<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 12, 1999
REGISTRATION NO. 333-78363
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 3
TO THE
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
WOMEN.COM NETWORKS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<CAPTION>
DELAWARE 7375
<S> <C>
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL CLASSIFICATION CODE)
INCORPORATION OR ORGANIZATION)
<CAPTION>
DELAWARE 13-4059516
<S> <C>
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
</TABLE>
1820 GATEWAY DRIVE, SUITE 100
SAN MATEO, CALIFORNIA 94404
(650) 378-6500
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
MARLEEN R. MCDANIEL
CHAIRPERSON OF THE BOARD, CHIEF EXECUTIVE OFFICER AND PRESIDENT
WOMEN.COM NETWORKS, INC.
1820 GATEWAY DRIVE, SUITE 100
SAN MATEO, CALIFORNIA 94404
(650) 378-6500
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
COPIES TO:
<TABLE>
<S> <C>
MARK P. TANOURY DAVID J. SEGRE
JOHN M. GESCHKE AMY E. REES
NICOLE C. DEIGER JAMIE W. STEWART
DAVID E. LILLEVAND WILSON SONSINI GOODRICH & ROSATI
COOLEY GODWARD LLP PROFESSIONAL CORPORATION
3000 SAND HILL ROAD 650 PAGE MILL ROAD
BUILDING 3, SUITE 230 PALO ALTO, CALIFORNIA 94304
MENLO PARK, CALIFORNIA 94025
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC:
As soon as practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933 check the following box: [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement number 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: [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<S> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
PROPOSED MAXIMUM PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE
SECURITIES TO BE REGISTERED REGISTERED(1) PER SHARE(2) OFFERING PRICE
- -------------------------------------------------------------------------------------------------------------------
Common stock, $.001 par value per share............. 4,312,500 $12.00 $51,750,000
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
<CAPTION>
<S> <C>
- -------------------------------------------------------------------------------------------------------------------
AMOUNT OF
TITLE OF EACH CLASS OF REGISTRATION
SECURITIES TO BE REGISTERED FEE(3)
- -------------------------------------------------------------------------------------------------------------------
Common stock, $.001 par value per share............. $14,387
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Includes 562,500 shares of common stock issuable upon exercise of the
underwriters' over-allotment option.
(2) Estimated solely for the purpose of calculating the amount of the
Registration Fee in accordance with Rule 457(a) of the Securities Act of
1933, as amended.
(3) Previously paid.
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 SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SECTION 8(A), MAY DETERMINE.
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND WE ARE NOT SOLICITING OFFERS TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND WE ARE NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
PROSPECTUS (Subject to Completion)
Issued July 12, 1999
3,750,000 Shares
Women.com Networks logo
COMMON STOCK
------------------------
WOMEN.COM NETWORKS, INC. IS OFFERING 3,750,000 SHARES OF ITS COMMON STOCK TO THE
PUBLIC. THIS IS OUR INITIAL PUBLIC OFFERING AND NO PUBLIC MARKET CURRENTLY
EXISTS FOR OUR SHARES. WE ANTICIPATE THAT THE INITIAL PUBLIC OFFERING PRICE WILL
BE BETWEEN $10 AND $12 PER SHARE.
------------------------
THE WALT DISNEY COMPANY AND TORSTAR CORPORATION HAVE EACH AGREED TO PURCHASE UP
TO 1,250,000 SHARES OF COMMON STOCK IN CONCURRENT PRIVATE PLACEMENTS FROM
WOMEN.COM AT THE PUBLIC OFFERING PRICE. IN NO EVENT WILL EITHER DISNEY OR
TORSTAR PURCHASE A NUMBER OF SHARES THAT WOULD CAUSE ITS INVESTMENT TO EXCEED
$14.5 MILLION. HEARST COMMUNICATIONS, INC. HAS ALSO AGREED TO PURCHASE FROM
WOMEN.COM IN A CONCURRENT PRIVATE PLACEMENT A NUMBER OF SHARES OF COMMON STOCK
EQUAL TO ONE-THIRD OF THE AGGREGATE NUMBER OF SHARES OFFERED TO THE PUBLIC AND
SOLD TO DISNEY AND TORSTAR PLUS THAT NUMBER OF ADDITIONAL SHARES OF COMMON STOCK
THAT MAY BE PURCHASED FOR $5 MILLION AT THE PUBLIC OFFERING PRICE. ASSUMING A
PRICE PER SHARE TO THE PUBLIC OF $11, HEARST WILL PURCHASE 2,537,878 SHARES IN
THE HEARST PRIVATE PLACEMENT.
------------------------
OUR COMMON STOCK HAS BEEN APPROVED FOR QUOTATION ON THE NASDAQ NATIONAL MARKET
UNDER THE SYMBOL "WOMN."
------------------------
INVESTING IN THE COMMON STOCK INVOLVES RISKS. SEE "RISK FACTORS" BEGINNING ON
PAGE 5.
------------------------
PRICE $ A SHARE
------------------------
<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS COMPANY
-------- ------------- -----------
<S> <C> <C> <C>
Per Share.......................... $ $ $
Total.............................. $ $ $
</TABLE>
The Securities and Exchange Commission and state securities regulators have not
approved or disapproved these securities or determined if this prospectus is
truthful or complete. Any representation to the contrary is a criminal offense.
Women.com Networks, Inc. has granted the underwriters the right to purchase up
to an additional 562,500 shares of common stock to cover over-allotments. Morgan
Stanley & Co. Incorporated expects to deliver the shares of common stock to
purchasers on , 1999.
------------------------
MORGAN STANLEY DEAN WITTER DEUTSCHE BANC ALEX. BROWN
SALOMON SMITH BARNEY
------------------------
Internet Distribution Offered By
DISCOVER BROKERAGE DIRECT
, 1999
<PAGE> 3
INSIDE COVER
- Title text reading: "Welcome to Women.com" (centered across the top) with
company description (centered across bottom of page) reading
"High-quality content, lively communities, time-saving tools and shopping
for millions of women"
- Full-length screen shot of Women.com home page (centered)
GATEFOLD
- Title text reading "Women.com" (top left-hand corner of gatefold)
- Bordering the left side of the gatefold are the 20 Women.com channels
- Bordering the right side of the gatefold are the logos of the 12
magazines Women.com offers through its relationships with Hearst and
Rodale
- Centered is the Small Business channel screen shot (descriptive text
reading: "Each Women.com channel provides an easy way to navigate our
extensive network by topic and has contexual links to content, community,
services, shopping and more")
- Surrounding the Small Business channel screen are four smaller screen
shot overlays focusing on services (text reading: "Contexual links to
personalized tools and services"), content (text reading: "Relevant,
useful content to help women get things done"), community (text reading:
"Lively clubs, experts, conversations and more") and shopping (text
reading: "Brand names, deals of the week, easy navigation")
BACK INSIDE COVER
- Title text reading "My.Women.com" (top left corner)
- Screen shot of my.women.com with descriptive text reading "Women.com
members can create their own personalized pages with the content and
layout of their choice"
- Screen shot has highlighted: personalized greeting, time management
tools, relevant content, personal interests, financial data, daily tips
and customized options
<PAGE> 4
TABLE OF CONTENTS
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<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary................... 1
Risk Factors......................... 5
Use of Proceeds...................... 16
Dividend Policy...................... 16
Capitalization....................... 17
Dilution............................. 18
Selected Financial Information....... 20
Selected Pro Forma Financial Data.... 21
Management's Discussion and Analysis
of Financial Condition and Results
of Operations...................... 22
Business............................. 31
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Management........................... 47
Certain Relationships and Related
Transactions....................... 58
Principal Stockholders............... 60
Description of Capital Stock......... 63
Shares Eligible for Future Sale...... 66
Underwriters......................... 68
Legal Matters........................ 70
Experts.............................. 70
Additional Information............... 71
Index to Financial Statements........ F-1
</TABLE>
- -------------------------
We are a Delaware corporation. Our principal executive offices are located
at 1820 Gateway Drive, Suite 100, San Mateo, California 94404, and our telephone
number is (650) 378-6500. Our Internet address is www.women.com. The information
on our Internet site is not a part of this prospectus.
You should rely only on the information contained in this prospectus. We
have not authorized anyone to provide you with different information. We are not
making an offer of these securities in any state where the offer is not
permitted. You should not assume that the information in this prospectus or any
prospectus supplement is accurate as of any date other than the date on the
front of the document.
UNTIL , 1999 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS THAT BUY, SELL OR TRADE IN OUR COMMON STOCK, WHETHER OR NOT
PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS
DELIVERY REQUIREMENT IS IN ADDITION TO THE DEALERS' OBLIGATION TO DELIVER A
PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
Women.com, HomeArts, Astronet, their respective logos and other trademarks
of Women.com Networks, Inc. mentioned in this prospectus are the property of
Women.com Networks, Inc. All other trademarks or trade names referred to in this
prospectus are the property of their respective owners.
i
<PAGE> 5
PROSPECTUS SUMMARY
You should read the following summary together with the more detailed
information regarding Women.com and the financial statements and notes thereto
appearing elsewhere in this prospectus.
OUR BUSINESS
We are a leading Internet network dedicated to women, featuring
award-winning original content, personalized services, community and online
shopping. Our network is comprised of more than 90,000 pages of content
organized into 20 topical channels, including career, cars, entertainment,
family, fashion and beauty, fitness, food, garden, health, home, horoscopes,
money, news and trends, pregnancy, relationships, shopping, small business,
technology and Internet, travel and weddings. We also offer extensive membership
services and benefits, including personalized content, personal home pages,
e-mail, and access to community forums and clubs. In addition, our strategic
relationships with The Hearst Corporation and Rodale Press, Inc. enable us to
offer an online newsstand featuring content from 12 of the world's leading
women's magazines, including Cosmopolitan, Good Housekeeping, Prevention and
Redbook.
In January 1999, we combined our operations with Astronet, an astrology
site, and HomeArts, a women's lifestyle network, both of which were business
units of Hearst Communications Inc.'s New Media and Technology Division. Through
our agreement with Hearst, we host the web sites for 10 of Hearst's leading
women's magazines and have online distribution rights to the content of these
magazines. These magazines produce over 300 unique articles per month and have a
U.S. monthly circulation of over 15 million paid readers. Hearst is a
diversified communications company engaged in a broad range of publishing,
broadcasting, cable television networks and other communications activities. The
addition of Hearst's magazines to the Women.com network has increased our
ability to provide compelling content to women of all ages. The Hearst agreement
also includes print promotion of our online network.
We believe our focus on original and authoritative content and our access
to a national media audience through the Hearst and Rodale relationships will
help us create the preeminent brand for women on the Internet. According to
Media Metrix, in May 1999 our network attracted more than 4.2 million visitors,
ranking us among the top 40 Internet sites as measured by reach. During the same
period, our users generated approximately 117 million page views. We leverage
our brand identity and increase traffic to our network through over 30 online
distribution relationships with leading Internet companies, including America
Online, CBS SportsLine, GeoCities, Infoseek, Lycos, Microsoft, Mindspring,
Netscape, WebTV, Xoom.com and Yahoo!.
We believe our network draws users who represent an attractive demographic
group for companies that advertise and conduct business over the Internet. We
provide advertisers with an audience comprised primarily of women ages 25-49, a
variety of advertising models tailored to each customer's objectives and a
powerful e-commerce platform that is well-suited to our targeted audience. In
the second quarter of 1999, we had over 150 industry-leading advertisers
including IBM, Jenny Craig, Kraft, Macy's, Proctor & Gamble, Sears, Strong
Funds, Toyota, Unilever, Visa and Volvo. Our highly contextual e-commerce
environment attracts leading e-commerce partners, including Amazon.com,
Clinique, eToys, Hooked on Phonics, J.Crew, John Hancock and PlanetRx.
We currently derive our revenues primarily from three sources: advertising,
web site production and e-commerce. Substantially all of our revenues to date
have been generated from advertising. Our advertising revenues are obtained from
a variety of advertising forms, including running advertisers' banners on our
network and offering content sponsorship opportunities. Our web site production
revenues are derived from the design and production of web sites for third
parties which appear on our network or their own sites. To date, we have
obtained e-commerce revenues primarily through the sale of magazine
subscriptions and Astronet services on our network. In the future, we intend to
expand our e-commerce
1
<PAGE> 6
business through the direct sale of products on our network. For the fiscal year
ended December 31, 1998, our net revenues were approximately $7.2 million and
our net loss was approximately $13.0 million.
OUR MARKET OPPORTUNITY
Women.com was founded to capitalize on the opportunity to provide women
with services, information and tools on the Internet. Today women represent an
increasingly significant and fast-growing segment of the worldwide Internet
audience. They also represent an increasingly important demographic group to
advertisers and merchants. This importance is due in part to the growth in
women's income and the role women play as key consumer decision makers, both in
the home and in the workplace. Numerous traditional and online information
sources are trying to address the demand by women for timely and relevant
information. While a number of Internet sites include information for and about
women, we believe only a limited number of sites are currently providing the
original content, community and commerce offerings necessary to provide an
integrated solution to meet the objectives of women online.
OUR HISTORY
We were formed in October 1992 as Wire Networks, Inc. and in 1993 we
launched our first product, an online subscription service named Women's Wire.
We launched our first site, women.com, in 1995 and in February 1998 we changed
our name to Women.com Networks. In January 1999, Women.com Networks contributed
substantially all of its assets and liabilities to Women.com Networks LLC, a
Delaware limited liability company, and Hearst HomeArts, Inc., a Delaware
corporation, contributed to the LLC HomeArts and Astronet, both of which were
business units of Hearst Communications, Inc.'s New Media and Technology
Division. After the combination, the LLC was approximately 50% owned by each of
Women.com Networks and Hearst HomeArts, Inc. Concurrent with this offering,
Women.com Networks will merge into Hearst HomeArts, Inc. and Women.com Networks
LLC will be dissolved. Hearst HomeArts, Inc. will be the surviving entity and
will be renamed Women.com Networks, Inc.
THE OFFERING
<TABLE>
<S> <C>
Common stock offered in this
offering.................... 3,750,000 shares
Common stock to be outstanding
after this offering and the
Disney, Torstar and Hearst
private placements.......... 45,097,359 shares
Use of proceeds............... To fund continued growth and expansion of our business,
to build our brand both online and offline and to enhance
our products. The balance of the proceeds will be used to
fund potential acquisitions and for other general
corporate purposes, including working capital. See "Use
of Proceeds."
Proposed Nasdaq National
Market symbol............... WOMN
</TABLE>
The number of shares of common stock to be outstanding after this offering
is based on the total number of shares outstanding on May 31, 1999, includes the
3,750,000 shares offered in this offering, the 2,500,000 shares to be sold in
the Disney and Torstar private placements, the 2,537,878 shares to be sold in
the Hearst private placement, the exercise of a warrant to acquire 887,665
shares of preferred stock and net exercise of warrants for a total of 161,436
shares of common stock, and excludes the following:
- 4,381,561 shares of common stock issuable upon exercise of outstanding
options under our 1994 Stock Option Plan and 1998 Equity Incentive Plan
- 3,736,603 shares reserved for future issuance under our 1998 Equity
Incentive Plan
- 1,000,000 shares reserved for issuance under our Employee Stock Purchase
Plan
- 939,468 shares issuable upon exercise of outstanding warrants
2
<PAGE> 7
In this prospectus, the terms "company," "Women.com," "we," "us," and "our"
refer to Women.com Networks, Inc., a Delaware corporation, and, unless the
context otherwise requires, "common stock" refers to the common stock, par value
$0.001 per share, of Women.com Networks, Inc.
Unless otherwise indicated, all information in this prospectus assumes the
following:
- the consummation of the merger between Hearst HomeArts, Inc. and
Women.com Networks prior to the consummation of this offering
- the exercise of a warrant to acquire 887,665 shares of preferred stock
and net exercise of warrants for a total of 161,436 shares of common
stock
- the conversion of all outstanding preferred stock to common stock
immediately prior to the consummation of this offering
- the sale of 2,537,878 shares to Hearst and up to 1,250,000 shares to each
of Disney and Torstar in concurrent private placements
- that the underwriters' over-allotment option will not be exercised. See
"Description of Capital Stock" and "Underwriters."
3
<PAGE> 8
SUMMARY FINANCIAL INFORMATION
The following summary financial information sets forth historical
information for each of Women.com and HomeArts prior to their combination in
January 1999 as well as Women.com's pro forma data for the year ended December
31, 1998 and actual and pro forma data for the three months ended March 31,
1999. The pro forma statement of operations data reflects the combination with
HomeArts and Astronet as if this combination had occurred on January 1, 1998.
