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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 16, 1999
REGISTRATION NO. 333-68749
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 5
TO
FORM S-1
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
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iVILLAGE INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 7375 13-3845162
(STATE OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
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170 FIFTH AVENUE
NEW YORK, NEW YORK 10010
(212) 604-0963
(212) 604-9133 (FAX)
(ADDRESS AND TELEPHONE NUMBER 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) 604-0963
(212) 604-9133 (FAX)
(NAME, ADDRESS AND TELEPHONE NUMBER OF AGENT FOR SERVICE)
------------------------
Please send copies of all communications to:
MARTIN H. LEVENGLICK, ESQ. MARK G. BORDEN, ESQ.
RUBI FINKELSTEIN, ESQ. JAMES R. BURKE, ESQ.
ORRICK, HERRINGTON & SUTCLIFFE LLP HALE AND DORR LLP
30 ROCKEFELLER PLAZA 60 STATE STREET
NEW YORK, NEW YORK 10112 BOSTON, MASSACHUSETTS 02109
(212) 506-5000 (617) 526-6000
(212) 506-3730 (FAX) (617) 526-5000 (FAX)
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If the securities being registered on this form are to be offered on a
delayed or continuous basis pursuant to Rule 415 of the Securities Act of 1933,
as amended (the "Securities Act"), please check the following box. / /
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / / ____________
If this form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. / / ____________
If this form is a post-effective amendment filed pursuant to Rule
462(d) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. / / ____________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
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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 THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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<PAGE>
The information in this preliminary prospectus is not complete and may be
changed. These securities may not be sold until the registration statement
filed with the Securities and Exchange Commission is effective. This
preliminary prospectus is not an offer to sell nor does it seek an offer to buy
these securities in any jurisdiction where the offer or sale is not permitted.
Subject to Completion. Dated March 16, 1999.
[LOGO] 3,650,000 Shares
iVILLAGE INC.
Common Stock
------------------------
This is an initial public offering of shares of iVillage Inc. All of the
3,650,000 shares of common stock are being sold by iVillage. iVillage
anticipates that the initial public offering price will be between $22.00 and
$24.00 per share.
At the request of iVillage, the underwriters have reserved at the initial
public offering price up to 503,622 shares of common stock for sale to National
Broadcasting Company, Inc., Liberty Media Corporation and America Online, Inc.
Prior to this offering, there has been no public market for the common
stock. The common stock has been approved for quotation on the Nasdaq National
Market under the symbol "IVIL".
Please see "Risk Factors" beginning on page 7 to read about certain factors
you should consider before buying shares of the common stock.
------------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY OTHER REGULATORY
BODY HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
------------------------
Per Share Total
--------- -------
Initial public offering price............. $ $
Underwriting discount..................... $ $
Proceeds, before expenses, to iVillage.... $ $
The underwriters may, under certain circumstances, purchase up to an
additional 547,500 shares from iVillage at the initial public offering price
less the underwriting discount.
------------------------
The underwriters expect to deliver the shares against payment in New York,
New York on , 1999.
GOLDMAN, SACHS & CO.
CREDIT SUISSE FIRST BOSTON
HAMBRECHT & QUIST
------------------------
WIT CAPITAL CORPORATION
Facilitator of Internet distribution
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Prospectus dated , 1999.
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The inside front cover contains the following:
Picture of iVillage.com home page and other pages and arrows to indicate that
the site provides information, experts, personalized services, community,
integrated sponsors and transactions. Various other screens within iVillage's
Web sites.
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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.
This prospectus contains forward-looking statements based on our current
expectations, assumptions, estimates and projections about iVillage and our
industry. These forward-looking statements involve risks and uncertainties.
iVillage's actual results could differ materially from those anticipated in
these forward-looking statements as a result of certain factors, as more fully
described in the "Risk Factors" section and elsewhere in this prospectus.
iVillage undertakes no obligation to update publicly any forward-looking
statements for any reason, even if new information becomes available or other
events occur in the future.
iVILLAGE INC.
OUR BUSINESS
iVillage Inc. is a leading online women's network 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 49. We provide advertisers and
merchants with targeted access to women using the Web.
Our network of sites consists of 14 channels organized by subject matter.
The channels cover leading topics of interest to women online, such as family,
health, work, money, food, 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 December 31, 1998, iVillage's membership and its core audience was
82% female and consisted of approximately 960,000 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
month ended December 31, 1998, iVillage.com had approximately 65 million page
views and 2.7 million unique visitors. Page views are the total number of
complete pages retrieved and viewed by visitors to the iVillage network. 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 and that as of January 1998, women made up 45% of the
online population. 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
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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 substantial majority of our revenues.
We generate e-commerce revenues from sales through iBaby, Inc., an online
retailer of baby gifts and products, Knowledge Web, Inc. d/b/a Astrology.Net, an
Internet content provider, and agreements with leading merchants, including
Amazon.com, Inc. iVillage currently owns a majority interest in iBaby and has
agreed to acquire the minority interest in iBaby.
OUR STRATEGY
Our objective is to be the leading online women's network. Our strategy
includes:
o building strong brand recognition;
o aggressively growing membership and usage;
o enhancing and expanding the 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 recently signed agreements with
AOL, NBC and AT&T to provide both online and offline advertising.
OUR OFFICES
Our executive offices are located at 170 Fifth Avenue, New York, New York
10010. Our telephone number at that location is 212-604-0963 and our Internet
address is www.ivillage.com.
THE OFFERING
<TABLE>
<S> <C>
Shares offered by iVillage................... 3,650,000
Shares to be outstanding after this
offering(1)................................ 23,126,294
Nasdaq National Market symbol................ IVIL
Use of proceeds.............................. o Brand promotion;
o expansion of sales and marketing;
o acquisition of the minority interest in iBaby; and
o working capital and general corporate purposes,
including channel expansion and content development, expansion
and/or relocation of our offices and possible acquisitions. Please
see "Use of Proceeds".
</TABLE>
- ------------------------------
(1) Based on the number of shares actually outstanding on February 15, 1999.
Includes the shares issued or to be issued in connection with:
o the Astrology.Net acquisition;
o the acquisition of the iBaby minority interest; and
o the NBC agreement.
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SUMMARY CONSOLIDATED FINANCIAL DATA
The following table summarizes the financial data for our business.
iVillage acquired ParentsPlace.com, Inc. in December 1996 and Health
ResponseAbility Systems, Inc. in May 1997, and 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 YEAR ENDED DECEMBER 31,
(INCEPTION) TO ---------------------------------
DECEMBER 31, 1995 1996 1997 1998
----------------- ------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF
OPERATIONS DATA:
Revenues................. $ -- $ 732 $ 6,019 $ 15,012
------- ------- ---------- ----------
Operating expenses:
Production, product and
technology............. 629 4,521 7,606 14,521
Sales and marketing...... 329 2,709 8,771 28,523
General and
administrative......... 656 3,104 7,841 10,612
Depreciation and
amortization........... 17 109 2,886 5,683
------- ------- ---------- ----------
Total operating
expenses............. 1,631 10,443 27,104 59,339
------- ------- ---------- ----------
Loss from operations..... (1,631) (9,711) (21,085) (44,327)
Interest (expense)
income, net............ (7) 28 (216) 591
Loss on sale of Web
site................... -- -- -- (504)
Minority interest........ -- -- -- 586
------- ------- ---------- ----------
Net loss................. $(1,638) $(9,683) $ (21,301) $ (43,654)
------- ------- ---------- ----------
------- ------- ---------- ----------
Basic and diluted net
loss per share......... $ (1.51) $ (8.90) $ (13.65) $ (21.10)
------- ------- ---------- ----------
------- ------- ---------- ----------
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
------- ------- ---------- ----------
------- ------- ---------- ----------
Pro forma basic and
diluted net loss per
share.................. $ (2.59)
----------
----------
Shares of common stock
used in computing pro
forma basic and diluted
net loss per share..... 16,854
----------
----------
</TABLE>
The following table indicates a summary of our balance sheet at December
31, 1998:
o on an actual basis;
o on a pro forma basis giving effect to (a) the purchase of the minority
interest in iBaby, (b) the acquisition of Astrology.Net and (c) the
shares to be issued in connection with the NBC agreement; and
o on a pro forma as adjusted basis to reflect the sale of 3,650,000 shares
of common stock, after deducting underwriting discounts and commissions
and estimated offering expenses. Please see "Use of Proceeds",
"Capitalization" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Recent Events".
<TABLE>
<CAPTION>
DECEMBER 31, 1998
-----------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents....... $30,825 $21,929 $ 98,002
Working capital................. 19,919 10,848 86,922
Total assets.................... 46,791 69,032 145,106
Long-term liabilities........... -- 23 23
Stockholders' equity............ 32,022 53,951 130,024
</TABLE>
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iVillage(Registered), the iVillage logo, Parent Soup(Registered);
Astrology-dot-net(Registered); Astrozine(Registered); and
KnowledgeWeb(Registered) are registered marks of iVillage. Community Challenge;
Community Challenges; "iVillage.com. Honest Answers. For The Stuff That Really
Matters."; Armchair Millionaire; Parentsplace; and Parentsplace.com; are marks
of iVillage. iBaby and Internetbaby are marks of iBaby, Inc. All other
trademarks and service marks 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 assumes:
o the underwriters' over-allotment option is not exercised;
o the conversion of all outstanding shares of our convertible preferred
stock into 14,785,205 shares of common stock automatically upon the
closing of this offering;
o the effectiveness of a one-for-three reverse stock split of common stock
and the adjustment of par value to $.01 per share immediately prior to
the effective date of this prospectus; and
o assumes an initial public offering price of $23.00 per share;
and excludes as of February 22, 1999:
o a $22.0 million deemed non-cash dividend to NBC in connection with the
issuance of 4,889,030 shares of series E convertible preferred stock and
warrants to purchase up to 1,783,882 shares of series E convertible
preferred stock;
o 3,157,369 shares issuable upon the exercise of outstanding options and
warrants and an additional 161,333 shares expected to be issuable upon
the exercise of options that are to be granted prior to the effective
date of this prospectus; and
o 515,520 shares reserved for future issuance under our stock option
plans.
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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. An investor in our common stock must
consider 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, and $43.7 million for
the year ended December 31, 1998. As of December 31, 1998, our accumulated
deficit was $76.3 million. 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 assure you
that we will achieve sufficient revenues for profitability. Even if we do
achieve profitability, we cannot assure you that we can sustain or increase
profitability on a quarterly or annual basis in the future. If revenues grow
slower than we anticipate, or if operating expenses exceed our expectations or
cannot be adjusted accordingly, our business, results of operations and
financial condition will be materially and adversely affected. 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
During 1998, revenues from barter transactions represented approximately
20% of total revenues. 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
without any expenditure on our part of our cash resources. Please see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations".
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
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operations. We do not believe that period-to-period comparisons of our operating
results are necessarily meaningful nor should they be relied upon as 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 iVillage.com. 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 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. Furthermore, 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" and "Business--Sales, Marketing and Public Relations" for detailed
information on our quarterly operating results.
THE MARKET FOR INTERNET ADVERTISING IS UNCERTAIN
We expect to derive a substantial amount of our revenues from sponsorships
and advertising for the foreseeable future, and demand and market acceptance for
Internet advertising solutions is 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. It
is difficult to predict which, if any, 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.
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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 during
the time we are replacing these services. We are currently implementing
additional systems designed to record demographic data on 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 do not
perceive our measurements or measurements made by third parties to be reliable.
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 are currently experiencing a period
of significant growth. 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,
including our Chief Financial Officer, Chief Operating Officer, Senior Vice
President, Sponsorship, General Counsel, Vice President, Finance, Vice
President, Controller and Chief Accounting Officer and Senior Vice President,
Human Resources. In addition, we have recently hired a Chief Technology Officer
and plan to hire additional technical personnel. These individuals have not
previously worked together and are becoming integrated as a management team. As
a result, our senior managers 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 is currently carrying additional
competing 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 it. 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, announced a merger with 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. Please see "Certain Transactions".
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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 have, so far, depended on a limited number of customers for a
significant part of our revenues. Consequently, the loss of a number of these
customers at any one time may adversely affect our financial condition and
results of operations. For the year ended December 31, 1997, no one advertiser
accounted for greater than 10% of total revenues, but revenues from our five
largest advertisers accounted for 26% of total revenues. At December 31, 1997,
one advertiser accounted for 31% of net accounts receivable. Although no
advertiser accounted for more than 10% of total revenues for the year ended
December 31, 1998, our five largest advertisers accounted for 17% of total
revenues. At December 31, 1998, one advertiser accounted for 11% of net accounts
receivable.
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 BE ABLE TO INTEGRATE THE OPERATIONS FROM OUR RECENT ACQUISITION OF
ASTROLOGY.NET
We recently acquired KnowledgeWeb, Inc. d/b/a Astrology.Net. We could have
difficulty in assimilating its personnel, operations, technology and software.
In addition, the key personnel of Astrology.Net may decide not to work for us.
These difficulties could disrupt our ongoing business, distract our management
and employees, increase our expenses and adversely affect our results of
operations due to the amortization of goodwill.
WE MAY BE SUED FOR INFORMATION RETRIEVED FROM THE WEB
We may be subjected 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
site, 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 such 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 or to pay significant
damages. As a result, any
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such claims, whether or not successful, could seriously damage our reputation
and our business.
THERE IS INTENSE COMPETITION FOR INTERNET-BASED BUSINESS
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.
We 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, a joint venture between Women.com Networks and The Hearst
Corp., Microsoft Corporation's womencentral.msn.com, condenet.com 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.; 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. Please
see "Business--Competition".
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 customers' budgetary constraints;
o customers' 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. The loss
of the services of Mdmes. Carpenter or Evans, or other key employees, would
likely have a significantly detrimental effect on our business.
We have no employment agreements with either of these executives. We do not
maintain "key person" life insurance for any of our personnel, other than
Ms. Carpenter. Our future success also depends on our continuing to attract,
retain and motivate highly skilled employees.
COMPETITION FOR PERSONNEL IN OUR 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. If we do not succeed in
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<PAGE>
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.
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; and
o lack of availability of cost-effective, high-speed service.
If Internet usage grows, the Internet infrastructure may not be able to
support the demands placed on it by this growth and its performance and
reliability may decline. In addition, Web sites have experienced interruptions
in their service as a result of outages and other delays occurring throughout
the Internet network infrastructure. If these outages or delays frequently occur
in the future, Internet usage, as well as the usage of 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 service or infrastructures to adapt to these
changes.
GOVERNMENT REGULATION AND LEGAL UNCERTAINTIES COULD ADD ADDITIONAL COSTS TO
DOING BUSINESS ON THE INTERNET
There are currently few laws or regulations that specifically regulate
communications or commerce on the Internet. However, laws and regulations may be
adopted in the future that address issues such as user privacy, pricing, 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 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, libel and personal privacy are applicable to the
Internet. Any new laws or regulations relating to the Internet could adversely
affect our business.
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. Fire, floods, earthquakes, power loss,
telecommunications failures, break-ins and similar events could damage these
systems.
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<PAGE>
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 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. These could include claims for unauthorized
purchases with credit card information, impersonation or other similar fraud
claims. They could also include claims for other misuses of personal
information, such as for unauthorized marketing purposes. These claims could
result in litigation. 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.
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.
13
<PAGE>
WE COULD BE SUBJECT TO POSSIBLE INFRINGEMENT ACTIONS BASED UPON CONTENT LICENSED
FROM OTHERS
It is possible that we could become subject to infringement actions based
upon content we may license from third parties. Any of these claims, with or
without merit, could subject us to costly litigation and the diversion of our
financial resources and technical and management personnel. Further, if such
claims are successful, we may be required to change our trademarks, alter the
content, pay financial damages or obtain licenses from others.
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.
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.
WE ARE INVOLVED IN INTELLECTUAL PROPERTY DISPUTES AND CANNOT PREDICT THE
LIKELIHOOD OF AN UNFAVORABLE OUTCOME IN THE EVENT CLAIMS ARE ASSERTED
We 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 us 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 us
in the future with respect to the use of "PARENTSPLACE.COM" or "PARENTSPLACE",
either as currently used or as developed in the future. We are 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.
On January 28, 1999, an attorney for Dailey & O'Brien sent a formal cease
and desist letter, requesting that we stop using "MONEYLIFE" on our money
channel and provide certain information concerning our use of the term. On
February 22, 1999, a complaint was filed in the U.S. District Court for the
Eastern District of Virginia by Dailey & O'Brien alleging, among other things,
trademark infringement. On March 8, 1999, the complaint was dismissed by the
plaintiff. We have reached an agreement with Dailey & O'Brien granting us a
license to use the term "MONEYLIFE". There can be no assurance that other
entities are not using the term "MONEYLIFE". We are not able at this time to
evaluate the likelihood of an unfavorable outcome in the event that claims are
asserted by any other entity, or to estimate the amount or range of potential
loss.
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
14
<PAGE>
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".
OUR STOCK PRICE COULD BE EXTREMELY VOLATILE AND INVESTORS MAY NOT BE ABLE TO
RESELL THEIR SHARES AT OR ABOVE THE INITIAL PUBLIC OFFERING PRICE
We cannot predict the extent to which investor interest in iVillage will
lead to the development of a trading market or how liquid that market might
become. The initial public offering price for the shares will be determined by
negotiations between iVillage and the representatives of the underwriters and
may not be indicative of prices that will prevail in the trading market. The
stock market has experienced significant price and volume fluctuations, and the
market prices of technology companies, particularly Internet-related companies,
have been highly volatile. Investors may not be able to resell their shares at
or above the initial public offering price. Please see "Underwriting".
In the past, following periods of volatility in the market price of a
company's securities, securities class action litigation has often been
instituted. Litigation could result in substantial costs and a diversion of
management's attention and resources.
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 following this offering, or the perception that sales could occur, could
adversely affect the market price for our common stock. After this offering,
there will be outstanding 23,126,294 shares of our common stock. Of these
shares, the shares sold in this offering will be freely tradeable except for any
shares purchased by our "affiliates" as defined in Rule 144 under the Securities
Act. The remaining 19,476,294 shares of common stock held by existing
stockholders will be "restricted securities" and will become eligible for sale
only if registered or if they qualify for an exemption from registration under
Rules 144, 144(k) or 701 under the Securities Act. Upon expiration of lock-up
agreements with the underwriters, 180 days after the date of this prospectus,
12,560,636 shares of common stock will be eligible for resale in accordance with
the provisions of Rule 144 under the Securities Act. Please see "Shares Eligible
for Future Sale".
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<PAGE>
USE OF PROCEEDS
The net proceeds to iVillage from the sale of the shares of common stock
offered hereby are estimated to be $76.1 million, after deducting the estimated
underwriting discount and offering expenses payable by iVillage. If the
underwriters' over-allotment option is exercised in full, we estimate that net
proceeds will be $87.8 million.
iVillage presently intends to use a portion of the net proceeds from this
offering to promote its brand, expand sales and marketing and purchase the
minority interest in iBaby. The balance of the net proceeds of this offering
will be used for working capital and general corporate purposes, including
channel expansion and content development, expansion and/or relocation of its
offices and possible acquisitions. iVillage believes opportunities may exist to
expand its current business through acquisitions and may utilize a portion of
the proceeds for such purpose. In addition, iVillage may consider acquisitions
of complementary businesses. Except for the agreement with iBaby, Inc., iVillage
is not currently a party to any contracts or letters of intent with respect to
any acquisitions, and there can be no assurance that any of iVillage's expansion
plans will be realized or, if realized, will prove profitable for iVillage.
Please see "Management's Discussion and Analysis of Financial Condition and
Results of Operations". Pending such uses, the net proceeds of this offering
will be invested in short-term, interest-bearing, investment-grade securities.
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.
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<PAGE>
CAPITALIZATION
The following table sets forth iVillage's capitalization as of
December 31, 1998:
o on an actual basis after giving effect to the
one-for-three reverse common stock split;
o on a pro forma basis to reflect (a) the conversion of all of iVillage's
convertible preferred stock into common stock, (b) the purchase of the
minority interest in
iBaby, (c) the acquisition of Astrology.Net,
(d) the issuance of shares in connection with the NBC agreement and
(e) the filing of a charter amendment effective upon the closing of this
offering authorizing blank check preferred stock; and
o on a pro forma as adjusted basis to reflect the estimated net proceeds
from the sale of the common stock offered by iVillage after deducting the
estimated underwriting discount and offering expenses payable by
iVillage. Please see "Use of Proceeds".
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>
DECEMBER 31, 1998
------------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
----------- ------------ -----------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C>
Long-term liabilities.............. $ -- $ 23 $ 23
Stockholders' equity:
Series A convertible preferred
stock, par value $.0005;
1,000,000 shares authorized,
issued and outstanding
(actual); no shares authorized,
issued or outstanding (pro
forma and pro forma as
adjusted)...................... 1 -- --
Series B and B-1 convertible
preferred stock, par value
$.0005; 5,929,846 shares
authorized, 4,777,746 shares
issued and outstanding
(actual); no shares authorized,
issued or outstanding (pro
forma and pro forma as
adjusted)...................... 2 -- --
Series C convertible preferred
stock, par value $.0005;
13,528,762 shares authorized,
13,193,445 shares issued and
outstanding (actual); no shares
authorized, issued or
outstanding (pro forma and pro
forma as adjusted)............. 7 -- --
Series D convertible preferred
stock, par value $.0005;
13,000,000 shares authorized,
issued and outstanding
(actual); no shares authorized,
issued or outstanding (pro
forma and pro forma as
adjusted)...................... 6 -- --
Series E convertible preferred
stock, par value $.0005;
18,953,616 shares authorized,
11,730,948 shares issued and
outstanding (actual); no shares
authorized, issued or
outstanding (pro forma and pro
forma as adjusted)............. 6 -- --
Preferred stock, par value $.01;
no shares authorized, issued or
outstanding (actual); 5,000,000
shares authorized, no shares
issued or outstanding (pro
forma and pro forma as
adjusted)...................... -- -- --
Common stock, par value $.01;
65,000,000 shares authorized,
2,113,385 shares issued and
outstanding, (actual);
19,461,294 and 23,111,294
shares issued and outstanding,
pro forma and pro forma as
adjusted, respectively(1)...... 21 195 231
Additional paid-in capital....... 112,848 150,336 226,373
Accumulated deficit.............. (76,275) (76,275) (76,275)
Stockholders notes receivable.... (565) (16,065) (16,065)
Unearned compensation and
deferred advertising........... (4,029) (4,029) (4,029)
----------- ------------ ---------
Total stockholders' equity....... 32,022 54,162 130,235
----------- ------------ ---------
Total capitalization............. $ 32,022 $ 54,185 $ 130,258
----------- ------------ ---------
----------- ------------ ---------
</TABLE>
- ------------------------------
(1) Based on the number of shares actually outstanding on December 31, 1998.
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DILUTION
The pro forma net tangible book value of iVillage as of December 31, 1998
was approximately $18.5 million, or approximately $0.95 per share of common
stock. Pro forma net tangible book value per share represents the amount of
iVillage's total tangible assets less total liabilities, divided by the pro
forma number of shares of common stock outstanding after giving effect to:
o the purchase of the minority interest in iBaby;
o the acquisition of Astrology.Net; and
o the shares to be issued in connection with the NBC agreement.
After giving effect to the sale of the common stock offered by iVillage hereby
and after deducting the estimated underwriting discount and offering expenses
payable by iVillage, the pro forma net tangible book value of iVillage, as
adjusted, as of December 31, 1998 would have been approximately $94.6 million,
or $4.09 per pro forma share of common stock. This represents an immediate
increase in net tangible book value of $3.14 per share to iVillage's existing
stockholders and an immediate dilution in net tangible book value of $18.91 per
share to new investors of common stock in this offering. If the initial public
offering price is higher or lower, the dilution to the new investors will be
greater or less, respectively. The following table illustrates this per share
dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price............. $23.00
Pro forma net tangible book value per share prior
to this offering................................ $ 0.95
Increase per share attributable to this
offering........................................ 3.14
--------
Adjusted pro forma net tangible book value per
share after this offering....................... 4.09
------
Dilution per share to new investors(1)............ $18.91
------
------
</TABLE>
- ------------------------------
(1) Assuming the exercise in full of the underwriters' over-allotment option,
the pro forma net tangible book value of iVillage at December 31, 1998 would
have been approximately $4.49 per share, representing an immediate increase
in net tangible book value of $3.54 per share to iVillage's existing
stockholders and an immediate dilution in net tangible book value of $18.51
per share to new investors.
------------------------
The following table summarizes, on a pro forma basis, as of December 31,
1998, the number of shares of common stock purchased from iVillage, the total
consideration provided to iVillage and the average price per share provided by
existing stockholders and giving effect to:
o the purchase of the minority interest in iBaby;
o the acquisition of Astrology.Net;
o the issuance of shares in connection with the NBC agreement; and
o the sale of shares to investors in this offering.
The calculation below is based on an assumed initial public offering price of
$23.00 per share, before deducting the estimated underwriting discount and
offering expenses payable by iVillage.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
------------------------ -------------------------- PRICE PER
NUMBER PERCENTAGE AMOUNT PERCENTAGE SHARE
---------- ---------- ------------ ---------- ---------
<S> <C> <C> <C> <C> <C>
Existing Stockholders... 19,461,294 84.2% $147,178,710 63.7% $ 7.56
New Investors........... 3,650,000 15.8 83,950,000 36.3 $ 23.00
---------- ------ ------------ ------
Total.............. 23,111,294 100.0% $231,128,710 100.0%
---------- ------ ------------ ------
---------- ------ ------------ ------
</TABLE>
------------------------
This discussion and table assumes no exercise of options outstanding under
iVillage's 1995 Amended and Restated Employee Stock Option Plan and the 1997
Amended and Restated Acquisition Stock Option Plan and no issuance of shares
reserved for future issuance under iVillage's 1999 Employee Stock Option Plan,
1999 Acquisition Stock Option Plan, 1999 Director Option Plan and 1999 Employee
Stock Purchase Plan. As of December 31, 1998, there were options outstanding to
purchase a total of 2,175,391 shares of common stock at a weighted average price
of $6.10 per share and 425,998 shares issuable upon exercise of outstanding
warrants with a weighted average exercise price of $6.54 per share. To the
extent that any of these options are exercised, there will be further dilution
to new investors. Please see "Capitalization", "Management--Stock Option Plans",
"--1999 Employee Stock Purchase Plan" and note 6 and note 9 to iVillage's
consolidated financial statements.
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<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and 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
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 herein. The historical results presented
here are not necessarily indicative of future results.
<TABLE>
<CAPTION>
JULY 1, 1995
(INCEPTION)
TO YEAR ENDED DECEMBER 31,
DECEMBER 31, -----------------------------
1995 1996 1997 1998
------------ ------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF
OPERATIONS DATA:
Revenues................. $ -- $ 732 $ 6,019 $ 15,012
-------- ------- -------- --------
Operating expenses:
Production, product and
technology........... 629 4,521 7,606 14,521
Sales and marketing.... 329 2,709 8,771 28,523
General and
administrative....... 656 3,104 7,841 10,612
Depreciation and
amortization......... 17 109 2,886 5,683
-------- ------- -------- --------
Total operating
expenses........... 1,631 10,443 27,104 59,339
-------- ------- -------- --------
Loss from operations..... (1,631) (9,711) (21,085) (44,327)
Interest (expense)
income, net............ (7) 28 (216) 591
Loss on sale of Web
site(1)................ -- -- -- (504)
Minority interest........ -- -- -- 586
-------- ------- -------- --------
Net loss................. $ (1,638) $(9,683) $(21,301) $(43,654)
-------- ------- -------- --------
-------- ------- -------- --------
Basic and diluted net
loss per share......... $ (1.51) $ (8.90) $ (13.65) $ (21.10)
-------- ------- -------- --------
-------- ------- -------- --------
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
-------- ------- -------- --------
-------- ------- -------- --------
Pro forma basic and
diluted net loss per
share(2)............... $ (2.59)
--------
--------
Shares of common stock
used in computing pro
forma basic and diluted
net loss per
share(2)............... 16,854
--------
--------
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------
1995 1996 1997 1998
----- ------ ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents....... $ 162 $2,102 $ 4,335 $30,825
Working capital (deficit)....... (715) 1,006 1,114 19,919
Total assets.................... 275 4,997 16,236 46,791
Long-term liabilities........... -- -- 139 --
Stockholders' equity
(deficit)..................... (629) 3,259 10,522 32,022
</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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<PAGE>
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. iVillage's actual results could differ materially from those
anticipated by such forward-looking information due to competitive factors,
risks associated with iVillage's expansion plans and other factors discussed
under "Risk Factors" and elsewhere in this prospectus.
OVERVIEW
The iVillage network, iVillage.com, provides an easy-to-use, comprehensive
online network of sites tailored to the interests and needs of women using the
Internet. iVillage.com consists of 14 channels organized by subject matter. The
channels cover leading topics of interest to women online, such as family,
health, work, money, food, 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 80% of total revenues for the year ended December 31, 1998.
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 are 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. 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, 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 throughout
iVillage's Web sites or for targeted audiences and properties within specific
areas of iVillage.com. Advertising revenues are recognized ratably in the period
in which the advertisement is displayed, provided that no significant iVillage
obligations remain, at the lesser of the ratio of impressions delivered over
total guaranteed impressions or the straight line basis over the term of the
contract. To the extent that minimum guaranteed impressions are not met,
iVillage defers recognition of the corresponding revenues until the guaranteed
impressions are achieved.
Sponsorship and advertising revenues also include barter revenues, which
represent an exchange 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 lower of
the estimated fair value of the advertisements delivered, unless the fair value
of the goods and services received is more objectively
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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. 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. Barter revenues increased from approximately
$0.6 million in 1997 to approximately $2.5 million in 1998 because of the
increased acceptance of barter for online advertising in the Internet industry.
iVillage anticipates that barter revenues will continue to increase in the
future although they will decrease as a percentage of total revenues if iVillage
successfully executes its business strategy. iVillage believes that it must
replace barter revenues with cash revenues to fund its operations.
Commerce revenues are derived principally from sales through iBaby, a
majority-owned joint venture with Kid's Warehouse. Commerce revenues received
from iBaby consist of the sale of baby-related products, including strollers,
high chairs, bedding, toys and accessories. Kid's Warehouse presently carries
the inventory for iBaby. iBaby takes orders for iBaby products, collects the
payment and ships the items to the customer. iVillage recognizes revenues from
iBaby product sales, net of any discounts, when products are shipped to
customers and the collection of the receivable is reasonably assured.
