance through a combination of
the representation by these third parties of their products' Year 2000
compliance, as well as specific testing of these systems. iVillage plans to
complete this process prior to the end of the third quarter of 1999. Until such
testing is completed and such vendors and providers are contacted, iVillage will
not be able to completely evaluate whether its systems will need to be revised
or replaced.
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Costs
Through June 30, 1999, iVillage has spent approximately $215,000 on
Year 2000 compliance issues but expects to incur an additional $85,000 in
connection with identifying, evaluating and addressing Year 2000 compliance
issues. Most of iVillage's expenses have related to, and are expected to
continue to relate to, the operating costs associated with time spent by
employees and consultants in the evaluation process and Year 2000 compliance
matters generally. Such expenses, if higher than anticipated, could have a
material adverse effect on iVillage's business, results of operations and
financial condition.
Risks
iVillage is not currently aware of any Year 2000 compliance problems
relating to its systems that would have a material adverse effect on iVillage's
business, results of operations and financial condition, without taking into
account iVillage's efforts to avoid or fix such problems. There can be no
assurance that iVillage will not discover Year 2000 compliance problems in its
systems that will require substantial revision. In addition, there can be no
assurance that third-party software, hardware or services incorporated into
iVillage's material systems will not need to be revised or replaced, all of
which could be time-consuming and expensive. The failure of iVillage to fix or
replace its internally developed proprietary software or third-party software,
hardware or services on a timely basis could result in lost revenues, increased
operating costs, the loss of customers and other business interruptions, any of
which could have a material adverse effect on iVillage's business, results of
operations and financial condition. Moreover, the failure to adequately address
Year 2000 compliance issues in its internally developed proprietary software
could result in claims of mismanagement, misrepresentation or breach of contract
and related litigation, which could be costly and time-consuming to defend.
iVillage is heavily dependent on a significant number of third-party
vendors to provide both network services and equipment. A significant Year
2000-related disruption of the network, services or equipment that third-party
vendors provide to iVillage could cause iVillage's members and visitors to
consider seeking alternate providers or cause an unmanageable burden on its
technical support, which in turn could materially and adversely affect
iVillage's business, financial condition and results of operations.
In addition, there can be no assurance that governmental agencies,
utility companies, Internet access companies, third-party service providers and
others outside of iVillage's control will be Year 2000 compliant. The failure by
such entities to be Year 2000 compliant could result in a systemic failure
beyond the control of iVillage, such as a prolonged Internet, telecommunications
or electrical failure, which could also prevent iVillage from delivering its
services to its customers, decrease the use of the Internet or prevent users
from accessing its Web sites which could have a material adverse effect on
iVillage's business, results of operations and financial condition.
Contingency Plan
As discussed above, iVillage is engaged in an ongoing Year 2000
assessment and has not yet developed any contingency plans. The results of
iVillage's Year 2000 simulation testing and the responses received from
third-party vendors and service providers will be taken into account in
determining the nature and extent of any contingency plans.
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BUSINESS
iVillage, The Women's Network, is a leading online network for women
and one of the most demographically targeted online communities on the World
Wide Web. iVillage.com is an easy-to-use, comprehensive online network of sites
tailored to the interests and needs of women aged 25 through 54. We provide
advertisers and merchants with targeted access to women using the Web.
iVillage's network of sites consists of 17 channels organized by
subject matter. The channels cover leading topics of interest to women online,
such as family, health, work, money, food, computers, relationships, shopping,
travel, pets and astrology. We facilitate channel usage by providing common
features and functionality within each channel, including experts, chats,
message boards and services.
As of June 30, 1999, iVillage's membership and its core audience was
approximately 82% female and consisted of approximately 2.1 million unique
members as compared to approximately 170,000 unique members as of January 31,
1998. For the quarter ended June 30, 1999, iVillage.com averaged approximately
102 million page views. For the month of July 1999, iVillage estimates that it
had 7.3 million unique visitors.
iVillage values its membership because members typically spend more
time on the network as evidenced by greater page views and repeat visits than
non-members. Furthermore, based upon iVillage surveys, members have a higher
opinion of iVillage.com than non-members and are more likely to think that the
network delivers advertising relevant to them. In addition, members tend to
contribute more content to the network.
Industry Background
Growth of the Internet and Online Commerce
The Internet has emerged as a significant global communications medium,
enabling millions of people to share information and conduct business
electronically and providing advertisers and businesses with an attractive means
of marketing and selling their products and services. International Data
Corporation estimates the number of users associated with devices accessing the
Web will increase from approximately 69 million at the end of 1997 to
approximately 320 million by the end of 2002. According to International Data
Corporation, worldwide commerce revenue on the Internet is expected to increase
from approximately $12.4 billion in 1997 to more than $425 billion in 2002.
Jupiter Communications, a new media research firm that specializes in online
research and analysis, estimates that the amount of advertising dollars spent on
the Internet is expected to increase from approximately $1.9 billion in 1998 to
$7.7 billion by 2002, a compound annual growth rate of 42%. The Internet enables
features and functions that are unavailable in traditional media, permitting
online retailers to interact effectively with customers and advertisers to
target specific demographic groups by capturing valuable data on customer
tastes, preferences and shopping and buying patterns.
Women's Increasing Use of the Internet and Their Importance in the Economy
Women represent an attractive demographic group for advertisers and
businesses. The number of female AOL subscribers increased from 16% of total
subscribers in 1994 to 51% in June
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1998. According to Jupiter Communications, 45% of the Internet audience was
female as of January 1998. These trends are important to advertisers because
women are estimated to have disproportionate control or influence over consumer
spending in the United States. For example, according to a November 1997
Advertising Age article, women controlled or influenced 80% of all purchase
decisions, 80% of new vehicle purchases, 66% of home computers, 46% of men's
wear and 70% of appliance choices. We believe that women are increasing their
use of the Internet for commercial purposes. Although women are underrepresented
in the online spending category, accounting for only 25% of online sales in
1996, as reported by Jupiter Communications, this gap is expected to narrow over
the next several years and grow to approximately 47% by 2000.
Spending on advertising targeted to women is generally considered to
represent the largest single category of advertising in the United States. Also,
iVillage believes that women online spend fewer hours watching television or
reading print media than they did prior to using the Internet in comparison to
their male counterparts. Thus, as women move online, advertisers will likely
follow suit.
Need for a Network Directed to Women
For advertisers to effectively reach women online, they need to address
the fact that women use the Internet differently than men. iVillage believes
that women want an environment built to meet their needs for problem-solving,
time-efficiency, integration of information, peer advice and simple navigation.
According to an International Data Corporation article, women appear to spend
less time "surfing" the Internet than men. We believe women spend more of their
online time at a single destination. In addition, the varied social roles of
women, which include, among other things, primary child care provider, wage
earner, consumer and investor, create stress and underscore the need for
efficient problem-solving mechanisms. For example, a working mother might find
herself at midnight applying for a mortgage, trading stocks or researching a
disease on the Internet, a time when traditional service providers cannot be
reached. The Internet provides a powerful communications vehicle where a woman
can find answers and seek advice from women with relevant life experiences at
any time of the day and from work or home.
iVillage believes that the major Web search and retrieval services are
generally designed for all major demographic audiences, and, therefore, have
historically not created an environment focused on the specific programming
needs and buying habits of women. Consequently, iVillage believes that women
online and advertisers and merchants seeking to reach concentrations of women
online are underserved.
Lamaze Publishing and the Young Family Market
The acquisition of Lamaze Publishing by iVillage will add the Internet
as a critical component of the Lamaze Publishing communications program,
bringing the benefits of community and interactivity to new families and the
advertisers who want to reach them.
The birth of a child signals not only a lifestyle transition for new
parents, but also a major change in spending patterns and brand preferences. The
Juvenile Products Manufacturers Association and U.S. Department of Commerce
estimate expenditures for juvenile furniture and nursery accessories, baby food,
baby care items and infant apparel at $19.5 billion per year.
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Young families making purchase decisions in all these areas typically
lack both preconceived brand preferences and product knowledge, and at the same
time, are anxious to learn about childbirth, infant care and the many important
health issues that confront them. Lamaze Publishing publications and the Newborn
Channel strive to fulfill these critical educational roles for both advertisers
and new parents.
Childbirth educators, maternity nurses and hospitals can use Lamaze
Publishing products and the Newborn Channel as teaching tools, and parents often
view them as credible, trusted sources of information. Advertisers can benefit
by reaching parents prior to and immediately after the birth of a child when
many purchase decisions are being made and brand preferences are being formed
that will last for years.
As media usage patterns and demographics have changed, Lamaze
Publishing has changed with them, adding video instructional products,
in-hospital broadcasting and Spanish-language teaching materials to the
magazines with which the company began.
The iVillage Solution
iVillage.com is one of the largest online networks for women and one of
the most demographically targeted online communities on the Web. iVillage
focuses on the needs of women online and has created an environment that solves
everyday problems quickly in those areas of life most important to women,
including family, parenting, work, money and health. The user's experience on
iVillage.com centers on solving these problems in one destination through
targeted community, access to experts, useful interactive tools and commerce
opportunities.
iVillage believes its success to date can be attributed to the
following factors:
Focus on Highly Targeted Demographic Group
iVillage.com is primarily tailored to the interests and needs of women
online between the ages of 25 and 54. iVillage believes that these women want:
o powerful, quick and easily accessible problem-solving content;
o emotional support, a sense of identification and access to
sympathetic listeners; and
o a consistent navigation and programming experience.
iVillage believes that its network creates the experience women are
seeking and distinguishes iVillage.com from AOL, other women's networks and
other online services. iVillage.com offers a series of integrated tools,
community resources, experts and information databases to help women solve their
everyday problems quickly and effectively. For example, a woman who learns that
she has a disease can quickly:
o access other members who have lived through this experience and
can provide both guidance and emotional relief;
o access Healthwise Knowledgebase, a medical database to research
the topic;
o ask a health expert questions regarding the topic; and
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o select and purchase books on the topic.
iVillage.com provides a place where women can find support from
like-minded women and the comfort of knowing that other women have shared
similar experiences and have come through them successfully. iVillage.com also
offers daily polls, message boards and chat that provide women with an immediate
sense of belonging and connection.
iVillage.com offers a consistent navigation and programming experience
across all channels and functions. Each channel is organized in a consistent
manner around tools, experts, resources and community. As of June 30, 1999,
iVillage.com's home page on both the Internet and AOL provided users with links
each week to approximately 76 experts, 1,053 chats and 1,797 message boards.
Active Membership and Community Participation
iVillage encourages active participation in its community and offers a
number of programs to increase levels of participation. Believing that members
form iVillage.com's core audience and are its most valuable customers, iVillage
created a membership services group in January 1998. iVillage has built an
organization of over 1,600 community leaders who volunteer a significant amount
of time hosting message boards and chats and contributing to iVillage.com's
proprietary content and innovative bottoms-up programming. iVillage.com also
sends approximately 8.0 million electronic newsletters per week to its members,
visitors and newsletter subscribers.
Positive Environment for Advertising and Commerce
iVillage believes that iVillage.com appeals to advertisers and
consumers because it combines the following attributes:
o a high degree of member involvement within the network,
through polls, message boards, chats, community challenges and
personalized interactive services;
o an interactive sponsorship model that integrates advertising and
commerce into the content of each of the sites;
o a highly targeted demographic group; and
o a consistency of brand promotion and navigation throughout
the network.
iVillage believes that this combination has resulted in effective CPMs
above the industry average, and above the average for other women's sites. In
addition, iVillage.com offers a scalable business platform from which iVillage
can generate multiple revenue streams, including:
o banner advertising;
o sponsorship;
o production;
o e-commerce;
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o satellite television through the Newborn Channel;
o print media;
o direct mail;
o video production; and
o sampling.
Business Strategy
iVillage's objective is to be the premier site for women online. We
have made a number of recent executive hires in an effort to strengthen our
management infrastructure in order to successfully manage our growth and
implement our strategy. In addition, we have pursued acquisitions which, among
other things, give us new vehicles to reach and capture our target audience,
provide new solutions for advertisers and add to our ability to grow our overall
business. Key elements of iVillage's strategy are as follows:
Build Strong Brand Recognition
iVillage believes that building brand recognition of iVillage.com is
critical to attracting and expanding its global Internet user base. iVillage's
market leadership position has been driven by partnership and distribution
agreements with other leading Internet-based companies. iVillage also uses
barter transactions as a significant component of its online marketing efforts.
iVillage expects barter transactions to continue to be an important part of its
business strategy. iVillage believes aggressive brand-building will become
increasingly important to sustain its leadership position and has begun to
allocate some of its branding expenditures toward offline branding on television
and radio, through direct media spending and through strategic alliances with
traditional media partners. These alliances are relatively new and iVillage is
just beginning to see their benefits. iVillage believes that it can build
offline brand awareness and attract traffic by leveraging the reach of
traditional media partners. For example, in November 1998, iVillage entered into
a contract with NBC pursuant to which NBC will promote iVillage.com during prime
time programs as well as through its Web sites. iVillage also entered into an
agreement in October 1998 with AT&T where AT&T will promote iVillage through
mass media marketing.
iVillage also plans to build brand recognition and develop new commerce
opportunities through the marketing and packaging of its content. For example,
iVillage currently runs a syndicated column with Copley News Services based upon
iVillage content and has arranged to publish four books under the Parent Soup
brand in order to reach offline audiences.
The acquisition of Lamaze Publishing also is expected to build brand
recognition for iVillage. Lamaze Publishing currently estimates that it reaches
more than 75% of all women giving birth in the United States through its
magazines, videos and the Newborn Channel, its satellite television network
broadcasting in over 800 hospitals in the United States. Lamaze Publishing
presents attractive opportunities for advertisers to have access to the majority
of U.S. parents and prospective parents through one single source.
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Aggressively Grow Membership
iVillage intends to grow its membership base and increase member usage
through member promotions, interactive services, community building and
relationships with national women's organizations. iVillage also plans to offer
additional members-only services, including multi-player games, and to
transition portions of its programming to member-only areas. Once the user has
visited iVillage.com, iVillage's mission is to convert that user to a member.
Enhance And Expand The Network
iVillage intends to expand the network by developing additional
channels and expand the content of its existing channels. In addition, iVillage
intends to develop these additional channels with sponsors and media partners in
order to maintain low development costs while creating high utility for users.
Our recent acquisitions of OnLine Psych and Lamaze Publishing allow us to expand
our network through a strong brand, expert content, and audio and video content
which increases our online content to women.
Pursue Strategic Acquisitions and Alliances
iVillage plans to bolster its traffic, market share and revenues
through strategic acquisitions that offer opportunities to increase market share
in iVillage's content categories, offer high traffic or are sites categorized by
high retention statistics. iVillage also intends to form alliances with larger
companies to leverage their brands, while incorporating content that is
consistent with the network. iVillage may also expand its revenue opportunities
through alliances with other retailers, online service and content providers,
commerce providers and advertisers.
Increase Sponsor And Advertising Revenues
iVillage views its relationships with its sponsors and advertisers as
critical to its success. iVillage has been a pioneer in developing innovative
sponsorship advertising relationships with leading brand marketers which go
beyond traditional banner advertising to support broad marketing objectives,
including brand promotion, awareness, product introductions, online research and
the integration of advertising with editorial content. iVillage plans to
continue to seek additional sponsorship arrangements, which have longer-term
contracts and higher dollar values than typical banner deals and independence
from page views as the sole measurement basis. In addition, iVillage intends to
continue to attract banner advertising and has recently created a discrete sales
force to concentrate on this area of the business, which is sold primarily
through agencies. Through its acquisition of Lamaze Publishing, iVillage will
also offer advertising opportunities in addition to its network over multiple
platforms such as satellite television, video and print. iVillage has recently
increased the size of its sales force to concentrate on increasing iVillage's
advertising and sponsorship relationships with leading brand marketers.
Generate E-Commerce Revenues
iVillage intends to identify new commerce, revenue and acquisition
opportunities that enhance iVillage.com by offering transaction services in
categories that:
o have a high degree of relevance to iVillage.com members;
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o are appropriate for the Internet; and
o fit with or complement a current iVillage.com content site.
iVillage also generates e-commerce revenues through agreements with
leading merchants interested in targeting iVillage.com members. These merchants
receive exposure through banner advertising, the integration of advertising with
editorial content and promotional offers in exchange for which iVillage collects
a fixed fee and a share of revenue from sales to iVillage.com users. In addition
to enhancing user retention, these retailing opportunities can be used to
identify valuable purchasing trends that can be used in future advertising and
commerce.
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The iVillage Network
iVillage's network is organized around 14 content specific channels and
three shopping channels. iVillage.com is a single point of entry to the iVillage
network of sites and is updated daily to promote content and community,
including channel highlights. The following table provides a brief description
of each channel's features as of August 26, 1999:
Channel Description
allHealth A health site to assist users in becoming better
health care decision makers that includes on AOL and
the Web, approximately 200 bulletin boards and
approximately 150 weekly chats on AOL. The site also
includes Online Psych which hosts the largest online
bulletin board system on mental health issues and the
largest online database of mental health treatment
providers.
astrology A site providing users with horoscopes, celebrity
profiles, romance charts, monthly guidance and the
ability to purchase astrology reports.
book club A book and reading site for readers interested in a
wide range of books that allows users to discuss
featured books and offers Monthly Book Picks,
Question of the Week, Reading Groups and iVillage.com
Bestsellers.
career A career planning site that provides women with tools
and resources relating to professional development
and career-related issues.
click! where A site offering users information on computers,
computers including experts, tools, message boards and chats.
make sense
fitness & beauty A fitness and beauty site which includes Body
Calculators, Nutrition Experts and Community
Challenges to improve one's fitness level.
food A food site providing information on meal planning,
nutrition and recipes which includes Food Experts
and Cooking Basics.
moneylife A financial planning site providing users with
information on savings and investment strategies
focusing on key life stages of women.
parent soup A parenting site providing users with a branded
online community where parents share parenting
solutions, talk with experts and find answers and
support.
parentsplace A parenting community center site that includes, on
AOL and the Web, approximately 700 bulletin boards
and approximately 80 weekly chats in addition to
information regarding childhood diseases.
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pets A site designed in partnership with Ralston Purina
Company that provides information on caring for your
pet, selecting a breed and features an automated
adoption and veterinarian-finder tool sponsored by
the American Humane Association and American Animal
Hospital Association.
relationships A site offering users information and conversation
on love, marriage, sex and family.
travel A travel site that offers tools for planning a
vacation, articles on travel-related issues, a link
to a travel reservation center and a currency
converter.
work from home A site providing women who work from home with tools
and resources such as Home Office Basics, a Tax Guide
and a Software Library.
shopping central A one-stop online shopping destination offering users
easy access to retail Web sites such as Amazon.com,
Planet Rx, Walmart, Lands End, iBaby and iMaternity.
iBaby A shopping site offering users access to all of their
retail baby needs.
iMaternity A shopping site offering iMaternity brand clothing
and products.
iVillage believes that user support is critical in order to attract and
retain users. iVillage provides user support primarily through e-mail-based
correspondence. Help and feedback buttons are prominently displayed throughout
iVillage.com, and iVillage's user support staff attempts to respond to all
e-mail queries within 24 hours. In addition, community leaders provide e-mail
support for broad-ranging issues. iVillage does not charge for these services.
Sponsorship and Advertising Revenues
iVillage has derived a significant amount of its revenues to date from
the sale of sponsorships and advertisements. For the years ended December 31,
1997 and 1998 and the six months ended June 30, 1999, sponsorship and
advertising revenues represented 93%, 80% and 73%, respectively, of iVillage's
revenues.
iVillage's strategy is focused in part on generating a majority of its
advertising revenues from sponsors and merchants who seek a cost-effective means
to reach women online. iVillage is aggressively building its leadership position
as the preeminent women's brand to the advertising community. iVillage's
sponsorship arrangements typically differ from traditional banner advertising in
that they are designed to achieve broad marketing objectives such as brand
promotion, awareness, product introductions and online research. Sponsorships
allow iVillage.com to cater to the specific goals of advertisers in the areas of
impressions, product research, market research, new product launches, list
development, product information, repositioning, new account openings, lead
generation and transactions. Sponsors also have the opportunity to talk
one-on-one with members on the network's message boards, chats, polls and
special events, which allows sponsors the opportunity to gain insights into
their customers. iVillage's sponsorship arrangements generally have longer terms
than typical banner advertising placements and provide for CPMs per advertiser
and independence from page-views as the measure of value. In addition, iVillage
develops extensive editorial and marketing content to support the marketing
initiatives of advertisers. iVillage's sponsorship agreements can be exclusive
and generally are for a period of one to three years.
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iVillage also derives a smaller portion of its sponsorship and
advertising revenues from banner advertisements that are prominently displayed
at the top of pages throughout the iVillage.com network. From each banner
advertisement, viewers can hyperlink directly to the advertiser's own Web site,
thus providing the advertiser the opportunity to directly interact with an
interested customer. iVillage believes that it has CPMs significantly above the
industry average, and above the reported average for other women's sites.
During the years ended December 31, 1997 and December 31, 1998,
iVillage's five largest advertisers accounted for approximately 26% and 17%,
respectively, of iVillage's revenues. During the six months ended June 30, 1999,
iVillage's five largest advertisers accounted for 22% of total revenue. No
advertiser accounted for more than 10% of iVillage's revenues during either year
or six-month period. As of December 31, 1998 and June 30, 1999, one advertiser
accounted for approximately 17% of the total revenues of Lamaze Publishing.
Additionally, revenues from Lamaze Publishing's ten largest advertisers
accounted for approximately 63% and 65% of its total revenues for the year ended
December 31, 1998 and for the six months ended June 30, 1999, respectively.
Membership
iVillage believes a large and active membership base is critical to its
success. Some features of iVillage's Web sites are restricted to members.
Membership is free and available to iVillage.com visitors who disclose their
names, e-mail addresses, zip codes, ages and gender and choose a member name and
password to be used throughout members-only areas. Members form iVillage.com's
core audience and are its most valuable users. iVillage has launched an
aggressive member-acquisition campaign, which includes the creation of free
services and support for members.
E-mail, instant messaging, community challenges, message boards and
chats are examples of members-only benefits. In addition, within the allHealth
channel, the personal health report is restricted to members and within the
Parent Soup channel, the pregnancy calendar is restricted to members.
iVillage recognizes the importance of maintaining confidentiality of
member information and has established a privacy policy to protect such
information. iVillage's current privacy policy is set forth on iVillage.com in a
member's terms of service, which is linked to the site where a person initially
registers for membership. iVillage's current policy is to never sell to any
third party any member's personal identifying information, such as his or her
name or address, unless the member has provided written consent. In some
situations, iVillage does allow a third-party partner access to database
information if it is necessary for the delivery of a member service, such as
e-mail. In these instances, the partner has agreed to be bound by iVillage's
current policy. iVillage does share aggregated member information with third
parties, such as a member's zip code, gender or age. iVillage also reserves the
right to offer members products and services. iVillage may use information
revealed by members and information built from user behavior to target
advertising, content and e-mail. For instance, iVillage may, on behalf of an
advertiser, send e-mail offers to all members from a particular region or target
advertisements to all users who frequent a specific area of the site.
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E-Commerce
Overview
iVillage has identified the opportunity to generate new commerce
revenues by selling products or services that have a high degree of relevance to
its members and fit within a content area or provide an opportunity for future
content development.
iBaby
iBaby offers more than 5,000 products from over 400 manufacturers
representing an extensive assortment of products for children under three years
of age. The site's comprehensive selection, combined with easy site navigation
and time-saving features such as a baby registry, superior product search and a
gift-finder service, makes iBaby convenient for new and expectant parents.
iBaby had 57 full-time employees as of June 30, 1999.
iBaby targets parents through newsletters, message boards, content
integration and banner ads. iBaby has distribution agreements with online
services such as AOL and Yahoo!. iBaby has also initiated a substantial print
advertising campaign in various magazines to increase sales and build brand
awareness.
Online orders are taken 24 hours a day, seven days per week and
products are shipped within 48 hours of placement of most orders. In accordance
with an inventory and services agreement between iBaby and Kid's Warehouse,
Kid's Warehouse sells inventory to iBaby and provides space to iBaby for
storage. Substantially all of iBaby's products are currently sourced through
Kid's Warehouse. As of November 1, 1999, the agreement between Kid's Warehouse
and iBaby will terminate and iBaby will become responsible for inventory and
storage.
During the second quarter of 1999, iBaby launched an additional
commerce channel, iMaternity. iMaternity sells iMaternity brand clothing and
products. All product orders and fulfillment are currently handled by Dan
Howard, Inc. All orders for iMaternity are taken through its channel on the
iBaby Web site, and iBaby collects the payment for product sales.
Lamaze-licensed products will also be offered through iBaby.
Astrology.Net
Astrology.Net is a leading destination for women seeking daily
horoscopes, astrology content and personalized forecasts online. Through its
network of sites organized by topics of interest to women such as family, love,
money and career, Astrology.Net provides a timely, personalized experience for
the user, stimulates commerce sales of monthly and annual forecasts by subject
and creates an advertising environment that is appealing to advertisers due to
targeting possibilities within the site and through e-mail communication.
Astrology.Net brings iVillage a content and commerce site that is
appealing to our core demographic of women, represents one of the best customer
acquisition tools as demonstrated by strong performance in online media, and a
vehicle to drive repeat visits to iVillage through the use of daily horoscopes.
Astrology.Net has also created an interactive commerce system that provides
instantaneous, digital astrology reports. The system consists of software which
operates the Web site and is capable of generating customized astrology reports
based on input from users.
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Alliances
iVillage pursues strategic relationships to increase its access to
online customers, build brand recognition and expand iVillage's online presence.
Historically, iVillage has pursued strategic alliances to reach online
customers. iVillage has begun to shift its focus to building offline brand
recognition and to increasing its access to offline customers. iVillage's
principal strategic alliances and relationships include the following:
Media Arrangement
In November 1998, iVillage entered into an advertising and promotional
agreement with NBC pursuant to which NBC promotes iVillage.com on television,
primarily during prime-time programs, as well as through its Web sites. In March
1999, iVillage and NBC amended their November 1998 agreement to provide for the
purchase by iVillage, for cash, of $13.5 million of advertising and promotional
spots during 1999 and $8.5 million per year during 2000 and 2001. In addition,
iVillage issued 4,889,030 shares of series E convertible preferred stock
(converted into 1,629,676 shares of common stock upon the initial public
offering) and warrants to purchase additional shares of stock at predetermined
exercise prices during 2000 and 2001 in exchange for a promissory note in the
approximate amount of $15.5 million at 5% interest per annum. The note is
payable quarterly in twelve equal installments beginning April 1, 1999.
Sponsorship Arrangements
In October 1998, iVillage entered into a two-year agreement with AT&T
under which iVillage promotes and markets specified AT&T telecommunications
services in exchange for minimum payments based upon delivered impressions. In
return, AT&T displays a text link for iVillage.com on the AT&T WorldNet Service
and promotes and markets iVillage.com through AT&T mass media marketing.
iVillage entered into an Online Services Agreement with Charles Schwab
& Co., Inc. in December 1997, under which Schwab was granted the right to an
exclusive sponsorship of all brokerage and mutual fund categories on all money,
financial or investing related sites. The agreement's term is for a period of
three years; however, Schwab may terminate the agreement by providing notice to
iVillage at least ninety days prior to each one-year anniversary of the
agreement.
In December 1998, iVillage entered into a sponsorship agreement with
Ford Motor Media under which Ford Motor Media promotes the sale of Ford
automotive products across the iVillage Web sites. The agreement is for a term
of two years and provides for advertising and consumer research on behalf of
Ford Motor Media.
In October 1998, iVillage entered into an agreement with Ralston Purina
under which the two parties agreed to create a pet channel. Ralston Purina
agreed to provide content, experts, customer service and distribution for the
pet channel. The agreement's term is for a period of two years.
In March 1999, iVillage entered into an agreement with Warner Lambert
under which iVillage will promote and market a range of products. iVillage will
also create, in conjunction with
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Warner Lambert, a range of mini-sites and promotions. The agreement will expire
no later than the second quarter of 2000, subject to renewal.
In March 1999, iVillage entered into a seven-month agreement with
Bozell Worldwide, Inc. acting as agent for the International Dairy Foods
Association, which in turn is the agent for the National Fluid Milk Processor
Promotion Board, under which iVillage and the Board will create a co-branded
mini-site. As part of the agreement, iVillage will also create an interactive
tool and host online conferences as well as administer a community workshop
relating to the healthy consumption of calcium.
In April 1999, iVillage entered into an agreement ending on December
31, 1999 with Glaxo Wellcome Inc., under which Glaxo has been granted the
exclusive sponsorship for certain disease categories throughout the iVillage
network. As part of the agreement, iVillage will create resource centers for
certain disease categories to reside on the health channel of the iVillage
network
In June 1999, iVillage entered into a two-year agreement with Fuji
Photo Film USA, Inc., under which Fuji has been granted the exclusive
sponsorship for the photographic film, disposable camera and digital camera
categories throughout the iVillage network. As part of this agreement, iVillage
and Fuji will build a Photo Center on the network which will be promoted through
the delivery of advertising impressions.
In July 1999, iVillage entered into a nine-month agreement with GE
Appliances, an operating component of the General Electric Company, under which
GE Appliances was granted an exclusive sponsorship of the speed cooking ovens
category throughout the iVillage network. As part of the agreement, iVillage and
GE will create a marketing area for the "Advantium" product line on the iVillage
network that will be promoted through the delivery of advertising impressions.
Distribution Arrangements
iVillage believes that its most effective means of generating traffic
and building brand recognition has resulted from its online media and
distribution relationships. iVillage considers branding an important aspect of
its distribution arrangements and seeks distribution relationships where its
brand is promoted. iVillage has also entered into distribution and content
relationships with a number of major online service companies on the Internet.
iVillage and Snap.com entered into a two-year promotion agreement in
November 1998, under which iVillage has been granted the exclusive right to
program the content on the front pages of the Health Center, with health-related
content from iVillage.com and Snap's Family Center with content from Parent
Soup. Snap may, in its discretion, promote iBaby throughout the Kids and Family,
Health, Living and Shopping channels. In addition, iVillage's health channel and
Parent Soup content and links will be included as an initial default option for
Snap's "My Snap!" personalized home page. Snap is required to deliver a minimum
number of impressions during the term of the agreement and Snap's ability to
display content promoting other health and parenting sites is limited.
In December 1998, iVillage entered into an interactive services
agreement with AOL that supersedes all prior services agreements between
iVillage and AOL and expires December 31, 2000. Either party may extend the
agreement for an additional year. The agreement provides that
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some of iVillage's icons will be placed within the AOL service and that iVillage
will receive guaranteed impressions. In consideration for these services,
iVillage is obligated to pay AOL minimum quarterly installments and to provide
advertising to AOL. Please see "Risk Factors - We may not attract a sufficient
amount of traffic and advertising without our channels being carried on AOL".
Content Channels
iVillage has entered into agreements with third parties in order to
expand its channel offerings. We believe such agreements provide iVillage with a
cost-effective means of acquiring content and provide iVillage's users with high
utility.
In June 1998, iVillage entered into an agreement with Intel
Corporation, under which Intel purchased shares of iVillage's series D
convertible preferred stock. iVillage agreed to use the proceeds from Intel's
purchase of series D convertible preferred stock to add new features to the
health channel, such as a health profiling tool, personal home health pages and
a ranking of health organizations. Personal Health Profile, which was introduced
in June 1998, allows users to assess potential health risks by entering
lifestyle and hereditary information. Customized information, from risk rankings
to a disease screening guide to tips for improving one's "Health Quotient", is
bundled with a Reuters news feed tailored to specific conditions and health
interests. iVillage plans to provide users with their own password-protected
sites designed to deliver to each user timely, comprehensive information on
issues that directly impact the user's personal health. In addition,
iVillage.com's health channel now lists health plan quality rankings by J.D.
Power & Associates.
Lamaze Publishing
Lamaze Publishing produces advertising-supported educational materials
for expectant and new parents. 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 International, Inc., the owner of the LAMAZE family
of marks.
Lamaze is a method of childbirth preparation based on the Lamaze
philosophy of birth. The Lamaze philosophy of birth states that birth is
"normal, natural and healthy," and "childbirth education empowers women to make
informed choices in healthcare, to assume responsibility for their health and
trust their inner wisdom".
Lamaze International was founded by interested parents, childbirth
educators and healthcare providers in 1960 to promulgate these ideas. Lamaze
Publishing was established as a for-profit company in 1990 to provide childbirth
and infant care educational materials.
During a pregnancy and immediately after the birth of a child, new
parents spend substantial amounts of time with childbirth educators and
maternity nurses seeking information on healthcare issues, the birth process and
infant care. These busy healthcare professionals typically have neither the time
nor the resources to create the consumer publications or communications that
would assist this process and allow parents to absorb this material at home.
The Lamaze Publishing business strategy is to provide these consumer
publications or
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communications to childbirth educators and maternity nurses free of charge, and
offset the expense incurred by selling print advertising and commercial messages
to advertisers who target the young family market.
Lamaze Publishing publications, used and distributed to parents by
childbirth educators and maternity nurses nationwide, include:
o Lamaze Parents, a prenatal publication used in childbirth
education. Topics include prenatal nutrition, the role of the
childbirth partner, and the physical and emotional challenges of
pregnancy. Childbirth educators distribute Lamaze Parents to
expectant parents on the first night of class. This publication
reaches an estimated 75% of all non-Hispanic women giving birth in
the U.S. Lamaze Parents had an average annual circulation of
approximately 2,400,000 for 1998.
o Lamaze Baby, a parenting guide for mothers from the time a child
is born through twelve months of life written entirely by
healthcare professionals. Lamaze Baby is delivered by maternity
nurses to new mothers at the hospital bedside shortly after
childbirth. The magazine covers topics that hospital nurses review
with new mothers prior to discharge serving as a helpful and time
saving tool for nurses in educating mothers about infant care.
Lamaze Baby had an average annual circulation of approximately
3,000,000 for 1998.
o Revista Lamaze para Padres, a Spanish-language prenatal magazine
which reaches more expectant Hispanic mothers than any other
title. Childbirth educators distribute Revista Lamaze para Padres
to expectant parents on the first night of class. This publication
reaches an estimated 85% of Hispanic woman giving birth. Revista
Lamaze para Padres had an average annual circulation of
approximately 575,000 for 1998.
o "Lamaze You and Your Baby", a 90 minute video textbook providing
expectant parents with important instruction on infant care.
Childbirth educators distribute to expectant parents the video,
which is later returned. The video is distributed yearly to
childbirth educators, typically during the first four months of
the year. As of April 1999, approximately 7,600 childbirth
educators had ordered approximately 160,000 videos from Lamaze
Publishing.
o "Lo Mejor para Su Bebe", a 60 minute Spanish-language video
textbook that provides expectant parents with important
instruction on infant care. This video is modeled after "Lamaze
You and Your Baby". The video is distributed yearly to childbirth
educators, typically during the first four months of the year. As
of April 1999, approximately 4,300 childbirth educators ordered
approximately 40,000 videos from Lamaze Publishing.
o Lamaze Special Delivery, a program offering advertisers the
ability to distribute coupons, samples and promotional literature
to expectant and new parents. Information to be distributed is
polybagged with Lamaze Parents, Lamaze Baby and Revista Lamaze
para Padres.
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Lamaze Publishing also owns the Newborn Channel, a satellite television
network that instructs mothers in their hospital rooms following birth in over
800 hospitals nationwide and, as of June 30, 1999, reached approximately
2,000,000 new mothers.
Sales, Marketing and Public Relations
Sales
As of June 30, 1999, iVillage had a direct sales organization,
consisting of 10 sales professionals with an average of 14 years of experience,
and 31 sales operations staff. iVillage's sales organization consults regularly
with advertisers and agencies on design and placement of its Web-based
advertising and the production and management of bridge sites, provides
customers with advertising management analysis and focuses on providing a high
level of customer satisfaction. iVillage generally seeks to hire individuals
with significant experience in selling advertising and pre-existing
relationships with advertisers in a variety of media.
As of June 30, 1999, Lamaze Publishing had a direct sales organization
consisting of 10 sales professionals and three support personnel. Three
professionals concentrate primarily on advertising sales for the Newborn Channel
and video products, and six concentrate on print advertising sales. One
salesperson is dedicated solely to the sale of Special Delivery promotional
products. Due to the targeted nature of Lamaze Publishing products, sales
professionals have particular experience and expertise in the juvenile products
and infant care markets and work closely with advertisers and their agencies to
maximize brand awareness and sales to the young parent market.
Marketing and Public Relations
iVillage employs a variety of methods to promote the iVillage.com brand
and to attract traffic and new members, including advertising on other Internet
sites, targeted publications, radio stations, cable television, cross
promotional arrangements to secure advertising and other promotional
considerations. To extend the iVillage.com brand, iVillage has also entered into
several strategic alliances with offline partners. Please see " - Alliances". In
addition, iVillage leverages other audience building strategies, including
working closely with search engine submissions, news group postings and
cross-promotion with affinity sites to properly index materials. iVillage's
marketing department consisted of 39 marketing professionals as of June 30,
1999.
iVillage has recently begun to market its brand offline. In November
1998, iVillage entered into an agreement with NBC, under which iVillage receives
advertising on the NBC network. Occasionally, iVillage uses print, radio, direct
mail and other media to reach its core audience with relevant news or offers.
iVillage's internal public relations staff oversees a comprehensive
public relations program which iVillage believes is a key component of its
marketing and brand recognition strategy. Organized into two primary components
that promote iVillage and the iVillage.com brand, the program targets a
trade/business and consumer audience, respectively. iVillage has developed a
consumer outreach effort which centers on providing non-technology reporters
with "news-you-can-use" information taken directly from iVillage.com, to
demonstrate to readers/viewers the content's utility and service, and usage of
and traffic to the network. iVillage has also implemented
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national long-lead consumer initiatives, such as radio media tours, regional
broadcast media tours, consumer publicity of iVillage's Parent Soup book series
and other related activities, and multiple daily media advisories sent to
consumer outlets throughout the United States.
To maximize distribution of its publications and the Newborn Channel,
and gain the endorsement of the professional community for these products,
Lamaze Publishing gives particular attention to marketing efforts targeted to
childbirth educators, maternity nurses and hospitals. A staff of four marketing
professionals contracts hospitals for distribution of the Newborn Channel and
works with the professional community to maintain distribution levels of Lamaze
Publishing publications and demonstrate how they can be used as teaching tools
for expectant parents and new mothers. Lamaze Publishing representatives attend
nine trade shows and professional conferences per year and also maintain contact
with the professional community through consumer publication updates and
personal sales calls.
In the advertising sales area particular attention is paid to market
research and providing advertisers information and expertise that will help them
market their products more effectively using products distributed in an
educational setting. In addition to information on readership, viewing levels
and advertising recall, studies are regularly conducted on purchasing patterns,
attitudes and brand preferences of expecting and new parents for dissemination
to advertisers.
Public relations activities include traditional press contacts to
encourage publicity on new articles and programming in Lamaze Publishing
products and the results of research among young parents. Events for advertisers
and agencies are also conducted on a regular basis to increase the overall
visibility of Lamaze Publishing and the Newborn Channel.
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Operating Infrastructure
iVillage's Internet operating infrastructure has been designed and
implemented to support the delivery of millions of page views a day. Web pages
are generated and delivered, in response to end-users requests, by any one of
more than 30 servers. Key attributes of this infrastructure include the ability
to support growth, performance and service availability.
iVillage's servers run on the Sun Solaris, Microsoft NT and Linux
operating systems and use Netscape Enterprise, Apache and Microsoft
Corporation's IIS Web server software.
iVillage maintains all of its production servers at the New Jersey Data
Center of Exodus Communications, Inc., Verio, Inc. in San Francisco, California
and the San Diego Data Center of AT&T CERFnet. iVillage's operations are
dependent upon these companies' ability to protect its systems against damage
from fire, hurricanes, power loss, telecommunications failure, break-ins and
other events.