The pro forma balance sheet data as of March 31, 1999 reflects the net proceeds
of $19,230,000 from the sale of 2,000,000 units of Women.com Networks LLC in May
1999, the net proceeds of $3,102,388 from the exercise of a warrant to acquire
887,665 shares of preferred stock and the conversion of all outstanding
preferred stock into common stock immediately prior to this offering. The pro
forma, as adjusted balance sheet data gives effect to the net proceeds from the
sale of common stock in this offering and the Disney, Torstar and Hearst private
placements.
<TABLE>
<CAPTION>
WOMEN.COM HOMEARTS
--------------------------------- ----------------------------
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
--------------------------------- ----------------------------
1996 1997 1998 1996 1997 1998
------- --------- ----------- ------- ------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenues................. $ 729 $ 2,798 $ 7,247 $ 1,279 $ 1,896 $ 2,957
------- -------- -------- ------- ------- --------
Operating expenses:
Production, product and
technology................ 1,174 2,922 5,728 4,254 4,998 8,095
Sales and marketing......... 957 3,907 12,042 3,529 5,946 8,625
General and
administrative............ 956 1,101 1,374 990 878 970
Stock-based compensation.... -- -- 1,170 -- -- --
Amortization of acquired
intangibles............... -- -- 517 -- -- --
------- -------- -------- ------- ------- --------
Total operating
expenses.............. 3,087 7,930 20,831 8,773 11,822 17,690
------- -------- -------- ------- ------- --------
Loss from operations......... (2,358) (5,132) (13,584) (7,494) (9,926) (14,733)
Other income, net............ 53 37 539 -- -- --
------- -------- -------- ------- ------- --------
Net loss..................... (2,305) (5,095) (13,045) (7,494) (9,926) (14,733)
Dividend accretion on
mandatorily redeemable
convertible preferred
stock....................... (682) (1,517) (570) -- -- --
------- -------- -------- ------- ------- --------
Net loss attributable to
common stockholders......... $(2,987) $ (6,612) $(13,615) $(7,494) $(9,926) $(14,733)
======= ======== ======== ======= ======= ========
Basic and diluted net loss
per share attributable to
common stockholders......... $ (4.26) $ (9.15) $ (10.52)
======= ======== ========
Shares used in computing
basic and diluted net loss
per share................... 702 722 1,294
======= ======== ========
Basic and diluted pro forma
net loss per share.......... $ (1.13)
========
Shares used in computing pro
forma basic and diluted net
loss per share.............. 11,548
========
<CAPTION>
WOMEN.COM
------------------------------------------
PRO FORMA
PRO FORMA ------------
------------ THREE MONTHS THREE MONTHS
YEAR ENDED ENDED ENDED
DECEMBER 31, MARCH 31, MARCH 31,
1998 1999 1999
------------ ------------ ------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenues................. $ 11,650 $ 3,413 $ 3,663
-------- -------- --------
Operating expenses:
Production, product and
technology................ 15,015 3,848 4,519
Sales and marketing......... 21,024 6,568 7,320
General and
administrative............ 2,754 1,968 1,996
Stock-based compensation.... 1,170 612 612
Amortization of acquired
intangibles............... 21,514 3,671 5,417
-------- -------- --------
Total operating
expenses.............. 61,477 16,667 19,864
-------- -------- --------
Loss from operations......... (49,827) (13,254) (16,201)
Other income, net............ 539 159 159
-------- -------- --------
Net loss..................... (49,288) (13,095) (16,042)
Dividend accretion on
mandatorily redeemable
convertible preferred
stock....................... (570) (95) (95)
-------- -------- --------
Net loss attributable to
common stockholders......... $(49,858) $(13,190) $(16,137)
======== ======== ========
Basic and diluted net loss
per share attributable to
common stockholders......... $ (.95)
========
Shares used in computing
basic and diluted net loss
per share................... 13,820
========
Basic and diluted pro forma
net loss per share.......... $ (1.70) $ (.48) $ (.49)
======== ======== ========
Shares used in computing pro
forma basic and diluted net
loss per share.............. 29,347 27,258 32,851
======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
AS OF MARCH 31, 1999
---------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents.... $19,164 $ 41,496 $134,075
Working capital.............. 16,687 39,019 131,598
Total assets................. 95,377 117,709 210,288
Mandatorily redeemable
convertible preferred stock
and warrants................ 35,515 265 265
Total stockholders' equity... 50,148 107,730 200,309
</TABLE>
4
<PAGE> 9
RISK FACTORS
This offering involves a high degree of risk. You should carefully consider
the following risks before deciding to invest in shares of our common stock. The
risks described below are not the only risks we face. Additional risks that we
do not yet know of or that we currently think are immaterial may also impair our
business operations. If any of the events or circumstances described in the
following risks actually occurs, our business, financial condition, or results
of operations could be materially harmed. In such case, the trading price of our
common stock could decline, and you may lose all or part of your investment. You
should also refer to the other information set forth in this prospectus,
including our financial statements and the related notes.
OUR BUSINESS IS DIFFICULT TO EVALUATE BECAUSE OUR OPERATING HISTORY IS LIMITED
AND OUR BUSINESS MODEL IS UNPROVEN
Our historical financial information is of limited value in projecting our
future operating results because of our limited operating history as a combined
organization with the HomeArts and Astronet businesses and the emerging nature
of our market. We first recognized a small amount of subscription revenues in
January 1994 and advertising revenues in March 1996 and our revenues have become
significant only recently. It is difficult to evaluate our business and our
prospects because our revenue and income potential is unproven and our business
model is still emerging. In addition, because our combination with HomeArts and
Astronet has only been effective since the end of January 1999, we are still in
the process of integrating our operations and business activities.
WE HAVE A HISTORY OF OPERATING LOSSES AND WE ANTICIPATE INCREASED LOSSES IN THE
FUTURE
We have had operating losses since we were formed. We expect to incur
significant operating losses and negative cash flows for at least the next
several years. We may never achieve profitability. If we fail to achieve
profitability or sustain or increase profitability if we achieve it, our
financial condition would be materially harmed. As of March 31, 1999, we had an
accumulated deficit of $39.1 million. Successfully achieving our growth and
profitability plan depends on, among other things, our ability to significantly
increase our revenues and meet the other challenges set forth in the following
risk factors.
OUR QUARTERLY OPERATING RESULTS FLUCTUATE SIGNIFICANTLY WHICH MAKES OUR FUTURE
OPERATING RESULTS DIFFICULT TO EVALUATE AND MAY ADVERSELY AFFECT OUR STOCK
PRICE.
Our operating results have fluctuated and are likely to continue to
fluctuate significantly from quarter to quarter as a result of several factors,
many of which are outside our control, and any of which could materially harm
our business. These factors include:
- fluctuations in the demand for Internet advertising or electronic
commerce
- changes in the level of traffic on our network
- fluctuations in marketing expenses and technology infrastructure costs
If our revenues in a particular quarter are lower than we anticipate, we
may be unable to reduce spending in that quarter. As a result, any shortfall in
revenues would likely adversely affect our quarterly operating results.
Specifically, in order to attract and retain a larger user base, we plan to
significantly increase our expenditures on sales and marketing, content
development, technology and infrastructure. Many of these expenditures are
planned or committed in advance and in anticipation of future revenues.
Due to the factors noted above and the other risks discussed in this
section, quarter-to-quarter comparisons of our results of operations may not
accurately predict future performance. It is possible that in some future
quarters our results of operations may be below the expectations of public
market analysts or investors. If this occurs, the price of our common stock may
decline.
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IF WE ARE UNABLE TO GENERATE ADDITIONAL ADVERTISING REVENUES, WHICH ACCOUNT FOR
SUBSTANTIALLY ALL OF OUR REVENUES, OUR BUSINESS WOULD BE MATERIALLY HARMED
We derive substantially all of our revenues from the sale of advertisements
on our network. If we fail to sell advertising, our revenues will be
significantly reduced. Market acceptance of Internet-based advertising is
uncertain and depends largely on advertisers' determinations that the Internet
is an effective medium for advertising. Most of our customers have limited
experience with the Internet as an advertising medium. Our ability to generate
significant advertising revenues depends upon several other factors, including:
- the development of a large, demographically attractive base of users on
our network
- our ability to continue to develop and update effective advertising
delivery and measurement systems
- our ability to maintain and increase our advertising rates given the
growing number of outlets for advertisers on the Internet
IF WE LOSE ADVERTISING CUSTOMERS TO OUR COMPETITION OR REDUCE ADVERTISING RATES
TO REMAIN COMPETITIVE, OUR REVENUES WILL DECLINE SUBSTANTIALLY AND OUR BUSINESS
WILL BE MATERIALLY HARMED
Many Internet content and service providers compete with us for
advertisers, e-commerce partners and Internet users, and there are few barriers
to entry. We expect this competition to increase. Many of our current and
potential competitors in the Internet market have significantly greater
financial, editorial, technical and marketing resources, longer operating
histories, greater name recognition and more established relationships with
advertisers and advertising agencies. These competitors may be able to undertake
more extensive marketing campaigns, adopt aggressive pricing policies and devote
substantially more resources to developing Internet content and services than we
can. See "Business -- Competition."
HEARST WILL CONTROL ACTIONS REQUIRING BOARD AND STOCKHOLDER APPROVAL AFTER THIS
OFFERING WHICH WILL WEAKEN THE EFFECT OF OTHER STOCKHOLDERS' VOTES
Hearst representatives currently fill four of the eight seats on our board
of directors. Upon completion of the Torstar private placement, our board of
directors will be expanded to ten and Hearst representatives will fill five of
ten seats. In addition, given Hearst's share ownership, Hearst will be able to
elect additional directors after this offering. Any action taken by our current
board requires the approval of at least five directors. Upon completion of the
Torstar private placement, any action taken by our board will require the
approval of at least six directors. As a result, under either circumstance, at
least one Hearst representative must approve all actions taken by our board,
which could significantly influence our corporate direction and policies,
including any mergers, acquisitions, consolidations, strategic relationships or
sales of assets. Hearst's board representation and stock ownership may
discourage or prevent transactions involving an actual or potential change of
control, including transactions in which stockholders would otherwise receive a
premium for their shares. In addition, the interests of Hearst, which owns or
has significant investments in other businesses, including cable television
networks, newspapers, magazines and electronic media, may from time to time be
competitive with, or otherwise diverge from, our interests, particularly with
respect to new business opportunities and future acquisitions.
After this offering and the Disney, Torstar and Hearst private placements,
Hearst will own approximately 47.4% of our outstanding common stock. If the
underwriters' over-allotment option is exercised in full, Hearst may purchase up
to 312,500 additional shares of common stock in the private placement. As a
result of this share ownership, Hearst will have effective control over all
stockholder actions, including electing directors, approving changes to our
restated certificate of incorporation or
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amended and restated bylaws and adopting or changing equity incentive plans.
Hearst's control over stockholder actions will also determine the outcome of any
merger, consolidation, sale of all or substantially all of our assets or other
form of change of control that we might consider. In addition, Hearst is not
subject to any restrictions on acquiring additional shares of our common stock
following this offering, and, therefore, may increase its share ownership
percentage by purchasing additional shares of common stock in the public market.
HEARST'S LARGE OWNERSHIP PERCENTAGE MAY LIMIT THE TRADING VOLUME OF OUR COMMON
STOCK AND INCREASE THE VOLATILITY OF OUR STOCK PRICE
Because Hearst controls such a significant percentage of our common stock,
trading in our common stock may be limited unless Hearst elects to sell some or
all of its shares. If Hearst elects to purchase additional shares in the future,
the market for our common stock will be even more limited. As a result of the
limited public float of our common stock, relatively small purchases or sales of
our stock may have a disproportionate effect on our market price. In addition,
if Hearst elects to sell some or all of its shares, the effect on our market
price could be negative.
WE RELY ON HEARST FOR CONTENT AND CROSS-PROMOTION AND LOSS OF THIS RELATIONSHIP
WOULD HARM OUR BUSINESS
Information supplied by or developed from the Hearst magazines to which we
have online rights accounts for a significant portion of our network's content.
If our relationship with Hearst ends, we may not be able to enter into
alternative arrangements with third parties or to internally develop content and
services to replace the benefits we receive from our relationship with Hearst.
Our relationship with Hearst is governed by a magazine content license and
hosting agreement. While this agreement will continue to provide us with
benefits during its initial six-year term, we may not enjoy benefits from our
relationship with Hearst beyond the term of this agreement, including the
benefits we derive from Hearst's reputation, online content and
cross-promotional activities.
We depend on Hearst to effectively market and promote its 10 magazine
sites. If Hearst fails to do so, our brand identity could be negatively affected
and our business, financial condition and operating results would be materially
harmed. We also rely on Hearst to maintain the quality of its magazine content
and to maintain and expand its magazines' readership base. If the quality or
circulation of Hearst's magazines decline, the content of our network would
suffer and our business, financial condition and results of operations would be
materially harmed.
We may not be able to attract enough user traffic or advertisers to our
network to achieve profitability without Hearst's name or promotional
capabilities. Even with Hearst's support, we may never achieve profitability or
sustain or increase profitability if we achieve it. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations," "Business -- The
Hearst Relationship" and "Certain Relationships and Related Transactions" for a
more complete discussion of our relationship with Hearst.
HEARST'S RIGHT TO LICENSE ITS CONTENT TO OTHER PARTIES AND OUR RESTRICTIONS ON
LICENSING OTHER THIRD-PARTY CONTENT MAY RESTRICT OUR ABILITY TO COMPETE OR
EXPAND OUR NETWORK
Hearst is permitted to license the content or trademarks of the 10
magazines to any Internet site or portal that is not deemed to be our
competitor. A competitor is defined under the agreement to include any Internet
site, channel, area or online content aggregation service that provides content
primarily for women and is used primarily by women. Any content or trademark
license by Hearst to any third party could dilute the value of the Hearst
magazine content to our network. We agreed with Hearst not to enter into any
agreements to produce or include as part of our network any magazine site or
content related to a print publication other than the Hearst publications and
the Prevention and New Woman
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magazines without Hearst's approval. Our inability to create new relationships
with print publications could impair our ability to enhance the visibility of
our brand.
WE MAY FACE DIFFICULTY IN RE-LAUNCHING CRITICAL HEARST MAGAZINE SITES
In connection with our acquisition of the rights to acquire content from
the Hearst magazines, we are in the process of re-launching the 10 Hearst
magazine sites, and we are restructuring these sites to be consistent with our
network's design. This re-launching and restructuring involves a significant
amount of production resources. We expect that the re-launch of these sites will
continue through at least December 1999. If we experience difficulty
re-launching these sites or if our re-launching schedule is delayed, we will not
recognize some expected benefits of our business relationship with Hearst and
our business, financial condition and results of operations could be materially
harmed.
IF THE POPULARITY OF ASTRONET DECLINES OR WE ARE UNABLE TO EFFECTIVELY MAINTAIN
ITS DISTRIBUTION, OUR PAGE VIEWS AND NUMBER OF USERS WOULD DECREASE AND OUR
BUSINESS COULD BE MATERIALLY HARMED
We rely on Astronet to generate a significant portion of our page views and
Astronet depends on America Online for traffic. In May 1999, approximately 49%
of our page views were generated by Astronet and, during the same period,
approximately 77% of Astronet's traffic was generated by America Online. If the
popularity of our Astronet site declines, or if America Online stops carrying
our Astronet site, our number of visitors and page views would decrease
significantly and our business could be materially harmed.
ASTRONET CURRENTLY GENERATES NO ADVERTISING REVENUES AND WE MAY NOT BE ABLE TO
GENERATE SIGNIFICANT ADVERTISING REVENUES THROUGH ASTRONET IN THE FUTURE
We currently do not sell advertising on the Astronet site on America
Online. Although we intend to do so in the future, we believe advertising rates
on the Astronet site on America Online will be lower than on other areas of our
network. Failure to generate significant revenues through Astronet in the future
may limit our growth and otherwise materially harm our business.
IF WE ARE NOT SUCCESSFUL IN INTEGRATING THE HOMEARTS AND ASTRONET OPERATIONS,
OUR BUSINESS WILL BE MATERIALLY HARMED
Because our relationship with Hearst, including our combination with
HomeArts and Astronet, occurred in January 1999, we are still in the process of
integrating our operations and business activities. If we fail to successfully
integrate these aspects of our business, we may not recognize potential benefits
of the combination and we may have significant duplication of costs and capital
expenditures.