On December 9, 1996, iVillage acquired all of the outstanding stock of
ParentsPlace.com, Inc., an Internet content provider, in exchange for 66,666
shares of iVillage's common stock.
In May 1997, iVillage completed the acquisition of Health ResponseAbility
Systems, Inc., an Internet content provider, in exchange for $2.6 million in
cash, 433,400 shares of iVillage's common stock and cash amounts contingent on
future performance levels of Health ResponseAbility Systems and iVillage. In
addition, iVillage issued to AOL 203,000 shares of common stock in exchange for
the release of all equity rights in Health ResponseAbility Systems held by AOL.
The goodwill recorded of approximately $6.0 million is being amortized over a
three-year period. In January 1998, iVillage agreed to pay approximately $1.6
million to the prior owners of Health ResponseAbility Systems in a final
settlement of the cash amounts contingent on future performance levels, as
stipulated in the agreement for the acquisition of Health ResponseAbility
Systems. This amount was recorded as additional goodwill and is being amortized
over the remaining goodwill amortization period.
In September 1997, iVillage acquired substantially all of the assets of
StudentCenter LLC, an Internet content provider, for $125,000 and the issuance
of options to purchase 41,666 shares of common stock at $5.10 per share. In
addition, iVillage 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. In connection with the
sale of iVillage's About Work content channel in May 1998, iVillage sold the
assets of StudentCenter. At the time of the sale, iVillage paid the former
owners of StudentCenter $520,000 and issued options to purchase an additional
33,333 shares of common stock at $5.10 per share as settlement of all revenue-
based and other bonus payments.
In April 1998, iVillage entered into a joint venture agreement with
Ourbaby, LLC, a California limited liability company, to form iBaby. iVillage
purchased 1,000,000 of the 1,666,666 shares outstanding of iBaby for $1,350,000
and for the delivery of certain promotional rights, including impressions on
iVillage.com.
Since the formation of iBaby in April 1998, the accounts of iBaby have been
consolidated into iVillage's financial statements, as iVillage holds a majority
interest and control of iBaby.
In May 1998, iVillage entered into a production and asset sale agreement
with TMP Worldwide Inc., or TMP, for one of its content channels, About Work,
and the assets of StudentCenter, in exchange for net proceeds of $600,000. In
connection with this sale, iVillage reported a loss of approximately $504,000
due
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to the bonus payment, the options issued to StudentCenter, the write-off of
remaining goodwill and the accrual for AOL carriage fees to be paid on behalf of
TMP for About Work.
An additional $575,000 was received in exchange for production, sponsorship
and consulting services provided to TMP during 1998. The agreement also required
a $600,000 reimbursement payment to be made to iVillage for maintaining the
About Work tenancy on AOL. In the event the About Work channel is not carried on
AOL through iVillage's distribution agreement, this reimbursement payment will
not be made.
On November 11, 1998, iVillage entered into an agreement with National
Broadcasting Company, Inc., or NBC, which is being amended, pursuant to which
iVillage will advertise primarily in prime time on NBC television as well as on
Snap.com and NBC.com over the next three years. In addition, NBC will acquire
4,889,030 shares of series E convertible preferred stock of iVillage. Please see
"--Recent Events".
iVillage 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 iVillage's online service brands, the
rejection of iVillage's services by Web consumers, vendors and/or advertisers,
the inability of iVillage to maintain and increase the levels of traffic on its
online services, as well as other risks and uncertainties. In the event that
iVillage does not successfully implement its business plan, certain assets may
not be recoverable.
iVillage has incurred significant net losses and negative cash flows from
operations since its inception, and as of December 31, 1998, had an accumulated
deficit of approximately $76.3 million. These losses have been funded primarily
through the issuance of preferred equity securities. iVillage intends to
continue to invest heavily in marketing and promotion, content development and
technology and infrastructure development. As a result, iVillage believes that
it will continue to incur operating losses and negative cash flows from
operations for the foreseeable future and that the rate at which such losses
will be incurred may increase from current levels.
RESULTS OF OPERATIONS
The following table sets forth the results of operations for iVillage
expressed as a percentage of total revenues:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Revenues........................... 100% 100% 100%
------ ---- ----
Operating expenses:
Production, product and
technology.................... 618 126 97
Sales and marketing.............. 370 146 190
General and administrative....... 424 130 71
Depreciation and amortization.... 15 48 38
------ ---- ----
Total operating expenses...... 1,427 450 396
------ ---- ----
Loss from operations............... (1,327) (350) (295)
------ ---- ----
------ ---- ----
Net loss........................... (1,323)% (354)% (291)%
------ ---- ----
------ ---- ----
</TABLE>
COMPARISON OF YEARS ENDED DECEMBER 31, 1998 TO 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
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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. iVillage expects revenues to grow in 1999 due to a
full year of iBaby activity and the acquisition of Astrology.Net.
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 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.
OPERATING EXPENSES
PRODUCTION, PRODUCT AND TECHNOLOGY. Production, product and technology
expenses consist primarily of salaries, payroll taxes and benefits and
expenditures related to editorial content, community management and support
personnel, technology, software development and operations expenses, and product
costs related to merchandise sales. Production, product and technology expenses
increased to $14.5 million, or 97% of revenues, for the year ended December 31,
1998 from $7.6 million, or 126% of revenues, for the year ended December 31,
1997. The dollar increase was primarily attributable to increased personnel
costs related to enhancing the content and functionality of iVillage's Web sites
which increased by $2.7 million, and product costs of $2.1 million arising from
commerce transactions that did not exist in 1997. Production, product and
technology expenses decreased as a percentage of revenues because of the
increased growth in revenues relative to the growth in iVillage's cost
structure. iVillage believes that significant investments in technology and
product development are required to remain competitive and, therefore, expects
that its production, product and technology expenses will continue to increase
in absolute dollars for the foreseeable future.
SALES AND MARKETING. Sales and marketing expenses consist primarily of
costs of distribution agreements, salaries, payroll taxes and benefits for sales
and marketing personnel, commissions, advertising and other marketing related
expenses. 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 and higher advertising and sales
personnel expenses of about $3.0 million. iVillage has invested heavily in
distribution arrangements in the past twelve months and currently has agreements
with AOL, Snap and Infoseek. Sales and marketing expenses as a percentage of
revenues increased due to iVillage's branding campaign and distribution
agreements. 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 consist
primarily of salaries, payroll taxes and benefits and related
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costs for general corporate functions, including executive management, finance,
facilities, legal and fees for other professional services. 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.
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 the year.
MINORITY INTEREST
Minority interest represents the portion of the net loss of iBaby
attributable to minority stockholders.
INCOME TAXES
As of December 31, 1998, iVillage had approximately $69.9 million of
federal net operating loss carryforwards for 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.
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
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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.
OPERATING EXPENSES
PRODUCTION, PRODUCT AND TECHNOLOGY. Production, product and technology
expenses were $7.6 million, or 126% of revenues, and $4.5 million, or 618% of
revenues, for the years ended December 31, 1997 and 1996, respectively. The
increase in production, product and technology expenses was primarily
attributable to increases in personnel and related costs to support enhancement
of iVillage's Web site technology and content. Production, product and
technology expenses as a percentage of revenues have decreased because of the
growth in revenues.
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 have 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 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 have decreased because of
the growth in revenues.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expenses
increased to $2.9 million, or 48% of revenues, for the year ended December 31,
1997 from $0.1 million, or 15% of revenues, for the year ended December 31,
1996. The dollar increase was primarily attributable to purchases of fixed
assets of approximately $4 million and acquisitions of Web sites for
approximately $2.9 million during the year ended December 31, 1997.
INTEREST (EXPENSE) INCOME, NET
Interest (expense) income, net was approximately $216,000 expense and
$28,000 income for the years ended December 31, 1997 and 1996, respectively. The
increase in interest (expense) income, net for the year ended December 31, 1997
was primarily due to warrants issued in connection with the receipt of bridge
financing resulting in an interest charge of approximately $334,000.
RECENT EVENTS
Under a prior agreement with iBaby and other parties, on February 10, 1999,
iVillage entered into a definitive agreement to purchase all of the outstanding
shares of iBaby held by the minority stockholders of iBaby for an aggregate
purchase price of approximately $11.0 million. The purchase price consisted of
$8 million in cash, of which $1.5 million was paid on February 12, 1999 and the
remaining $6.5 million is payable within two business days of the closing of
this offering, and an aggregate number of shares of iVillage common stock having
an aggregate value of $3.0 million. The number of shares of iVillage common
stock to be issued to the minority stockholders will be dependent upon the price
per share of common stock in this offering. In addition, subject to its existing
agreements with respect to registration rights, iVillage granted piggyback
registration rights in connection with the shares of iVillage common stock to be
issued pursuant to the agreement.
If this offering is not completed by May 31, 1999, the agreement with iBaby
gives iVillage the right to purchase the outstanding shares of iBaby held by the
minority stockholders for an aggregate purchase price of $9.3 million. To
maintain this right, iVillage must give the minority stockholders written notice
of its intent to purchase their shares by April 15, 1999 and make a
non-refundable $1 million payment to
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the minority stockholders as a credit towards the remaining $9.3 million
purchase price.
If the shares held by the minority stockholders of iBaby are not purchased
by iVillage, the non-refundable payment will be forfeited and the terms of the
existing agreement between iBaby and iVillage will remain in effect.
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's common stock and $1 million in cash.
The agreement provides for employment, non-compete and stock option agreements
for the founding stockholders of Astrology.Net.
The terms of the agreement provide 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, iVillage issued to the founding
stockholders of Astrology.Net options to purchase 150,000 shares of iVillage
common stock at an exercise price equal to the initial public offering price of
the common stock in this offering. These options, which are contingent on
continued employment with Astrology.Net, vest over a period of seven years, with
accelerated vesting dependent on Astrology.Net meeting revenue targets. iVillage
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 iVillage 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 $20.1 million based on a value of iVillage's
common stock of $23.00 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.
On March 9, 1999, iVillage and NBC entered into an agreement to amend,
subject to closing conditions, the November 11, 1998 advertising and promotional
agreement with NBC as follows:
a. 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.
b. Upon closing, iVillage will issue, subject to anti-dilution protection,
4,889,030 shares of series E convertible preferred stock and warrants to
purchase up to 970,874 shares of series E convertible preferred stock at
$5.15 per share during 2000 and 813,008 shares at $6.15 per share during
2001 in exchange for a promissory note in the approximate amount of
$15.5 million 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.
c. iVillage has also agreed to pay $1.1 million during 1999 for prominent
placement on the NBC.com Web site.
Under the revised agreement and in accordance with Emerging Issues Task
Force No. D-60 "Accounting for the Issuance of Convertible Preferred Stock and
Debt Securities with a Nondetachable Conversion Feature", the $22.0 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. iVillage
expects this to occur in March 1999 with the effectiveness of its initial public
offering. In addition, the fair value of the warrant as of March 9, 1999, of
approximately $7.9 million, will be recorded in stockholders' equity as deferred
advertising costs and
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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 Statement of Financial Standards No.
123, "Accounting for Stock-Based Compensation".
We have recently been approached by a potential purchaser for the assets
associated with Armchair Millionaire, a site located within 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 or
results of operations.
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; 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 each of the eight quarters during the years ended
December 31, 1997 and 1998. 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 of iVillage and the notes to those
statements appearing elsewhere in this prospectus.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
--------------------------------------------------------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
1997 1997 1997 1997 1998 1998 1998 1998
--------- -------- ------------- ------------ --------- -------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues....................... $ 891 $ 1,253 $ 1,518 $ 2,357 $ 2,200 $ 2,638 $ 4,288 $ 5,886
------- -------- ------- -------- --------- -------- --------- --------
Production, product and
technology................. 1,507 1,745 1,905 2,449 2,657 3,766 3,985 4,113
Sales and marketing.......... 1,507 1,957 1,935 3,372 4,870 7,184 7,877 8,592
General and administrative... 996 2,216 1,967 2,662 2,145 2,061 3,606 2,800
Depreciation and
amortization............... 510 687 1,034 655 1,120 1,538 1,386 1,639
------- -------- ------- -------- --------- -------- --------- --------
Total operating expenses... 4,520 6,605 6,841 9,138 10,792 14,549 16,854 17,144
------- -------- ------- -------- --------- -------- --------- --------
Loss from operations........... $(3,629) $ (5,352) $(5,323) $ (6,781) $ (8,592) $(11,911) $ (12,566) $(11,258)
------- -------- ------- -------- --------- -------- --------- --------
------- -------- ------- -------- --------- -------- --------- --------
</TABLE>
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LIQUIDITY AND CAPITAL RESOURCES
Since its inception, iVillage has financed its operations primarily through
the private placement of its convertible preferred stock. As of December 31,
1998, iVillage had approximately $30.8 million in cash and cash equivalents.
Net cash used in operating activities increased to $32.3 million for the
year ended December 31, 1998 from $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 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 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 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'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;
o the resources iVillage devotes to marketing;
o selling its services and brand promotions; and
o other factors.
iVillage has experienced a substantial increase in its expenditures since
its inception consistent with growth in iVillage's operations and staffing, and
anticipates that this will continue for the foreseeable future. Additionally,
iVillage will continue to evaluate possible investments in businesses, products
and technologies, and plans to expand its sales and marketing programs and
conduct more aggressive brand promotions. iVillage currently anticipates that
its available cash resources combined with the net proceeds from this offering
will be sufficient to meet its anticipated needs for working capital and capital
expenditures for at least the 12 months following the date of this prospectus.
We may need to raise additional funds, however, in order to fund more rapid
expansion, to develop new or enhance existing services or products, to respond
to competitive pressures or to acquire complementary products, businesses or
technologies. If additional funds are raised through the issuance of equity or
convertible debt securities, the percentage ownership of our stockholders will
be reduced, our stockholders may experience additional dilution and such
securities may have rights, preferences or privileges senior to those of our
stockholders. We cannot assure you that additional financing will be available
on terms favorable to us, or at all. If adequate funds are not available or are
not available on acceptable terms, our ability to fund our expansion, take
advantage of unanticipated opportunities, develop or enhance services or
products or otherwise respond to competitive pressures would be significantly
limited. Our business, results of operations and financial condition could be
materially adversely affected by such limitation.
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
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requirement to capitalize specified costs and amortization of such costs.
iVillage does not expect the adoption of this standard to have a material 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 is not expected
to 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 as derivatives) and for hedging
activities. SFAS No. 133 is effective for all fiscal quarters of fiscal years
beginning after June 15, 1999. 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 such Year 2000 requirements or risk system
failure or miscalculations causing disruptions of normal business activities.
STATE OF READINESS
iVillage has made a preliminary 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 or replacement requirements;
o implementing repair or replacement;
o implementation; and
o creating contingency plans in the event of Year 2000 failures.
iVillage's Year 2000 task force is currently conducting an inventory of and
developing 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 we use, a significant part of
this effort will be to ensure that these third-party systems are Year 2000
compliant. We plan 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.
COSTS
To date, iVillage has spent an immaterial amount on Year 2000 compliance
issues but expects to incur an additional $350,000 to $500,000 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
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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 INC.
iVillage is a leading online women's network 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 49. We provide advertisers and
merchants with targeted access to women using the Web.
iVillage's network of sites consists of 14 channels organized by subject
matter. The channels cover leading topics of interest to women online, such as
family, health, work, money, food, 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 December 31, 1998, iVillage's membership and its core audience was
82% female and consisted of approximately 960,000 unique members as compared to
approximately 170,000 unique members as of January 31, 1998. For the month ended
December 31, 1998, iVillage.com had approximately 65 million page views and
2.7 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 to 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 at the end of 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 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
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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 WOMEN'S NETWORK
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.
THE iVILLAGE SOLUTION
iVillage.com is one of the largest online women's networks 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 49. 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; and
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. This program enables women
to work together towards breaking the cycle of dieting and weight gain.
iVillage.com also offers daily polls that provide women with an immediate sense
of belonging and connection.
iVillage.com offers a consistent navigation and programming experience
across all
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channels and functions. Each channel is organized in a consistent manner around
tools, experts, resources and community. During December 1998, iVillage.com's
home page on both the Internet and AOL provided users with links each week to
approximately 50 experts, 700 chats and 1,500 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 1,000 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 5.9 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; and
o e-commerce.
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. 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 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 TV and 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
its content and has arranged to publish four books under the Parent Soup brand
in order to reach offline audiences.
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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.
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. iVillage has recently increased the size 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;
o are appropriate for the Internet; and
o fit with a current or complementary 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. iVillage
also plans to create relationships with key retailers and manufacturers
interested in building new channels while protecting their core distribution
channels. 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.
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 February 22, 1999:
<TABLE>
<CAPTION>
CHANNEL DESCRIPTION
- ------- -----------
<S> <C>
[logo reading A site providing users with horoscopes, celebrity
"astrology net"] profiles, romance charts and monthly guidance.
[logo reading A book and reading site for readers interested in a
"book club"] 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.
[logo reading A career planning site that provides women with tools
"career"] and resources relating to professional development and
career-related issues.
[logo reading A fitness and beauty site which includes Body
"fitness & beauty"] Calculators, Nutrition Experts and Community Challenges
to improve one's fitness level.
[logo reading A food site providing information on meal planning,
"food"] nutrition and recipes and includes Food Experts and
Cooking Basics.
[logo reading A health site to assist users in becoming better health
"health"] care decision makers that includes on AOL and the Web,
approximately 200 bulletin boards and approximately 150
weekly chats on AOL.
[logo reading A financial planning site providing users with
"MONEY"] information on savings and investment strategies and
includes Five Steps to Financial Freedom, The Model
Portfolio and an investment center sponsored by Charles
Schwab.
[logo reading A parenting site providing users with a branded online
"parents up"] community where parents share parenting solutions, talk
with experts and find answers and support.
[logo reading A parenting community center site that includes, on AOL
"Parents Place"] and the Web, approximately 700 bulletin boards and
approximately 80 weekly chats in addition to
information regarding childhood diseases.
[logo reading A site designed in partnership with Ralston Purina
"pets"] 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.
</TABLE>
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<TABLE>
<S> <C>
[logo reading A site offering users information and conversation on
"relationships"] love, marriage, sex and family.
[logo reading A one-stop online shopping destination offering users
"shopping"] easy access to retail Web sites such as Virtual
Vineyards, Gymboree, Music Boulevard, Godiva and iBaby.
[logo reading A travel site that offers tools for planning a
"travel"] vacation, articles on travel-related issues, a link to
a travel reservation center and a currency converter.
[logo reading A site providing women who work from home with tools
"work from home"] and resources such as Home Office Basics, a Tax Guide
and a Software Library.
</TABLE>
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 on-site
and 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, 1998
and December 31, 1997, sponsorship and advertising revenues represented 80% and
93%, 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, online research and the integration
of advertising with editorial content. 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 allow
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 are typically exclusive and are
for a period of one to three years.
To a lesser extent, iVillage also derives a 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 has recently created a discrete sales force to
concentrate on banner advertising, which is sold primarily through agencies. As
a result of its sales and advertising strategy, iVillage believes that it has
CPMs significantly above the industry average, and above the reported average
for other women's sites.
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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. No advertiser accounted for more than 10%
of iVillage's revenues during either year. The following is a select list of
iVillage's advertisers:
Amazon.com, Inc.
Astra Pharmaceuticals, L.P.
Charles Schwab & Co., Inc.
First USA, Inc.
Ford Motor Media
Glaxo Wellcome Inc.
Green Tree Nutrition, Inc.
Kimberly-Clark Corporation
MovieStreet, Inc.
MyBasics.com
Ortho-McNeil, Ortho Dermatological & McNeil-PPC, Inc.
The Hertz Corporation
Westpoint Stevens, Inc.
MEMBERSHIP
iVillage believes a large and active membership base is critical to its
success. Membership is free and available to iVillage.com visitors who disclose
their name, e-mail address, zip code, age 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.
Some features of iVillage's Web sites are restricted to members. E-mail,
instant messaging, community challenges, message boards and chats are examples
of members-only benefits. In addition, within the Health 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. When a user registers as an iVillage.com member, iVillage
requests the user to provide, among other things, his or her name, address,
e-mail address, zip code, gender and a private password. 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.
E-COMMERCE
OVERVIEW
iVillage has identified the opportunity to generate new commerce revenues
by selling products or services that:
o have a high degree of relevance to its members;
o fit within a current content area or provide an opportunity for future
development; and
o are appropriate for the Internet.
iVillage also generates commerce revenues through agreements with leading
merchants from which iVillage collects a fixed fee and a share of sales from its
users.
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iBABY
iBaby offers more than 14,000 products from over 500 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 25 full-time employees as of January 31, 1999. Please see note 5 of notes to
iVillage's consolidated financial statements.
iBaby targets parents through newsletters, message boards, content
integration and banner ads. iBaby has distribution agreements with online
services such as AOL and the Microsoft Network.
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. This arrangement is expected to continue at least for an additional
year after iVillage's acquisition of the minority interest in iBaby. Although
iBaby holds no inventory, iVillage anticipates that it may maintain in the
future an inventory of a small amount of the most popular products.
ASTROLOGY.NET
Astrology.Net is a leading destination for women online seeking daily
horoscopes, astrology content and personalized forecasts, serving more than one
million unique visitors in January 1999. 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 our strong clickthrough 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. iVillage intends to use
this e-commerce model to enter other businesses with similar characteristics
that appeal to its users.
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 currently plans 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 agreement with NBC pursuant to
which NBC will promote iVillage.com on television, primarily during prime-time
programs, as well as through its Web sites. In addition, NBC has agreed to
promote the content centers programmed by iVillage on Snap! LLC. On March 9,
1999, iVillage and NBC entered into an agreement to amend, subject to closing
conditions, the November 11, 1998 advertising and promotional agreement with NBC
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 annum during
2000 and 2001. In addition, iVillage will issue 4,889,030 shares of series E
convertible preferred stock 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 in twelve equal installments, payable each quarter
beginning April 1, 1999. Please see "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Recent Events".
SPONSORSHIP ARRANGEMENTS
In October 1998, iVillage entered into a two-year agreement with AT&T under
which iVillage will promote and market specified AT&T telecommunication services
in exchange for minimum payments based upon delivered impressions. In return,
AT&T will display a text link for iVillage.com on the AT&T WorldNet Service and
promote and market iVillage.com
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through AT&T television, mass media marketing or other mass media.
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. iVillage and Schwab also developed The
Investor Center, a co-branded site. 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.
iVillage entered into an agreement with Amazon.com, Inc. in February 1998,
under which Amazon.com, Inc. was granted the right to become the exclusive book
sponsor and retailer throughout the iVillage.com network. In addition,
iVillage.com users are offered book-related features and content across all the
iVillage.com channels. Each of the channels provides recommended reading lists,
book reviews, online book chats and access to an interactive Book Club. The
agreement expires on July 1, 1999 and may be renewed for additional 12-month
periods upon the mutual agreement of iVillage and Amazon.com, Inc.
In October 1998, iVillage entered into an agreement with Ralston Purina
under which the two parties agreed to create the pet channel and an online pet
store. In addition, Ralston Purina agreed to provide content, experts, customer
service and distribution for the pet channel and to assist iVillage in the
marketing, distribution and fulfillment of Ralston Purina products within the
pet channel. The agreement's term is for a period of two years.
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 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 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. Such agreements provide iVillage with a cost-effective
means of acquiring content and provides 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 site, 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
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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.
SALES, MARKETING AND PUBLIC RELATIONS
SALES
As of January 31, 1999, iVillage had a direct sales organization,
consisting of 13 sales professionals with an average of 15 years of experience,
11 of whom were hired since April 1998 and 25 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. Ten sales
professionals focus on sponsorship relationships and two are responsible for
banner advertising. iVillage generally seeks to hire individuals with
significant experience in selling advertising and preexisting relationships with
advertisers in a variety of media.
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. iVillage distributes promotional materials at select targeted
events, such as PTA conferences, and engages in an ongoing public relations
campaign. 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 22 marketing professionals as of January 31, 1999.
iVillage has recently begun to market its brand offline. In November 1998,
iVillage entered into an agreement with NBC, under which iVillage will receive
advertising on the NBC network. iVillage has, from time to time, advertised on
cable television in New York, San Francisco and Chicago and intends to advertise
on the radio as well. iVillage focuses on leveraging its community leaders and
membership for offline brand building and membership acquisition. iVillage plans
to meet with local community leaders and leaders of local women's organizations
to identify sponsorship and grassroots marketing opportunities. In addition,
iVillage is identifying live events and conferences for sponsorships.
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 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.
OPERATING INFRASTRUCTURE
iVillage's 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 nearly 20
servers. Key attributes of this infrastructure include the ability to support
growth, performance and service availability.
iVillage's servers run on the Sun Solaris and Microsoft NT operating
systems and use
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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. iVillage's operations are dependent upon
Exodus's ability to protect its systems against damage from fire, hurricanes,
power loss, telecommunications failure, break-ins and other events.
Exodus provides comprehensive facilities management services including
human and technical monitoring of all production servers 24 hours per day, seven
days per week. Exodus provides the means of connectivity for iVillage's servers
to end-users via the Internet through multiple connections. The 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 are copied to backup tapes each night and
stored at a third party, off-site storage facility. 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 security response team alerts
are read, and, where appropriate, recommended action is taken to address
security risks and vulnerabilities.
Our Web sites must accomodate 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.
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, a
joint venture between Women.com networks and The Hearst Corp., Microsoft
Corporation's womencentral.msn.com, condenet.com and Oxygen Media's Web sites.
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,
customer service, 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, resulting in increased pricing pressures on its
advertising rates 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
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directories and search engines, 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:
o iVillage will be able to grow its membership, traffic levels and
advertiser customer-base at historical levels; or
o retain its current members, traffic levels or advertiser customers; or
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 that iVillage's strategic partners will not sever or will elect not to
renew their agreements with iVillage.
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 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 strategically 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.
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 licenses, 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 the 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
and pay financial damages. There can be no assurance that such changes of
trademarks, alteration of content or payment of financial damages will not
adversely affect iVillage's business.
iVillage's ability to use and successfully develop its channels will depend
upon its ability to continue to use, develop and protect its
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proprietary marks. iVillage currently uses the term "better health" in
connection with its online operation of a channel including information
concerning health-related topics and iVillage, or Health ResponseAbility
Systems, Inc., the company iVillage acquired in May 1997, has made use of the
term since 1996. iVillage currently holds the domain name "betterhealth.com".
The Hospital of Saint Raphael owns federal trademark registrations for the marks
"Better Health" and "St. Raphael's Better Health". On August 26, 1998, iVillage
received notice from counsel for the Hospital objecting, among other things, to
iVillage's use of the term "better health". iVillage has agreed with the
Hospital to phase out use of the term "better health" other than in a
descriptive, non-trademark sense by March 31, 1999. iVillage is in the process
of developing a new, proprietary brand for its channel concerning health-related
matters.
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.
On January 28, 1999, an attorney for Dailey & O'Brien sent a formal cease
and desist letter, requesting that we stop using "MONEYLIFE" on our money
channel and provide certain information concerning our use of the term. On
February 22, 1999, a complaint was filed in the U.S. District Court for the
Eastern District of Virginia by Dailey & O'Brien alleging, among other things,
trademark infringement. On March 8, 1999, the complaint was dismissed by the
plaintiff. We have reached an agreement with Dailey & O'Brien granting us a
license to use the term "MONEYLIFE". There can be no assurance that other
entities are not using the term "MONEYLIFE". We are not able at this time to
evaluate the likelihood of an unfavorable outcome in the event that claims are
asserted by any other entity, 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 January 31, 1999, iVillage employed 200 full-time employees, of whom
64 were in sales and marketing, 63 were in editorial and community, 32 were in
administration and 41 were in operations and support. As iVillage continues to
grow and introduce more products, it expects to hire more personnel,
particularly in the areas of product development and sponsorship. None of
iVillage's current employees is 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 31,000 square feet of space primarily in two
buildings located across the street from each other. These leases are short
term, expiring between 1999 and 2001, and cover three floors at 170 Fifth Avenue
that are approximately 3,650 square feet each and two floors at 149 Fifth Avenue
that are approximately 10,000 square feet each. iVillage currently anticipates
that it will require additional space as more personnel are hired.
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iVillage is actively searching for larger space in New York City to serve as a
permanent space for the long-term future of iVillage.
iVillage leases a sales office located at 645 North Michigan Avenue,
Chicago, Illinois on a month-to-month basis. In addition, iBaby is currently
leasing approximately 5,115 square feet on a month-to-month basis at 8400
Miramar Road, San Diego, California.
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
Chancery Court to 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. We believe that the suit is without merit and intend to
vigorously defend against such 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.
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 February
22, 1999.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Candice Carpenter........ 46 Co-Chairperson of the Board and Chief
Executive Officer
Nancy Evans.............. 48 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......... 45 Senior Vice President, Sponsorship
Caterina A. Conti........ 36 General Counsel and Secretary
Donna M. Introcaso....... 41 Senior Vice President,
Human Resources
Sanjay Muralidhar........ 36 Vice President, Finance
Scott Levine............. 34 Vice President, Controller and Chief
Accounting Officer
Steven A. Elkes.......... 37 Vice President, Business Affairs and
Assistant Secretary
Alan Colner**............ 44 Director
Jay C. Hoag*............. 40 Director
Habib Kairouz**.......... 32 Director
Lennert J. Leader*....... 43 Director
Michael Levy**........... 52 Director
Douglas McCormick........ 49 Director
Daniel Schulman.......... 41 Director
Martin Yudkovitz*........ 44 Director
</TABLE>
- ------------------
* Member of the audit committee.
** Member of the compensation committee.
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 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
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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.
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.
SANJAY MURALIDHAR has been Vice President, Finance since September 1998.
From 1992 to 1998, Mr. Muralidhar held various positions at Reader's Digest
Association Inc., including Vice President, Finance-Reader's Digest U.S.A., Vice
President, Controller of QSP Inc., a division of Reader's Digest and Director,
Corporate Financial Planning. Prior to joining Reader's Digest, Mr. Muralidhar
held various positions in Financial Analysis and Corporate Finance at
Bristol-Myers Squibb Company between 1987 and 1992. Mr. Muralidhar received an
M.B.A. from The Wharton School at the University of Pennsylvania and a Bachelor
of Commerce from Bombay University.