Exodus, Verio and AT&T CERFnet provide comprehensive facilities
management services, including human and technical monitoring of all production
servers 24 hours per day, seven days per week. However, Verio's facility is not
staffed at all times. Each of these companies provides the means of connectivity
for iVillage's servers to end-users via the Internet through multiple
connections. Each facility is powered by multiple uninterruptible power
supplies. Please see "Risk Factors - We may be unable to respond to the rapid
technological change in our industry" and " - Internet security concerns could
hinder e-commerce".
All of iVillage's production data, except Astrology.Net, are copied to
backup tapes each night and stored at a third party, off-site storage facility.
iVillage expects to begin daily off-site backup of Astrology.Net data shortly.
iVillage is in the process of developing a comprehensive disaster recovery plan
to respond to system failures. iVillage keeps all of its production servers
behind firewalls for security purposes and does not allow outside access, at the
operating systems level, except via special secure channels. Strict password
management and physical security measures are followed. Computer emergency
response team alerts are read, and, where appropriate, recommended action is
taken to address security risks and vulnerabilities. From time to time, iVillage
uses the services of third party computer security experts and penetration tests
have been performed to help improve security.
Our Web sites must accommodate a high volume of traffic and deliver
frequently updated information. Components or features of our Web sites have in
the past suffered outages or experienced slower response times because of
equipment or software downtime. This has not had a material effect on our
business.
Broadcasting of the Newborn Channel to hospitals originates from a
laser disc system operated by Group W Network Services, from Group W's facility
in Stamford, Connecticut. The system provides an uplink signal to a satellite
operated by PanAmSat. The signal is received through a satellite dish at each
hospital and distributed to patients' rooms. Group W handles installation and
service of all hospital receiving equipment. Lamaze Publishing maintains
business interruption insurance in the event programming is interrupted over the
designated satellite.
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Competition
The market for members, visitors and Internet advertising is new and
rapidly evolving, and competition for members, visitors and advertisers is
intense and is expected to increase significantly in the future. With no
substantial barriers to entry, iVillage expects that competition will continue
to intensify.
iVillage believes that the primary competitive factors in creating
community on the Internet are functionality, brand recognition, member affinity
and loyalty, demographic focus, variety of value-added services, ease-of-use,
quality of service, reliability and critical mass. Other companies or sites
which are primarily focused on targeting women online are Women.com Networks and
Oxygen Media's Web sites, as well as Web sites targeted to categories such as
health. iVillage also competes with e-commerce companies such as eToys, Inc. and
its wholly-owned subsidiary, BabyCenter, Inc. iVillage will likely also face
competition in the future from developers of Web directories, search engine
providers, shareware archives, content sites, commercial online services, sites
maintained by Internet service providers and other entities that attempt to or
establish communities on the Internet by developing their own or purchasing one
of iVillage's competitors. In addition, iVillage could face competition in the
future from traditional media companies, a number of which, including Disney,
CBS and NBC, have recently made significant acquisitions of or investments in
Internet companies. Further, there can be no assurance that iVillage's
competitors and potential competitors will not develop communities that are
equal or superior to those of iVillage or that achieve greater market acceptance
than iVillage's community.
iVillage also competes with traditional forms of media, such as
newspapers, magazines, radio and television, for advertisers and advertising
revenues. iVillage believes that the principal competitive factors in attracting
advertisers include the amount of traffic on its Web sites, brand recognition,
the demographics of iVillage's members and visitors, iVillage's ability to offer
targeted audiences and the overall cost-effectiveness of the advertising medium
offered by iVillage. iVillage believes that the number of Internet companies
relying on Web-based advertising revenues will increase greatly in the future.
Accordingly, iVillage will likely face increased competition, which could in
turn have a material adverse effect on iVillage's business, results of
operations and financial condition.
Many of iVillage's current and potential competitors, including
developers of Web directories and search engines and traditional media
companies, have longer operating histories, significantly greater financial,
technical and marketing resources, greater name recognition and larger existing
customer bases than iVillage. Such competitors are able to undertake more
extensive marketing campaigns for their brands and services, adopt more
aggressive advertising pricing policies and make more attractive offers to
potential employees, distribution partners, commerce companies, advertisers and
third-party content providers. There can be no assurance that Internet content
providers and Internet service providers, including developers of Web
directories, search engines, sites that offer professional editorial content and
commercial online services, will not be perceived by advertisers as having more
desirable Web sites for placement of advertisements. In addition, many of
iVillage's current advertising customers and strategic partners also have
established collaborative relationships with certain of iVillage's competitors
or potential competitors, and other high-traffic Web sites. Accordingly, there
can be no assurance that:
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o iVillage will be able to grow its membership, traffic levels
and advertiser customer-base at historical levels;
o iVillage will be able to retain its current members, traffic
levels or advertiser customers;
o competitors will not experience greater growth in traffic than
iVillage as a result of such relationships which could have
the effect of making their Web sites more attractive to
advertisers; or
o iVillage's strategic partners will not sever or will elect not to
renew their agreements with iVillage.
Several major publishing companies produce products that are directly
competitive with Lamaze Publishing magazines. Time Warner, Gruner and Jahr and
Primedia all publish various pre and postnatal publications. Disney Publishing
and Children's Television Workshop also publish general parenting magazines. All
of these publishers have substantially greater marketing, research and financial
resources than Lamaze Publishing. Lamaze Publishing competes by emphasizing the
highly targeted nature of its audience, product quality and the fact that its
publications are used as teaching tools by professionals, and the credibility
and trust parents place in the Lamaze brand name.
While Lamaze Publishing instructional videos and the Newborn Channel
currently have no direct competitors, advertisers in this marketplace are heavy
users of daytime network television and cable television networks targeted to
young parents. The broadcasting companies that provide such opportunities have
invested substantial amounts in programming, sales and marketing and are much
better-known to advertisers than Lamaze Publishing and the Newborn Channel. To
compete, Lamaze Publishing and the Newborn Channel must convince them that
advertising recall and effectiveness obtained in an educational or hospital
setting is superior to that of traditional broadcasting.
There can be no assurance that iVillage will be able to compete
successfully against its current or future competitors or that competitive
pressures faced by iVillage will not have a material adverse effect on
iVillage's business, results of operations and financial condition.
Intellectual Property, Proprietary Rights
and Domain Names
iVillage regards its copyrights, service marks, trademarks, trade
names, trade dress, trade secrets, proprietary technology and similar
intellectual property as critical to its success, and relies on trademark and
copyright law, trade secret protection and confidentiality and/or license
agreements with its employees, customers, independent contractors, partners and
others to protect its proprietary rights. iVillage pursues the registration of
its trademarks and service marks in the United States, and has applied for and
obtained registration in the United States for certain of its trademarks and
service marks, including "iVillage". Effective trademark, service mark,
copyright and trade secret protection may not be available in every country in
which iVillage's products and services are made available online.
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iVillage has licensed in the past, and expects that it may license in
the future, certain of its proprietary rights, such as trademarks or copyrighted
material, to third parties. While iVillage attempts to ensure that the quality
of its brand is maintained by such licensees, there can be no assurance that
such licensees will not take actions that might materially adversely affect the
value of iVillage's proprietary rights or reputation, which could have a
material adverse effect on iVillage's business, financial condition and results
of operations. There can be no assurance that the steps taken by iVillage to
protect its proprietary rights will be adequate or that third parties will not
infringe or misappropriate iVillage's copyrights, trademarks, trade dress and
similar proprietary rights. In addition, there can be no assurance that other
parties will not assert claims of infringement of intellectual property or alter
proprietary rights against iVillage.
iVillage has been subject to claims and expects to be subject to legal
proceedings and claims from time to time in the ordinary course of its business,
including claims of alleged infringement of patents, trademarks and other
intellectual property rights of third parties by iVillage and its licensees.
Such claims, even if not meritorious, could result in the expenditure of
significant financial and managerial resources. Further, if such claims are
successful, iVillage may be required to change its trademarks, alter its
content, alter its site format and pay financial damages. There can be no
assurance that such changes of trademarks, alteration of content or format or
payment of financial damages will not adversely affect iVillage's business,
results of operations and financial condition.
iVillage filed a service mark application for the mark
"PARENTSPLACE.COM". On July 22, 1998, Jewish Family and Children's Services
filed a Notice of Opposition in the Trademark Trial and Appeal Board of the U.S.
Patent and Trademark Office. On January 22, 1999, we filed an Answer to the
Notice of Opposition, denying that there was any likelihood of confusion between
our mark, "PARENTSPLACE.COM", and the mark used by Children's Services.
Children's Services has proposed a resolution of this dispute that would allow
us to continue using the mark "PARENTSPLACE.COM". There can be no assurance that
a resolution can be achieved or that Children's Services will not be successful
in the Opposition proceeding, thus preventing iVillage from securing a federal
registration to the mark "PARENTSPLACE.COM". Further, there can be no assurance
that Children's Services will not assert a claim to trademark rights against
iVillage in the future with respect to the use of "PARENTSPLACE.COM" or
"PARENTSPLACE", either as currently used or as developed in the future. iVillage
is not able at this time to evaluate the likelihood of an unfavorable outcome in
the event such claims are asserted, or to estimate the amount or range of
potential loss.
iVillage may be required to obtain licenses from others to refine,
develop, market and deliver new services. There can be no assurance that
iVillage will be able to obtain any such license on commercially reasonable
terms or at all or that rights granted pursuant to any licenses will be valid
and enforceable.
Human Resources
As of June 30, 1999, iVillage employed 289 full-time employees, of whom
73 were in sales and marketing, 57 were in editorial and community, 69 were in
administration and 90 were in technology, operations and support. As of June 30,
1999, Lamaze Publishing employed 34 full-time employees, of whom 14 were in
sales and marketing, 6 were in editorial and product development, 11 were in
administration and 3 were in operations and support. As iVillage continues to
grow and introduce more products, it expects to hire more personnel,
particularly in
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the areas of product development and sponsorship. None of iVillage's or Lamaze
Publishing's current employees are represented by a labor union or is the
subject of a collective bargaining agreement. iVillage believes that relations
with its employees are good.
Facilities
iVillage is headquartered in New York, New York, where it leases an
aggregate of approximately 40,950 square feet of space. iVillage leases space in
two buildings located across the street from each other. iVillage leases one
floor at 170 Fifth Avenue, which is approximately 3,650 square feet. The lease
expires on October 31, 1999. iVillage leases two floors at 149 Fifth Avenue,
which are each approximately 10,000 square feet. The lease expires on June 30,
2000. iVillage has a third lease at 212 Fifth Avenue for approximately 10,000
square feet of space. The lease expires on June 30, 2000. iVillage currently
anticipates that it will require additional space as more personnel are hired.
iVillage is actively searching for larger space in New York City to serve as the
permanent space for the long-term future of iVillage.
iVillage also leases a sales office which is located at 645 North
Michigan Avenue, Chicago, Illinois. The lease is on a month-to-month basis.
iBaby is currently leasing approximately 5,115 square feet of space on
a month-to-month basis at 8400 Miramar Road, San Diego, California. iBaby also
is under contract to lease 39,629 rentable square feet at a facility being
constructed at 6910 Carroll Road in San Diego, California for use as general
office, administrative, storage, warehousing and distribution. iBaby has an
option to lease an additional 34,307 feet and has a one-time right of first
refusal with respect to this same expansion space. The lease is for a term of 24
months with the right to extend the lease term for an additional 5 years.
Lamaze Publishing subleases approximately 8,500 square feet of space at
9 Old Kings Highway, Darien, Connecticut. The sublease expires on June 30, 2000.
Legal Proceedings
On January 8, 1999, a complaint was filed in the Chancery Court for
Williamson County, Tennessee by a former employee against iVillage and three of
its officers. The complaint was subsequently amended to withdraw all claims
against two of those officers. The complaint alleges breach of an alleged
employment agreement and fraudulent inducement to accept a job in New York and
to move from Tennessee to New Jersey. In addition to unspecified damages, the
complaint seeks an award of options to purchase 100,000 shares of common stock.
On January 29, 1999, the case was removed from the Chancery Court to
the U.S. District Court for the Middle District of Tennessee. On March 12, 1999,
the U.S. District for the Middle District of Tennessee issued a ruling
transferring the case to the U.S. District Court for the Southern District of
New York. A motion by iVillage to dismiss the case has been filed and is
awaiting a decision. There is also pending a motion by the plaintiff for leave
to add as new plaintiffs two former executives who allege that iVillage breached
certain obligations to them and seek an award of an aggregate 560,000 stock
options. In addition, on August 11, 1999, the plaintiff filed a complaint with
the Equal Employment Opportunity Commission alleging gender discrimination in
connection with his termination of employment. We believe that the claims and
the proposed new claims are without merit and intend to vigorously defend
against such claims.
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This litigation, whether or not determined in our favor or settled by
us, may be costly and may divert the efforts and attention of our management
from normal business operations.
iVillage is not currently subject to any other material legal
proceedings other than as set forth in " - Intellectual Property, Proprietary
Rights and Domain Names". iVillage may from time to time become a party to
various legal proceedings arising in the ordinary course of its business.
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MANAGEMENT
Directors and Executive Officers
The following table sets forth the directors and executive officers of
iVillage, their ages and the positions held by them with iVillage as of August
26, 1999.
Name Age Position
Candice Carpenter(e)........... 47 Co-Chairperson of the Board and Chief
Executive Officer
Nancy Evans(e)................. 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
Caterina A. Conti.............. 37 General Counsel and Secretary
Donna M. Introcaso............. 41 Senior Vice President,
Human Resources
Steven A. Elkes................ 38 Senior Vice President, Business Affairs
and Assistant Secretary
Elizabeth J. Hudson............ 50 Senior Vice President,
Corporate Communications
Scott Levine................... 34 Vice President, Controller and Chief
Accounting Officer
Alan Colner(c)................. 44 Director
Jay C. Hoag(a)(d).............. 40 Director
Habib Kairouz(b)(e)............ 33 Director
Lennert J. Leader(a)(c)........ 44 Director
Michael Levy(b) (c)............ 52 Director
Douglas McCormick(b)(d)........ 49 Director
Daniel Schulman(d)............. 41 Director
Martin Yudkovitz(a)(e)......... 44 Director
(a) Member of the audit committee.
(b) Member of the compensation committee.
(c) Class I director
(d) Class II director
(e) Class III director
Candice Carpenter is a founder of iVillage and has been Chairperson of
the Board and Chief Executive Officer since 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
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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.
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.
Caterina A. Conti has been General Counsel and Secretary since November
1998. From January 1998 to November 1998, Ms. Conti was a partner with the law
firm of Orrick, Herrington & Sutcliffe LLP. From December 1995 to January 1998,
she was an associate with the same firm. From September 1988 to December 1995,
Ms. Conti was an associate with the law firm of Kelley Drye & Warren LLP. Ms.
Conti received her J.D. from St. John's University School of Law and her B.S.
from St. John's University. Ms. Conti has resigned from iVillage as General
Counsel and Secretary effective October 19, 1999 in order to pursue personal
interests. Ms. Conti will continue with iVillage as an employee performing
services on a special projects basis.
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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
was the Director of Human Resources at iGuide, an on-line 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 Assistant Secretary since September 1997. From August 1996 to
April 1999, Mr. Elkes was Vice President, Business Affairs. From August 1993 to
April 1999, 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.
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.
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.
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
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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.
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.
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. 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 manager at Price
Waterhouse. Mr. Leader serves as a director at 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.
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 June 1999, Mr. Schulman had been 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.
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
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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 Composition
iVillage's bylaws provides for a classified board of directors
consisting of three classes. The term of the initial Class I directors,
consisting of three directors, will terminate on the date of the 1999 annual
meeting of stockholders; the term of the initial Class II directors, consisting
of three directors, will terminate on the date of the 2000 annual meeting of
stockholders; and the term of the initial Class III directors, consisting of
four directors, will terminate on the date of the 2001 annual meeting of
stockholders. At each annual meeting of stockholders, the successors to
directors whose term will then expire will be elected to serve from the time of
election and qualification until the third annual meeting following election. In
addition, iVillage's bylaws provide that the authorized number of directors may
be changed only by resolution of the board of directors. Any additional
directorships resulting from an increase in the number of directors will be
distributed among the three classes so that, as nearly as possible, each class
will consist of one-third of the total number of directors. This classification
of the board of directors may have the effect of delaying or preventing changes
in control or management of iVillage. Please see "Description of Capital Stock
Certain Charter and Bylaw Provisions and Delaware Anti-Takeover Statute".
Each officer is elected by, and serves at the discretion of, the board
of directors. Each of iVillage's officers and directors, other than nonemployee
directors, devotes full time to the affairs of iVillage. iVillage's nonemployee
directors devote such time to the affairs of iVillage as is necessary to
discharge their duties. There are no family relationships among any of the
directors, officers or key employees of iVillage.
Board Committees
The audit committee of the board of directors reviews the internal
accounting procedures of iVillage and consults with and reviews the services
provided by iVillage's independent accountants. The audit committee currently
consists of Jay C. Hoag, Lennert J. Leader and Martin Yudkovitz.
The compensation committee of the board of directors reviews and
recommends to the Board the compensation and benefits of all executive officers
of iVillage, administers iVillage's stock option plans and establishes and
reviews general policies relating to compensation and benefits of employees of
iVillage. The compensation committee currently consists of Douglas McCormick,
Habib Kairouz and Michael Levy. Except as set forth in "Certain Transactions",
no interlocking relationships exist between iVillage's board of directors or
compensation committee and the board of directors or compensation committee of
any other company, nor has any such interlocking relationship existed in the
past.
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Director Compensation
Directors do not currently receive 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. iVillage does not provide additional compensation for committee
participation or special assignments of the board of directors. 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. Nonemployee directors of iVillage are eligible to
receive nondiscretionary, automatic grants of options to purchase shares of
iVillage's common stock pursuant to the 1999 Director Option Plan. Please see "
Stock Option Plans" and "Certain Transactions".
Executive Compensation
The following table sets forth the total compensation paid or accrued
for the year ended December 31, 1998 for iVillage's Chief Executive Officer and
its four most highly compensated executive officers, other than its Chief
Executive Officer, whose salary and bonus for such fiscal year were in excess of
$100,000.
Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term
Compensation
------------
Awards
------
Annual Securities
Compensation Underlying
------------ Options/SARs
Name and Principal Position Salary ($) Bonus ($) (#)(1)
- --------------------------- ---------- --------- -------------
<S> <C> <C> <C>
Candice Carpenter
Chief Executive Officer........................... $225,000 $ -- 153,333
Nancy Evans
Editor-in-Chief................................... 195,000 -- 76,667
John W. Glascott
Senior Vice President, Sponsorship................ 155,906 50,000 66,667
Stephen Lake
Senior Vice President, Business Development....... 146,250 -- 8,333
Steven A. Elkes
Senior Vice President, Business Affairs........... 158,968 12,150 16,667
</TABLE>
(1) Options were granted under iVillage's 1995 Amended and Restated Employee
Stock Option Plan and vest 1/4 of the total after one year and 1/4 of the
total at the end of each year thereafter.
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Option Grants in Last Fiscal Year
The following table sets forth grants of stock options to iVillage's
Chief Executive Officer and its four most highly compensated executive officers,
other than its Chief Executive Officer, for the 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.
Option Grants in Last Fiscal Year
<TABLE>
<CAPTION>
Individual Grants
----------------------------------------------------------
Percent of
Total Potential Realizable
Options Value at Assumed
Number of Granted to Annual Rates of Stock
Securities Employees Exercise Price Appreciation for
Underlying in Fiscal Price per Option Term
Options Year Share Expiration -----------
Name Granted (#) (%)(1) ($/SH) Date 5%($) 10%($)
- ---- ----------- ----------- ------------ ---- ----- ------
<S> <C> <C> <C> <C> <C> <C>
Candice Carpenter............ 153,333 10% $6.00 5/25/05 $374,532 $872,820
Nancy Evans.................. 76,667 5 6.00 5/25/05 187,266 436,410
John W. Glascott............. 66,667 4 6.00 4/4/05 162,840 379,487
Stephen Lake................. 8,333 1 6.00 5/25/05 20,355 47,436
Steven A. Elkes.............. 16,667 1 6.00 4/1/05 40,710 94,872
</TABLE>
- -------------
(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 provides certain summary information concerning
stock options held as of December 31, 1998 by iVillage's Chief Executive Officer
and its four most highly compensated executive officers, other than its Chief
Executive Officer. 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.
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Fiscal Year End Option Values
<TABLE>
<CAPTION>
Value of Unexercised
Number of Securities Underlying In-The-Money Options
Unexercised Options at Fiscal Year-End
----------------------------------------- ----------------------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
- ---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Candice Carpenter............ 23,333 223,333 $101,500 $833,500
Nancy Evans.................. -- 76,667 -- 264,500
John W. Glascott............. -- 66,667 -- 230,000
Stephen Lake................. 14,583 52,083 63,438 219,063
Steven A. Elkes.............. 9,583 40,417 41,688 160,813
</TABLE>
Stock Option Plans
iVillage's currently active stock option plans include: the 1995
Amended and Restated Employee Stock Option Plan, the 1997 Amended and Restated
Acquisition Stock Option Plan, the 1999 Employee Stock Option Plan, the 1999
Acquisition Stock Option Plan and the 1999 Director Option Plan. Each of the
plans, except for the 1999 Director Option Plan, provides for:
o the grant of incentive stock options and non-qualified stock
options;
o the administration of the plan by the Board of Directors and the
Compensation Committee; and
o the exercise price of options granted under the plan to be as
determined by the board, except that the exercise price of
incentive stock options must be at least as equal to the fair
market value of iVillage's common stock on the date of grant.
Each of the plans provides for option vesting to accelerate and become
fully vested in the event of a change of control of iVillage where the options
are not assumed or substituted by a successor corporation.
Under the 1999 Director Option Plan, commencing with the 2000 annual
meeting of stockholders, each nonemployee director will automatically be granted
a nonstatutory option to purchase 1,666 shares of common stock, provided that he
or she has served on the Board of Directors for at least six months as of that
date. The exercise price of each of these options will be equal to the fair
market value of the common stock on the date of grant. Each option granted will
vest 25% annually over a four-year period. As of August 31, 1999, 133,333 shares
were authorized under the 1999 Director Option Plan, options to purchase an
aggregate of 66,667 shares had been granted and 66,666 shares were available for
future grant.
As of August 31, 1999, under the 1995 Amended and Restated Employee
Stock Option Plan, options to purchase 1,820,549 shares were authorized,
1,620,277 shares were outstanding and 41,559 shares were available for future
grant. Under the 1997 Amended and Restated Acquisition Stock Option Plan,
options to purchase 360,727 shares were outstanding and no shares were available
for future grant. As of August 31, 1999, under the 1999 Employee Stock Option
Plan, 1,438,830 shares were authorized, options to purchase 1,364,060 shares had
been granted, and 74,769 shares were available for future grant. As of August
31, 1999, under the 1999 Acquisition Stock Option Plan, 333,333 shares were
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authorized, options to purchase 333,333 shares had been granted and no shares
were available for future grant.
1999 Employee Stock Purchase Plan
The 1999 Employee Stock Purchase Plan is intended to qualify under
Section 423 of the Internal Revenue Code and will be administered by the board
of directors or by the Compensation Committee. Any employee who is customarily
employed for more than 20 hours per week and more than five months in any
calendar year by iVillage or a participating subsidiary owned 50% or more by
iVillage, will be eligible to participate. A total of 83,333 shares are
authorized and reserved for issuance under the plan.
Under the plan, iVillage will withhold a whole percentage (up to 15%,
as elected by the employee) from each salary or commission payment to a
participating employee over certain offering periods. Payroll distributions are
after tax and are limited to $25,000 per calendar year. Unless determined
otherwise by the board or the Committee, each offering period will run for 24
months and will be divided into four consecutive purchase periods of
approximately six months. The first offering period and the first purchase
period currently is expected to commence by October 1, 1999. In the event of a
change of control of iVillage, the offering and purchase periods will be
shortened unless the rights to purchase stock are assumed by the successor or
acquiring company. The price at which common stock will be purchased under the
plan is equal to 85% of the fair market value of the common stock on the first
day of the applicable offering period or the last day of the applicable purchase
period, whichever is lower.
Change of Control
iVillage's board of directors has adopted resolutions providing that,
in the event of a change of control of iVillage, 50% and 100% of the unvested
stock options held by iVillage's employees and senior executive officers,
respectively, will immediately vest. A change of control is defined as the
acquisition by a third party of 50% or more of iVillage's voting securities and
control of 50% or more of the members of iVillage's board of directors in office
at that time. The remaining unvested stock options held by iVillage's employees
will vest one year after the change of control event. If an iVillage employee is
terminated without cause or leaves his or her employment for good reason, during
the first year after the change of control event, then 100% of the terminated
employee's unvested stock options will immediately vest. A good reason includes
a reduction in the employee's title or responsibilities as a result of the
change of control event.
Limitation of Liability of Directors and Officers
Section 145 of the Delaware General Corporation Law permits a
corporation, to indemnify its officers, directors, employees and other
individuals against expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement that are actually and reasonably incurred in
connection with any threatened, pending or completed actions, suits or
proceedings that they become involved in because of their status as an officer,
director, employee or agent of the corporation. Our certificate of incorporation
and bylaws require iVillage to indemnify our officers and directors to the
fullest extent permitted under this Section, except that we will indemnify a
director or officer in connection with an action initiated by that person only
if the action was authorized by our board of directors. The indemnification
includes the right to be paid expenses in
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advance of the final disposition of a proceeding, but only if the director or
officer agrees to repay the amounts if it is determined he or she is not
entitled to indemnification.
Also as permitted by the Delaware General Corporation Law, our
certificate of incorporation provides that our directors are not personally
liable to us or our stockholders for monetary damages for breach of fiduciary
duty as a director, except for liability for any breach of the director's duty
of loyalty to us or our stockholders; for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law; under
Section 174 of the Delaware General Corporation Law, relating to unlawful
dividends or unlawful stock purchases or redemptions; or for any transaction
where the director derives an improper personal benefit. As result of this
provision, we and our stockholders may be unable to obtain monetary damages from
a director for breach of his or her duty of care.
Under our bylaws, we have the power to purchase and maintain insurance
on behalf of any person who is or was one of our directors, officers, employees
or agents, against any liability asserted against the person or incurred by him
or her in one of these roles, whether or not we would have the power to
indemnify the person against the claim under the provisions of the Delaware
General Corporation Law. We have purchased director and officer liability
insurance on behalf of our directors and officers.
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. Certain of such liabilities may not be covered
by insurance.
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<PAGE>
CERTAIN TRANSACTIONS
In April 1996, iVillage issued to AOL a promissory note in the
principal amount of $500,000 with interest payable at the rate of 10% per annum.
In May 1996, iVillage entered into an information provider agreement
with AOL, pursuant to which AOL agreed to carry up to four additional iVillage
channels for a period of two years. As an inducement to, and in consideration
of, AOL entering into such agreement, iVillage issued to AOL a warrant to
purchase 800,000 shares of series B convertible preferred stock at an exercise
price of $2.50 per share or 266,666 shares, on a post-split basis, at an
exercise price of $7.50 per share.
In May 1996, iVillage issued shares of series B convertible preferred
stock and series B-1 convertible preferred stock to certain investors, including
AOL, at a purchase price of $2.50 per share. iVillage issued to AOL 797,130
shares of series B convertible preferred stock and 300,000 shares of series B-1
convertible preferred stock. iVillage issued such shares to AOL in exchange for
the cancellation of the notes whereby iVillage received $1.1 million and
$500,000 in February and April 1996, respectively. Upon completion of iVillage's
initial public offering on March 24, 1999, the series B convertible preferred
stock and series B-1 convertible preferred stock automatically converted into an
aggregate of 1,810,407 shares of common stock.
In February 1997, iVillage entered into a note and warrant purchase
agreement with AOL and several other investors. iVillage issued to AOL a
convertible secured promissory note in an aggregate principal amount of
$900,000. In connection with the issuance of these notes, iVillage issued a
stock subscription warrant to AOL, representing the right to purchase 66,875
shares of common stock at an exercise price of $5.86 per share.
In April 1997, iVillage issued to AOL a convertible secured promissory
note in an aggregate principal amount of $1 million. In April 1997, AOL
exchanged the note issued to it in February 1997 for an amended and restated
convertible secured promissory note in an aggregate principal amount of
approximately $1.3 million.
In May 1997, iVillage issued shares of series C convertible preferred
stock to certain investors, including AOL and Rho Management Trust I, at a
purchase price of $1.954 per share. AOL converted the note it received in April
1997 for approximately $1.3 million and $200,000 of the note for $1 million it
received in April 1997 for 793,245 shares of series C convertible preferred
stock. Upon completion of iVillage's initial public offering on March 24, 1999,
the series C convertible preferred stock automatically converted into an
aggregate of 4,397,815 shares of common stock.
Number of Shares
of Series C
Name of Investor Preferred Stock
- ---------------- ---------------
Entities Affiliated with Directors
America Online, Inc.................................. 1,202,661
Rho Management Trust I............................... 3,070,624
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In connection with the acquisition of Health ResponseAbility Systems,
Inc. in May 1997, iVillage issued to AOL 203,000 shares of common stock for
AOL's equity rights in Health ResponseAbility Systems.
In July 1997, iVillage entered into an interactive services agreement
with AOL, in which some of iVillage's icons are placed within the AOL service.
In consideration for AOL carrying certain channels of iVillage, iVillage
received a guaranty of a minimum number of impressions per year. Lennert Leader,
a director of iVillage, currently serves as President of AOL Investments.
In December 1997, AOL converted the remaining $800,000 aggregate
principal amount of the note it received in April 1997 into 409,416 shares of
series C convertible preferred stock.
In January 1998, iVillage entered into a shopping channel promotional
agreement with AOL, in which 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 expires on October 1, 1999. iVillage makes payments
to AOL in monthly installments for AOL's promotion of iVillage.
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.
Number of Shares
of Series D
Name of Investor Preferred Stock
- ---------------- ---------------
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
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
the note is 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 invoiced in 1999.
In addition, in 1998, iVillage received 2,243 shares of
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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, the series E convertible preferred stock
automatically converted into an aggregate of 3,910,316 shares of common stock.
Number of Shares
of Series E
Name of Investor Preferred Stock
- ---------------- ---------------
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
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, 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 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
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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.
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PRINCIPAL STOCKHOLDERS
The following table sets forth information with respect to beneficial
ownership of iVillage common stock, as of August 26, 1999 for:
o each person known by iVillage to beneficially own more than 5%
of the common stock;
o each director of iVillage;
o each executive officer named in the Summary Compensation Table; and
o all directors and executive officers of iVillage as a group.
Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and includes voting or investment power with
respect to the securities. The address for each listed director and officer is
c/o iVillage Inc., 170 Fifth Avenue, New York, New York 10010. Except as
indicated by footnote, and subject to applicable community property laws, the
persons named in the table have sole voting and investment power with respect to
all shares of common stock shown as beneficially owned by them. The number of
shares of common stock outstanding used in calculating the percentage for each
listed person includes the shares of common stock underlying options or warrants
held by such person that are exercisable within 60 days of August 26, 1999, but
excludes shares of common stock underlying options or warrants held by any other
person. Percentage of beneficial ownership is based on 26,124,266 shares of
common stock actually outstanding as of August 26, 1999. "Shares Beneficially
Owned" includes "Shares Issuable Upon Exercise of Stock Options or Warrants".
<TABLE>
<CAPTION>
Shares Shares Issuable Upon
Beneficially Exercise of Stock Percentage of Shares
Owned Options or Warrants Beneficially Owned
----- ------------------- ------------------
<S> <C> <C> <C>
America Online, Inc.
22000 AOL Way
Dulles, Virginia 20166-9323................... 2,404,840 350,908 9.1
National Broadcasting Company, Inc.(1)
30 Rockefeller Plaza
New York, New York 10112...................... 1,838,009 -- 7.0
Rho Management Trust I(2)
Fifth Avenue
New York, New York 10153...................... 1,662,842 -- 6.4
Candice Carpenter(3).......................... 751,668 85,001 2.9
Nancy Evans(4)................................ 352,500 19,167 1.3
</TABLE>
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<PAGE>
<TABLE>
<S> <C> <C> <C>
Alan Colner(5)................................ 743,293 -- 2.8
Jay C. Hoag(6)................................ 616,634 -- 2.4
Habib Kairouz(7).............................. 1,662,842 -- 6.4
Lennert J. Leader(8).......................... 2,404,840 350,908 9.1
Michael Levy.................................. 38,333 16,667 *
Douglas McCormick............................. 11,111 11,111 *
Daniel Schulman............................... 5,556 5,556 *
Martin Yudkovitz(9)........................... 1,842,009 -- 7.1
Steven A. Elkes............................... 19,350 16,250 *
Stephen Lake.................................. 34,001 31,251 *
John W. Glascott.............................. 19,668 16,668 *
All directors and executive
officers as a group (19 persons).......... 8,946,201 635,000 33.4
</TABLE>
* Represents beneficial ownership of less than one percent of the common stock.
(1) According to a Schedule 13D, dated March 31, 1999, the National
Broadcasting Company, Inc. has sole voting and dispositive power over all
shares.
(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.
(3) Includes 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 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
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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 2,404,840 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) Mr. Yudkovitz is President and Chief Executive Officer of NBC Multimedia,
Inc., a division of the National Broadcasting Company, Inc. 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.
SELLING STOCKHOLDERS
The following table sets forth certain information regarding the
beneficial ownership of iVillage common stock as of August 26, 1999 by persons
who:
o acquired shares in connection with iVillage's acquisition of
Astrology.Net in February 1999;
o acquired shares in connection with iVillage's acquisition of the
iBaby minority interest in March 1999; and
o acquired shares in connection with iVillage's acquisition of
Lamaze Publishing.
The shares are being registered to permit public secondary trading of
these shares, and each of the selling stockholders may offer the shares for
resale from time to time. Please see "Plan of Distribution".
<TABLE>
<CAPTION>
Before the Offering After the Offering
------------------- ------------------
Percent of
Shares
Name of Number of Percent of Shares Number of Number of Beneficially
Beneficial Owner (1) Shares Beneficially Owned Shares Offered Shares (2) Owned
- --------------------------------- --------- ------------------ -------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Bruce F. Failing, Jr.(3)......... 345,844 1.3 345,844 -- --
Elizabeth F. Failing and
Leigh Q. Failing, as
trustees of The Failing
Trust f/b/o Lindsay
Failing (3)................... 169,141 * 169,141 -- --
</TABLE>
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<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C>
Elizabeth F. Failing and
Leigh Q. Failing, as
trustees of The Failing
Trust f/b/o Bruce F.
Failing III(3)................ 169,141 - 169,141 -- --
Norton Garfinkle(3).............. 345,844 1.3 345,844 -- --
Norton Garfinkle, as
trustee of The Gillian
Garfinkle S Corporation
Trust......................... 169,141 * 169,141 -- --
Norton Garfinkle, as
trustee of The Nicholas
Garfinkle S Corporation
Trust(3)...................... 169,141 * 169,141 -- --
Robert C. Ford(3)................ 146,327 * 146,327 -- --
David Diamond(3) ................ 79,719 * 79,719 -- --
Virginia Cargill(3)(4)........... 50,612 * 50,612 -- --
Douglas Bivona(3)(4)............. 33,741 * 33,741 -- --
Paul Kessinger(3)(4)............. 8,435 * 8,435 -- --
Brown Brothers Harriman & Co..... 37,640 * 37,640 -- --
Lamaze International, Inc........ 23,967 * 23,967 -- --
OurBaby, LLC..................... 117,085 * 117,085 -- --
JBM Ventures, Inc................ 5,227 * 5,227 -- --
Lisa Tudor....................... 1,568 * 1,568 -- --
Barbara Robinson................. 1,568 * 1,568 -- --
Astrology.Net stockholders(5).... 802,125 3.1 802,125 -- --
</TABLE>
- -----------
* less than one percent
(1) Except as indicated by footnote and subject to applicable community
property laws and except for shares deposited into escrow with
Continental Stock Transfer & Trust Company, the persons named in the
table have sole voting and investment power with respect to the shares
of common stock owned by them.
(2) As1umes the sale by the selling stockholders of all of the shares
offered for sale under this prospectus.
(3) A portion of the shares are subject to an indemnification escrow
agreement which will expire on February 20, 2001.
(4) A portion of the shares are subject to an indemnification escrow
agreement which will expire on February 20, 2001. In addition, another
portion of shares are expected to be sold to cover applicable
withholding taxes.
(5) 150,000 of the shares are subject to an indemnification escrow
agreement which will expire in August 2000.
Except as noted below, none of the selling stockholders has had a
material relationship with iVillage within the past three years other than its
interest in the transaction by which iVillage acquired Astrology.Net, the iBaby
minority interest and Lamaze Publishing, as the case may be, and the selling
stockholder's ownership of iVillage common stock as a result.
PLAN OF DISTRIBUTION
Under the Agreement and Plan of Reorganization among iVillage, Lamaze
Publishing, the Lamaze Publishing stockholders and certain other parties,
iVillage issued 1,748,693 shares of the
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2,676,266 shares of common stock offered hereby to certain of the selling
stockholders in connection with its acquisition of Lamaze Publishing. Pursuant
to this acquisition, we agreed to register the shares under the Securities Act
of 1933 for resale to the public. Under the Agreement and Plan of Reorganization
we are required to use our best efforts to cause this registration statement to
be declared effective by the Securities and Exchange Commission as soon as
practicable after our purchase of Lamaze Publishing is completed and, subject to
certain exceptions, to keep this registration statement continuously effective
under the Securities Act until the earlier of (1) such time as certain selling
stockholders have sold all their shares offered by this prospectus, or (2) one
year following the date of effectiveness of the registration statement.
According to the terms of the Agreement and Plan of Reorganization,
iVillage directed 15% of the common stock it issued in the Lamaze Publishing
acquisition (excluding the shares it put in escrow to pay the withholding taxes
of the holders of stock appreciation units, as explained below) into an escrow
account as security for the indemnification obligations of the selling
stockholders and the holders of stock appreciation units of Lamaze Publishing.
Continental Stock Transfer and Trust Company, iVillage's transfer agent, is the
designated escrow agent. The escrow account will terminate on February 20, 2001,
subject to any unresolved indemnification claims. Under such arrangements, the
escrow agent will sell shares at the direction of the Lamaze Publishing
stockholders and stock appreciation unit holders and retain the proceeds in
escrow.
The holders of stock appreciation units of Lamaze Publishing received
their shares immediately prior to the effectiveness of the registration
statement of which this prospectus is a part. The shares issuable to the holders
of stock appreciation units will be treated as compensation for tax purposes,
and withholding taxes on the shares must be paid within one day of receipt of
the shares by the holders of stock appreciation units. iVillage directed a
portion of these shares into an escrow account to cover possible payment of the
taxes. In the event iVillage pays the taxes, Continental Stock Transfer and
Trust Company, who is the designated escrow agent under this arrangement, will
sell the shares held in escrow and deliver the proceeds to iVillage.
In addition, in March 1999, iVillage issued 125,448 shares of the
2,676,266 shares of common stock offered hereby to certain of the selling
stockholders in connection with its acquisition of the minority interest in
iBaby. In February 1999, iVillage issued 802,125 shares of the 2,676,266 shares
of common stock offered hereby to certain of the selling stockholders of
Astrology.Net in connection with its acquisition of Astrology.Net. As part of
both sales, iVillage granted piggyback registration rights to the iBaby
stockholders and the Astrology.Net stockholders with respect to their shares of
iVillage common stock. With respect to the iBaby and Astrology.Net selling
stockholders, iVillage has agreed to keep this registration statement
continuously effective under the Securities Act until the earlier of (1) 180
days after the date of effectiveness or (2) such time as all of the shares held
by the iBaby and the Astrology.Net selling stockholders have been disposed of.