In particular, our integration of HomeArts and Astronet may be complicated
by the fact that management and other operations of these businesses have taken
place and, to some extent, will continue to take place in the eastern United
States as opposed to our headquarters in California. In addition, since HomeArts
has been operated as a division of Hearst, a widely diversified publishing
company, integration difficulties may arise in integrating it into our
stand-alone operations. This integration process involves a significant amount
of our management's time, resources and energy. We are also in the process of
integrating our databases with those of Hearst, including HomeArts, Astronet and
Hearst's magazine sites, and if we experience difficulty integrating these
databases, our costs may increase and our business, financial condition and
results of operations could be materially harmed.
OUR PROMOTION OF THE WOMEN.COM BRAND MUST BE SUCCESSFUL IN ORDER FOR US TO
ATTRACT USERS AS WELL AS ADVERTISERS AND OTHER STRATEGIC PARTNERS
We believe that establishing and maintaining our brand is critical to our
success and that the importance of brand recognition will increase due to the
growing number of women-oriented Internet
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sites. Successful promotion and marketing of our brand will depend on providing
interesting and compelling content, community, commerce and personalized
services, and we intend to increase our marketing and branding expenditures in
our effort to increase our brand awareness. If our brand building strategy is
unsuccessful, these expenses may never be recovered, we may be unable to
increase our future revenues and our business could be materially harmed.
IF WE ARE UNABLE TO DELIVER ORIGINAL AND COMPELLING INTERNET CONTENT, COMMUNITY,
SHOPPING AND PERSONALIZED SERVICES THAT ATTRACT A SUFFICIENT NUMBER OF USERS TO
OUR NETWORK, OUR BUSINESS WOULD BE MATERIALLY HARMED
Our current network or any additional channels or sites that we may add in
the future may not be attractive to a sufficient number of Internet users. We
may not be able to anticipate, monitor or successfully respond to rapidly
changing consumer tastes and preferences of women so as to attract enough users
to our network. If we are unable to develop Internet content, community,
shopping and personalized services that attract, retain and expand a loyal user
base, we will be unable to generate advertising revenues or commerce revenues
and our business, financial condition and results of operations will be
materially harmed.
IF WE FAIL TO RETAIN EXISTING BRANDING AND CONTENT RELATIONSHIPS OR FAIL TO
ATTRACT NEW ONES, THE AMOUNT AND QUALITY OF CONTENT ON OUR NETWORK MAY DECLINE,
TRAFFIC TO OUR NETWORK MAY DECREASE AND OUR ADVERTISING REVENUES MAY DECREASE
To be successful, we need to maintain our existing relationships and we
must establish similar relationships with new parties who have cross-media and
promotional capabilities. This is critical to our success because we believe
that these relationships will enable us to further enhance our brand awareness
and expand and broaden our reach to a wider variety of users.
With the exception of our Hearst relationship, our existing branding and
content alliances are short-term agreements. When these agreements terminate, we
may not be able to renew them on favorable terms or to obtain similar agreements
with other parties. Additionally, our competitors may enter into agreements with
our existing partners or other parties that are integral to our prospective
content and brand development.
OUR EXCLUSIVITY AGREEMENT WITH DISNEY MAY PREVENT US FROM SUCCESSFULLY EXPANDING
OUR BRAND AWARENESS AND CONTENT OFFERINGS THROUGH PARTNERSHIPS WITH TELEVISION
OR CABLE NETWORKS
In connection with the Disney private placement, we have agreed not to
accept any equity investment from, or enter into a strategic relationship with,
another television or cable network for a period of six months, during which
time Disney and we will discuss the possibility of entering into a strategic
relationship. We cannot assure you that we will agree to a strategic
relationship with Disney on acceptable terms. If we fail to do so, we may not be
able to enter into a strategic relationship with another television or cable
network after the six month exclusivity period with Disney has ended. If we fail
to enter into such a strategic relationship, our ability to develop greater
brand awareness and expand our content offerings may be limited or delayed.
WE MUST ESTABLISH AND MAINTAIN ONLINE DISTRIBUTION CHANNELS TO GENERATE TRAFFIC
TO OUR NETWORK IN ORDER TO BE SUCCESSFUL
We depend on establishing and maintaining online distribution relationships
with high-traffic Internet sites and leading Internet portals to ensure the
visibility of our network and to generate additional traffic. Our business could
be materially harmed if we do not establish and maintain additional
relationships on commercially reasonable terms or if any of our relationships do
not result in increased network traffic and visibility. In May 1999, a
substantial portion of our network's traffic was generated by
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our distribution relationships and, in particular, America Online. All of our
distribution relationships are based on short-term agreements. There is intense
competition for online distribution relationships among Internet sites. We may
not be able to enter into new or renewed relationships on commercially
reasonable terms or at all. In addition, our existing online distribution
relationships or any relationships that we enter into in the future may not
generate enough additional traffic to our network or create sufficient brand
visibility to justify the costs we incur for such relationships.
WE PLAN TO LAUNCH A DIRECT E-COMMERCE MODEL AND OUR BUSINESS AND FINANCIAL
CONDITION COULD BE HARMED IF THIS MODEL IS NOT SUCCESSFUL
We may not be able to achieve any or all of the necessary components of a
successful e-commerce operation. We currently operate an affiliate-based
e-commerce model in which we link shoppers on our network to the sites of our
e-commerce partners to complete their online purchases. In this affiliate-based
model, our e-commerce partners pay us for product placement on our network,
which is recognized as advertising revenue. In addition, we intend to develop a
direct e-commerce model in which we may buy inventory and sell products and
services directly to consumers. We have no experience in implementing or
operating a direct e-commerce business, and if we are not successful in
implementing it, our business could be materially harmed. In addition, unlike
our current affiliate-based commerce model, we will assume liability for any
inventory that we acquire and will bear the risk of inventory damage or loss as
well as product returns which may adversely affect our results of operations.
WE INTEND TO PURSUE STRATEGIC ACQUISITIONS AND OUR BUSINESS COULD BE MATERIALLY
HARMED IF WE FAIL TO SUCCESSFULLY INTEGRATE ACQUIRED BUSINESSES
We often evaluate acquisition opportunities that could provide us with
additional product or content offerings or additional industry expertise. Any
future acquisition could result in difficulties assimilating acquired operations
and products, diversion of management's attention away from other business
issues and amortization of acquired intangible assets. Specifically, we expect
that future transactions may involve the acquisition of early-stage Internet
content and technology companies. Integration of these companies may result in
problems related to integration of technology and inexperienced management
teams. Our management has had limited experience in assimilating acquired
organizations and products into our operations. We may not successfully
integrate any operations, personnel or products that we may acquire in the
future. If we fail to successfully integrate acquisitions, our business would be
materially harmed.
GROWTH IN OUR OPERATION HAS AND WILL CONTINUE TO STRAIN OUR RESOURCES AND OUR
FAILURE TO MANAGE GROWTH EFFECTIVELY COULD HARM OUR BUSINESS
We have recently experienced significant growth and are planning to further
expand our business and operations. If we are unable to successfully manage this
growth our business could be materially harmed. As of May 31, 1998, we had 84
employees, compared to 228 employees as of May 31, 1999. This growth places a
significant strain on our management and other resources. As part of this
growth, we expect to implement new operational and financial systems, procedures
and controls. Any problems in implementing these systems or controls could harm
our operations. In addition, several members of our senior management joined us
during the last year, including our Vice President, Strategic Partnerships, our
Vice President, Engineering and our Chief Financial Officer. As a result, our
management team may have difficulty working together to successfully manage our
anticipated growth.
OUR SYSTEMS MAY FAIL OR BE INTERRUPTED AND THEREBY LIMIT OUR USER TRAFFIC AND
POTENTIALLY HARM OUR BUSINESS
If our network fails for any reason, even for only a short period of time,
our business and reputation would be materially harmed. We rely on third parties
for proper functioning of our computer
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infrastructure and delivery of our product. Our systems and operations could be
damaged or interrupted by fire, flood, power loss, telecommunications failure,
break-ins, earthquake and similar events. In addition, we are currently in the
process of moving our hosting services from Icon CMT Corporation to Exodus
Communications, which may result in disruption of our service or system failure.
Beginning in May 1999, user access to our pregnancy channel has been disrupted
as a result of an on-going system failure. We may encounter unforeseen
difficulties in restoring full access, and, therefore, there may be further
delays. This failure may adversely affect our user traffic results for the
current and future quarters, which could adversely affect our revenues and
operating results and harm our reputation with users, advertisers and commerce
partners.
A key element of our strategy is to generate a high volume of traffic to
our network. Accordingly, the satisfactory performance, reliability and
availability of our network and our computer infrastructure is critical to our
reputation and our ability to attract and retain users, advertisers, e-commerce
partners and members. We cannot accurately project the rate or timing of any
increases in traffic to our network and, therefore, the integration and timing
of any upgrades or enhancements required to facilitate any significant traffic
increase to our network are uncertain.
We also depend on the receipt of timely feeds and computer downloads from
our content providers, and any failure or delay in the transmission or receipt
of such feeds or downloads from our content providers, the public network or
otherwise, could disrupt our operations. We also use third party software to
manage and deliver advertisements by contract and to provide our advertisers
with performance data. The failure of these systems to function properly could
discourage advertisers from placing advertisements on our network or e-commerce
partners from selling their products on our network. Failure of these systems
could cause us to incur additional costs or cause interruptions in our business
during the time spent replacing these systems. Our network infrastructure may
not perform properly and may not provide advertisers or e-commerce partners with
accurate data. The failure to expand and upgrade our network or any system error
or failure could materially harm our business, reputation, financial condition
or results of operations.
IF USE OF THE INTERNET DOES NOT CONTINUE TO GROW, OUR BUSINESS WILL BE
MATERIALLY HARMED
Our market is new and rapidly evolving. Our business would be significantly
harmed if Internet usage does not continue to grow. Internet usage may not grow
for a number of reasons such as:
- security concerns
- inconsistent quality of service
- inadequate network infrastructure
- consumers returning to traditional or alternative sources for
information, shopping and services
- lack of cost-effective, high-speed connectivity
- the failure of the Internet as a viable commercial marketplace
THE SUCCESS OF OUR BUSINESS WILL DEPEND ON CONTINUED GROWTH IN INTERNET COMMERCE
The market for the purchase of products and services over the Internet is
new and emerging. Our future revenues and profits will depend in part upon the
widespread acceptance and the use of the Internet and other online services as a
medium for commerce by consumers and merchants. If acceptance and growth of the
Internet does not occur, our business and financial performance will materially
suffer. A sufficiently broad base of consumers may not adopt, or continue to
use, the Internet as a medium for commerce. Demand for and market acceptance of
recently introduced products and services over the Internet are subject to a
high level of uncertainty, and there are few proven products and services.
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In addition, the ability to securely transmit confidential information is a
significant criterion for successful e-commerce. Any well-publicized compromise
of security could deter people from using the Internet or from using the
Internet for transactions that involve transmitting confidential information,
such as credit card numbers. Because many of our advertisers seek to advertise
on our network to encourage people to use the Internet to purchase goods or
services, the failure of the Internet as a medium for commerce would seriously
harm our business, financial condition or results of operations.
WE CANNOT PREDICT TO WHAT EXTENT WE MAY BE HELD LIABLE FOR OUR SERVICES AND USER
GENERATED CONTENT AND IF WE ARE SUBJECT TO SUBSTANTIAL LIABILITY OUR BUSINESS
MAY BE MATERIALLY HARMED
We host a wide variety of information, community, communications and
commerce services that enable our users to exchange information, conduct
business and engage in various online activities. Claims could be made against
us for negligence, defamation, libel, copyright or trademark infringement,
personal injury or other legal claims based on the nature and content of
information that may be posted online by our users. The laws relating to the
liability of providers of these online services for the activities of their
users are currently unsettled. In addition, we could be exposed to liability
with respect to the selection of listings that may be accessible through our
Women.com-branded products and properties, or through content and materials that
may be posted by users on message boards or in clubs, chat rooms or other
interactive community-building services. It is also possible that if any
information provided through our services, such as financial information,
contains errors, third parties could make claims against us for losses incurred
in reliance on such information. We offer Internet-based e-mail services, which
expose 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. Investigating and
defending such claims is expensive, even to the extent these claims do not
result in liability. Although we carry general liability insurance, this
insurance may not be available to cover a particular claim or may be
insufficient.
In addition, we could be exposed to liability arising from the activities
of users of our content or services or with respect to the unauthorized
duplication or insertion of illegal or inappropriate material accessed directly
or indirectly through our services. Several private lawsuits seeking to impose
such liability upon content providers, online services companies and Internet
access providers are currently pending. In addition, legislation currently
imposes liability for, and in some cases prohibits, the transmission over the
Internet of some types of information. This legislation or any similar future
regulation could expose us to significant liabilities associated with our
content or services. Our activities could be or become subject to various forms
of taxation, including but not limited to sales and use taxes, the imposition of
which could materially harm our business, financial condition or results of
operations.
The imposition of potential liability for our content or services could
require us to implement measures to reduce our exposure to such liability
arising out of the content or services we offer, which may require the
expenditure of substantial resources, or to discontinue some content or service
offerings. The increased attention focused upon liability issues as a result of
these lawsuits and legislative proposals could affect the growth of Internet
use. While we carry general liability insurance, it may not be adequate to
compensate us in the event we become liable for our content or services. Any
liability in excess of our general liability insurance could materially harm our
business, financial condition or results of operations.
CONSUMER PROTECTION PRIVACY REGULATIONS COULD IMPAIR OUR ABILITY TO OBTAIN
INFORMATION ABOUT OUR USERS
Our network captures information regarding our registered members in order
to tailor content to them and assist advertisers in targeting their advertising
campaigns to particular demographic groups. However, privacy concerns may cause
users to resist providing the personal data necessary to support this tailoring
capability. Even the perception of security and privacy concerns, whether or not
valid, may indirectly inhibit market acceptance of our network. In addition,
legislative or regulatory requirements
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may heighten these concerns if businesses must notify Internet users that the
data may be used by marketing entities to direct product promotion and
advertising to the user. Other countries and political entities, such as the
European Economic Community, have adopted such legislation or regulatory
requirements. The United States may adopt similar legislation or regulatory
requirements. If consumer privacy concerns are not adequately addressed, our
business, financial condition and results of operations could be materially
harmed.
Our network currently uses cookies to track demographic information and
user preferences. A cookie is information keyed to a specific server, file
pathway or directory location that is stored on a user's hard drive, possibly
without the user's knowledge, but is generally removable by the user. Germany
has imposed laws limiting the use of cookies, and a number of Internet
commentators, advocates and governmental bodies in the United States and other
countries have urged the passage of laws limiting or abolishing the use of
cookies. If such laws are passed, our business, financial condition and results
of operations could be materially harmed.
WE MAY EXPEND SIGNIFICANT RESOURCES TO PROTECT OUR INTELLECTUAL PROPERTY RIGHTS
OR TO DEFEND CLAIMS OF INFRINGEMENT BY THIRD PARTIES, AND IF WE ARE NOT
SUCCESSFUL WE MAY LOSE RIGHTS TO USE SIGNIFICANT MATERIAL OR BE REQUIRED TO PAY
SIGNIFICANT FEES
Our success depends on the protection of our original interactive content
and on the goodwill associated with our trademarks and other proprietary
intellectual property rights. A substantial amount of uncertainty exists
concerning the application of copyright and trademark laws to the Internet and
other digital media, and there can be no assurance that existing laws provide
adequate protection of our content or our Internet addresses, commonly referred
to as domain names. We have filed applications to register a number of our
trademarks, trade names and service marks, but registrations have only been
granted in selected cases, and we may not be able to secure additional
registrations.
We have also invested resources in acquiring domain names for existing and
potential future use. We cannot assure you, however, that we will be entitled to
use such names under applicable trademarks and similar laws or that other
desired domain names will be available. Furthermore, enforcing our intellectual
property rights could entail significant expense and could prove difficult or
impossible. In addition, we cannot assure you that third parties will not bring
claims of copyright or trademark infringement, patent violation or
misappropriation of creative ideas or formats against us with respect to our
content or any third-party content carried by us. Any such claims, with or
without merit, could be time consuming to defend, result in costly litigation,
divert management attention, require us to enter into costly royalty or
licensing arrangements or prevent us from using important technologies, ideas or
formats, any of which could materially harm our business, financial condition or
results of operations.