SCOTT LEVINE has been Vice President, Controller and Chief Accounting
Officer since February 1999. From July 1998 to February 1999, Mr. Levine was
Controller for Fundtech Ltd., a financial software company. From April 1997 to
July 1998, Mr. Levine was the Controller of AmeriCash, Inc., an operator of a
network of automated teller and electronic commerce machines. From 1993 to 1997,
Mr. Levine was employed by Coopers & Lybrand L.L.P. Mr. Levine is a Certified
Public Accountant and received his M.B.A. from Baruch College and his B.A. from
State University of New York, Buffalo.
STEVEN A. ELKES has been Vice President, Business Affairs since August 1996
and Assistant Secretary since September 1997. From August 1993 to August 1996,
Mr. Elkes was Vice President Credit/Structured Finance
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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.
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 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 currenty a
director of ONYX Software Corporation, a provider of customer management
software. 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.
Currently, Mr. Leader is 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
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. Prior to joining Sportsline
USA, Inc., 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 October 1998, Mr. Schulman has 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
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Applications for NBC. From 1994 to 1999, Mr. Yudkovitz was Senior Vice President
of NBC Multimedia. From 1992 to 1994, he served as Senior Vice President of
Strategic Development at NBC. His other positions at NBC have included Vice
President of Business Affairs for NBC's 1992 Olympics Unit; First General
Counsel and Vice President for Business Affairs at CNBC and Senior Counsel to
NBC's 1988 Seoul Olympics Unit in NBC Sports. Mr. Yudkovitz joined NBC in
January 1984 in the law department. Mr. Yudkovitz received his J.D. from
Columbia University and his B.A. from Rutgers University.
BOARD COMPOSITION
In accordance with the terms of iVillage's Amended and Restated Certificate
of Incorporation, effective upon the closing of this offering, the terms of
office of the members of the board of directors will be divided into three
classes, which will be determined prior to completion of this offering. At each
annual meeting of stockholders after the initial classification, 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. The composition of the board of directors is
expected to change in connection with this offering. Please see "Certain
Transactions".
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 Alan Colner, 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.
The composition of the audit committee and the compensation committee is
subject to change prior to completion of this offering.
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. Beginning on the date of this offering, nonemployee
directors of iVillage will be 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".
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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
Vice President, Business
Development...................... 146,250 -- 8,333
Steven Elkes
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.
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>
POTENTIAL REALIZABLE
INDIVIDUAL GRANTS VALUE AT ASSUMED
---------------------------------------------------------- ANNUAL RATES OF
PERCENT OF TOTAL STOCK
NUMBER OF OPTIONS PRICE APPRECIATION
SECURITIES GRANTED TO EXERCISE FOR
UNDERLYING EMPLOYEES IN PRICE PER OPTION TERM
OPTIONS FISCAL SHARE EXPIRATION --------------------
NAME GRANTED (#) YEAR (%)(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 Elkes........ 16,667 1 6.00 4/1/05 40,710 94,872
</TABLE>
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<PAGE>
- ------------------
(1) Based on options to purchase an aggregate of 1,515,143 shares of common
stock granted under the 1995 Amended and Restated Employee Stock Option Plan
and the 1997 Amended and Restated Acquisition Stock Option Plan by iVillage
in the year ended December 31, 1998 to employees, consultants and directors
of iVillage.
FISCAL YEAR END OPTION VALUES
The following table 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.
FISCAL YEAR END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES UNDERLYING VALUE OF
UNEXERCISED OPTIONS UNEXERCISED IN-THE-MONEY
AT FISCAL YEAR-END (#) 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 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, and subject to stockholder approval, 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 and 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 shall have served on the board of directors for at least the preceding
six months. 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 on a cumulative monthly basis over a four-year period. As of
February 15, 1999, 133,333 shares were authorized under the 1999 Director Option
Plan, options to purchase an aggregate of 33,333 shares had been granted and
100,000 shares were available for future grant.
As of February 15, 1999, under the 1995 Amended and Restated Employee Stock
Option Plan, options to purchase 1,689,049 shares were outstanding and no shares
were available for future grant. Under the 1997 Amended and Restated Acquisition
Stock Option Plan, options to purchase 372,226 shares were outstanding and no
shares were available for future grant. As of February 15, 1999, under the 1999
Employee Stock Option Plan, 796,951 shares
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<PAGE>
were authorized, options to purchase 616,889 shares had been granted, or are
expected to be granted prior to the effective date of this prospectus, and
180,062 shares were available for future grant. As of February 15, 1999, under
the 1999 Acquisition Stock Option Plan, 333,333 shares were authorized and
options to purchase 181,208 shares had been granted.
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 commitee. Any employee who is currently
employed for at least 20 hours per week and more than five (5) months in any
calendar year with or by iVillage or a majority-owned subsidiary of 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 specified percentage, which shall
not exceed 15% of each salary payment to participating employees over certain
offering periods. Unless determined otherwise, 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 will commence three months after the date of this prospectus. 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 in 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 in control event. If an iVillage employee is
terminated without cause or leaves his employment for good reason, during the
first year after the change in 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.
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<PAGE>
CERTAIN TRANSACTIONS
In August 1995, iVillage issued to Candice Carpenter and Nancy Evans
666,668 and 333,333 shares of common stock, respectively, at a purchase price of
$.0015 per share. Ms. Carpenter and Ms. Evans currently serve as officers and
directors of iVillage.
In August 1995, iVillage entered into a promissory note agreement with AOL,
a principal stockholder of iVillage, whereby iVillage issued a note in the
principal amount of $500,000, with interest payable at the rate of 8% per annum.
In September 1995, iVillage and AOL entered into a securities purchase
agreement pursuant to which:
o iVillage issued 1,000,000 shares of series A convertible preferred stock
to AOL in exchange for the cancellation of the $500,000 note and the
payment by AOL to iVillage of $496,494; and
o AOL agreed to make an additional loan to iVillage in the form of a
convertible secured note in an aggregate principal amount not to exceed
$1 million, whereby iVillage received $650,000.
In connection with such agreement, iVillage also issued to AOL a stock
subscription warrant representing the right to purchase 52,100 shares of
iVillage's series B convertible preferred stock at an exercise price of $2.50
per share or 17,366 shares, on a post-split basis, at an exercise price of $7.50
per share. In February 1996, the note whereby iVillage received $650,000 in
September 1995 was cancelled in exchange for a new convertible secured note in
an aggregate principal amount not to exceed $1.75 million, whereby iVillage
received $1.1 million. Upon completion of this offering, the series A
convertible preferred stock will automatically convert into an aggregate of
333,333 shares of common stock.
In September 1995, iVillage entered into an information provider agreement
with AOL, whereby AOL agreed to carry iVillage's programming material on AOL for
a period of one year. As a result of this agreement, AOL received a percentage
of iVillage's revenues and paid iVillage a usage fee based upon hours of
viewership of the iVillage site on the AOL network.
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 another 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 this
offering, the series B convertible preferred stock and series B-1 convertible
preferred stock will automatically convert 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
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<PAGE>
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, CIBC Wood Gundy Ventures, Inc., Cox
Interactive Media, Inc. 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 this offering, the series C convertible preferred stock will
automatically convert into an aggregate of 4,397,815 shares of common stock.
<TABLE>
<CAPTION>
NUMBER OF SHARES
OF SERIES C
NAME OF INVESTOR PREFERRED STOCK
- ---------------------------------- ----------------
<S> <C>
ENTITIES AFFILIATED WITH DIRECTORS
America Online, Inc............... 1,202,661
Rho Management Trust I............ 3,070,624
</TABLE>
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 July 1997, iVillage entered into a one-year agreement with Tenet
Healthcare Corporation, a principal stockholder of iVillage, in which Tenet
sponsored 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.
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, iVillage issued 284,317 shares of common stock to Tenet.
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 and certain 5% stockholders 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 this
offering, the series D convertible preferred stock will automatically convert
into an aggregate of 4,333,333 shares of common stock.
<TABLE>
<CAPTION>
NUMBER OF SHARES
OF SERIES D
NAME OF INVESTOR PREFERRED STOCK
- ---------------- ----------------
<S> <C>
ENTITIES AFFILIATED WITH DIRECTORS
America Online, Inc............... 1,200,000
Rho Management Trust I............ 1,080,000
TCV II Strategic Partners, L.P.... 104,429
TCV II (Q), L.P................... 588,488
TCV II, V.O.F..................... 24,864
Technology Crossover Ventures II,
C.V............................. 116,861
Technology Crossover Ventures II,
L.P............................. 765,398
OTHER 5% STOCKHOLDERS
Tenet Healthcare Corporation...... 1,333,334
</TABLE>
On June 5, 1998, Candice Carpenter executed a promissory note in favor of
iVillage for borrowings up to a maximum principal amount of $500,000, of which
$500,000 was outstanding at December 31, 1998. Subject to prepayment or
acceleration, any loans made to Ms. Carpenter under the note mature on
December 31, 2001. Borrowings made under the note bear interest at 5.58% per
annum and 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.
In September 14, 1998, iVillage entered into a sponsorship agreement with
Re.Store,
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<PAGE>
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 has been invoiced in 1999. In addition, in
1998, iVillage received 2,243 shares of common stock of MyBasics.com in
accordance with the agreement. Candice Carpenter is a director of MyBasics.com.
In November 1998, iVillage entered into a one-year content distribution
agreement with Cox Interactive Media, a principal stockholder of iVillage,
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 Cox
Web sites to iVillage's network.
In December 1998, iVillage issued shares of series E convertible preferred
stock to certain entities affiliated with directors of iVillage and certain 5%
stockholders 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 this offering, the series E convertible
preferred stock will automatically convert into an aggregate of 3,910,316 shares
of common stock.
<TABLE>
<CAPTION>
NUMBER OF SHARES
OF SERIES E
NAME OF INVESTOR PREFERRED STOCK
- ---------------- ----------------
<S> <C>
ENTITIES AFFILIATED WITH DIRECTORS
TCV II Strategic Partners, L.P.... 12,003
TCV II (Q), L.P................... 67,638
TCV II, V.O.F..................... 2,858
Technology Crossover Ventures II,
C.V............................. 13,432
Technology Crossover Ventures II,
L.P............................. 87,976
America Online, Inc............... 701,754
Rho Management Trust I............ 477,079
OTHER 5% STOCKHOLDERS
Tenet Healthcare Corporation...... 701,754
</TABLE>
In December 1998, iVillage entered into an interactive services agreement
with AOL, in which some of iVillage's icons are placed within the AOL service.
The AOL agreement supersedes all prior services agreements between iVillage and
AOL and expires December 21, 2000. Either party may extend the agreement for an
additional year. In consideration for AOL carrying certain channels, 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.
Subject to the consummation of this offering, 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 the initial public offering
price of the common stock in this offering. 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 the initial public offering price of the common stock in this
offering. 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 entered into an agreement to amend,
subject to closing conditions, the November 11, 1998 advertising and promotional
agreement with NBC as follows:
a. 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.
b. Upon closing, iVillage will issue, subject to certain anti-dilution
protection, 4,889,030 shares of series E convertible preferred stock and
warrants to purchase up to 970,874 shares of
54
<PAGE>
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 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.
c. iVillage has also agreed to pay $1.1 million during 1999 for prominent
placement on the NBC.com Web site.
On September 19, 1995, Candice Carpenter and Nancy Evans and certain other
stockholders executed a voting trust agreement whereby each deposited his or her
shares of common stock with Ms. Carpenter, as trustee, in exchange for the
receipt of voting trust certificates. The voting trust agreement provides the
trustee with the unqualified right and power to vote and to act in the same
manner as if she was the absolute owner of the common stock, except the trustee
has no rights with respect to any pledge or transfer of the common stock. The
depositors are entitled to all distributions paid upon the common stock and may
transfer the voting trust certificates, subject to any other agreement
restricting their transfer. The voting trust agreement may be terminated by the
trustee 10 days after written notice of termination is mailed to the depositors
or by written agreement among all the depositors.
Pursuant to the Fourth Amended and Restated Stockholders' Agreement dated
December 4, 1998, the holders of iVillage's preferred stock agreed to vote their
shares to fix the number of directors at fifteen. Pursuant to this agreement,
the board was to consist of:
o one director designated by the holders of iVillage's series A convertible
preferred stock;
o two directors to be designated by the holders of iVillage's series B
convertible preferred stock;
o two directors to be designated by the holders of iVillage's series C
convertible preferred stock;
o one director to be designated by the holders of iVillage's series D
convertible preferred stock;
o one director to be designated by NBC; two directors to be designated by
Candice Carpenter, Nancy Evans and Robert Levitan;
o one director to be designated jointly by the chairman of the board and
all holders of iVillage's outstanding capital stock;
o one director to be designated by Rho Management Trust I; and
o two directors, or two-sevenths of the board of directors if the board
consists of more than seven directors, to be designated by certain of the
stockholders each of whom hold at least two and one-half percent of the
outstanding capital stock of iVillage immediately prior to this offering,
which right to designate shall commence upon this offering for a period
of six months after this offering.
The agreement terminates upon completion of an initial public offering at an
offering price to the public of not less than $11.79 per share and with
aggregate proceeds to iVillage of not less than $20,000,000.
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.
55
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth information with respect to beneficial
ownership of the common stock, as of February 22, 1999 and as adjusted to
reflect the sale of common stock offered by iVillage in this offering, 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 February 22, 1999 but
excludes shares of common stock underlying options or warrants held by any other
person. Percentage of beneficial ownership is based on 19,476,294 shares of
common stock outstanding as of February 22, 1999, after giving effect to:
o the conversion of the convertible preferred stock;
o the purchase of the minority interest in iBaby;
o the acquisition of Astrology.net; and
o the issuance of shares in connection with the NBC agreement;
and 23,126,294 shares of common stock outstanding after completion of this
offering. "Shares Beneficially Owned" includes "Shares Issuable Upon Exercise of
Stock Options or Warrants".
<TABLE>
<CAPTION>
PERCENTAGE OF SHARES
SHARES ISSUABLE BENEFICIALLY OWNED
SHARES UPON EXERCISE OF --------------------------------------------
BENEFICIALLY STOCK OPTIONS PRIOR TO AFTER
OWNED OR WARRANTS OFFERING OFFERING
------------ -------------------- -------------------- --------------------
<S> <C> <C> <C> <C>
NAME OF BENEFICIAL OWNER
America Online, Inc. .............. 2,363,174 350,908 11.9% 10.1%
22000 AOL Way
Dulles, Virginia 20166-9323
National Broadcasting Company, 1,629,676 -- 8.4 7.0
Inc. ............................
30 Rockefeller Plaza
New York, New York 10112
Rho Management Trust I(1) ......... 1,542,567 -- 7.9 6.7
767 Fifth Avenue
New York, New York 10153
Candice Carpenter(2)............... 690,001 23,333 3.5 3.0
Nancy Evans(3)..................... 333,333 -- 1.7 1.4
Alan Colner(4)..................... 743,293 -- 3.8 3.2
Jay C. Hoag(5)..................... 594,632 -- 3.1 2.6
Habib Kairouz(6)................... 1,542,567 -- 7.9 6.7
Lennert J. Leader(7)............... 2,363,174 350,908 11.9 10.1
Michael Levy....................... 16,666 16,666 * *
Douglas McCormick.................. 11,111 11,111 * *
Daniel Schulman.................... 5,556 5,556 * *
</TABLE>
56
<PAGE>
<TABLE>
<CAPTION>
PERCENTAGE OF SHARES
SHARES ISSUABLE BENEFICIALLY OWNED
SHARES UPON EXERCISE OF --------------------------------------------
BENEFICIALLY STOCK OPTIONS PRIOR TO AFTER
OWNED OR WARRANTS OFFERING OFFERING
------------ -------------------- -------------------- --------------------
<S> <C> <C> <C> <C>
Martin Yudkovitz(8)................ 1,629,676 -- 8.4 7.0
Steven Elkes....................... 15,000 10,883 * *
Stephen Lake....................... 29,166 29,166 * *
John W. Glascott................... 16,666 16,666 * *
All directors and executive
officers as a group
(18 persons) .................... 7,986,674 460,122 40.1 33.9
</TABLE>
- ------------------------------
* Represents beneficial ownership of less than one percent of the common
stock.
(1) Rho Management Partners L.P., a Delaware limited partnership, may be deemed
the beneficial owner of the 1,542,567 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.
(2) Consists of 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.
(3) Consists of 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.
(4) 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.
(5) 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 38,810 shares owned by TCV II Strategic
Partners, L.P., 218,695 shares owned by TCV II (Q), L.P., 9,240 shares
owned by TCV II V.O.F., 43,430 shares owned by Technology Crossover
Ventures II, C.V. and 284,457 shares owned by Technology Crossover
Ventures II, L.P. Mr. Hoag disclaims beneficial ownership of the shares,
except to the extent of his pecuniary interest therein arising from his
interest in Technology Crossover Management II, L.L.C.
(6) 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 1,542,567 shares owned by Rho
Management Trust I. Mr. Kairouz disclaims beneficial ownership of the
shares reported by Rho Management Trust I, other than 16,222 shares in
which Mr. Kairouz has a pecuniary interest.
(7) Consists of 2,363,174 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.
(8) 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.
57
<PAGE>
DESCRIPTION OF CAPITAL STOCK
GENERAL
iVillage's certificate of incorporation, which will become effective upon
the closing of this offering, 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
December 31, 1998, 2,113,385 shares of common stock were outstanding and
43,702,139 shares of convertible preferred stock convertible into 14,785,205
shares of common stock upon the completion of this offering were issued and
outstanding. As of December 31, 1998, iVillage had 75 stockholders.
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, and
the shares of common stock offered by iVillage in this offering, when issued and
paid for, will be, fully paid and nonassessable.
PREFERRED STOCK
Upon the closing of this offering, the board of directors will be
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
Upon the completion of this offering, iVillage will have 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 their 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,
after the closing of the offering, the holders of 40% of the outstanding shares
of common stock, including shares issuable upon the exercise of warrants to
purchase common stock, will be 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:
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
58
<PAGE>
registration rights agreement, after the closing of this offering, the holders
of 18,834,628 shares of common stock, including shares issuable upon the
exercise of warrants to purchase common stock, will be 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.
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 agreement, except underwriting discounts and commissions.
The registration rights agreement also contains a commitment of iVillage to
indemnify the holders of registration rights.
CERTAIN CHARTER AND BYLAWS PROVISIONS AND DELAWARE ANTI-TAKEOVER STATUE
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 certificate of incorporation provides that, upon the closing of
this offering, the board of directors will be divided 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 amended and restated 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.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the common stock is Continental Stock
Transfer & Trust Company.
59
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Sales of substantial amounts of our common stock in the public market could
adversely affect prevailing market prices of our common stock. Furthermore,
since no shares will be available for sale shortly after this offering because
of 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.
After giving effect to:
o the purchase of the minority interest in iBaby;
o the acquisition of Astrology.Net; and
o the shares to be issued in connection with the NBC agreement;
and upon completion of this offering, we will have outstanding an aggregate of
23,126,294 shares of our common stock assuming no exercise of outstanding
options. Of these shares, all of the shares sold in this offering will be freely
tradable without restriction or further registration under the Securities Act,
unless such shares are purchased by "affiliates" as that term is defined in
Rule 144 under the Securities Act. The remaining 19,476,294 shares of common
stock held by existing stockholders 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 or 701 under the Securities Act, which rules are
summarized below.
LOCK-UP AGREEMENTS
All of our officers, directors and stockholders have signed lock-up
agreements 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, for a period of 180 days
after the date of this prospectus. 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, 180 days after the date of this
prospectus, 12,560,636 shares will be available for resale to the public in
accordance with Rule 144.
RULE 144
In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this prospectus, a person who has beneficially owned shares of our
common stock for at least one year would be entitled to sell within any
three-month period a number of shares that does not exceed the greater of:
o 1% of the number of shares of common stock then outstanding, which will
equal approximately 231,263 shares immediately after this offering; 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 such shares
without complying with the manner of sale, public information, volume limitation
or notice provisions of Rule 144. Therefore, unless otherwise restricted,
"144(k) shares" may be sold
60
<PAGE>
immediately upon the completion of this offering.
RULE 701
In general, under Rule 701 of the Securities Act as currently in effect,
any of our employees, consultants or advisors who purchases shares from us in
connection with a compensatory stock plan or other written agreement is eligible
to resell such shares 90 days after the effective date of this offering in
reliance on Rule 144, but without compliance with certain restrictions,
including the holding period, contained in Rule 144.
REGISTRATION RIGHTS
Upon completion of this offering, the holders of 18,834,628 shares of our
common stock, or their transferees, including shares issuable upon the exercise
of warrants to purchase common stock, will be entitled to certain rights with
respect to the registration of such shares under the Securities Act. See
"Description of Capital Stock--Registration Rights".
STOCK OPTIONS
Immediately after this offering, we intend to file a registration statement
under the Securities Act covering 3,408,227 shares of common stock reserved for
issuance under our 1995 Amended and Restated Employee Stock Option Plan, 1997
Amended and Restated Acquisition Stock Option Plan, 1999 Employee Stock Option
Plan, 1999 Aquisition Stock Option Plan, 1999 Employee Stock Purchase Plan and
the 1999 Director Stock Option Plan. As of December 31, 1998, options to
purchase 2,174,941 shares of common stock were issued and outstanding.
Upon the expiration of the lock-up agreements described above, at least
869,359 shares of common stock will be subject to vested options, based on
options outstanding as of December 31, 1998. Such registration statement is
expected to be filed and are effective as soon as practicable after the
effective date of this offering. Accordingly, shares registered under such
registration statement will, subject to vesting provisions and Rule 144 volume
limitations applicable to our affiliates be available for sale in the open
market immediately after the 180-day lock-up agreements expire.
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. Certain
legal matters will be passed upon for the underwriters by Hale and Dorr LLP,
Boston, Massachusetts. A partner of Orrick, Herrington & Sutcliffe LLP owns an
aggregate of 13,225 shares of iVillage's series C and series E convertible
preferred 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 and 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 have been included
in reliance on the reports of PricewaterhouseCoopers LLP, iVillage's independent
accountants, given on the authority of that firm as experts in accounting and
auditing.
61
<PAGE>
AVAILABLE INFORMATION
iVillage has filed with the Securities and Exchange Commission, a
registration statement on Form S-1 (including the exhibits and schedules
thereto) under the Securities Act with respect to the shares to be sold in this
offering. This prospectus does not contain all the information set forth in the
registration statement. For further information with respect to iVillage and the
shares to be sold in this offering, reference is made to the registration
statement. Statements contained in this prospectus as to the contents of any
contract, agreement or other document referred to, are not necessarily complete,
and in each instance reference is made to the copy of each contract, agreement
or other document filed as an exhibit to the registration statement, each
statement being qualified in all respects a more complete description of the
matter involved, and each statement shall be deemed by the reference to the
registration statement.
You may read and copy all or any portion of the registration statement or
any reports, 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,
including the registration statement will also be available to you on the
Commission's Internet site (http://www.sec.gov).
iVillage intends to send to its stockholders annual reports containing
audited consolidated financial statements and quarterly reports containing
unaudited consolidated financial statements for the first three quarters of each
fiscal year.
62
<PAGE>
INDEX TO FINANCIAL STATEMENTS
iVILLAGE INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE(S)
-------------------
<S> <C>
Report of Independent Accountants......................... F-2
Consolidated Balance Sheets at December 31, 1997 and
1998.................................................... F-3
Consolidated Statements of Operations for the years ended
December 31, 1996, 1997 and 1998........................ F-4
Consolidated Statements of Stockholders' Equity for the
years ended December 31, 1996, 1997 and 1998............ F-5
Consolidated Statements of Cash Flows for the years ended
December 31, 1996, 1997 and 1998........................ F-6
Notes to Consolidated Financial Statements................ F-7 - F-24
Schedule of Valuation and Qualifying Accounts............. F-25
iVILLAGE INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
Unaudited Pro Forma Condensed Consolidated Financial
Information............................................. F-26 - F-27
Unaudited Pro Forma Condensed Consolidated Balance Sheet
as of December 31, 1998................................. F-28
Unaudited Pro Forma Condensed Consolidated Statement of
Operations for the year ended December 31, 1998......... F-29
Notes to Unaudited Pro Forma Condensed Consolidated
Financial Statements as of and for the year ended
December 31, 1998....................................... F-30
HEALTH RESPONSEABILITY SYSTEMS, INC.
FINANCIAL STATEMENTS
Report of Independent Accountants......................... F-31
Balance Sheets at December 31, 1995 and 1996 and May 29,
1997 (unaudited)........................................ F-32
Statements of Operations for the years ended December 31,
1995 and 1996 and the periods ended May 29, 1996 and
1997 (unaudited)........................................ F-33
Statements of Stockholder's (Deficit) Equity for the years
ended December 31, 1995 and 1996 and the period ended
May 29, 1997 (unaudited)................................ F-34
Statements of Cash Flows for the years ended December 31,
1995 and 1996 and the periods ended May 29, 1996 and
1997 (unaudited)........................................ F-35
Notes to Financial Statements............................. F-36 - F-39
iVILLAGE INC. AND HEALTH RESPONSEABILITY SYSTEMS, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Pro Forma Condensed Consolidated Financial Information
(unaudited)............................................. F-40
Pro Forma Condensed Consolidated Statement of Operations
for the year ended December 31, 1997 (unaudited)........ F-41
Notes to Pro Forma Condensed Consolidated Financial
Statements for the year ended December 31, 1997
(unaudited)............................................. F-42
</TABLE>
F-1
<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-2
<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 oustanding, 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-3
<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
----------- ------------ ------------
Operating expenses:
Production, product and technology......... 4,521,410 7,606,355 14,521,015
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................. 10,443,009 27,103,780 59,339,329
----------- ------------ ------------
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-4
<PAGE>
iVILLAGE INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
CONVERTIBLE CONVERTIBLE CONVERTIBLE CONVERTIBLE CONVERTIBLE
PREFERRED STOCK PREFERRED STOCK PREFERRED STOCK PREFERRED STOCK PREFERRED STOCK
SERIES A SERIES B SERIES C SERIES D SERIES E
----------------- ----------------- ------------------ ------------------ ------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
--------- ------ --------- ------- ---------- ------ ---------- ------ ---------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1996.... 1,000,000 $500
Issuance of warrants in
connection with interest on
convertible notes............
Issuance of common stock in
connection with
acquisition..................
Issuance of Series B and
Series B-1 convertible
preferred stock.............. 4,777,746 $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........................ 11,730,948 $5,865
Issuance of stock options to
consultants and directors....
Issuance of common stock in
connection with exercise of
stock options................
Issuance of stock options in
connection with business
transactions.................
Officer loan receivable.......
Issuance of options to NBC....
Net loss......................
--------- ---- --------- ------ ---------- ------ ---------- ------ ---------- ------
Balance at December 31,
1998......................... 1,000,000 $500 4,777,746 $2,389 13,193,445 $6,597 13,000,000 $6,500 11,730,948 $5,865
--------- ---- --------- ------ ---------- ------ ---------- ------ ---------- ------
--------- ---- --------- ------ ---------- ------ ---------- ------ ---------- ------
<CAPTION>
COMMON STOCK
------------------
SHARES AMOUNT
--------- -------
<S> <C> <C>
Balance at January 1, 1996.... 1,083,335 $10,833
Issuance of warrants in
connection with interest on
convertible notes............
Issuance of common stock in
connection with
acquisition.................. 66,667 667
Issuance of Series B and
Series B-1 convertible
preferred stock..............
Issuance of stock options to
consultants and directors....
Issuance of warrants to AOL
for channel services.........
Net loss......................
--------- -------
Balance at December 31,
1996......................... 1,150,002 11,500
Issuance of common stock in
connection with exercise of
stock options................ 33,333 333
Notes receivable due from
stockholders in connection
with exercise of options.....
Issuance of Series C
convertible preferred
stock........................
Issuance of warrants in
connection with interest on
convertible notes............
Issuance of common stock and
options in connection with
business acquisitions........ 636,400 6,364
Issuance of stock options to
consultants and directors....
Net loss......................
--------- -------
Balance at December 31,
1997......................... 1,819,735 18,197
Issuance of common stock for
cash......................... 284,317 2,843
Issuance of Series D
convertible preferred
stock........................
Issuance of Series E
convertible preferred
stock........................
Issuance of stock options to
consultants and directors....
Issuance of common stock in
connection with exercise of
stock options................ 9,333 93
Issuance of stock options in
connection with business
transactions.................
Officer loan receivable.......
Issuance of options to NBC....
Net loss......................