All of the iBaby and Astrology.Net selling stockholders are subject to lock-up
agreements under which they have agreed not to transfer or dispose of, directly
or indirectly, any shares of common stock until September 14, 1999.
The sale of all or a portion of the shares of common stock offered
hereby by the selling stockholders may be effected from time to time at
prevailing market prices at the time of such sales, at prices related to such
prevailing prices, at fixed prices that may be changed or at negotiated prices.
The selling stockholders may effect such transactions by selling directly to
purchasers in negotiated transactions, to dealers acting as principals or
through one or more brokers, or any
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combination of these methods of sale. In addition, shares may be transferred in
connection with the settlement of call options, short sales, through the
issuance of exchangeable or convertible securities or similar transactions that
may be effected by the selling stockholders. Dealers or brokers may receive
compensation in the form of discounts, concessions or commissions from the
selling stockholders and/or purchasers of shares for whom they may act as agent
(which compensation may be in excess of customary commissions). The selling
stockholders and any brokers or dealers that participate in the distribution may
under certain circumstances be deemed to be "underwriters" within the meaning of
the Securities Act, and any commissions received by such brokers or dealers and
any profits realized on the resale of shares by them may be deemed to be
underwriting discounts and commissions under the Securities Act. iVillage and
the selling stockholders may agree to indemnify such brokers or dealers against
certain liabilities, including liabilities under the Securities Act.
To the extent required under the Securities Act or the rules of the
Securities and Exchange Commission, a supplemental prospectus will be filed,
disclosing (1) the name of any such brokers or dealers, (2) the number of shares
involved, (3) the price at which such shares are to be sold, (4) the commissions
paid or discounts or concessions allowed to such brokers or dealers, where
applicable, (5) that such brokers or dealers did not conduct any investigation
to verify the information set out in this prospectus, as supplemented, and (6)
other facts material to the transaction.
There is no assurance that the selling stockholders will sell any or
all of the shares of common stock offered hereby.
iVillage has agreed to pay the expenses incurred in connection with the
registration of the shares of common stock offered hereby. The selling
stockholders will be responsible for all selling commissions, transfer taxes and
related charges in connection with the offer and sale of such shares.
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DESCRIPTION OF CAPITAL STOCK
General
iVillage's certificate of incorporation authorizes the issuance of up
to 65,000,000 shares of common stock, par value $0.01 per share, and 5,000,000
shares of preferred stock, par value $0.01 per share, the rights and preferences
of which may be established from time to time by iVillage's board of directors.
As of August 26, 1999, 26,124,266 shares of common stock were outstanding and no
shares of preferred stock were outstanding.
Common Stock
Each holder of common stock is entitled to one vote for each share on
all matters to be voted upon by the stockholders and there are no cumulative
voting rights. Subject to preferences that may be applicable to any preferred
stock outstanding at the time, holders of common stock are entitled to receive
ratably dividends, if any, as may be declared from time to time by the board of
directors out of funds legally available therefor. In the event of a
liquidation, dissolution or winding up of iVillage, holders of common stock
would be entitled to share in iVillage's assets remaining after the payment of
liabilities and liquidation preferences on any outstanding preferred stock.
Holders of common stock have no preemptive or conversion rights or other
subscription rights and there are no redemption or sinking fund provisions
applicable to the common stock. All outstanding shares of common stock are fully
paid and nonassessable.
Preferred Stock
The board of directors is authorized, subject to Delaware law, without
stockholder approval, from time to time to issue up to an aggregate of 5,000,000
shares of preferred stock in one or more series. The board of directors can fix
the rights, preferences and privileges of the shares of each series and any
qualifications, limitations or restrictions. Issuance of preferred stock, while
providing desirable flexibility in connection with possible acquisitions and
other corporate purposes, could have the effect of making it more difficult for
a third party to acquire, or of discouraging a third party from attempting to
acquire a majority of the outstanding voting stock of iVillage. iVillage has no
present plans to issue any shares of preferred stock.
Warrants
As of June 30, 1999, iVillage had outstanding warrants to purchase
1,020,625 shares of common stock at a weighted average exercise price of $12.53
per share. These warrants have net exercise provisions under which the holder
may, in lieu of payment of the exercise price in cash, surrender the warrant and
receive a net amount of shares, based on the fair market value of iVillage's
common stock at the time of the exercise of the warrant, after deducting the
aggregate exercise price. These warrants expire on dates ranging from September
2000 to May 2003.
Registration Rights
According to the terms of the Fourth Amended and Restated Rights
Agreement, as amended, the holders of 40% of the outstanding shares of common
stock, including shares issuable upon the exercise of warrants to purchase
common stock, are entitled to demand that iVillage file a registration statement
with respect to the registration of such shares under the Securities Act.
iVillage is not required to effect:
85
<PAGE>
o more than four registrations;
o a registration during any period in which any other
registration statement has been filed or has been declared
effective within the prior 180 days;
o a registration within 60 days following the determination of the
board of directors of iVillage to file a registration statement;
or
o a registration for a period not to exceed 60 days, if the
board of directors of iVillage has made a good faith
determination that it would be seriously detrimental to
iVillage or the holders of registration rights for a
registration statement to be filed.
In addition, one stockholder is entitled to one separate demand
registration right with respect to the registration of its 1,629,676 shares of
common stock under the Securities Act, subject to the limitations set forth
above. Furthermore, according to the terms of the registration rights agreement
the holders of 18,829,174 shares of common stock, including shares issuable upon
the exercise of warrants to purchase common stock, are entitled to piggyback
registration rights in connection with any registration by iVillage of its
securities for its own account or the account of other securityholders. In the
event that iVillage proposes to register any shares of common stock under the
Securities Act, the holders of the piggyback registration rights are entitled to
receive notice and are entitled to include their shares in the registration
statement.
At any time after iVillage becomes eligible to file a registration
statement on Form S-3, certain holders of demand registration rights may require
iVillage to file an unlimited number of registration statements on Form S-3
under the Securities Act with respect to their shares of common stock. iVillage
is not required to effect more than one such registration in any six-month
period.
iVillage has also granted piggyback registration rights to (i) the
former Astrology.Net stockholders with respect to the 802,125 shares of iVillage
common stock issued to such stockholders in connection with iVillage's
acquisition of Astrology.Net, (ii) the former minority stockholders of iBaby
with respect to the 125,448 shares of iVillage common stock issued to such
stockholders in connection with iVillage's acquisition of the iBaby minority
interest, and (iii) the former OnLine Psych and Code Stone stockholders with
respect to the 571,709 shares of iVillage common stock issued to such
stockholders in connection with iVillage's acquisition of OnLine Psych and
CodeStone, in each case pursuant to separate registration rights agreements and
subject to the piggyback registration rights of the holders under the Fourth
Amended and Restated Rights Agreement. The former Astrology.Net stockholders and
the former minority stockholders of iBaby have exercised their piggyback
registration rights and all of their shares are being registered on the
registration statement of which this prospectus forms a part. None of the former
Astrology.Net stockholders, former minority stockholders of iBaby or former
OnLine Psych and CodeStone stockholders have demand registration rights nor do
they have the right to require iVillage to file registration statements on Form
S-3.
The registration rights of any holder terminate when the shares held by
the holder may be sold under Rule 144 during any three-month period. iVillage is
generally required to bear all of the expenses of all registrations under the
registration rights agreements, except underwriting discounts and commissions.
The registration rights agreements also contain a commitment of iVillage to
indemnify the holders of registration rights.
86
<PAGE>
Effective as of July 23, 1999, the Fourth Amended and Restated Rights
Agreement was amended to provide that the holders of registrable shares
thereunder do not have piggyback registration rights with respect to
registration of their shares on the registration statement of which this
prospectus is a part thereof. The iBaby stockholders and the Astrology.Net
stockholders did not consent to a similar amendment of the iBaby registration
rights agreement and Astrology.Net registration rights agreement, respectively.
The OnLine Psych registration rights agreement was not amended as it already
contains a similar exception to the piggyback registration rights of the holders
of registrable shares thereunder.
According to a registration rights agreement entered into in connection
with the Family Point acquisition, iVillage has agreed to file a shelf
registration statement with respect to the approximately 550,000 shares of
common stock issued to the Family Point stockholders within 90 days after the
closing of the acquisition. Under certain circumstances, iVillage may defer the
filing of the shelf registration statement. In addition, Family Point
stockholders have piggyback registration rights subject to the piggyback
registration rights of iVillage's exisiting holders of registrable shares.
Certain Charter and Bylaws Provisions and Delaware Anti-Takeover Statute
iVillage is subject to Section 203 of the Delaware General Corporation
Law regulating corporate takeovers. This section prevents Delaware corporations
from engaging under certain circumstances, in a "business combination", which
includes a merger or sale of more than 10% of the corporation's assets, with any
"interested stockholder", or a stockholder who owns 15% or more of the
corporation's outstanding voting stock, as well as affiliates and associates of
any such persons, for three years following the date such stockholder became an
"interested stockholder" unless:
o the transaction in which such stockholder became an
"interested stockholder" is approved by the board of directors
prior to the date the "interested stockholder" attained such
status;
o upon consummation of the transaction that resulted in the
stockholder's becoming an interested stockholder, the
interested stockholder owned at least 85% of the voting stock
of the corporation outstanding at the time the transaction
commenced, excluding those shares owned by persons who are
directors and also officers; or
o on or after the date the business combination is approved by
the board of directors and authorized at an annual or special
meeting of stockholders by the affirmative vote of at least
two-thirds of the outstanding voting stock that is not owned
by the interested stockholder.
iVillage's bylaws divide the board of directors into three classes of
directors with each class serving a staggered three-year term. The
classification system of electing directors may tend to discourage a third party
from making a tender offer or otherwise attempting to obtain control of iVillage
and may maintain the incumbency of the board of directors, as the classification
of the board of directors generally increases the difficulty of replacing a
majority of the directors. iVillage's certificate of incorporation eliminates
the right of stockholders to act by written consent without a meeting and
iVillage's bylaws eliminate the right of stockholders to call special meetings
of stockholders. The certificate of incorporation and bylaws do not provide for
cumulative voting in the election of directors. The authorization of
undesignated preferred stock makes it possible for the board of directors to
issue preferred stock with voting or other rights or preferences that could
impede the success of any attempt to change control of iVillage. These and other
provisions may have the effect of deferring hostile takeovers or delaying
changes in control or management of iVillage. The amendment of any of these
provisions would require approval by holders of at least 66 2/3% of the
outstanding common stock.
87
<PAGE>
Transfer Agent and Registrar
The transfer agent and registrar for the common stock is Continental
Stock Transfer & Trust Company.
SHARES ELIGIBLE FOR FUTURE SALE
Sales of substantial amounts of our common stock in the public market
could adversely affect prevailing market prices of our common stock.
Furthermore, because of the contractual and legal restrictions on resale
described below, sales of substantial amounts of common stock in the public
market after these restrictions lapse could adversely affect the prevailing
market price and our ability to raise equity capital in the future.
As of August 26, 1999, an aggregate of 26,124,266 shares of our common
stock were outstanding. Of these shares, 4,197,500 shares are freely tradeable
without restriction or further registration under the Securities Act, unless
such shares are owned by "affiliates" as that term is defined in Rule 144 under
the Securities Act. The remaining 21,926,766 shares of common stock are
"restricted securities" as that term is defined in Rule 144 under the Securities
Act. Restricted securities may be sold in the public market only if registered
or if they qualify for an exemption from registration under Rule 144 under the
Securities Act, which rules are summarized below. Of these restricted shares,
the 2,676,266 shares offered by this Prospectus have been registered under the
Securities Act.
Lock-Up Agreements
All of our officers, directors and certain of our stockholders signed
lock-up agreements in connection with our initial public offering in March 1998
under which they agreed not to transfer or dispose of, directly or indirectly,
any shares of common stock or any securities convertible into or exercisable or
exchangeable for shares of common stock, until September 14, 1999. Transfers or
dispositions can be made sooner:
o with the prior written consent of Goldman, Sachs & Co.;
o in the case of certain transfers to affiliates;
o as a bona fide gift; or
o to any trust.
Upon expiration of the lock-up period, 927,753 shares of common stock
offered by this prospectus will be eligible for resale to the public and
12,987,723 shares will be eligible for resale to the public in accordance with
Rule 144.
Rule 144
In general, under Rule 144 as currently in effect, a person who has
beneficially owned shares of our common stock for at least one year would be
entitled to sell within any three-month period a number of shares that does not
exceed the greater of:
88
<PAGE>
o 1% of the number of shares of common stock then outstanding,
which as of August 26, 1999 equals approximately 261,243
shares, including the shares of common stock to be issued in
connection with the proposed acquisition of Lamaze Publishing;
or
o the average weekly trading volume of the common stock on the
Nasdaq National Market during the four calendar weeks
preceding the filing of a notice on Form 144 with respect to
such sale.
Sales under Rule 144 are also subject to manner of sale provisions and
notice requirements and to the availability of current public information about
us.
Rule 144(k)
Under Rule 144(k), a person who is not one of our affiliates at any
time during the three months preceding a sale, and who has beneficially owned
the shares proposed to be sold for at least two years, including the holding
period of any prior owner other than an affiliate, is entitled to sell the
shares without complying with the manner of sale, public information, volume
limitation or notice provisions of Rule 144.
Registration Rights
The holders of 19,422,415 shares of our common stock, including shares
issuable upon the exercise of warrants to purchase common stock, or their
transferees, are entitled to certain rights with respect to the registration of
such shares under the Securities Act. See "Description of Capital Stock -
Registration Rights".
LEGAL MATTERS
The validity of the common stock offered hereby will be passed upon for
iVillage by Orrick, Herrington & Sutcliffe LLP, New York, New York. A partner of
Orrick, Herrington & Sutcliffe LLP owns an aggregate of 4,408 shares of
iVillage's common stock.
EXPERTS
The consolidated balance sheets of iVillage Inc. and subsidiaries as of
December 31, 1997 and 1998 and the consolidated statements of operations,
stockholders' equity and cash flows for the three years in the period ended
December 31, 1998, the balance sheets of Health ResponseAbility Systems, Inc. as
of December 31, 1995 and 1996 and the statements of operations, stockholders'
(deficit) equity and cash flows for the two years then ended, the balance sheets
of KnowledgeWeb, Inc., as of December 31, 1997 and 1998 and the statements of
operations, stockholders equity and cash flows for the two years then ended and
the balance sheets of Lamaze Publishing Company, Inc. as of December 31, 1997
and 1998 and the statements of operations, stockholders' deficit and cash flows
for the two years then ended have been included in reliance on the reports of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
that firm as experts in accounting and auditing.
89
<PAGE>
AVAILABLE INFORMATION
iVillage is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended, and files reports, proxy and information
statements and other information with the Commission. You may read and copy all
or any portion of the reports, proxy and information statements or other
information iVillage files at the Commission's public reference room at Room
1024, Judiciary Plaza, 450 Fifth Street, N.C., Washington, D.C. 20549 and at the
regional offices of the Commission located at Seven World Trade Center, 13th
Floor, New York, New York 10048 and 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661. You can request copies of these documents upon payment
of a duplicating fee, by writing to the Commission. Please call the Commission
at 1-800-SEC-0330 for further information on the operation of the public
reference rooms. iVillage's Commission filings will also be available to you on
the Commission's Internet site (http://www.sec.gov).
iVillage has filed with the Commission a registration statement
(including the exhibits and schedules thereto) under the Securities Act. This
prospectus does not contain all the information set forth in the registration
statement. For further information, reference is made to the registration
statement. Copies of the registration statement may be inspected, without
charge, at the principal office of the Commission or at the regional offices
referred to above, or obtained upon payment of prescribed rates from the Public
Reference Section of the Commission at its principal office.
90
<PAGE>
INDEX TO FINANCIAL STATEMENTS
iVillage Inc. and Subsidiaries
Consolidated Financial Statements
<TABLE>
<CAPTION>
Page(s)
<S> <C>
Report of Independent Accountants..............................................................................F-3
Consolidated Balance Sheets at December 31, 1997 and 1998......................................................F-4
Consolidated Statements of Operations for the years ended
December 31, 1996, 1997 and 1998...........................................................................F-5
Consolidated Statements of Stockholders' Equity for the years ended December 31, 1996,
1997 and 1998..............................................................................................F-6
Consolidated Statements of Cash Flows for the years ended December 31,
1996, 1997 and 1998..................................................................................F-7 - F-8
Notes to Consolidated Financial Statements..............................................................F-9 - F-30
Schedule of Valuation and Qualifying Accounts.................................................................F-31
iVillage Inc. and Subsidiaries
Consolidated Financial Statements
Condensed Consolidated Balance Sheets at December 31, 1998
and June 30, 1999 (unaudited).............................................................................F-32
Condensed Consolidated Statements of Operations for the three
months and six months ended June 30, 1998 and 1999 (unaudited)............................................F-33
Condensed Consolidated Statements of Cash Flows for the three
months and six months ended June 30, 1998 and 1999 (unaudited)............................................F-34
Notes to Condensed Consolidated Financial Statements...................................................F-35 - F-41
iVillage Inc. and Subsidiaries
Unaudited Pro Forma Condensed Consolidated Financial Information
Unaudited Pro Forma Condensed Consolidated Financial Information.......................................F-42 - F-44
Unaudited Pro Forma Condensed Consolidated Balance Sheet as of June 30,
1999......................................................................................................F-45
Unaudited Pro Forma Condensed Consolidated Statement of Operations for the year
ended December 31, 1998...................................................................................F-46
Unaudited Pro Forma Consolidated Statement of Operations for the six months
ended June 30, 1999.......................................................................................F-47
Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements...............................F-48 - F-49
Health ResponseAbility Systems, Inc.
Financial Statements
</TABLE>
F-1
<PAGE>
<TABLE>
<S> <C>
Report of Independent Accountants.............................................................................F-50
Balance Sheets at December 31, 1995 and 1996 and May 29,1997 (unaudited)......................................F-51
Statements of Operations for the years ended December 31, 1995 and 1996 and the
periods ended May 29, 1996 and 1997 (unaudited)...........................................................F-52
Statements of Stockholder's (Deficit) Equity for the years ended December 31, 1995
and 1996 and the period ended May 29, 1997 (unaudited)....................................................F-53
Statements of Cash Flows for the years ended December 31, 1995 and 1996 and the
periods ended May 29, 1996 and 1997 (unaudited)...........................................................F-54
Notes to Financial Statements..........................................................................F-55 - F-59
KnowledgeWeb, Inc.
Financial Statements
Report of Independent Accountants........................................................................... F-60
Balance Sheets at December 31, 1997 and 1998................................................................ F-61
Statements of Operations for the years ended
December 31, 1997 and 1998.............................................................................. F-62
Statements of Stockholders' Equity for the years ended
December 31, 1997 and 1998.............................................................................. F-63
Statements of Cash Flows for the years ended
December 31, 1997 and 1998.............................................................................. F-64
Notes to Financial Statements........................................................................ F-65 - F-71
Lamaze Publishing Company, Inc.
Financial Statements
Report of Independent Accountants............................................................................. F-72
Balance Sheets at December 31, 1997 and 1998 and June 30, 1999 (unaudited).................................... F-73
Statements of Operations for the years ended December 31, 1997 and 1998 and the
six month period ended June 30, 1998 and 1999 (unaudited)................................................. F-74
Statements of Changes in Stockholder's Deficit for the years ended December 31, 1997
and 1998 and the period ended June 30, 1999 (unaudited)................................................... F-75
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)................................................. F-76
Notes to Financial Statements.......................................................................... F-77 - F-84
</TABLE>
F-2
<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
F-3
<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.
F-4
<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.
F-5
<PAGE>
iVILLAGE INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Convertible Convertible Convertible Convertible
Preferred Preferred Preferred Preferred
Stock Stock Stock Stock
Series A Series B Series C Series D
-------- -------- -------- --------
Shares Amount Shares Amount Shares Amount Shares Amount
------ ------ ------ ------ ------ ------ ------ ------
<S> <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............. 4,777,746 $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.
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
--------- ---- --------- ------ ---------- ------ ---------- ------
--------- ---- --------- ------ ---------- ------ ---------- ------
<CAPTION>
Convertible
Preferred
Stock
Series E Common Stock Additional Stockholders
-------- ------------ Paid In Notes
Shares Amount Shares Amount Capital Receivable
------ ------ ------ ------ ------- ------------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1996... 1,083,335 $10,833 $997,037
Issuance of warrants in
connection with
interest on convertible
notes...................... 30,101
Issuance of common stock in
connection with acquisition. 66,667 667 499,333
Issuance of Series B and
Series B-1 convertible
preferred stock............. 11,941,976
Issuance of stock options to
consultants and directors... 62,007
Issuance of warrants to AOL
for channel services........ 1,034,838
Net loss.....................
---------- ------ --------- ------- ------------ ---------
Balance at December 31,1996.. 1,150,002 11,500 14,565,292
Issuance of common stock in
connection with exercise
of stock options............ 33,333 333 99,667
Notes receivable due from
stockholders in connection
with exercise of options... $(65,000)
Issuance of Series C
convertible preferred stock 24,823,398
Issuance of warrants in
connection with interest
on convertible notes....... 334,339
Issuance of common stock and
options in connection with
business acquisitions....... 636,400 6,364 3,292,558
Issuance of stock options to
consultants and directors... 65,395
Net loss.....................
---------- ------ --------- ------- ------------ ---------
Balance at December 31,
1997...................... 1,819,735 18,197 43,180,649 (65,000)
Issuance of common stock
for cash................... 284,317 2,843 1,663,823
Issuance of Series D
convertible preferred stock 31,481,978
Issuance of Series E
convertible preferred stock. 11,730,948 $5,865 32,089,088
Issuance of stock options to
consultants and directors... 146,994
Issuance of common stock in
connection with exercise
of stock options............ 9,333 93 47,507
Issuance of stock options in
connection with business
transactions................ 277,799
Officer loan receivable...... (500,000)
Issuance of options to NBC... 3,960,667
Net loss.....................
---------- ------ --------- ------- ------------ ---------
Balance at December 31,
1998...................... 11,730,948 $5,865 2,113,385 $21,133 $112,848,505 $(575,000)
---------- ------ --------- ------- ------------ ---------
---------- ------ --------- ------- ------------ ---------
<CAPTION>
Unearned
Compensation
and Deferred Accumulated
Advertising Cost Deficit Total
---------------- ------- -----
<S> <C> <C> <C>
Balance at January 1, 1996... $(1,637,571) $(629,201)
Issuance of warrants in
connection with
interest on convertible
notes...................... 30,101
Issuance of common stock in
connection with acquisition. 500,000
Issuance of Series B and
Series B-1 convertible
preferred stock............. 11,944,365
Issuance of stock options to
consultants and directors... 62,007
Issuance of warrants to AOL
for channel services........ 1,034,838
Net loss..................... (9,682,682) (9,682,862)
----------- ------------ -----------
Balance at December 31,1996.. (11,320,253) 3,259,428
Issuance of common stock in
connection with exercise
of stock options............ 100,000
Notes receivable due from
stockholders in connection
with exercise of options... (65,000)
Issuance of Series C
convertible preferred stock 24,829,995
Issuance of warrants in
connection with interest
on convertible notes....... 334,339
Issuance of common stock and
options in connection with
business acquisitions....... 3,298,992
Issuance of stock options to
consultants and directors... 65,395
Net loss..................... (21,300,960) (21,300,960)
----------- ------------ -----------
Balance at December 31,
1997...................... (32,621,213) 10,522,119
Issuance of common stock
for cash................... 1,666,666
Issuance of Series D
convertible preferred stock 31,488,478
Issuance of Series E
convertible preferred stock. 32,094,953
Issuance of stock options to
consultants and directors... $(68,845) 78,149
Issuance of common stock in
connection with exercise
of stock options............ 47,600
Issuance of stock options in
connection with business
transactions................ 277,799
Officer loan receivable...... (500,000)
Issuance of options to NBC... (3,960,667)
Net loss..................... (43,653,682) (43,653,682)
------------ ------------ -----------
Balance at December 31,
1998...................... $(4,029,512) $(76,274,895) $32,022,082
----------- ------------ -----------
----------- ------------ -----------
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
F-6
<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
============ ========== ============
</TABLE>
F-7
<PAGE>
iVILLAGE INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS -- (CONTINUED)
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).
The accompanying notes are an integral part of these consolidated
financial statements.
F-8
<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,
F-9
<PAGE>
iVILLAGE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
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.
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.
F-10
<PAGE>
iVILLAGE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
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 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.
F-11
<PAGE>
iVILLAGE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
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
F-12
<PAGE>
iVILLAGE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
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.
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.
F-13
<PAGE>
iVILLAGE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
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.
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
F-14
<PAGE>
iVILLAGE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
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.
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.
F-15
<PAGE>
iVILLAGE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
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.
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:
Working capital.............................. $ (77,323)
Equipment.................................... 19,726
Goodwill..................................... 557,597
--------
$ 500,000
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
F-16
<PAGE>
iVILLAGE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
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:
Working capital............................... $ (159,991)
Equipment..................................... 50,300
Goodwill...................................... 5,955,331
-----------
$ 5,845,640
===========
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.
1996 1997
---- ----
Revenues................ $ 1,674,226 $ 6,381,437
Net loss................ $ (12,092,617) $ (22,910,945)
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.
In May 1998, the Company sold the assets of StudentCenter as part of
the sale of About Work.
F-17
<PAGE>
iVILLAGE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
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
F-18
<PAGE>
iVILLAGE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
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").
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:
F-19
<PAGE>
iVILLAGE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
<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.
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.
F-20
<PAGE>
iVILLAGE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
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 Average
Fair Exercise
Value Per Price Per
Options Option 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 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>
F-21
<PAGE>
iVILLAGE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
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.
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:
Year ending December 31: 1998
1999..................................................... $669,684
2000..................................................... 279,540
2001..................................................... 12,280
--------
$961,504
========
Rent expense was approximately $149,000, $486,000 and $714,000 for the
years ended December 31, 1996, 1997 and 1998, respectively.
F-22
<PAGE>
iVILLAGE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
At December 31, 1998, minimum future lease payments due under capital
leases for computer equipment are as follows:
Year ending December 31: 1998
------------------------ ----
1999............................................... $144,203
Less: amount representing interest................. 7,630
--------
Net minimum lease payments......................... $136,573
========
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 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
F-23
<PAGE>
iVILLAGE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
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.
F-24
<PAGE>
iVILLAGE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
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.
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,
F-25
<PAGE>
iVILLAGE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
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.
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.
F-26
<PAGE>
iVILLAGE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
11. Income Taxes:
The components of the net deferred tax asset as of December 31, 1997
and 1998 consists of the following:
1997 1998
------ ------
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..... $ -- $ --
=========== ===========
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 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.
F-27
<PAGE>
iVILLAGE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
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 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
F-28
<PAGE>
iVILLAGE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
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
F-29
<PAGE>
iVILLAGE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
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.
F-30
<PAGE>
<TABLE>
<CAPTION>
Schedule II
iVILLAGE INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
Column A Column B Column C Column D Column E
-------- -------- -------- --------
Additions
Balance at Charged to Charged to Deductions Balance at
Beginning Costs and Other End of
of Period Expenses Accounts 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 $ - $ 746,589 $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
F-31
<PAGE>
iVillage Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(in thousands)
Unaudited
<TABLE>
<CAPTION>
December 31, June 30,
1998 1999
--------- ---------
ASSETS:
<S> <C> <C>
Current assets:
Cash and cash equivalents ..................................................... $ 30,825 $ 85,279
Accounts receivable, net ...................................................... 2,078 2,843
Other current assets .......................................................... 715 1,162
--------- ---------
Total current assets ........................................................ 33,618 89,284
Fixed assets, net ............................................................... 7,380 6,968
Goodwill and intangible assets, net ............................................. 4,535 61,631
Other assets .................................................................... 188 189
--------- ---------
Total assets ................................................................ $ 45,721 $ 158,072
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities:
Accounts payable and accrued expenses ......................................... $ 11,561 $ 10,398
Capital leases payable ........................................................ 137 73
Deferred revenue .............................................................. 1,838 2,117
Other current liabilities ..................................................... 163 192
--------- ---------
Total liabilities ........................................................... 13,699 12,780
Commitments and contingencies
Stockholders' equity:
Series A, convertible preferred stock - par value $.0005, 1,000,000 and 0
shares authorized, issued and outstanding as of December 31, 1998 and June
30, 1999, respectively ...................................................... 1 --
Series B and B-1, convertible preferred stock - par value $.0005, 5,929,846
and 0 shares authorized, 4,777,746 and 0 issued and outstanding as of
December 31, 1998 and June 30, 1999, respectively ........................... 2 --
Series C, convertible preferred stock - par value $.0005, 13,528,765 and 0
shares authorized, 13,193,445 and 0 issued and outstanding as of December
31, 1998 and June 30, 1999, respectively .................................... 7 --
Series D, convertible preferred stock - par value $.0005, 13,000,000 and 0
shares authorized, issued and outstanding as of December 31, 1998 and June
30, 1999, respectively ...................................................... 6 --
Series E, convertible preferred stock - par value $.0005, 12,280,702 and 0
shares authorized, 11,730,948 and 0 issued and outstanding as of December
31, 1998 and June 30, 1999, respectively .................................... 6 --
Common stock, par value $.01, 35,000,000 and 65,000,000 shares authorized,
2,113,385 and 24,324,218 issued and outstanding at December 31, 1998 and
June 30, 1999, respectively ................................................. 21 243
Additional paid-in capital ...................................................... 112,849 302,430
Accumulated deficit ............................................................. (76,275) (134,549)
Stockholders' notes receivable .................................................. (565) (14,681)
Unearned compensation ........................................................... (4,030) (8,151)
--------- ---------
Total stockholders' equity .................................................. 32,022 145,292
--------- ---------
Total liabilities and stockholders' equity .................................. $ 45,721 $ 158,072
========= =========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
F-32
<PAGE>
iVillage Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
(in thousands, except per share data)
Unaudited
<TABLE>
<CAPTION>
Three months ended June 30, Six months ended June 30,
--------------------------- -------------------------
1998 1999 1998 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues:
Sponsorship, advertising and other ............................... $ 2,118 $ 5,994 $ 4,318 $ 10,684
Commerce ......................................................... 520 2,114 520 3,888
-------- -------- -------- --------
Total revenues ................................................. 2,638 8,108 4,838 14,572
Cost of revenues ................................................... 3,262 4,210 5,437 9,112
Operating margin ............................................... (624) 3,898 (599) 5,460
-------- -------- -------- --------
Operating expenses:
Product development and technology ............................... 504 1,353 986 3,038
Sales and marketing .............................................. 7,184 7,852 12,054 15,634
Sales and marketing - NBC expenses ............................... -- 4,466 -- 7,572
General and administrative ....................................... 2,202 3,847 4,206 7,872
Depreciation and amortization .................................... 1,397 4,665 2,658 7,519
-------- -------- -------- --------
Total operating expenses ....................................... 11,287 22,183 19,904 41,635
-------- -------- -------- --------
Loss from operations ........................................... (11,911) (18,285) (20,503) (36,175)
Interest income, net ............................................... 161 1,182 237 1,513
-------- -------- -------- --------
Net loss ....................................................... (11,750) (17,103) (20,266) (34,662)
-------- -------- -------- --------
Preferred stock deemed dividend .................................... -- -- (23,612)
Net loss attributable to common stockholders ....................... $(11,750) $(17,103) $(20,266) $(58,274)
======== ======== ======== ========
Basic and diluted net loss per share attributable to common
shareholders ..................................................... $ (1.85) $ (0.72) $ (3.28) $ (3.98)
======== ======== ======== ========
Weighted average shares of common stock outstanding used in
computing basic and diluted net loss per share ................... 6,337 23,728 6,179 14,656
======== ======== ======== ========
Pro forma basic and diluted net loss per share ..................... $ (2.77)
========
Shares of common stock used in computing pro forma
basic and diluted net loss per share ............................. 21,027
========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
F-33
<PAGE>
iVillage Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(in thousands)
Unaudited
<TABLE>
<CAPTION>
Three months ended June 30, Six months ended June 30,
--------------------------- -------------------------
1998 1999 1998 1999
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss ........................................ $ (11,750) $ (17,103) $ (20,266) $ (34,662)
Adjustments to reconcile net loss to net
cash used in operating activities:
Expense recognized in connection with issuance
of warrants and stock options ........... 186 1,102 186 2,979
Depreciation and amortization ............. 1,397 4,665 2,658 7,519
Bad debt expense .......................... 255 -- 255 500
Loss on sale .............................. 165 -- 165 --
Minority interest ......................... (138) -- (138) --
Changes in assets and liabilities:
Accounts receivable ................... (1,559) (1,136) (1,175) (1,265)
Prepaid expenses and other assets ..... 253 678 (339) (455)
Accounts payable and accrued expenses . 1,735 (1,760) 146 (1,168)
Deferred revenue ...................... 416 (521) 1,583 278
Other liabilities ..................... (77) -- (77) 36
--------- --------- --------- ---------
Net cash used in operating activities ..... (9,117) (14,075) (17,002) (26,238)
--------- --------- --------- ---------
Cash flows from investing activities:
Purchase of fixed assets ........................ (2,119) (958) (2,828) (1,693)
Acquisitions of Web sites ....................... -- (1,609) (520) (10,831)
Sale of Web sites ............................... 600 -- 600 --
--------- --------- --------- ---------
Net cash used in investing activities ..... (1,519) (2,567) (2,748) (12,524)
--------- --------- --------- ---------
Cash flows from financing activities:
Exercise of stock options ....................... -- 241 -- 505
Stockholder note receivable ..................... (250) 1,382 (250) 1,382
Issuance of common stock, net of fees ........... 1,667 (226) 1,667 91,392
Issuance of preferred stock, net of fees paid ... (630) -- 31,488 --
Principal payments on capitalized leases ........ (86) -- (124) (63)
--------- --------- --------- ---------
Net cash provided by financing
activities............................... 701 1,397 32,781 93,216
--------- --------- --------- ---------
Net increase (decrease) in cash for the period .... (9,935) (15,245) 13,031 54,454
Cash and cash equivalents, beginning of period .. 27,301 100,524 4,335 30,825
--------- --------- --------- ---------
Cash and cash equivalents, end of period .......... $ 17,366 $ 85,279 $ 17,366 $ 85,279
========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
F-34
<PAGE>
iVillage Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
Note 1 - The Company
Basis of Presentation
iVillage Inc. was incorporated in the State of Delaware on June 8, 1995
and commenced operations on July 1, 1995. iVillage Inc. and its subsidiaries
("iVillage" or the "Company") are engaged in the development of programming
material for distribution through online service providers and the Internet and
are involved in the sale of products through the Company's Web sites.
In March 1999, the Company completed its initial public offering ("IPO")
of 4,197,500 shares of the Company's common stock resulting in net proceeds of
approximately $91.4 million. Upon the closing of the IPO, all classes of
outstanding convertible preferred stock converted into common stock on a three
for one ratio.
These financial statements should be read in conjunction with the
consolidated financial statements and related footnotes included in the
Company's Form S-1 registration statement, as amended, filed with the Securities
and Exchange Commission ("SEC") in connection with the Company's IPO.
The Company has a limited operating history and its prospects are
subject to the risks, expenses and uncertainties frequently encountered by
companies in the new and rapidly evolving markets for Internet products and
services. These risks include the failure to develop and extend the Company's
online service brands, the rejection of the Company's services by Web consumers,
vendors and/or advertisers, the inability of the Company to maintain and
increase the levels of traffic on its online services, as well as other risks
and uncertainties. In the event the Company does not successfully implement its
business plan, certain assets may not be recoverable.
Unaudited Interim Financial Information
The unaudited interim consolidated financial statements of the Company
for the three and six months ended June 30, 1998 and June 30, 1999 included
herein have been prepared in accordance with the instructions for Form 10-Q
under the Securities Exchange Act of 1934, as amended, and Article 10 of
Regulation S-X under the Securities Act of 1933, as amended. Certain information
and footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted pursuant to such rules and regulations relating to interim financial
statements.
In the opinion of management, the accompanying unaudited interim
consolidated financial statements reflect all adjustments, consisting only of
normal recurring adjustments, necessary to present fairly the financial position
of the Company at June 30, 1999, and the results of its operations and its cash
flows for the three and six months ended June 30, 1998 and June 30, 1999. The
results for the three and six months ended June 30, 1999 are not necessarily
indicative of the expected results for the full fiscal year or any future
period. Certain prior period balances have been reclassified to conform to the
current period presentation.
F-35
<PAGE>
iVillage Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (cont.)
Net Loss Per Share
Basic earnings per share is computed using the weighted-average number
of common shares outstanding during the period. Diluted earnings per share is
computed using the weighted-average number of common and common stock
equivalents outstanding during the period. Common stock equivalent shares have
been excluded from the computation as their effect is anti-dilutive.
The pro forma net loss per share is computed by dividing the net loss by
the sum of the weighted average number of shares of common stock outstanding and
the shares resulting from the assumed conversion, as of January 1, 1999, of all
outstanding shares of convertible preferred stock and the issuance of shares to
holders of Series B Convertible Preferred Stock resulting from anti-dilution
protection.
Note 2 - Related-Party Transactions
NBC
On March 9, 1999, iVillage and NBC amended the November 11, 1998
advertising and promotional agreement and entered into a stock purchase
agreement whereby iVillage issued 4,889,030 shares of Series E Convertible
Preferred Stock ("Series E") and warrants to purchase 970,874 shares of Series E
at $5.15 per share and 813,003 shares of Series E at $6.15 per share during 2000
and 2001, respectively, in exchange for a promissory note of approximately $15.5
million. The note, which bears interest at the rate of 5% per annum, is payable
quarterly in twelve equal installments of approximately $1.4 million beginning
April 1, 1999. In connection with the IPO and the reverse stock split, the
shares of Series E were converted into 1,629,676 shares of common stock and the
Series E warrants were converted into warrants to purchase 323,625 shares of
common stock at $15.45 per share and 271,003 shares of common stock at $18.45
per share. In addition, iVillage has agreed to purchase from NBC, for cash,
$13.5 million, $8.5 million and $8.5 million of advertising and promotional
spots during 1999, 2000 and 2001, respectively. iVillage has also agreed to pay
NBC $1.1 million during 1999 for prominent placement on the NBC.com Web site.
Under the revised NBC advertising and promotional agreement and in
accordance with EITF D-60, "Accounting for the Issuance of Convertible Preferred
Stock and Debt Securities with a Non-detachable Conversion Feature," the $23.6
million difference between the purchase price of the Series E and the fair
market value on the date of issuance was accounted for as a deemed dividend and
amortized using the effective interest method from the date of issuance through
the date the Company completed its IPO (the date of conversion into common
stock). In addition, the fair value of the warrants of approximately $8.4
million was recorded in stockholders' equity as deferred advertising costs and
is being amortized over the three-year advertising agreement. The fair value of
the warrants was determined using the Black-Scholes option pricing model in
accordance with SFAS No. 123.
F-36
<PAGE>
iVillage Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (cont.)
Note 3 - Acquisitions
iBaby
As a result of the IPO, the Company purchased all of the outstanding
shares of iBaby held by the minority stockholders pursuant to the Rights
Agreement dated as of April 8, 1998 among the Company, OurBaby LLC, JBM
Ventures, Inc. and iBaby, Inc., as subsequently amended on February 10, 1999.
The aggregate purchase price of $10.8 million consisted of (i) $8.0 million in
cash, of which $1.5 million was paid on February 12, 1999 and $6.5 million was
paid on March 25, 1999 and (ii) 125,448 shares of the Company's common stock.