GOVERNMENT REGULATION AND LEGAL UNCERTAINTIES COULD ADD ADDITIONAL COSTS TO
DOING BUSINESS ON THE INTERNET
We are not currently subject to meaningful direct regulation applicable to
access to, or commerce on, the Internet by any government agency. Any new laws
or regulations relating to the Internet could substantially increase our
operating expenses or otherwise materially harm our business. It is possible
that in the future a number of laws and regulations may be adopted with respect
to the Internet and other digital media, covering issues such as user privacy,
electronic commerce, and the pricing, characteristics and quality of products
and services. Our distribution arrangements on the Internet could subject us to
the laws of a distant jurisdiction in an unpredictable manner. Several
telecommunications companies have petitioned the Federal Communications
Commission to regulate Internet service providers and providers of online
services in a manner similar to long distance telephone carriers and to impose
access fees on these companies.
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TRADING IN OUR SHARES COULD BE SUBJECT TO EXTREME PRICE FLUCTUATIONS AND YOU
COULD HAVE DIFFICULTY TRADING YOUR SHARES
You may not be able to resell your shares at or above the initial public
offering price due to a number of factors such as:
- actual or anticipated quarterly variations in our operating results
- changes in market expectations of our future financial performance or
changes in the estimates of securities analysts
- a limited public float due to Hearst's share ownership and, for the six
months immediately following the offering, contractual restrictions on
resale
- a significant increase in the number of shares available for resale
beginning six months after this offering
- announcements by our competitors
- conditions affecting the market for Internet stocks or the stock market
in general
The trading price of our common stock may be volatile. The stock market in
general and the market for technology and Internet-related companies, in
particular, has experienced extreme volatility that often has been unrelated to
the operating performance of particular companies. These broad market and
industry fluctuations may adversely affect the trading price of our common
stock, regardless of our actual operating performance.
In the past, following periods of volatility in the market price of a
company's securities, class action litigation has often been filed. If this were
to happen to us, litigation would be expensive and would divert management's
attention from the operation of the business.
IF WE, OR THIRD PARTIES ON WHICH WE RELY, FAIL TO ACHIEVE YEAR 2000 READINESS,
OUR BUSINESS COULD BE MATERIALLY HARMED
We may discover year 2000 readiness problems in our internally developed
systems that will require substantial revision. In addition, third-party
software, hardware or services incorporated into our systems may need to be
revised or replaced, all of which could be time-consuming and expensive. If we
cannot fix or replace our internally developed or third-party software, hardware
or services before January 1, 2000, our operating costs could be increased and
we could experience business interruptions that could harm our business.
Additionally, if we cannot adequately address year 2000 readiness issues in our
internally developed proprietary software, we could be subject to claims of
mismanagement, misrepresentation or breach of contract and related litigation,
which could be costly and time consuming to defend.
In addition, the software and systems of governmental agencies, utility
companies, Internet service providers companies, third-party service companies
and others outside of our control may not be year 2000 ready. If these entities
are not year 2000 ready, a systemic failure beyond our control could result,
including a prolonged Internet, telecommunications or general electrical
failure. This type of failure would make it difficult or impossible to use the
Internet or access our network and would prevent us from publishing our content.
If a prolonged failure of this type occurred, our business would be severely
harmed. If our advertisers and sponsors are not year 2000 ready, they may defer
or cancel advertising scheduled to appear on our network, which could harm our
business.
THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES AND ACTUAL RESULTS THAT DIFFER FROM THOSE STATEMENTS MAY
MATERIALLY HARM OUR BUSINESS
This prospectus contains forward-looking statements that are inherently
uncertain. We use words such as "anticipates," "believes," "plans," "expects,"
"future," "intends" and similar expressions to
14
<PAGE> 19
identify any forward-looking statements. Each of these forward-looking
statements involves risks and uncertainties. In addition to forward-looking
statements made by us, this prospectus also contains forward-looking statements
attributed to third parties regarding estimates of the growth of the use of the
Internet by women, electronic-commerce over the Internet and spending by
advertisers on the Internet. You should not place undue reliance on these
forward-looking statements. Actual results could differ materially from those
anticipated in these forward-looking statements for many reasons, including the
risks faced by us described above in "Risk Factors" and elsewhere in this
prospectus.
15
<PAGE> 20
USE OF PROCEEDS
The net proceeds we will receive from the sale of shares of common stock in
this offering are estimated to be $37.2 million, after deducting estimated
underwriting discounts and commissions and estimated offering expenses payable
by us. If the underwriters' over-allotment option is exercised in full, we
estimate that the net proceeds from this offering will be $42.9 million. The net
proceeds we will receive from the sale of shares of common stock in the Disney
and Torstar private placements are estimated to be $27.5 million. The net
proceeds we will receive from the sale of shares in the Hearst private placement
are estimated to be approximately $27.9 million. In the event that the
underwriters' over-allotment option is exercised in full, Hearst will have the
right to purchase up to 312,500 additional shares of common stock, in which case
the total net proceeds from the Hearst private placement will be approximately
$31.4 million. If the underwriters exercise their over-allotment option in part,
Hearst will have an option to purchase a pro rata portion of these additional
shares.
While we cannot predict with certainty how the proceeds of this offering
and the Disney, Torstar and Hearst private placements will be used, we currently
intend to use them approximately as follows:
- $10 million for expansion of our sales force
- $25 million for marketing and distribution activities
- $50 million for expansion of our business operations, including $15
million for the launch of international operations, $10 million for
increased staffing, $15 million for content production and $10 million
for technology infrastructure
- The remainder for working capital
In addition, we may use a portion of the proceeds for the acquisition of
complementary businesses, content and technologies. We are not currently a party
to any contracts or letters of intent with respect to any material acquisitions,
and there can be no assurance that any of our expansion plans will be realized
or, if realized, will prove profitable for us. The allocation of the net
proceeds from this offering and the Disney, Torstar and Hearst private
placements discussed above represents management's current estimates only.
Management's plans for the proceeds are subject to change due to unforeseen
opportunities and, as such, actual allocation of the net proceeds may differ
substantially from these estimates. We cannot specify with certainty the
particular uses for the net proceeds to be received upon the completion of this
offering. Accordingly, our management team will have broad discretion in using
the net proceeds of this offering. We intend to invest the net proceeds from
this offering and the Disney, Torstar and Hearst private placements in
short-term, investment grade, interest-bearing securities until they are used.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
DIVIDEND POLICY
We have never declared or paid any cash dividends on our capital stock. We
currently intend to retain future earnings, if any, to finance the expansion of
our business and we do not expect to pay any cash dividends in the foreseeable
future.
16
<PAGE> 21
CAPITALIZATION
The following table sets forth our total capitalization as of March 31,
1999:
- on an actual basis
- on a pro forma basis to reflect (1) the net proceeds of $19,230,000 from
the sale of 2,000,000 units in Women.com Networks LLC in May 1999, (2)
the increase in the authorized number of shares of common stock, (3) the
net proceeds of $3,102,388 from the exercise of a warrant to acquire
887,665 shares of preferred stock and net exercise of warrants for a
total of 161,436 shares of common stock and (4) the conversion of all
outstanding preferred stock into common stock prior to the consummation
of this offering
- on a pro forma basis, as adjusted, to give effect to the issuance and
sale by Women.com of the common stock offered in this offering and the
Disney, Torstar and Hearst private placements at an assumed initial
public offering price of $11.00 per share, after deducting estimated
underwriting discounts, commissions and offering expenses. This table
should be read in conjunction with "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and the combined
financial statements and related notes thereto included elsewhere in this
prospectus.
<TABLE>
<CAPTION>
AS OF MARCH 31, 1999
----------------------------------
PRO PRO FORMA
ACTUAL FORMA AS ADJUSTED
-------- --------- -----------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C>
Mandatorily redeemable convertible preferred stock and
warrants:
Series A Convertible Preferred Stock; 2,707,403 shares
authorized; 2,685,181 shares issued and outstanding
(actual); no shares authorized, issued or outstanding
(pro forma and pro forma as adjusted).................. $ 4,913 -- --
Series B Convertible Preferred Stock; 579,407 shares
authorized; 579,407 shares issued and outstanding
(actual); no shares authorized, issued or outstanding
(pro forma and pro forma as adjusted).................. 1,644 -- --
Series C Convertible Preferred Stock; 7,000,000 shares
authorized; 3,626,922 shares issued and outstanding
(actual); no shares authorized, issued or outstanding
(pro forma and pro forma as adjusted).................. 8,620 -- --
Series D Convertible Preferred Stock; 8,000,000 shares
authorized; 6,546,369 shares issued and outstanding
(actual); no shares authorized, issued or outstanding
(pro forma and pro forma as adjusted).................. 19,823 -- --
Convertible preferred stock warrants...................... 515 265 265
-------- --------- --------
Total mandatorily redeemable convertible preferred
stock and warrants............................... 35,515 265 265
-------- --------- --------
Stockholders' equity
Preferred Stock, $0.001 par value: 5,000,000 shares
authorized (pro forma and pro forma as adjusted)
Common Stock, $0.001 par value: 60,000,000 shares
authorized (actual); 195,000,000 (pro forma and pro
forma as adjusted); 19,616,000 shares issued and
outstanding (actual); 36,102,980 shares, issued and
outstanding (pro forma); and 44,890,858 shares issued
and outstanding (pro forma as adjusted)................ $ 21 $ 36 $ 45
Additional paid-in capital.................................. 92,563 150,130 242,700
Notes receivable from stockholders.......................... (44) (44) (44)
Unearned compensation....................................... (3,248) (3,248) (3,248)
Accumulated deficit......................................... (39,144) (39,144) (39,144)
-------- --------- --------
Total stockholders' equity........................ 50,148 107,730 200,309
-------- --------- --------
Total capitalization.............................. $ 85,663 $ 107,995 $200,574
======== ========= ========
</TABLE>
The above information excludes:
- 4,203,218 shares of common stock issuable on exercise of options
outstanding as of March 31, 1999 under the 1994 Stock Option Plan and the
1998 Equity Incentive Plan, with a weighted average exercise price of
$2.34 per share,
- 4,169,757 shares reserved for future issuance under the 1998 Equity
Incentive Plan
- 1,000,000 shares reserved for future issuance under the Employee Stock
Purchase Plan
- 939,468 shares of common stock issuable upon exercise of warrants
outstanding as of March 31, 1999, with a weighted average exercise price
of $2.93 per share
17
<PAGE> 22
DILUTION
The pro forma net tangible book value of Women.com Networks, Inc. at March
31, 1999 was approximately $48.1 million, or $1.33 per share. Pro forma net
tangible book value per share is determined by dividing our pro forma tangible
net worth (total tangible assets less total liabilities) by the number of shares
of outstanding common stock, after giving effect to:
- the net proceeds of $19,230,000 from the sale of 2,000,000 units in
Women.com Networks LLC in May 1999
- the consummation of the merger between Hearst HomeArts, Inc. and
Women.com Networks
- the conversion of all outstanding shares of our mandatorily redeemable
convertible preferred stock into shares of common stock
- the net proceeds of $3,102,388 from the exercise of a warrant to acquire
887,665 shares of preferred stock and net exercise of warrants for a
total of 161,436 shares of common stock
Assuming the sale of the 3,750,000 shares of common stock offered in this
offering, the sale of 2,500,000 shares of common stock offered in the Disney and
Torstar private placements, and the sale of 2,537,878 shares of common stock in
the Hearst private placement at an assumed offering price of $11.00 per share
after deducting estimated underwriting discounts and commissions and offering
expenses payable by us, the pro forma, as adjusted, net tangible book value of
Women.com Networks, Inc. as of March 31, 1999 would have been approximately
$140.7 million, or $3.13 per share. This represents an immediate increase in the
pro forma net tangible book value of $1.80 per share to existing stockholders
and an immediate dilution of $7.87 per share to new investors purchasing shares
at the initial public offering price. If the initial public offering price is
higher or lower, the dilution to new investors will be greater or less,
respectively. The following table illustrates this dilution per share:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $11.00
Pro forma net tangible book value per share as of March
31, 1999............................................... $1.33
Increase in pro forma tangible book value per share
attributable to new investors (including the Disney,
Torstar and Hearst private placements)................. 1.80
-----
Pro forma, as adjusted, net tangible book value per share
after this offering, the Disney, Torstar and Hearst
private placements........................................ 3.13
------
Dilution per share to new investors (including the Disney,
Torstar and Hearst private placements).................... $ 7.87
======
</TABLE>
18
<PAGE> 23
The following table summarizes, on a pro forma basis as of March 31, 1999,
the number of shares of common stock purchased from Women.com, the total
consideration provided to Women.com and the average price per share provided by
existing stockholders after giving effect to:
- the sale of 2,000,000 units of Women.com Networks LLC in May 1999
- the merger between Hearst HomeArts, Inc. and Women.com Networks
- the conversion of all outstanding shares of mandatorily redeemable
convertible preferred stock into common stock
- the net proceeds of $3,102,388 from the exercise of a warrant to acquire
887,665 shares of preferred stock and net exercise of warrants for a
total of 161,436 shares of common stock
- the sale of shares to investors in this offering and the Disney, Torstar
and Hearst private placements
The calculation is based on an assumed initial public offering price of
$11.00 per share, before deducting estimated underwriting discounts, commissions
and offering expenses payable by us.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
----------------------- ------------------------- PRICE
NUMBER PERCENTAGE AMOUNT PERCENTAGE PER SHARE
---------- ---------- ------------ ---------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders......... 36,102,980 80.4% $146,133,949 60.2% $4.05
New investors (including the
Disney, Torstar and Hearst
private placements)......... 8,787,878 19.6 96,666,658 39.8 11.00
---------- ----- ------------ -----
Total............... 44,890,858 100.0% $242,800,607 100.0%
========== ===== ============ =====
</TABLE>
The discussion and table above assume no exercise of options outstanding
under our 1994 Stock Option Plan and the 1998 Equity Incentive Plan and no
issuance of shares reserved for future issuance under our Employee Stock
Purchase Plan. As of March 31, 1999, there were options outstanding to purchase
a total of 4,203,218 shares of common stock at a weighted average price of $2.34
per share and 939,468 shares issuable upon exercise of outstanding warrants with
a weighted average exercise price of $2.93 per share. To the extent that any of
these options or warrants are exercised, there will be further dilution to new
investors. Please see "Capitalization," and "Management -- Stock Based
Plans -- 1998 Equity Incentive Plan," "-- 1994 Stock Option Plan" and
"-- Employee Stock Purchase Plan."
19
<PAGE> 24
SELECTED FINANCIAL INFORMATION
The following selected Women.com statement of operations data for the years
ended December 31, 1996, 1997 and 1998 and the balance sheet data at December
31, 1997 and 1998 are derived from the financial statements of Women.com which
have been audited by PricewaterhouseCoopers LLP, independent accountants, and
are included in this prospectus. The Women.com statement of operations data for
the year ended December 31, 1995 and the balance sheet data at December 31, 1996
are derived from the financial statements of Women.com which have been audited
by PricewaterhouseCoopers LLP, independent accountants, and are not included in
this prospectus. The Women.com statement of operations data for the year ended
December 31, 1994 are derived from the unaudited financial statements of
Women.com which are not included in this prospectus. The Women.com statement of
operations data for the three months ended March 31, 1999 and 1998 and the
balance sheet data as of March 31, 1999 are derived from our unaudited financial
statements that include, in our opinion, all adjustments, consisting of only
normal recurring adjustments, necessary for the fair presentation of the
financial condition and results of operations for such period. The results of
operations for the three months ended March 31, 1999 or any other period are not
necessarily indicative of our future results. The selected financial data should
be read in conjunction with our Financial Statements and the Notes thereto and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere in this prospectus.
The following selected HomeArts statement of operations data for the years
ended December 31, 1996, 1997 and 1998 and the balance sheet data as of December
31, 1997 and 1998 are derived from the consolidated financial statements of
Certain Operations of the New Media and Technology Division of The Hearst
Corporation which have been audited by Deloitte & Touche LLP, independent
auditors, and are included in this prospectus.