--------- -------
Balance at December 31,
1998......................... 2,113,385 $21,133
--------- -------
--------- -------
<CAPTION>
UNEARNED
ADDITIONAL STOCKHOLDERS COMPENSATION
PAID IN NOTES AND DEFERRED ACCUMULATED
CAPITAL RECEIVABLE ADVERTISING COST DEFICIT TOTAL
----------- ------------- ---------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1996.... $ 997,037 $ (1,637,571) $ (629,201)
Issuance of warrants in
connection with interest on
convertible notes............ 30,101 30,101
Issuance of common stock in
connection with
acquisition.................. 499,333 500,000
Issuance of Series B and
Series B-1 convertible
preferred stock.............. 11,941,976 11,944,365
Issuance of stock options to
consultants and directors.... 62,007 62,007
Issuance of warrants to AOL
for channel services......... 1,034,838 1,034,838
Net loss...................... (9,682,682) (9,682,682)
----------- --------- ------------ ------------ ------------
Balance at December 31,
1996......................... 14,565,292 (11,320,253) 3,259,428
Issuance of common stock in
connection with exercise of
stock options................ 99,667 100,000
Notes receivable due from
stockholders in connection
with exercise of options..... $ (65,000) (65,000)
Issuance of Series C
convertible preferred
stock........................ 24,823,398 24,829,995
Issuance of warrants in
connection with interest on
convertible notes............ 334,339 334,339
Issuance of common stock and
options in connection with
business acquisitions........ 3,292,558 3,298,922
Issuance of stock options to
consultants and directors.... 65,395 65,395
Net loss...................... (21,300,960) (21,300,960)
----------- --------- ------------ ------------ ------------
Balance at December 31,
1997......................... 43,180,649 (65,000) (32,621,213) 10,522,119
Issuance of common stock for
cash......................... 1,663,823 1,666,666
Issuance of Series D
convertible preferred
stock........................ 31,481,978 31,488,478
Issuance of Series E
convertible preferred
stock........................ 32,089,088 32,094,953
Issuance of stock options to
consultants and directors.... 146,994 $ (68,845) 78,149
Issuance of common stock in
connection with exercise of
stock options................ 47,507 47,600
Issuance of stock options in
connection with business
transactions................. 277,799 277,799
Officer loan receivable....... (500,000) (500,000)
Issuance of options to NBC.... 3,960,667 (3,960,667)
Net loss...................... (43,653,682) (43,653,682)
----------- --------- ------------ ------------ ------------
Balance at December 31,
1998......................... $112,848,505 $(565,000) $ (4,029,512) $(76,274,895) $(32,022,082)
----------- --------- ------------ ------------ ------------
----------- --------- ------------ ------------ ------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
iVILLAGE INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------
1996 1997 1998
----------- ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss............................................................. $(9,682,682) $(21,300,960) $(43,653,682)
Adjustments to reconcile net loss to net cash used in operating
activities:
Expense recognized in connection with issuance of warrants and
stock options.................................................... 92,108 1,434,572 255,954
Depreciation and amortization...................................... 108,956 2,886,256 5,683,006
Bad debt expense................................................... -- 746,589 855,000
Loss on sale of Web site........................................... -- -- 503,961
Minority interest.................................................. -- -- (586,599)
Changes in operating assets and liabilities:
Accounts receivable.............................................. (528,968) (2,410,489) (1,878,637)
Other current assets............................................. (71,787) (194,781) (360,580)
Accounts payable and accrued expenses............................ 1,034,070 2,609,437 5,144,391
Deferred revenue................................................. 294,998 709,201 1,905,541
Other liabilities................................................ 64,236 268,295 (169,672)
----------- ------------ ------------
Net cash used in operating activities.......................... (8,689,069) (15,251,880) (32,301,317)
----------- ------------ ------------
Cash flows from investing activities:
Purchase of fixed assets............................................. (665,148) (4,001,052) (5,315,516)
Acquisitions of Web sites............................................ -- (2,865,000) (1,040,000)
Proceeds from sale of Web sites...................................... -- -- 600,000
----------- ------------ ------------
Net cash used in investing activities.......................... (665,148) (6,866,052) (5,755,516)
----------- ------------ ------------
Cash flows from financing activities:
Proceeds from convertible notes payable.............................. 1,800,000 3,775,000 --
Proceeds from issuance of common stock............................... -- 37,500 1,714,266
Proceeds from issuance of convertible preferred stock, net........... 9,494,365 21,054,995 63,583,431
Principal payments on capital leases................................. -- (516,621) (250,716)
Stockholder note receivable.......................................... -- -- (500,000)
----------- ------------ ------------
Net cash provided by financing activities...................... 11,294,365 24,350,874 64,546,981
----------- ------------ ------------
Net increase in cash for the period.................................... 1,940,148 2,232,942 26,490,148
Cash and cash equivalents, beginning of period......................... 161,631 2,101,779 4,334,721
----------- ------------ ------------
Cash and cash equivalents, end of period............................... $ 2,101,779 $ 4,334,721 $ 30,824,869
----------- ------------ ------------
----------- ------------ ------------
Cash paid during the period for interest............................... $ -- $ 66,223 $ 37,392
----------- ------------ ------------
----------- ------------ ------------
Supplemental disclosure of non-cash investing and financing activities:
During 1996 and 1997, certain convertible notes were converted into preferred stock (see Note 8).
During December 1996, iVillage acquired ParentsPlace.com in exchange for the issuance of common stock (see
Note 5).
During 1997, iVillage entered in capital leases for computer equipment totaling $1,015,460.
During 1997, iVillage acquired several Web site assets through the issuance of stock (see Note 5).
During 1998, iVillage recorded a liability of $1,040,000 in connection with a contingent payment to be provided
to the prior owners of Health ResponseAbility Systems, Inc. (see Note 5).
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
iVILLAGE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND BASIS OF PRESENTATION:
iVillage Inc. was incorporated in the State of Delaware on June 8, 1995 and
commenced operations on July 1, 1995. iVillage Inc. and its subsidiaries
("iVillage" or the "Company") is engaged in the development of programming
material for distribution through online service providers and the Internet and
is involved in the sale of products through its Web sites. The Company has
sustained net losses and negative cash flows from operations since its
inception. The Company's ability to meet its obligations in the ordinary course
of business is dependent upon its ability to establish profitable operations and
raise additional financing through public or private equity financings,
collaborative or other arrangements with corporate sources, or other sources of
financing to fund operations. During 1998, the Company has received additional
financing of approximately $65.3 million through the issuance of common stock
and Series D and Series E convertible preferred stock. Management believes that
its current funds will be sufficient to enable the Company to meet its planned
expenditures through at least December 31, 1999. If anticipated operating
results are not achieved, management has the intent and believes it has the
ability to delay or reduce expenditures so as not to require additional
financial resources, if such resources were not available on terms acceptable to
the Company.
The Company has a limited operating history and its prospects are subject
to the risks, expenses and uncertainties frequently encountered by companies in
the new and rapidly evolving markets for Internet products and services. These
risks include the failure to develop and extend the Company's online service
brands, the rejection of the Company's services by Web consumers, vendors and/or
advertisers, the inability of the Company to maintain and increase the levels of
traffic on its online services, as well as other risks and uncertainties. In the
event that the Company does not successfully implement its business plan,
certain assets may not be recoverable.
2. SIGNIFICANT ACCOUNTING POLICIES AND PROCEDURES:
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its subsidiaries. Intercompany balances and transactions have been
eliminated.
REVENUE RECOGNITION
To date, the Company's revenues have been derived primarily from the sale
of sponsorship and advertising contracts and commerce revenues.
Sponsorship and Advertising
Sponsorship revenues are derived principally from contracts ranging from
one to three years in which the Company commits to provide sponsors promotional
opportunities in addition to traditional banner advertising. Typically,
sponsorship agreements provide for the delivery of impressions (on-line
advertisements displayed to a user) on the Company's Web sites, exclusive
relationships and the design and development of customized sites designed to
enhance the promotional objective of the sponsor. The portion of sponsorship
revenues related to the delivery of impressions are recognized ratably in the
period in which the advertisement is displayed, provided that none of the
Company's significant obligations remain, at the lesser of the ratio of
impressions delivered over total guaranteed impressions or the straight line
basis over the term of the contract. The portion of 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.
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
F-7
<PAGE>
iVILLAGE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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.
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.
F-8
<PAGE>
iVILLAGE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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.
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
F-9
<PAGE>
iVILLAGE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
earnings per share, basic earnings per share excludes any dilutive effects of
options, warrants and convertible securities. Basic earnings per share is
computed using the weighted-average number of common shares outstanding during
the period. Diluted earnings per share is computed using the weighted-average
number of common and common stock equivalent shares outstanding during the
period. Common stock equivalent shares are excluded from the computation if
their effect is antidilutive. The pro forma net loss per share is computed by
dividing the net loss by the sum of the weighted average number of shares of
common stock outstanding and the shares resulting from the assumed conversion of
all outstanding shares of Convertible Preferred Stock and the issuance of shares
to holders of Series B Convertible Preferred Stock resulting from anti-dilution
protection.
COMPREHENSIVE INCOME
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income" ("SFAS No. 130"). This statement requires companies to classify items of
other comprehensive income by their nature in the financial statements and
display the accumulated balance of other comprehensive income separately from
retained earnings and additional paid-in capital in the equity section of a
statement of financial position. SFAS No. 130 is effective for financial
statements issued for fiscal years beginning after December 15, 1997. The
Company adopted SFAS No. 130 in the first quarter of 1998. The Company has had
no other comprehensive income items to report.
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
F-10
<PAGE>
iVILLAGE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
obtained for internal use including the requirement to capitalize specified
costs and amortization of such costs. The Company does not expect the adoption
of this standard to have a material effect on the Company's capitalization
policy.
In April 1998, the AICPA issued Statement of Position 98-5, "Reporting on
the Costs of Start-up Activities" ("SOP 98-5"). SOP 98-5, which is effective for
fiscal years beginning after December 15, 1998, provides guidance on the
financial reporting of start-up costs and organization costs. It requires costs
of start up activities and organization costs to be expensed as incurred. As the
Company has expensed these costs historically, the adoption of this standard is
not expected to have a significant impact on the Company's results of
operations, financial position or cash flows.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivatives and
Hedging Activities" ("SFAS No. 133"), which establishes accounting and reporting
standards for derivative instruments, including certain derivative instruments
embedded in other contracts, (collectively referred to as derivatives) and for
hedging activities. SFAS No. 133 is effective for all fiscal quarters of fiscal
years beginning after June 15, 1999. The Company does not expect the adoption of
this statement to have a significant impact on the Company's results of
operations, financial position or cash flows.
3. FIXED ASSETS:
Fixed assets consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------
1997 1998
-------------- --------------
<S> <C> <C>
Computer equipment..................................................... $ 2,579,083 $ 6,949,815
Capitalized software................................................... 2,295,138 2,655,838
Furniture and fixtures................................................. 283,024 1,165,283
Leasehold improvements................................................. 462,262 1,113,386
-------------- --------------
5,619,507 11,884,322
Less, accumulated depreciation and amortization...................... (1,816,684) (4,503,956)
-------------- --------------
$ 3,802,823 $ 7,380,366
-------------- --------------
-------------- --------------
</TABLE>
Depreciation and amortization of fixed assets was approximately $109,000,
$1,780,000 and $2,687,000 for the years ended December 31, 1996, 1997 and 1998,
respectively.
4. RELATED-PARTY TRANSACTIONS:
AOL
In September 1995, the Company entered into an information provider
agreement with AOL, a holder of different classes of iVillage stock, whereby AOL
had agreed to carry the Company's programming material on the AOL service for a
period of one year. As a result of this agreement, AOL received a percentage, as
defined, of the Company's revenues and paid the Company a usage fee based upon
hours of viewership of the iVillage site on the AOL network.
In May 1996, the Company entered into an information provider agreement
with AOL whereby AOL agreed to carry up to four Company channels for a period of
two years. In return, the Company issued to AOL 266,666 warrants (on a
post-split basis) convertible into Series B Convertible Preferred Stock at an
exercise price of $7.50 per warrant. In accordance with Statement of Financial
Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS No. 123"),
the Company valued the warrants issued to AOL, using the Black-Scholes option
pricing model, at $3.87 per share. The following assumptions were used in the
option pricing model: stock price of $7.50, exercise price of $7.50, option term
of 5 years, risk free rate of interest of 6.5%, 50% volatility and a dividend
yield of 0%. The cost of the warrants were to be expensed over the life of each
channel, however, the agreement was canceled
F-11
<PAGE>
iVILLAGE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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.
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.
F-12
<PAGE>
iVILLAGE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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:
<TABLE>
<S> <C>
Working capital.................................................................. $ (77,323)
Equipment........................................................................ 19,726
Goodwill......................................................................... 557,597
-----------
$ 500,000
-----------
-----------
</TABLE>
HRS
In May 1997, the Company completed the acquisition of Health
ResponseAbility Systems, Inc. ("HRS"), an Internet content provider, in exchange
for $2,600,000 in cash, 433,400 shares of the Company's common stock valued at
$2,210,340 or $5.10 per share, and additional cash amounts contingent on future
performance levels of HRS and the Company. In addition, the Company issued to
AOL 203,000 shares of common stock in exchange for the release of all equity
rights in HRS held by AOL valued at $1,035,300.
The cost of the acquisition was allocated to the assets acquired and
liabilities assumed based upon their estimated fair values as follows:
<TABLE>
<S> <C>
Working capital................................................................ $ (159,991)
Equipment...................................................................... 50,300
Goodwill....................................................................... 5,955,331
-------------
$ 5,845,640
-------------
-------------
</TABLE>
In January 1998, the Company agreed to pay $1,560,000 to the prior owners
of HRS in a final settlement of the cash amounts contingent upon future
performance levels, as stipulated in the agreement for the acquisition of HRS.
This amount was recorded as additional goodwill and is being amortized over the
remaining period of expected benefit.
The following unaudited pro forma summary presents consolidated results of
operations for the Company as if the acquisition of HRS had been consummated on
January 1, 1996. The acquisitions of ParentsPlace.com and StudentCenter would
not have had a significant impact on the pro forma
F-13
<PAGE>
iVILLAGE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
information. The pro forma information does not necessarily reflect the actual
results that would have been achieved, nor is it necessarily indicative of
future consolidated results of the Company.
<TABLE>
<CAPTION>
1996 1997
--------------- ---------------
<S> <C> <C>
Revenues............................................................. $ 1,674,226 $ 6,381,437
Net loss............................................................. $ (12,092,617) $ (22,910,945)
</TABLE>
STUDENTCENTER
In September 1997, the Company acquired substantially all of the assets of
StudentCenter LLC ("StudentCenter"), an Internet content provider, for $125,000
and the issuance of options to purchase 41,666 shares of common stock of the
Company at $5.10 per share. These options were valued at approximately $53,000
using the Black-Scholes option pricing model. The following assumptions were
used in the option pricing model: stock price of $5.10, exercise price of $7.50,
term of 3 years, risk free rate of interest of 6%, 50% volatility and a dividend
yield of 0%. In addition, the Company was required to make revenue-based and
other bonus payments, of which $30,000 was recorded as of December 31, 1997,
based on the amount of StudentCenter revenues, page views and other criteria.
The $208,000 purchase price was allocated to goodwill and intangible assets and
is being amortized over three years.
In May 1998, the Company sold the assets of StudentCenter as part of the
sale of About Work.
ABOUT WORK
In May 1998, the Company sold About Work, one of the Company's channels, as
well as the assets of StudentCenter, to TMP Worldwide Inc. ("TMP") in exchange
for net proceeds of $600,000. In connection with the sale of About Work, the
Company paid the former owners of StudentCenter $520,000 and issued options to
purchase 33,333 shares at $5.10 per share as settlement of all revenue-based and
other bonus payments. The options were valued at approximately $100,000 using
the Black-Scholes option pricing model using the following assumptions: stock
price of $6.00, exercise price of $6.00, term of 5 years, risk free rate of
interest of 5.44%, 50% volatility and a dividend yield of 0%. In addition, the
Company accrued a cost of $340,000 in connection with AOL carriage fees to be
paid on behalf of TMP for About Work. The Company recorded a loss of
approximately $504,000 on this sale due to the bonus payment, the options issued
to StudentCenter, the write off of approximately $195,000 of remaining goodwill
and the accrual for AOL carriage fees.
An additional $575,000 was received in exchange for production, sponsorship
and consulting services provided to TMP during 1998. The agreement also calls
for a $600,000 reimbursement payment to be made to the Company for maintaining
the About Work tenancy on AOL for a one year period beginning May 1, 1999. In
the event that the About Work site is not carried on AOL after April 1999
through iVillage's distribution agreement, this reimbursement payment will not
be made.
iBABY
In April 1998, the Company entered into a joint venture agreement (the
"iBaby Agreement") with Ourbaby, LLC, a California limited liability company, to
form iBaby, Inc., a Delaware corporation ("iBaby"). The Company has purchased
1,000,000 shares of iBaby (of the total 1,666,666 shares outstanding) for
$1,350,000 and for the delivery of certain promotional rights, including
impressions on the iVillage web site. In connection with the acquisition, the
Company recorded approximately $500,000 of goodwill to be amortized over a
period of three years. The Company's equity ownership in iBaby may be altered
due to various provisions included in the joint venture agreement including:
(i) conversion of any convertible notes issued in connection with any bridge
loan financing provided to iBaby by the Company, (ii) the issuance of iBaby
shares upon exercise of stock options and grants of restricted stock, (iii) the
Company's failure to meet certain promotional obligations or (iv) the occurrence
of an
F-14
<PAGE>
iVILLAGE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
initial public offering of the Company's stock or a merger, consolidation or
sale transaction ("call event" or "put event").
Since the formation of iBaby in April 1998, the accounts of iBaby have been
consolidated into the Company's financial statements, as the Company holds a
majority interest and has control of iBaby.
In connection with the formation of iBaby, iBaby entered into an inventory
and services agreement with Kids Warehouse, the minority interest holder of
iBaby. The agreement, dated April 8, 1998, has a one-year term and provides for
Kids Warehouse to make available to iBaby at least $2,000,000 of inventory at
wholesale value, as defined, for iBaby to sell to customers. In addition, Kids
Warehouse is to stock and provide storage of iBaby inventory. In consideration
for such services, iBaby is to pay Kids Warehouse an inventory fee, as defined,
based on the cost of items sold by iBaby. This agreement is terminable at the
sole option of iBaby.
In connection with the joint venture agreement, the Company also entered
into a rights agreement with the minority stockholders which provides for
various rights including:
o The right and option by the Company, exercisable upon the occurrence of a
call or put event, to purchase all of the shares held by the minority
stockholders ("call option"); and
o The right and option by the minority stockholders, exercisable upon the
occurrence of a put event, to require iVillage to purchase the shares
held by the minority stockholders ("put option").
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.
F-15
<PAGE>
iVILLAGE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
As of December 31, 1998, there were no shares available for future grants
under the ESOP.
Changes in options outstanding under the ESOP, the fair value per option
and weighted average exercise price of stock option activity for the years ended
December 31, 1996, 1997 and 1998 are as follows:
<TABLE>
<CAPTION>
WEIGHTED WEIGHTED
AVERAGE AVERAGE
FAIR VALUE EXERCISE PRICE
OPTIONS PER 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-16
<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 VALUE EXERCISE PRICE
OPTIONS PER OPTION PER SHARE
-------- ---------- --------------
<S> <C> <C> <C>
Outstanding, January 1, 1997................................... -- $ -- $ --
Granted........................................................ 393,393 1.44 5.10
-------- ------ ------
Outstanding, December 31, 1997................................. 393,393 1.44 5.10
Granted........................................................ 258,393 3.00 5.10
Canceled....................................................... (291,060) 1.35 5.10
-------- ------ ------
Outstanding, December 31, 1998................................. 360,726 $ 2.64 $ 5.10
-------- ------ ------
-------- ------ ------
Options exercisable at December 31, 1997....................... 10,833 $ 1.98 $ 5.10
Options exercisable at December 31, 1998....................... 305,226 $ 2.79 $ 5.10
</TABLE>
At December 31, 1998, the weighted average remaining contractual life of
the options outstanding, under the ASOP, was approximately 6.4 years.
STOCK-BASED COMPENSATION
The Company applies Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees" and related interpretations in accounting for its
stock option issuances. The Company has adopted the disclosure-only provisions
of SFAS No. 123. Had compensation cost for the Company's stock options issued at
the fair value of the Company's stock been determined based on the fair value of
the stock options at the grant date for awards in 1996, 1997 and 1998 consistent
with the provisions of SFAS No. 123, the Company's net loss would have been
adjusted to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------------------
1996 1997 1998
-------------- --------------- ---------------
<S> <C> <C> <C>
Net loss as reported................................. $ (9,682,682) $ (21,300,960) $ (43,653,682)
Net loss pro forma................................... $ (9,767,127) $ (21,693,415) $ (44,213,487)
</TABLE>
The fair value of each option grant is estimated using the minimum value
method of the Black-Scholes option pricing model which assumes no volatility.
The weighted average assumptions used for grants made in 1996, 1997 and 1998 are
as follows:
<TABLE>
<CAPTION>
OPTIONS GRANTED DURING THE
YEAR ENDED DECEMBER 31,
------------------------------------------
1996 1997 1998
-------- -------- --------
<S> <C> <C> <C>
Risk-free interest rate................................ 6.10% 6.22% 5.44%
Expected option life................................... 5 years 5 years 5 years
Dividend yield......................................... 0.0% 0.0% 0.0%
</TABLE>
In 1997, in connection with the exercise of options by former employees, the
Company accepted two promissory notes, with recourse, from the former employees
to cover the costs to exercise the options.
F-17
<PAGE>
iVILLAGE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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:
<TABLE>
<CAPTION>
Year ending December 31: 1998
- ------------------------ ----
<S> <C>
1999............................................................................. $ 669,684
2000............................................................................. 279,540
2001............................................................................. 12,280
-----------
$ 961,504
-----------
-----------
</TABLE>
Rent expense was approximately $149,000, $486,000 and $714,000 for the
years ended December 31, 1996, 1997 and 1998, respectively.
At December 31, 1998, minimum future lease payments due under capital
leases for computer equipment are as follows:
<TABLE>
<CAPTION>
Year ending December 31: 1998
- ------------------------ -----------
<S> <C>
1999............................................................................. $ 144,203
Less: amount representing interest............................................... 7,630
-----------
Net minimum lease payments....................................................... $ 136,573
-----------
-----------
</TABLE>
Accumulated amortization on assets accounted for as capital leases amounted
to approximately $301,000 and $553,000 as of December 31, 1997 and 1998,
respectively.
LITIGATION
The Company has been involved in litigation relating to claims arising out
of its operations in the normal course of business, including a claim by a
former employee. The Company does not believe that an adverse outcome of any of
these legal proceedings will have a material adverse effect on the Company's
results of operations.
F-18
<PAGE>
iVILLAGE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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
determing 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
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
F-19
<PAGE>
iVILLAGE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Series B holders that had anti-dilution provisions, upon the conversion to
common stock. The Company also issued 30,194 warrants to purchase shares of
common stock at $.03 a share to the Company's placement agent in consideration
for services provided in connection with the private placement.
In December 1997, the Company issued an additional 2,190,378 shares of
Series C through a private placement in exchange for net proceeds of
approximately $4,280,000, inclusive of the conversion of an $800,000 convertible
note payable.
In February 1998, the Company issued 13,000,000 shares of Series D
Convertible Preferred Stock ("Series D") in exchange for net proceeds of
approximately $31,500,000.
In December 1998, the Company issued 11,730,948 shares of Series E
Convertible Preferred Stock ("Series E") through a private placement in exchange
for net proceeds of approximately $32,100,000. Holders of Series E have
participating preferred rights.
The holders of convertible preferred stock are entitled to receive
noncumulative dividends when and if declared by the Board. These dividends are
in preference to any declaration or payment of any dividend on the common stock
of the Company.
In the event of liquidation, the holders of convertible preferred stock
have a liquidation preference over the holders of common stock with holders of
Series C, D and E having preference to Series A and B holders. Such preference
is equal to the original cost of the respective class of convertible preferred
stock, plus any declared or unpaid dividends.
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).
F-20
<PAGE>
iVILLAGE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
ii. NBC will have the option, exercisable at its sole discretion, to
provide the Company with additional spots having an aggregate value of
$5 million for each of the three years. Upon exercise of NBC's option,
iVillage will issue shares of series E (or shares of iVillage's common
stock after the IPO), subject to anti-dilution protection, equal to
the aggregate value of additional spots divided by $4.15 in the first
year, $5.15 in the second year and $6.15 in the third year ($12.45,
$15.45 and $18.45 if converted to common stock).
iii. NBC may terminate the agreement in the event that a change of control
of iVillage, as defined in the agreement, occurs involving a
television broadcast network entity or its affiliate that directly
competes with NBC.
The Company will account for the NBC agreement in accordance with Emerging
Issues Task Force Abstract No. 96-18, "Accounting for Equity Instruments That
are Issued to Other Than Employees for Acquiring, or in Conjunction with
Selling, Goods or Services."
In addition, iVillage has valued the option provided to NBC using the
Black-Scholes option pricing model. The $3,960,667 value has been recorded in
the equity section as deferred compensation, and will be adjusted at each
balance sheet date to market value. If and when NBC exercises their option by
delivering advertising, then any amounts previously deferred in the equity
section related to those shares will be reversed into the statement of
operations along with any additional amounts necessary to bring the total charge
up to the then current market value.
On March 9, 1999, the Company and NBC entered into an agreement to amend,
subject to closing conditions, the November 11, 1998 advertising and promotional
agreement with NBC. See Note 13--Subsequent Events.
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-21
<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:
<TABLE>
<CAPTION>
1997 1998
--------------- ---------------
<S> <C> <C>
Operating loss carryforward.......................................... $ 13,940,842 31,321,682
Depreciation and amortization........................................ (50,508) (166,554)
Bad debt allowance and reserves...................................... -- 674,864
Benefits related costs............................................... -- 230,701
--------------- ---------------
Net deferred tax asset................................... 13,890,334 32,060,693
Less, Valuation allowance............................................ (13,890,334) (32,060,693)
--------------- ---------------
Deferred tax asset....................................... $ -- --
--------------- ---------------
--------------- ---------------
</TABLE>
The difference between the Company's U.S. federal statutory rate of 35%, as
well as its state and local rate, net of a federal benefit, of 10%, when
compared to the effective rate is principally comprised of the valuation
allowance.
As of December 31, 1998, the Company has a net operating loss carryforward
for federal income tax purposes of approximately $69,990,000 which begin to
expire in 2010. The net deferred tax asset has been fully reserved due to the
uncertainty of the Company's ability to realize this asset in the future.
12. SEGMENT INFORMATION:
In June 1997, FASB issued Statement of Financial Accounting Standards
No. 131, "Disclosures about Segments of an Enterprise and Related Information"
("SFAS No. 131"), which established standards for reporting information about
operating segments in annual financial statements. The Company's business is
comprised of the development of programming material by iVillage for
distribution through online service providers and the Internet ("New Media") and
the sale of products by iBaby through its Web sites ("Commerce"). The Company's
management reviews corporate assets and 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
Production, product and technology.................. 11,741,776 2,779,239 14,521,015
Sales and marketing................................. 28,176,407 346,467 28,522,874
General and administrative.......................... 9,546,082 1,066,352 10,612,434
Depreciation and amortization....................... 5,628,322 54,684 5,683,006
Loss from operations................................ (42,641,967) (1,685,539) (44,327,506)
Interest income, net................................ 570,704 20,482 591,186
Total assets........................................ 45,944,997 845,968 46,790,965
</TABLE>
Information for the years ended December 31, 1996 and 1997 has not been
provided since during those years the Company operated only in the New Media
segment.
13. SUBSEQUENT EVENTS (UNAUDITED):
Acquisition of Minority Interest of iBaby
On February 10, 1999, the Company entered into an agreement to purchase all
of the outstanding shares of iBaby held by the minority stockholders (the
"Minority Interest") for $10.8 million (the "Purchase Price") (the "iBaby
Purchase Agreement"). The Purchase Price is comprised of $8 million in
F-22
<PAGE>
iVILLAGE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
cash and common stock having an aggregate value of $2.8 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 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 $20.1 million, based on a value of the Company's
common stock of $23.00 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.
F-23
<PAGE>
iVILLAGE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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 $22.0 million difference between the
purchase price of the Series E Convertible Preferred Stock and the fair market
value on the date of issuance will be accounted for as a deemed dividend and
amortized using the effective interest method from the date of issuance through
the date the securities are first convertible. The Company expects this to occur
in March 1999 with the effectiveness of its anticipated initial public offering.
In addition, the fair value of the warrant of approximately $7.9 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-24
<PAGE>
SCHEDULE II
iVILLAGE INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
COLUMN C
COLUMN B ---------------------- COLUMN E
---------- ADDITIONS ----------
BALANCE AT CHARGED TO CHARGED COLUMN D BALANCE AT
BEGINNING COSTS AND TO OTHER ---------- END
COLUMN A OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS OF 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-25
<PAGE>
iVILLAGE INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
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 will be dependent upon the IPO price per share,
less underwriters' discount. If the IPO does not close, the iBaby purchase
agreement also provides for the right by iVillage to acquire the minority
interest for an aggregate $9.3 million cash until May 31, 1999 provided that
certain conditions are met.
The acquisition of the minority interest of iBaby is to be accounted for as
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 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 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 will be accounted for as a purchase with an estimated
purchase price of approximately $20.1 million, based on a value of the Company's
common stock of $23.00 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 will be
recorded as goodwill and amortized over the period of expected benefit.
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.
F-26
<PAGE>
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The accompanying unaudited pro forma condensed consolidated financial
statements illustrate the effect of all of the events discussed above as if they
took place on December 31, 1998 for the unaudited pro forma condensed
consolidated balance sheet and January 1, 1998 for the unaudited pro forma
condensed consolidated statement of operations.
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 informational 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 historical financial statements
of iVillage which are contained elsewhere in this prospectus.