The difference between the purchase price and the fair value of the acquired
minority interest in iBaby was recorded as goodwill and will be amortized over
the period of expected benefit, which is estimated at three years.
The cost of acquisition was allocated to the assets acquired and
liabilities assumed based upon their estimated fair values as follows:
Working Capital $ (452,752)
Fixed assets 399,181
Goodwill 11,064,324
-----------
$11,010,753
===========
Astrology.Net
On February 18, 1999, iVillage acquired all of the outstanding stock of
KnowledgeWeb, Inc. d/b/a Astrology.Net, an Internet content provider, in
exchange for 802,125 shares of iVillage common stock and approximately $1.2
million in cash. The acquisition was accounted for as a purchase with a purchase
price of approximately $21 million based on the $24.00 initial public offering
price of iVillage's common stock and an estimate for the value of Astrology.Net
options assumed by iVillage. The difference between the purchase price and the
fair value of the acquired net assets of Astrology.Net was recorded as goodwill
and is being amortized over the period of expected benefit, which is estimated
at three years.
Of the 802,125 shares of common stock, (i) 326,331 shares were issued at
the closing, (ii) 75,000 shares were issued into escrow for 18 months to cover
possible indemnification claims and (iii) the remaining 400,794 shares were
issued subject to earnout restrictions over five years.
The first 75,000 shares to be released under the earnout will be placed
into the indemnification escrow. The earnout shares will be released as
Astrology.Net meets certain revenue targets during the three years following
closing. Any earnout shares not released during the first three years will be
released five years from closing. In addition, all outstanding options to
purchase Astrology.Net common stock were converted into options to purchase
31,208 shares of iVillage common stock. The Agreement provides for employment,
non-compete and stock option agreements for the founding stockholders of
Astrology.Net.
F-37
<PAGE>
iVillage Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (cont.)
Astrology.Net (cont.)
iVillage also issued to the founding stockholders of Astrology.Net
options to purchase 150,000 shares of iVillage common stock at an exercise price
equal to $24.00 per share. These options are contingent on continued employment
with Astrology.Net and vest over a period of seven years, with accelerated
vesting dependent on Astrology.Net meeting certain revenue targets.
The following unaudited pro forma summary presents consolidated results
of operations for the Company as if the acquisition of Astrology.Net had been
consummated on January 1, 1998. The pro forma information does not necessarily
reflect the actual results that would have been achieved, nor is it necessarily
indicative of future consolidated results of the Company.
1998 1999
---- ----
(in thousands, except per share data)
Revenues $ 2,345 $ 6,660
Net loss $(8,607) $(17,543)
Net loss per share, excluding
deemed dividend $ (3.15) $ (2.96)
OnLine Psych and Code Stone
On June 30, 1999, iVillage acquired OnLine Psychological Services, Inc.
("OnLine Psych") and Code Stone Technologies, Inc. ("Code Stone"). As a result
of the acquisition, OnLine Psych and Code Stone became wholly-owned subsidiaries
of iVillage. OnLine Psych operates a Web site focusing on mental health issues
while Code Stone provides much of the interactive technology used on Online
Psych's Web site.
The aggregate purchase price paid to acquire OnLine Psych and Code Stone
consisted of $1.5 million cash and approximately 577,000 shares of iVillage
common stock, valued under the purchase method of accounting at approximately
$30.0 million in the aggregate. The difference between the purchase price and
the fair value of the acquired net assets of OnLine Psych and Code Stone have
been recorded as goodwill and are being amortized over the period of expected
benefit, which is estimated to be three years.
iVillage also issued to certain employees of OnLine Psych options to
purchase shares of iVillage common stock. The options, which are contingent upon
continued employment with OnLine Psych, vest over a period of seven years, with
accelerated vesting dependent on OnLine Psych meeting certain revenue and other
performance targets. iVillage also granted to the founding stockholders of
OnLine Psych, subject to its existing registration rights agreements, piggyback
registration rights in connection with the shares.
F-38
<PAGE>
iVillage Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (cont.)
Note 4 - Segment Information
The Company's business is comprised of the development of programming
material by iVillage for distribution through online service providers and the
Internet and the sale of products by iBaby, iMaternity and Astrology.Net through
their Web sites. The Company's management reviews corporate assets and overhead
expenses within its media segment.
F-39
<PAGE>
iVillage Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (cont.)
The summarized segment information, as of and for the three months ended
June 30, 1999, is as follows:
(dollars in thousands)
<TABLE>
<CAPTION>
E-
Media Commerce Total
----- -------- -----
<S> <C> <C> <C>
Revenues $ 5,994 $ 2,114 $ 8,108
Cost of revenues 2,572 1,638 4,210
Product development and
technology 957 396 1,353
Sales and marketing 11,428 890 12,318
General and administrative 3,283 564 3,847
Depreciation and amortization 1,460 3,205 4,665
Loss from operations (13,705) (4,580) (18,285)
Total assets 156,326 1,746 158,072
========= ========= =========
</TABLE>
The summarized segment information, as of and for the six months ended June 30,
1999, is as follows:
(dollars in thousands)
<TABLE>
<CAPTION>
E-
Media Commerce Total
----- -------- -----
<S> <C> <C> <C>
Revenues $ 10,684 $ 3,888 $ 14,572
Cost of revenues 6,081 3,031 9,112
Product development and
technology 2,274 764 3,038
Sales and marketing 21,704 1,502 23,206
General and administrative 6,851 1,021 7,872
Depreciation and amortization 3,099 4,420 7,519
Loss from operations (29,324) (6,851) (36,175)
Total assets 156,326 1,746 158,072
========= ========= =========
</TABLE>
F-40
<PAGE>
iVillage Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (cont.)
Note 5 - Subsequent Events
On July 13, 1999, iVillage entered into an agreement to acquire all of
the outstanding stock of Lamaze Publishing Company, Inc. ("Lamaze Publishing"),
a multimedia provider of education information to expectant and new mothers. The
total purchase price, valued at approximately $100.0 million under the purchase
method of accounting, consists of approximately 1.7 million shares of iVillage
common stock, subject to certain adjustments, and approximately $5.0 million of
assumed debt. The closing of the transaction is subject to customary closing
conditions and the filing of a registration statement with the Securities and
Exchange Commission covering the resale of the issued shares. Lamaze Publishing
is the exclusive licensee of the LAMAZE mark for use in connection with consumer
publications and other communications, which include print, audio, visual and
other consumer oriented media, that are commercial in nature. Lamaze Publishing
is also the exclusive marketing agent for Lamaze Publishing International, Inc.,
the owner of the Lamaze Publishing family of marks.
On August 4, 1999, iVillage acquired the domain name Astrology.com from
Boulevards New Media, Inc.
On August 6, 1999, iVillage entered into a three-year employment
agreement with Harriet Rubin, an author and publisher on the subjects of
business and money/life issues, to develop content for the iVillage Work
channel. On August 6, 1999, iVillage also entered into an agreement with Ms.
Rubin to license certain assets, including the domain name The Soloist.com, for
one year, with an option to purchase such assets at the end of the one-year
term.
F-41
<PAGE>
iVILLAGE 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 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 the 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.
F-42
<PAGE>
NBC Agreement
On March 9, 1999, the Company and 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.
Lamaze Publishing
On July 13, 1999, iVillage entered into an agreement to acquire 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
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 $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.
F-43
<PAGE>
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
Company, Inc. 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 prospectus.
F-44
<PAGE>
iVillage Inc. and Subsidiaries
Unaudited Pro Forma Condensed Consolidated Balance Sheet
June 30, 1999
(in thousands)
<TABLE>
<CAPTION>
iVillage Inc.
and Lamaze Pro Forma
Subsidiaries Publishing Adjustments Pro Forma
------------- ------------- -------------- --------------
<S> <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) 101,121 163,154
------------- ------------- -------------- --------------
Total assets $ 158,072 $ 7,605 $ 96,401 $ 262,078
============= ============= ============== ==============
Liabilities and Stockholders' 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 -- 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 stockholders' loans -- 2,168 1(c) (2,168) --
Capital leases payable, net of current portion -- -- -- --
------------- ------------- -------------- --------------
Total liabilities 12,780 11,773 (4,370) 20,183
------------- ------------- -------------- --------------
Commitments and Contingencies
Stockholders' equity:
Common stock 243 534 1(d) (534) 260
1(e) 17
Additional paid-in capital 302,430 -- 1(e) 96,586 399,016
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 stockholders' equity 145,292 (4,168) 100,771 241,895
------------- ------------- -------------- --------------
Total liabilities and stockholders' equity $ 158,072 $ 7,605 $ 96,401 $ 262,078
============= ============= ============== ==============
</TABLE>
F-45
<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. Lamaze Pro Forma
and Subsidiaries Astrology.Net Publishing Adjustments Pro Forma
---------------- ------------- ---------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Revenues $ 15,012 $ 848 $ 11,212 $ - $ 27,072
---------------- ------------- ---------- ----------- ---------
Cost of revenues 12,403 204 5,488 18,095
---------------- ------------- ---------- ----------- ---------
Gross margin 2,609 644 5,724 - 8,977
---------------- ------------- ---------- ----------- ---------
Operating expenses:
Product development and technology 2,118 - 2,118
Sales and marketing 28,523 127 2,666 - 31,316
General and administrative 10,612 537 2,812 - 13,961
Depreciation and amortization 5,683 91 830 2(a) 10,112 27,356
---------------- ------------- ---------- ---------
2(a) 3,670
2(a) 6,970
-----------
Total operating expenses 46,936 755 6,308 20,752 74,751
---------------- ------------- ---------- ----------- ---------
Loss from operations (44,327) (111) (584) (20,752) (65,774)
Interest income (expense), net 591 - (299)2(b) 299 591
Loss on sale of Web site (504) - - (504)
Minority interest 587 - - 2(c) (587) 0
---------------- ------------- ---------- ----------- ---------
Net loss $ (43,653) $ (111) $ (883) $(21,040) $ (65,687)
================ ============= ========== =========== =========
Pro forma basic and diluted net loss per
share attributable to common stockholders $ (2.59) $ (3.10)
================ =========
2(d) 1,630
Weighted average shares of common stock 2(d) 125
outstanding used in computing pro forma 2(d) 802
basic and diluted net loss per share 16,854 2(d) 1,749 21,160
================ =========== =========
</TABLE>
F-46
<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. Lamaze Pro Forma
and Subsidiaries Astrology.Net Publishing Adjustments Pro Forma
------------------ ---------------- ---------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Revenues $ 14,572 $ 190 6,403 $ 21,165
------------------ ---------------- ---------------- ------------ ------------
Cost of revenues 9,112 124 3,393 12,629
------------------ ---------------- ---------------- ------------ ------------
Gross margin 5,460 66 3,010 - 8,536
------------------ ---------------- ---------------- ------------ ------------
Operating expenses:
Product development and technology 3,038 - - 3,038
Sales and marketing 23,206 29 1,327 24,562
General and administrative 7,872 64 1,461 9,397
Depreciation and amortization 7,519 9 435 3(a) 5,056 14,349
------------------ ---------------- ---------------- ------------
3(a) 871
3(a) 459
------------
Total operating expenses 41,635 102 3,223 6,386 51,346
------------------ ---------------- ---------------- ------------ ------------
Loss from operations (36,175) (36) (213) (6,386) (42,810)
Interest income (expense), net 1,513 (3) (180) 3(b) 180 1,510
------------------ ---------------- ---------------- ------------ ------------
Net loss $ (34,662) $ (39) $ (393) $ (6,206) $ (41,300)
Preferred stock deemed dividend (23,612) - (23,612)
Net loss attributable to common stockholders $ (58,274) $ (39) $ (393) $ (6,206) $ (64,912)
================== ================ ================ ============ ============
Pro foma basic and diluted net loss per share
attributable to common stockholders $ (2.77) $ (2.75)
================== ============
214
Weighted average shares of common stock 29
outstanding used in computing basic 625
and diluted net loss per share 21,027 3(c) 1,749 23,644
================== ================ ================ ============ ============
</TABLE>
F-47
<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 Company, Inc.
("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:
Lamaze
------
Cash portion of purchase price.............. $ 4,720
Value of stock and option portion of
purchase price............................ 96,603
Acquisition costs........................... 350
--------
Purchase price.............................. 101,673
Fair value of net assets to be acquired..... 552
--------
Goodwill.................................... $101,121
========
* 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 and $6,970 resulting from the acquisitions of
Lamaze Publishing, iBaby and Astrology.Net, respectively, over the
expected period of benefit (three years for iBaby and
Astrology.Net and ten years for Lamaze Publishing).
F-48
<PAGE>
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 802,125, 125,448 and 1,748,791 shares of common
stock, in connection with the acquisitions of Astrology.Net, iBaby
and the acquisition of Lamaze Publishing, 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
and $871 resulting from the acquisitions of Lamaze Publishing,
iBaby and Astrology.Net, respectively, over the expected period of
benefit (three years for iBaby and Astrology.Net 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 in computing basic and diluted net loss per
share. This adjustment reflects the issuance of 802,125, 125,448
and 1,748,791 shares of common stock, in connection with the
acquisitions of Astrology.Net, iBaby and the acquisition of Lamaze
Publishing and the issuance of 1,629,676 shares to NBC in
connection with the NBC agreement.
F-49
<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
F-50
<PAGE>
HEALTH RESPONSEABILITY SYSTEMS, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, May 29,
------------ -------
1995 1996 1997
---- ---- ----
(Unaudited)
Assets
<S> <C> <C> <C>
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.
F-51
<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.
F-52
<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.
F-53
<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) 110,555
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.
F-54
<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.
F-55
<PAGE>
HEALTH RESPONSEABILITY SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS--(continued)
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.
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.
F-56
<PAGE>
HEALTH RESPONSEABILITY SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS--(continued)
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.
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.
F-57
<PAGE>
HEALTH RESPONSEABILITY SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS--(continued)
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 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:
Year ending December 31:
1997.............................. $53,920
1998.............................. 27,769
------
$81,689
F-58
<PAGE>
HEALTH RESPONSEABILITY SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS--(continued)
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.
F-59
<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
January 29, 1999
New York, New York
F-60
<PAGE>
KnowledgeWeb, Inc.
Balance Sheets
December 31, 1998 and 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Assets 1998 1997
<S> <C> <C>
Current Assets
Cash and cash equivalents $ 103,852 $ 9,718
Accounts receivable, net of allowance of $12,538 and $0 as of 113,855 19,139
December 31, 1998 and 1997, respectively
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 511 497
as of December 31, 1998 and 1997, respectively
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.
F-61
<PAGE>
KnowledgeWeb, Inc.
Statements of Operations
December 31, 1998 and 1997
- --------------------------------------------------------------------------------
1998 1997
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
========== ==========
The accompanying notes are an integral part of these financial statements.
F-62
<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.
F-63
<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.
F-64
<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.
F-65
<PAGE>
KnowledgeWeb, Inc.
Notes to Financial Statements
December 31, 1998 and 1997
- --------------------------------------------------------------------------------
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.
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.
F-66
<PAGE>
KnowledgeWeb, Inc.
Notes to Financial Statements
December 31, 1998 and 1997
- --------------------------------------------------------------------------------
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.
2. Property and Equipment
December 31, December 31,
1998 1997
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
========== ==========
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.
F-67
<PAGE>
KnowledgeWeb, Inc.
Notes to Financial Statements
December 31, 1998 and 1997
- --------------------------------------------------------------------------------
4. Internal Use Software
December 31, December 31,
1998 1997
Internal use software $ 180,781 $ 96,024
Less accumulated amortization (108,827) (51,914)
----------- ----------
$ 71,954 $ 44,110
=========== ==========
Amortization expense for the years ended December 31, 1998 and 1997
totaled $56,913 and $32,008, respectively.
5. Commitments and Contigencies
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.
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:
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
==========
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.
F-68
<PAGE>
KnowledgeWeb, Inc.
Notes to Financial Statements
December 31, 1998 and 1997
- --------------------------------------------------------------------------------
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:
December 31, December 31,
1998 1997
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)
--------- ---------
$ - $ -
========= =========
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.
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.
F-69
<PAGE>
KnowledgeWeb, Inc.
Notes to Financial Statements
December 31, 1998 and 1997
- --------------------------------------------------------------------------------
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.
F-70
<PAGE>
KnowledgeWeb, Inc.
Notes to Financial Statements
December 31, 1998 and 1997
- --------------------------------------------------------------------------------
A summary of the Plan's activity is as follows:
Weighted
Average
Available Options Price Per
for Grant Outstanding Share
--------- ----------- ---------
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
========= ====== ======
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 $1 million.
F-71
<PAGE>
Report of Independent Accountants
To the Stockholders and Board of Directors
of Lamaze Publishing Company, Inc.:
In our opinion, the accompanying balance sheets and the related statements of
operations, stockholders' deficit and cash flows present fairly, in all material
respects, the financial position of Lamaze Publishing Company, Inc. (the
"Company") at December 31, 1997 and 1998, and the results of its operations and
its cash flows for each of the years ended December 31, 1997 and 1998, in
conformity with generally accepted accounting principles. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
/s/ PricewaterhouseCoopers LLP
New York, New York
June 14, 1999
except for note 10,
as to which the date
is July 13, 1999
F-72
<PAGE>
Lamaze Publishing Company, Inc.
Balance Sheets
($ in 000's)
- --------------------------------------------------------------------------------
<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 - 234 312
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.
F-73
<PAGE>
Lamaze Publishing Company, Inc.
Statements of Operations
($ in 000's)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Month
Year Ended December 31, Period 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.
F-74
<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 000's)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Total
Common Stock Accumulated Stockholders'
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.
F-75
<PAGE>
Lamaze Publishing Company, Inc.
Statements of Cash Flows
($ in 000's)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Month
Year Ended Period Ended
December 31, June 30,
-------------------- --------------------
1997 1998 1998 1999
--------- -------- --------- --------
(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 $ - $ 85
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-76
<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
F-77
<PAGE>
Lamaze Publishing Company, Inc.
Notes to Financial Statements
- --------------------------------------------------------------------------------
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. 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.
F-78
<PAGE>
Lamaze Publishing Company, Inc.
Notes to Financial Statements
- --------------------------------------------------------------------------------
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, 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.
F-79
<PAGE>
Lamaze Publishing Company, Inc.
Notes to Financial Statements
- --------------------------------------------------------------------------------
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.
3. Fixed Assets:
Fixed assets consist of the following:
($ in 000's)
December 31,
---------------------
1997 1998
--------- ---------
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
======== ========
Depreciation and amortization of fixed assets was approximately $422,000
and $668,000 for the years ended December 31, 1997 and 1998,
respectively.
F-80
<PAGE>
Lamaze Publishing Company, Inc.
Notes to Financial Statements
- --------------------------------------------------------------------------------
4. Business Acquisition:
The Newborn Channel, L.P.
On February 28, 1997, the Company acquired all of the outstanding stock
of the Newborn Channel, L.P. ("TNCLP") a closed-circuit television
channel which provides information regarding various baby care issues,
in exchange for 4,872 shares of the Company's common stock. The cost of
the TNCLP acquisition was allocated to the assets and liabilities
assumed based upon their estimated fair values as follows:
($ in 000's)
Working capital $ (841)
Equipment 808
Goodwill 763
--------
$ 730
========
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)
1996 1997
---------- ----------
Revenues $ 9,208 $ 9,455
Net income (loss) $ 1,047 $ (769)
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 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
$108,000 was paid in video production consulting fees.
F-81
<PAGE>
Lamaze Publishing Company, Inc.
Notes to Financial Statements
- --------------------------------------------------------------------------------
6. Bank Loans Payable:
The Company had the following bank loans outstanding as of December 31:
($ in 000's)
1997 1998
---------- ----------
Term loan $ - $ 1,250
Secured line of credit $ 950 $ 1,300
--------- ---------
$ 950 $ 2,550
========= =========
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,
F-82
<PAGE>
Lamaze Publishing Company, Inc.
Notes to Financial Statements
- --------------------------------------------------------------------------------
transfer or acquisition. The redemption price shall be determined based
on a multiple of earnings before interest and taxes of the 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 $240,000 was paid out, half in January
1998 while the other half will be paid in January 1999 plus accrued
interest.
8. Commitments and Contingencies:
Leases
The Company leases office space, under non-cancelable operating lease
expiring in June 2000. The following is a schedule of future minimum
lease payments under the non-cancelable operating lease as of December
31, 1998:
Year ended December 31: 1988
---------------------- ----------
($ in 000's)
1999 $ 158
2000 $ 79
---------
$ 237
=========
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.
F-83
<PAGE>
Lamaze Publishing Company, Inc.
Notes to Financial Statements
- --------------------------------------------------------------------------------
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.
F-84
<PAGE>
2,676,266 Shares
iVILLAGE INC.
Common Stock
---------------------
September 2, 1999
----------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution
The following table sets forth the costs and expenses payable by the
registrant in connection with the distribution of the common stock being
registered. All amounts are estimated, except the SEC registration fee and the
Nasdaq National Market listing fee:
SEC registration fee $22,088
Nasdaq National Market listing fee 17,500
Accounting fees and expenses 45,000
Legal fees and expenses 65,000
Miscellaneous 10,412
--------
Total $160,000
========
Item 14. Indemnification of Directors and Officers
Section 145 of the Delaware General Corporation Law provides that a
corporation may indemnify directors and officers, as well as other employees and
individuals, against expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by any such person
in connection with any threatened, pending or completed actions, suits or
proceedings in which such person is made a party by reason of such person being
or having been a director, officer, employee or agent to the Registrant. The
Delaware General Corporation Law provides that Section 145 is not exclusive of
other rights to which those seeking indemnification may be entitled under any
bylaw, agreement, vote of stockholders or disinterested directors or otherwise.
Article XII of the Registrant's Amended and Restated Certificate of
Incorporation and Article VI of the Registrant's Bylaws provides for
indemnification by the Registrant of its directors and officers to the fullest
extent permitted by the Delaware General Corporation Law.
Section 102(b)(7) of the Delaware General Corporation Law permits a
corporation to provide in its certificate of incorporation that a director of
the corporation shall not be personally liable to the corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director,
except for liability (i) for any breach of the director's duty of loyalty to the
corporation or its stockholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii) for
unlawful payments of dividends or unlawful stock repurchases, redemptions or
other distributions, or (iv) for any transaction from which the director derived
an improper personal benefit. The Registrant's Amended and Restated Certificate
of Incorporation provides for such limitation of liability.
The Registrant has obtained obtain directors' and officers' insurance
providing indemnification for certain of the Registrant's directors, officers
and employees for certain liabilities.
II-1
<PAGE>
The Registrant has entered into indemnification agreements with each
director and officer which provide indemnification under certain circumstances
for acts and omissions which may not be covered by any directors' and officers'
liability insurance.
Under the terms of the Agreement and Plan of Reorganization, dated as
of July 13, 1999, by and among iVillage Inc., LPC Acquisition Corporation,
Lamaze Publishing Company, Inc. and the Shareholders and Stock Appreciation Unit
Holders of Lamaze Publishing Company, Inc. filed as Exhibit 2.8 and related
documents, the Registrant and the selling stockholders have agreed to indemnify
each other in certain circumstances.
Item 15. Recent Sales of Unregistered Securities
1. In December 1996, in connection with an Agreement and Plan of
Reorganization, the Registrant issued 33,333 shares of common stock (on a
post-split basis) each to Jacqueline B. Needelman and David L. Cohen in
consideration for 1,500 shares of jointly owned common stock of
ParentsPlace.com, Inc.
2. In January 1997, Beth Polish exercised an option and received 8,333
shares of common stock at a price per share of $3.00 (on a post-split basis).
3. In January 1997, Elaine Rubin exercised an option and received
12,500 shares of common stock at a price per share of $3.00 (on a post-split
basis).
4. In January 1997, Tina Neederlander exercised an option and received
12,500 shares of common stock at a price per share of $3.00 (on a post-split
basis).
5. In February 1997, the Registrant issued and sold stock subscription
warrants to purchase an aggregate of 111,771 shares of common stock at a price
per share of $5.86 (on a post-split basis) to AOL, Tribune, Kleiner and KPCB
Information in consideration for the cancellation of a note and cash.
6. In May 1997, the Registrant issued and sold an aggregate of
11,003,068 shares of Series C Preferred Stock at a price per share of $1.954 to
the following entities: AOL, Philip E Berney, CIBC Wood Gundy Ventures, Inc.
("CIBC"), Cox Interactive Media, Inc. ("Cox"), Convergence Ventures I, L.P.
("Convergence"), Stephen Friedman, Charles A. Davis, Growth Shares Ltd., Juergen
Habermeier, Kleiner, KPCB Information, Ralph Mack, Stephen M. Parish, Rho
Management Trust I ("Rho"), Sonem Partners ("Sonem"), Tenet Healthcare
Corporation ("Tenet"), Transatlantic Venture Partners C.V., Tribune, The
Trustees of the General Electric Pension Trust, Norman Tulchin, Stanley Tulchin
and one other corporate investor.
7. In May 1997, the Registrant issued warrants to Bear, Stearns & Co.
Inc. to purchase 30,194 shares of the Registrant's common stock at an exercise
price of $0.03 per share (on a post-split basis) in consideration for services
rendered.
8. In May 1997, in connection with a Plan of Reorganization and Merger,
among the Registrant, Health responsibility Systems, Inc. and other signatories
thereto, the Registrant issued 433,400 shares of common stock to Elin Silveous
and 203,000 shares of common stock to AOL (on a post-split basis).
II-2
<PAGE>
9. In December 1997, the Registrant issued and sold an aggregate of
2,190,377 shares of Series C Convertible Preferred Stock at a price per share of
$1.954 per share to the following entities: AOL, Convergence, Convergence
Entrepreneurs Fund I ("Convergence Entrepreneurs"), Rho, Sonem and O'Sullivan
Graev & Karabell, L.L.P., Profit Sharing Plan F/B/O Martin H. Levenglick
("Levenglick").
10. In February 1998, the Registrant issued and sold an aggregate of
284,317 shares of common stock to Tenet at a price per share of $5.86 (on a
post-split basis).
11. In February 1998, the Registrant issued a certificate for an
aggregate of 76,800 shares of Series B Convertible Preferred Stock to Kleiner in
exchange for a certificate representing 76,800 shares of Series B Convertible
Preferred Stock issued to KPCB VII.
12. In February 1998, the Registrant issued and sold an aggregate of
1,333,334 shares of Series D Convertible Preferred Stock to Tenet at a price per
share of $2.50.
13. In March 1998, the Registrant issued and sold an aggregate of
4,480,000 shares of Series D Convertible Preferred Stock at a price per share of
$2.50 to the following entities: Convergence, Nexus Capital Partners I, L.P.
("Nexus"), NIG-Village Ltd. ("NIG"), Porcelain Partners L.P., Rho, TCV II
V.O.F., Technology Crossover Ventures II, L.P., TCV Strategic Partners, L.P.,
Technology Crossover Partners II, C.V. and TCV II (Q), L.P.
14. In April 1998, the Registrant issued and sold an aggregate of
6,434,000 shares of Series D Convertible Preferred Stock at a price per share of
$2.50 to the following entities: AOL, CIBC, Transatlantic Venture Partners, C.V.
("Transatlantic"), Leavitt Family Trust, Boston Millennia Partners Limited,
Boston Millennia Associates I Partnership, FIMA Finance Management, Inc., Josef
H. von Rickenbach, David Mahoney, Chestnut Investment Associates 1998, Chestnut
Partners, Inc., Allyn C. Woodward, Moore Global Investments, Ltd. ("Moore"),
Remington Investment Strategies, L.P. ("Remington"), Ralph Mack, Cox and one
other corporate investor.
15. In May 1998, the Registrant issued and sold an aggregate of 352,666
shares of Series D Convertible Preferred Stock at a price per share of $2.50 to
the following entities: Merrill Roth, Gannett International Communications, Inc.
and Pasquale Lavecchia.
16. In June 1998, the Registrant issued and sold an aggregate of
400,000 shares of Series D Convertible Preferred Stock to a corporate investor
at a price per share of $2.50.
17. In June 1998, Stephen Chao, Inc. exercised an option and received
8,333 shares of common stock at a price per share of $5.10 (on a post-split
basis).
18. In December 1998, the Registrant issued and sold an aggregate of
11,730,948 shares of Series E Convertible Preferred Stock at a price per share
of $2.85 to the following entities: AOL, Boston Millennia Associates, Boston
Millennia Partners Limited, Lawrence Berk, CIBC, Convergence, Convergence
Entrepreneurs, Cox, Gannett, Leavitt, Steven Parish, Merrill Roth, Moore, Nexus,
NIG, Levenglick, Ralph Mack, Remington, Rho, Sonem, TCI, TCI Ventures Group,
LLC, TCV II (Q), L.P., TCV II V.O.F., TCV Strategic Partners, L.P., Technology
Crossover Ventures II, C.V., Technology Crossover Ventures II, L.P., Tenet,
Transatlantic, Tribune, William
II-3
<PAGE>
James Bell 1993 Trust, Seligman Communications & Information Fund, Vantage Point
Communications Partners, LP, Vantage Point Venture Partners 1996, LP, Applewood
Associates, Fred F. Nazem, Admirals, L.P., Fred Tanzer, and Van Wagoner Capital
Management.
19. In December 1998, John Kiefer exercised an option and received 833
shares of common stock at a price per share of $5.10 (on a post-split basis).
20. In December 1998, Eileen O'Reilly exercised an option and received
83 shares of common stock at a price per share of $5.10 (on a post-split basis).
21. In December 1998, Laurie Peterson Wardell exercised an option and
received 83 shares of common stock at a price per share of $5.10 (on a
post-split basis).
22. In January 1999, Warren Cook exercised an option and received 1,000
shares of common stock at a price per share of $5.10 (on a post-split basis).
23. In January 1999, Maura Curtin exercised an option and received 83
shares of common stock at a price per share of $5.10 (on a post-split basis).
24. In January 1999, Lisa Gansky exercised an option and received 4,000
shares of common stock at a price per share of $7.50 (on a post-split basis).
25. In January 1999, Dermott McCormack exercised an option and received
83 shares of common stock at a price per share of $5.10 (on a post-split basis).
26. In January 1999, Christine Ohly exercised options and received 250
and 2,416 shares of common stock at prices per share of $3.00 and $5.10,
respectively (on a post-split basis).
27. In January 1999, Sarah Cabot Rockwell exercised options and
received 833 shares of common stock at a price per share of $5.10 (on a
post-split basis).
28. In January 1999, Deanna Vincent exercised options and received
6,250 shares of common stock at a price per share of $5.10 (on a post-split
basis).
29. In January 1999, Philip Vo exercised options and received 83 shares
of common stock at a price per share of $5.10 (on a post-split basis).
30. In February 1999, in connection with the acquisition of
KnowledgeWeb, Inc. d/b/a Astrology.Net, the Registrant issued 802,125 shares of
common stock to Astrology.Net (on a post-split basis).
31. In February 1999, Ramsey Bierne exercised an option and received
8,882 shares of common stock at a price per share of $5.10 (on a post-split
basis).
32. In March 1999, employees exercised options and received an
aggregate 1,500 shares of common stock at a price per share of $5.10 (on a
post-split basis).
II-4
<PAGE>
33. In March 1999, Michael Levy exercised options and received 16,666
shares of common stock at a price of $7.50 (on a post-split basis).
34. In March 1999, in connection with the NBC agreement, the Registrant
issued 4,889,030 shares of Series E Convertible Preferred Stock to NBC.
35. In April 1999, employees exercised options and received (i) an
aggregate 1,167 shares of common stock at a price per share of $5.10 and (ii) an
aggregate 334 shares of common stock at a price per share of $6.00.
36. In May 1999, employees exercised options and received an aggregate
39,750 shares of common stock at a price per share of $5.10.
37. In June 1999, employees exercised options and received an aggregate
2,121 shares of common stock at a price per share of $6.00.
38. In June 1999, in connection with the acquisitions of OnLine
Psychological Services, Inc. and Code Stone Technologies, the Registrant issued
571,709 shares of common stock.
39. In July 1999, employees exercised options and received (i) an
aggregate 2,121 shares of common stock at a price per share of $1.76, (ii) an
aggregate 334 shares of common stock at a price per share of $5.10, (iii) an
aggregate 2,000 shares of common stock at a price per share of $6.00, (iv) an
aggregate 2,500 shares of common stock at a price per share of $8.96 and (v) an
aggregate 167 shares of common stock at a price per share of $9.45.
40. In August 1999, employees exercised options and received (i) an
aggregate 142 shares of common stock at a price per share of $1.76, (ii) an
aggregate 834 shares of common stock at a price per share of $5.10, (iii) an
aggregate 834 shares of common stock at a price per share of $6.00 and (iv) an
aggregate 1,250 shares of common stock at a price per share of $7.50.
41. In August 1999, in connection with the acquisition of Lamaze
Publishing Company, Inc., the Registrant issued 1,748,693 shares of common
stock.
42. In August 1999, in connection with the acquisition of the domain
name Astrology.com, the Registrant issued 17,500 shares of common stock.
Exemption from registration for the transactions described above was
claimed pursuant to Section 4(2) of the Securities Act of 1933, as amended,
regarding transactions by the issuer not involving a public offering, in that
these transactions were made, without general solicitation or advertising, to
sophisticated investors with access to all relevant information necessary to
evaluate these investments and who represented to the Registrant that the shares
were being acquired for investment.
II-5
<PAGE>
Item 16. Exhibits and Financial Statement Schedules.
(a) Exhibits
Exhibit
Number Exhibit
------ -------
2.1 Agreement and Plan of Reorganization and Merger dated as of
January 31, 1997, as amended on March 31, 1997, as further
amended as of May 15, 1997, as further amended as of May 16,
1997 and as further amended as of May 23, 1997 among the
Registrant, Health ResponseAbility Systems, Inc., and other
signatories thereto.*
2.2 Letter of Intent dated January 4, 1999 between the Registrant
and KnowledgeWeb, Inc.*
2.3 Agreement and Plan of Reorganization dated as of December 10,
1996 among the Registrant, PP Acquisition Corporation,
ParentsPlace.com, Inc. and the stockholders of ParentsPlace.com,
Inc.*
2.4 Letter Agreement dated February 10, 1999 by and among the
Registrant and Kid's Warehouse, Inc., iBaby, Inc., Our Baby,
LLC, JBM Ventures, Inc. and Gavin Mandelbaum.*
2.5 Agreement and Plan of Reorganization dated as of February 12,
1999 among the Registrant and KnowledgeWeb Acquisition
Corporation and KnowledgeWeb, Inc. and the Shareholders of
KnowledgeWeb, Inc.*
2.6 Agreement and Plan of Reorganization, dated as of June 30, 1999,
by and among the Registrant, OnLine Psych Acquisition
Corporation, OnLine Psychological Services, Inc. and the
stockholders of OnLine Psychological Services, Inc.
(incorporated by reference from Exhibit 2.1 to the Registrant's
Form 8-K Current Report dated as of June 30, 1999, File No.
000-25469).
2.7 Agreement and Plan of Reorganization, dated as of June 30, 1999,
by and among the Registrant, Code Stone Acquisition Corporation,
Code Stone Technologies, Inc. and the sole stockholder of Code
Stone Technologies, Inc. (incorporated by reference from Exhibit
2.2 to the Registrant's Form 8-K Current Report dated as of June
30, 1999, File No. 000-25469).
2.8 Agreement and Plan of Reorganization, dated as of July 13, 1999,
by and among the Registrant, LPC Acquisition Corporation, Lamaze
Publishing Company, Inc. and the Shareholders and Stock
Appreciation Unit Holders of Lamaze Publishing Company, Inc.
(incorporated by reference from Exhibit 2.3 to the Registrant's
Form 10-Q Quarterly Report for the period ended June 30, 1999,
File No. 000-25469).
II-6
<PAGE>
Exhibit
Number Exhibit
------ -------
3.1 Amended and Restated Certificate of Incorporation of the
Registrant.**
3.2 Bylaws of the Registrant.**
4.1 Form of Registrant's common stock certificate.*
5.1 Opinion of Orrick, Herrington & Sutcliffe LLP.
9.1 Voting Trust Agreement dated as of September 19, 1995 between
Candice Carpenter, Nancy Evans and certain owners of common
stock of the Registrant.*
10.1 Form of Indemnification Agreement
between the Registrant and each of its directors and officers.*
10.2 1995 Amended and Restated Employee Stock Option Plan of the
Registrant.*
10.3 1997 Amended and Restated Acquisition Stock Option Plan of the
Registrant.*
10.4 1999 Employee Stock Option Plan of the Registrant.**
10.5 1999 Director Option Plan of the Registrant.**
10.6 1999 Employee Stock Purchase Plan of the Registrant.**
10.7 1999 Acquisition Stock Option Plan of the Registrant.**
10.8 Interactive Services Agreement dated December 31, 1998, between
the Registrant and America Online, Inc. ("AOL")*
10.9 Confidential Bankcard Marketing Agreement dated June 4, 1998,
between the Registrant and First Credit Card Services USA
L.L.C.+*
10.10 Promotion Distribution and License Agreement dated October 21,
1998 between AT&T Corp. and the Registrant.+*
10.11 Exclusive Sponsorship Agreement dated February 28, 1998 between
Amazon.com, Inc. and the Registrant.+*
10.12 Promotion Agreement dated November 6, 1998 between Snap LLC and
the Registrant.+*
10.13 Online Services Agreement dated December 19, 1997 between
Charles Schwab & Co., Inc. and the Registrant.+*
10.14 Letter Agreement dated November 11, 1998 between the National
Broadcasting Company, Inc. and the Registrant.*
10.15 Joint Activities Agreement dated September 1997 between Intuit
Inc. and the Registrant.+*
II-7
<PAGE>
Exhibit
Number Exhibit
------ -------
10.16 Sponsorship Agreement dated as of December 18, 1998 by and
between Ford Motor Media, a division of J. Walter Thompson and
the Registrant.*
10.17 Sponsorship Agreement dated as of October 30, 1998 between
Ralston Purina Company and the Registrant.* 10.18 Form of
Non-Competition, Non-Disclosure and Assignment of Inventions
Agreement dated September 9, 1995, and Amendment dated May 6,
1996, between the Registrant and each of Candice Carpenter and
Nancy Evans.*
10.19 Employment Letter dated June 4, 1998 to Craig Monaghan.*
10.20 Lease dated August 21, 1995, commencing on September 1, 1995, as
amended on September 20, 1995, as amended and supplemented April
5, 1996, as further amended and supplemented April 15, 1996, as
further amended and supplemented January 20, 1997, and as
amended and supplemented May 8, 1997, between 170 Fifth
Associates (the "Landlord") and the Registrant.*
10.21 Lease dated March 19, 1998, commencing March 15, 1998 between
149 Fifth Avenue Corporation and the Registrant, as supplemented
on June 30, 1998.*
10.22 Note and Warrant Purchase Agreement dated as of February 27,
1997, as amended April 29, 1997, among the Registrant, AOL,
Tribune, KPCB VII and KPCB Zaibatsu II, including Form of
Warrant.*
10.23 Promissory Note dated June 5, 1998 in the amount of $500,000
between Candice Carpenter and the Registrant.*
10.24 Fourth Amended and Restated Stockholders' Agreement dated as of
December 4, 1998, among the Registrant, the Founders and each of
the Investors identified therein.*
10.25 Fourth Amended and Restated Registration Rights Agreement dated
as of December 4, 1998, among the Registrant, the Founders and
each of the Investors identified therein, as amended as of July
26, 1999.
10.26 Amended and Restated Stock Purchase Agreement dated as of March
9, 1999 among the Registrant, GE Investments Subsidiary, Inc.
and the National Broadcasting Company, Inc.*
10.27 Amended Letter Agreement dated as of March 9, 1999 between the
Registrant and the National Broadcasting Company, Inc.*
10.28 Promissory Note dated March 9, 1999 in the amount of
$15,497,558.48 between the Registrant and GE Investments
Subsidiary, Inc.