<TABLE>
<CAPTION>
WOMEN.COM HOMEARTS
-------------------------------------------------------------------- ----------------------------
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31, YEAR ENDED DECEMBER 31,
----------------------------------------------- ------------------ ----------------------------
1994 1995 1996 1997 1998 1998 1999 1996 1997 1998
------ ------- ------- ------- -------- ------- -------- ------- ------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net revenues................ $ 120 $ 128 $ 729 $ 2,798 $ 7,247 $ 1,113 $ 3,413 $ 1,279 $ 1,896 $ 2,957
------ ------- ------- ------- -------- ------- -------- ------- ------- --------
Operating expenses:
Production, product and
technology.............. 123 797 1,174 2,922 5,728 1,027 3,848 4,254 4,998 8,095
Sales and marketing....... 305 368 957 3,907 12,042 1,298 6,568 3,529 5,946 8,625
General and
administrative.......... 245 673 956 1,101 1,374 310 1,968 990 878 970
Stock-based
compensation............ -- -- -- -- 1,170 157 612 -- -- --
Amortization of acquired
intangibles............. -- -- -- -- 517 -- 3,671 -- -- --
------ ------- ------- ------- -------- ------- -------- ------- ------- --------
Total operating
expenses............ 673 1,838 3,087 7,930 20,831 2,792 16,667 8,773 11,822 17,690
------ ------- ------- ------- -------- ------- -------- ------- ------- --------
Loss from operations........ (553) (1,710) (2,358) (5,132) (13,584) (1,679) (13,254) (7,494) (9,926) (14,733)
Other income, net........... 2 4 53 37 539 38 159 -- -- --
------ ------- ------- ------- -------- ------- -------- ------- ------- --------
Net loss.................... (551) (1,706) (2,305) (5,095) (13,045) (1,641) (13,095) (7,494) (9,926) (14,733)
Dividend accretion on
mandatorily redeemable
convertible preferred
stock..................... (34) (236) (682) (1,517) (570) (95) (95) -- -- --
------ ------- ------- ------- -------- ------- -------- ------- ------- --------
Net loss attributable to
common
stockholders.............. $ (585) $(1,942) $(2,987) $(6,612) $(13,615) $(1,736) $(13,190) $(7,494) $(9,926) $(14,733)
====== ======= ======= ======= ======== ======= ======== ======= ======= ========
Basic and diluted net loss
per share attributable to
common stockholders....... $(2.04) $ (2.81) $ (4.26) $ (9.15) $ (10.52) $ (2.30) $ (.95)
====== ======= ======= ======= ======== ======= ========
Shares used in computing
basic and diluted net loss
per share................. 287 692 702 722 1,294 754 13,820
====== ======= ======= ======= ======== ======= ========
Basic and diluted pro forma
net loss per share........ $ (1.13) $ (.48)
======== ========
Shares used in computing pro
forma basic and diluted
net loss per share........ 11,548 27,258
======== ========
</TABLE>
<TABLE>
<CAPTION>
WOMEN.COM HOMEARTS
------------------------------------------------------------ ------------------
AS OF DECEMBER 31, AS OF AS OF DECEMBER 31,
------------------------------------------------ MARCH 31, ------------------
1994 1995 1996 1997 1998 1999 1997 1998
------ ------- ------- -------- -------- --------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents..................... $ 587 $ 564 $ 1,761 $ 4,885 $ 12,235 $19,164 $ -- $ 24
Working capital............................... 530 153 83 2,874 9,856 16,687 (830) (989)
Total assets.................................. 801 719 2,208 6,430 18,062 95,377 2,504 8,218
Mandatorily redeemable convertible preferred
stock and
warrants.................................... 1,342 2,839 5,817 15,012 35,420 35,515 -- --
Total stockholders' equity (deficit).......... (748) (2,663) (5,650) (12,256) (22,705) 50,148 -- --
</TABLE>
20
<PAGE> 25
SELECTED PRO FORMA FINANCIAL DATA
The pro forma statement of operations data for the year ended December 31,
1998 and the three months ended March 31, 1999 are derived from the unaudited
pro forma combined financial information, which reflect the combination with
HomeArts and Astronet as if such combination had occurred on January 1, 1998,
and are included herein. The pro forma statement of operations data are
presented for informational purposes only and may not be indicative of the
operating results that would have been achieved had the transactions been in
effect as of the beginning of the periods presented and should not be construed
as being representative of future operating results.
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED ENDED
DECEMBER 31, MARCH 31,
1998 1999
------------ ------------
(IN THOUSANDS, EXCEPT PER
SHARE DATA)
<S> <C> <C>
PRO FORMA STATEMENT OF OPERATIONS DATA:
Net revenues................................................ $ 11,650 $ 3,663
-------- --------
Operating expenses:
Production, product and technology........................ 15,015 4,519
Sales and marketing....................................... 21,024 7,320
General and administrative................................ 2,754 1,996
Stock-based compensation.................................. 1,170 612
Amortization of acquired intangibles...................... 21,514 5,417
-------- --------
Total operating expenses.......................... 61,477 19,864
-------- --------
Loss from operations........................................ (49,827) (16,201)
Other income, net........................................... 539 159
-------- --------
Net loss.................................................... (49,288) (16,042)
Dividend accretion on mandatorily redeemable convertible
preferred stock........................................... (570) (95)
-------- --------
Net loss attributable to common stockholders................ (49,858) (16,137)
======== ========
Basic and diluted pro forma net loss per share.............. $ (1.70) $ (.49)
======== ========
Shares used in computing pro forma basic and diluted net
loss per share............................................ 29,347 32,851
======== ========
</TABLE>
21
<PAGE> 26
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with Women.com's
financial statements and the notes thereto 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 statements that involve risks and uncertainties. Women.com's actual
results could differ materially from those anticipated by this forward-looking
information due to factors discussed in "Risk Factors," "Business" and elsewhere
in this prospectus.
OVERVIEW
Women.com is a leading Internet network dedicated to women, featuring
award-winning original content, personalized services, community and online
shopping. Women.com's network contains more than 90,000 pages of content
organized into 20 topical channels, and offers content from 12 of the world's
leading women's magazines, including Cosmopolitan, Good Housekeeping, Prevention
and Redbook.
Women.com Networks was formed in October 1992 and introduced its current
Internet site, located at www.women.com, in 1995. In January 1999, Women.com
Networks and Hearst HomeArts, Inc., a subsidiary of The Hearst Corporation,
contributed their businesses to Women.com Networks LLC, which is jointly owned
by Women.com and HomeArts. Upon the closing of this offering, Women.com and
HomeArts will merge and the business previously conducted by Women.com Networks
LLC will be continued by Women.com. The creation of Women.com Networks LLC was
accounted for as an acquisition using the purchase method of accounting. The
operations of HomeArts have been included in Women.com's operations since the
formation of Women.com Networks LLC on January 29, 1999.
Women.com has incurred significant net losses and negative cash flows from
operations since its inception. As of March 31, 1999, Women.com had an
accumulated deficit of $39.1 million. Women.com intends to continue to make
significant financial investments in its business, including product, technology
and infrastructure development and personnel. As a result, Women.com believes it
will incur significant operating losses and negative cash flows from operations
for at least the next several years.
Women.com currently derives revenues primarily from three sources:
advertising, web site production and e-commerce. Substantially all of
Women.com's revenues to date have been generated from advertising.
Advertising revenues consist primarily of sales of banner advertisements
and sponsorships. Advertising contracts are generally short-term, although
several long-term contracts and sponsorships have been signed. Women.com
typically guarantees a minimum number of impressions or page views to be
delivered to users over a specified period of time for a fixed fee. Advertising
revenues are generally recognized ratably over the period in which the
advertising is displayed. To the extent that minimum guaranteed page deliveries
are not met, Women.com defers recognition of the corresponding revenues until
the guaranteed page deliveries are achieved.
Sponsorship revenues are derived from contracts that generally range from
six to 24 months in length. Sponsorship agreements typically include the
delivery of impressions, market research, preferred status within relevant
content areas and the design and development of sites branded by both Women.com
and the sponsor intended to enhance the promotional objective of the sponsor.
Women.com recognizes sponsorship revenues as earned, which is generally ratably
over the contract period. To the extent that committed obligations under
sponsorship agreements are not met, revenue recognition is deferred until the
obligations are met.
22
<PAGE> 27
Advertising revenues also include barter revenues, which represent the
exchange of advertising space on Women.com's network for reciprocal advertising
space on third party Web sites as well as other advertising and promotional
vehicles. Revenues from these barter transactions are recorded as advertising
revenues at the lower of estimated fair value of the advertisements received or
delivered and are recognized upon publication of the advertisements on
Women.com's network. Barter expenses are an equal and offsetting charge and are
recorded at the lower of estimated fair value of the advertisements received or
delivered and are recognized when Women.com's advertisements run on the
reciprocal media property, which is typically in the same period in which the
advertisements run on Women.com's network.
Production revenues are derived from short-term contracts in which
Women.com designs and develops web sites for third parties for use on the
Women.com network or their own sites. Women.com recognizes production revenues
as earned, which is generally as services are performed over the contract
period. To the extent that committed obligations under production agreements are
not met, revenue recognition is deferred until the obligations are met.
To date, e-commerce revenues have consisted primarily of commissions from
the sale of magazine subscriptions, sale of services on Astronet, and to a
lesser extent payments from affiliate sales programs. Women.com records a
portion of the revenue from each magazine subscription sold on our magazine
sites. We derive our Astronet e-commerce revenues from services offered on our
network. E-commerce revenues are recognized upon notification from the affiliate
of revenues earned by Women.com. In the future, Women.com intends to directly
sell inventory over its network, resulting in revenue recognition of the full
amount of the sales transaction, net of normal reserves, with a charge to cost
of goods sold for the cost of the inventory sold.
Operating expenses consist of production, product and technology expenses,
sales and marketing expenses and general and administrative expenses.
Production, product and technology expenses consist primarily of
personnel-related costs for technical operations, editorial and design
activities and content acquisition costs. In connection with the combination
with HomeArts and Astronet, Women.com agreed to pay Hearst a royalty on the
advertising revenues generated from the Hearst magazine sites on the Women.com
network or from other proprietary Hearst content. The royalty percentage will be
reduced when Hearst has recouped its site production costs and will be further
reduced when the revenues from the Hearst content exceed fixed minimum amounts
in any 12-month period. These royalty charges are included in production,
product and technology expenses. See "Business -- The Hearst Relationship."
Sales and marketing expenses consist primarily of personnel-related costs,
and advertising, distribution and public relations expenses. General and
administrative expenses consist primarily of personnel-related costs and legal
and accounting fees.
Stock-based compensation consists primarily of charges related to the
difference between employee stock option grant prices and deemed fair market
values on the date of grant amortized over the vesting period of the options. At
March 31, 1999, Women.com had recorded $5.0 million of unearned stock-based
compensation, which is being amortized over the vesting periods of the options,
generally four years.
Amortization of acquired intangibles consists of the amortization of
goodwill and intangible assets acquired. The acquisition of Wild Wild Web and
the combination with HomeArts and Astronet were accounted for using the purchase
method of accounting and, accordingly, the purchase prices have been allocated
to the tangible and intangible assets acquired and liabilities assumed on the
basis of their respective fair values on the acquisition dates. Substantially
all of the purchase price of these transactions is attributable to the acquired
intangible assets. As a result, the aggregate excess purchase price over net
23
<PAGE> 28
tangible assets is approximately $64.1 million, $4.4 million of which will be
amortized over two years, $57.5 million of which will be amortized over three
years and $2.2 million of which will be amortized over five years, the expected
estimated average useful life of these assets. These non-cash charges will
significantly affect Women.com's reported operating results over the next
several years.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1999 AND 1998
Results of operations for the first quarter of 1999 include the combined
results of Women.com and HomeArts for the period subsequent to the combination
with HomeArts and Astronet on January 29, 1999.
Net Revenues. Net revenues increased to $3.4 million in the first quarter
of 1999 from $1.1 million in the first quarter of 1998. The increase was
primarily due to an increase in advertising revenues. In the first quarter of
1999, barter revenues accounted for 3.6% of total revenues.
Production, product and technology expenses. Production, product and
technology expenses increased to $3.8 million in the first quarter of 1999 from
$1.0 million in the first quarter of 1998. This increase was primarily due to
increased expenses of approximately $1.4 million associated with increased
production costs related to the combination with HomeArts and Astronet,
increased costs related to the hiring of additional production and product
development personnel of approximately $400,000 as well as increased content
acquisition costs. Production, product and technology expenses are expected to
increase as Women.com increases the amount of content and number of services
offered on its network and relaunches the Hearst magazine sites.
Sales and marketing expenses. Sales and marketing expenses increased to
$6.6 million in the first quarter of 1999 from $1.3 million in the first quarter
of 1998. This increase was primarily due to a $2.5 million increase in online
distribution expenses as a result of agreements with America Online, Microsoft
Network and Netscape, and a $1.5 million increase in advertising expenses and
expenses related to the combination with HomeArts and Astronet. Sales and
marketing expenses are expected to increase as Women.com expands its sales and
marketing efforts.
General and administrative expenses. General and administrative expenses
increased to $2.0 million in the first quarter of 1999 from $310,000 in the
first quarter of 1998. The increase was primarily due to increased costs related
to additional administrative staffing of approximately $100,000 to support the
overall growth in the business, and expenses related to the combination with
HomeArts and Astronet of approximately $600,000. General and administrative
expenses are expected to increase as Women.com adds additional administrative
personnel and as a result of costs associated with being a public company.
Stock-based compensation. Stock-based compensation expense increased to
$612,000 in the first quarter of 1999 from $157,000 in the first quarter of
1998. The increase was primarily due to an increased level of stock option
grants and increases in the deemed fair market value of the underlying common
stock. See Note 11 of Notes to Financial Statements.
Amortization of acquired intangibles. Amortization of acquired intangibles
was $3.7 million in the first quarter of 1999. This amount was due to the
acquisition of Wild Wild Web in April 1998 and the combination with HomeArts and
Astronet in January 1999. No amortization was recorded in the first quarter of
1998. See Note 3 of Notes to Financial Statements.
Other Income, net. Other income, net consists of interest income net of
interest expense. Other income, net increased to $159,000 in the first quarter
of 1999 from $38,000 in the first quarter of 1998. The increase was primarily
due to higher cash balances as a result of the private sale of equity
securities.
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Income Taxes. Women.com elected to be taxed as a partnership for the period
beginning on January 29, 1999, the date of formation of Women.com Networks LLC,
and ending on the date of the merger of Women.com Networks and HomeArts, which
will occur immediately prior to the completion of this offering. As a
consequence, for this period the federal and state tax effects of the Women.com
losses were recorded by the members of the LLC on their respective income tax
returns.
No provision for federal and state income taxes has been recorded as
Women.com incurred net operating losses through December 31, 1998. As of
December 31, 1998, Women.com had approximately $19.0 million and $9.0 million of
net operating loss carryforwards for federal and state income tax purposes,
respectively, which are available to offset future regular and alternative
minimum taxable income. Women.com's federal net operating loss carryforwards
will expire in the years 2011 and 2013. For state tax purposes, the net
operating loss carryforwards will expire in the years 2001 and 2003. Women.com
has taken a valuation allowance on the full amount of the net operating loss
carryforwards since it is likely the benefit will not be realized in the future.
See Note 12 of Notes to Financial Statements.
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
Results of operations for the years ended December 31, 1998, 1997 and 1996
include the results of Women.com only, as the combination with HomeArts and
Astronet did not occur until January 29, 1999.
Net Revenues. Net revenues increased to $7.2 million in 1998 from $2.8
million in 1997. This increase was primarily due to higher advertising banner
sales of approximately $2.2 million, a full year of production revenues from
MediaOne and Hallmark of approximately $1.3 million, and new revenues from the
initiation of e-commerce affiliate and barter programs of approximately $200,000
and $700,000, respectively. Barter revenue accounted for 9.1% of net revenues in
1998. Net revenues increased to $2.8 million in 1997 from $729,000 in 1996. This
increase was primarily due to an increase in advertising revenues and, to a
lesser extent, the initiation of production activities.
Production, product and technology expenses. Production, product and
technology expenses increased to $5.7 million in 1998 from $2.9 million in 1997.
This increase was primarily due to the hiring of additional production and
product development personnel in 1998, and a $356,000, or 93%, increase in
content creation and development costs. These additional resources were required
to develop and support the network's increased content, features and overall
functionality. Production, product and technology expenses increased to $2.9
million in 1997 from $1.2 million in 1996. This increase was primarily due to
the creation, launch and ongoing development costs associated with Beatrice's
Internet Guide and the HealthyIdeas.com site.