F-27
<PAGE>
iVILLAGE INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1998
<TABLE>
<CAPTION>
iVILLAGE INC. PRO FORMA
AND SUBSIDIARIES ASTROLOGY.NET ADJUSTMENTS PRO FORMA
----------------- ------------- ------------ -------------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.......... $ 30,824,869 $ 103,852 $ (1,000,000) 1(a) $ 21,928,721
(8,000,000) 1(a)
Accounts receivable, net........... 3,147,561 113,855 -- 3,261,416
Prepaid expenses and other current
assets........................... 715,161 1,126 -- 716,287
------------- --------- ------------ -------------
Total current assets......... 34,687,591 218,833 (9,000,000) 25,906,424
Fixed assets, net.................... 7,380,366 65,057 -- 7,445,423
Other assets......................... 187,860 71,954 -- 259,814
Goodwill and intangible assets, net.. 4,535,148 5,429 20,079,922 1(b) 35,631,252
11,010,753 1(b)
------------- --------- ------------ -------------
Total assets................. $ 46,790,965 $ 361,273 22,090,675 $ 69,242,913
------------- --------- ------------ -------------
------------- --------- ------------ -------------
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities:
Accounts payable and accrued
expenses......................... $ 11,559,711 $ 150,173 $ -- $ 11,709,884
Capital leases payable............. 136,573 17,248 -- 153,821
Deferred revenue................... 2,909,740 -- -- 2,909,740
Due to stockholder................. -- 121,971 -- 121,971
Other current liabilities.......... 162,859 -- -- 162,859
------------- --------- ------------ -------------
Total current liabilities.... 14,768,883 289,392 -- 15,058,275
Capital leases payable, net of
current portion.................... -- 22,936 -- 22,936
------------- --------- ------------ -------------
Total liabilities............ 14,768,883 312,328 -- 15,081,211
------------- --------- ------------ -------------
------------- --------- ------------ -------------
Commitments and Contingencies
Stockholders' equity:
Series A Convertible Preferred
Stock............................ 500 177,700 (500) 1(e) --
(177,700) 1(c)
Series B and B-1 Convertible
Preferred Stock.................. 2,389 -- (2,389) 1(e) --
Series C Convertible Preferred
Stock............................ 6,597 -- (6,597) 1(e) --
Series D Convertible Preferred
Stock............................ 6,500 -- (6,500) 1(e) --
Series E Convertible Preferred
Stock............................ 5,865 -- (5,865) 1(e) --
Common Stock....................... 21,133 511 (511) 1(c) 194,613
8,021 1(d)
1,309 1(d)
147,853 1(e)
16,297 1(f)
Additional paid-in capital......... 112,848,505 103,626 (103,626) 1(c) 150,336,496
19,120,846 1(d)
3,009,444 1(d)
(126,002) 1(e)
15,483,703 1(f)
Accumulated deficit................ (76,274,895) (232,892) 232,892 1(c) (76,274,895)
Stockholders notes receivable...... (565,000) -- (15,500,000) 1(f) (16,065,000)
Unearned compensation and deferred
advertising...................... (4,029,512) -- -- (4,029,512)
------------- --------- ------------ -------------
Total stockholders' equity... 32,022,082 48,945 22,090,675 54,161,702
------------- --------- ------------ -------------
Total liabilities and
stockholders' equity...... $ 46,790,965 $ 361,273 $ 22,090,675 $ 69,242,913
------------- --------- ------------ -------------
------------- --------- ------------ -------------
</TABLE>
F-28
<PAGE>
iVILLAGE INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
iVILLAGE INC. PRO FORMA
AND SUBSIDIARIES ASTROLOGY.NET ADJUSTMENTS PRO FORMA
---------------- ------------- ------------ ------------
<S> <C> <C> <C> <C>
Revenues............................... $ 15,011,823 $ 847,517 $ -- $ 15,859,340
------------ --------- ------------ ------------
Operating expenses:
Production, product and technology... 14,521,015 77,502 -- 14,598,517
Sales and marketing.................. 28,522,874 126,502 -- 28,649,376
General and administrative........... 10,612,434 663,731 -- 11,276,165
Depreciation and amortization........ 5,683,006 91,061 3,670,251 2(a) 16,137,625
6,693,307 2(a)
------------ --------- ------------ ------------
Total operating expense...... 59,339,329 958,796 10,363,558 70,661,683
------------ --------- ------------ ------------
Loss from operations......... (44,327,506) (111,279) (10,363,558) (54,802,343)
Interest income (expense), net......... 591,186 (100) -- 591,086
Loss on sale of Web site............... (503,961) -- -- (503,961)
Minority interest...................... 586,599 -- (586,599)2(b) --
------------ --------- ------------ ------------
Net loss..................... $(43,653,682) $(111,379) $(10,950,157) $(54,715,218)
------------ --------- ------------ ------------
------------ --------- ------------ ------------
Pro forma basic and diluted net loss
per share ........................... $ (2.59) $ (2.82)
------------ ------------
------------ ------------
Shares of common stock used in 1,629,676 2(c)
computing pro forma basic and diluted 130,902 2(c)
net loss per share .................. 16,853,678 802,125 2(c) 19,416,381
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
F-29
<PAGE>
iVILLAGE INC. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AS OF AND FOR THE YEAR ENDED DECEMBER 31, 1998
1. The pro forma adjustments to the unaudited pro forma condensed consolidated
balance sheet are as follows:
a) Adjustment to cash, for the cash portion of the acquisition prices,
of $1 million for Astrology.Net and $8 million for iBaby.
b) Adjustment to goodwill and intangible assets to reflect the excess
of the purchase price over the fair value of net assets acquired of
Astrology.Net and iBaby, calculated as follows:
<TABLE>
<CAPTION>
ASTROLOGY.NET* iBABY**
-------------- -----------
<S> <C> <C>
Cash portion of purchase price............................... $ 1,000,000 $ 8,000,000
Value of stock and option portion of purchase price.......... 19,128,867 3,010,753
------------ -----------
Purchase price............................................... 20,128,867 11,010,753
Less: fair value of net assets to be acquired................ 48,945 --
------------ -----------
Goodwill..................................................... $ 20,079,922 $11,010,753
------------ -----------
------------ -----------
</TABLE>
* The value of the common stock to be issued to Astrology.Net was
estimated as $23.00 a share.
** Net assets of iBaby are already included in the consolidated balance
sheet of iVillage as iVillage holds a majority interest and control.
c) Adjustment to reflect the elimination of all of the stockholder
equity balances of Astrology.Net.
d) Adjustment to reflect the issuance of 802,125 shares of common
stock and an estimated $680,000 value of options issued and 130,902 shares
of common stock issued, respectively, for the acquisitions of Astrology.Net
and iBaby.
e) Adjustment to reflect the conversion of all of the outstanding
shares of convertible preferred stock into common stock, and the issuance
of 217,825 shares of common stock to holders of series B and B-1
convertible preferred stock resulting from anti-dilution protection.
f) Adjusted to reflect the issuance to NBC of 1,629,676 shares of
Series E Convertible Preferred Stock (on a post-split basis) in exchange
for a note of approximately $15.5 million. These pro forma adjustments do
not include a $22.0 million deemed non-cash dividend to NBC in connection
with the issuance of these shares.
2. The pro forma adjustments to the unaudited pro forma condensed consolidated
statement of operations are as follows:
a) Adjustment to depreciation and amortization to reflect the
amortization of goodwill of $6,693,307 and $3,670,251, resulting from the
acquisitions of Astrology.Net and iBaby, respectively, over a three year
period, the expected period of benefit.
b) Adjustment to minority interest of $586,599 to add back the net
loss previously attributed to the minority stockholders of iBaby.
c) Adjustment to weighted average shares of common stock outstanding
of 2,562,703 (as adjusted for the one-for-three reverse stock split) used
in computing basic and diluted net loss per share to reflect the issuance
of 802,125, 130,902 and 1,629,676 shares of common stock, in connection
with the acquisitions of Astrology. Net, iBaby and the issuance to NBC,
respectively, as of January 1, 1998.
F-30
<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-31
<PAGE>
HEALTH RESPONSEABILITY SYSTEMS, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------- MAY 29,
1995 1996 1997
------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash.............................................................. $ 91,265 $ 188,696 $ 205,641
Certificates of deposit........................................... 100,000 108,621 --
Accounts receivable............................................... -- 119,854 9,299
Other current assets.............................................. -- 1,467 --
------------ ------------ ------------
Total current assets.......................................... 191,265 418,638 214,940
Fixed assets, net................................................. 35,092 22,806 48,044
Stockholder notes receivable...................................... 20,000 -- --
Other assets...................................................... 2,256 2,256 2,256
------------ ------------ ------------
Total assets.................................................. $ 248,613 $ 443,700 $ 265,240
------------ ------------ ------------
------------ ------------ ------------
LIABILITIES AND STOCKHOLDER'S (DEFICIT) EQUITY
Current liabilities:
Accounts payable and accrued expenses............................. $ 50,626 $ 74,863 $ 61,269
Employee retirement plan payable.................................. -- 71,000 --
Deferred revenue.................................................. 33,333 -- --
Accrued interest.................................................. 15,146 35,396 43,662
Note payable, less unamortized discount of $67,902, $13,580 and $0
(unaudited) in 1995, 1996 and 1997, respectively................ 202,098 256,420 270,000
------------ ------------ ------------
Total current liabilities..................................... 301,203 437,679 374,931
------------ ------------ ------------
Commitments
Stockholder's (deficit) equity:
Common stock, par value $.01, 10,000 shares authorized, 1,000
shares issued and outstanding................................... 10 10 10
Additional paid-in capital........................................ 108,643 108,643 108,643
Accumulated deficit............................................... (89,243) (30,632) (146,344)
Stockholder notes receivable...................................... (72,000) (72,000) (72,000)
------------ ------------ ------------
Total stockholder's (deficit) equity.......................... (52,590) 6,021 (109,691)
------------ ------------ ------------
Total liabilities and stockholder's (deficit) equity.......... $ 248,613 $ 443,700 $ 265,240
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-32
<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-33
<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-34
<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-35
<PAGE>
HEALTH RESPONSEABILITY SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND BASIS OF PRESENTATION
Health ResponseAbility Systems, Inc. (the "Company") was incorporated in
the State of Virginia on August 22, 1994 and commenced operations on January 1,
1995. The Company is engaged in the development of health-related programming
material for distribution through online service providers and the Internet.
As discussed in Note 8, all of the outstanding shares of the Company were
acquired by iVillage Inc. ("iVillage") on May 29, 1997. These financial
statements do not include any adjustments in connection with the sale.
2. SIGNIFICANT ACCOUNTING POLICIES
REVENUE RECOGNITION
The Company's revenues have been derived primarily from America Online,
Inc. ("AOL") customers visiting the Company's site on the AOL online service and
are recognized as they are earned (based upon visitations to the site) and
reported to the Company by AOL. Usage revenues received from AOL totaled
approximately $343,822 and $618,644 for the years ended December 31, 1995 and
1996, respectively. In addition, the Company has derived revenues from the
design of customer web sites. Revenues from such design work is recognized over
the term of service of each contract.
FIXED ASSETS
Depreciation of computer equipment and software and furniture and fixtures
is provided for by the straight-line method over their estimated useful lives
ranging from three to five years. The cost of additions and betterments is
capitalized, and repairs and maintenance costs are charged to operations in the
periods incurred. Depreciation expense has been included in general and
administrative expense.
INCOME TAXES
The Company has elected to be treated as an "S" corporation for both
Federal and State of Virginia tax purposes. Accordingly, corporate income or
loss is included in the stockholder's individual tax return based upon her
ownership interest.
CASH
Cash includes money market accounts and all highly liquid investments
purchased with original maturities of three months or less. Certificates of
deposit with maturities greater than three months are classified as such on the
balance sheet. The Company maintains its cash balances in a highly rated
financial institution.
CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to a
concentration of credit risk consist of cash and accounts receivable. Cash is
deposited with high-credit, quality financial institutions. The Company's
accounts receivable are derived from revenue earned from customers located in
the U.S. and are denominated in U.S. dollars.
AOL accounted for approximately 78% and 66% of revenue for the years ended
December 31, 1995 and 1996, respectively, and approximately 63% of accounts
receivable at December 31, 1996.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of the Company's financial instruments, including
cash, certificates of deposit, accounts receivable, accounts payable and accrued
liabilities and note payable, approximate fair value because of their short
maturities.
F-36
<PAGE>
HEALTH RESPONSEABILITY SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amount of assets and liabilities,
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from these estimates. Significant
estimates made by the Company include the valuation of the warrant issued and
the useful lives and recoverability of fixed assets.
UNAUDITED INTERIM FINANCIAL STATEMENTS
The financial statements as of May 29, 1997 and for the periods ended
May 29, 1996 and 1997 are unaudited but have been prepared in accordance with
generally accepted accounting principles ("GAAP") for interim financial
statements which do not include all disclosures required by GAAP for annual
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring adjustments) considered necessary for a fair presentation
have been included. The results of operations of any interim period are not
necessarily indicative of the results of operations for the full year.
COMPREHENSIVE INCOME
The Company adopted the provisions of SFAS No. 130, "Reporting
Comprehensive Income." SFAS No. 130 establishes standards for reporting
comprehensive income and its components in financial statements. Comprehensive
income, as defined, includes all changes in equity (net assets) during a period
from non-owner sources. To date, the Company has not had any transactions that
are required to be reported in comprehensive income.
RECLASSIFICATIONS
Certain reclassifications have been made to the prior year financial
statements to conform to the current period presentation.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information" ("SFAS
No. 131"). This statement establishes standards for the way companies report
information about operating segments in annual financial statements. It also
establishes standards for related disclosures about products and services,
geographic areas and major customers. The disclosure prescribed by SFAS No. 131
is effective for the year ending December 31, 1998. The Company has determined
that it does not have any separately reportable business segments as of May 29,
1997.
In March 1998, the American Institute of Certified Public Accountants
issued Statement of Position ("SOP") No. 98-1, "Software for Internal Use,"
which provides guidance on accounting for the cost of computer software
developed or obtained for internal use. SOP No. 98-1 is effective for financial
statements for fiscal years beginning after December 15, 1998. The Company does
not expect that the adoption of SOP No. 98-1 will have a material impact on its
financial statements.
F-37
<PAGE>
HEALTH RESPONSEABILITY SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
3. FIXED ASSETS
Fixed assets consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, MAY 29,
---------------------------- -------------
1995 1996 1997
------------ -------------- -------------
(UNAUDITED)
<S> <C> <C> <C>
Computer equipment and software.......................... $ 45,195 $ 54,775 $ 70,992
Furniture and fixtures................................... 12,682 13,406 45,454
------------ -------------- -----------
57,877 68,181 116,446
Less, accumulated depreciation........................... (22,785) (45,375) (68,402)
------------ -------------- -----------
$ 35,092 $ 22,806 $ 48,044
------------ -------------- -----------
------------ -------------- -----------
</TABLE>
Depreciation of fixed assets was approximately $22,702 and $22,590 for the years
ended December 31, 1995 and 1996, respectively.
4. RELATED-PARTY TRANSACTIONS
In January 1995, the Company loaned $29,700 to its sole stockholder who
also serves as an officer to the Company (the "Stockholder"). Interest is
payable annually at the rate of 7.92% per annum. This note was not paid until
the sale of the Company and, therefore, is recorded as a reduction of
stockholder's equity.
In February 1995, the Company loaned $20,000 to the Stockholder. Interest
is payable annually at the rate of 7.96% per annum. This note was not paid until
the sale of the Company and, therefore, is recorded as a reduction of
stockholder's equity.
In May 1995, the Company loaned $10,000 to the Stockholder. Interest is
payable annually at the rate of 7.12% per annum. The principal balance and
interest due on this note was repaid in full in July 1996.
In June 1995, the Company loaned $10,000 to the Stockholder. Interest is
payable annually at the rate of 6.83% per annum. The principal balance and
interest due on this note was repaid in full in July 1996.
In December 1995, the Company loaned $22,300 to the Stockholder. Interest
is payable annually at the rate of 5.91% per annum. This note was not paid until
the sale of the Company and, therefore, is recorded as a reduction of
stockholder's equity.
In 1995, the Company entered into a consultant agreement with the spouse of
the Stockholder, in which the Company paid the consultant $80,000 during the
year. In 1996, this consultant became an officer of the Company.
5. AOL NOTE PAYABLE
In April 1995, the Company entered into a promissory note agreement with
AOL whereby the Company received cash of $270,000 ("AOL Note"). Interest, at a
rate of 7.5% per annum, and principal, are payable on the earlier of demand or
April 2005. If payment is demanded, then such payment will be payable in 24
equal monthly installments of principal and interest beginning on the fifth day
following such demand.
In connection with the AOL Note, the Company issued a warrant (the "AOL
Warrant") to purchase a certain amount of shares of the Company's preferred
stock at a certain exercise price, both of which are based on a formula in the
warrant agreement. The Company recorded an unamortized discount of $108,643
which has been amortized as interest expense using the interest method. The AOL
Warrant 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.
F-38
<PAGE>
HEALTH RESPONSEABILITY SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Interest expense, including amortized disount related to the issuance of
the AOL Warrant, charged to operations for the year ended December 31, 1995 and
1996 was $55,887 and $74,572, respectively.
6. COMMITMENTS
LEASES
The Company leases office space in Herndon, Virginia, under a
non-cancelable operating lease expiring in June 1998. The following is a
schedule of future minimum lease payments under the lease as of December 31,
1996:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31:
------------------------
<S> <C>
1997................................................. $53,920
1998................................................. 27,769
-------
$81,689
-------
-------
</TABLE>
Rent expense was approximately $9,898 and $16,073 for the years ended
December 31, 1995 and 1996, respectively.
7. CAPITAL STOCK
At December 31, 1996, the authorized capital stock of the Company consists
of 10,000 shares of common stock, $0.01 par value per share. Upon formation of
the Company, 1,000 shares of common stock were issued to the founder.
8. SUBSEQUENT EVENT
On May 29, 1997, all of the outstanding shares of the Company were acquired
by iVillage in exchange for $2,600,000 in cash, 1,300,200 shares of iVillage
common stock on a pre-split basis, and cash amounts contingent on future
performance levels of the Company and iVillage, which was determined to be
$1,560,000 in January 1998. In addition, iVillage issued 609,000 shares of
common stock on a pre-split basis, to AOL in exchange for the release of the AOL
Note and the cancellation of the AOL Warrant.
F-39
<PAGE>
iVILLAGE INC. AND HEALTH RESPONSEABILITY SYSTEMS, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
On May 29, 1997, Health ResponseAbility Systems, Inc. ("HRS"), a developer
of health-related programming material for distribution through online service
providers and the Internet, agreed to sell substantially all of its outstanding
shares of capital stock and any securities convertible into shares of HRS
capital stock ("Fully Diluted HRS shares") to iVillage Inc. ("iVillage" or the
"Company") in exchange for $2.6 million in cash, 1,300,200 shares (on a
pre-split basis) of iVillage common stock and cash amounts contingent on future
performance levels of HRS and iVillage. In addition, iVillage issued 609,000
shares (on a pre-split basis) of common stock to America Online, Inc. ("AOL") in
exchange for the release of all equity rights in HRS held by AOL.
The acquisition has been accounted for as a purchase, with the assets
acquired and liabilities assumed recorded at fair values, and the results of
HRS's operations included in the Company's consolidated financial statements
from the date of acquisition.
The accompanying unaudited pro forma condensed consolidated financial
statements illustrate the effect of the acquisition on the Company's results of
operations assuming the acquisition took place on January 1, 1997. Since the
transaction has been reflected in the Company's consolidated balance sheet as of
December 31, 1997, contained elsewhere herein, no pro forma condensed
consolidated balance sheet has been provided.
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 which would have been obtained if the acquisition 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 historical financial statements
of the Company and HRS which are contained elsewhere in this Prospectus.
F-40
<PAGE>
iVILLAGE INC. AND HEALTH RESPONSEABILITY SYSTEMS, INC.
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
HEALTH RESPONSEABILITY
iVILLAGE INC. SYSTEMS, INC.
------------------ ----------------------
YEAR ENDED PERIOD ENDED PRO FORMA
DECEMBER 31, 1997 MAY 29, 1997 ADJUSTMENTS PRO FORMA
------------------ ---------------------- ----------- ------------
<S> <C> <C> <C> <C>
Revenues............................. $ 6,018,696 $ 362,741 $ -- $ 6,381,437
------------ ---------- ----------- ------------
Operating expenses:
Production, content and product....
7,606,355 220,574 -- 7,826,929
Sales and marketing................ 8,770,581 7,955 -- 8,778,536
General and administrative......... 10,726,844 234,519 974,273 (a) 12,455,636
520,000 (b)
------------ ---------- ----------- ------------
Total operating expenses....... 27,103,780 463,048 1,494,273 29,061,101
------------ ---------- ----------- ------------
Loss from operations................. (21,085,084) (100,307) (1,494,273) (22,679,664)
Interest expense, net................ (215,876) (15,405) -- (231,281)
------------ ---------- ----------- ------------
------------ ---------- ----------- ------------
Net loss............................. (21,300,960) (115,712) ($1,494,273) ($22,910,945)
------------ ---------- ----------- ------------
------------ ---------- ----------- ------------
Basic and diluted net loss per share (4.55) (4.20)
(on a pre-split basis)............. $ $
------------ ------------
------------ ------------
Weighted average shares of common
stock outstanding used in computing
basic and diluted net loss per
share (on a pre-split basis)....... 4,682,872 774,141 (c) 5,457,013
------------ ----------- ------------
------------ ----------- ------------
</TABLE>
F-41
<PAGE>
iVILLAGE INC. AND HEALTH RESPONSEABILITY SYSTEMS, INC.
NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1997
(UNAUDITED)
1. The pro forma adjustments to the unaudited pro forma condensed
consolidated statement of operations are as follows:
<TABLE>
<S> <C>
(a) Adjustment to general and administrative expenses for the amortization of $5,955,331 of
goodwill, amortized over a three-year period............................................... $974,273
--------
--------
(b) Adjustment to general and administrative expenses for the amortization of $1,560,000 of
goodwill associated with contingent consideration paid on future performance levels........ $520,000
--------
--------
(c) Adjustment to weighted average shares of common stock outstanding used in computing basic
and diluted net loss per share to reflect the issuance of 1,909,200 shares (on a pre-split
basis) in connection with the acquisition of HRS as of January 1, 1997..................... 774,141
--------
--------
</TABLE>
F-42
<PAGE>
UNDERWRITING
iVillage and the underwriters named below (the "Underwriters") have entered
into an underwriting agreement with respect to the shares being offered. Subject
to certain conditions, each Underwriter has severally agreed to purchase the
number of shares indicated in the following table. Goldman, Sachs & Co., Credit
Suisse First Boston Corporation and Hambrecht & Quist LLC are the
representatives of the Underwriters.
<TABLE>
<CAPTION>
Number of
Underwriters Shares
------------ ---------
<S> <C>
Goldman, Sachs & Co.............................................
Credit Suisse First Boston Corporation..........................
Hambrecht & Quist LLC...........................................
---------
Total...................................................... 3,650,000
---------
---------
</TABLE>
------------------------
If the Underwriters sell more shares than the total number set forth in the
table above, the Underwriters have an option to buy up to an additional 547,500
shares from iVillage to cover such sales. They may exercise that option for
30 days. If any shares are purchased pursuant to this option, the Underwriters
will severally purchase shares in approximately the same proportion as set forth
in the table above.
The following tables show the per share and total underwriting discounts
and commissions to be paid to the Underwriters by iVillage. Such amounts are
shown assuming both no exercise and full exercise of the Underwriters' option to
purchase additional shares.
Paid by iVillage
No Exercise Full Exercise
----------- -------------
Per Share............... $ $
Total................... $ $
Shares sold by the Underwriters to the public will initially be offered at
the initial public offering price set forth on the cover of this prospectus. Any
shares sold by the Underwriters to securities dealers may be sold at a discount
of up to $ per share from the initial public offering price. Any such
securities dealers may resell any shares purchased from the Underwriters to
certain other brokers or dealers at a discount of up to $ per share from the
initial public offering price. If all the shares are not sold at the initial
offering price, the representatives may change the offering price and the other
selling terms.
iVillage, its directors, officers and stockholders have agreed with the
Underwriters not to dispose of or hedge any of their common stock or securities
convertible into or exchangeable for shares of common stock during the period
from the date of this prospectus continuing through the date 180 days after the
date of this prospectus, except with the prior written consent of the
representatives. This agreement does not apply to any existing employee benefit
plans. Please see "Shares Available for Future Sale" for a discussion of certain
transfer restrictions.
At the request of iVillage, the Underwriters have reserved at the initial
public offering price up to 503,622 shares of common stock for sale to NBC,
Liberty Media Corporation and America Online, Inc. These purchasers have
expressed an interest in purchasing such shares of common stock in this
offering. Each purchaser has agreed that, if it does purchase any of such
reserved shares, it will enter into a lock-up agreement with the Underwriters,
under which each agrees not to sell shares for 180 days after the date of this
prospectus. There can be no assurance that any of the reserved shares will be
purchased. The number of shares available for sale to the general public in this
offering will be reduced by the number of reserved shares sold. Any reserved
U-1
<PAGE>
shares not so purchased will be offered to the general public on the same basis
as the other shares offered hereby.
In addition, at the request of iVillage, the Underwriters have reserved for
sale, at the initial public offering price, shares of common stock for certain
directors, employees and associates of iVillage. There can be no assurance that
any of the reserved shares will be so purchased. The number of shares available
for sale to the general public in the offering will be reduced by the number of
reserved shares sold. Any reserved shares not so purchased will be offered to
the general public on the same basis as the other shares offered hereby.
Prior to this offering, there has been no public market for the shares. The
initial public offering price will be negotiated among iVillage and the
representatives. Among the factors to be considered in determining the initial
public offering price of the shares, in addition to prevailing market
conditions, will be iVillage's historical performance, estimates of the business
potential and earnings prospects of iVillage, an assessment of iVillage's
management and the consideration of the above factors in relation to market
valuation of companies in related businesses.
A prospectus in electronic format is being made available on an Internet
Web site maintained by Wit Capital Corporation. Other than the prospectus in
electronic format, the information on such Web site and any information
contained on any other Web site maintained by Wit Capital Corporation is not
part of this prospectus or the registration statement of which this prospectus
forms a part, has not been approved and/or endorsed by iVillage or any
Underwriter in such capacity and should not be relied on by prospective
investors.
The common stock has been approved for quotation on the Nasdaq National
Market under the symbol "IVIL".
In connection with this offering, the Underwriters may purchase and sell
shares of common stock in the open market. These transactions may include short
sales, stabilizing transactions and purchases to cover positions created by
short sales. Short sales involve the sale by the Underwriters of a greater
number of shares than they are required to purchase in this offering.
Stabilizing transactions consist of certain bids or purchases made for the
purpose of preventing or retarding a decline in the market price of the common
stock while this offering is in progress.
The Underwriters also may impose a penalty bid. This occurs when a
particular Underwriter repays to the Underwriters a portion of the underwriting
discount received by it because the representatives have repurchased shares sold
by or for the account of such Underwriter in stabilizing or short covering
transactions.
These activities by the Underwriters may stabilize, maintain or otherwise
affect the market price of the common stock. As a result, the price of the
common stock may be higher than the price that otherwise might exist in the open
market. If these activities are commenced, they may be discontinued by the
Underwriters at any time. These transactions may be effected on the Nasdaq
National Market, in the over-the-counter market or otherwise.
The Underwriters do not expect sales to discretionary accounts to exceed
five percent of the total number of shares offered.
iVillage estimates that its share of the total expenses of this offering,
excluding underwriting discounts and commissions, will be approximately
$2,000,000.
iVillage has agreed to indemnify the several Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933.
Credit Suisse First Boston Corporation acted as iVillage's exclusive
placement agent in connection with the private placement of iVillage's series E
convertible preferred stock in December 1998. iVillage paid customary placement
fees to Credit Suisse First Boston Corporation for such services.
U-2
<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............................ 3
Risk Factors.................................. 7
Use of Proceeds............................... 16
Dividend Policy............................... 16
Capitalization................................ 17
Dilution...................................... 18
Selected Consolidated Financial Data.......... 19
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.................................. 20
Business...................................... 31
Management.................................... 45
Certain Transactions.......................... 52
Principal Stockholders........................ 56
Description of Capital Stock.................. 58
Shares Eligible for Future Sale............... 60
Legal Matters................................. 61
Experts....................................... 61
Available Information......................... 62
Index to Financial Statements................. F-1
Underwriting.................................. U-1
------------------------------
Through and including , 1999 (25 days after the date of this
prospectus), all dealers effecting transactions in these securities, whether or
not participating in this offering, may be required to deliver a prospectus.
This is in addition to a dealer's obligation to deliver a prospectus when acting
as underwriter and with respect to an unsold allotment or subscription.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
3,650,000 Shares
iVILLAGE INC.
Common Stock
------------------------------
[LOGO]
------------------------------
GOLDMAN, SACHS & CO.
CREDIT SUISSE FIRST BOSTON
HAMBRECHT & QUIST
Representatives of the Underwriters
------------------------------
WIT CAPITAL CORPORATION
Facilitator of Internet distribution
------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the costs and expenses, other than the
underwriting discounts, payable by the Registrant in connection with the sale of
the securities being registered. All amounts are estimates except the SEC
registration fee, the NASD filing fee and the Nasdaq/NMS listing fee.
<TABLE>
<S> <C>
SEC Registration Fee................................................................ $ 16,337
NASD Filing Fee..................................................................... 6,377
Nasdaq National Market Listing Fee.................................................. 95,000
Printing Costs...................................................................... 650,000
Legal Fees and Expenses............................................................. 600,000
Accounting Fees and Expenses........................................................ 425,000
Blue Sky Fees and Expenses.......................................................... 10,000
Transfer Agent and Registrar Fees................................................... 7,500
Miscellaneous....................................................................... 189,786
----------
Total.......................................................................... $2,000,000
----------
----------
</TABLE>
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 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 VII of the Registrant's Bylaws provides for indemnification by the
Registrant of its directors, officers and employees 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 intends to obtain directors, and officers, insurance
providing indemnification for certain of the Registrant's directors, officers
and employees for certain liabilities.
Reference is also made to the Underwriting Agreement to be filed as
Exhibit 1.1 to the Registration Statement for information concerning the
Underwriters' obligation to indemnify the Registrant and its officers and
directors in certain circumstances.
II-1
<PAGE>
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
Since January 1, 1995, the Registrant has issued and sold (without payment
of any selling commission to any person) the following unregistered securities:
(1) In September 1995, the Registrant issued and sold an aggregate of
666,668, 333,333, and 83,333 shares of Common Stock to Candice Carpenter,
Nancy Evans and Robert Levitan, respectively, at a price per share of
$.0015 (on a post-split basis).
(2) In September 1995, the Registrant issued a stock subscription
warrant to purchase 17,366 shares, on a post-split basis, of Series B
Convertible Preferred Stock at a price per share of $7.50 (the "September
1995 Warrant") and 1,000,000 shares of Series A Convertible Preferred Stock
to America Online, Inc. ("AOL") at a price per share of $1.00 in exchange
for the cancellation of a note and $496,494 in cash.
(3) In May 1996, the Registrant issued 797,130 shares of Series B
Convertible Preferred Stock to AOL at a price per share of $2.50 in
exchange for the cancellation of a note payable.
(4) In May 1996, the Registrant issued and sold an aggregate of
300,000 shares of Series B-1 Convertible Preferred Stock to AOL at a price
per share of $2.50 in exchange for the conversion of the principal amount
and accrued interest on two notes and $450,000 in cash.
(5) In May 1996, in connection with an information provider agreement,
the Registrant issued a stock subscription warrant to purchase 266,666
shares, (on a post-split basis), to AOL at a price per share of $7.50.
(6) In May 1996, the Registrant issued and sold an aggregate of
4,477,746 shares of Series B Convertible Preferred Stock at a price per
share of $2.50 to the following entities: Kleiner Perkins Caufield & Byers
VII ("Kleiner"), KPCB VII Founders Fund ("KPCB VII"), KPCB Information
Sciences Zaibatsu Fund II ("KPCB Information"), Ann R. Mathias, Edward J.