II-8
<PAGE>
Exhibit
Number Exhibit
------ -------
10.29 Agreement dated October 18, 1989 (the "Video Agreement") between
Lamaze International, Inc. (formerly known as The American
Society for Psychoprophylaxis in Obstetrics, Inc.) and Lamaze
Publishing Company, Inc. (as successor-in-interest to Lifetime
Institute for Family Education, Inc. ("Lifetime") in turn as
successor-in-interest to Medical Communications Corporation
("MCC")).
10.30 Addendum to the Video Agreement dated December 9, 1992 between
Lamaze International, Inc. and Lamaze Publishing Company, Inc.
(as successor-in-interest to Lifetime, in turn as
successor-in-interest to MCC).
10.31 Second Addendum to the Video Agreement dated April 22, 1993
between Lamaze International, Inc. and Lamaze Publishing
Company, Inc. (as successor-in-interest to Lifetime, in turn as
successor-in-interest to MCC).
10.32 Intellectual Property Agreement dated April 6, 1990 between
Lamaze International, Inc. and Lamaze Publishing Company, Inc.
(as successor-in-interest to Lifetime).
10.33 Loan/Activity Agreement dated August 2, 1990 between Lamaze
International, Inc. and Lamaze Publishing Company, Inc. (as
successor-in-interest to Lifetime).
10.34 LPM Agreement dated August 2, 1990 between Lamaze Publishing
Company, Inc. (as successor-in-interest to Lifetime) and Lamaze
International, Inc.
10.35 Onsert Agreement dated December 7, 1992 between Lamaze
International, Inc. and Lamaze Publishing Company, Inc. (as
successor-in-interest to Lifetime).
10.36 Amendment to Onsert Agreement dated June 4, 1999 between Lamaze
International, Inc. and Lamaze Publishing Company, Inc. (as
successor-in-interest to Lifetime).
10.37 Statement of Terms concerning Child Development Newsletter dated
August 20, 1993 between Lamaze International, Inc. and Lamaze
Publishing Company, Inc.
10.38 Agreement of Modification and Clarification dated January 1,
1996 between Lifetime and Lamaze Publishing Company, Inc. and
the American Society for Psychoprophylaxis in Obstetrics, Inc.
21 Subsidiaries of the Registrant.
23.1 Consent of Orrick, Herrington & Sutcliffe LLP (included in
Exhibit 5.1).
II-9
<PAGE>
Exhibit
Number Exhibit
------ -------
23.2 Consents of PricewaterhouseCoopers LLP.
24 Power of Attorney (included on page II-12).**
27.1 Financial Data Schedule.**
- ----------
* Incorporated by reference from the same exhibit number to Registration
Statement File No.333-68749.
+ Confidential treatment has been granted for certain portions of these
exhibits. Omitted portions have been filed separately with the Securities
and Exchange Commission.
** Previously filed
(b) Financial Statement Schedules
Schedules not listed above have been omitted because the
information required to be set forth therein is not applicable or is shown in
the financial statements or notes thereto.
Item 17. Undertakings
A. Insofar as indemnification for liabilities arising under
the Securities Act of 1933, as amended (the "Securities Act"), may be permitted
to directors, officers, and controlling persons of the Registrant pursuant to
the provisions described in Item 15 above, or otherwise, the Registrant has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question of whether such indemnification by it is against
public policy as expressed in the Securities Act and will be governed by the
final adjudication of such issue.
B. The undersigned Registrant hereby undertakes to do the
following, to the extent that such actions are required by the rules and
regulations of the Securities and Exchange Commission:
(1) To file, during any period in which offers or sales are
being made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section
10(a)(3) of the Securities Act;
II-10
<PAGE>
(ii) To reflect in the prospectus any facts or events
arising after the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth in the
registration statement. Notwithstanding the foregoing, any increase or decrease
in volume of securities offered (if the total dollar value of securities offered
would not exceed that which was registered) and any deviation from the low or
high end of the estimated maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b) if, in the
aggregate, the changes in volume and price represent no more than 20 percent
change in the maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement; and
(iii) To include any material information with
respect to the plan of distribution not previously disclosed in the registration
statement or any material change to such information in the registration
statement.
(2) That, for the purpose of determining any liability under
the Securities Act, each such post-effective amendment shall be deemed to be a
new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
II-11
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933,
the Registrant has duly caused this Amendment No. 1 to this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of New York, State of New York, on September 1, 1999.
iVILLAGE Inc.
By: /s/ Steven A. Elkes
-------------------------------------------
Steven A. Elkes
Senior Vice President, Business Affairs and
Assistant Secretary
Pursuant to the requirements of the Securities Act of 1933,
this Amendment No. 1 to this registration statement has been signed by the
following persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Capacity Date
--------- -------- ----
<S> <C> <C>
/s/ Candice Carpenter* Co-Chairperson of the Board of Directors September 1, 1999
- --------------------- and Chief Executive Officer
Candice Carpenter (Principal Executive Officer)
/s/ Nancy Evans* Co-Chairperson of the Board of Directors and September 1, 1999
- --------------------- Editor-in-Chief
Nancy Evans
/s/ Craig T. Monaghan* Chief Financial Officer September 1, 1999
- --------------------- (Principal Financial Officer)
Craig T. Monaghan Vice President, Controller and Chief
/s/ Scott Levine* Accounting Officer September 1, 1999
- --------------------- (Principal Accounting Officer)
Scott Levine
/s/ Alan Colner* Director September 1, 1999
- ---------------------
Alan Colner
/s/ Jay Hoag* Director September 1, 1999
- ---------------------
Jay Hoag
/s/ Lennert J. Leader* Director September 1, 1999
- ---------------------
Lennert J. Leader
</TABLE>
II-12
<PAGE>
<TABLE>
<CAPTION>
Signature Capacity Date
--------- -------- ----
<S> <C> <C>
/s/ Habib Kairouz* Director September 1, 1999
- ---------------------
Habib Kairouz
/s/ Michael Levy* Director September 1, 1999
- ---------------------
Michael Levy
/s/ Douglas McCormick* Director September 1, 1999
- ---------------------
Douglas McCormick
/s/ Martin Yudkovitz* Director September 1, 1999
- ---------------------
Martin Yudkovitz
/s/ Daniel Schulman* Director September 1, 1999
- ---------------------
Daniel Schulman
*By: Steven A. Elkes
----------------
</TABLE>
II-13
<PAGE>
EXHIBIT INDEX
Exhibit
Number Exhibit
------ -------
2.1 Agreement and Plan of Reorganization and Merger dated as of
January 31, 1997, as amended on March 31, 1997, as further
amended as of May 15, 1997, as further amended as of May 16,
1997 and as further amended as of May 23, 1997 among the
Registrant, Health ResponseAbility Systems, Inc., and other
signatories thereto.*
2.2 Letter of Intent dated January 4, 1999 between the Registrant
and KnowledgeWeb, Inc.*
2.3 Agreement and Plan of Reorganization dated as of December 10,
1996 among the Registrant, PP Acquisition Corporation,
ParentsPlace.com, Inc. and the stockholders of ParentsPlace.com,
Inc.*
2.4 Letter Agreement dated February 10, 1999 by and among the
Registrant and Kid's Warehouse, Inc., iBaby, Inc., Our Baby,
LLC, JBM Ventures, Inc. and Gavin Mandelbaum.*
2.5 Agreement and Plan of Reorganization dated as of February 12,
1999 among the Registrant and KnowledgeWeb Acquisition
Corporation and KnowledgeWeb, Inc. and the Shareholders of
KnowledgeWeb, Inc.*
2.6 Agreement and Plan of Reorganization, dated as of June 30, 1999,
by and among the Registrant, OnLine Psych Acquisition
Corporation, OnLine Psychological Services, Inc. and the
stockholders of OnLine Psychological Services, Inc.
(incorporated by reference from Exhibit 2.1 to the Registrant's
Form 8-K Current Report dated as of June 30, 1999, File No.
000-25469).
2.7 Agreement and Plan of Reorganization, dated as of June 30, 1999,
by and among the Registrant, Code Stone Acquisition Corporation,
Code Stone Technologies, Inc. and the sole stockholder of Code
Stone Technologies, Inc. (incorporated by reference from Exhibit
2.2 to the Registrant's Form 8-K Current Report dated as of June
30, 1999, File No. 000-25469).
2.8 Agreement and Plan of Reorganization, dated as of July 13, 1999,
by and among the Registrant, LPC Acquisition Corporation, Lamaze
Publishing Company, Inc. and the Shareholders and Stock
Appreciation Unit Holders of Lamaze Publishing Company, Inc.
(incorporated by reference from Exhibit 2.3 to the Registrant's
Form 10-Q Quarterly Report for the period ended June 30, 1999,
File No. 000-25469)
3.1 Amended and Restated Certificate of Incorporation of the
Registrant.**
3.2 Bylaws of the Registrant.**
4.1 Form of Registrant's common stock certificate.*
5.1 Opinion of Orrick, Herrington & Sutcliffe LLP.
1
<PAGE>
Exhibit
Number Exhibit
------ -------
9.1 Voting Trust Agreement dated as of September 19, 1995 between
Candice Carpenter, Nancy Evans and certain owners of common
stock of the Registrant.*
10.1 Form of Indemnification Agreement between the Registrant and
each of its directors and officers.*
10.2 1995 Amended and Restated Employee Stock Option Plan of the
Registrant.*
10.3 1997 Amended and Restated Acquisition Stock Option Plan of the
Registrant.*
10.4 1999 Employee Stock Option Plan of the Registrant.**
10.5 1999 Director Option Plan of the Registrant.**
10.6 1999 Employee Stock Purchase Plan of the Registrant.**
10.7 1999 Acquisition Stock Option Plan of the Registrant.**
10.8 Interactive Services Agreement dated December 31, 1998, between
the Registrant and America Online, Inc. ("AOL")*
10.9 Confidential Bankcard Marketing Agreement dated June 4, 1998,
between the Registrant and First Credit Card Services USA
L.L.C.+*
10.10 Promotion Distribution and License Agreement dated October 21,
1998 between AT&T Corp. and the Registrant.+*
10.11 Exclusive Sponsorship Agreement dated February 28, 1998 between
Amazon.com, Inc. and the Registrant.+*
10.12 Promotion Agreement dated November 6, 1998 between Snap LLC and
the Registrant.+*
10.13 Online Services Agreement dated December 19, 1997 between
Charles Schwab & Co., Inc. and the Registrant.+*
10.14 Letter Agreement dated November 11, 1998 between the National
Broadcasting Company, Inc. and the Registrant.*
10.15 Joint Activities Agreement dated September 1997 between Intuit
Inc. and the Registrant.+*
10.16 Sponsorship Agreement dated as of December 18, 1998 by and
between Ford Motor Media, a division of J. Walter Thompson and
the Registrant.*
10.17 Sponsorship Agreement dated as of October 30, 1998 between
Ralston Purina Company and the Registrant.*
2
<PAGE>
Exhibit
Number Exhibit
------ -------
10.18 Form of Non-Competition, Non-Disclosure and Assignment of
Inventions Agreement dated September 9, 1995, and Amendment
dated May 6, 1996, between the Registrant and each of Candice
Carpenter and Nancy Evans.*
10.19 Employment Letter dated June 4, 1998 to Craig Monaghan.*
10.20 Lease dated August 21, 1995, commencing on September 1, 1995, as
amended onSeptember 20, 1995, as amended and supplemented April
5, 1996, as further amended and supplemented April 15, 1996, as
further amended and supplemented January 20, 1997, and as
amended and supplemented May 8, 1997, between 170 Fifth
Associates (the "Landlord") and the Registrant.*
10.21 Lease dated March 19, 1998, commencing March 15, 1998 between
149 Fifth Avenue Corporation and the Registrant, as supplemented
on June 30, 1998.*
10.22 Note and Warrant Purchase Agreement dated as of February 27,
1997, as amended April 29, 1997, among the Registrant, AOL,
Tribune, KPCB VII and KPCB Zaibatsu II, including Form of
Warrant.*
10.23 Promissory Note dated June 5, 1998 in the amount of $500,000
between Candice Carpenter and the Registrant.*
10.24 Fourth Amended and Restated Stockholders' Agreement dated as of
December 4, 1998, among the Registrant, the Founders and each of
the Investors identified therein.*
10.25 Fourth Amended and Restated Registration Rights Agreement dated
as of December 4, 1998, among the Registrant, the Founders and
each of the Investors identified therein, as amended as of July
26, 1999.
10.26 Amended and Restated Stock Purchase Agreement dated as of March
9, 1999 among the Registrant, GE Investments Subsidiary, Inc.
and the National Broadcasting Company, Inc.*
10.27 Amended Letter Agreement dated as of March 9, 1999 between the
Registrant and the National Broadcasting Company, Inc.*
10.28 Promissory Note dated March 9, 1999 in the amount of
$15,497,558.48 between the Registrant and GE Investments
Subsidiary, Inc.
10.29 Agreement dated October 18, 1989 (the "Video Agreement") between
Lamaze International, Inc. (formerly known as The American
Society for Psychoprophylaxis in Obstetrics, Inc.) and Lamaze
Publishing Company, Inc. (as successor-in-interest to Lifetime
Institute for Family Education, Inc. ("Lifetime") in turn as
successor-in-interest to Medical Communications Corporation
("MCC")).
3
<PAGE>
Exhibit
Number Exhibit
------ -------
10.30 Addendum to the Video Agreement dated December 9, 1992 between
Lamaze International, Inc. and Lamaze Publishing Company, Inc.
(as successor-in-interest to Lifetime, in turn as
successor-in-interest to MCC).
10.31 Second Addendum to the Video Agreement dated April 22, 1993
between Lamaze International, Inc. and Lamaze Publishing
Company, Inc. (as successor-in-interest to Lifetime, in turn as
successor-in-interest to MCC).
10.32 Intellectual Property Agreement dated April 6, 1990 between
Lamaze International, Inc. and Lamaze Publishing Company, Inc.
(as successor-in-interest to Lifetime).
10.33 Loan/Activity Agreement dated August 2, 1990 between Lamaze
International, Inc. and Lamaze Publishing Company, Inc. (as
successor-in-interest to Lifetime).
10.34 LPM Agreement dated August 2, 1990 between Lamaze Publishing
Company, Inc. (as successor-in-interest to Lifetime) and Lamaze
International, Inc.
10.35 Onsert Agreement dated December 7, 1992 between Lamaze
International, Inc. and Lamaze Publishing Company, Inc. (as
successor-in-interest to Lifetime).
10.36 Amendment to Onsert Agreement dated June 4, 1999 between Lamaze
International, Inc. and Lamaze Publishing Company, Inc. (as
successor-in-interest to Lifetime).
10.37 Statement of Terms concerning Child Development Newsletter
dated August 20, 1993 between Lamaze International, Inc. and
Lamaze Publishing Company, Inc.
10.38 Agreement of Modification and Clarification dated January 1,
1996 between Lifetime and Lamaze Publishing Company, Inc. and
the American Society for Psychoprophylaxis in Obstetrics, Inc.
21 Subsidiaries of the Registrant.
23.1 Consent of Orrick, Herrington & Sutcliffe LLP (included in
Exhibit 5.1).
23.2 Consents of PricewaterhouseCoopers LLP.
24 Power of Attorney (included on page II-12).**
27.1 Financial Data Schedule.**
- -----------------
* Incorporated by reference from the same exhibit number to Registration
Statement File No.333-68749.
4
<PAGE>
+ Confidential treatment has been granted for certain portions of these
exhibits. Omitted portions have been filed separately with the Securities and
Exchange Commission.
** Previously filed
5
<PAGE>
September 1, 1999
iVillage Inc.
170 Fifth Avenue
New York, New York 10010
Re: iVillage Inc.
Registration Statement on Form S-1
We have acted as counsel to iVillage Inc., a Delaware
corporation (the "Company"), in connection with the preparation and filing of a
Registration Statement on Form S-1, file no. 333-85437 (the "Registration
Statement") with the Securities and Exchange Commission under the Securities Act
of 1933, as amended (the "Act"). The Registration Statement relates to the sale
by certain selling stockholders of the Company of up to 2,676,266 shares of the
Company's Common Stock (the "Shares"). This opinion is being furnished in
accordance with the requirements of item 16(a) of Form S-1 and Item 601(b)(5)(i)
of Regulation S-K.
We have reviewed the Company's charter documents and the
corporate proceedings taken by the Company in connection with the issuance of
the Shares. Based on such review, we are of the opinion that the Shares have
been duly authorized, and if, as and when sold in accordance with the
Registration Statement and the related prospectus (as amended and supplemented
through the date of sale) will be legally issued, fully paid and nonassessable.
We consent to the filing of this opinion letter as Exhibit 5.1
to the Registration Statement and to the reference to this firm under the
caption "Legal Matters" in the prospectus which is part of the Registration
Statement. In giving this consent, we do not thereby admit that we are within
the category of persons whose consent is required under Section 7 of the Act,
the rules and regulations of the Securities and Exchange Commission promulgated
thereunder, or Item 509 of Regulation S-K. This opinion letter is rendered as of
the date first written above and we disclaim any obligation to advise you of
facts, circumstances, events or developments which hereafter may be brought to
our attention and which may alter, affect or modify the opinion expressed
herein. Our opinion is expressly limited to the matters set forth above and we
render no opinion, whether by implication or otherwise, as to any other matters
relating to the Company or the Shares.
Very truly yours,
/s/ Orrick, Herrington & Sutcliffe LLP
ORRICK, HERRINGTON & SUTCLIFFE LLP
<PAGE>
iVILLAGE INC.
AMENDMENT TO FOURTH AMENDED AND
RESTATED REGISTRATION RIGHTS AGREEMENT
July 26, 1999
Reference is hereby made to the Fourth Amended and Restated
Registration Rights Agreement dated as of December 4, 1998 (the "Agreement")
among iVillage Inc., a Delaware corporation (the "Company"), each of the
signatories thereto identified as an Investor on the signature page thereof (the
"Investors"), Bear, Stearns & Co. Inc. and each of the parties identified on
Annex A to the Agreement (the "Founders"). The undersigned hereby agrees to
amend Section 3(a) of the Agreement (piggyback registration) to delete the
parenthetical in the first sentence which currently reads as follows "(other
than on Form S-4 or Form S-8 promulgated under the Securities Act or any
successor forms thereto or other than in connection with an exchange offer or
offering solely to, the company's stockholders)" and to replace it with a
parenthetical which reads as follows: "(other than (i) on Form S-4 or Form S-8
promulgated under the Securities Act or any successor forms thereto, (ii) in
connection with an exchange offer or offering solely to the Company's security
holders, or (iii) as it relates to the Company's acquisition of Lamaze
Publishing Company, Inc., on Forms S-1 or S-3 or any successor forms thereto in
connection with mergers or acquisitions conducted or contemplated by the
Company, including, without limitation, any such registration statement filed to
permit the resale of securities issued in connection with any such merger or
acquisition)".
This Amendment may be executed in one or more counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
[SIGNATURE PAGE FOLLOWS]
<PAGE>
[COUNTERPART SIGNATURE PAGE TO THE
AMENDMENT TO THE FOURTH AMENDED AND
RESTATED REGISTRATION RIGHTS
AGREEMENT DATED AS OF DECEMBER 4, 1998]
IN WITNESS WHEREOF, the parties hereto have executed this
Amendment as of the date first written above.
iVILLAGE INC.
By
--------------------------
Name:
Title:
THE INVESTORS:
------------------------------
By
--------------------------
Name:
Title:
FOUNDERS:
------------------------------
Candice Carpenter
------------------------------
Nancy Evans
------------------------------
Robert Levitan
Carpenter Family 1998 Irrevocable
Trust, dated May 31, 1998
------------------------------
Nancy Evans
Trustee
<PAGE>
PROMISSORY NOTE
New York, New York
US$15,497,555 April 14, 1999
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR THE SECURITIES LAWS OF ANY STATE, AND MAY NOT BE REOFFERED
OR SOLD UNLESS AN EXEMPTION FROM REGISTRATION IS AVAILABLE.
FOR VALUE RECEIVED, NATIONAL BROADCASTING COMPANY, INC., a
Delaware corporation ("Maker"), by this promissory note (the "Note")
unconditionally promises to pay to the order of GE Investments Subsidiary, Inc.,
a Delaware corporation (the "Holder"), the principal sum of Fifteen Million Four
Hundred Ninety Thousand Seven Five Hundred Fifty Five United States Dollars
(US$15,497,555), together with interest at the rate of five percent (5%) per
annum on the unpaid principal balance from the date hereof to the date such
principal balance is paid in full, as set forth in paragraph 2 below. The
principal amount, plus interest thereon, shall be due and payable in twelve (12)
equal installments of $1,381,514.23 each, payable on each April 1, July 1,
October 1 and January 1 thereafter (each, a "Payment Date"), until April 1,
2002; provided, however, that the first payment shall be due and payable five
days after the date hereof in the amount of $1,383,785.2 1. Any principal,
interest or any other amount hereunder which is not paid when due (whether as
stated, by acceleration or otherwise) shall, to the extent permitted by law,
thereafter bear interest at the rate per annum 2% above the rate described
above.
Terms and Provisions
--------------------
1. Payments. All payments to be made hereunder by the Maker shall be
made without set-off or counterclaim, in United States dollars in immediately
available funds at such place as may be designated by the Holder in writing from
time to time. Whenever any payment hereunder shall be stated to be due on a day
which is not a Business Day, such payment shall be made on the succeeding
Business Day. "Business Day" shall mean a day other than a Saturday, Sunday or
other day on which commercial banks in New York City are authorized or required
by law to close.
2. Interest. Interest shall be computed on the basis of a year of 365
days for actual days elapsed and shall be payable from the date hereof on each
Payment Date until maturity (whether as stated, by acceleration or otherwise),
on demand in respect of any past due amount and upon payment in full of this
Note. Interest shall accrue and be paid by the Maker in arrears on each Payment
Date until maturity. Anything in this Note to the contrary notwithstanding, the
Holder shall not be permitted to charge or receive, and the Maker shall not be
obligated to pay, interest in excess of the maximum rate from time to time
permitted by applicable law.
<PAGE>
3. Prepayment. The Maker shall have the right to prepay this Note in
whole or in part at any time, without premium or penalty, provided such
prepayment is accompanied by the payment of all unpaid interest accrued to the
date of prepayment and any other amounts then due under this Note.
4. Representations and Warranties. The Maker hereby represents and
warrants to the Holder that: (a) the Maker is duly organized, validly existing
and in good standing under the laws of its jurisdiction of organization, has the
full power and authority, and the legal right, to make, deliver and perform the
Note and its obligations hereunder on the terms and conditions hereof and has
taken all necessary corporate action to authorize the execution, delivery and
performance of the Note and to authorize the borrowing hereunder, and this Note
has been duly executed and delivered on behalf of the Maker; (b) this Note
constitutes a legal, valid and binding obligation of the Maker enforceable
against it in accordance with its terms, except as enforceability may be limited
by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws
affecting the enforcement of creditors' rights generally and by general
equitable principles (whether enforcement is sought by proceedings in equity or
at law); (c) the execution, delivery and performance of this Note, the borrowing
hereunder and the use of the proceeds thereof will not violate any material
requirement of law, any material contractual obligation of the Maker or its
subsidiaries or any of their applicable charters, bylaws or similar documents;
and (d) no Event of Default (as defined below) has occurred and is continuing.
5. Events of Default. If (a) the Maker falls to pay when due any
principal of or interest on this Note or any other amount payable hereunder; or
(b) the Maker admits in writing, its inability to pay its debts generally; makes
a general assignment for the benefit of creditors; has any proceeding,
instituted by or against it seeking to adjudicate it as bankrupt or insolvent,
or seeking liquidation, winding up, reorganization, arrangement, adjustment,
protection, relief, or composition of the Maker or its debts under any law
relating to bankruptcy, insolvency or reorganization or relief of debtors, or
seeking the entry of an order for relief or the appointment of a receiver,
trustee, or similar official for it or any substantial part of its property;
provided, in the case where such proceeding is involuntarily instituted against
the Maker, such proceeding remains undismissed after 30 days; or (c) any
representation or warranty made by the Maker in this Note proves to have been
incorrect in any material respect; then, and in any such event (each, an "Event
of Default"), the Holder may, by notice of default given to the Maker in writing
or by facsimile transmission, declare unpaid principal, accrued interest and all
other amounts payable under this Note to be immediately due and payable without
presentment, demand, protest or other notice of any kind, each of which is
hereby expressly waived by the Maker.
6. No Waiver. No action or omission by the Holder shall constitute a
waiver of any rights or remedies of the Holder hereunder. Such rights and
remedies are cumulative and not exclusive of any rights or remedies provided by
law. Payment of principal of and interest on this Note shall not discharge the
Maker's obligation with respect to any other amount payable hereunder.
2
<PAGE>
assigns, except that neither the Holder nor the Maker may assign or transfer any
of its rights or obligations under this Note without the prior written consent
of the other party.
7. Governing Law; Jurisdiction. This Note is made and delivered in New
York, New York, and, pursuant to Section 5-1401 of the General Obligations Law
of the State of New York, shall be governed by and construed and interpreted in
accordance with the laws of the State of New York applicable to contracts fully
performed in New York. All Judicial actions, suits or proceedings brought
against Maker or the Holder with respect to its obligations, liabilities or any
other matter under or arising out of or in connection with this Note or for
recognition or enforcement of any judgment rendered in any such proceedings
shall be brought exclusively in any state or federal court located in the County
of New York.
8. Mutilated, Destroyed or Missing Notes. If any mutilated Note is
surrendered to the Maker or the Maker receives evidence to its satisfaction of
the destruction, loss or theft of the Note, the Maker shall issue a replacement
Note. If required by the Maker, an indemnity bond must be supplied by the Holder
that is sufficient in the judgment of the maker to protect the Maker from any
loss it may suffer if the Note is replaced. The Maker may charge for any
expenses in replacing the Note.
9. Existing Promissory Note. This Note is issued as of the date hereof
by Maker to Holder pursuant to that certain Third Amendment to Note, of even
date herewith, between Maker and Holder.
NATIONAL BROADCASTING COMPANY, INC.
By: /s/ Mark W. Begor
----------------------------------
Name: Mark W. Begor
Title: EVP and CFO, NBC
3
<PAGE>
GE Investments Subsidiary, Inc. ("GE Sub") hereby assigns this promissory note
to iVillage Inc., a Delaware corporation ("iVillage"), and iVillage hereby
accepts this promissory note from GE Sub, in accordance with Sections 3.1 and
6.2 of the Stock Purchase Agreement, dated as of March 9, 1999, between iVillage
and National Broadcasting Company, Inc. ("NBC"), pursuant to which iVillage is
selling, and GE Sub is purchasing, 4,889,030 shares of Series E Preferred Stock
of iVillage.
Dated: April 14, 1999
GE Investments Subsidiary, Inc.
By: /s/ Alan M. Lewis
---------------------------------
Name: Alan M. Lewis
Title: Exec VP
iVillage Inc.
By:
----------------------------------
Name:
Title:
National Broadcasting Company, Inc. hereby consents to the above-referenced
assignment of this promissory note by GE Sub to iVillage.
Dated: April , 1999 National Broadcasting Company, Inc.
-----
By:
-------------------------------
Name:
Title:
<PAGE>
GE Investments Subsidiary, Inc. ("GE Sub") hereby assigns this promissory note
to iVillage Inc., a Delaware corporation ("iVillage"), and iVillage hereby
accepts this promissory note from GE Sub, in accordance with Sections 3.1 and
6.2 of the Stock Purchase Agreement, dated as of March 9, 1999, between iVillage
and National Broadcasting Company, Inc. ("NBC"), pursuant to which iVillage is
selling, and GE Sub is purchasing, 4,889,030 shares of Series E Preferred Stock
of iVillage.
Dated: April 14, 1999 GE Investments Subsidiary, Inc.
By:
-------------------------------
Name:
Title:
iVillage Inc.
By: /s/ Candice Carpenter
-------------------------------
Name: Candice Carpenter
Title: CEO
National Broadcasting Company, Inc. hereby consents to the above-referenced
assignment of this promissory note by GE Sub to iVillage.
Dated: April , 1999 National Broadcasting Company, Inc.
-----
By:
-------------------------------
Name:
Title:
<PAGE>
GE Investments Subsidiary, Inc. ("GE Sub") hereby assigns this promissory note
to iVillage Inc., a Delaware corporation (`iVillage"), and iVillage hereby
accepts this promissory note from GE Sub, in accordance with Sections 3.1 and
6.2 of the Stock Purchase Agreement, dated as of March 9, 1999, between iVillage
and National Broadcasting Company, Inc. ("NBC"), pursuant to which iVillage is
selling, and GE Sub is purchasing, 4,889,030 shares of Series E Preferred Stock
of iVillage.
Dated: April 14, 1999 GE Investments Subsidiary, Inc.
By:
-----------------------------
Name:
Title:
iVillage Inc.
By:
-----------------------------
Name:
Title:
National Broadcasting, Company, Inc. hereby consents to the above-referenced
assignment of this promissory note by GE Sub to iVillage.
Dated: April 14, 1999 National Broadcasting Company, Inc.
By: /s/ Mark W. Begor
-----------------------------
Name: Mark W. Begor
Title: EVP and CFO
<PAGE>
AN AGREEMENT BETWEEN ASPO/LAMAZE
AND
MEDICAL COMMUNICATIONS CORPORATION
This is an agreement between The American Society for Psychoprophylaxis in
Obstetrics, Inc. (ASPO/Lamaze) and Medical Communications Corporation (MCC).
Intent
1. The intent of this agreement is for ASPO/Lamaze to: (a) permit MCC, to
develop pre-natal and post-natal educational video cassettes for
distribution to ASPO/Lamaze students by ASPO/Lamaze instructors, and to
Lamaze Family members under the name of LAMAZE FAMILY PRODUCTIONS, and
(b) provide educational consultation to MCC in the development of such
educational video cassettes.
2. The videos, in a format similar to the MCC production entitled Your
Healthy Baby, will be financially underwritten by private industry who,
in return for their funding, will be permitted appropriate and
documentary style in-use exposures of their products in the videos, the
inclusion of printed informational/education advertorials in booklet
form, and, possibly, coupons redeemable for their products.
The Programs
3. The video programs will focus on pre-natal and post-natal subjects
which MCC will develop with consultation from ASPO/Lamaze instructors
and staff, discussion with healthcare experts, and study of current
pre-natal/post-natal issues.
4. MCC will create videos in three different categories. [Others may be
added if both parties agree that they are appropriate; of educational
value and a financially sound undertaking.] The three categories,
though not in order or priority of production, are:
A. Pre-Natal Program(s)
Intended for the ASPO/Lamaze mother in her 7th month. Offered by
ASPO/Lamaze instructors (at no charge) as an added benefit to the
course itself.
B. Caring for the Baby During the First Three Months
Intended for distribution to the ASPO/Lamaze mother just before
the birth of her baby. Will be presented by the instructor as a
special graduation- from-course gift and as an expression of
ASPO/Lamaze concern for helping mothers learn more about the
health and well-being and basic care of their babies.
<PAGE>
C. A Program Addressing the Next Twelve Months
These will be programs targeted at The Lamaze Family as currently
presented by ASPO/Lamaze. While the precise content is yet to be
determined, the general intent is to create programs that deal
with the first twelve to eighteen months of an infant's life.
Content may well include tips for infant accident prevention,
labor and time-saying tips, health issues and other parenting
concerns.
D. The Lamaze Family Series
In addition to the above three categories, once the first program
categories have been developed, MCC - with ASPO/Lamaze guidance
and input - will explore developing an on-going series, aimed at
The Lamaze Family members, on parenting and wellness subjects,
although neither party at this time commits itself to such a
series. These programs will carry all the appropriate Lamaze
Family identification. MCC and ASPO/Lamaze will determine whether
the programs may be distributed free or sold to Lamaze Family
members based on the economic viability of free vs. paid
distribution.
5. The production and program introduction schedules will be determined by
MCC and approved by ASPO/Lamaze based on the availability of sponsors,
educational needs and/or demand, financial viability and the time
needed to complete all phases of production, duplication, distribution
arrangements and order fulfillment.
6. It is understood that each of the program described above will, unless
otherwise dictated by ASPO/Lamaze:
- Bear ASPO/Lamaze identification on the cassette box, the cassette
label and the video itself in the form of head and end-title
credits.
- Each cassette will, if ASPO/Lamaze so desires, include a special
message from ASPO/Lamaze, e.g. a Lamaze Family promo explaining
the benefits of membership.
- Each cassette will, if ASPO/Lamaze desires, be packaged with
printed information provided by ASPO/Lamaze to MCC in the
necessary quantities, e.g. Lamaze Family membership applications,
etc.
ASPO/Lamaze Responsibilities and Approvals
7. Educational Consultation
ASPO/Lamaze will provide MCC with consultation, input and direction on
the content of all videos as well as input and approval of all research
questionnaires. ASPO/Lamaze will review and suggest revisions as
necessary, and approve all editorial content according to the approval
schedule outlined below. In providing such consultation,
2
<PAGE>
ASPO/Lamaze shall draw upon the resources of its staff, childbirth
instructors, and other member experts for both their substantive
knowledge of the video subject matter and their understanding of the
educational needs of the parent audience. It is understood that
ASPO/Lamaze will indemnify MCC against any claims resulting from the
presentation of information either in video or printed form that
ASPO/Lamaze has approved for inclusion in the program. MCC will
indemnify ASPO/Lamaze against any claims arising from the people who
appear in the video - e.g. doctors, Lamaze instructors, and laymen - as
well as any claims arising from license violations and copyright
infringements on any materials including text, art work, video footage,
and music supplied by MCC.
8. ASPO/Lamaze Name, Goodwill, and Copyright
ASPO/Lamaze will provide its name, goodwill, and use of the copyrighted
videos produced hereunder, subject to ASPO/Lamaze approval as to
content and form, in support of developing distribution through its
instructors.
9. Cooperation
ASPO/Lamaze will permit MCC and the Lamaze Parent's Magazine
advertising representative to develop a sales strategy that will
benefit both the magazine and Lamaze Family Productions. That strategy
may call for any of several levels of participation of the advertising
representative based on the size of the task and the ultimate sales
strategy. Where the advertising representative participates in the sale
of space on the video, a mutually agreed upon sales plan will be drawn
up for each program. A plan to coordinate the sales effort will be
developed by both parties. The advertising representative will contract
with and be compensated by MCC for those video sales which the
representative closes, on a commission arrangement. The commission will
be approved by ASPO/Lamaze. If, for any reason, the advertising
representative can not or does not perform these sales responsibilities
and/or can not or does not meet the sales objectives, or if it is
determined by ASPO/Lamaze and MCC that a different sales strategy is in
the best financial interests of Lamaze Family Productions, ASPO/Lamaze
and MCC agree to develop an alternate sales plan.
10. Mailing List
ASPO/Lamaze will provide MCC with the names of ASPO/Lamaze instructors
so that MCC can coordinate and carry out the distribution of the
programs; and MCC shall use such names for no other purpose.
ASPO/Lamaze and MCC recognize that communications - e.g. announcement
of program content, cassette delivery schedules, distribution
verification, etc. with the ASPO/Lamaze instructors will be necessary
to carry out the successful distribution of the programs. At the same
time, both MCC and ASPO/Lamaze recognize that in order to avoid
over-saturating the instructors with mail, the frequency, timing and
content of all communications with ASPO/Lamaze instructors may not be
sent without prior approval by ASPO/Lamaze. ASPO/Lamaze agrees to
respond with rejection, approvals or changes in the planned
communication within 10 days of receipt of the communication content,
plan, and time schedule from MCC. The parties anticipate that there
will be no more than four (4) uses of the ASPO/Lamaze
3
<PAGE>
mailing list per year hereunder. All costs of these mailings including
printing/duplication, stuffing, envelopes and postage will be paid for
by MCC. MCC shall use the ASPO/Lamaze mailing list only for the
purposes set forth herein, and shall not reproduce or distribute such
list. At the termination of this Agreement, MCC shall immediately
return to ASPO/Lamaze all copies of such list in whatever form, which
may be in its or its agent's possession, and shall refrain from any
further use of such list.
Video and Printed Promotion Material Consultation and Approval Process
11. ASPO/Lamaze will, prior to each video, consult with MCC as to the
desired educational content. Thereafter the consultation and approval
process for each video production and printed piece will be as follows:
a. MCC will submit program content outlines to ASPO/Lamaze.
b. ASPO/Lamaze will review and return comments and changes to MCC
within 10 days of receipt.
c. MCC will incorporate any changes into a first draft script which
will be sent to ASPO/Lamaze for review.
d. ASPO/Lamaze will review the scripts and return comments and
changes to MCC within 15 days of receipt.
e. MCC will make any revisions or changes called for by ASPO/Lamaze
and the final script will be sent to ASPO/Lamaze. If during the
actual production there are any changes to the script, these
changes will be subject to the same consultation and approval
process as noted above. Whenever possible, MCC and ASPO/Lamaze
agree to expedite the approval process with one-on-one meetings or
by phone. All changes resulting from these meetings will be so
noted in the scripts.
f. ASPO/Lamaze will provide MCC with experts, any one of which will,
at MCC expense, be on location during the shooting of the video
demonstrations and mother/baby segments. Their role will be to
advise MCC on educational content such as proper baby-care
procedures, techniques, etc.
g. MCC will produce a "first draft" of the video and a copy or copies
on VHS cassette will be sent or taken to ASPO/Lamaze for review.
ASPO/Lamaze will return comments and changes to be made to MCC
within 10 days of receipt.
h. MCC will send a revised copy of the video in question to
ASPO/Lamaze for final approval. Final approval, or corrections
necessary for final approval, will be submitted to MCC within 10
days. The changes will then be made and re-submitted to
ASPO/Lamaze so that ASPO/Lamaze can verify that the changes have
been made.
4
<PAGE>
i. While the basic content of any video produced by MCC under the
Lamaze Family Productions name will probably require little change
during the course of the year, the participating sponsors may
change. This will necessitate visual changes in the video in order
to remove the "product-in-use exposures" of those sponsors who do
not choose to participate in subsequent editions. Visual of the
new sponsor will have to be added. Any such changes will be
subject to the same approval process as outlined above.
12. ASPO/Lamaze will retain the right to approve or reject all the sponsors
participating in each program. The approval process will be as follows:
a. Prior to finalizing the production or revision of any program, MCC
will submit to ASPO/Lamaze a list of potential sponsors and
underwriters who MCC feels are appropriate for inclusion in the
program. MCC will use, as a guide, the types of sponsors who have
been and are now acceptable to Lamaze Parent's Magazine. Additions
to this list may be made any time prior to the finalization of the
program in question.
b. ASPO/Lamaze agrees to respond with approvals or deletions within
10 days. ASPO/Lamaze agrees to use essentially the same criteria
used for judging the acceptability of a Lamaze Parent's Magazine
sponsor.
c. ASPO/Lamaze will have the right to review and approve any
statements, claims or implications made by the sponsors in the
video or in the accompanying booklet which may be in conflict with
ASPO/Lamaze principles and philosophy. MCC will present all video
segments and materials for print to ASPO/Lamaze prior to the
finalization of the program in question. ASPO/Lamaze will respond
to these submissions within 10 days of receipt.
d. Until December 31, 1991, ASPO/Lamaze shall have the right, within
its sole discretion, to prohibit inclusion of coupons or any
similar items, merely on the basis that such items are coupons or
are similar thereto.
13. ASPO/Lamaze agrees to do everything possible to maintain all the above
mentioned approval schedules. Should disagreements re content and
approvals arise within ASPO/Lamaze and those staff or board members
concerned with the approval process, it is agreed that a decision by
ASPO/Lamaze to revise, compromise, delete or ignore the change or
suggestion will be made within the scheduled approval period and
forwarded to MCC.