Sales and marketing expenses. Sales and marketing expenses increased to
$12.0 million in 1998 from $3.9 million in 1997. The increase was primarily due
to increased sales and marketing staffing and accelerated sales and marketing
activities. Advertising expenses increased $2.4 million in 1998 to $4.0 million
from $1.6 million in 1997. In addition, Women.com incurred approximately $2.1
million in online distribution expenses in connection with its distribution
contracts with major online service providers. Also included in sales and
marketing expenses for 1998 was $656,000 of barter expense. No such expenses
were recorded in 1997. Sales and marketing expenses increased to $3.9 million in
1997 from $957,000 in 1996. This increase was primarily due to increased
staffing of Women.com's direct sales force and marketing organization, and a
$1.3 million increase in online advertising expenses.
General and administrative expenses. General and administrative expenses
increased to $1.4 million in 1998 from $1.1 million in 1997. This increase was
primarily due to increased administrative staffing to support Women.com's
growth. Bad debt expense increased by $201,000 to provide additional bad debt
reserves related to the growth in revenues. General and administrative
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expenses increased to $1.1 million in 1997 from $956,000 in 1996. This increase
was primarily due to higher personnel costs and legal fees associated with
financing activities.
Stock-based compensation. Stock-based compensation expense was $1.2 million
in 1998. This expense resulted from an increased level of stock option grants
and increases in the deemed fair market value of the underlying common stock.
Women.com had no stock-based compensation charges in 1997 or 1996.
Amortization of acquired intangibles. Amortization of acquired intangibles
was $517,000 in 1998. This amount was due to the acquisition of Wild Wild Web in
April 1998. No amortization expense was recorded in 1997 or 1996.
Other Income, net. Other income, net increased to $539,000 in 1998 from
$37,000 in 1997. The increase was primarily due to higher cash balances in
connection with the private sale of equity securities.
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
The following are the results of operations for HomeArts only and have been
derived from the consolidated financial statements of Certain Operations of the
New Media and Technology Division of The Hearst Corporation.
Net Revenues. Net revenues increased to $3.0 million in 1998 from $1.9
million in 1997. This increase was primarily due to increases in banner
advertising and sponsorship revenue of approximately $1.5 million, offset in
part by a decrease in production revenue of approximately $400,000. Net revenues
increased to $1.9 million in 1997 from $1.3 million in 1996. This increase was
primarily due to an increase in banner advertising, sponsorship and production
revenue.
Production, product and technology expenses. Production, product and
technology expenses consist primarily of software development and web hosting
infrastructure services provided by Hearst, personnel-related costs, and content
creation and development costs. Production, product and technology expenses
increased to $8.1 million in 1998 from $5.0 million in 1997. This increase was
primarily due to the development of the web hosting infrastructure and
membership information database, expansion of the content offered, the re-launch
of some channels, and further development of the magazine sites. Production,
product and technology expenses increased to $5.0 million in 1997 from $4.3
million in 1996. This increase was primarily due to an increase in creative,
production and editorial staffing, expansion of the content offered, development
of the magazine sites and fees for software development services provided by
Hearst which were not incurred in 1996.
Sales and marketing expenses. Sales and marketing expenses increased to
$8.6 million in 1998 from $5.9 million in 1997. This increase was primarily due
to increased sales and marketing efforts to acquire additional users. Sales and
marketing expenses increased to $5.9 million in 1997 from $3.5 million in 1996.
This increase was primarily due to increased advertising expense.
General and administrative expenses. General and administrative expenses
increased to $1.0 million in 1998 from $878,000 in 1997. This increase was
primarily due to personnel-related costs. General and administrative expenses
decreased to $878,000 in 1997 from $990,000 in 1996. This decrease was primarily
due to non-recurring expenses in 1996 consisting of a recruitment expense and a
pension accrual adjustment.
SELECTED QUARTERLY OPERATING RESULTS
The following table sets forth quarterly pro forma net revenue information
for Women.com for each of the five quarters in the period ended March 31, 1999,
assuming the combination with HomeArts and
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Astronet occurred on January 1, 1998. The information for each of these quarters
has been prepared on substantially the same basis as the audited financial
statements included elsewhere in this prospectus, and, in the opinion of
management, include all adjustments, consisting only of normal recurring
adjustments, necessary for a fair presentation of the results of operations for
such periods. Historical results are not necessarily indicative of the results
to be expected in the future, and results of interim periods are not necessarily
indicative of results for the entire year.
<TABLE>
<CAPTION>
QUARTER ENDED
----------------------------------------------------
MAR. 31, JUN. 30, SEP. 30, DEC. 31, MAR. 31,
1998 1998 1998 1998 1999
-------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
NET REVENUES........... $1,829 $2,486 $3,064 $4,271 $3,663
====== ====== ====== ====== ======
</TABLE>
The significant increase in net revenues during the quarter ended December
31, 1998 was due to the growth of the Internet as an advertising medium and
seasonal promotions related to holiday shopping and planning. In addition, the
fourth quarter is seasonally strong for most kinds of advertising.
The decline in revenues for the quarter ended March 31, 1999 was primarily
because the size of the HomeArts sales force and sales management team had
declined due to attrition by the end of 1998, and had little selling momentum
entering the first quarter. Also, the HomeArts and Women.com sales forces were
combined at the beginning of February, and much of that month was devoted to
assigning new sales territories, and otherwise integrating the selling
operations. Finally, the first quarter is a seasonally weak period for
advertising sales.
Women.com's revenues and operating results are likely to vary significantly
from quarter to quarter in the future due to a number of factors, many of which
are outside of its control. These factors include:
- the ability to attract and retain advertisers
- the ability to offer compelling, original content, community and services
- the ability to attract and retain users
- the ability to attract and retain e-commerce customers
- new sites, services or products introduced by Women.com or its
competitors
- the timing and uncertainty of sales cycles
- the mix of online advertisements sold
- seasonal weakness in advertising sales, which typically occurs in the
first and third calendar quarters
- the level of web and online services usage
- the ability to attract, integrate and retain qualified personnel
- the ability to successfully integrate operations and technologies from
acquisitions or other business combinations
- technical difficulties or system downtime affecting the Internet
generally or the operation of the Women.com network
- general economic conditions as well as economic conditions specific to
Internet companies
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Women.com's revenues for the foreseeable future will be substantially
dependent on advertising and sponsorships, many of which are short term and
subject to cancellation without penalty until shortly before publication. In
addition, Women.com derives a significant portion of its revenues from sales of
advertising to a limited number of customers. Accordingly, the loss of a key
advertising relationship, or the cancellation or deferral of advertising orders
could harm Women.com's results in any one quarter. As a result of these and
other factors, quarter-to-quarter comparisons of Women.com's operating results
should not be relied upon as an indication of future performance.
LIQUIDITY AND CAPITAL RESOURCES
Women.com has funded its operations to date primarily through private sales
of equity securities, which have resulted in aggregate net proceeds of
approximately $34.9 million, and to a lesser extent from $14.9 million in cash
contributed by HomeArts in connection with the formation of Women.com Networks
LLC. Women.com had approximately $19.2 million in cash and cash equivalents at
March 31, 1999 as compared to $12.2 million at December 31, 1998. The increase
in cash and cash equivalents was primarily due to cash received in connection
with the combination of Women.com with HomeArts and Astronet. In May 1999,
Women.com raised an additional $20.0 million of gross proceeds through the
private sale of equity securities.
Net cash used in operating activities increased to $7.7 million in the
first quarter of 1999 from $1.6 million in the first quarter of 1998. Net cash
used in operating activities increased to $11.7 million in 1998 from $2.6
million in 1997. These increases were primarily due to an increased net loss,
offset in part by increased non-cash charges including stock based compensation
charges in 1998 and the first quarter of 1999, as well as amortization of
intangibles in the first quarter of 1999.
Net cash provided from investing activities was $14.6 million in the first
quarter of 1999 as compared to net cash used in investing activities of $116,000
in the first quarter of 1998. The increase was due to the $14.9 million in cash
received from HomeArts in connection with the combination with HomeArts and
Astronet. Net cash used in investing activities increased to $1.1 million in
1998 from $506,000 in 1997. The increase was due to increased purchases of
property and capital equipment.
Net cash provided by financing activities was $73,000 in the first quarter
of 1999 as compared to net cash used in financing activities of $14,000 in the
first quarter of 1998. The difference is due to interest income from higher cash
balances. Net cash provided by financing activities increased to $20.1 million
in 1998 from $6.2 million in 1997. The increase in net cash provided by
financing activities for 1998 was primarily due to the proceeds received from
the sale of preferred stock and warrants by Women.com.
We expect to increase our staffing, make significant capital expenditures,
make acquisitions of complementary businesses, products and technologies, and
expand our sales and marketing programs. We currently expect that the net
proceeds from this offering and the Disney, Torstar and Hearst private
placements, together with available funds, will be sufficient to meet our
anticipated needs for working capital and capital expenditures for at least the
next 12 months. There can be no assurance, however, that the underlying assumed
levels of revenues and expenses will prove to be accurate. We may seek
additional funding through public or private financings or other arrangements
prior to such time. Adequate funds may not be available when needed or may not
be available on favorable terms. If additional funds are raised through the
issuance of equity securities, dilution to existing stockholders may result. If
insufficient funds are available, we may be unable to enhance our network and
brand, make acquisitions of complementary businesses or respond to actions by
competitors, any of which could materially harm our business, financial
condition and results of operations.
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RECENT ACCOUNTING PRONOUNCEMENTS
In March 1998, the American Institute of Certified Public Accountants
issued Statement of Position ("SOP") No. 98-1, "Accounting for the Cost of
Computer Software Developed or Obtained 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 adoption of SOP No. 98-1 will not
have a material impact on our financial statements. See Note 2 of Notes to
Financial Statements.
In April 1998, AcSEC issued SOP 98-5, "Reporting on the Costs of Start-Up
Activities." This SOP provides guidance on the financial reporting of start-up
costs and organization costs. It requires the costs of start-up activities and
organization costs to be expensed as incurred. The SOP is effective for
financial statements for fiscal years beginning after December 31, 1998. The
adoption of SOP No. 98-5 will not have a material impact on our financial
statements. See Note 2 of Notes to Financial Statements.
In June 1998, FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities" (SFAS No. 133) which establishes accounting
and reporting standards for derivative instruments, including certain derivative
instruments embedded in other contract (collectively referred to as
derivatives), and for hedging activities. SFAS No. 133 is effective for all
fiscal quarters for fiscal years beginning after June 15, 1999. Women.com is
assessing the potential impact of this pronouncement on the financial statements
but does not anticipate any significant impact as Women.com does not have any
derivative instruments and does not anticipate acquiring any derivative
instruments. See Note 2 of Notes to Financial Statements.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Women.com maintains its cash equivalents in a money market fund. As of
December 31, 1998, all of Women.com's cash equivalent investments will mature in
one year or less. See Note 1 of Notes to Financial Statements. Women.com did not
hold derivative financial instruments as of December 31, 1998, and has never
held any such instruments. Currently all of Women.com's sales and expenses are
denominated in U.S. dollars and as a result Women.com has experienced no foreign
exchange gains or losses to date. Women.com does not expect to effect
transactions in foreign currencies during 1999. Women.com has not engaged in
foreign currency hedging to date.
YEAR 2000 READINESS
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 software used by many companies and governmental agencies may need
to be upgraded to comply with such "Year 2000" or "Y2K" requirements or risk
system failure or miscalculations causing disruptions of normal business
activities.
STATE OF READINESS
We made a preliminary assessment of the Y2K readiness of our operating,
financial and administrative systems, including the hardware and software that
support our systems.
Our task force is currently conducting an inventory of and developing
testing procedures for all software and other systems that we believe might be
affected by Y2K issues. Since we use third-party systems, a significant part of
this effort will be to ensure that these third-party systems are Y2K ready. We
plan to confirm this readiness through a combination of the representation by
these third parties of
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their products' year 2000 readiness, as well as specific testing of these
systems. We plan 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, we will not be able to completely evaluate whether our systems will
need to be revised or replaced.
COSTS
We have spent an immaterial amount on Y2K readiness to date but expect to
incur an additional $200,000 to $300,000 in connection with identifying,
evaluating and addressing Y2K readiness issues. Most of these expenses are
operating costs associated with time spent by employees and consultants
evaluating Y2K readiness matters. Such expenses, if higher than anticipated,
could have a material adverse effect on our business, results of operations and
financial condition. Although we cannot predict with any certainty the
additional costs which we may incur in the event our third party vendors and
service providers are not Y2K ready, such costs may be substantial and could
have a material and adverse effect on our business and results of operations.
RISKS
We are not currently aware of any Y2K readiness problems relating to our
internally developed systems that would have a material adverse effect on our
business, results of operations and financial condition. There can be no
assurance that we will not discover Y2K readiness problems in our systems that
will require substantial revision. There can also be no assurance that
third-party software, hardware or services incorporated into our systems are Y2K
ready and will not need to be revised or replaced. Any revision or replacement
of our systems or third party systems could be time consuming and costly.
Our failure to replace our software, hardware or services or third party
software, hardware and services on a timely basis could result in lost revenues,
increased operating costs, the loss of customers and other business
interruptions, any of which could have a material adverse effect on our
business. In addition, the failure to adequately address Y2K readiness issues
could result in claims of mismanagement, misrepresentation or breach of
contract. The resulting litigation could affect our financial and time
resources.
We are dependent on third party vendors to provide significant network
services and equipment. A Y2K disruption of the network services and equipment
provided by third party vendors could cause our members and visitors to consider
seeking alternate providers or cause an unmanageable burden on our technical
support staff. Either of these reactions could have a material adverse effect on
our business, results of operations and financial condition.
In addition, governmental agencies, utility companies, Internet access
companies, third-party service providers and others outside our control may not
be Y2K ready. The failure by such entities to be Y2K ready could result in a
systemic failure beyond our control, such as a prolonged Internet,
telecommunications or electrical failure, which could also prevent us from
delivering our services to our customers, decrease the use of the Internet, or
prevent users from accessing our web sites, which could have a material adverse
effect on our business, results of operations and financial condition.
CONTINGENCY PLAN
Y2K contingency plans are being developed as part of our Y2K assessment.
Our Y2K assessment, including a contingency plan, will be complete by the third
quarter of 1999.
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BUSINESS
OVERVIEW
We are a leading Internet network dedicated to women, featuring
award-winning original content, personalized services, community and online
shopping. Our network is comprised of more than 90,000 pages of content
organized into 20 topical channels. Our strategic relationships with Hearst and
Rodale enable us to offer an online newstand featuring content from 12 of the
world's leading magazines, including Cosmopolitan, Good Housekeeping, Prevention
and Redbook. Through our agreement with Hearst, we host the Internet sites of 10
of Hearst's leading women's magazines and have online distribution rights to the
content of these magazines. According to Media Metrix, in May 1999 our network
attracted more than 4.2 million visitors, ranking us among the top 40 Internet
sites as measured by reach. During the same period, our users generated
approximately 117 million page views. In the second quarter of 1999, we had over
150 industry-leading advertisers including IBM, Jenny Craig, Kraft, Macy's,
Proctor & Gamble, Sears, Strong Funds, Toyota, Unilever, Visa and Volvo. Our
e-commerce partners include Amazon.com, Clinique, eToys, Hooked on Phonics,
J.Crew, John Hancock and PlanetRx. We leverage our brand identity and increase
traffic to our network through over 30 online distribution relationships with
leading Internet companies, including America Online, CBS SportsLine, GeoCities,
Infoseek, Lycos, Microsoft, Mindspring, Netscape, WebTV, Xoom.com and Yahoo!.
In 1993, we launched our first product, Women's Wire, an online
subscription service. In 1995 we introduced our current web site, located at
www.women.com. In April 1998, we purchased Wild Wild Web Incorporated, which
operated StorkSite, a web site focused on content and community for expectant
mothers. In January 1999, we combined our business with HomeArts and Astronet,
both of which were business units of Hearst's New Media and Technology Division.
INDUSTRY BACKGROUND
THE INTERNET CONTINUES TO GROW AS A GLOBAL MEDIUM FOR CONTENT, COMMERCE,
COMMUNITY AND ADVERTISING
The Internet has become a significant global medium for obtaining news and
information, communicating and conducting commerce. Both the number of Internet
users and the amount of time they spend online are growing. Jupiter
Communications, a market research firm specializing in online research and
analysis, estimates that the number of Internet users worldwide will grow from
130 million at the end of 1998 to approximately 260 million by the end of 2002.