Mathias, TCI Online Village Holdings, Inc. ("TCI") and the Tribune Company
("Tribune").
(7) 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.
(8) 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).
(9) 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).
(10) 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).
(11) 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.
(12) 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,
Tenet, Transatlantic Venture Partners C.V., Tribune, The Trustees of the
General Electric Pension Trust, Norman Tulchin, Stanley Tulchin and one
other corporate investor.
II-2
<PAGE>
(13) 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 in consideration for services rendered
(on a post-split basis).
(14) In May 1997, in connection with a Plan of Reorganization and
Merger, among the Registrant, Health ResponseAbility 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).
(15) 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
Partners and O'Sullivan Graev & Karabell, L.L.P., Profit Sharing Plan F/B/O
Martin H. Levenglick.
(16) In February 1998, the Registrant issued and sold an aggregate of
284,317 shares of Common Stock to Tenet Healthcare Corporation ("Tenet") at
a price per share of $5.86 (on a post-split basis).
(17) 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.
(18) 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.
(19) 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., NIG-Village Ltd., 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.
(20) 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., 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., Remington Investment Strategies, L.P., Ralph Mack, Cox and one other
corporate investor.
(21) 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.
(22) 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.
(23) 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).
(24) In December 1998, the Registrant issued and sold an aggregate of
11,730,948 shares of Series E Convertible Preferred Stock at a price 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, O'Sullivan Graev & Karabell, L.L.P., Profit Sharing Plan F/B/O
Martin H. 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 James Bell 1993 Trust,
Seligman Communications & Information Fund, Vantage Point Communications
Partners, LP, Vantage Point
II-3
<PAGE>
Venture Partners 1996, LP, Applewood Associates, Fred F. Nazem, Admirals,
L.P., Fred Tanzer, Van Wagoner Capital Management.
(25) 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).
(26) 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).
(27) 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).
(28) 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).
(29) 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).
(30) 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).
(31) 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).
(32) In January 1999, Christine Ohly exercised options and received
250 and 2,416 shares of Common Stock at a price per share of $3.00 and
$5.10, respectively (on a post-split basis).
(33) 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).
(34) 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).
(35) 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).
(36) 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).
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-4
<PAGE>
ITEM 16. EXHIBITS.
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
1.1 Form of Underwriting Agreement.**
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. d/b/a
Astrology.Net.**
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.**
3.1 Certificate of Incorporation of the Registrant, as currently in effect.**
3.2 Amended and Restated Certificate of Incorporation of the Registrant.**
3.3 Form of Amended and Restated Certificate of Incorporation of the Registrant, to be effective upon
completion of this offering.**
3.4 Bylaws of the Registrant, as currently in effect.**
3.5 Form of Amended and Restated Bylaws of the Registrant, to be effective upon completion of this
offering.**
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 Form of 1999 Employee Stock Option Plan of the Registrant.**
10.5 Form of 1999 Director Stock Option Plan of the Registrant.**
10.6 Form of 1999 Employee Stock Purchase Plan of the Registrant.**
10.7 Form of 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.+**
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
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.+**
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 on April 15, 1996, as
further amended and supplemented January 20, 1997, and as amended and supplemented on 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.**
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 Form of Promissory Note dated March 9, 1999 in the amount of $15,497,558.48 between the Registrant
and GE Investments Subsidiary, Inc.**
21 List of subsidiaries.**
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-8).**
27 Financial Data Schedule.**
</TABLE>
II-6
<PAGE>
- ------------------
** Previously filed
+ Confidential treatment has been requested for certain portions of these
exhibits. Omitted portions have been filed separately with the Commission.
(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.
II-7
<PAGE>
ITEM 17. UNDERTAKINGS.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended (the "Act"), may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the foregoing provisions, or
otherwise, the Registrant has been advised that, in the opinion of the
Securities and Exchange Commission, such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the Registrant will, unless
in the opinion of 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 Act and
will be governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes to provide to the Underwriters
at the closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Act, the
information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4), or
497(h) under the Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Act, each
post-effective amendment that contains a form of prospectus shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
II-8
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this Amendment No. 5 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 the 15th day of March, 1999.
iVILLAGE INC.
By: /s/ Caterina A. Conti
----------------------------------
Caterina A. Conti
General Counsel
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Amendment No. 5 to this Registration Statement has been signed below by the
following persons in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE(S) DATE
--------- -------- ----
<S> <C> <C>
/s/ Candice Carpenter* Co-Chairperson of the Board and Chief Executive March 15, 1999
- ---------------------------------------- Officer (Principal Executive Officer)
Candice Carpenter
/s/ Nancy Evans* Co-Chairperson of the Board and Editor- in-Chief March 15, 1999
- ----------------------------------------
Nancy Evans
/s/ Craig T. Monaghan* Chief Financial Officer (Principal Financial March 15, 1999
- ---------------------------------------- Officer)
Craig T. Monaghan
/s/ Sanjay Muralidhar* Vice President, Finance (Principal Accounting March 15, 1999
- ---------------------------------------- Officer)
Sanjay Muralidhar
/s/ Alan Colner* Director March 15, 1999
- ----------------------------------------
Alan Colner
/s/ Jay Hoag* Director March 15, 1999
- ----------------------------------------
Jay Hoag
/s/ Lennert J. Leader* Director March 15, 1999
- ----------------------------------------
Lennert J. Leader
/s/ Habib Kairouz* Director March 15, 1999
- ----------------------------------------
Habib Kairouz
/s/ Michael Levy* Director March 15, 1999
- ----------------------------------------
Michael Levy
</TABLE>
II-9
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE(S) DATE
--------- -------- ----
<S> <C> <C>
/s/ Douglas McCormick* Director March 15, 1999
- ----------------------------------------
Douglas McCormick
/s/ Martin Yudkovitz* Director March 15, 1999
- ----------------------------------------
Martin Yudkovitz
/s/ Daniel Schulman* Director March 15, 1999
- ----------------------------------------
Daniel Schulman
*By: /s/ Caterina A. Conti
- ----------------------------------------
Caterina A. Conti
General Counsel
</TABLE>
II-10
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NUMBER DESCRIPTION PAGE NO.
- ------- ----------- -----------
<S> <C> <C> <C>
1.1 -- Form of Underwriting Agreement.**
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.
d/b/a Astrology.Net.**
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.**
3.1 -- Certificate of Incorporation of the Registrant, as currently in effect.**
3.2 -- Amended and Restated Certificate of Incorporation of the Registrant.**
3.3 -- Form of Amended and Restated Certificate of Incorporation of the Registrant, to be
effective upon completion of this offering.**
3.4 -- Bylaws of the Registrant, as currently in effect.**
3.5 -- Form of Amended and Restated Bylaws of the Registrant, to be effective upon
completion of this offering.**
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 -- Form of 1999 Employee Stock Option Plan of the Registrant.**
10.5 -- Form of 1999 Director Stock Option Plan of the Registrant.**
10.6 -- Form of 1999 Employee Stock Purchase Plan of the Registrant.**
10.7 -- Form of 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.+**
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NUMBER DESCRIPTION PAGE NO.
- ------- ------------------------------------------------------------------------------------------- -----------
<S> <C> <C> <C>
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.+**
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 on April 15, 1996, as further amended and supplemented January 20, 1997,
and as amended and supplemented on 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.**
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 -- Form of Promissory Note dated March 9, 1999 in the amount of $15,497,558.48 between
the Registrant and GE Investments Subsidiary, Inc.**
21 -- List of subsidiaries.**
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-8).**
27 -- Financial Data Schedule.**
</TABLE>
- ------------------
** Previously filed.
+ Confidential treatment has been requested for certain portions of these
exhibits. Omitted portions have been filed separately with the Commission.
<PAGE>
* Confidential treatment has been requested for certain portions of this
exhibit.
CONFIDENTIAL
INTERACTIVE SERVICES AGREEMENT
------------------------------
This Interactive Services Agreement (this "Agreement"), effective as
of December 31, 1998 (the "Effective Date"), is made and entered into by and
between America Online, Inc. ("AOL"), a Delaware corporation, with its
principal offices at 22000 AOL Way, Dulles, Virginia 20166, and iVillage, Inc.
("Interactive Content Provider" or "ICP"), a Delaware corporation, with its
principal offices at 170 Fifth Avenue, 4th Floor, New York, NY 10010 (each a
"Party" and collectively the "Parties").
INTRODUCTION
------------
AOL and ICP each desires that ICP provide the ICP Sites through the
AOL Network, subject to the terms and conditions set forth in this Agreement.
Defined terms used but not defined in the body of the Agreement or in Exhibit C
shall be as defined on Exhibit B attached hereto.
TERMS
-----
1. DISTRIBUTION; PROGRAMMING
-------------------------
1.1 Anchor Tenancy. Beginning on the Launch Date (or upon the
launch of the new version of the applicable screen or
channel, as the case may be), ICP shall receive anchor tenant
distribution within the AOL Service as follows:
(a) Within the Families channel (or any specific successor
thereof), AOL shall continuously and prominently place an
agreed-upon ICP logo or banner (an "Anchor Tenant Button") on
each of (i) the Families channel main screen, (ii) the
Parenting subscreen and (iii) the Babies subscreen, or any
specific successor(s) of such screens, which Anchor Tenant
Buttons shall each link to the "Parent Soup" Online Area.
(b) Within the Health channel (or any specific successor
thereof), AOL shall continuously and prominently place an
Anchor Tenant Button on each of (i) the Health channel main
screen and (ii) the Illnesses and Treatments subscreen, or
any specific successor(s) of such screens, which Anchor
Tenant Buttons shall link to the "Better Health" Online Area.
(c) AOL shall continuously and prominently place an Anchor
Tenant Button on the Women's subchannel main screen (or any
specific successor thereof), which Anchor Tenant Button shall
link to the "iVillage Women's Network" Online Area.
(d) Until March 31, 1999, AOL shall continuously and
prominently place an Anchor Tenant Button on the Lifestyles
channel main screen (or any specific successor thereof), which
Anchor Tenant Button shall link to the "iVillage Women's
Network" Online Area. Beginning on March 1, 1999, AOL shall
have the option to remove the Anchor Tenant Button set forth
in this Section 1.1(d), so long as all Anchor Tenant Buttons
for any and all entities reasonably deemed by AOL to be
competitive with the iVillage Women's Network are removed
from the Lifestyles channel main screen, in which case the
carriage payments and Impressions Guarantees shall be
adjusted as set forth in Section 1.5.1.1 and
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Section 1.6.1. ICP may request that AOL remove the Anchor
Tenant Button set forth in this Section 1.1(d) on March 31,
1999 by providing AOL with written notice thereof no later
than March 1, 1999, in which case the carriage payments and
Impression Guarantees shall be adjusted as set forth in
Section 1.5.1.1 and Section 1.6.1.
(e) AOL shall provide ICP with the keywords specified on
Exhibit A.2 hereto provided, however, that (i) AOL shall have
the right to discontinue provision to ICP of any keywords
that are not registered trademarks of ICP upon thirty (30)
days notice and (ii) ICP may submit for AOL's approval (not
to be unreasonably withheld) any other trademarks or trade
names of ICP as potential additional keywords.
(f) list the ICP Sites in AOL's "Find" feature.
Except to the extent expressly described herein, the exact
form, placement and nature of the Anchor Tenant Buttons shall
be determined by AOL in its reasonable editorial discretion.
1.1.1 Discontinuation of ICP properties. If ICP
discontinues provision of any property specified in
Section 1.1, ICP shall continue to be obligated to
pay AOL the full carriage fee specified in Section
1.5, provided that ICP and AOL shall negotiate in
good faith for a "make-good" provision to ICP for
the discontinued property, which may include
carriage for another ICP property or provision to
ICP of remnant AOL advertising inventory. Any such
"make-good" provision shall occur during the Term of
this Agreement.
1.2 ICP Sites. ICP shall work diligently to develop and implement
the ICP Sites, consisting of, at a minimum, the specific
Content described on Exhibit A attached hereto. ICP shall
develop the design of the Online Areas in consultation with
AOL and in accordance with any standard design and content
publishing guidelines provided to ICP by AOL (including,
without limitation, any HTML publishing guidelines). ICP
shall not authorize or permit any third party to distribute
the Licensed Content or any other Content of ICP through the
AOL Network absent AOL's prior written approval which shall
not be unreasonably withheld. The inclusion of any additional
Content in the ICP Sites (including, without limitation, any
features, functionality or technology) not expressly
described on Exhibit A shall be subject to AOL's prior
written approval, which shall not be unreasonably withheld or
delayed.
1.3 License. ICP hereby grants AOL a worldwide license to use,
market, license, store, distribute, display, communicate,
perform, transmit and promote the ICP Sites and the Licensed
Content (or any portion thereof) through such areas or
features of the AOL Network as AOL deems appropriate,
including without limitation the right to integrate Content
from the ICP Sites or another Linked Interactive Site by
linking to specific areas on the ICP Sites, provided that the
link to any such Content on the AOL Network shall conform
with the specifications set forth on Exhibit D. Without
limiting the generality of the foregoing, to the extent AOL
wishes to distribute the Licensed Content through an online
or Internet product or service separate and distinct from the
U.S. version of the America
2
<PAGE>
Online branded service (each an '"Additional AOL Product"):
(i) AOL shall provide ICP with prior written notice of the
Additional AOL Product through which the Licensed Content
will be made available; and (ii) any changes in the form or
presentation of the Licensed Content within the Additional
AOL Product shall be subject to ICP's approval, which shall
not be unreasonably withheld or delayed. AOL shall not be
required to pay any additional fees or other form of
compensation in connection with distribution of the Licensed
Content through any such Additional AOL Product.
1.4 Links on Sites. The Parties will work together on mutually
acceptable links (including links back to AOL) within the ICP
Sites in order to create a robust and engaging AOL member
experience. ICP shall take reasonable efforts to insure that
AOL traffic is generally either kept within the ICP Sites or
channeled back into the AOL Network. Except for links to a
commerce area as specified in the Commerce Agreement and
except as set forth on Exhibit B hereto, subject to the last
sentence of this Section, ICP shall not be permitted to
establish any "pointers" or links between the ICP Sites and
any other area on or outside of the AOL Network, including,
without limitation, other ICP Sites or sites on the World Wide
Web portion of the Internet ("Linked Sites"), without the
prior written approval of AOL, which approval shall not be
unreasonably withheld and may be conditioned upon, among other
things, payment of certain linking fees and commitments
providing for promotion of the ICP Sites and AOL through the
Linked Site in question. In addition, AOL may restrict its
approval (at any time) to specific portions of Content or
functionality within a Linked Site (based on AOL's programming
objectives related to the ICP Sites). In such case,
establishment of the link from the ICP Site to the Linked Site
will be subject to mutual agreement of the Parties regarding
the means by which access will be restricted to the approved
portions of the Linked Site. Notwithstanding the foregoing,
ICP may establish links from an ICP Site to another ICP Site
provided that such links are editorial, content-specific
links, to relevant areas of the ICP Sites. In general, such
links shall be temporary (i.e., generally no more than 7 days
continuous duration, and in any event, for no more than 30
days continuous duration and no more than 7 days cumulatively
(including partial duration days) in any 12-month period).
1.4.1 Management. AOL shall have no obligations of any
kind with respect to the ICP Sites or any Linked
Interactive Site. ICP shall be responsible for any
hosting or communication costs associated with the
ICP Sites and any Linked Interactive Sites
(including, without limitation, the costs associated
with (i) any agreed-upon direct connections between
the AOL Network and an ICP Internet Site or a Linked
Interactive Site or (ii) a mirrored version of an
ICP Internet Site or a Linked Interactive Site). Any
Linked Interactive Sites shall be subject to the
license set forth in Section 1.3 above. ICP will
permit AOL Members to access and use any ICP
Interactive Site free of charge during the Term. AOL
Members shall not be
3
<PAGE>
required to go through a registration process (or
any similar process) in order to access and use the
ICP Sites, provided that if ICP elects to have all
users of ICP Internet Sites go through a
registration and subscription process (or other
similar process) in order to access and use the
sites, then ICP shall be permitted to require AOL
Members to go through the identical process,
provided, further, that (a) AOL Members shall not be
required to go through any such registration process
from a Welcome Mat, and (b) in any event the ICP
Internet Sites shall contain a material amount of
Content that is available without AOL Members having
to go through any such registration process.
1.5 Carriage Fee. ICP shall pay AOL during the Term as follows:
1.5.1 Cash Payments. ICP shall pay AOL Three Million Six
Hundred Eighty Four Thousand Six Hundred Fifteen
Dollars ($3,684,615) in equal quarterly installments
beginning on the date this Agreement is executed and
Four Million Eight Hundred Sixty Three Thousand Six
Hundred Ninety Two Dollars ($4,863,692) in equal
quarterly installments beginning on or before the
date which is one (1) year from the Effective Date.
1.5.1.1 Lifestyles Anchor Tenancy. In the event
that AOL or ICP elects to remove the
Lifestyles channel Anchor Tenant Button,
as set forth in Section 1.1(d), AOL will
refund (or deduct from future carriage
payments) a pro rata portion of the
carriage payment associated with such
Anchor Tenancy, based on a monthly
carriage payment of $103,333 for the
first year of the Term and a monthly
carriage payment of $136,400 for the
second year of the Term.
1.5.2 In-Kind Programming and Promotion. ICP shall provide
AOL with the equivalent of $2,746,666 during the
Term, made up of the in-kind commitments specified on
Exhibit E attached hereto in the amounts and with
the bona-fide values listed in such exhibit (the
"ICP In-kind Commitments"). Without limiting any
other rights or remedies available to AOL, AOL's
anchor tenant and impressions commitments specified
in Sections 1.1 and 1.6 herein are and will be
contingent upon provision by ICP of the ICP In-Kind
Commitments in accordance with Exhibit E.
1.5.3 NBC Television Advertisements. ICP will make best
efforts to obtain NBC's consent to provide AOL with
the following advertising on NBC Television ("NBC
TV") during the Term:
(a) ICP will provide AOL with One Million
Dollars ($1,000,000), (based on the best
available preferred rate card as provided in
any ICP agreement with NBC or its
affiliates), in prime time advertising spots
on NBC TV for the broadcast of co-branded
ICP/AOL advertisements (each an "NBC Ad" and
collectively, the "NBC Ads"). In the event
that ICP is unable to secure every NBC Ad
during prime time, the mix of prime
time/non-prime time NBC Ads shall be at
least equivalent to the mix of prime
time/non-prime time advertising spots
provided to ICP by NBC. No less than Fifty
Percent (50%) of the creative for each NBC
Ad shall promote AOL.
(b) AOL, or its agents, shall produce at least
one NBC Ad, subject to the following: AOL
shall submit the NBC Ad for ICP's approval,
which shall not be unreasonably withheld. If
ICP does not approve
4
<PAGE>
the NBC Ad, AOL will make one round of
revisions and resubmit the NBC Ad for ICP's
approval, which shall not be unreasonably
withheld. If ICP approves the NBC Ad, either
on the first or second submission, AOL shall
be responsible for any costs (excluding
costs related to ICP's development of ICP
content) incurred in the production thereof.
In the event that ICP does not approve the
second submission of the NBC Ad, or in the
event that the Parties otherwise agree, ICP
or its agents shall produce the NBC Ad and
ICP shall obtain AOL's approval of the NBC
Ad; provided that ICP shall be responsible
for any and all costs incurred in the
production thereof.
(c) In any instance when ICP promotes an ICP
Interactive Site on NBC TV, ICP shall
include an equally prominent reference to
ICP's AOL Keyword.
1.5.4 Substitute NBC-Advertising. To the extent ICP is
unable to obtain NBC's consent to the NBC Ads set
forth in Section 1.5.3 above, then, at AOL's option:
(a) ICP will provide AOL with $2,000,000 in
AOL-approved banner advertisements on ICP
Interactive Sites, valued at ICP's
preferred rate card price, which AOL may
use to promote any AOL product; or
(b) ICP will purchase $1,000,000 of run of
service advertisements on the AOL Network
(which shall be in addition to the
advertising package set forth in Section
1.7). The Parties shall work together to
select the screens on which such run of
service advertisements shall appear, subject
to AOL's discretion and final approval.
1.6 Impressions Guarantee. AOL shall provide ICP with at least
81,785,000 Impressions for the first year of the Term and
89,963,500 Impressions for the second year of the Term from
ICP's presence on the AOL Network (collectively, the
"Impressions Guarantee"). AOL shall use reasonable efforts to
ensure that the Impressions Guarantee is delivered in
relatively consistent amounts over the Term, measured on a
quarterly basis, subject to seasonal, customary and other
appropriate fluctuations. A minimum of 85% of the Impressions
Guarantee shall be generated from the presence of ICP on the
screens set forth in Section 1.1, and the remaining
Impressions, if any, may be generated from ICP's presence on
other appropriate screens on the AOL Network as AOL may
determine in its discretion. For the purposes of this
Agreement, ICP's presence on an AOL screen shall conform to
the specifications set forth on Exhibit D (each, an "ICP
Presence"), provided that only screens that contain a link to
an ICP Site will count against the Impressions Guarantee. AOL
will not be obligated to provide in excess of any of such
Impression amounts in any year. In the event AOL provides an
excess of any annual Impressions amounts in any year, the
Impressions amount for the subsequent year will be reduced by
the amount of such excess. Any shortfall in Impressions at the
end of a year will not be deemed
5
<PAGE>
a breach of this Agreement by AOL; instead such shortfall
will be added to the Impressions target for the subsequent
year. In the event that the Impressions Guarantee is not met
(or will not, in AOL's reasonable judgment, be met) during
the Term, at AOL's option either (a) the Term shall be
extended for up to six (6) months without additional carriage
fees payable by ICP until the Impressions Guarantee is met,
(b) AOL shall, from time to time, provide ICP with the
remaining Impressions in the form of advertising space within
the AOL Network of comparable value to the undelivered
Impressions (as reasonably determined by AOL), or (c) some
combination thereof.
1.6.1 Lifestyles Anchor Tenancy. In the event that AOL or
ICP elects to remove the Lifestyles channel Anchor
Tenant Button, as set forth in Section 1.1(d), the
Impressions Guarantee will be reduced by a pro rata
portion, based on a monthly Impressions Guarantee of
2,583,333 for the first year of the Term and a
monthly Impressions Guarantee of 2,841,667 for the
second year of the Term.
1.7 Other Advertising. The Parties shall work together in good
faith to develop a mutually agreed upon advertising package
(the "Advertising Package"). The Advertising Package shall be
comprised of advertising placements within the AOL Network
valued at (i) no less than $400,000 during the first year of
the Term and (ii) no less than $400,000 during the second year
of the Term. The Parties shall work together to make the
Women's subchannel the primary component of the Advertising
Package. The remaining advertising placements in the
Advertising Package shall be mutually agreed upon by the
Parties. All advertising placements in the Advertising Package
shall be subject to AOL's then-standard advertising policies
and exclusivity commitments to third parties and the terms and
conditions of AOL's standard advertising insertion order.
2. ADVERTISING AND TRANSACTIONS
----------------------------
2.1 Advertising Sales. AOL owns all right, title and Interest in
and to the advertising and promotional spaces within the AOL
Network (including, without limitation, advertising and
promotional spaces on any AOL forms or pages which are
included within, preceding, framing or otherwise associated
with the ICP Sites). The specific advertising inventory
within any AOL forms or pages shall be as reasonably
determined by AOL. With respect to the Online Areas
(including the Welcome Mats), AOL hereby grants ICP the sole
right, subject to the terms of his Agreement, to license or
sell promotions, advertisements, links, pointers or similar
services or rights in or through the Online Areas ("Online
Advertisements"), subject to (i) AOL's approval for each
Online Advertisement (such approval not to be unreasonably
delayed) and (ii) the Advertising Minimum. In addition, with
respect to promotions, advertisements, links, pointers or
similar services or rights in or through the Welcome Mats
(not including screens linked from the Welcome Mats) "Welcome
Mat Advertisements" and, collectively with Online
Advertisements, "AOL Advertisements"), which pursuant to the
preceding sentence ICP has the sole right to license or sell,
ICP shall pay AOL fifteen percent (15%) of the Advertising
Revenue generated from such Welcome Mat Advertisements. If
and when AOL makes its ad server technology generally
available to third parties, AOL shall make such technology
available for use by
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<PAGE>
ICP with respect to the AOL Advertisements on AOL's
then-standards terms and conditions.
2.2 Advertising Policies.
2.2.1 AOL Advertisements. Any AOL Advertisements sold by
ICP or its agents shall be subject to AOL's
then-standard advertising policies, including,
without limitation, restrictions on the promotion of
any entity reasonably construed to be in competition
with AOL..
2.2.2 Linked Interactive Site Advertisements. ICP shall
ensure that AOL Members linking to any Linked ICP
Interactive Site from the AOL Network do not
encounter advertisements, promotions or links on or
through the Online Sites, the Welcome Mats or via
any Linked ICP Interactive Sites, (a) for any
entity, (excluding ICP), reasonably construed to be
in competition with AOL or any AOL "component"
products and services, (e.g. AOL NetFind or other
search/directory services, AOL NetMail or
free/discount E-mail, yellow pages, white pages, "My
AOL" type personalized information, classifieds, and
other products and services as AOL may designate from
time to time during the Term) (collectively, the
"Component Products and Services"), (b) for AT&T
(including any affiliates thereof), or any AT&T or
affiliate products or services, (c) in violation of
AOL's exclusivity or premier commitments to third
parties, or (d) in violation of any other of AOL's
then-standard advertising policies. In the event that
AOL notifies ICP in writing that any advertising or
promotional Content associated with any Linked ICP
Interactive Site (a "Linked ICP Interactive Site
Advertisement") is in violation of AOL's
then-standard advertising policies, then ICP shall
take commercially reasonable steps to block access by
AOL Members to such advertising using ICP's
then-available ad server or other technology. In the
event that ICP cannot, through Its commercially
reasonable efforts, block access by AOL Members to
the advertising in question, then ICP shall provide
AOL prompt written notice of such fact. AOL may then,
at its option, either (i) restrict access from the
AOL Network to the advertising in question using
technology available to AOL or (ii) terminate the
link from the AOL Network to the Linked ICP
Interactive Site until such time as the advertising
in question is no longer displayed. ICP will
cooperate with AOL's reasonable requests to the
extent AOL elects to implement any such access
restrictions.
2.3 Advertising Compliance. ICP shall take all reasonable steps
necessary to ensure that any AOL Advertisement sold by ICP
complies with all applicable federal, state and local laws
and regulations.
2.4 Advertising Registration Form. In connection with the sale by
ICP of any AOL Advertisement, ICP shall, in each instance,
provide AOL with a completed standard AOL Advertising
Registration Form relating to such AOL Advertisement.
2.5 Advertising Packages. To the extent ICP sells a Welcome Mat
Advertisement as part of an advertising package including
multiple placement locations (e.g., both Welcome Mat and
another area or site), ICP shall allocate the payment for
7
<PAGE>
such advertising package between or among such locations in
an equitable fashion, subject to the Advertising Minimum.
When selling advertising associated with the ICP Sites, ICP
shall use commercially reasonable efforts to sell related
advertising within the Welcome Mats. To the extent an
advertisement is delivered through a dynamic mechanism
primarily linked to particular AOL Members viewing such
advertisement (rather than a defined space within the Welcome
Mats), the amount of revenue from the advertisement allocable
to Advertising Revenue shall be determined based on the
number of impressions to the advertisement generated by AOL
Members while viewing Content within the Welcome Mat relative
to the total impressions to the advertisement during the
given period (or such other formula as AOL may reasonably
implement given the then-existing advertising models).
2.6 Interactive Commerce. All merchandising on the ICP Sites
shall be subject to (i) the terms of the Shopping Channel
Promotional Agreement between AOL and ICP dated as of
January 1, 1998 (the "Commerce Agreement"), (ii) the
requirements posted at keyword "Marketplace Policy" on the
America Online(R) brand service (or such other keyword as AOL
may designate during the Term), (iii) approval by AOL of all
Products to be offered, which approval shall not be
unreasonably withheld, and (iv) the then-current requirements
of AOL's merchant certification program. Upon the expiration
of the Commerce Agreement, all merchandising on the ICP Sites
shall be subject to AOL's prior written approval. Prior to
entering into negotiations with any third party regarding
merchandising or commerce arrangements through the ICP Sites,
ICP shall give AOL written notice of such desire and, upon
request by AOL made within ten (10) business days after
receipt of such notice from ICP, negotiate in good faith with
AOL or its commerce or marketing partner in the applicable
product/service category regarding a merchandising or
commerce arrangement.
3. PROMOTION
---------
3.1 Cooperation. Each Party shall cooperate with and reasonably
assist the other Party in supplying Content for marketing and
promotional activities which relate to the ICP Sites.
3.2 Interactive Site. ICP shall include the following promotions
within each ICP Interactive Site, including, without
limitation, ICP's Interactive Site on the At&T WorldNet
Service, during the Term: a continuous promotional banner for
AOL appearing "above the fold" on the first screen of the ICP
Interactive Site which shall be as prominent as the banner (or
any other form of promotion) for AT&T WorldNet and more
prominent than the banner (or any other form of promotion) for
any other Interactive Service, through which AOL may promote
any AOL product. AOL shall have a "right of first refusal"
with respect to ICP's promotion of any products or services
reasonably deemed to be competitive with AOL's Component
Products and Services (as set forth in Section 2.2.2). The
"right of first refusal" means that AOL shall have the right
to purchase promotional space on an ICP Interactive Site to
promote AOL's Component Products and Services, upon ICP's
decision to offer such promotional space, at the same terms
offered by ICP to a third party.
8
<PAGE>
3.3 Other Media. In addition to the specific terms set forth in
Section 1.5.3 herein, ICP shall prominently and regularly
promote AOL and the ICP Sites availability through the AOL
Service in publications, television and radio programs,
features or other forms of media over which ICP exercises
substantial editorial control. Except as required by the
terms of ICP's agreement with the National Broadcasting
Company, Inc. ("NBC") as set forth in the letter dated
November 11, 1998 from NBC to ICP, ICP shall not promote any
other Interactive Service, including without limitation the
AT&T Worldnet Service, in any forms of "offline" media through
which ICP purchases promotional space (either through cash,
stock, barter or by providing any other "in-kind" value) or in
publications, television and radio programs, features or other
forms of media over which ICP exercises complete or
substantial editorial control. ICP shall not enter into any
agreement, written or oral, that will in any way serve to
intentionally undermine the provisions of this, or any other,
paragraph of the Agreement.