Sponsor/Advertiser Negotiations and Rates
14. MCC retains the right to set and negotiate all terms and rates for the
participating sponsors and to change these terms and rates as the
market dictates or as MCC feels is appropriate to the successful
development, maintenance and growth of the business.
Distribution Plan
5
<PAGE>
15. MCC plans to distribute each program in four month intervals to help
instructors control inventory and to assure sponsors that programs
bearing their products will, in all likelihood, be distributed within a
three to four month time frame. The total number of cassettes
distributed will be determined both by instructor demands (needs) and
by sponsor participation.
MCC Responsibilities
16. MCC will provide and pay for all the necessary elements of production and
duplication of the cassettes.
a. This includes research, scripting, production, editing, creation
of the cassette box and labels, printing, duplications, packaging
and shipping, and insertion of ASPO/Lamaze copyright notice.
b. MCC will also pay participants in the videos according to Screen
Actor's Guild fee schedules or customary educational video
honoraria.
c. MCC will bring in three experts selected by ASPO/Lamaze to a
mutually convenient meeting city, at MCC expense, for yearly
program planning and development sessions. ASPO/Lamaze will
designate the staff and board members to attend.
17. With prior ASPO/Lamaze approvals relating to content, frequency and
timing, MCC may conduct research related to the content of the
programs, their use, distribution and the markets served by Lamaze
Family Productions, and research designed to help verify the value and
marketing effectiveness of the programs to current and prospective
sponsors and underwriters.
Funding and Expenses
18. MCC will absorb all its start-up and on-going expenses related to its
contribution to sponsor sales, plus all its cost associated with the
production, duplication, and distribution of the programs.
Reimbursement to ASPO/Lamaze
19. a. Sale of Use of Mailing List - For each use of the ASPO/Lamaze
Mailing List, MCC shall pay ASPO/Lamaze $700.00, it being anticipated
that such use will be purchased approximately four times per year. Such
fee shall be paid twice each calendar year, on June 30 and December 31,
to the extent then owed.
b. Use of ASPO/Lamaze Name, Goodwill and Copyright - For the use of
ASPO/Lamaze's name, goodwill, and copyright as allowed hereunder, MCC
shall pay to ASPO/Lamaze a royalty equal to three percent (3%) of Gross
Revenue per cassette (i.e., total advertiser and/or sales revenue
generated).
6
<PAGE>
[(Example: If eight manufacturers buy Sponsorship space in a program
and each pays $.65 per cassette, the gross income is $5.20. This would
entitle ASPO/Lamaze to a royalty of $.156 per cassette. If the number
of cassettes underwritten by sponsors and distributed by MCC totals
200,000, ASPO/Lamaze would receive a $31,200 royalty.)]
c. Educational Consulting Fee - As compensation for its educational
consultation services provided hereunder in the areas of childbirth
education, wellness and parenting, ASPO/Lamaze shall be paid an
educational consulting fee equal to five percent (5%) of Gross Revenue
per cassette (i.e., total advertiser and/or sales revenue generated).
d. Payment of royalty fees and educational consultation for a
particular video, will be made to ASPO/Lamaze within 15 days of MCC's
receipt of payments from sponsors for such video. MCC will provide a
full accounting with full verification of sponsor and sales revenue;
and ASPO/Lamaze shall have the right on reasonable notice at reasonable
times to inspect MCC records related to such sponsor and sales revenue.
Exclusivity and Term of the Agreement
20. ASPO/Lamaze agrees to give MCC, for a term commencing with the date of
this agreement and ending on December 31, 1994, the exclusive right to
produce and distribute, per the terms outlined in this document,
pre-natal, post-natal and parenting videos to Lamaze students, Lamaze
Family members and others who both parities agree should be included in
the target audiences. This exclusivity excludes any ASPO/Lamaze films
or videos currently in existence, under development or in production as
of the date of this contract. If this Agreement continues into calendar
year 1994, then MCC shall have during such calendar year 1994 only, the
following right of first refusal: if during calendar year 1994
ASPO/Lamaze receives any bona fide offer from a third party to develop
pre-natal or postnatal video cassettes or films for distribution to
ASPO/Lamaze instructors, their students and/or ASPO/Lamaze family
members under ASPO/Lamaze's name, approval or aegis, ASPO/Lamaze shall,
prior to accepting such offer, relay such offer to MCC, whereupon MCC
shall have the right (in lieu of such third party) to enter the same
Agreement with ASPO/Lamaze on terms at least as favorable to
ASPO/Lamaze, as are contained in such third-party offer. MCC must
notify ASPO/Lamaze of its intent to exercise such right within two (2)
weeks of MCC's receiving a copy of such third-party offer to
ASPO/Lamaze.
Termination of Agreement
21. Either ASPO/Lamaze or MCC may terminate the entire agreement after
December 31, 1990, 1991, 1992, or 1993 if it becomes evident that
during the year just ended the venture is not and, in all likelihood,
will not achieve its objective and remain a "self-sustaining financial
enterprise" able to cover and absorb all the attendant expenses and
cost associated with the enterprise.
22. The sole measure of whether the venture is a self-sustaining financial
enterprise, is its having met during the year just ended the following
minimum objectives:
7
<PAGE>
a. Medical Communications Corporation distributes a minimum of
100,000 programs by December 31, 1990, through ASPO/Lamaze
instructors, and an additional 500,000 cassettes in calendar year
1991, an additional 500,000 cassettes in calendar year 1992 and an
additional 600,000 cassettes in calendar year 1993. (These can be
the same or different programs.) Each cassette must have generated
at least one/half of the target sponsor revenue of $6.20 ($3.10)
in 1990, and two/thirds of the target sponsor revenue of $6.20
($4.13) during each of 1991, 1992 and 1993.
b. In addition, either party can terminate this agreement at once
upon written notice if it has previously given 60 days prior
written notice to the other party of such other party's breach of
contract specifying the breach of the contract that has not been
cured. Termination is the sole remedy for breach: under no
circumstances shall there be liability by either party for any
direct, indirect, special considerations or punitive damages.
Other Considerations
23. For as long as this or subsequent agreements between MCC and
ASPO/Lamaze are in effect, all copyright to the video programs produced
under the Lamaze Family Productions will be held by ASPO/Lamaze. Upon
termination of this or subsequent agreements, the copyright to the
video programs revert to Medical Communications Corporation.
24. Only modifications in writing and signed by both parties can amend this
agreement.
25. Neither party will make any assignment of this agreement or the rights
or obligations herein without the express written consent of the other
party; except that ASPO/Lamaze may assign to a controlled subsidiary
thereof for tax purposes.
26. This agreement is the sole understanding between both parties.
27. The laws of the State of Connecticut shall govern this agreement.
28. MCC anticipates devoting reasonable time and resources (financial and
otherwise) to membership development for general membership in
ASPO/Lamaze and Lamaze Family.
29. Any disputes under this Agreement shall be submitted to arbitration in
Philadelphia, Pennsylvania in accordance with the rules of the American
Arbitration Association.
An Understanding
30. This agreement is based on the understanding and belief that as people
of goodwill, dedicated to building a mutually beneficial enterprise,
both parties can and will cooperate fully to resolve any issues not
covered in this agreement on the basis of what is in the best interest
of the audience, the ASPO/Lamaze instructors, the ASPO/Lamaze name, and
the financial health and viability of Lamaze Family Productions.
8
<PAGE>
SIGNED AND AGREED TO BY:
For American Society For For Medical Communications
Psychoprophylaxis in Corporation
Obstetrics, Inc.
By: /s/ Francine Nichols By: /s/ Robert C. Ford
------------------------------- -----------------------------
Dr. Francine Nichols Robert C. Ford
Title: President Title: President
---------------------------- --------------------------
Date: 10/14/89 Date: 10/18/89
----------------------------- ---------------------------
9
<PAGE>
ATTACHMENT
Amendment to the Agreement Between ASPO/Lamaze and Medical Communications
Corporation.
It is agreed that the following addition to paragraph 21 is to be considered a
part of the attached contract:
In the event that at the end of calendar year 1994, there has been no
bona fide third-party offer, and that no breach of contract exists, and
assuming that both parties desire to continue their participation in
Lamaze Family Productions as herein described, then both parties agree
to negotiate a new contract in good faith.
This amendment to the contact signed and agreed to by:
For ASPO/Lamaze For Medical Communications
Corporation
By: /s/ Francine Nichols By: /s/ Robert C. Ford
--------------------------------- --------------------------------
Dr. Francine Nichols Robert C. Ford
Title: President Title: President
------------------------------ -----------------------------
Date: 10/20/89 Date: 10/18/89
------------------------------- ------------------------------
10
<PAGE>
ADDENDUM TO AN AGREEMENT BETWEEN
ASPO/LAMAZE AND MEDICAL COMMUNICATIONS CORPORATION
This Addendum is entered into between the AMERICAN SOCIETY FOR
PSYCHOPROPHYLAXIS IN OBSTETRICS, INC. ("ASPO/Lamaze") and LIFETIME INSTITUTE FOR
FAMILY EDUCATION, INC. ("Life"), a successor in interest to MEDICAL
COMMUNICATIONS CORPORATION ("MCC")
WHEREAS, ASPO/Lamaze and MCC, a predecessor to Life, entered into an
October 14, 1989 Agreement between ASPO/Lamaze and Medical Communications
Corporation (the "Agreement"); and
WHEREAS, Section 20(b) of such Agreement required payment to
ASPO/Lamaze of a royalty equal to three percent (3%) of Gross Revenue per
cassette and Section 20 (c) of such Agreement required payment to ASPO/Lamaze of
an Educational Consulting Fee equal to five percent (5%) of Gross Revenue per
cassette; and
WHEREAS, throughout the Agreement ASPO/Lamaze has been paid a royalty
at a rate equal to two percent (2%) of Gross Revenue per cassette and an
Educational Consulting Fee at a rate of four percent (4%) of Gross Revenue per
cassette; it is agreed by both parties that this was a correct and complete
payment; and it is the intent of both parties that this level (i.e., 2% royalty
and 4% Educational Consulting Fee) continue in the future;
NOW, THEREFORE, in consideration of the mutual promises contained
herein and other good and valuable consideration receipt of which is hereby
acknowledged, the parties hereto agree as follows:
1. Section 20(b) of the Agreement shall be revised by substituting for the words
"three percent (3%)" the words "two percent (2%)."
2. The example at Section 20(b) of the Agreement shall be revised by
substituting for the words "royalty of $.156 per cassette" the words "royalty of
$.104 per cassette" and by substituting for the words "$31,200 royalty" the
words "$20,800 royalty."
3. Section 20(c) of the Agreement shall be amended by substituting for the words
"five percent (5%)" the words "four percent (4%)."
4. The Agreement shall continue in full force and effect, as amended herein.
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Agreement
intending to be bound thereby effective October 14, 1989 forward.
AMERICAN SOCIETY FOR PSYCHOPROPHYIAXIS
IN OBSTETRICS, INC
Date: 12/9/92 By: /s/ Judith Lathian
------------------------- ---------------------------------
Title: President
LIFETIME INSTITUTE FOR FAMILY EDUCATION,
INC. (successor in interest to MEDICAL
COMMUNICATIONS CORPORATION)
Date: 12/7/92 By: /s/ David Diamond
------------------------- ---------------------------------
Title: President
2
<PAGE>
SECOND ADDENDUM TO AN AGREEMENT BETWEEN ASPO/LAMAZE
AND MEDICAL COMMUNICATIONS CORPORATION
This Second Addendum is entered into between the American Society for
Psychoprophylaxis in Obstetrics, Inc. ("ASPO/Lamaze") and Lifetime Institute for
Family Education, Inc. ("Life"), a successor in interest to Medical
Communications Corporation ("MCC").
WHEREAS, ASPO/Lamaze and MCC, a predecessor to Life, entered into an
October 18, 1989 Agreement between ASPO/Lamaze and Medical Communications
Corporation (the "Agreement"), and such Agreement was amended by an August 2,
1990 Loan/Activity Agreement between ASPO/Lamaze and Life and by a December,
1992 Addendum to an Agreement between ASPO/Lamaze and Medical Communications
Corporation; and
WHEREAS, ASPO/Lamaze and Life intend to further amend the Agreement to
cover the development of a TV Program as described herein;
NOW, THEREFORE, in consideration of the mutual promises contained
herein and other good and valuable consideration, receipt of which is hereby
acknowledged, the parties hereto agree to further amend the Agreement to add
additional Sections 32 and 33 which read as follows:
32. TV Program. Life shall develop an educational television program, or a
series of such programs, concerning pregnancy, childbirth, baby care and related
topics (the "TV Program"), and ASPO/Lamaze shall provide educational
consultation and goodwill to Life for the development and marketing of such TV
Program as described herein.
a. Sections 6, 8, 9, 12(a-h), 13(a-c), 14, 15, 17, 18, 19, 20(b&c)
(as amended by the December, 1992 Addendum to an Agreement
between ASPO/Lamaze and Medical Communications Corporation), and
24 hereinabove shall apply in the same manner to the TV Program
as they are applied to the videos, recognizing that in the case
of the TV Program the ASPO/Lamaze name, goodwill and use of
copyright is licensed under the Section 9 for the general support
of the Program (as opposed to for distribution through
ASPO/Lamaze instructors) and that in the case of the TV Program
the two percent (2%) royalty under Section 20(b), as amended, and
the four percent (4%) educational consulting fee under Section
20(c), as amended, is to be based upon Gross Revenue received by
or for the account of Life for advertising made in connection
with such TV Programs.
b. This Section 32 shall continue through December 31, 1997, as long
as both parties materially perform their obligations hereunder.
However, in the event of any expiration or termination of this
Section 32, royalties and educational consulting fees under
Section 20 shall still be owed by Life for any advertising fees
received by or for the account of Life (even if after December
31, 1997) for advertising made in connection with TV Programs
developed under this Section 32.
<PAGE>
c. As is the case with the videos, ASPO/Lamaze's approval of any
advertiser's participation in the TV Program shall not constitute
ASPO/Lamaze's endorsement of the product or service being
advertised, and neither Life nor any advertiser may imply to the
public that ASPO/Lamaze has endorsed such a product or service.
d. For the term of this Section 32, Life shall have the exclusive
right to produce and distribute TV programs of the nature covered
by this Agreement in connection with ASPO/Lamaze. This
exclusivity covers all TV programming where the ASPO/Lamaze name
will be used in conjunction with ad sales, but does not impede
ASPO/Lamaze's ability to be a participant in programming where
ASPO/Lamaze is not central to marketing of the program. For the
term of this Section 32, ASPO/Lamaze shall have the exclusive
right to provide and distribute TV Programs of the nature covered
by this Agreement in connection with Life.
e. It is understood that each of the TV Programs will, unless
otherwise dictated by ASPO/Lamaze:
i) Bear ASPO/Lamaze identification in the form of head and end
title credits; and
ii) include a special message from ASPO/Lamaze.
33. Fair Allocation. Where an advertiser has placed advertising in the TV
Program and also in Lamaze Parents Magazine, a video/cassette under this
Agreement, or any other publication or video through Life; Life shall make a
fair and reasonable allocation of revenue received from such advertiser between
the various advertising vehicles.
IN WITNESS WHEREOF, the undersigned have executed this Second Addendum
intending to be bound thereby effective April 16, 1993 forward.
2
<PAGE>
AMERICAN SOCIETY FOR PSYCHOPROPHYLAXIS
AND OBSTETRICS, INC.
Date: April 22, 1993 By: [illegible]
------------------------ ----------------------------------
Title: President
---------------------------
LIFETIME INSTITUTE FOR FAMILY
EDUCATION, INC. (Successor in
interest to Medical Communications
Corporation)
Date: April 16, 1993 By: /s/ Judith A. Lothian
------------------------ ----------------------------------
Title: President
---------------------------
3
<PAGE>
AGREEMENT dated this 6th day of April, 1990 between The American
Society for Psychoprophylaxis in Obstetrics, Inc. ("ASPO/Lamaze") and Lifetime
Institute for Family Education, Inc. ("Life").
W I T N E S S E T H:
Whereas, ASPO/Lamaze and Life have previously entered into an Agreement
which was originally signed by ASPO/Lamaze on October 14, 1989 and signed by
Medical Communications Corporation (MCC), a predecessor to Life on October 18,
1989 and which Agreement was modified by a certain "Attachment" to said
Agreement which was signed by MCC on October 18, 1989 and by ASPO/Lamaze on
October 20, 1989, the aforesaid being collectively referred to hereinafter as
the "Agreement"; and
WHEREAS, said Agreement was assigned by MCC to Life, with the Consent
of ASPO/Lamaze, on January 31, 1990; and
WHEREAS, under said Agreement, Life, with the permission of
ASPO/Lamaze, will develop pre-natal and post-natal educational video cassettes
and distribute same to ASPO/Lamaze students through ASPO/Lamaze instructors and
to Lamaze Family members under the name of Lamaze Family Productions or Lamaze
Institute for Family Education; and
WHEREAS, said Agreement will, by its terms, necessarily require the
development of creative and intellectual properties by Life to facilitate the
marketing of said video cassettes; and
WHEREAS, ASPO/Lamaze shall benefit by the development of said
properties by Life; and
WHEREAS, ASPO/Lamaze is desirous of encouraging Life to develop such
properties.
NOW THEREFORE, it is agreed for the consideration set forth in said
Agreement and in consideration of the mutual promises and undertakings herein
contained that:
<PAGE>
1. Any properties created by Life in furtherance of its efforts to
produce and market said videocassettes shall belong exclusively to Life, except
as noted herein.
2. For the purposes of this agreement, the term "properties" shall
include, but shall not be limited to, any and all trademarks, slogans,
tradenames, logos, symbols, labels, copyrights, and other advertising material
created or used by Life in connection with its marketing of said video
cassettes.
3. Life shall consult with ASPO/Lamaze prior to using any of such
properties and ASPO/Lamaze, during the term of this agreement, shall have the
right to approve or reject the use of said properties by Life. To the extent
that any of the properties contain any ASPO/Lamaze tradenames, trademarks,
service marks, logos, symbols or copyrights (hereafter collectively referred to
as the "ASPO/Lamaze Marks"), they shall do so only with ASPO/Lamaze's consent
and pursuant to license from ASPO/Lamaze; and Life's interest in such
ASPO/Lamaze marks shall be solely that of a licensee and not an owner.
ASPO/Lamaze hereby grants its consent to Life for its use of the Seal as shown
on Exhibit A, attached hereto.
4. During the term of this agreement, ASPO/Lamaze shall have the right
with the prior written consent of Life to use any of said properties for
whatever purposes it deems appropriate, notwithstanding the continued ownership
of said properties by Life; recognizing that ASPO/Lamaze shall not be required
to obtain any Life consent to use the ASPO/Lamaze marks separate and apart from
the properties.
5. The work to be performed by Life on behalf of ASPO/Lamaze, as
required under the Agreement and as contemplated under this agreement, may be
performed under the name "Lamaze Institute for Family Education" and the acronym
"LIFE".
2
<PAGE>
6. Upon the termination of this agreement, ASPO/Lamaze's right to use
any of said properties shall terminate. This prohibition on such use of said
properties shall survive the termination of this agreement, but shall not limit
ASPO/Lamaze's absolute right to continue to use the ASPO/Lamaze marks, separate
and apart from the properties.
7. If ASPO/Lamaze terminates this Agreement, any ASPO/Lamaze license of
ASPO/Lamaze marks shall simultaneously terminate; and Life shall thereupon have
no right to use any portion of the said properties that bear the words "Lamaze",
"ASPO/Lamaze", or any other ASPO/Lamaze name or marks for any purpose
whatsoever; but shall retain the ownership of that portion of the properties
which does not contain any of the ASPO/Lamaze name or marks; and may use the
acronym "LIFE".
8. This agreement is in addition to the previously executed Agreement.
9. Nothing in this agreement shall be viewed as changing the rights and
obligations of the parties under the previously executed Agreement.
10. This agreement shall be for a term commencing with the date hereof
and ending on December 31, 1994. The parties acknowledge that certain of their
obligations hereunder shall continue beyond the termination of this agreement.
11. This agreement is further subject to termination under the same
terms and conditions as set forth in Paragraphs 22 and 23 of the previously
executed Agreement.
12. In addition to the remedies at law available to each party in the
event of a breach of any of the obligations of the other hereunder, the parties
agree that each would suffer an irreparable injury if the other were to breach
its obligations hereunder and that each party would by reason of such breach or
threatened breach by the other be entitled to injunctive relief in a
3
<PAGE>
court of proper jurisdiction and each party hereby stipulates to the entering of
such injunctive relief prohibiting it from engaging in such breach.
13. Only modifications in writing and signed by both parties hereto can
amend this agreement.
14. Neither party will make any assignment of this agreement or the
rights or obligations herein without the express written consent of the other
party.
15. As to the subject matter hereof, this agreement is the sole
understanding between the parties hereto.
16. The laws of the State of Connecticut shall govern the
enforceability and interpretation of this agreement.
17. This agreement is based on the understanding and belief that as
people of good will, dedicated to building a mutually beneficial enterprise,
both parties hereto can and will cooperate fully to resolve any issues not
covered in this agreement on the basis of what is in the best interest of the
audience, the ASPO/Lamaze instructors, the ASPO/Lamaze name, and the financial
health and viability of Lamaze Family Productions.
4
<PAGE>
IN WITNESS WHEREOF, the undersigned have set their hands and seals on
the date hereinabove set forth.
SIGNED AND AGREED TO BY:
For American Society For For Lifetime Institute for
Psychoprophylaxis in Family Education, Inc. (Life)
Obstetrics, Inc. (ASPO/Lamaze)
By: /s/ Francine Nichols By: /s/ Robert C. Ford
---------------------------------- --------------------------------
Dr. Francine Nichols Robert C. Ford
Title: President Title: President
------------------------------- -----------------------------
Date: 4/6/90 Date: 5/5/90
-------------------------------- ------------------------------
<PAGE>
EXHIBIT A
[Picture of Seal]
Lamaze Life
Institute for Adult Education
<PAGE>
LOAN/ACTIVITY AGREEMENT
Agreement made this 2nd day of August, 1990, by and between LIFETIME
INSTITUTE FOR FAMILY EDUCATION, INC., a Connecticut corporation having its
principal place of business at 1177 High Ridge Road,, Stamford, Connecticut
06905, acting herein by Robert C. Ford, its President, duly authorized,
hereinafter referred to as ("Lifetime") and The American Society for
Psychoprophylaxis in Obstetrics, Inc., a non-profit corporation organized under
the laws of the State of New York, with a principal place of business at 1840
Wilson Boulevard, Suite 204, Arlington, Virginia 22201, hereinafter
alternatively referred to as ("ASPO/Lamaze") and/or (the "Association").
W I T N E S S E T H:
WHEREAS, ASPO/Lamaze is in need of acquiring capital in order to meet
its mission of providing childbirth education programs; and
WHEREAS, in an effort to acquire the needed capital, ASPO/Lamaze has
requested Lifetime to loan it certain funds; and
WHEREAS, Lifetime is willing to loan said funds;
NOW THEREFORE, in consideration of the mutual promises and undertakings
herein set forth, it is agreed that:
LOAN
1. At the time of closing as hereinafter provided for, Lifetime shall
loan and disburse to ASPO/Lamaze the sum of $400,000.00.
2. Said loan will be evidenced by a Promissory Note executed by
ASPO/Lamaze, in form and substance satisfactory to Lifetime, providing for the
repayment of the principal amount of said loan in four equal annual installments
of $100,000.00 each, together with interest in
<PAGE>
arrears on the outstanding principal balance of the loan calculated at the time
each of the aforesaid principal payments are due, based on the prime rate, as
published in the Wall Street Journal at the time said principal payment is due,
plus one percent (1%) per annum. The said Promissory Note shall include (a)
provision for the payment of a late charge in the amount of five percent (5%) of
any installment of principal and interest not made within fifteen (15) days of
the due date thereof, (b) a thirty (30) day default clause with interest at 18%
per annum after default, (c) the payment of all costs, including reasonable
attorney's fees, incurred by the holder in taking any action for the collection
of the debt, and (d) the privilege of prepayment without penalty. The Promissory
Note shall be executed at the closing, and the first installment of principal,
together with the interest having accrued on the outstanding principal balance
of the loan, shall be paid one year from the date of said Note and each year
thereafter until fully paid.
3. Said Promissory Note shall be secured by a security agreement and a
collateral assignment of all rights which ASPO/Lamaze has in and to certain
payments to be made to ASPO/Lamaze by Lamaze Publishing Association for the sale
of Lamaze Parents' Magazine. Said security agreement and collateral assignment
shall be executed at the closing and shall be in form and substance acceptable
to Lifetime.
4. Since Lifetime has an interest in the future of ASPO/Lamaze,
Lifetime will need certain assurances that ASPO/Lamaze will be managed and
operated in such manner as to assure its financial solvency and continued
success. Accordingly, as of the closing, and thereafter as required herein,
ASPO/Lamaze shall do the following:
(a) Retain the firm of Smith, Bucklin and Associates ("Smith,
Bucklin"), a professional association management firm, or other
professional management firm (which management firm(s) shall
hereafter be referred
2
<PAGE>
to as the "Management Firm") mutually acceptable to ASPO/Lamaze
and Lifetime to provide consultation services with a view to
assisting ASPO/Lamaze in meeting its stated objectives in a more
financially efficient manner.
(b) ASPO/Lamaze shall establish a Budget Committee, which shall be an
"ad hoc" committee of the Board, and which will have the primary
responsibility of overseeing and providing direction for the
financial operations of the Association.
(c) The Management Firm shall prepare, for submission to the Budget
Committee, annual proposed operating budgets and monthly
operating statements, and such other usual and customary
financial statements as may be required by the Budget Committee.
(d) No financial obligations shall be incurred by ASPO/Lamaze and no
financial transactions shall be undertaken by ASPO/Lamaze without
the approval of the Budget Committee.
(e) The Budget Committee shall consist of the following members:
1. The President of ASPO/Lamaze;
2. The Treasurer of ASPO/Lamaze, who shall be the Chairman of
the Budget Committee;
3. The immediate past president of ASPO/Lamaze (in the event
such individual cannot or will not serve, then such other
past ASPO/Lamaze officer as may be appointed by the Budget
Committee);
3
<PAGE>
4. The designee of Lifetime;
(f) The aforesaid constitution of the Budget Committee shall continue
until such time as the Promissory Note to Lifetime has been paid
in full. After said Promissory Note is paid in full, and Lifetime
still has a business affiliation with ASPO/Lamaze, the Budget
Committee shall include at least one individual who is an expert
in the area of corporate management and finance.
(g) ASPO/Lamaze shall continue to retain the services of the
Management Firm until said Promissory Note to Lifetime has been
paid in full.
(h) The Board of Directors of ASPO/Lamaze shall adopt a resolution,
which shall remain in effect at least until such time as said
Promissory Note has been paid in full, providing that no
operating budget will be adopted by the Board if such budget
provides for the expenditure of revenues which are in excess of
the revenues realized by ASPO/Lamaze during the immediately
preceding fiscal year; recognizing that budgets can be amended
and increased during the year when proven receivables, contracts
or cash in hand make increasing the budget fiscally sound without
risk of incurring a negative balance sheet at the end of the
year. The failure of ASPO/Lamaze to abide by the foregoing shall
constitute an event of default resulting in the acceleration of
the then outstanding principal balance of the said Promissory
Note, together with all interest having accrued thereon to such
time.
4
<PAGE>
(i) A designee of Lifetime shall serve as an ex-officio
advisor/invitee of the Board of Directors of ASPO/Lamaze with
full rights of participation in all meetings of the Board and all
of its committees, except its Nominating Committee. Said
ex-officio advisor/invitee shall have no voting rights. The
expenses of said ex-officio advisor/ invitee, in connection with
attendance at board and/or committee meetings, to include, but
not limited to from expenses for travel to and from said meetings
and accommodations while in attendance at such meetings, shall be
the sole responsibility of Lifetime. Lifetime's right to
designate an ex-officio advisor/invitee of the ASPO/Lamaze Board
shall continue for as long as there exists any business
affiliation between ASPO/Lamaze and Lifetime.
5. For the purposes of this Agreement, a business affiliation shall be
deemed to exist between Lifetime and ASPO/Lamaze, if, for no other reason,
Lifetime is providing services of any nature to ASPO/Lamaze pursuant to any
agreement with it.
OTHER PROJECTS
1. ASPO/Lamaze and Lifetime wish to further develop an existing
business relationship into a number of areas which will be of benefit to
ASPO/Lamaze in promulgating and developing its childbirth education programs.
2. ASPO/Lamaze acknowledges that there are presently in existence two
business agreements with Lifetime. The first, relating to the development and
distribution of video cassettes, which is dated October 18, 1989, and the
second, relating to the development of creative and intellectual properties,
which is dated April 6, 1990. Notwithstanding anything to the contrary in said
agreements, it is the intention of the parties hereto that the rights and
obligations set forth in each of said agreements shall be renewed annually and
continue in
5
<PAGE>
perpetuity so long as the parties have faithfully performed all of the
obligations imposed upon them under the terms of said agreements. Anything in
said agreements to the contrary shall be of no effect.
3. In addition to the aforesaid agreements, the parties hereto wish to
further extend their relationship as follows:
(a) At the closing, ASPO/Lamaze shall grant to Lifetime the
exclusive right to act as ASPO/Lamaze's advertising and
marketing representative. As such exclusive advertising
representative, Lifetime shall receive a fee equal to 15% of
all revenues (less Agency Discounts) generated from the
sales of consumer product advertising in all publications
owned by ASPO/Lamaze. For purposes of this Agreement,
"consumer product advertising" shall constitute advertising
targeted to the expectant parent/parent market. The fact
that an advertisement may be placed in any in-house
association publication, professional journal, convention
booklet, academic publication or any other publication which
in the past has been published by ASPO/Lamaze for use
in-house does not preclude its being "consumer product
advertising" for purposes of this Agreement.
(b) At the closing, ASPO/Lamaze shall designate Lifetime as its
exclusive agent for all fund-raising activities previously
authorized in writing by ASPO/Lamaze. Lifetime shall
organize and conduct any such fund-raising activities and
shall deliver all funds realized from such activities to
ASPO/Lamaze, without deducting any fees therefrom for
Lifetime's services, other than reimbursements for amounts
covering all expenses
6
<PAGE>
incurred by Lifetime in organizing and conducting said
fund-raising activities. Any expenses to be incurred by
Lifetime in this regard are to be previously approved by
ASPO/Lamaze. Lifetime shall provide any documentation or
substantiation reasonably requested by ASPO/Lamaze in
support of such expenses after they are actually incurred.
Nothing herein shall restrict or prohibit ASPO/Lamaze from
directly seeking and obtaining grants from federal or state
governmental agencies or private foundations, without the
assistance or participation of Lifetime.
4. In the conduct of business as ASPO/Lamaze's exclusive advertising,
marketing, and fund-raising agent, when Lifetime deals with manufacturers, in
any of the aforesaid capacities, it shall only deal with manufacturers of
consumer related products which have demonstrated by prior conduct, adherence to
principles which are not in conflict with those which ASPO/Lamaze has adopted in
accomplishing its mission.
5. Fees to be paid to Lifetime by ASPO/Lamaze for services rendered by
Lifetime as the exclusive marketing representative for ASPO/Lamaze shall be
based on a percentage of any revenues generated from such marketing endeavors
and shall be consistent with generally accepted industry fee standards as
demonstrated by Lifetime to ASPO/Lamaze.
6. As ASPO/Lamaze's exclusive advertising and marketing representative,
Lifetime shall manage and coordinate the sales and solicitation efforts required
for the success of any in-house association publication activities undertaken by
ASPO/Lamaze.
GENERAL CONDITIONS
1. The closing of the transactions contemplated hereunder ("the
closing") , shall be held at the office of Abate & Fox, 607 Bedford Street,
Stamford, Connecticut 06901 at 10:00 a.m. on August 21, 1990 or at such other
time and place as the parties shall agree to in writing.
7
<PAGE>
2. At the closing, ASPO/Lamaze shall deliver to Lifetime all proper
instruments of assignment and transfer, together with such other instruments as
are required by the provisions hereof. ASPO/Lamaze shall at any time an and
after the closing, upon the request of Lifetime, and without further
consideration, take all further acts and execute and deliver all such further
assignments, transfers and assurances as may be required for the better
assigning, transferring, granting, and conveying to Lifetime of the rights and
title contemplated by this Agreement.
3. All instruments and documents to be delivered by either party at the
closing shall be subject to the advance approval of counsel for both parties and
shall be delivered subject to receipt from the other party of all items to be
delivered by it.
4. ASPO/Lamaze represents, warrants, and agrees with Lifetime that it
has the power and authority to enter into this Agreement and to consummate the
transactions contemplated hereby and this Agreement and the transactions
contemplated hereby have been approved and authorized by its Board of Directors.
All documents required hereunder shall be executed by the President of
ASPO/Lamaze with appropriate resolution of the Board of Directors, which
resolution shall be presented to Lifetime at the closing.
5. The execution and delivery of this Agreement and compliance with the
terms hereof by ASPO/Lamaze do not conflict with, or result in the breach of any
of the terms, conditions, or provisions of, or constitute a default under its
charter, by-laws, or any indenture, agreement or other instrument, regulation,
judgment, or decree to which ASPO/Lamaze is a party or by which it is bound.
6. Lifetime represents and warrants to ASPO/Lamaze that it is a
corporation validly existing and in good standing under the laws of the State of
Connecticut and that it has full power and lawful authority to enter into this
Agreement and to consummate the transactions
8
<PAGE>
contemplated herein and that said transactions have been approved and authorized
by its Board of Directors and it will have such power and authority as of the
closing date.
7. As of the closing: (a) the representations of ASPO/Lamaze contained
in this Agreement shall be true and correct with the same effect as though such
representations had been made as of the date of closing, (b) ASPO/Lamaze shall
have performed and complied with all covenants, agreements and conditions
contained in this Agreement required to be performed or complied with by it on
or prior to the closing, (c) All corporate and other proceedings to be taken and
all consents to be obtained in connection with the transactions contemplated by
this Agreement and all documents incident thereto shall be satisfactory in form
and substance to Lifetime, (d) Lifetime shall have reviewed the financial
records of ASPO/Lamaze and found said financial records to be satisfactory, (e)
no action or proceedings shall be pending or threatened to restrain or prevent
the consummation of the transactions contemplated hereby.
8. So long as there is no default hereunder or under any of the
agreements to be executed at the closing and which are contemplated hereunder,
by Lifetime, ASPO/Lamaze shall not enter into any agreement with any other party
similar to this agreement (regardless of the loan aspect of this agreement) or
to the agreements contemplated herein to be executed at the closing. So long as
there is no default hereunder, or under any of the agreements to be executed at
the closing, by ASPO/Lamaze, Lifetime shall not enter into any agreement with
any other organization which offers the delivery of services to the pre-natal,
post-natal, parenting or childbirth markets, and which agreement is similar to
this agreement (regardless of the loan aspect of this agreement) or those to be
executed at closing.
9. ASPO/Lamaze agrees that Lifetime would suffer an irreparable injury
if ASPO/Lamaze were to breach the covenants of this Agreement and that Lifetime
would by
9
<PAGE>
reason of such breach or threatened breach be entitled to injunctive relief in a
court of appropriate jurisdiction and ASPO/Lamaze hereby stipulates to the
entering of such injunctive relief prohibiting it from engaging in such breach.
Without limitation as to the right of Lifetime to seek injunctive relief, or to
pursue its remedies under the aforesaid security agreement and collateral
assignment, in the event of any dispute between the parties hereto as to their
rights and obligations under the terms of this Agreement, such dispute shall be
resolved by arbitration. Arbitration shall be conducted in the City of Stamford,
Connecticut in accordance with the rules of the American Arbitration Association
then in effect and shall be conducted by a panel of three (3) arbitrators. The
sole issue to be resolved by the arbitrators is whether or not a breach has
occurred or has not been cured. In the event of a determination by the
arbitrators that a breach has occurred and not been cured, the defaulting party
shall have a period of fifteen (15) days from the date of service upon said
party of the arbitrators' decision, to cure the default involved, during which
time any payments required hereunder will continue to be paid. In the event of a
failure to cure by the party in default, subsequent to the arbitrator, decision,
the other party shall have the right, without prejudice to any other rights
which it may have or remedies which it may seek at law or equity, to terminate
this Agreement by giving fifteen (15) days notice to the party in breach.
10. ASPO/Lamaze acknowledges that the restrictive covenants contained
in this Agreement for the benefit of Lifetime are essential to the transactions
contemplated hereby and that Lifetime would not make the loan contemplated
herein if ASPO/Lamaze does not agree to said covenants.
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<PAGE>
11. If any court determines that any of the covenants set forth herein
is invalid or unenforceable, the remainder of the covenants shall not thereby be
affected and shall be given full effect, without regard to the invalid portions.
12. If either party hereto pursues any remedy available to it due to
the breach hereof by the other party or due to the breach of any of the
agreements contemplated herein and to be executed by the parties at the closing,
such party against whom a remedy is sought shall pay all of the other parties
costs, expenses, and reasonable attorney's fees in connection therewith,
providing it is finally adjudged by a court of competent jurisdiction that such
party against whom remedy is sought actually breached or threatened to breach
its obligations.
13. All notices, requests, demands, and other communications permitted
or required hereby shall be in writing and shall be effective if delivered to
the address or sent to such address by certified mail, postage prepaid, return
receipt requested, at its address set forth hereinabove, or to such other
address as a party may specify by notice given to the other party in the manner
hereby prescribed. Notices given by certified mail as aforesaid shall be
effective on the fifth business day following the date on which such notice was
deposited in the mail unless sooner received by the addressee, in which case it
shall be effective when received.
14. This Agreement constitutes the complete and entire agreement of the
parties concerning the subject matter hereof. Any agreements previously existing
between the parties hereto, the terms of which are at variance with the terms of
this Agreement, shall be and are hereby modified to be consistent with this
Agreement. The parties may amend this Agreement in any respect by mutual
agreement, in writing, signed by each party, and specifically referring hereto.
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15. ASPO/Lamaze hereby consents to the assignment of this Agreement, in
whole or part, or any of the rights set forth in this Agreement, to a
corporation or other entity in which, Lifetime, Bruce F. Failing, Jr., Norton
Garfinkle, Robert C. Ford, or any combination thereof have a combined ownership
interest of at least fifty percent (50%). Except as herein before allowed, this
Agreement, and any renewals or extensions hereof, shall not be assigned by
either party hereto without the prior written consent of the other party.
16. The obligations and benefits of this Agreement shall bind and
benefit the parties hereto, their successors and assigns with the same effect as
if mentioned in each instance where a party is named or referred to.
17. If any court determines that any provision of this Agreement is
invalid or unenforceable, the remainder of this Agreement shall not thereby be
affected and shall be given full effect, without regard to the invalid
provisions.
18. Any provision of this Agreement which by its terms is intended to
survive the closing, shall in fact survive said closing, and be binding upon and
inure to the benefit of the parties hereto thereafter.
19. The provisions of this Agreement shall continue in effect until
either party terminates same by written notice to the other delivered at least
six (6) months prior to any termination date. ASPO/Lamaze shall not terminate
this Agreement unless Lifetime has failed to meet its obligations hereunder.
20. This Agreement shall be construed and enforced in accordance with
the laws of the State of Connecticut.
21. The parties agree that their relationship under this Agreement does
not constitute a partnership.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement the
day and year first above written.
WITNESSES: LIFETIME INSTITUTE FOR FAMILY
EDUCATION, INC.