This growth is the result of a number of factors, including a growing number of
computers in the home and workplace, improvements in network infrastructure,
more convenient, faster and less expensive Internet access, advances in computer
and modem technology, an increased public awareness of the benefits of using the
Internet and the development of easy to use interfaces.
A growing number of advertisers and businesses are capitalizing on the
Internet's interactive nature to market their products to highly targeted
audiences. The Internet offers these advertisers a flexible way to target their
message and measure their results. Internet advertisers can tailor their
messages to specific groups of consumers and can change ad content frequently in
response to market factors, current events and consumer feedback. Moreover,
advertisers can more accurately track the effectiveness of their advertising
messages based on the rate that consumers directly respond to advertisements
through keystrokes or "click throughs" that their advertisements receive. As the
online community of users has broadened and become more diverse, the types of
advertisers have also broadened to reflect this new more "mainstream" audience.
Jupiter Communications estimates that Internet advertising in the U.S. will grow
from $1.8 billion in 1998 to more than $7.6 billion in 2002.
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The interactive nature of the Internet as well as the growing online
community have also resulted in dramatic growth in the amount of e-commerce that
is being transacted on the Internet. Jupiter Communications estimates that the
online business-to-consumer market will grow from $3 billion in 1997 to $44
billion by the year 2002. Growth in e-commerce can be attributed to a number of
factors, including consumer confidence in Internet technology and security,
improved ease of use and the validation of e-commerce resulting from the
participation of nationally recognized companies.
The Internet provides an efficient medium for the delivery of continually
updated original content. In contrast to print media, the Internet's technology
and interactive nature allow content providers to update information without
interrupting the user's experience. As a result, providers of high-quality,
original and well-organized content can promote increased Internet usage and
create an attractive marketing environment for advertisers and merchants. In
addition, leading content providers can develop a loyal following of repeat
users who register with their sites by providing personal information and
preferences. Registration benefits both the user and the site. Registered users
are often eligible for additional services from a site, such as customization
options or access to premium content. As a content provider learns more about
its users as they register and spend more time online, it can tailor content to
meet the needs and preferences of its users. This user information also provides
advertisers and merchants with more focused demographic and psychographic
information, which is used to maximize direct marketing opportunities.
WOMEN ONLINE ARE AN INCREASINGLY IMPORTANT AUDIENCE TO ADVERTISERS AND MERCHANTS
Until recently, the online community was a technologically oriented and
predominately male audience, and available online media and commerce offerings
were often directed at this audience. Over time the Internet has evolved and we
believe the Internet will continue to develop a more mainstream audience of men
and women whose range of interests are virtually unlimited.
Today women represent an increasingly significant and fast-growing segment
of the online audience. They also represent an increasingly important
demographic group to advertisers and merchants. This importance is due in part
to the growth in women's income and the role women play as key consumer decision
makers, both in the home and in the workplace.
- According to Jupiter Communications, women represented 39.6 million
Internet users in 1998 and this number is expected to grow to 72.4
million or 50.2% of all Internet users by the end of 2002.
- According to Advertising Age, women controlled or influenced over $2.4
trillion, or 80%, of the $3.0 trillion spent in 1998 by U.S. consumers.
In addition, women currently manage the finances in 72% of the nation's
households.
The demonstrated buying power of women, coupled with the growth of the
number of women on the Internet, presents a significant opportunity to provide
content developed specifically for women and to attract advertisers and
merchants that target this audience. Internet sites offering the right mix of
content, community and commerce are well positioned to take advantage of this
opportunity.
WOMEN SEEK A FOCUSED AND INTEGRATED INTERNET SOLUTION TO ACCOMPLISH THEIR
OBJECTIVES
Numerous traditional and online information sources are trying to address
the demand by women for timely and relevant information. While a number of
Internet sites include information for and about women, we believe only a
limited number of sites are currently providing the original content, community
and commerce offerings necessary to provide an integrated solution for the
objectives of women online. According to Media Metrix, in May 1999, we were one
of only three of the top 50 web properties whose
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audience was comprised of at least 55% women. We believe most women are seeking
rather than exploring on the Internet and are more interested in finding sites
that enable them to achieve their objectives efficiently. The increased time
constraints women face as they balance family, work and social lives are driving
women to seek ways to be more productive. We believe that a significant
opportunity exists to provide a comprehensive and convenient Internet solution.
THE WOMEN.COM SOLUTION
We are one of the most well-known and widely visited women's networks on
the Internet. By delivering quality content, community services, personalized
tools and an extensive shopping selection, we have achieved a leading position
among women Internet users. Key components of our solution include:
DELIVERING VALUE TO WOMEN
We provide women with original content, community, personalized tools and
services and online shopping.
Content. We are dedicated to helping women be more productive. To achieve
this objective, we deliver high-quality programming on topics such as finance,
health, shopping and travel to help our users get things done. We have engaged
more than 150 editors, freelance writers, artists and personalities to help us
provide content that distinguishes us from other women's networks and online
services. Through our magazine relationships with Hearst and Rodale, we believe
we have access to the largest collection of magazine content targeted at women,
including articles in Cosmopolitan, Good Housekeeping, Prevention and Redbook
and other magazines which reach more than 57 million women in the United States.
We have developed partnerships with brand-name companies such as Bloomberg and
Crayola which enable us to supplement our network with trusted content. We
believe our editorial independence builds our credibility and trustworthiness
and increases users' loyalty to our brand. By combining our extensive content
relationships with our network's powerful functionality, we believe we have
created a unique Internet experience for our users. For example, our health
channel is supplemented by a complete range of monthly Prevention magazine
content with features such as topical searches, calorie counters, vitamin
dispensers and menu planners.
Community. We provide women with the opportunity to interact with experts
and other women online. Our members share experiences, solutions and
opportunities, gain support and exchange information. Our network maintains
dozens of thriving online communities formed around interests such as book
clubs, entrepreneurs' forums, investment clubs and recipe exchanges as well as
member-to-member programs such as Mentor Moms, Fitness Buddies and Health
Support Groups. Our high-quality content provides topics to discuss on message
boards and in chat rooms in which visitors can interact with editors, resident
experts and community hosts. In June 1999, we entered into an agreement with
Harlequin, a leading publisher of romance novels and a subsidiary of Torstar, a
leading Canadian media company. We believe this agreement offers us an
opportunity to develop an online community for Harlequin's large and loyal
reader base.
Personalized Tools and Services. We also provide convenient personalized
services and more than 150 tools to help women manage their lives. For instance,
women can use the Mortgage Calculator, Recipe Finder or Weather Center to get
relevant information quickly and efficiently. We also offer free membership to
users, which provides them with access to additional services such as e-mail,
home pages, message boards and chat rooms. My.Women.com, introduced in October
1998, is one of the fastest growing areas of our network and provides members
with news, information, shopping and time and life management tools all
customized by the individual user. From this service, we can accumulate
substantial preferences and behavioral information that will allow us to provide
increasingly targeted
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services to our customers. We believe membership creates user loyalty, repeat
site visits, referrals and user-generated content. This also creates
opportunities for advertisers and merchants to develop a more focused and
interactive relationship with our users.
Online Shopping. We designed our shopping channel around our visitors
preferences, including easy navigation, brand names and staff recommendations.
We believe that our original content combined with our strategic product
placement allows women to make educated and value-oriented purchase decisions.
Our highly contextual e-commerce environment has attracted over 35 leading
commerce partners, including Amazon.com, Clinique, eToys, Hooked on Phonics,
J.Crew, John Hancock and PlanetRx. In addition, the proposed Harlequin site will
be designed to provide visitors the opportunity to purchase Harlequin romance
novels and related merchandise online. The contextual nature of our e-commerce
environment would, for example, enable a visitor to our health channel
interested in fitness to click through to one of our shopping centers and
purchase the latest exercise video.
DELIVERING VALUE TO ADVERTISERS
Our advertising partners have access to our large and loyal user base
demonstrated by the approximately 117 million page views delivered to over 4.2
million visitors in May 1999. In addition, we believe our users constitute a
valuable demographic due to their high income, spending and education levels. We
offer advertisers more than 90,000 pages of high-quality content within which to
contextually place their messages. For example, visitors to the pregnancy
channel are delivered advertisements for Pampers.
We offer a variety of programs to advertisers, including:
- the ability to display banner advertisements on our network
- the opportunity to sponsor a specific program or site on our network
- the ability to place links in our shopping center in order to promote an
advertiser's products or services
- the opportunity to engage us to produce banner advertisements or
minisites, which are sites dedicated to a single advertiser
- the opportunity to engage us to perform market research to help
advertisers understand market reaction to their products or services
These features and services combined with our audience's attractive
demographics have attracted leading advertisers to our network. Our magazine
sites, which already benefit from their well-recognized brands, offer
advertisers additional well-defined audience and advertising options. During the
second quarter of 1999, we had over 150 advertising customers, including IBM,
Jenny Craig, John Hancock, Kraft, Proctor & Gamble, Sears, Toyota, Unilever,
Union Bank of California and Visa.
DELIVERING VALUE TO MERCHANTS
Our online shopping centers are designed to appeal to our core audience of
busy, professional and educated women and are built around convenience and
value. Online merchants benefit from the highly contextual e-commerce
environment that is created through the structure of our site and our highly
relevant and complementary content. We believe that our original content
combined with product placement and e-commerce channels allow women to make more
educated and value-oriented purchase decisions. This helps us to attract leading
commerce partners such as Amazon.com, Clinique, eToys, Harlequin, Hooked on
Phonics, J.Crew, John Hancock and PlanetRx. Our channels match advertisers
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and merchants with the most relevant user base. We believe that because of our
more targeted advertising demographics, our users are more likely to purchase
products and services while shopping on our network. According to @Plan Summer
1999, in the six months prior to the report, approximately 80% of our audience
made purchases on the Internet in the previous six months, while only
approximately 74% of all Internet shoppers made purchases during the same
period.
STRATEGY
Our objective is to be the leading network for women on the Internet. We
believe that our high-quality content and network approach will create strong
brand recognition and a large and loyal audience that will be attractive to
advertisers and merchants. Key elements of our strategy include:
PRODUCE, ENHANCE AND DISTRIBUTE COMPELLING AND ORIGINAL CONTENT. We believe
that the high quality of our content is a cornerstone of our online network. We
will continue to produce compelling content in order to attract and retain
visitors to our network. In addition, we intend to add to the depth of our
content by increasing the number of features, topics, services and tools in
every channel. We have engaged over 25 journalists and editors with extensive
print and broadcast experience and expect to continue to expand our staff. We
have also engaged personalities and experts from a wide range of areas of
interest to create content and interact directly with users. We supplement our
network's original content with articles from leading women's magazines. These
magazines are designed to appeal to women in many different life stages and with
many different interests. We believe that we are well positioned to be a leading
provider of women's content for the high-speed broadband environment which
combines cable television, telephone, audio and video capability. We have been
providing multi-media content through broadband access partners such as
RoadRunner and MediaOne Express.
CONTINUE TO DEVELOP AND EXTEND OUR RELATIONSHIP WITH HEARST AND OTHER
LEADING CONTENT PARTNERS. We intend to continue to leverage the branding and
cross-promotional opportunities that our relationship with Hearst provides. Our
agreement with Hearst gives us online distribution rights to the web sites of 10
of the leading women's magazines published by Hearst including Cosmopolitan,
Good Housekeeping and Redbook. In addition, it provides us with print promotion.
We intend to continue to drive traffic to our network by highlighting the
magazines prominently throughout our network, increasing our investment in the
magazines' sites and distributing the magazine sites online. The magazines
themselves will also act as a powerful distribution and marketing vehicle for
our network through their combined monthly print circulation of over 15 million
paid readers. Through our relationship with Hearst, our network will receive at
least 100 pages of print promotion in Hearst magazines over a two year period.
In addition to our relationship with Hearst, we have relationships with other
leading offline content providers, including Bloomberg, Crayola, Harlequin and
Rodale. We believe that alliances with traditional media partners provide access
to popular content, increase our access to marketing channels, extend our brand
identity both online and offline and drive traffic to our network. Our content
rights to 12 traditional print magazines published by Hearst and Rodale provide
us with a significant amount of content produced by editorial staffs with a
proven understanding of the interests of women in a wide range of areas. We
intend to continue to forge partnerships that allow us to leverage our assets by
effectively combining our expertise in Internet content production with the
promotional and distribution capabilities of major entertainment and media
companies.
EXTEND OUR BRAND RECOGNITION. We are a leading brand name for women on the
Internet and believe that we are benefiting from being an early provider of
content and services dedicated to women online. We believe our name,
"Women.com," is the most intuitive brand and domain name for an online network
for women, allowing for strong online branding and traffic growth. We intend to
increase our brand awareness and visibility through a variety of marketing and
promotional activities, including advertising on other leading Internet sites
and in other print and broadcast media, conducting an ongoing public relations
campaign, engaging in cross-promotion with our magazine partners and developing
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business alliances and partnerships. We believe we can continue to increase our
traffic and brand-awareness by expanding our online distribution partnerships.
We currently have over 30 online distribution partners, including areas on
leading Internet portals, such as America Online, Infoseek, Microsoft Network,
Netscape and Yahoo!. We deliver over 3,000 headlines or articles each month to
our online distribution partners and deliver programming to channels and
subchannels on our distribution partners' sites. Clicking on any of these
headlines links the user back into our network. Although we currently have no
arrangements in place with respect to international distribution, we intend to
secure distribution alliances with international distribution partners.
ENHANCE THE USER'S EXPERIENCE. We believe women are seeking content,
community and shopping that is tailored to their individual needs. For this
reason, we have designed our network to offer original content and services
relevant to women's lives so that they make Women.com a part of their daily
routine. We offer services, such as e-mail, homepages and My.Women.com, to help
women more quickly achieve their information, communication and commerce
objectives. One of our goals is to encourage users to register with us and we
intend to focus on increasing this membership base. We believe that registration
information provides us with added insight into our user base, allowing us to
better respond and adapt to our users' goals thereby increasing their time spent
online.
PARTNER WITH ADVERTISERS TO PROVIDE UNMATCHED ACCESS TO WOMEN ON THE
INTERNET. We sell a variety of advertising solutions to advertisers, including
banners, buttons, content sponsorships, e-commerce placements, links, minisites
and promotions. Some advertisers have also taken advantage of our internal
market research capability. We also enter into consultative relationships with
many of our advertisers that allow for customized and targeted advertising
campaigns. We advise these advertising partners on how best to market their
products and services to women online. To date, 25 advertisers have engaged us
in this consultative capacity, including John Hancock, Toyota and Unilever.
Although we do not generate revenues directly from our consulting services, we
believe our consultative approach provides us the opportunity to establish
broader, long-term relationships with important advertisers. In addition, we
believe this consultative approach:
- Provides value to advertisers through more effective advertising
campaigns
- Generates multiple ad revenue streams, including advertising, minisite
and banner production and market research
- Establishes more loyal and long-lasting advertiser relationships
- Generates useful market research which we can use to plan future content
offerings
We create customized advertising solutions for our advertising clients and
intend to further expand our existing advertiser relationships. We also plan to
continue to leverage our growing user base to capture valuable customer data.
This data, although shared anonymously with our advertising partners, can be
used by our internal market research staff to create valuable direct marketing
data. This will allow us to further refine and enhance the advertising solutions
we create for our clients as well as our future content offerings.
ENHANCE OUR E-COMMERCE OFFERINGS. We intend to continue to make e-commerce
an integrated and valuable part of our network. We currently have an
affiliate-based e-commerce model with leading commerce partners through which
merchants purchase space in our category-focused shopping centers and sell their
products to our users in a contextual selling environment. We believe that more
online merchants will want to partner with us as a result of our click-through
rates, our large user base and the demographics of our audience. We also intend
to increase the number of our shopping centers and stock these centers with
additional products and helpful information. In addition, we are developing a
direct retail business and intend to source and sell selected products designed
to appeal to our core audience.
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OUR NETWORK
We are a leading women's online resource containing a branded network of
comprehensive content, community, personalized tools and services and online
shopping which is accessed by millions of users daily. Our 20 dynamic channels
connect users to more than 90,000 pages of high-quality content. Each of these
channels focuses on a topic and loyal community and is created around a unique
editorial voice. Furthermore, our channels incorporate content from 12 of the
world's leading women's magazines for which we also produce Internet sites. The
network offers category-focused shopping centers containing popular products, in
addition to tools such as e-mail, personalized home pages and member
newsletters.