3.4 Keyword Mentions. In any instances when ICP makes promotional
reference to an ICP Interactive Site in publications,
television, radio, the Internet, and any other forms of
media, and exercises at least partial editorial control,
including any listings of the applicable "URL(s)" for such
web site(s) (each a "Web Reference"), ICP shall include a
listing of the applicable AOL "keyword" of comparable
prominence to the Web Reference.
3.5 Preferred Access Provider. In any "offline" Web Reference,
ICP shall promote AOL as the preferred access provider
through which a user can access ICP's Content (and ICP shall
not implement or authorize any other promotions on behalf of
any third parties which are inconsistent with the foregoing).
Notwithstanding the foregoing, AOL acknowledges that, due to
contractual commitments set forth in the Promotion,
Distribution & License Agreement between ICP and AT&T (the
AT&T Agreement"), ICP may be required to promote the AT&T
Worldnet Service, on an ICP Interactive Site. In such cases,
AOL shall be promoted as prominently as AT&T.
3.5.1. Upon the expiration or termination of the AT&T
Agreement, AOL shall have the non-exclusive right of
first negotiation to enter into a similar
promotion/distribution agreement with ICP.
3.6 Direct Marketing. The Parties shall execute any commercially
reasonable New Member acquisition programs, and ICP shall
earn a bounty of Ten Dollars ($10) for each New Member.
3.7 Member Benefits. ICP will generally promote through the ICP
Sites any special or promotional offers made available by or
on behalf of ICP through any ICP Interactive Site or any
other distribution channel. In addition, ICP shall promote
through the ICP Sites on a regular and consistent basis
special offers exclusively available to AOL Members ("AOL
Exclusive Offers"). ICP shall, at all times, feature at least
one AOL Exclusive Offer for AOL Members (except as otherwise
mutually agreed upon by the Parties). The AOL Exclusive Offer
made available by ICP shall provide a substantial member
benefit to AOL Members, either by virtue of a meaningful
price discount, product enhancement, unique service benefit
or other special feature. The Parties shall meet from time to
time during the Term, (e.g. quarterly) to agree upon any such
AOL Exclusive Offers. In any
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event, ICP will provide AOL with reasonable prior notice of
AOL Exclusive Offers and other special offers so that AOL
can, in its editorial discretion, market the availability of
such offers.
4. PAYMENTS AND REPORTING
----------------------
4.1 Payment Schedule. Except as otherwise specified in Section
1.5 and 6.4, each Party agrees to pay the other Party all
amounts received and owed to such other Party as described
herein on a quarterly basis within thirty (30) days of the
end of the quarter in which such amounts were collected by
such Party. The first quarter for which payment is to be made
shall (i) begin on the first day of the month following the
month of execution of this Agreement and (ii) include the
portion of the month of execution following the Effective
Date (unless the Agreement was executed on the first day of a
month, in which case the quarter shall be deemed to begin on
the first day of such month). All payments by ICP hereunder
shall be paid in immediately available, non-refundable U.S.
funds wired to the "America Online" account or such other
account of which AOL shall give ICP written notice.
4.2 Reporting. On no less than a monthly basis, each Party shall
supply or make available to the other Party reports
containing the following information:
4.2.1 Advertising and Transactions. ICP shall provide
detailed information to AOL regarding AOL
Advertisements. In reporting any advertisement or
promotion, ICP shall indicate the name of the
advertiser, the term of the advertising arrangement
and the amounts paid (or to be paid) to ICP or its
agent(s).
4.2.2 Usage Data. AOL shall make available to ICP a
monthly report specifying usage information for each
of the Online Areas for the prior month in the
format which is generally made available to
similarly situated interactive content providers. In
addition, to the extent AOL is caching the ICP
Sites, AOL shall supply ICP with monthly reports for
each ICP Site reflecting aggregate impressions by
AOL Members to the cached version of the ICP Sites
during the prior month. ICP will supply AOL with
monthly reports, for each ICP Site, which reflect
total impressions by AOL Members to Welcome Mats
during the prior month and any transactions
involving AOL Members at the ICP Sites during the
period in question. ICP shall also provide AOL with
"click-through" data with respect to the promotions
specified in Section 3.
4.2.3 Promotional Commitments. ICP shall provide to AOL a
monthly report documenting its compliance with any
promotional commitments it has undertaken pursuant
to Section 3 in the form attached as Exhibit E
hereto.
5. CUSTOMIZED LINKED INTERACTIVE SITE
----------------------------------
5.1 Performance. ICP shall optimize the ICP Sites for
distribution hereunder according to AOL specifications and
guidelines, including, if applicable, the Operating Standards
set forth on Exhibit G attached hereto. ICP shall allow
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appropriate AOL personnel to have access to the ICP Sites for
the purpose of reviewing such site to determine compliance
with the provisions of this Section 5 and Exhibit G.
5.2 Customization. ICP shall customize the ICP Sites for AOL
Members as follows:
(a) upon AOL's request, create a customized, co-branded home
page "welcome mat" for the AOL audience for each area on the
ICP Sites linked to from the AOL Network on a continuous
basis (each a "Welcome Mat"), which Welcome Mat(s) shall be
subject to AOL approval;
(b) ensure that AOL Members linking to the ICP Sites do not
receive advertisements, promotions or links for any entity,
product, or service reasonably construed to be in competition
with AOL's products or services, or otherwise in violation of
AOL's then-standard advertising policies or exclusivity or
premiere commitments to third parties; and
(c) provide continuous navigational ability for AOL Members
to return to an agreed-upon point on the AOL service (for
which AOL shall supply the proper address) from the ICP Sites
(e.g., the point on the AOL service from which the ICP Sites
are linked), which, at AOL's option, may be satisfied through
the use of a hybrid browser format.
6. TERM AND TERMINATION.
---------------------
6.1. Term. Unless earlier terminated as set forth herein, the
initial Term of this Agreement shall commence on the
Effective Date and expire two (2) years from the Effective
Date ("Initial Term").
6.1.1 One Year Extension by AOL. AOL may extend the
Agreement for an additional year from December 31,
2000, upon AOL's then-standard terms and conditions
generally applicable to anchor tenants (but in no
event less favorable to ICP than the terms and
conditions provided for herein) and with payments by
ICP to AOL of $6,237,025 (or $4,600,225 if the
Lifestyles channel Anchor Tenant Button is removed
pursuant to 1.1(d)) (the "Renewal Carriage Fee") by
providing ICP with written notice thereof no later
than sixty (60) days prior to the expiration of the
Initial Term (the "Put Notice"), provided, however,
that if the most recent price offered to and accepted
by AOL as valid for the placements specified herein
(e.g., for continuous and prominent logos or banners
as specified in Section 1.1) is seventy-five percent
(75%) of the Renewal Carriage Fee or less (a "Renewal
Offer"), then AOL may only extend this Agreement for
an additional year by a Put Notice specifying to ICP
the Renewal Offer as the applicable carriage fee. The
Renewal Carriage Fee (or Renewal Offer as the
applicable carriage fee, as the case may be) shall be
made up of a combination of cash and in-kind
commitments, subject to the following: (i) the
proportion of cash to in-kind commitments shall be
determined by ICP, provided that no less than (a)
$4,863,692 of the Renewal Carriage Fee or 78% of the
Renewal Offer (as the case
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may be) or (b) if the Lifestyles channel Anchor
Tenant Button is removed pursuant to 1.1(d),
$3,226,892 of the Renewal Carriage Fee or 70% of the
Renewal Offer (as the case may be) shall be in cash
and payable in equal monthly installments in advance
of each month beginning on December 31, 2000; and
(ii) the value placed by ICP on and schedule of the
in-kind commitments shall be subject to AOL's prior
written approval (not to be unreasonably withheld).
6.1.2 One Year Extension by ICP. If AOL does not deliver
the Put Notice, ICP may, no later than forty five
(45) days prior to the expiration of the Initial
Term, notify AOL in writing (the "Call Notice") that
ICP desires to renew this Agreement for an
additional year from December 31, 2000, on AOL's
then-standard terms and conditions generally
applicable to anchor tenants (but in no event less
favorable to ICP than the terms and conditions
provided for herein) and with payments by ICP to AOL
of the "Market Rate" (as defined below). AOL shall
then provide ICP written notice of the "Market Rate"
for the additional year within thirty (30) days of
AOL's receipt of the Call Notice (the "Market Rate
Notice"). ICP shall have ten (10) days from receipt
of the Market Rate Notice to either accept or
decline the terms contained therein for the
additional year, provided that ICP's failure to
respond to the Market Rate Notice within such 10 day
period shall be deemed to be an acceptance of the
terms contained therein. If ICP accepts the terms
contained in the Market Rate Notice for the
additional year, then the Market Rate shall be
payable by ICP to AOL in a combination of cash and
in-kind commitments, subject to the following: (i)
the proportion of cash to in-kind commitments shall
be determined by ICP, provided that no less than
78% of the Market Rate (or 70% of such Market Rate
if the Lifestyles channel Anchor Tenant Button is
removed) shall be in cash and payable in equal
monthly installments in advance of each month
beginning on December 31, 2000; and (ii) the value
placed by ICP on and schedule of the in-kind
commitments shall be subject to AOL's prior written
approval (not to be unreasonably withheld). If ICP
declines the terms contained in the Market Rate
Notice for the additional year, AOL shall not, for a
period of one hundred twenty days (120) days
thereafter, agree with any non-affiliated third
party for continuous placement on the Screens (as
specified in this Agreement) for a carriage fee that
is materially less than the Market Rate. For the
purposes hereof, "Market Rate" shall mean the rate,
specified by AOL in its notice to ICP, reasonably
determined by AOL for anchor tenant placement as
specified herein for the screens specified in this
Agreement, taking into account such reasonable
considerations as AOL may determine in its
discretion.
6.2 Termination for Breach. Either Party may terminate this
Agreement at any time in the event of a material breach by
the other Party which remains uncured after thirty (30) days
written notice thereof.
6.3 Termination for Bankruptcy/Insolvency. Either Party may
terminate this Agreement immediately following written notice
to the other Party if the other Party (i) ceases to do
business in the normal course, (ii) becomes or is declared
insolvent or bankrupt, (iii) is the subject of any proceeding
related to its liquidation or insolvency (whether voluntary
or involuntary) which is not dismissed within ninety (90)
calendar days or (iv) makes an assignment for the benefit of
creditors.
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6.4 Effect of Agreement. The Parties agree that upon the
execution of this Agreement by both Parties, that Interactive
Services Agreement by and between AOL and ICP, effective as
July 1, 1997 ("ICP Agreement") is terminated. The termination
of the ICP Agreement is subject to the survival of those
terms expressly identified for survival in the ICP Agreement
and ICP's payment to AOL of all amounts owed by ICP to AOL as
of the Effective Date of this Agreement pursuant to Section
1.5.1 thereof. ICP shall pay the foregoing outstanding
amounts to AOL no later than sixty (60) days following the
execution of this Agreement by both Parties. Except as
otherwise provided herein, any and all obligations arising
from, related to or in connection with that ICP Agreement are
hereby extinguished.
6.5 Entire Agreement. This Agreement sets forth the entire
agreement and supersedes any and all prior agreements of the
Parties with respect to the transactions set forth herein.
Neither Party shall be bound by, and each Party specifically
objects to, any term, condition or other provision which is
different from or in addition to the provisions of this
Agreement (whether or not it would materially alter this
Agreement) and which is proffered by the other Party in any
correspondence or other document, unless the Party to be
bound thereby specifically agrees to such provision in
writing.
7. TERMS AND CONDITIONS. The legal terms and conditions set forth on
Exhibit C attached hereto are hereby made a part of this Agreement.
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as
of the Effective Date.
AMERICA ONLINE, INC. iVILLAGE, INC.
By: /s/ Lynne Crawford By: /s/ Steve Elkes
Print Name: Lynne Crawford Print Name: Steve Elkes
Title: VP/CFO AOL Interactive Services Title: VP Business/Legal Affairs
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EXHIBIT A
---------
A.1 Description of Content
----------------------
Description of the ICP Sites
- ----------------------------
Exclusive Content. ICP make available and promote through the ICP Sites on a
regular and consistent basis special content exclusively available to AOL
Members ("AOL Exclusive Content"), to be mutually agreed upon by the Parties.
ICP shall, at all times, feature at least one AOL Exclusive Content area for AOL
Members (except as otherwise mutually agreed upon by the Parties). The Parties
shall meet from time to time during the Term, (e.g. quarterly) to develop any
such AOL Exclusive Content. ICP shall provide AOL with any and all content
developed for AT&T.
Description of the ICP Sites
iVillage:
iVillage is a "one-stop" destination for real women who want practical answers
to life's questions - in a quick, safe, easy-to-use interface. iVillage is about
utility, problem-solving and solutions. We provide the tools, expert advice,
peer support and information for busy women faced with trade-offs every day, as
they try and balance all the aspects of their lives.
iVillage has created a forum for women to talk with experts and with each other
on subjects they are most passionate about, including careers, finance, fitness
& beauty, food, health, parenting, and relationships. These conversations not
only provide the tools to help them come up with solutions to real issues, but
they actually help women create their own communities with each other. Each
community addresses an aspect of women's lives today in an easy-to-use, friendly
way. We provide access to experts - and peers - who can help women understand,
solve, resolve or accept issues and challenges in their lives.
Parent Soup:
Parent Soup, the No. 1 destination for parents online, is the place to get
answers and advice 24 hours a day, seven days a week. Features include a panel
of parenting experts available to answer questions; a vibrant community of
parents offering advice and support; interactive tools, such as the Parent Soup
Baby Name Finder; month-by-month Pregnancy Circles and New Mother's Clubs; and
games such as the Baby Name Scrambler.
Better Health:
The Better Health channel helps users make better health-care decisions by
providing the best information, advice and support anywhere. The Health Library,
a collection of over 1,000 articles, provides practical tips on how to deal with
a variety of medical conditions and concerns. The channel also offers the latest
medical news from Reuters Health; free access to Medline, a comprehensive
database of all of the world's major medical journals; and the most informed and
supportive health communities online.
A.2 iVillage Keywords
-----------------
<TABLE>
<S> <C> <C>
iVillagebetter health cancerBH Lung
Parent SoupBH CPBH Respiratory
PS FunBH Cerebral PalsyBH Breathe
Parent Soup ChatBH Cervical CancerBH Lyme
PS ExpertsBH ChildBH Menopause
PS ExpectingBH ParentBH Men
PS Baby & ToddlerBH DeafBH Man
PS School YearsBH HoHBH Psych
PS SchoolPEN DeafBH Mental Health
PS Teen YearsBH DepressionBH MS
PS Teens BH Endocrine BH Multiple Sclerosis
PS La Leche LeagueBH Diabetes BH Muscles
PS SoftwareBetter Health Diabetes BH Bones
PS MessagesBH Diet BH Joints
PS NewsBH Nutrition BH Natural
Spooky SoupBH Digestive BH Alt Health
BHDis BH Osteoporosis
HRSBH Disability BH Osteo
Better HealthBH ENT BH PD
BetterhealthBH Endo BH Parkinsons
PENBH Fitness, BH Exercise BH Pregnancy
BH ExpertBH Eye BH Prostate Cancer
BH ExpertsBH Vision BH Sex
BH AdviceBH FMS Better Sexual Health
BH ChatBH Fibromyalgia BH Skin Cancer
BH HPNBH Headache BH Skin Care
HPNBH Migrane BH Skin
BH ProfessionalBH Love BH Hair
BH LibraryBH Relationship BH Sleep
BH Medical LibraryBH Heart BH SCI
BH BoardsBHH BH Spinal Cord
BH Message BoardsBetter Heart Kick Butt
BH AddictionBetter Heart Health BH Stroke
BH AIDSBetter Health Heart BH Dental
BH HIVBH Heartburn BH Teeth
BH AlcoholismBH GERD BH Thyroid
BH AllergyBH Hemo BH Ulcer
BH AllergiesBH Hepatitis BH Weight Loss
BH SinusBH Hep BH Women
BH AlzheimersBH Hep C BH Woman
BH ArthritisBH Herpes BHConference
BH AsthmaBH High Blood Pressure BH Live
BH ADDBH HPB BH Event
BH ADHDBH Cholesterol BH Books
BH Back PainBH Impotence BHBook
BH BloodBH Baby HRS bookstore
BH LymphBH Infant Better Health Books
BH BrainBH Infectious BH Pharmacists
BH NerveBH Repro IMH
BH TBIBH Infertility American Heart Association@Better Health
BH Breast CancerBH Hope AHA@BH
GlennaBH Kidney HealthFocus
BH CancerBH Urinary Medizine
Glenna's GardenBH LD
Glenna's
</TABLE>
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EXHIBIT B
---------
DEFINITIONS. The following definitions shall apply to this Agreement:
Advertising Minimum. (i) Thirty dollars ($30) per thousand entries per month or
(ii) such different rate or fates as AOL may establish based upon market
conditions and publish during the Term.
Advertising Revenues. Aggregate amounts collected plus the fair market value of
any other compensation received (such as barter advertising) by ICP or its
agents arising from the license or sale of Welcome Mat Advertisements. less
applicable Advertising Sales Commissions; provided that in order to ensure that
AOL receives fair value in connection with Welcome, Mat Advertisements, ICP
shall be deemed to have received no less than the Advertising Minimum in
instances when ICP makes an AOL Advertisement available to a third patty at a
cost below the Advertising Minimum.
Advertising Sales Commission. Actual amounts paid as commission to third party
agencies in connection with sale of the Welcome Mat Advertisement or (ii) 15%.
in the event ICP has sold the Welcome Mat Advertisement directly and will riot
be deducting any third party agency commissions.
Affiliate. Any agent, distributor or franchises of AOL, or an entity in which
AOL holds at least a nineteen percent (19%) equity interest.
AOL Look and Feel. The distinctive and particular elements of graphics, design,
organization, presentation, layout, user Interface, navigation, trade dress and
stylistic convention (including the digital implementations thereof) which are
associated with Online Areas within the AOL Network and the total appearance
and impression substantially formed by the combination. coordination and
interaction of these elements.
AOL Member(s). Authorized users of the AOL Network, including any sub-accounts
using the AOL Network under an authorized master account.
AOL Service. The narrow-band U.S. version of the America Online(R) brand
service, specifically excluding (a) AOL.com or any other AOL Interactive Site,
(b) the international versions of an America Online service (e.g., AOL Japan),
(c) "ICQ," "AOL NetFind", "AOL Instant Messenger(Trade Mark)" 'Digital
Cities(Trade Mark)". 'NetMail(Trade Mark)" or any similar independent product
or service which may be offered by, through or with to U.S. version of the
America Online(Registered) brand service, (d) any programming or content area
offered by or through the U.S. version of the America Online brand service over
which AOL does not exercise complete operational control (including, without
limitation, Content areas controlled by other parties and member-created Content
areas), (e) any yellow pages. white pages, classifieds or other search,
directory or review services of Content offered by or through the U.S. version
of the America Online(R) brand service, (f) any property, feature, product or
service which AOL or its affiliates may acquire subsequent to the Effective Date
and (g) any other version of an America Online service which is materially
different from the narrow-band U.S. version of the America Online brand service,
by virtue of its branding, distribution, functionality, Content and services,
including, without imitation, any co-branded version of the service and any
version distributed through any broadband distribution platform or through any
platform or device other than a desktop personal computer.
AOL Network. (i) The AOL Service and (ii) any other product or service owned,
operated, distributed or authorized to be distributed by or through AOL or its
Affiliates worldwide through which such party elects to offer the Licensed
Content (which may include, without limitation, AOL-related Internet sites,
"offline" information browsing products, international versions of the AOL
brand service, and CompuServe). For the avoidance of doubt, without imitation,
the AOL Network includes the AOL Australia Service, the AOL Canada Service, the
AOL France Service, the AOL Germany Service, the AOL Japan Service and the AOL
UK Service.
Confidential Information. Any information relating to or disclosed In the
course of negotiating and Implementing the Agreement which is, or should be
reasonably understood to be, confidential or proprietary to the disclosing
Party, including, but not limited to, the content of negotiations between the
Parties. the material terms of this Agreement. Information about AOL Members,
technical processes and formulas, source codes, product designs, sales, cost
and other unpublished financial information, product and business plans.
projections and marketing data "Confidential Information" shall not Include
information (a) already lawfully known to or independently developed by the
receiving Party, (b) disclosed in published materials, (c) generally known to
the public, (d) lawfully obtained from any third party or (e) required or
reasonably advised to be disclosed by law.
Content. Text, images, video, audio (including, without Imitation, music used
In time relation with text. Images, or video), and other data, products,
services, advertisements, promotions. links, pointers, technology and software.
ICP Interactive Site. Any interactive site or area (other than the ICP Sites)
which is managed, maintained or owned by ICP or its agents or to which ICP
provides and/or licenses Content, Including, by way of example and without
Imitation, (i) an ICP site on the World Wide Web portion of the Internet
(including the ICP Internet Sites) or (ii) a channel or area delivered through
a "push" product such as the Pointcast Network or interactive environment such
as Microsoft's proposed "Active Desktop."
ICP Internet Sites. Collectively, (i) the Internet site and Content, currently
located at URL:http://www.ivillage.com, which are managed, maintained or owned
by ICP or its agents or to which ICP licenses Information, content or other
materials and (H) the portions of the ICP Sites which are located on the world
wide web portion of the Internet.
ICP Sites. The sites and Content specified on Exhibit A which are managed,
maintained or owned by ICP or its agents. The ICP Sites shall consist of the
Online Areas (including the Welcome Mats) and the ICP Internet Sites.
Impression. User exposure to (i) the page containing an ICP Presence or (i) a
page of the ICP Internet Sites, as the context may require, as such exposure
may be reasonably determined and measured by the reporting Party In accordance
with its standard methodologies and protocols.
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Interactive Service. An entity, offering one or more of the following: (i)
online or Internet connectivity services (e.g., an Internet service provider);
(ii) a broad selection of aggregated third party Interactive content (or
navigation thereto) (e.g., an online service or search and directory service),
(iii) communications software capable of serving as the principal means through
which a user creates, sends and receives electronic mail or real time online
messages.
Keyword(TM) Search Terms. The Keyword(TM) online search terms made available on
the AOL Service for use by AOL Members, combining AOL's Keyword(TM) online
search modifier with a term or phrase specifically related to ICP (and
determined in accordance with the terms of this Agreement).
Launch Date. The earliest date upon which ICP's Anchor Tenant Button is
displayed on any screen on which it is required under Section 1.1 to be
displayed.
Licensed Content. All Content provided by ICP or its agents to AOL or its
Affiliates for distribution through the, AOL Network In connection with the
subject matter of this Agreement
Linked Interactive Site. Any site or area outside of the AOL Service which is
linked to the Online Areas (through a "pointer" or similar link) In accordance
with the terms and conditions of this Agreement. For the avoidance of doubt,
the ICP Internet Site shall be deemed a Linked Interactive Site if the ICP
Internet Site is linked to the Online Areas.
Linked ICP Interactive. Site. Any ICP Interactive Site which is also a Linked
Interactive Site.
New Member. Any person or entity (a) who registers for the AOL Network using
ICP's special promotion identifier and (b) who remains an AOL Member for two
paid billing cycles.
Online Areas. The specific areas of (the ICP Sites that reside within the AOL
Network (including the Welcome Mats), as described In Exhibit A, which shall be
developed, managed or marketed by ICP pursuant to this Agreement including but
not limited to the Licensed Content, message boards, chat and other AOL
Member-supplied content areas contained therein (but excluding any Linked
Interactive Sites other than sites which are exclusively available to AOL
Members).
Products. Any product, good or service which ICP offers, sells or licenses to
AOL Members through (i) the ICP Sites, (ii) any Linked ICP Interactive Site or
(iii) an "offline" means (e.g., toll-free number) for receiving orders related
to specific offers within the ICP Sites requiring purchasers to reference a
specific promotional identifier or tracking code, including, without
limitation, products odd trough surcharged downloads (to the extent permitted
hereunder).
Term. The period beginning on the Effective Date and ending upon the expiration
or earlier termination of the Agreement.
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EXHIBIT C
---------
II. ICP SITES
AOL Terms of Service; Unspecified Content. AOL shall have the right to remove,
or direct ICP to remove any Content from the ICP Sites or the Welcome Mat (or
remove the link from, or otherwise block Content contained on. a Linked
Interactive Site), which, as reasonably determined by AOL: (I) violates AOL's
then-standard Terms of Service (as set forth on the America Online(TM) brand
service), the Terms of this Agreement or any other standard, written AOL
policy, (ii) violates the warranties made by ICP under the section below
entitled 'Management", or (iii) is not specifically described on Exhibit A. To
the extent ICP wishes to implement any rules of conduct or terms of service
related to the ICP Sites which are separate from or supplementary to AOL's
Terms of Service, ICP must obtain the prior written approval of the AOL Legal
Department.
Management. ICP shall review, delete, edit, create, update and otherwise manage
all Content available on or through the ICP Sites, any Linked ICP Interactive
Site and the Welcome Mat, including but riot limited to the Licensed Content
and message boards, in a timely and professional manner and in accordance with
the terms of this Agreement, AOL's then-standard Terms of Service and any
generally applicable guidelines and service standards for interactive content
providers published by AOL. In managing the ICP Sites, ICP agrees to refrain
from editing or altering any opinion expressed by an AOL Member within the ICP
Sites, except in cases when ICP (i) has a good faith belief that the Content in
question violates an applicable law, regulation, third party right or portion
of AOL's Terms of Service or (ii) obtains AOL's prior approval. ICP shall
ensure that the ICP Sites is reasonably current and well-organized, and shall
employ all necessary procedures to insure the accuracy of the, Licensed
Content. ICP warrants that the ICP Sites, the Licensed Content. the Welcome Mat
and any Linked Interactive Sites (i) will conform to AOL's applicable Terms of
Service; (ii) will not infringe on or violate any copyright, trademark, patent
or any other third party right, including without limitation, any music
performance or other music related rights; and (iii) will not contain any
Content which violates any applicable law or regulation. AOL shall have no
obligations with respect to the Content available on or through the ICP Sites,
the Welcome Mat or any Linked Interactive Site, including, but not limited to,
any duty to review or monitor any such Content
Changes to AOL Service. AOL reserves the right to redesign or modify the
organization, structure, "look and feel," navigation and other elements of the
AOL Service and/or other portions of the AOL Network. If AOL eliminates or
modifies the screen(s) specified in Section 1.1 in a manner that substantially
modifies the nature of the placements for ICP described in Section 1.1 in a
material adverse fashion, AOL will work with ICP in good faith to provide ICP
with a comparable package of placements which are reasonably satisfactory to
ICP.
Contests. ICP shall take all steps necessary to ensure that any contest,
sweepstakes or similar promotion conducted Or promoted through the ICP Sites, a
Linked Interactive Site or the Welcome Mat (a 'Contest") complies with all
applicable federal, state and local laws and regulations. ICP shall provide AOL
with (I) at least thirty (30) days prior written notice of any Contest and (ii)
upon AOL's request an opinion from ICP's counsel confirming that the Contest
complies with all applicable federal, state and local laws and regulations.
AOL Look and Feel. ICP acknowledges and agrees that AOL shall own all right,
title and Interest In and to the AOL Look and Feel. In addition. AOL shall
retain editorial control over the portions of the AOL pages and forms which
frame the Licensed Content or any Linked Interactive Site (the -AOL Frames-).
AOL may, at its discretion, incorporate navigational icons, links and pointers
or other Content into such AOL Frames.
Operations. AOL shall be entitled to require reasonable changes to Licensed
Content or any Linked Interactive Site to the extent such Licensed Content
will, in AOL's good faith judgment adversely affect technical operations of the
AOL Network.
Duty to Inform. ICP shall promptly inform AOL of any Information related to the
Licensed Content which could reasonably lead to a claim, demand or liability of
or against AOL and/or its Affiliates by any third party.
Response to Questions/Comments; Customer Service. ICP shall respond promptly
and professionally to questions, comments, complaints and other reasonable
requests regarding the Licensed Content by AOL Members or on request by AOL,
and shall cooperate and assist AOL In promptly answering the same.
Classifieds. To the extent ICP desires to implement any classifieds listing
features through the ICP Sites, ICP shall obtain AOL's prior written approval.
Such approval may be conditioned upon, among other things, ICP's conformance
with any then-applicable service-wide technical or other standards related to
online classifieds.
Message Boards. Any Content submitted by ICP or its agents within message
boards or any comparable vehicles will be subject to the license grant relating
to submissions to "public areas" set forth in the Proprietary Rights section of
the Terms of Service. ICP acknowledges that it has no rights or Interest in AOL
Member submissions to message boards within the ICP Sites.
Statements Through AOL Network. ICP shall not make, publish, or otherwise
communicate through the AOL Network any deleterious remarks concerning AOL or
its Affiliates, directors. officers. employees, or agents (including, without
limitation, AOL's business projects, business capabilities, performance of
duties and services, or financial position) which remarks are based on the
relationship established by this Agreement or information exchanged hereunder.
This section is not intended to limit good faith editorial statements made by
ICP based upon publicly available Information, or information developed by ICP
independent of its relationship with AOL and its employees and agents.
Accounts. ICP shall be granted a number of accounts for the America Online(R)
brand service deemed reasonable by AOL for the exclusive purpose of enabling it
and its agents to perform ICP's duties under this Agreement. The accounts shall
be of the type determined by AOL to be necessary for ICP to perform its duties
hereunder, and shall be subject to such monthly
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subscription charges as AOL shall determine (not to exceed monthly subscription
charges generally available to the public for a similar type of account),
provided, however, that in any event ICP shall be responsible for any
surcharges, including, without limitation, all premium charges, transaction
charges and any applicable communication surcharges incurred by any such
account ICP shall be responsible for to actions taken with or through its
accounts (which actions are subject to AOL's then-standard Terms of Service)
Upon the termination of this Agreement, all accounts, related screen names and
any associated usage credits or similar rights shall automatically terminate.
AOL shall have no liability for loss of any data or content related to the
proper termination of any account.