/s/ Carole D. Sherwood By: /s/ Robert C. Ford
- ----------------------------- -----------------------
Robert C. Ford, its President
Duly Authorized
/s/ Deborah Armstrong
- -----------------------------
THE AMERICAN SOCIETY FOR
PSYCHOPROPHYLAXIS IN
OBSTETRICS, INC.
[Illegible] By: /s/ Francine H. Nichols
- ----------------------------- -----------------------
Francine H. Nichols, RNC, PhD
President
/s/ Rodger F. Emry
- -----------------------------
<PAGE>
LPM AGREEMENT
Agreement made this 2nd day of August, 1990, by and between LIFETIME
INSTITUTE FOR FAMILY EDUCATION, INC., a Connecticut corporation having its
principal place of business at 1177 High Ridge Road, Stamford, Connecticut
06905, acting herein by Robert C. Ford, its President, duly authorized,
hereinafter referred to as ("Lifetime") and The American Society for
Psychoprophylaxis in Obstetrics, Inc., a non-profit corporation organized under
the laws of the State of New York, with a principal place of business at 1840
Wilson Boulevard, Suite 204, Arlington, Virginia 22201, hereinafter
alternatively referred to as ("ASPO/Lamaze") and/or (the "Association").
W I T N E S S E T H:
WHEREAS, ASPO/Lamaze is in need of acquiring capital in order to meet
its mission of providing childbirth education programs; and
WHEREAS, in an effort to acquire the needed capital, ASPO/Lamaze has
offered to sell Lamaze Parents' Magazine to Lifetime; and
WHEREAS, Lifetime is interested in acquiring said magazine;
NOW THEREFORE, in consideration of the mutual promises and undertakings
herein set forth, it is agreed that:
LAMAZE PARENTS' MAGAZINE
1. In consideration of the payment of the sum of One Million
($1,000,000.00) Dollars, together with other valuable considerations,
ASPO/Lamaze shall transfer to Lifetime,
<PAGE>
without retention of any ownership, rights, all of its right, title and interest
in and to Lamaze Parents' Magazine, including, but not limited to, its rights in
and to any existing printing agreements, publishing agreements, advertising
agreements, and any other agreements and rights relating to said Magazine. In
addition, use of the name "Lamaze Parents' Magazine" is hereby conveyed by
ASPO/Lamaze to Lifetime by perpetual and exclusive license, subject to
termination only upon an event hereunder which would require return of ownership
of the magazine, Lamaze Parents' Magazine, to ASPO/Lamaze.
2. The aforesaid sum of One Million ($1,000,000.00) Dollars shall be
paid by Lifetime as follows:
(1) $185,000.00, by (a) assumption, at the time of closing, of
the then outstanding liability of ASPO/Lamaze to Judd's
Incorporated, under the terms of a certain Note from
ASPO/Lamaze to Judd's Incorporated dated on or about January
29, 1990, and (b) the residual amount in cash at closing.
(2) $75,000.00 on the anniversary date of the closing in 1991.
(3) $100,000.00 on the anniversary date of the closing in 1992,
however the payment in 1992 shall be $200,000.00 if the net
profit realized by Lifetime from the operation of Lamaze
Parents' Magazine during the twelve month period immediately
preceding said payment date equals or exceeds the sum of
$300,000.00.
2
<PAGE>
(4) $100,000.00 on the anniversary date of the Closing in 1993,
however the payment in 1993 shall be $200,000.00 if the net
profit realized by Lifetime from the operation of Lamaze
Parents' Magazine during the twelve month period immediately
proceeding said payment date equals or exceeds the sum of
$300,000.00.
(5) $150,000.00 on the anniversary date of the closing in 1994,
however the payment in 1994 shall be $200,000.00 if the net
profit realized by Lifetime from the operation of Lamaze
Parents' Magazine during the twelve month period immediately
preceding said payment date equals or exceeds the sum of
$300,000.00.
(6) $200,000.00 on the anniversary date of the closing in 1995,
or such lesser amount as may be required to result in the
total payment of $1,000,000.00.
(7) $190,000.00 on the anniversary date of the closing in 1996,
or such lesser amount as may be required to result in the
total payment of $1,000,000.00.
3. The determination of net profit shall be based upon generally
accepted accounting principles then in effect.
4. If Lifetime defaults in making any of the aforesaid payments for
more than sixty (60) days after the due date of any payment, Lifetime shall lose
any rights it then has to publish Lamaze Parents' Magazine and shall immediately
transfer to ASPO/Lamaze all of its right, title and interest in and to said
magazine.
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<PAGE>
5. Any sale of Lamaze Parents, magazine by Lifetime, other than to a
company or other entity in which Lifetime, Bruce F. Failing, Jr., Norton
Garfinkle, Robert C. Ford, or any combination thereof hold a combined ownership
interest of at least fifty percent (50%), shall accelerate, to the date of such
sale, the payment of all remaining sums then owed to ASPO/Lamaze.
6. Lifetime shall manage Lamaze Parents' Magazine in such manner as not
to do anything that will negatively affect the reputation which ASPO/Lamaze has
developed. Lifetime's operation of Lamaze Parents' Magazine shall be conducted
in such manner as will be consistent with the principles which have been adopted
by ASPO/Lamaze in meeting its mission. Lifetime will not accept advertisers
whose products and/or services are inconsistent with the principles of
ASPO/Lamaze. Acceptable advertisers shall be those whose products and/or
services are appropriate to and consistent with the needs or interests of
pre-natal parents, parents of infants and children, or infants and children as
determined by the Editorial Board of Lamaze Parents' Magazine. Acceptable
advertisers shall include, without limitation, those who have advertised in
Lamaze Parents' Magazine in the past unless the Editorial Board of Lamaze
Parents' Magazine has for just cause provided Lifetime with advance written
notice that such a past advertiser does not meet the standard set forth above
for new advertisers.
7. The Editorial Board of Lamaze Parents' Magazine shall consist of not
more than twelve (12) members recommended by ASPO/Lamaze and appointed by
Lifetime to serve a three (3) year term. Although the members of said Editorial
Board, shall be directly responsible to Lifetime, Lifetime agrees that the
editorial policy and content of Lamaze Parents' Magazine shall at all times
reflect the image and reputation of ASPO/Lamaze and shall be consistent with the
principles adopted by ASPO/Lamaze to accomplish its mission.
4
<PAGE>
OTHER PUBLICATIONS
In return for the payments to be made hereunder and other valuable
considerations, ASPO/Lamaze, in addition to the aforesaid, shall do the
following:
1. At the closing, ASPO/Lamaze shall grant to Lifetime the exclusive
right to publish consumer oriented publications, using the "Lamaze" name. The
terms "publication" or "publications" when used herein shall include without
limitation print, audio, and visual properties. It is acknowledged that
ASPO/Lamaze shall retain all rights in and to said name, but that Lifetime shall
have an exclusive license to use such name on any and all publications
originated by Lifetime.
2. In developing any such publications, Lifetime shall submit to
ASPO/Lamaze its publication concept for prior approval by ASPO/Lamaze. Such
approval shall be granted by ASPO/Lamaze if said publication concept is
consistent with the image and reputation of ASPO/Lamaze and with the principles
which it has adopted in accomplishing its mission. If said publication concept
is inconsistent with the aforesaid, ASPO/Lamaze shall have the right to reject
same.
3. If, after receiving conceptual approval from ASPO/Lamaze, Lifetime
publishes any such publications, it shall establish an Editorial Board for such
publications consisting of not more than twelve individuals recommended by
ASPO/Lamaze and appointed by Lifetime to serve a term of three (3) years. The
policy of said Editorial Board shall be consistent with the image and reputation
of ASPO/Lamaze and shall be consistent with the principles adopted by
ASPO/Lamaze in accomplishing its mission. Lifetime will not accept advertisers
whose products and/or services are inconsistent with the principles of
ASPO/Lamaze. Acceptable advertisers
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<PAGE>
shall be those whose products and/or services are appropriate to and consistent
with the needs or interests of pre-natal parents, parents of infants and
children, or infants and children as determined by said Editorial Board,
including those who have advertised in Lamaze Parents' Magazine in the past,
unless such Editorial Board has for just cause provided Lifetime with advance
notice that such an advertiser no longer meets the above-described standard.
4. In consideration of the grant by ASPO/Lamaze to Lifetime of an
exclusive license to use the name "Lamaze" on any of its publications, Lifetime
shall pay to ASPO/Lamaze annual royalties in an amount consistent with generally
accepted industry fee standards demonstrated by Lifetime to ASPO/Lamaze. The
aforesaid royalty payments to ASPO/Lamaze shall be exclusive, of any revenues
generated by Lifetime through its ownership and publication of Lamaze Parents'
Magazine and/or any current or future Lamaze Parents Magazine supplements.
5. The right to be granted by ASPO/Lamaze to Lifetime to develop
publications with the exclusive use of the "Lamaze" name, shall not prohibit or
in any way restrict the right of ASPO/Lamaze to publish in-house association
publications, professional journals, convention booklets, academic publications,
and any other publications which in the past have been published by ASPO/Lamaze
for use in-house.
GENERAL CONDITIONS
1. The closing of the transactions contemplated hereunder ("the
closing"), shall be held at the office of Abate & Fox, 607 Bedford Street,
Stamford, Connecticut 06901 at 10:00 a.m. on August 21, 1990, or at such other
time and place as the parties shall agree to in writing.
2. At the closing, ASPO/Lamaze shall deliver to Lifetime all proper
instruments of sale, assignment, transfer, and conveyance, together with such
other instruments as are required
6
<PAGE>
by the provisions hereof. ASPO/Lamaze shall at any time on and after the
closing, upon the request of Lifetime, and without further consideration, take
all further acts and execute and deliver all such further assignments,
transfers, conveyances and assurances as may be required for the better
assigning, transferring, granting, and conveying to Lifetime of the rights and
title contemplated by this Agreement.
3. All instruments and documents to be delivered by either party at the
closing shall be subject to the advance approval of counsel for both parties and
shall be delivered subject to receipt from the other party of all items to be
delivered by it.
4. To the extent that any of the contracts or agreements for which
assignment to Lifetime is provided in this Agreement are not assignable without
the consent of the other party thereto, this Agreement shall not constitute an
assignment or attempted assignment if same would constitute a breach thereof.
ASPO/Lamaze shall use its best efforts to obtain the consent of the other party
to said contract or agreement in all cases in which such consent is required for
assignment or transfer. If such consent is not obtained, ASPO/Lamaze agrees to
and shall, at no additional consideration or remuneration, cooperate with
Lifetime in reaching an arrangement designed to provide to Lifetime the benefits
under such contract or agreement, including, enforcement for the benefit of
Lifetime of any and all rights of ASPO/Lamaze against the other party thereto
arising out of any cancellation of such agreements or arrangements by such other
party. Except as may be specifically otherwise provided for in this Agreement,
ASPO/Lamaze shall be responsible for all liabilities and obligations not
expressly assumed by Lifetime pursuant to this Agreement.
5. ASPO/Lamaze represents, warrants, and agrees with Lifetime that:
7
<PAGE>
(1) It has the power and authority to enter into this Agreement
and to consummate the transactions contemplated hereby, and
this Agreement and the transactions contemplated hereby have
been approved and authorized by its Board of Directors. All
documents required hereunder shall be executed by the
President of ASPO/Lamaze with appropriate resolution of the
Board of Directors, which resolution shall be presented to
Lifetime at the closing.
(2) At the closing and upon the performance by Lifetime of its
obligations then to be performed, Lifetime will acquire
good, valid, and unencumbered title to, and possession of,
Lamaze Parents' Magazine, free and clear of all liens,
claims, encumbrances and rights of others, except for the
Judd's Incorporated lien in all ASPO/Lamaze assets or as
expressly set forth herein.
(3) Following the closing, ASPO/Lamaze shall use such funds as
are received from Lifetime to promptly pay as many of its
debts and obligations as such funds will allow, and shall
indemnify Lifetime for any liabilities or costs incurred by
Lifetime and resulting from the debts and obligations of
ASPO/Lamaze relating to the Lamaze Parents' Magazine, other
than those obligations expressly assumed by Lifetime under
this Agreement.
6. The execution and delivery of this Agreement and compliance with the
terms hereof by ASPO/Lamaze do not conflict with, or result in the breach of any
of the terms, conditions, or provisions of, or constitute a default under, or
result in the creation of any lien,
8
<PAGE>
charge, or encumbrance upon any of the properties or assets constituting the
Lamaze Parents' Magazine, pursuant to its charter, by-laws, or any indenture,
agreement or other instrument, regulation, judgment, or decree to which
ASPO/Lamaze is a party or by which it is bound.
7. There are no actions, suits, proceedings, claims or investigations
pending or to the best of ASPO/Lamaze's knowledge threatened against ASPO/Lamaze
relating to the Lamaze Parents' Magazine. ASPO/Lamaze shall indemnify and hold
Lifetime harmless from any losses it may sustain or damages it may incur
resulting from claims against ASPO/Lamaze and arising from its operation of
Lamaze Parents' Magazine prior to the closing date.
8. In the event there is any material adverse change in the liabilities
or financial condition of ASPO/Lamaze relating to the operation of the Lamaze
Parents' Magazine as exists on the date hereof to the date of closing, the
obligations of Lifetime hereunder shall terminate at its option.
9. Lifetime represents and warrants to ASPO/Lamaze that it is a
corporation validly existing and in good standing under the laws of the State of
Connecticut and that it has full power and lawful authority to enter into this
Agreement and to consummate the transactions contemplated herein and that said
transactions have been approved and authorized by its Board of Directors and it
will have such power and authority as of the closing date.
10. As of the closing: (a) the representations of ASPO/Lamaze contained
in this Agreement shall be true and correct with the same effect as though such
representations had been made as of the date of closing, (b) ASPO/Lamaze shall
have performed and complied with all covenants, agreements and conditions
contained in this Agreement required to be performed or complied with by it on
or prior to the closing, (c) all corporate and other proceedings to be taken
9
<PAGE>
and all consents to be obtained in connection with the transactions contemplated
by this Agreement and all documents incident thereto shall be satisfactory in
form and substance to Lifetime, (d) Lifetime shall have reviewed the financial
records of ASPO/Lamaze relating to the operation of Lamaze Parents' Magazine and
found said financial records to be satisfactory, (e) no action or proceedings
shall be pending or threatened to restrain or prevent the consummation of the
transactions contemplated hereby.
11. For a period of ten (10) years following the closing, except
pursuant to court order (in which event Lifetime shall be given notice prior to
disclosure) ASPO/Lamaze shall keep secret and retain in strictest confidence,
and shall not use for the benefit of ASPO/Lamaze, any confidential matters
relating to the Lamaze Parents' Magazine, including without limitation,
advertising lists, distribution lists, and other business affairs of ASPO/Lamaze
relating to said Magazine, and shall not disclose them to anyone except with the
express written consent of Lifetime, nor shall ASPO/Lamaze exploit for its own
benefit or the benefit of others to the detriment of Lifetime personal
relationships with advertisers, subscribers, or others receiving said Magazine.
12. So long as there is no default hereunder or under any of the
agreements to be executed at the closing and which are contemplated hereunder,
by Lifetime, ASPO/Lamaze shall not enter into any agreement with any other party
similar to this agreement (regardless of the sale of Lamaze Parents' Magazine)
or to the agreements contemplated herein to be executed at the closing. So long
as there is no default hereunder, or under any of the agreements to be executed
at the closing, by ASPO/Lamaze, Lifetime shall not enter into any agreement with
any other organization which offers the delivery of services to the pre-natal,
post-natal, parenting or
10
<PAGE>
childbirth markets and which agreement is similar to this agreement (regardless
of the sale of Lamaze Parents' Magazine) or those to be executed at closing.
13. At no time, shall ASPO/Lamaze directly or indirectly engage in the
publication of any magazine, or other printed materials, which would in any way
compete with Lamaze Parents' Magazine or any of the other publications which
Lifetime may develop, using the "Lamaze" name, pursuant to the terms of this
Agreement.
14. ASPO/Lamaze agrees that Lifetime would suffer an irreparable injury
if ASPO/Lamaze were to breach the covenants of this Agreement and that Lifetime
would by reason of such breach or threatened breach be entitled to injunctive
relief in a court of appropriate jurisdiction and ASPO/Lamaze hereby stipulates
to the entering of such injunctive relief prohibiting it from engaging in such
breach. Without limitation as to the right of Lifetime to seek said injunctive
relief, in the event of any dispute between the parties hereto as to their
rights and obligations under the terms of this Agreement, such dispute shall be
resolved by arbitration. Arbitration shall be conducted in the City of Stamford,
Connecticut in accordance with the rules of the American Arbitration Association
then in effect and shall be conducted by a panel of three (3) arbitrators. The
sole issue to be resolved by the arbitrators is whether or not a breach has
occurred or has not been cured. In the event of a determination by the
arbitrators that a breach has occurred and not been cured, the defaulting party
shall have a period of fifteen (15) days from the date of service upon said
party of the arbitrators' decision, to cure the default involved, during which
time any payments required hereunder will continue to be paid. In the event of a
failure to cure by the party in default, subsequent to the arbitrators'
decision, the other party shall have the right, without prejudice to any other
rights which it may have or remedies
11
<PAGE>
which it may seek at law or equity, to terminate this Agreement by giving
fifteen (15) days notice to the party in breach.
15. If any court determines that any of the covenants set forth herein
is invalid or unenforceable, the remainder of the covenants shall not thereby be
affected and shall be given full effect, without regard to the invalid portions.
16. If either party hereto pursues any remedy available to it due to
the breach hereof by the other party or due to the breach of any of the
agreements contemplated herein and to be executed by the parties at the closing,
such party against whom a remedy is sought shall pay all of the other parties
costs, expenses, and reasonable attorney's fees in connection therewith,
providing it is finally adjudged by a court of competent jurisdiction that such
party against whom remedy is sought actually breached or threatened to breach
its obligations.
17. At least one (1) week prior to the closing, ASPO/Lamaze shall
deliver to Lifetime all of its records relating to Lamaze Parents' Magazine
including, but not limited to, advertising lists, publication costs, printing
costs, advertising revenues, and any other records requested by Lifetime
relating to said magazine.
18. All notices, requests, demands, and other communications permitted
or required hereby shall be in writing and shall be effective if delivered to
the address or sent to such address by certified mail, postage prepaid, return
receipt requested, at its address set forth hereinabove, or to such other
address as a party may specify by notice given to the other party in the manner
hereby prescribed. Notices given by certified mail as aforesaid shall be
effective on the fifth business day following the date on which such notice was
deposited in the mail unless sooner received by the addressee, in which case it
shall be effective when received.
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<PAGE>
19. This Agreement constitutes the complete and entire agreement of the
parties concerning the subject matter hereof. Any agreements previously existing
between the parties hereto, the terms of which are at variance with the terms of
this Agreement, shall be and are hereby modified to be consistent with this
Agreement. The parties may amend this Agreement in any respect by mutual
agreement, in writing, signed by each party, and specifically referring hereto.
20. ASPO/Lamaze hereby consents to the assignment by Lifetime of this
Agreement, in whole or part, or any of the rights set forth in this Agreement,
to a corporation or other entity in which Lifetime, Bruce F. Failing, Jr.,
Norton Garfinkle, Robert C. Ford, or any combination thereof have a combined
ownership interest of at least fifty percent (50%). Lifetime hereby consents to
the assignment by ASPO/Lamaze of this Agreement, in whole or part, or any of the
rights set forth in this Agreement, to Lifetime as collateral for any loans made
by Lifetime to ASPO/Lamaze. Except as herein before allowed, this Agreement, and
any renewals or extensions hereof, shall not be assigned by either party hereto
without the prior written consent of the other party.
21. The obligations and benefits of this Agreement shall bind and
benefit the parties hereto, their successors and assigns with the same effect as
if mentioned in each instance where a party is named or referred to.
22. If any court determines that any provision of this Agreement is
invalid or unenforceable, the remainder of this Agreement shall not thereby be
affected and shall be given full effect, without regard to the invalid
provisions.
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<PAGE>
23. Any provision of this Agreement which by its terms is intended to
survive the closing, shall in fact survive said closing, and be binding upon and
inure to the benefit of the parties hereto thereafter.
24. This Agreement shall be construed and enforced in accordance with
the laws of the State of Connecticut.
25. The parties agree that their relationship under this Agreement does
not constitute a partnership.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement the day and
year first above written.
WITNESSES:
LIFETIME INSTITUTE FOR FAMILY
EDUCATION, INC.
/s/ Carole D. Sherwood By: /s/ Robert C. Ford
- -------------------------- -----------------------
Robert C. Ford, its President
Duly Authorized
/s/ Deborah Armstrong
- --------------------------
THE AMERICAN SOCIETY FOR
PSYCHOPROPHYLAXIS IN
OBSTETRICS, INC.
[Illegible] By: /s/ Francine H. Nichols
- -------------------------- -----------------------
Francine H. Nichols, RNC, PhD
President
/s/ Rodger F. Emry
- --------------------------
<PAGE>
ONSERT AGREEMENT
This Onsert Agreement ("Agreement") is entered into between the
AMERICAN SOCIETY FOR PSYCHOPROPHYLAXIS IN OBSTETRICS, INC., a New York
corporation ("ASPO/Lamaze") and LIFETIME INSTITUTE FOR FAMILY EDUCATION, INC., a
Connecticut corporation ("Lifetime") effective as of December 7, 1992.
In consideration of the mutual promises contained herein, and other
good and valuable consideration, receipt of which is hereby acknowledged, the
parties hereto agree to cooperate in an onsert program in accordance with the
terms and conditions set forth below.
1. Lifetime Responsibilities.
(a) Lifetime will solicit manufacturers for a program (the "Onsert
Program") whereunder onserts (as defined herein) will be included in connection
with Lamaze Parents' Magazine or any supplements thereto (collectively "LPM")
distributed by Lifetime. The term "Onserts" as used herein shall mean product
sheets, product brochures, coupons, samples or other advertising any of which is
distributed with LPM outside the magazine either within a shrink wrap around the
magazine or within a separate bag. In addition, there shall be included within
the definition of "Onserts" any product sheets, product brochures, coupons,
samples or other advertising, which is inserted (but not bound) within the LPM
(collectively "inserts"), but only to the extent that such inserts exceed two
(2) in number.
(b) Lifetime will charge manufacturers a fee, based on industry
standards within the reasonable determination of Lifetime. Such fees shall be
disclosed to ASPO/Lamaze.
(c) Lifetime shall be responsible for billing and collecting said
fees from manufacturers on a timely basis.
(d) Lifetime will provide ASPO/Lamaze with a detailed report of all
Onsert Program revenues.
(e) ASPO/Lamaze shall have the right to pre-approve any and all
participating manufacturers prior to their inclusion in the program, said
approval to be governed by Paragraph 4 hereinbelow.
(f) Lifetime shall pay ASPO/Lamaze a license fee in accordance with
Paragraph 3 hereinbelow.
(g) Lifetime shall bear all expenses in connection with the
materials, printing and mailing of the onserts.
(h) Lifetime shall indemnify ASPO/Lamaze and its officers,
directors, committee members, and staff for any and all losses and expenses
(including without limitation reasonable attorneys' fees) incurred by any of
them as a result of the inclusion of the Onserts with LPM.
<PAGE>
2. ASPO/Lamaze Rights and Responsibilities.
(a) ASPO/Lamaze will provide its name and goodwill to the Onsert
Program, subject to ASPO/Lamaze approval of manufacturers, products and onserts.
Neither Lifetime nor participating manufacturers shall state or imply that the
manufacturers or the products themselves have been approved or endorsed by
ASPO/Lamaze. Lifetime's contracts with participating manufacturers shall
prohibit such manufacturer from claiming or implying any ASPO/Lamaze or Lamaze
approval or endorsement of the manufacturer or its product(s).
(b) Where ASPO/Lamaze has approved a participating manufacturer in
accordance with the procedures hereinbelow, it shall cooperate with Lifetime by
speaking with such manufacturer, upon Lifetime request, to explain the mission
and activities of ASPO/Lamaze.
(c) ASPO/Lamaze shall be paid a license fee in accordance with
Paragraph 3 hereinbelow.
(d) ASPO/Lamaze shall have the right to approve or disapprove of any
manufacturer (and product) participating in the Onsert Program, as well as the
onsert itself, in accordance with Paragraph 4 hereinbelow.
(e) ASPO/Lamaze shall have the right once every six months during
reasonable business hours and upon at least one week's notice to Lifetime, to
review all Lifetime books and records necessary to confirm the accuracy of the
license fees owed and paid to ASPO/Lamaze hereunder.
3. Fees and Payments.
(a) Lifetime shall pay to ASPO/Lamaze a license fee equal to six
percent (6%) of the gross revenue received by Lifetime from the Onsert Program.
Such gross revenue shall include all revenue received by Lifetime from the
advertiser for (i) the inclusion of the Onserts with LPM, (ii) any responses
returned by recipients of the Onserts, and (iii) any coupons, samples or other
advertising materials sent to such recipients as a result of their responses.
(b) Where a manufacturer has placed advertising in LPM (or other
publication or video through Lifetime) in addition to the Onsert to be included
with LPM, Lifetime shall make a fair and reasonable allocation of revenue
received from such manufacturer for magazine (or such other publication or
video) advertising as opposed to Onserts, and such allocation shall be disclosed
to ASPO/Lamaze.
(c) ASPO/Lamaze shall only be entitled to a license fee based upon
gross receipts actually received by Lifetime.
(d) Lifetime shall pay license fees to ASPO/Lamaze for each Onsert,
within thirty (30) days of Lifetime's receipt of the manufacturers' payment
attributable to a particular Onsert(s).
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<PAGE>
4. ASPO/Lamaze Approval of Participating Manufacturers, Products and
Onserts.
(a) ASPO/Lamaze will have the right to approve or reject all
participating manufacturers, products, and/or onserts in accordance with this
Paragraph 4. The approval process will be as follows:
i) Lifetime will submit to ASPO/Lamaze a list of potential
participating manufacturers and covered products, which
Lifetime believes are appropriate for inclusion in the
program. Lifetime will use as a guide, the types of
sponsors who have been included in LPM. Additions to
the list may be made at any time prior to finalization
of each issue of LPM.
ii) ASPO/Lamaze shall notify Lifetime of approval or
rejection within ten (10) days of its receipt of such
request. ASPO/Lamaze shall use essentially the same
criteria which it used for judging the acceptability of
advertisements in LPM when ASPO/Lamaze owned such
magazine. ASPO/Lamaze will not unreasonably withhold
approval. However, ASPO/Lamaze does have the right to
withhold approval of any manufacturer or product where
ASPO/Lamaze determines that such manufacturer and/or
product are clearly offensive, unsafe or unsound,
misleading, or contrary to the philosophy, standards or
mission of ASPO/Lamaze.
iii) ASPO/Lamaze will have the right to review and approve
any statements or claims made on or in connection with
Onserts. All such Onserts and statements will be
presented to ASPO/Lamaze, and ASPO/Lamaze shall either
approve or reject such Onserts and statements within
ten (10) days of ASPO/Lamaze's receipt of same. Again,
ASPO/Lamaze may not unreasonably withhold approval, but
may withhold approval for the same grounds set out
above for withholding approval of manufacturers or
products.
5. Funding and Expenses.
Lifetime will absorb all its start up and ongoing expenses related to
Onsert sales, plus all its costs associated with the production, duplication and
distribution of such Onserts.
6. Term.
This contract will be effective for five (5) years from the effective
date hereof; except that Lifetime may terminate this contract earlier if it
determines that the Onsert Program is not economically feasible. In addition, in
the event that all of the stock in Lifetime or all or substantially all of the
assets of Lifetime are transferred to an Unrelated Person or Unrelated Entity,
either party may terminate this Agreement within thirty (30) days of such
transfer. Lifetime shall give ASPO/Lamaze prior written notice of such a
transfer. An Unrelated Person is such if neither he or she nor any of his or her
family members has a direct or indirect ownership interest in Lifetime in excess
of five percent (5%). An Unrelated Entity is such if neither it nor
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<PAGE>
Lifetime have a direct or indirect ownership interest in the other in excess of
five percent (5%) and if there is no common ownership between such entity and
Lifetime in excess of five percent (5%).
In the event of termination or expiration of this contract, ASPO/Lamaze
shall continue to be paid license fees based on gross revenues received by
Lifetime attributable to the Onsert Program. During the term of this Agreement
and in the event of termination or expiration of this Agreement, as long as the
August 2, 1990 Loan/Activity Agreement and the August 2, 1990 LPM Agreement
between ASPO/Lamaze and Lifetime continue in effect, neither Lifetime nor
ASPO/Lamaze shall engage in any similar onsert program for consumer-oriented
publications, except within each other.
7. Miscellaneous.
(a) This Agreement shall be governed by the laws of the State of
Connecticut.
(b) Any disputes under this Agreement shall be submitted to
arbitration in Philadelphia, Pennsylvania in accordance with the rules of the
American Arbitration Association.
(c) This Agreement shall not be assignable by either party except
that ASPO/Lamaze may assign its rights and obligations under this Agreement to a
controlled subsidiary thereof for tax purposes.
(d) This Agreement is the sole understanding between the parties
concerning the Onset Program, and may only be modified by a writing signed by
both parties.
AMERICAN SOCIETY FOR PSYCHOPROPHYLAXIS
AND OBSTETRICS, INC.
Date: 12/9/92 By: /s/ Judith Lothian
---------------------------- -----------------------------------
Title: President
-----------------------------------
LIFETIME INSTITUTE FOR FAMILY
EDUCATION, INC. (Successor in interest to
Medical Communications Corporation)
Date: 12/7/92 By: /s/ David Diamond
---------------------------- -----------------------------------
Title: President
-----------------------------------
4
<PAGE>
AMENDMENT TO ONSERT AGREEMENT
This Amendment to the Onsert Agreement is entered into by and between
the Lamaze Publishing Company, Inc. (formerly known as Lifetime Institute for
Family Education, Inc.), a Connecticut Corporation (which was referred to as
"Lifetime" in the Onsert Agreement and is referred to as "LPC" herein) and
Lamaze International, Inc. (formerly known as The American Society for
Psychopsophylaxis in Obstetrics, Inc.), a New York corporation (which was
referred to as "ASPO" in the Onsert Agreement and is referred to as "Lamaze
International" herein).
WHEREAS, the parties entered into the Onsert Agreement on December 7,
1992 for a period of five (5) years;
WHEREAS, the Onsert Agreement expired on December 7, 1997;
WHEREAS, notwithstanding the expiration of the Onsert Agreement, the
parties have continued to perform in accordance with the terms of the Onsert
Agreement and have treated the Onsert Agreement as having been renewed;
NOW, THEREFORE, in consideration of the mutual promises contained
herein and for either good and valuable consideration, the receipt of which is
hereby acknowledged, the parties hereto agree that the Onsert Agreement, as
amended by the January 1, 1996 Agreement of Modification and Clarification
between the parties, is and shall remain in full force and effect and its term
shall be extended to be consistent with, and, unless terminated for material
default justifying termination, last as long as the last to expire or terminate
of the Video Agreement, LPM Agreement, or the Loan Activity Agreement, all
described in Sections 1(A), (C) and (D) of the January 1, 1996 Agreement of
Modification and Clarification between the parties; provided that such Onsert
Agreement shall be subject to the same limitations on [illegible] as are
contained in the above-referenced LPM Agreement.
LAMAZE INTERNATIONAL, INC. LAMAZE PUBLISHING COMPANY, INC.
By: /s/ Mary [illegible] By: [illegible]
--------------------------- ---------------------------
Title: President Title: President
------------------------- -------------------------
Date: 6/4/99 Date: May 27, 1999
-------------------------- ---------------------------
<PAGE>
STATEMENT OF TERMS CONCERNING CHILD DEVELOPMENT NEWSLETTER
1. Fees to ASPO/Lamaze - ASPO/Lamaze to be paid $5,000 by Lamaze
Publishing Company, Inc. ("LPM") in February, 1994. In January of each year
therafter in which the newsletter is published, ASPO/Lamaze shall be paid
$5,000. In addition, if subscription sales for 1994 or any subsequent year in
which the newsletter is published exceed $500,000, ASPO/Lamaze shall be paid an
additional $5,000 in the month of each year in which subscription sales reach
$500,000, for a total of $10,000 for such year. If subscription sales are
already at $500,000 in January of 1995 or any year thereafter, ASPO/Lamaze shall
receive its $10,000 for such year in January.
2. Editorial Board - The Editorial Board for the newsletter shall
consist of two persons recommended by ASPO/Lamaze and appointed by LPM. LPM
shall pay each of the members of the Editorial Board $2,500 on January 1 of
1994. Any fees to be paid such members for years after 1994 shall be negotiated
between the members and LPM, and shall be based upon the degree of work
required. Such Editorial Board shall have that authority and responsibility as
is explained for an Editorial Board in Paragraph 3 of Page 7 of the August 2,
1990 LPM Agreement.
SEEN AND AGREED TO:
ASPO/Lamaze
By: /s/ Judith Lathian July 10, 1993
----------------------------- ---------------------------
Date
President
-----------------------------
Title
SEEN AND AGREED TO:
LAMAZE PUBLISHING COMPANY, INC.
By: [illegible] August 20, 1993
----------------------------- ---------------------------
Date
President
-----------------------------
Title
<PAGE>
AGREEMENT OF MODIFICATION AND CLARIFICATION
This Agreement is entered into effective January 1, 1996 by and between
Lifetime Institute for Family Education, Inc., a Connecticut Corporation
("Lifetime"), and Lamaze Publishing Company, Inc., a Connecticut Corporation
("LPC") (collectively referred to as "LPC") and the American Society for
Psychoprophylaxis in Obstetrics, Inc., a New York Corporation ("ASPO"). The
rights and obligations of LPC hereunder may be assigned between its entities, or
to another entity controlled by its principal owners, within their discretion
upon notice to ASPO.
WHEREAS, the parties have entered into several existing agreements
specified below, and now desire by means of this Agreement of Modification and
Clarification to resolve various issues which have arisen between them
concerning such existing agreements and to modify and clarify, such existing
agreements as set forth herein;
NOW THEREFORE, in consideration of the mutual promises contained herein
and for other good and valuable consideration, the receipt of which is hereby
acknowledged, the parties hereto agree as follows:
I. EXISTING AGREEMENTS.
A. Video Agreement. On October 14 and 18, 1989 ASPO and Medical
Communications Corporation respectively executed an "Agreement Between
ASPO/Lamaze and Medical Communications Corporation" relating to the production
of videos under the "Lamaze" name. The rights and obligations of Medical
Communications Corporation under such
<PAGE>
agreement were transferred to Lifetime as the successor in interest to Medical
Communications Corporation.
On December 9 and December 7, 1992 ASPO and Lifetime respectively executed an
"Addendum to an Agreement Between ASPO/Lamaze and Medical Communication
Corporation" which amended the royalty schedule under the Video Agreement. On
April 22, 1993 and April 16, 1993, ASPO and Lifetime respectively executed a
"Second Addendum To An Agreement Between ASPO/Lamaze and Medical Communication
Corporation" which expanded the Video Agreement to cover a T.V. Program.
B. Intellectual Property Agreement. ASPO and Lifetime entered into an
agreement dated April 6, 1990, dealing with the development of creative and
intellectual properties by Lifetime to facilitate the marketing of the video
cassettes under the Video Agreement.
C. LPM Agreement. Such agreement is dated August 2, 1990 and was
entered into by Lifetime and ASPO. All rights and obligations of Lifetime under
such agreement were assigned to LPC.
D. Loan/Activity Agreement. Such agreement is dated August 2, 1990 and
was entered into by Lifetime and ASPO. On August 20, 1990 parts of such
agreement were assigned by Lifetime to LPC and parts of such agreement were
retained by Lifetime.
E. Child Development Newsletter. On July 10, 1993 and September 20,
1993 ASPO and LPC respectively executed a "Statement of Terms Concerning Child
Development Newsletter."
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<PAGE>
F. Onsert Agreement. Such Agreement, dated December 7, 1992, is between
ASPO and Lifetime and provides for specified royalties to be paid ASPO for
certain Onserts to be included with "Lamaze Parents' Magazine."
G. "Existing Agreements." All of the agreements described in this
Section I will on occasion hereafter be referred to collectively as the
"Existing Agreements."
II. TRADEMARK ISSUES.
A. Assignment of Marks to ASPO. Upon execution of this Agreement of
Modification and Clarification, LPC shall: (i) execute an Assignment in the form
of Exhibit B hereto, assigning to ASPO those trademarks registrations and
applications listed at Exhibit A hereto that are based upon actual use; and (ii)
with respect to those applications that are based upon intent to use, LPC shall
enter those marks into use as soon as reasonably practicable, promptly file
Statements of Use with the U.S. Patent and Trademark Office, and promptly assign
each such application to ASPO upon filing the Statement of Use. Statements of
Use for each of the categories of goods identified in Exhibit A shall be
executed within two years of the effective date of this Agreement, with the
exception of television advertising, production, broadcasting. At the end of the
final extension period for filing a Statement of Use (whether under federal
regulations or the terms of this Agreement, whichever is shorter), if a
Statement of Use has not been filed the application shall be abandoned. If no
Statement of Use has been filed within that period, LPM may request an
extension, and ASPO shall negotiate in good faith with respect to such
extension. Actual use of those of the marks on Exhibit A which are listed as
"intent to use" and are not used in conjunction with consumer publications or
other communications shall require prior ASPO approval of the specific product
or services covered by such mark, and agreement on a royalty in accordance with
Section VI(D) herein below. In licensing Registration
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<PAGE>
#1730169 (the "Institute for Family Education Lamaze" seal) back to LPC, ASPO
reserves the right to use the word "Lamaze" with the words "Family" and/or
"Education" in juxtaposition with ASPO/LAMAZE, in a manner that will not compete
or cause confusion with LPC's use of such registered mark(s). LPC shall execute
such additional documents as are necessary to cause the records of the U.S.
Patent and Trademark Office to list such registrations and applications in the
name of ASPO. Such assignment[s] by LPC shall not constitute a waiver of, and
shall be without prejudice to, any rights of LPC to assert any claim for breach
of any of the Existing Agreements by ASPO or any claim that ASPO does not have
exclusive rights in any "Lamaze" mark, and shall be inadmissible in any
proceeding between the parties. Such intent to use applications by LPC shall not
constitute a waiver of, and shall be without prejudice to, any rights of ASPO to
assert any claim of ownership of any "Lamaze" mark by ASPO, and shall be
inadmissible in any proceeding between the parties. In the event of any conflict
between any application by LPC and ASPO in the U.S. PTO anticipated by this
Agreement, the parties shall file a Consent to Register, and if they are
subsequently unsuccessful in securing registration, shall confer and take such
further action that is mutually acceptable to best preserve their respective
rights.
B. License Back to LPC. Upon execution of this Agreement of
Modification and Clarification. ASPO shall execute an exclusive License
Agreement in the form attached at Exhibit C hereto, assigning back to LPC, the
exclusive right to use those marks listed at Exhibit A hereto that are
registered or have been applied for based upon actual use. The exclusive right
to use the marks identified in Exhibit A for which applications have been filed
based upon an intent to use the marks shall be assigned back to LPC at the time
the applications are assigned to ASPO. Until that time, ASPO shall not use, or
license others to use, such marks. Royalties shall
4
<PAGE>
be paid by LPC to ASPO for use of these marks pursuant to the terms of either
paragraph IV or VI(D) of this Agreement, as applicable, as indicated on Exhibit
A. LPC has selected the "LAMAZE INSTITUTE FOR FAMILY EDUCATION" and "LAMAZE
INSTITUTE FOR FAMILY EDUCATION and Design" marks as their principal marks and
those marks will be given primary emphasis by LPC in their use of the LAMAZE
marks and any trade or business name incorporating the term LAMAZE PUBLISHING.