Keywords. Any Keyword Search Terms to be directed to the ICP Sites shall be (i)
subject to availability for use by ICP and (ii) limited to the combination of
the Keyword(Trade Mark) search modifier combined with a registered trademark of
ICP. AOL reserves the right to revoke at any time ICP's use of any Keyword
Search Terms which do not incorporate registered trademarks of ICP. ICP
acknowledges that its utilization of a Keyword Search Term will not create in it
nor will it represent it has, any right, title or interest in or to such Keyword
Search Term, other than the right, title and interest Partner holds in ICP's
registered trademark independent of the Keyword Search Term. Without limiting
the generality of the foregoing, ICP will not (a) attempt to register or
otherwise obtain trademark or copyright protection in the Keyword Search Term,
or (b) use the Keyword Search Term except for the purposes expressly required or
permitted under this Agreement. This Section shall survive the completion,
expiration, termination or cancellation of this Agreement.
Launch Date. In the event that any terms contained herein relate to or depend
on the launch date of the ICP Sites or other property contemplated by this
Agreement then it is the intention of the Parties to record such Launch Date in
a written instrument signed by both Parties promptly following such Launch
Date; provided that, in the absence of such a written instrument, the Launch
Date shall be as reasonably determined by AOL based on the information
available to AOL.
Production Work. In the event that ICP requests AOL's production assistance in
connection with (i) the initial development, design and construction of the ICP
Sites, (ii) ongoing programming and maintenance related to the ICP Sites, (iii)
a redesign of or addition to the ICP Sites (e.g., a change to an existing
screen format or construction of a new custom form), (iv) construction and
maintenance of an approved advertising. sponsorship or promotional area or
online 'store,' (v) production to modify work performed by a third party
provider or (vi) any other type of production work ICP shall work with AOL to
develop detailed production plans for the requested production assistance (the
"Production Plan"). Following receipt of the final Production Plan, AOL shall
notify ICP of (i) AOL's availability to perform the requested production work,
(ii) the proposed fee or fee structure for the requested production and
maintenance work and (iii) the estimated development schedule for such work. To
the extent the Parties reach agreement regarding Implementation of agreed-upon
Production Plan, such agreement shall be reflected in a separate work order
signed by the Parties. To the extent ICP elects to retain a third party
provider to perform any such production work, work produced by such third party
provider must generally conform to AOL's production Standards & Practices (a
copy of which will be supplied by AOL to ICP upon request). The specific
production resources which AOL allocates to any production work to be performed
on behalf of ICP shah be as determined by AOL in its sale discretion.
Publishing Tools. AOL shall make available to ICP AOL's proprietary publishing
tools (each a "Tool") which are made available to AOL's similarly situated
content partners in order to develop and implement the Licensed Content during
the Term. ICP shall be granted a nonexclusive license to use any such Tool,
which license shall be subject to: (i) ICP's compliance with all rules and
regulations totaling to use of the Tools, as published from time to time by
AOL, (ii) AOL's right to withdraw or modify such license at any time, and (iii)
ICP's express recognition that AOL provides all Tools on an "as is" basis,
without warranties of any kind.
Training and Support. AOL shall make available to ICP standard AOL training and
support programs related to ICP'S management and maintenance of the Licensed
Content ICP can select its training and support program from the options then
offered by AOL. ICP shall be responsible to pay the fees associated with its
chosen training and support package; provided, however, that AOL will provide
such training to two (2) of ICP's employees without charging a fee. In
addition, ICP will pay travel and lodging costs associated with its
participation in any AOL training programs (including AO(:s travel and lodging
costs when training is conducted at ICP's offices), including such costs for
the two (2) employees that AOL trains without charging a fee.
II. TRADEMARKS
Trademark License. In designing and implementing the Promotional Materials and
subject to the other provisions contained herein, ICP shall be entitled to use
the following trade names, trademarks and service marks of AOL: the "America
Online(R)" brand service, AOL(Trade Mark) service/software and AOL's
triangle logo; arid AOL and its Affiliates shall be entitled to use the trade
names, trademarks and service marks of ICP associated with the ICP Sites
(collectively, together with the AOL marks listed above, the "Marks"); provided
that each Party: (i) does not create a unitary composite mark involving a Mark
of the other Patty without the prior written approval of such other Party and
(R) displays symbols and notices clearly and sufficiently indicating the
trademark status and ownership of the other Party's Marks in accordance with
applicable trademark law and practice.
Rights. Each Party acknowledges that its utilization of the other Party's Marks
will not create in it, nor will it represent it has, any right, title or
interest in or to such Marks other than the licenses expressly granted herein.
Each Party agrees riot to do anything contesting or impairing the trademark
rights of the other Party.
Quality Standards. Each Party agrees that the nature and quality of its
products and services supplied in connection with the other Party's Marks shall
conform to quality standards communicated in writing by the other Party for use
of its trademarks. Each Party agrees to supply the other Party, upon request
with a reasonable number of samples of any Materials publicly disseminated by
such Party which utilize the other Party's Marks, Each Party shall comply with
all applicable laws, regulations and customs and obtain any required government
approvals pertaining to use of the other Party's Marks.
Promotional Materials/Press Releases. Each Party will submit to the other
Party, for its prior written approval, which shall not be unreasonably withheld
or delayed, any marketing,
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advertising, press releases or other promotional materials related to the ICP
Sites and/or referencing the other Party and/or its trade names, trademarks and
service marks (the 'Promotional Materials"); provided, however, that, following
the initial public announcement of the business relationship between the
Parties in accordance with the approval and other requirements contained
herein, either Party's subsequent factual reference to the existence of a
business relationship between AOL and ICP, including, without limitation, the
availability of the ICP Sites on the AOL Network, or use of screen shots of the
ICP Sites (so long as the AOL Network is clearly identified as the source of
such screw shots) for promotional purposes shall not require the approval of
the other Party. Once approved, the Promotional Materials may be used by a
Party and its affiliates for the purpose of promoting the ICP Sites and the
content contained therein and reused for such purpose until such approval is
withdrawn with reasonable prior notice. In the event such approval is
withdrawn, existing inventories of Promotional Materials my be depleted.
Infringement Proceedings. Each Party agrees to promptly notify the other Party
of any unauthorized use of the other Party's Marks of which it has actual
knowledge. Each Party shall have the sole right and discretion to bring
proceedings alleging infringement of its Marks or unfair competition related
thereto; provided, however, that each Party agrees to provide the other Party,
at such other Party's expense, with its reasonable cooperation and assistance
with respect to any such infringement proceedings.
III. REPRESENTATIONS AND WARRANTIES
Each Party represents and warrants to the other Party that (i) such Party has
the full corporate right, power and authority to enter into this Agreement, to
grant the licenses granted hereunder and to perform the acts required of it
hereunder (ii) the execution of this Agreement by such Party, and the
performance by such Party of its obligations and duties hereunder do not and
will not violate any agreement to which such Party is a party or by which it is
otherwise bound; (iii) when executed and delivered by such Party, this
Agreement will constitute the legal, valid and binding obligation of such
Party, enforceable against such Party in accordance with its terms; (iv) such
Party's Promotional Materials will neither infringe on any copyright U.S.
patent or any other third party right nor violate any applicable law or
regulation and (v) such Party acknowledges that the other Party makes no
representations, warranties or agreements related to the subject matter hereof
which are not expressly provided for in this Agreement
IV. CONFIDENTIALITY
Each Party acknowledges that Confidential Information may be disclosed to the
other Party during the course of this Agreement Each Party agrees that it will
take reasonable steps, at least substantially equivalent to the steps it takes
to protect its own proprietary information, during the Term of this Agreement
and for a period of three years following expiration or termination of this
Agreement to prevent the duplication or disclosure of Confidential Information
of the other Party, other than by or to its employees or agents who must have
access to such Confidential Information to perform such Party's obligations
hereunder, who will each agree to comply with this section. Notwithstanding the
foregoing, either Party may issue a press release or other disclosure
containing Confidential Information without the consent of the other Party. to
the extent such disclosure is required by law, rule, regulation or government or
court order. In such event the disclosing Party will provide at least five (5)
business days prior written notice of such proposed disclosure to the other
Party. Further, in the event such disclosure is required of either Party under
the laws, rules or regulations of the Securities and Exchange Commission or any
other applicable governing body, such Party will (i) redact mutually agreed-upon
portions of this Agreement to the fullest extent permitted under applicable
laws, rules and regulations and (ii) submit a request to such governing body
that such portions and other provisions of this Agreement receive confidential
treatment under the laws, rules and regulations of the Securities and Exchange
Commission air otherwise be held in the strictest confidence to the fullest
extent permitted under the laws, rules or regulations of any other applicable
governing body.
V. RELATIONSHIP WITH AOL MEMBERS
Solicitation of Subscribers. During the Term and for the two-year period
following the expiration or termination of this Agreement, neither ICP nor its
agents will use the AOL Network to (i) solicit or participate in the
solicitation of AOL Members when that solicitation is for the benefit of any
entity (including ICP) which could reasonably be construed to be or become in
competition with AOL or (ii) promote any services which could reasonably be
construed to be in competition with services available through AOL including,
but not limited to, services available through the Internet (e.g., an ICP
Interactive Site). ICP may not send any AOL Member unsolicited email
communications on or through the AOL Network without a "Prior Business
Relationship." For purposes of this Agreement a "Prior Business Relationship"
shall mean that the AOL Member has either (i) purchased Products from ICP
through the AOL Network or (ii) voluntarily provided information to ICP through
a contest, registration, or other communication, which included dear and
conspicuous notice to the AOL Member that the information provided by the AOL
Member could result in an e-mall being sent to that AOL Member by ICP or its
agents. A Prior Business Relationship does not exist solely by virtue of an AOL
Member's visit to the ICP Sites (absent the additional elements described
above). In any commercial e-mail communications to AOL Members which are
otherwise permitted hereunder, ICP will provide the recipient with a prominent
and easy means to 'opt-out" of receiving any future commercial e-mail
communications from ICP.
Collection of Member Information. ICP is prohibited from collecting AOL Member
screen names from public or private areas of the AOL Network, except as
specifically provided below. ICP shall ensure that any survey, questionnaire or
other means of collecting Member Information including, without limitation,
requests directed to specific AOL Member screen names and automated methods of
collecting screen names (an "Information Request") complies with (i) all
applicable laws and regulations, (ii) AOL's applicable Terms of Service, and
(iii) any privacy policies which have been Issued by AOL in writing during the
Term (or, in the case of a Linked ICP Interactive Site, ICP's standard privacy
policies, to the extent such policies are prominently published on the site and
provide adequate notice and disclosure to users regarding ICP's collection, use
and disclosure of any user information) (collectively, the "Applicable Privacy
Policies"). Each Information Request shall clearly and conspicuously specify to
the AOL Members at Issue the purpose for which Member Information collected
through the information request shall be used (the "Specified Purpose").
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Use of Member Information. ICP shall restrict use of the Member Information
collected through an Information Request to the Specified Purpose. In no event
shall ICP (i) provide AOL Member names, screen names, addresses or other
identifying information Member Information-) to any third party (except to the
extent specifically (a) permitted under the Applicable Privacy Policies or (b)
authorized by the AOL Members in question) or (ii) otherwise use any Member
Information in contravention of the above section regarding "Solicitation of
Members".
E-mail Newsletters. Any e-mail newsletters sent to AOL Members by ICP or its
agents shall (i) be subject to AOL's policies an use of the e-mail
functionality, including but not limited to AOL's policy on unsolicited bulk
e-mail, (ii) be sent only to AOL Members requesting to receive such
newsletters, (iii) not contain Content which violates AOL's Terms of Service,
and (iv) not contain any advertisements, marketing or promotion for any other
interactive Service.
VI. TREATMENT OF CLAIMS
Liability. EXCEPT AS PROVIDED BELOW IN THE INDEMNITY SECTION, UNDER NO
CIRCUMSTANCES SHALL EITHER PARTY BE LIABLE TO THE OTHER PARTY FOR INDIRECT,
INCIDENTAL, CONSEQUENTIAL, SPECIAL OR EXEMPLARY DAMAGES (EVEN IF THAT PARTY HAS
BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES), ARISING FROM THE USE OF OR
INABILITY TO USE THE AOL NETWORK OR ICP SITES OR ANY OTHER PROVISION OF THIS
AGREEMENT, SUCH AS, BUT NOT LIMITED TO. LOSS OF REVENUE OR ANTICIPATED PROFITS
OR LOST BUSINESS. EXCEPT AS PROVIDED BELOW IN THE "INDEMNITY" SECTION, NEITHER
PARTY SHALL BE LIABLE TO THE OTHER PARTY FOR MORE THAN THE AGGREGATE AMOUNTS
PAYABLE HEREUNDER AS OF THE DATE UABIL17Y ACCRUED.
No Additional Warranties. EXCEPT AS EXPRESSLY SET FORTH IN THIS AGREEMENT,
NEITHER PARTY MAKES, AND EACH PARTY HEREBY SPECIFICALLY DISCLAIMS, ANY
REPRESENTATIONS OR WARRANTIES, EXPRESS OR IMPLIED, REGARDING THE AOL NETWORK
THE ICP SITES OR ANY AOL PUBLISHING TOOLS. INCLUDING ANY IMPLIED WARRANTY OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE AND IMPLIED WARRANTIES
ARISING FROM COURSE OF DEALING OR COURSE OF PERFORMANCE. WITHOUT LIMITING THE
GENERALITY OF THE FOREGOING, AOL SPECIFICALLY DISCLAIMS ANY WARRANTY REGARDING
THE PROFITABILITY OF THE ICP SITES.
Indemnity. Either Party will defend, indemnify, save and hold harmless the
other Party and the officers, directors, agents, affiliates, distributors,
franchisees and employees of the other Party from any and all third party
claims. demands, liabilities, costs or expenses, Including reasonable
attorneys' fees ("Liability"), resulting from the Indemnifying Party's material
breach of any duty, representation, or warranty of this Agreement.
If a Party entitled to indemnification hereunder (the "Indemnified Party")
becomes aware of any matter it believes is indemnifiable hereunder involving
any claim action, suit, investigation, arbitration or other proceeding against
the Indemnified Party by any third party (each an 'Action'), the Indemnified
Party shall give the other Party (the "Indemnifying Party") prompt written
notice of such Action. Such notice shall (i) provide the basis on which
Indemnification is being asserted and (ii) be accompanied by copies of all
relevant pleadings, demands. and other papers related to the Action and In the
possession of the Indemnified Party. The Indemnifying Party shall have a period
of ten (10) days after delivery of such notice to respond. If the Indemnifying
Party elects to defend the Action or does not respond within the requisite ten
(10) day period, the Indemnifying Party shall be obligated to defend the
Action, at Its own expense, and by counsel reasonably satisfactory to the
Indemnified Party. The Indemnified Party shall cooperate, at the expense of the
Indemnifying Party, with the Indemnifying Party and its counsel in the defense
and the Indemnified Party shall have the right to participate fully, at its own
expense. In the defense of such Action. If the Indemnifying Party responds
within the required ten (10) day period and elects not to defend such Action.
The Indemnified Party shall be free, without prejudice to any of the
Indemnified Party's rights hereunder, to compromise or defend (and control the
defense of) such Action. In such case, the Indemnifying Party shall cooperate,
at its own expense, with the Indemnified Party and its counsel in the defense
against such Action and the Indemnifying Party shall have the right to
participate fully, at its own expense, In the defense of such Action. Any
compromise or settlement of an Action shall require the prior written consent
of both Parties hereunder, such consent not to be unreasonably withheld or
delayed.
Acknowledgment. AOL AND ICP EACH ACKNOWLEDGES THAT THE PROVISIONS OF THIS
AGREEMENT WERE NEGOTIATED TO REFLECT AN INFORMED, VOLUNTARY ALLOCATION BETWEEN
THEM OF ALL RISKS (BOTH KNOWN AND UNKNOWN) ASSOCIATED WITH THE TRANSACTIONS
CONTEMPLATED HEREUNDER. THE LIMITATIONS AND DISCLAIMERS RELATED TO WARRANTIES
AND LIABILITY CONTAINED IN THIS AGREEMENT ARE INTENDED TO LIMIT THE
CIRCUMSTANCES AND EXTENT OF LIABILITY. THE PROVISIONS OF THIS SECTION VI SHALL
BE ENFORCEABLE INDEPENDENT OF AND SEVERABLE FROM ANY OTHER ENFORCEABLE OR
UNENFORCEABLE PROVISION OF THIS AGREEMENT.
VII. ARBITRATION
(a) The Parties shall act in good faith and use commercially reasonable efforts
to promptly resolve any claim, dispute, claim controversy or disagreement (each
a "Dispute") between the Parties or any of their respective subsidiaries,
affiliates, successors and assigns under or related to this Agreement or any
document executed pursuant to this Agreement or any of the transactions
contemplated hereby. If the Parties cannot resolve the Dispute within such
timeframe, the Dispute shall be submitted to the Management Committee for
resolution. For ten (10) days after the Dispute was submitted to the Management
Committee, the Management Committee shall have the exclusive right to resolve
such Dispute; provided further that the Management Committee shall have the
final and exclusive right to resolve Disputes arising from any provision of
this Agreement which expressly or implicitly provides for the Parties to reach
mutual agreement as to certain terms. If the Management Committee is unable to
amicably resolve the Dispute during the ten (10) day period, then the
Management Committee will consider in good faith (the possibility of retaining a
third party mediator to facilitate resolution of the Dispute. In the event the
Management Committee elects not to retain a mediator, the Dispute will be
subject to the resolution mechanism described below. "Management Committee"
shall mean a committee made up of a senior executive from each of the Parties
for the purpose of
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resolving Disputes under this Section and generally overseeing the relationship
between the Parties contemplated by this Agreement Neither Party shall seek,
nor shall be entitled to seek, binding outside resolution of the Dispute unless
and until the Parties have been unable to amicably resolve the dispute as set
forth In this paragraph (a) and then, only in compliance with the procedures
set forth in this Section.
(b) Except for Disputes relating to issues of (i) proprietary rights, including
but not limited to intellectual property and confidentiality, and (g) any
provision of this Agreement which expressly or implicitly provides for the
Parties to reach mutual agreement as to certain terms (which shall be resolved
by the Parties solely and exclusively through amicable resolution as set forth
In paragraph (a), any Dispute not resolved by amicable resolution as set forth
In paragraph (a) shall be governed exclusively and finally by arbitration. Such
arbitration shall be conducted by the American Arbitration Association ("AAA")
in Washington. D.C. and shall be initiated and conducted in accordance with the
Commercial Arbitration Rules ("Commercial Rules") of the AAA, including the AAA
Supplementary Procedures for Large Complex Commercial Disputes "Complex
Procedures"), as such rules shall be in effect on the date of delivery of a
demand for arbitration ("Demand" except to the extent that such rules are
inconsistent with the provisions set forth herein. Notwithstanding the
foregoing, the Parties may agree in good faith that the Complex Procedures
shall not apply in order to promote the efficient arbitration of Disputes where
the nature of the Dispute, including without limitation the amount in
controversy, does not justify the application of such procedures.
(c) The arbitration panel shall consist of three arbitrators. Each Party shall
name an arbitrator within ten (10) days after the delivery of the Demand. The
two arbitrators named by the Parties may have prior relationships with the
naming Party, which In a judicial setting would be considered a conflict of
interest. The third arbitrator, selected by the first two, shag be a neutral
participant, with no new working relationship with either Party. If the two
arbitrators are unable to select a third arbitrator within ten (10) days, a
third neutral arbitrator will be appointed by the AAA from the panel of
commercial arbitrators of any of the AAA Large and Complex Resolution Programs.
If a vacancy in the arbitration panel occurs after the hearings have commenced,
the remaining arbitrator or arbitrators may hot continue with the hearing and
determination of the controversy, unless the Parties agree otherwise.
(d) The Federal Arbitration Act 9 U.S.C. Sec. 1-16, and not state law, shall
govern the arbitrability of all Disputes. The arbitrators shall allow such
discovery as Is appropriate to the purposes of arbitration in accomplishing a
fair, speedy and cost-effective resolution of the Disputes. The arbitrators
shall reference the Federal Rules of Civil Procedure then in effect in setting
the scope and timing of discovery. The Federal Rules of Evidence shall apply in
toto. The arbitrators may enter a default decision against any Party who fails
to participate in the arbitration proceedings.
(e) The arbitrators shag have the authority to award compensatory damages only.
Any award by the arbitrators shall be accompanied by a written opinion setting
forth the findings of fact and conclusions of law reflect upon in reaching the
decision. The award rendered by the arbitrators shall be final, binding and
non-appealable, and judgment upon such award may be entered by any court of
competent jurisdiction. The Parties agree that the existence, conduct and
content of any arbitration shag be kept confidential and no Party shall
disclose to any person any information about such arbitration, except as may be
required by law or by any governmental authority or for financial reporting
purposes in each Party's financial statements.
(f) Each Party shall pay its fees of its own attorneys', expenses of witnesses
and all other expenses and costs In connection with the presentation of such
Party's case (collectively, "Attorneys' Fees"). The remaining costs of the
arbitration, including without limitation, fees of that arbitrators, costs of
records or transcripts and administrative fees (collectively, "Arbitration
Costs") shall be born equally by the parties. Notwithstanding tie foregoing.
the arbitrators may modify the allocation of Arbitration Costs and award
Attorneys' Fees in those cases where fairness dictates a different allocation
of Arbitration Costs between the Parties and an award of Attorneys' Fees to the
prevailing Party as determined by the arbitrators.
(g) Any Dispute that is not subject to final resolution by the Management
Committee or to arbitration under this Section or law (collectively,
"Non-Arbitration Claims") shall be brought in a court of competent jurisdiction
in the Commonwealth of Virginia. Each Party Irrevocably consents to the
exclusive jurisdiction of the courts of the Commonwealth of Virginia and the
federal courts situated in the Commonwealth of Virginia, over any and all
Non-Arbitration Claims and any and all actions to enforce such claims or to
recover damages or other relief in connection with such claims or to enforce a
judgment rendered in an arbitration proceeding.
VIII. MISCELLANEOUS
Auditing Rights. Each Party shall maintain complete. dear and accurate records
of all expenses, revenues, fees, transactions and related documentation
(including agreements) in connection with the performance of this Agreement
("Records"). All such Records shall be maintained for a minimum of five (5)
years following termination of this Agreement. For the sole purpose of ensuring
compliance with this Agreement, each Party shall have the right at its expense,
to direct an independent certified public accounting firm subject to strict
confidentiality restrictions to conduct a reasonable and necessary copying and
inspection of portions of the Records of the other Party which are directly
related to amounts payable to the Party requesting the audit pursuant to this
Agreement. Any such audit may be conducted after twenty (20) business days prior
written notice, subject to the following. Such audits shall not be made more
frequently than once every twelve months. No such audit of AOL shall occur
during the period beginning on June 1 and ending October 1. In lieu of
providing access to its Records as described above, a Party shall be entitled
to provide the other Party with a report from an independent certified public
accounting firm confirming the information to be derived from such Records.
Excuse. Neither Party shall be liable for, or be considered in breach of or
default under this Agreement on account of, any delay or failure to perform as
required by this Agreement as a result of any causes or conditions which are
beyond such Party's reasonable control and which such Party is unable to
overcome by the exercise of reasonable diligence.
Independent Contractors. The Parties to this Agreement are independent
contractors. Neither Party is an agent, representative or partner of1he other
Party. Neither Party shall have any right, power or authority to enter into any
agreement for or on behalf of, or incur any obligation or liability of, or to
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otherwise bind, the other Party. This Agreement shall not be interpreted or
construed to create an association, agency, joint venture or partnership
between the Parties or to impose any liability attributable to such a
relationship upon either Party.
Notice. Any notice, approval, request authorization, direction or other
communication under this Agreement will be given in writing and will be deemed
to have been delivered and given for all purposes (i) on the delivery date if
delivered by electronic mail an the AOL Network (to screen name
"[email protected]" in the case of AOL) or by confirmed facsimile; (ii) on the
delivery date if delivered personally to the Party to whom the same is
directed; (iii) one business day after deposit with a commercial overnight
carrier, with written verification of receipt or (iv) five business days after
the mailing date, whether or not actually received, if sent by U.S. mall.
return receipt requested, postage and charges prepaid, or any other means of
rapid mail delivery for which a receipt is available. In the case of AOL, such
notice will be provided to both the Senior Vice President for Business Affairs
(fax no. 703-2651206) and the Deputy General Counsel (fax no. 703-285-1105),
each at the address of AOL set forth in the first paragraph of this Agreement.
In the case of ICP, except as otherwise specified herein, the notice address
shall be the address for ICP set forth in the first paragraph of this Agreement
with the other relevant notice Information, including the recipient for notice
arid, as applicable, such recipient's fax number or AOL e-mail address, to be as
reasonably identified by AOL.
No Waiver. The failure of either Party to insist upon or enforce strict
performance by the other Party of any provision of this Agreement or to
exercise any right under this Agreement shall not be construed as a waiver or
relinquishment to any extent of such Party's right to assert or rely upon any
such provision or right in that or any other instance; rather, the same shall
be and remain in full force and effect.
Return of Information. Upon the expiration or termination of this Agreement,
each Party shall, upon the written request of the other Party, return or
destroy (at that option of the Party receiving the request) all confidential
information, documents, manuals and other materials specified the other Party.
Survival. Sections IV, V, V1, and VII of this Exhibit C, all payment provisions
and any provisions that by its nature, must survive the completion, expiration,
termination or cancellation of this Agreement shall survive the completion.
expiration, termination or cancellation of this Agreement.
Amendment. No change. amendment or modification of any provision of this
Agreement shall be valid unless set forth in a written instrument signed by the
Party subject to enforcement of such amendment.
Further Assurances. Each Party shall take such action (including, but not
limited to, the execution, acknowledgment and delivery of documents) as may
reasonably be requested by any other Party for the implementation or continuing
performance of this Agreement.
Assignment. ICP shall not assign this Agreement or any right interest or
benefit under this Agreement without the prior written consent of AOL.
Assumption of this Agreement by any Successor to ICP (including, without
limitation, by way of merger or consolidation) shall be subject to AOL's prior
written approval. Subject to the foregoing, this Agreement shall be fully
binding upon, inure to the benefit of and be enforceable by the Parties hereto
and their respective successors and assigns.
Construction; Severability. In the event that any provision of this Agreement
conflicts with the law under which this Agreement is to be construed or if any
such provision is held invalid by a court with jurisdiction over the Parties to
this Agreement, (i) such provision shall be deemed to be restated to reflect as
nearly as possible the original intentions of the Parties in accordance with
applicable law, and (ii) the remaining terms, provisions, covenants and
restrictions of this Agreement shall remain In full force and effect.
Remedies. Except where otherwise specified, the rights and remedies granted to
a Party under this Agreement are cumulative and in addition to, and not in lieu
of, any other rights or remedies which the Party my possess at law or in
equity.
Applicable Law; Jurisdiction. This Agreement shall be interpreted, construed
and enforced in all respects in accordance with the laws of the Commonwealth of
Virginia except for its conflicts of laws principles. Each Party irrevocably
consents to the exclusive jurisdiction of the courts o( the Commonwealth of
Virginia and the federal courts situated in the Commonwealth of Virginia, in
connection with any action to enforce the provisions of this Agreement to
recover damages or other relief for breach or default under this Agreement, or
otherwise arising under or by reason of this Agreement.
Export Controls. Both parties shall adhere to all applicable laws, regulations
and rules relating to the export of technical data and shall not export or
re-export any technical data, any products received from the other Party or the
direct product of such technical data to any proscribed country fisted in such
applicable law, regulations and rules unless properly authorized.
Headings. The captions and headings used in this Agreement are inserted for
convenience only and shall not affect the meaning or interpretation of this
Agreement.
Counterparts. This Agreement may be executed in counterparts, each of which
shall be deemed an original and all of which together shall constitute one and
the same document.
23
<PAGE>
EXHIBIT D
---------
FORMAT FOR ICP'S PRESENCE ON THE AOL NETWORK
o Any ICP trademark or logo
o Any headline or picture from ICP content
o Any teaser, icon, link to the Online Areas, ICP Internet Sites or
Welcome Mat
o Any other Content which originates from, describes or promotes ICP
or ICP's Content
24
<PAGE>
EXHIBIT E
---------
Detailed Schedule and Bona-Fide Value of ICP In-Kind Commitments
In-Kind Commitment Bona Fide Value
Daily mentions in the "Ask the Family Doctor" $1,980,000.00
syndicated column in various newspapers;
approximately 2 billion total Impressions for
the mentions.
Mentions on the "American Baby" show on the $33,333.00
Lifetime Network; approximately 36 million
total Impressions for the mentions.
Mentions on CNNfn, 30 weekly segments, 3-4 $733,333.00
minutes each segment.
For the purposes hereof, with respect to each promotion specified above, a
"mention" shall mean a coherent spoken or graphic reference to the relevant ICP
keyword and/or area on AOL, which shall also include at a minimum a reference
to "America Online" and/or "AOL." Additionally, the mentions shall be exclusive
to AOL (i.e., they shall not mention or refer to any ICP Interactive Site).
25
<PAGE>
EXHIBIT F
---------
CERTIFICATION OF COMPLIANCE WITH COMMITMENTS
REGARDING PROMOTIONS
Pursuant to Sections 1.5.2 and 1.5.3 and Section 3 of the Interactive Services
Agreement between iVillage, Inc. ("ICP") and America Online, Inc. ("AOL"),
dated as of December 31, 1998 (the "Agreement"), the following report is
delivered to AOL for the month ending ____________ (the "Month"):
1. Promotional Commitments
ICP hereby certifies to AOL that ICP completed the following promotional
commitments during the Month:
<TABLE>
<CAPTION>
Type of Promotion Date(s) of Promotion Duration/Circulation of Relevant Contract Section
Promotion
<S> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------
1.
- ----------------------------------------------------------------------------------------------------------------------
2.
- ----------------------------------------------------------------------------------------------------------------------
3.
</TABLE>
IN WITNESS WHEREOF, this Certificate has been executed this ________ day of
_________, 199_.
- ------------------------------------------
By:
---------------------------------------
Print Name:
-------------------------------
Title:
------------------------------------
Date:
-------------------------------------
26
<PAGE>
EXHIBIT G
---------
OPERATING STANDARDS
-------------------
[*]
<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
March 12, 1999
<PAGE>
EXHIBIT 23.2
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 financial statements of
Health ResponseAbility Systems, Inc. as of December 31, 1995 and 1996 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
March 12, 1999