Although licensed to LPC pursuant to Exhibit C, the "LAMAZE PUBLISHING" mark
will be deemphasized relative to the principal marks and will be phased down
over a three-year period to a level of use by LPC no more than is sufficient to
support its continued registration. ASPO and LPC agree that LPC may maintain and
use the "LAMAZE PUBLISHING" mark as part of a trade or business name, consistent
with that phase down. In instances where both a licensed mark and a trade or
business name incorporating the term LAMAZE PUBLISHING are used together, the
mark shall be used more prominently than the trade or business name. The "LAMAZE
COMMUNICATIONS" mark need not be licensed back to LPC, nonetheless, absent
licensing the mark back to LPC in accordance with Exhibit C, ASPO shall not use
the mark without LPC's express, prior, written consent. In the event that
consent is given. ASPO shall use the "LAMAZE COMMUNICATIONS" mark only in a
manner and at a level sufficient to support its continued registration. ASPO and
LPC shall agree to mutually acceptable guidelines for maintaining registration
of the "LAMAZE COMMUNICATIONS" mark.
C. Prosecution of New Application for Registration of "Lamaze Parents'
Magazine" Mark. LPC shall, at its own expense and in the name of ASPO, make a
new application for registration of the "Lamaze Parents' Magazine" mark (which
new application shall also be included within the exclusive assignment back to
LPC under Section II(B) hereinabove).
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<PAGE>
Initially such application shall make no disclaimer of use of the word "Lamaze"
apart from the mark as a whole. LPC shall control the application for such mark,
but shall consult with ASPO on all pertinent decisions relative to such
application, including without limitation the issue of whether to make any
disclaimers in connection with such application. ASPO shall provide full
cooperation on a reasonable basis in support of such application.
D. Continued Prosecution by LPC of Pending Applications. LPC may, at
their own expense continue to prosecute those other pending applications for
registration of various uses of the "Lamaze" mark, which other pending
applications are listed in Exhibit A hereto. LPC shall control such
applications, but shall consult with ASPO on all pertinent decisions relative to
such applications, including without limitation the issue of whether to make any
disclaimers in connection with such applications. ASPO/Lamaze shall provide full
cooperation on a reasonable basis in support of such applications. Such
prosecution shall be in the name of ASPO, except that the intended use
applications shall be prosecuted in the name of LPC until such time as they are
assigned to ASPO under Section II(A) hereinabove.
E. New Applications by LPC for Registration of the "Lamaze" Mark. With
the prior written consent of ASPO. LPC may make application for registration of
additional new uses of the "Lamaze" mark in connection with consumer
publications and other communications, said applications to be at LPC's expense
and in the name of ASPO. ASPO shall not unreasonably withhold such consent,
recognizing that consent may be withheld if the use of the proposed mark
unreasonably interferes with ASPO's use of the "Lamaze" name in the conduct of
its educational and certification activities in furtherance of its mission.
Where ASPO does consent, it shall license back the mark to LPC on an exclusive
basis. LPC shall control such applications, but shall consult with ASPO on all
pertinent decisions relative to such applications, including
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<PAGE>
without limitation the issue of whether to make any disclaimers in connection
with such applications. ASPO shall provide full cooperation on a reasonable
basis in support of such applications. As used in this Agreement of Modification
and Clarification the term, "consumer publications and other communications"
shall include all forms of media (e.g., print, audio, computer, visual) which
are a.) consumer-oriented and b.) either bear advertising or are revenue
generating or are otherwise commercial in nature.
F. New Uses of the "Lamaze" Mark by ASPO. ASPO may, at its own expense,
make application for registration of uses of the "Lamaze" mark in areas outside
of consumer publications and other communications, provided that such uses do
not unreasonably interfere with LPC's use of the "Lamaze" mark in connection
with their consumer publications and other communications, and further provided
that although ASPO shall control such applications it shall first consult with
LPC concerning such new uses.
G. Certification "Lamaze" Mark. ASPO shall on or before March 31, 1996
apply for registration of the "Lamaze" mark as a certification mark at ASPO's
own expense. ASPO shall control such application but shall consult with LPC
concerning all pertinent decisions relating to the application, including
without limitation the issue of whether to make any disclaimers in connection
with such application.
H. Enforcement in the Area of Marks Licensed to LPC. LPC shall have the
sole right and obligation at their own expense to enforce as they deem necessary
the rights of ASPO as owner and LPC as exclusive licensee in the "Lamaze" mark
for marks licensed or agreed to be licensed to LPC. Such enforcement actions may
involve uses outside of consumer publications and other communications if in the
reasonable opinion of LPC such use does or might interfere
7
<PAGE>
with their use of the "Lamaze" marks licensed to LPC. LPC shall consult with
ASPO concerning strategy and progress of enforcement under this Section II(H),
and ASPO shall provide full cooperation on a reasonable basis with such
enforcement, including but not limited to joinder in any enforcement action.
I. Enforcement of Marks Used by ASPO or Third Parties. ASPO shall have
the right and obligation at its own expense to enforce as it deems necessary the
rights of ASPO as owner of "Lamaze" marks other than those licensed or agreed to
be licensed to LPC. ASPO shall consult with LPC concerning strategy and progress
of enforcement under this Section II(I). Notwithstanding the above, in the case
of enforcement of a "Lamaze" mark that is used by a third-party licensee where
LPC is receiving a percentage of royalties received from such third-party
licensee, LPC shall pay a percentage of such enforcement costs equal to that
percentage of royalties received by LPC from such licensee. For example, if the
royalties from a mark which is being enforced are being split 85% for ASPO and
15% for LPC, LPC shall pay 15% of the enforcement cost. The party paying the
greater percentage of the enforcement costs shall control the enforcement. LPC
shall not oppose in any way such enforcement actions by ASPO, nor otherwise lend
support to third par-ties in such enforcement actions. In the event either party
receives compulsory process issued by a court or tribunal of competent
jurisdiction, the party receiving such process promptly shall notify the other
and both parties shall cooperate fully to preserve the respective rights of the
parties.
J. Split of Recoveries. In the event of any recoveries from enforcement
actions under Section II(H), the recovery shall be kept by LPC since LPC will
have paid all the enforcement costs. In the case of enforcement actions under
Section 11(I), any recoveries will
8
<PAGE>
be split by the parties in accordance with the percentage of enforcement costs
borne by the parties for such particular enforcement.
K. Cooperation in the Event of Counterclaims. In the event that any
enforcement action brought by one party hereunder under Section II(H) or II(I)
results in a counterclaim being brought against the other party, the parties
shall cooperate and negotiate in good faith to allocate the responsibilities and
enforcement costs among them relating to the affirmative enforcement action and
the counterclaim[s].
L. Cooperation by ASPO. ASPO shall provide full cooperation on a
reasonable basis as is necessary to maintain the registration of all "Lamaze"
marks registered in the name of ASPO.
M. Watch Service. ASPO shall employ at its own expense a commercially
reasonable Watch Service to monitor use of the "Lamaze" mark and run trademark
searches by qualified professionals at least three times per year. and shall
promptly provide LPC with the results of such Watch Service and searches.
N. Reversion of Trademark Rights to LPC. In the event that a final
administrative and/or judicial finding and/or determination has been rendered by
a tribunal of competent jurisdiction that ASPO does not have exclusive rights in
any mark incorporating the term "Lamaze" used by LPC in conjunction with goods
and/or services for which the use of the mark has been licensed to LPC and the
time within which to appeal has expired, ASPO shall immediately assign to LPC
all right, title, and interest ASPO may possess in such particular mark for such
use, and ASPO shall execute all documents reasonably necessary to effect such
transfer; provided, however, that a requirement by the U.S. Patent and Trademark
Office (and any court
9
<PAGE>
affirmance thereof) that ASPO disclaim exclusive rights in the term "Lamaze"
apart from the mark as a whole shall not constitute an event requiring reversion
of the mark to LPC hereunder.
III. COMMUNICATION WITH CONSUMERS
In the event ASPO proposes to publish any consumer-oriented publication
in conjunction with a mark that includes the term "LAMAZE," ASPO shall notify
LPC and secure the prior, express, written permission of LPC, which permission
may be refused in LPC's discretion, only if the proposed publication is a
consumer-oriented publication in conjunction with a "LAMAZE" mark. Permission
given by LPC under this paragraph shall not presume that any other use is
acceptable to LPC or constitute a waiver by LPC. Notwithstanding the foregoing,
the parties expressly agree that the following uses are permitted:
o Maintenance of a Web Site that is oriented to childbirth educators
and is not consumer-oriented;
o A non-commercial, educational, information piece, directed at
expectant parents on the subject of "Selecting a Childbirth
Educator";
o Legislative advocacy in accordance with the principles which have
been adopted by ASPO/LAMAZE in meeting its mission;
o Publication of official Position Papers of ASPO/LAMAZE, that are
consistent with the principles which have been adopted by
ASPO/LAMAZE in meeting its mission, are approved by the Board,
and are directed to issues relating to childbearing and early
patenting;
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o In the event that ASPO desires to publish any specific message or
piece of information in conjunction with a mark that includes the
term LAMAZE, that is consumer-oriented and not a "publication"
within the meaning of the LPM Agreement, LPC shall have a right
of first refusal to publish the message or piece of information
in a commercially reasonable time in accordance with the LPM
Agreement; in the event that LPC either refuses to publish the
message or information or fails to do so in a commercially
reasonable time, ASPO shall have the right to distribute the
message or information directly to consumers on a non-commercial
basis.
IV. ROYALTIES TO ASPO.
A. Royalty Amount. In consideration for the licensing of the "Lamaze"
mark to LPC under the Existing, Agreements, as amended by this Agreement of
Modification and Clarification, and in lieu of any and all royalties and fees
under the Existing Agreements, ASPO shall receive a royalty equal to 1.5% of the
yearly net revenues received by LPC from the Newborn Channel and from all media
(e.g., print. computer, audio and visual properties) in conjunction with which
LPC is using the "Lamaze" mark, including without limitation "Lamaze Parents'
Magazine," and "LamazeBaby Magazine." "Net revenues" means revenues received and
retained by LPC, net of agency commission. Such royalty shall be paid on a
quarterly basis within 30 days after the receipt by LPC of the funds on which
payments are based. The guaranteed minimum annual royalty payment for 1996 shall
be One Hundred Twenty Five Thousand and 00/100 Dollars ($125,000.00). For the
first five years following 1996 (i.e., 1997, 1998, 1999, 2000 and 2001) this
guaranteed minimum annual royalty amount shall be increased each year by a
percentage equal to any increase in the U.S. City Average Consumer Price Index
11
<PAGE>
For All Urban Areas, All Items ("CPI"). For years 2002 and beyond, the
guaranteed minimum annual royalty payment shall be the 2001 minimum guaranty
amount.
B. Other LPC Ventures. There shall be excluded from those revenues upon
which royalties are calculated, any income received by LPC from any project by
LPC in conjunction with which the "Lamaze" mark is not used. (Notwithstanding
this paragraph, advertising revenue from the Newborn Channel shall be included
in the royalty base, regardless whether or not the "Lamaze" mark is used in
conjunction with it.) For purposes of this Agreement of Modification and
Clarification, the "Lamaze" mark shall be deemed to be used in conjunction with
a LPC project if the "Lamaze" mark is used, either: (i) as a mark and is not
fair use; or (ii) in a manner that reasonably results in a likelihood of
confusion, mistake, or deception that the source of the goods and/or services is
ASPO rather than LPC; or (iii) reasonably conveys the commercial impression of
sponsorship or endorsement of the goods and/or services by ASPO. Prior to
initiating any project without the "Lamaze" mark, if such project might compete
with any ASPO project or with any LPC project in conjunction with which the
"Lamaze" mark is used. the party initiating the project shall first notify and
consult with the other concerning such project; however, the consent of the
other shall not be required. For Other LPC Ventures relating to mineral
supplements and/or vitamins pursuant to this Agreement, the parties shall
negotiate a mutually acceptable royalty rate, not to exceed six (6)% of yearly
revenues received by LPC, less returns, samples, demonstration products, excise
tax, sales tax, and other transfer tax.
V. NEWBORN CHANNEL.
A. Advisory Board. LPC shall include on the Advisory Board of the
Newborn Channel, one individual to be recommended by ASPO and appointed by LPC.
12
<PAGE>
B. Use of "Lamaze" Name. In the event that LPC uses the "Lamaze" mark
(as defined in paragraph IV.B., above) in conjunction with the Newborn Channel
Program, an Editorial Board shall be established as is done for all other LPC
"Lamaze" Publications (i.e., up to 12 individuals recommended by ASPO and
appointed by LPQ.
VI. THIRD-PARTY LICENSING.
A. LPC Is Exclusive Marketing Agent For ASPO. The parties confirm that
LPC shall act as the exclusive marketing agent for ASPO whenever ASPO licenses
to third-parties the right to use the "Lamaze" name. As such, LPC shall act as
administrator of the ASPO third-party licensing program; and all third-party
licensees, including without limitation AMI and Learning Curve Toys, shall deal
directly with LPC. ASPO, not LPC, shall continue to exercise editorial control
over the third-party licensees' use of the "Lamaze" name. If ASPO is approached
by any prospective third-party licensees, ASPO shall refer the prospect to LPC
for negotiation and administration of a third-party license.
B. Consent of Both Parties Required. Regardless of whether a
prospective third-party licensee approaches ASPO first and is referred to LPC,
or initially contacts LPC, no third-party license may be granted without the
prior express written consent of both LPC and ASPO. Either party may withhold
consent, if it notifies the other that it reasonably believes that the
prospective third-party license is not economically feasible or will compete or
otherwise unduly interfere with existing projects of that party or of a
third-party license. In addition, ASPO may withhold consent upon notification to
LPC that the proposed use of the "Lamaze" mark is inconsistent with the
principals and philosophy of ASPO. Notwithstanding the above, LPC shall not
withhold its consent to any extension[s] to the existing AMI and Learning Curve
Toy third-party licenses, on the same terms and conditions.
13
<PAGE>
C. Exclusive Marketing Agent Fee. In consideration for its services as
exclusive marketing agent, LPC shall receive 15% of the licensing fees received
by ASPO under revenues generated by each third-party license[s], with ASPO
retaining the remaining 85%. Such fees shall be paid by ASPO on a quarterly
basis within 30 days after the close of the quarter in which ASPO received the
funds upon which payment is based. Such fees shall be earned and paid by ASPO to
LPC regardless of whether the third-party licensee initially approached ASPO or
LPC. Notwithstanding the above: LPC shall receive no fee with respect to the AMI
contract for the period through July 1, 1996, and LPC shall earn a fee equal to
7.5% of the licensing fee received by ASPO from AMI for any contract period from
July 1, 1996 forward. LPC shall earn no fee with respect to the Learning Curve
Toys contract for the period through December 31, 2000; and LPC shall earn a fee
equal to 7.5% of the licensing fee received by ASPO from Learning Curve Toys for
any contract period from January 1, 2001 forward.
D. License Directly To LPC. In the event that the parties agree to have
ASPO license directly to LPC the right to use the "Lamaze" name with a good or
service outside the area of consumer publications or other communications, the
Marketing Agent Fee under Section VI(C) above shall not apply, and the parties
shall negotiate a reasonable royalty to be paid to ASPO.
VII. ACCOUNTING.
A. Each party shall have the right, through a mutually agreed-upon,
independent, third-party auditor, to inspect the books and records of the other
party insofar as is reasonable, necessary, and for the sole purpose of
confirming that they have been paid all of the money to which they are entitled
under the Existing Agreements, as modified and clarified by this Agreement of
Modification and Clarification. Other than providing a figure establishing the
14
<PAGE>
amount of any discrepancy, such auditor shall not disclose any information
learned from the audit of one party's books and records to the other party. Any
shortfall or over payment between the parties discovered by an auditor shall be
paid within thirty (30) days of informing the party owing the shortfall or owing
a refund of any overpayment. Interest shall be payable on any shortfall or
overpayment, accrued from the date the shortfall would have been due or the
overpayment was made, at the rate of one percent (1%) per month. If the audit
shows that the payments made were within three percent (3%) of, or more than the
amount owed, the party requesting the audit shall bear the full cost and all
expenses of the audit; if the shortfall is greater than 3 percent (3%) of the
total amount owed, the party owing the shortfall shall pay the cost of the
audit.
VIII. GOVERNING LAW.
This Agreement of Modification and Clarification shall be governed by
the laws of the State of Connecticut and Federal Laws of the United States. For
purposes of resolving disputes under this Agreement of Modification and
Clarification, the parties waive any and all claims of lack of personal
jurisdiction, subject matter jurisdiction, and venue in favor of the state and
federal courts of the State of Connecticut. Nothing in this Agreement of
Modification and Clarification shall prevent either party from obtaining
preliminary injunctive relief from a court of law in any jurisdiction pending
the outcome of an arbitration proceeding.
IX. ARBITRATION.
If the parties are unable to resolve a dispute arising out of this
Agreement of Modification and Clarification through negotiation, the parties
shall submit the dispute to binding arbitration proceedings. Arbitration
proceedings shall take place in Connecticut and be conducted by JAMS/Endispute
and in accordance with the Rules of the American Arbitration Association
15
<PAGE>
("AAA"), except that they may be amended as necessary so that the arbitration
proceeding shall last no longer than one hundred and twenty (120) days, from the
time the dispute is referred to arbitration to the time that the arbitration
panel renders its decision. The arbitration panel shall consist of three
members. Each party and JAMS/Endispute shall each appoint one member. The cost
of arbitration shall be born by either or both parties, as the arbitration panel
may determine. The parties shall enforce the arbitration panel's award by a
judgment obtained in the state or federal courts of Connecticut, or elsewhere as
necessary to give effect to the terms of the Existing Agreements as amended by
this Agreement of Modification and Clarification, and of the arbitration panel's
decision.
X. TERM.
This Agreement shall govern the rights and obligations of the parties
from January 1, 1996 and will last as long as any of the Video Agreement, or the
LPM Agreement, or the Loan/Activity Agreement referenced in Section I(A), (C),
and (D) hereinabove respectively continue in effect.
16
<PAGE>
XI. EXISTING AGREEMENTS CONTINUE.
As amended hereby, the Existing Agreements continue in full force and
effect. Except to the extent that they are clearly modified by the express terms
of this Agreement, nothing in this Agreement shall be construed to modify any
term of any of the Existing Agreements.
AMERICAN SOCIETY FOR
PSYCHO PROPYLAXIS IN OBSTETRICS, INC.
BY: /s/ Deborah Wooley
--------------------
TITLE: President
--------------------
DATE: 5/6/96
--------------------
LIFETIME INSTITUTE FOR FAMILY
EDUCATION, INC.
BY: [Illegible]
--------------------
TITLE: President
--------------------
DATE: 5/10/96
--------------------
LAMAZE PUBLISHING COMPANY, INC.
BY: [Illegible]
--------------------
TITLE: President
--------------------
DATE: 5/10/96
--------------------
*
17
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT A
(To be Assigned)
- --------------------------------------------------------------------------------------------------------------
MARK GOOD/SERVICES INTENT TO ROYALTY
USE/ACTUAL BASIS*
USE
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
LAMAZE INSTITUTE Audio tapes, computer programs, video tapes, Intent to Use P. IV
FOR FAMILY motion picture films, and recordings featuring
EDUCATION LAMAZE issues related to maternity, babies, children,
ONSERTS and Design health and family in Class 9;
(S#:75/036,193) Printed publications relating to maternity,
babies, children, health and family in Class 16.
- --------------------------------------------------------------------------------------------------------------
LAMAZE INSTITUTE Audio tapes, computer programs, video tapes, Intent to Use P. IV
FOR FAMILY motion picture films, and recordings featuring
EDUCATION LAMAZE issues related to maternity, babies, children,
PUBLISHING and health and family in Class 9;
Design Printed publications relating to maternity,
(S#:75/036,192) babies, children, health and family in Class 16.
- --------------------------------------------------------------------------------------------------------------
LAMAZE INSTITUTE Television Advertising for Others in Class 35; Intent to Use See
FOR FAMILY Television Broadcasting in Class 38; S#:75/036,087
EDUCATION and Design Television Production in Class 41.
(S#:75/036,088)
- --------------------------------------------------------------------------------------------------------------
LAMAZE INSTITUTE Baby bath products, baby hygiene products and Intent to Use See
FOR FAMILY other products related to babies in Class 3; S#:75/036,090
EDUCATION and Design Baby nursing aids, nursing aids for mothers,
(S#:75/036,086) baby health care products and other products
relating to baby care in Class 10; Furniture,
infant cradles, infant walkers, toy boxes, toy
09 chests, booster seats, stuffed animals, cribs
and other baby or children related articles in
Class 20; Maternity clothing, diapers, baby
clothing and clothing accessories relating to
maternity or babies in Class 25; Toys, games and
accessories for babies and children in Class 28.
- --------------------------------------------------------------------------------------------------------------
LAMAZE INSTITUTE Printed publications relating to maternity, Intent to Use See
FOR FAMILY babies, children, health and family in Class 16; S#:75/036,090
EDUCATION and Design
(S#:75/036,086)
- --------------------------------------------------------------------------------------------------------------
LAMAZE INSTITUTE Indicating membership in an organization of Actual Use Subject to other
FOR FAMILY providers of prenatal and postnatal child care royalty basis,
EDUCATION and Design goods or services in Class 200. as applicable,
(Registration without
No. 1,730,169) duplicate
royalty
obligation
- --------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
MARK GOOD/SERVICES INTENT TO ROYALTY
USE/ACTUAL BASIS*
USE
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
LAMAZE INSTITUTE Television Advertising for Others in Class 35; Intent to Use P. IV
FOR FAMILY Television Broadcasting in Class 38;
EDUCATION LAMAZE Television Production in Class 41.
TELEVISION and Design
(S#:75/036,087)
- --------------------------------------------------------------------------------------------------------------
LAMAZE INSTITUTE Audio tapes, computer programs, video tapes, Intent to Use P. IV
FOR FAMILY motion picture films, and recording featuring
EDUCATION LAMAZE issues related to maternity, babies, children,
TELEVISION and Design health and family in Class 9;
(S#:75/036,085) Printed publications relating to maternity,
babies, children, health and family in Class 16.
- --------------------------------------------------------------------------------------------------------------
LAMAZE INSTITUTE Baby nursing aids, nursing aids for mothers, Intent to Use P. IV(D)
FOR FAMILY baby health care products and other products
EDUCATION LAMAZE relating to baby care in Class 10;
NURSING AIDS and Maternity clothing, diapers, baby clothing and
Design clothing accessories relating to maternity or
(S#:75/036,089) babies in Class 25.
- --------------------------------------------------------------------------------------------------------------
LAMAZE INSTITUTE Mineral supplements and vitamins in Class 5. Intent to Use P. IV(D)
FOR FAMILY
EDUCATION LAMAZE
VITAMINS and Design
(S#:75/036,083)
- --------------------------------------------------------------------------------------------------------------
LAMAZE INSTITUTE Audio tapes, computer programs, video tapes, Intent to Use P. IV
FOR FAMILY motion picture films, and recording featuring
EDUCATION GROWTH- issues related to maternity, babies, children,
CHART and Design health and family in Class 9;
(S#:75/036,080) Printed publications relating to maternity,
babies, children, health and family in Class 16.
- --------------------------------------------------------------------------------------------------------------
LAMAZE INSTITUTE Audio tapes, computer programs, video tapes, Intent to Use P. IV
FOR FAMILY motion picture films, and recording
EDUCATION LAMAZE featuring issues related to maternity, babies,
LIBRARY and Design children, health and family in Class 9;
(S#:75/036,084) Printed publications relating to maternity,
babies, children, health and family in Class 16.
- --------------------------------------------------------------------------------------------------------------
LAMAZE INSTITUTE Baby bath products, baby hygiene products and Intent to Use P. IV(D)
FOR FAMILY and other products related to babies in Class 3;
EDUCATION LAMAZE Baby nursing aids, nursing aids for mothers,
BABYCARE and Design baby health care products and other products
(S#:75/036,090) relating to baby care in Class 10;
Furniture, infant cradles, infant walkers, toy
boxes, toy chests, booster seats, stuffed
animals, cribs and other baby or children
related articles in Class 20;
Maternity clothing, diapers, baby clothing and
clothing accessories relating to maternity or
- --------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
MARK GOOD/SERVICES INTENT TO ROYALTY
USE/ACTUAL BASIS*
USE
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
babies in Class 25;
Toys, games and accessories for babies
and children in Class 28.
- --------------------------------------------------------------------------------------------------------------
LAMAZE INSTITUTE Printed publications relating to maternity, Intent to Use P. IV
FOR FAMILY babies, children, health and family in Class 16;
EDUCATION LAMAZE
BABYCARE and Design
(S#:75/036,090)
- --------------------------------------------------------------------------------------------------------------
LAMAZE BABY MAGAZINE Magazines containing subject matter of interest Actual Use P. IV
(Registration No. to parents and expectant parents in Class 16;
1,883,545)
- --------------------------------------------------------------------------------------------------------------
LAMAZE INSTITUTE Publications containing subject matter of Intent to Use P. IV
COMMUNICATIONS interest to parents and expectant parents in
(S#:75/696,209) Class 16.
- --------------------------------------------------------------------------------------------------------------
LAMAZE PARENTS' Magazines containing subject matter of interest Actual Use P. IV
MAGAZINE to expectant parents in Class 16
(S#:75/297,353)
- --------------------------------------------------------------------------------------------------------------
</TABLE>
* Indicates the applicable royalty basis but LPC shall not be subject to
duplicative royalties for the same goods/services.
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT A
(To be Licensed)
- --------------------------------------------------------------------------------------------------------------
MARK GOOD/SERVICES INTENT TO ROYALTY
USE/ACTUAL BASIS*
USE
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
LAMAZE INSTITUTE Audio tapes, computer programs, video tapes, Intent to Use P. IV
FOR FAMILY motion picture films, and recordings featuring
EDUCATION LAMAZE issues related to maternity, babies, children,
ONSERTS and Design health and family in Class 9;
(S#:75/036,193) Printed publications relating to maternity,
babies, children, health and family in Class 16.
- --------------------------------------------------------------------------------------------------------------
LAMAZE INSTITUTE Audio tapes, computer programs, video tapes, Intent to Use P. IV
FOR FAMILY motion picture films, and recordings featuring
EDUCATION LAMAZE issues related to maternity, babies, children,
PUBLISHING and Design health and family in Class 9;
(S#:75/036,192) Printed publications relating to maternity,
babies, children, health and family in Class 16.
- --------------------------------------------------------------------------------------------------------------
LAMAZE INSTITUTE Television Advertising for Others in Class 35; Intent to Use See
FOR FAMILY Television Broadcasting in Class 38; S#:75/036,087
EDUCATION and Design Television Production in Class 41.
(S#:75/036,088)
- --------------------------------------------------------------------------------------------------------------
LAMAZE INSTITUTE Baby bath products, baby hygiene products and Intent to Use See
FOR FAMILY other products related to babies in Class 3; S#:75/036,090
EDUCATION and Design Baby nursing aids, nursing aids for mothers,
(S#:75/036,086) baby health care products and other products
relating to baby care in Class 10.
- --------------------------------------------------------------------------------------------------------------
LAMAZE INSTITUTE Printed publications relating to maternity, Intent to Use See
FOR FAMILY babies, children, health and family in Class 16; S#:75/036,090
EDUCATION and Design
(S#:75/036,086)
- --------------------------------------------------------------------------------------------------------------
LAMAZE INSTITUTE Indicating membership in an organization of Actual Use Subject to other
FOR FAMILY providers of prenatal and postnatal child care royalty basis, as
EDUCATION and Design goods or services in Class 200. applicable,
(Registration No. without duplicate
1,730,169) royalty obligation
- --------------------------------------------------------------------------------------------------------------
LAMAZE INSTITUTE Television Advertising for Others in Class 35; Intent to Use P. IV
FOR FAMILY Television Broadcasting in Class 38;
EDUCATION LAMAZE Television and Design Production in Class 41.
TELEVISION and Design
(S#:75/036,087)
- --------------------------------------------------------------------------------------------------------------
LAMAZE INSTITUTE Audio tapes, computer programs, video tapes, Intent to Use P. IV
FOR FAMILY motion picture films, and recording featuring
EDUCATION LAMAZE issues related to maternity, babies, children,
TELEVISION and Design health and family in Class 9;
(S#:75/036,085) Printed publications relating to maternity,
babies, children, health and family in Class 16.
- --------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
MARK GOOD/SERVICES INTENT TO ROYALTY
USE/ACTUAL BASIS*
USE
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
LAMAZE INSTITUTE Baby nursing aids, nursing aids for mothers, Intent to Use P. IV(D)
FOR FAMILY baby health care products and other products
EDUCATION LAMAZE relating to baby care in Class 10;
NURSING AIDS and
Design
(S#:75/036,089)
- --------------------------------------------------------------------------------------------------------------
LAMAZE INSTITUTE Mineral supplements and vitamins in Class 5. Intent to Use P. IV(D)
FOR FAMILY
EDUCATION LAMAZE
VITAMINS and Design
(S#:75/036,083)
- --------------------------------------------------------------------------------------------------------------
LAMAZE INSTITUTE Audio tapes, computer programs, video tapes, Intent to Use P. IV
FOR FAMILY motion picture films, and recording featuring
EDUCATION GROWTH- issues related to maternity, babies, children,
CHART and Design health and family in Class 9;
(S#:75/036,080) Printed publications relating to maternity,
babies, children, health and family in Class 16.
- --------------------------------------------------------------------------------------------------------------
LAMAZE INSTITUTE Audio tapes, computer programs, video tapes, Intent to Use P. IV
FOR FAMILY motion picture films, and recording featuring
EDUCATION LAMAZE issues related to maternity, babies, children,
LIBRARY and Design health and family in Class 9;
(S#:75/036,084) Printed publications relating to maternity,
babies, children, health and family in Class 16.
- --------------------------------------------------------------------------------------------------------------
LAMAZE INSTITUTE Baby bath products, baby hygiene products and Intent to Use P. IV(D)
FOR FAMILY and other products related to babies in Class 3;
EDUCATION LAMAZE Baby nursing aids, nursing aids for mothers,
BABYCARE and Design baby health care products and other products
(S#:75/036,090) relating to baby care in Class 10.
- --------------------------------------------------------------------------------------------------------------
LAMAZE INSTITUTE Printed publications relating to maternity, Intent to Use P. IV
FOR FAMILY babies, children, health and family in Class 16;
EDUCATION LAMAZE
BABYCARE and Design
(S#:75/036,090)
- --------------------------------------------------------------------------------------------------------------
LAMAZE BABY Magazines containing subject matter of interest Actual Use P. IV
MAGAZINE to parents and expectant parents in Class 16;
(Registration No.
1,883,545)
- --------------------------------------------------------------------------------------------------------------
LAMAZE PARENTS' Magazines containing subject matter of interest Actual Use P. IV
MAGAZINE to expectant parents in Class 16
(S#:75/297,353)
- --------------------------------------------------------------------------------------------------------------
</TABLE>
* Indicates the applicable royalty basis but LPC shall not be subject to
duplicative royalties for the same goods/services.
<PAGE>
EXHIBIT B
QUITCLAIM ASSIGNMENT OF MARKS TO ASPO
Whereas, Lamaze Publishing Company, a corporation incorporated in
Connecticut, the principal place of business of which 372 Danbury Road, Wilton,
Connecticut 06897 ("Lamaze Publishing") has used the marks identified on Exhibit
A hereto ("Marks");
Whereas, on May 13, 1996, Lamaze Publishing and the American Society
for Psychoprophylaxis in Obstetrics, Inc., a non-profit corporation incorporated
in New York, the principal place of business of which is 1200 19th Street, N.W.,
Suite 300, Washington, D.C. 20036 ("ASPO"), executed an Agreement under which
the Parties have agreed that Lamaze Publishing shall assign to ASPO any and all
right, title, and interest that Lamaze Publishing may possess in and to the
Marks identified in Exhibit A, hereto;
Therefore, for good and valuable consideration, receipt of which is
hereby acknowledged, Lamaze Publishing hereby transfers and assigns unto ASPO
all right, title, and interest it may possess in and to the Marks identified in
Exhibit A, hereto, together with the goodwill of the business in connection with
which such marks are used and which is symbolized by such marks, along with the
right to recover for damages and profits for past infringements thereof;
<PAGE>
IN WITNESS WHEREOF, Lamaze Publishing, a corporation incorporated in
Connecticut, has cause these presents to be executed by its duly authorized
officer this 13 day of May, 1996.
/s/ Junior Winokur
---------------------------
Dated: 5/13/96 By:
---------------------------
Name: Junior Winokur
Title: President
STATE OF CT )
--------------
) ss: Wilton
CITY/COUNTY OF Ffld )
--------
Sworn and subscribed to before me this 13 day of May, 1996.
/s/ Elizabeth A. Carpadona
---------------------------
Notary Public
My Commission Expires 2000
<PAGE>
EXHIBIT A
(To Assignment)
- --------------------------------------------------------------------------------
MARK GOOD/SERVICES
- --------------------------------------------------------------------------------
LAMAZEBABY MAGAZINE Magazines containing subject matter of interest
(Registration No. 1,883,545) to parents and expectant parents in Class 16.
- --------------------------------------------------------------------------------
LAMAZE PARENT'S MAGAZINE Magazines containing subject matter of interest
(S#:74/297,353) to expectant parents in Class 16.
- -------------------------------------------------------------------------------
<PAGE>
EXHIBIT B
QUITCLAIM ASSIGNMENT OF MARKS TO ASPO
Whereas, Lifetime Institute for Family Education, Inc., a corporation
incorporated in Connecticut, the principal place of business of which 372
Danbury Road, Wilton, Connecticut 06897 ("Lifetime Institute") has used the
marks identified on Exhibit A hereto ("Marks");
Whereas, on May 13, 1996, Lamaze Publishing and the American Society
for Psychoprophylaxis in Obstetrics, Inc., a non-profit corporation incorporated
in New York, the principal place of business of which is 1200 19th Street, N.W.,
Suite 300, Washington, D.C. 20036 ("ASPO"), executed an Agreement under which
the Parties have agreed that Lamaze Publishing shall assign to ASPO any and all
right, title, and interest that Lamaze Publishing may possess in and to the
Marks identified in Exhibit A, hereto;
Therefore, for good and valuable consideration, receipt of which is
hereby acknowledged, Lifetime Institute hereby transfers and assigns unto ASPO
all right, title, and interest it may possess in and to the Marks identified in
Exhibit A, hereto, together with the goodwill of the business in connection with
which such marks are used and which is symbolized by such marks, along with the
right to recover for damages and profits for past infringements thereof;
<PAGE>
IN WITNESS WHEREOF, Lifetime Institute, a corporation incorporated in
Connecticut, has cause these presents to be executed by its duly authorized
officer this 13 day of May, 1996.
/s/ Junior Winokur
--------------------------
Dated: 5/13/96 By:
----------------------------
Name: Junior Winokur
Title: President
STATE OF CT )
-------------
) ss: Wilton
CITY/COUNTY OF Ffld )
--------
Sworn and subscribed to before me this 13 day of May, 1996.
/s/ Elizabeth A. Carpadona
---------------------------
Notary Public
My Commission Expires 2000
<PAGE>
EXHIBIT A
(To Assignment)
- -------------------------------------------------------------------------------
MARK GOOD/SERVICES
- -------------------------------------------------------------------------------
LAMAZE INSTITUTE FOR Indicating membership in an organization
FAMILY EDUCATION and Design providers of prenatal and postnatal child
(Registration No. 1,730,169) care goods or services in Class 200.
- -------------------------------------------------------------------------------
<PAGE>
EXHIBIT C
EXCLUSIVE LICENSE AGREEMENT
This Exclusive Agreement (the "Agreement") is entered into and
effective May 6, 1996 between the American Society for Psychoprophylaxis in
Obstetrics, a New York non-profit corporation with principal place of business
at 1200 19th Street, N.W., Suite 300, Washington, D.C. 20036 ("ASPO/Lamaze") and
Lamaze Publishing Company, Inc., a Connecticut corporation with principal place
of business at 371 Danbury Road, Wilton, Connecticut 06897 ("LPC").
WHEREAS, ASPO/Lamaze asserts that it is the owner of the name "Lamaze"
and the parties hereto are parties to an August 2, 1990 LPM Agreement, as
amended (which agreement and all amendments thereto are hereafter collectively
referred to as the "LPM Agreement") under which ASPO/Lamaze provides LPC with
the exclusive right to publish consumer-oriented publications using the "Lamaze"
name subject to certain conditions on such use as are set forth in the LPM
Agreement;
WHEREAS, the parties hereto with to confirm LPC's exclusive license to
use of those "Lamaze" marks listed at Exhibit A hereto;
NOW, THEREFORE, in consideration of the LPM Agreement and of the mutual
promises contained herein and other good and valuable consideration, receipt of
which is hereby acknowledged, the parties hereto agree as follows:
1. ASPO/Lamaze hereby licenses to LPC the exclusive right to use those
"Lamaze" marks listed on Exhibit A hereto in connection with consumer
publications and other
<PAGE>
communications for as long as any of the Video Agreement, or the LPM Agreement,
or the Loan/Activity continue, and subject to the conditions on such use as are
set forth in the LPM Agreement.
ASPO/LAMAZE
By: /s/ Deborah Wooley
-------------------
Title: President
-----------------
Date: 5/6/96
------------------
LAMAZE PUBLISHING COMPANY, INC.
By: /s/ Junior Winokur
-------------------
Title: President
-----------------
Date: 5/13/96
------------------
<PAGE>
EXHIBIT A
(To License)
- --------------------------------------------------------------------------------
MARK GOOD/SERVICES
- --------------------------------------------------------------------------------
LAMAZE INSTITUTE FOR FAMILY Indicating membership in an organization of
EDUCATION and Design providers of prenatal and postnatal child care
(Registration No. 1,730,169) goods or services in Class 200.
- --------------------------------------------------------------------------------
LAMAZEBABY MAGAZINE Magazine containing subject matter of interest to
(Registration No. 1,883,545) parents and expectant parents in Class 16.
- --------------------------------------------------------------------------------
LAMAZE PARENTS' MAGAZINE Magazine containing subject matter of interest to
(S#:74/297,353) expectant parents in Class 16.
- --------------------------------------------------------------------------------
<PAGE>
Subsidiaries of the Registrant
Lamaze Publishing Company, Inc.
Online Psychological Services, Inc.
TWN, Inc.
KnowledgeWeb, Inc. d/b/a Astrology.Net
iBaby, Inc.
Health ResponseAbility Systems, Inc.
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-1 of our
report dated February 4, 1999, on our audits of the consolidated financial
statements of iVillage Inc. and Subsidiaries as of December 31, 1998 and 1997
and for the three years in the period ended December 31, 1998. We also consent
to the reference to our firm under the caption "Experts."
/s/ PricewaterhouseCoopers LLP
New York, New York
August 31, 1999
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-1 of our
report dated December 23, 1998, on our audits of the consolidated financial
statements of Health ResponseAbility Systems, Inc. as of December 31, 1995 and
1996 and for the two years in the period ended December 31, 1996. We also
consent to the reference to our firm under the caption "Experts."
/s/ PricewaterhouseCoopers LLP
New York, New York
August 31, 1999
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-1 of our
report dated January 29, 1999, on our audits of the consolidated financial
statements of KnowledgeWeb, Inc as of and for the years ended December 31, 1998
and 1997. We also consent to the reference to our firm under the caption
"Experts."
/s/ PricewaterhouseCoopers LLP
New York, New York
August 31, 1999
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-1 of our
report dated June 14, 1999, except for note 10, as to which the date is July 13,
1999, on our audits of the financial statements of Lamaze Publishing Company,
Inc. as of and for the years ended December 31, 1998 and 1997. We also consent
to the reference to our firm under the caption "Experts."
/s/ PricewaterhouseCoopers LLP
New York, New York
August 31, 1999