The table below provides a description of the content offered through each
of our 20 channels.
<TABLE>
<CAPTION>
CHANNEL NAME DESCRIPTION
------------ -----------
<S> <C>
Career................. Offers information on job listings, child-care centers,
resume writing and personnel management. Extends
opportunities to participate in the Entrepreneur Club or to
ask "Career Coach" about salary ranges and networking
strategies. Features news highlights, personal finance and
small business information.
Cars................... Offers tools such as the car payment calculator and provides
tips on car insurance and financing. Provides opportunity to
ask "Cash Flo" about the pros and cons of leasing vs. buying
a car and offers automotive tips in related chat rooms.
Entertainment.......... Features book and movie reviews, community chats, television
picks and celebrity interviews.
Family................. Enables visitors to find information on a wide range of
topics, including child development, college tuition
planning and parenting tips from expert columnists. Offers
online activities for parents and kids.
Fashion & Beauty....... Offers helpful suggestions on skin care, fashion and
make-up. Features fashion trends and personal style
interactive tools. Allows visitors to e-mail questions to
"Fashion Plate." Features information from Cosmopolitan and
Harper's Bazaar.
Fitness................ Offers opportunities to meet a workout buddy in the
network's fitness community, join a walking club, design a
personalized workout shop for the latest exercise videos or
use the interactive calorie counter. Features information
from Prevention, Redbook and Good Housekeeping.
Food................... Features recipe finders, cooking schools, restaurant
reviews, wine selection suggestions and a daily meal
planner. Offers information from Country Living and Good
Housekeeping.
Garden................. Provides viewers with advice and tools for the design and
care of gardens. Features content from Country Living
Gardener and expert advice from Ms. Grow-it-all.
Health................. Provides information on health news, ailments and nutrition.
Features content from Prevention, Healthy Living, Redbook
and Good Housekeeping. Offers advice from the network's
resident expert and related support groups and interactive
tools such as health assessment.
Home................... Offers home improvement ideas and other fix-it tips where
visitors can access the Country Living and Good
Housekeeping. Provides decorating advice from experts and
features interactive tools for kitchen design provided by
House Beautiful.
</TABLE>
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<TABLE>
<CAPTION>
CHANNEL NAME DESCRIPTION
------------ -----------
<S> <C>
Horoscopes............. Features relationship compatibility tools, birthday
reminders and personalized daily horoscopes where visitors
can ask "Genie" questions and find horoscopes from related
magazines sites. Features information from Cosmopolitan.
Money.................. Features content from Bloomberg, including business news,
portfolio tools, currency conversion rates, stock quotes and
company profiles. Provides interactive tools such as
personal budget planning, home-buying calculators and other
financial planning information.
News & Trends.......... Updates viewers on the financial industry, technology, world
news headlines and other current events. Offers an
opportunity to post comments, participate in various polls
and e-mail politicians regarding public policy.
Pregnancy.............. Features a large selection of body, health, pregnancy,
childbirth and parenting reference materials. Offers advice
from our resident obstetrics nurse and the opportunity to
share experiences in the chat rooms.
Relationships.......... Offers advice on relationships through content from
Cosmopolitan and Redbook. Features "Emale" which provides
advice from the male perspective.
Shopping............... Offers visitors online shopping opportunities and an
extensive selection from our over 35 e-commerce partners
offering 18 product categories. Features "Deal of the Week"
and "Staff Picks" that highlight savings and recommended
products.
Small Business......... Offers resources for starting a business, helpful hints from
the Entrepreneur's Club or the "Biz Shrink" and content from
Victoria and Good Housekeeping. Features interactive tools
such as a start-up cost calculator and interactive business
plan.
Technology & Provides visitors the opportunity to build their own
Internet............. Internet site and offers the latest technology news.
Highlights women in the technology field through video
interviews with well-known journalists such as NBC's Soledad
O'Brien.
Travel................. Offers visitors the opportunity to plan a weekend getaway,
read about tips for business travel and find weather
information for any city and provides postings of
destination picks on the travel message board.
Weddings............... Features tools for brides and grooms such as the wedding
checklist from Town & Country, information on finding a
wedding dress and wedding gift suggestions.
</TABLE>
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Our channels link to related content on 12 magazine sites to which we have
online distribution rights. We produce, maintain and host these branded sites.
The content from these sites links to various channels within our network. The
following table describes each magazine site. In addition, the table states for
the six months ended December 31, 1998 print circulation data, as provided by
Audit Bureau of Circulations, and demographic information for each of the 10
Hearst magazines and for Rodale's Prevention and New Woman magazines, as
reported by the Fall 1998 Mediamark Research Inc. Report.
<TABLE>
<CAPTION>
PRINT MEDIA DATA
----------------------------------------
PAID
CIRCULATION AVERAGE AVERAGE
MAGAZINE RELATED WEB SITE DESCRIPTION (MILLIONS) AGE HOUSEHOLD INCOME
- -------------------------- ---------------------------- ----------- ------- ----------------
<S> <C> <C> <C> <C>
Cosmopolitan.............. Features fashion and 2.5 32 $ 44,000
relationship advice aimed at
the "fun, fearless female."
Country Living............ Profiles lifestyle and home 1.7 45 $ 47,000
design ideas.
Country Living Gardener... Features seasonal gardening 0.5 44 $ 52,000
practices, beautiful gardens
and tips for the avid
gardener.
Country Living's Healthy
Living.................. Features topics relating to 0.3 42 $ 56,000
illness and disease
prevention and offers advice
on following a healthy and
spiritual lifestyle.
Good Housekeeping......... Features topics relating to 4.5 47 $ 42,000
food and recipes, home,
family and consumer reports.
Harper's Bazaar........... Profiles upscale fashion and 0.7 43 $121,000
beauty trends.
New Woman................. A guide to beauty, fashion, 1.1 36 $ 44,000
health, fitness and
relationships for active
women.
House Beautiful........... Features topics relating to 0.9 45 $ 54,000
designing, improving or
remodeling one's home.
Prevention................ Offers articles, resources, 3.1 49 $ 48,000
guidance and expertise on a
variety of health-related
topics.
Redbook................... Focuses on family, health 2.8 43 $ 43,000
and marriage.
Town & Country............ An upscale magazine focusing 0.4 43 $124,000
on living, arts, travel and
weddings.
Victoria.................. Offers support and advice 1.0 42 $ 47,000
for women entrepreneurs,
including stories and
lifestyle tips.
</TABLE>
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ADVERTISING SALES
As of May 31, 1999 we had a direct sales force comprised of 31 sales
people, sales managers and support staff. This group is located primarily in New
York, with offices in Chicago, Los Angeles and San Mateo, California. Our sales
and marketing divisions have partnered to create a variety of advertising
packages from banner advertisements to minisite production.
We currently derive, and expect to continue to derive, a substantial
portion of our revenue from advertising sales. We offer advertisers the
following advertising options:
BANNERS AND KEYWORDS. An advertiser may purchase banners, which are
graphical advertisements with the advertiser's logo, for placement throughout
our entire network or on a specific channel or commerce area within the network.
Generally, higher rates are charged for banner advertisements displayed to a
more targeted audience. An advertiser may also purchase advertising space
adjacent to a specified word or "key word" on our network that is related to the
advertiser's product or service. For example, Toyota may purchase advertising
space next to any content containing the word "car."
CONTENT SPONSORSHIP. Content areas may be sponsored by advertisers on an
exclusive basis such as Toyota's sponsorship of "The Breast Health Center," a
page which is devoted to providing women with valuable information on breast
cancer prevention, self-examination, diet and medical treatment.
PRODUCTION SERVICES. We produce minisites, banner ads and special
advertising space that may connect to an advertiser's web site or programs
within our network. For example, we produced a site titled "Full Load" for
Unilever's Wisk detergent.
COMMERCE. We are able to create a variety of commerce-related programs for
clients including:
- advertising banners, through which a merchant can advertise in our
shopping center and create a link to its e-commerce site
- preferred placement in our shopping center as a featured product
- the opportunity to sponsor a product or service in our shopping center
A current example includes our sponsorship relationship with GreenTree
Vitamins, which includes preferred placement of hyperlinks in the Women.com
store health area, special merchandising such as featuring their products as a
"Hot Deal of the Week," promotional banners branded by Women.com and GreenTree
Vitamins and sponsorship exclusivity of "The Vitamin Dispenser" on
HealthyIdeas.com.
PROMOTIONS. We offer customized promotions for clients allowing for
branding, database collection, product sampling and surveys. We also run several
advertising promotions per year, such as the "Holiday Survival Guide," which
includes gift ideas, holiday recipes and decorating tips.
RESEARCH. We believe that one of our core competencies is performing market
research for our advertising clients to help them understand the objectives of
Women online. We offer a variety of products ranging from online surveys to
in-home studies to "pre and post awareness studies" of an advertiser's message
within our network.
PROGRAMS WITH STRATEGIC PARTNERS. We partner with companies such as Hearst,
Rodale and Bloomberg to jointly sell sponsorship opportunities. For example, we
created an online minisite for Bristol-Myers Squibb called "The Headache
Resource Center" which was housed within our health channel and also ran as an
insert in Prevention magazine.
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CROSS MEDIA. Our network will offer offline advertising programs for
clients as part of larger deals. For example, our 1999 Toyota sponsorship
includes a sponsorship of a National Public Radio program entitled "Tech Nation"
branded by Women.com and Toyota.
CUSTOMERS
Our sales force has been successful in attracting Fortune 500 advertising
companies by promoting the value of our audience and environment. Our sales
division is building a large and varied client base of advertising
relationships, which we believe will build the strongest base of customers for
the future. During the second quarter of 1999, we had over 150 advertising
customers and no one customer accounted for more than 10% of our net revenues in
that quarter. Selected customers and their respective industries who have
advertised on the network include:
<TABLE>
<CAPTION>
TELECOMMUNICATIONS CONSUMER/
AUTOMOTIVE FINANCIAL SERVICES & TECHNOLOGY RETAIL PACKAGED GOODS
- ------------------ --------------------- ------------------ --------- ----------------
<S> <C> <C> <C> <C>
Ford Motor Company Citibank AT&T JC Penney Avon
General Motors Discover Brokerage IBM Macy's Bristol-Myers
Mercedes Benz Fidelity Investments Intel Sears Squibb
Toyota John Hancock Lycos Internet Clinique
Strong Funds Microsoft Shopping Kellogg
Union Bank of Sprint Network Kraft
California Proctor & Gamble
Visa Unilever
</TABLE>
THE HEARST RELATIONSHIP
COMBINATION WITH HOMEARTS AND ASTRONET. In January 1999, Women.com Networks
combined its operations with HomeArts and Astronet, both of which were business
units of Hearst's New Media and Technology Division. The combination with
HomeArts and Astronet afforded us the opportunity to substantially increase the
breadth of our network and provide our users with access to additional
attractive content. The combination with HomeArts and Astronet was accomplished
through the contribution by Women.com Networks of substantially all of its
assets and liabilities to Women.com Networks LLC and the concurrent contribution
by Hearst HomeArts, Inc., a subsidiary of Hearst Communication's Inc., of
HomeArts and Astronet to Women.com Networks LLC. After the combination,
Women.com Networks LLC was approximately 50% owned by each of Women.com and
Hearst HomeArts, Inc. Concurrent with this offering, Women.com Networks will
merge with and into Hearst HomeArts, Inc. and Women.com LLC will be dissolved.
Hearst HomeArts will be the surviving entity in the merger and will be renamed
Women.com Networks, Inc.
HEARST CONTENT RELATIONSHIP. In January 1999, we formed a content
relationship with The Hearst Corporation and 10 of its magazine titles as part
of the combination with HomeArts and Astronet. These household brand name
publications include Cosmopolitan, Country Living, Country Living Gardener,
Country Living's Healthy Living, Good Housekeeping, Harper's Bazaar, House
Beautiful, Redbook, Town & Country and Victoria.
The Hearst Corporation is a diversified communications company engaged in a
broad range of publishing, broadcasting, cable television networks and other
communications activities. Hearst is the world's largest publisher of monthly
magazines, with 16 U.S. titles and 96 international editions distributed in more
than 100 countries. Hearst magazine titles include Cosmopolitan, Good
Housekeeping, Redbook, Country Living, Esquire and Popular Mechanics. Hearst's
12 daily and seven weekly newspapers include The Houston Chronicle, The San
Francisco Examiner, The Seattle Post Intelligencer,
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The San Antonio Express-News and The Albany Times Union. Hearst's public
affiliate, Hearst Argyle Television, Inc., owns 26 network affiliated television
stations that reach approximately 17.5% of U.S. television households, making it
one of the country's largest independent (non-network owned) television station
groups. Hearst was a founding partner in Lifetime, A&E and The History Channel
cable networks. Hearst and The Walt Disney Company, through ABC, Inc., wholly
own the Lifetime network as equal partners, and are equal partners in the A&E
network, in which NBC owns a 25% interest. Hearst also owns 20% of ESPN, which
includes ESPN2 and ESPNews. Hearst's book publishing businesses include William
Morrow and Avon Books and its entertainment activities include the production of
made-for-television movies and television series, as well as the syndication and
licensing of cartoon characters and features.
Our agreement with Hearst has an initial term of six years and provides for
three automatic renewals of six years each; provided that the parties reach
agreement on the royalties or commissions to be paid during the renewal period.
Under the terms of the agreement:
- We received the non-exclusive, royalty-free license (without the right to
sublicense) to electronically reproduce, distribute and display the
Hearst content from 10 Hearst magazines on the Internet and to
incorporate the magazine sites on our network
- Hearst agreed to provide approximately 100 pages of promotion in the
Hearst magazines over a two-year period and $2 million in cash
- Hearst agreed to brand the 10 magazine sites by both Women.com and Hearst
- Hearst agreed during the term of the agreement that it would not:
- grant Internet distribution or Internet publication rights to the
Hearst content or the magazine content to any of our competitors
- advertise or promote the magazine sites on or in connection with any
of our competitors
- promote the magazine sites on or in connection with any of our
competitors
- grant a license to any of our competitors to use any URLs
incorporating the name or a derivative thereof of any of the 10
magazines
- The Hearst Magazine Group has agreed to offer us the opportunity to
develop any online project initiated by it that is appropriate for
placement on our network
- Hearst retains the right to conduct promotional activities with respect
to each of the magazine sites in conjunction with any party that is not a
women's portal site; provided that Hearst does not receive payments for
those promotional activities
- Other than our agreements with Rodale regarding Prevention, we agreed,
during the term of our relationship with Hearst, to not enter into an
agreement to produce or include as part our network any magazine site or
content related to a print publication that it not a Hearst publication,
if the magazine site could be reasonably construed to be competitive with
any of the 10 Hearst magazines without Hearst's prior written consent
- We agreed to provide the hosting for the 10 Hearst magazine sites
- Hearst agreed to purchase at least $3 million of production services over
the 12 months ending February 2000 and at least $6 million over the two
years ending February 2001
- Hearst is entitled to receive a quarterly royalty payment based on net
advertising revenues from the magazine sites
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- We are entitled to a commission on gross revenues from the sale of
magazine subscriptions through our network, including the magazine sites
- We are entitled to a commission on gross revenues from the direct sales
of goods and services on the magazine sites, where the sale is made
directly between the customer and the applicable Hearst entity
Our relationship with Hearst gives us access to a vast amount of content
produced by editorial staffs with a proven understanding of the interests of
women in the areas of fashion, sex, health, beauty, family, design, gardening,
collecting and small business. Collectively, these magazines produce more than
300 unique articles per month and have a U.S. monthly circulation of over 15
million paid readers.
We believe this content, properly packaged, will create a significant
amount of new traffic to our network. We believe we can increase user traffic by
placing this content prominently on our network, increasing our investment in
the magazines' sites and via syndication on the Internet through our
distribution relationships. Our agreement with Hearst also provides for
promotion of our network by Hearst. See "Certain Relationships and Related
Transactions" and "Risk Factors -- Hearst will control actions requiring board
and stockholder approval after this offering which will weaken the effect of
other stockholders' votes" and "-- We rely on Hearst for content and
cross-promotion and loss of this relationship would harm our business" for risks
relating to our relationship with Hearst.
HEARST PRIVATE PLACEMENT. Concurrent with this offering and the Disney and
Torstar private placements, Hearst has agreed to purchase additional shares of
common stock in a private placement. Under the terms of a stock purchase
agreement, Hearst will purchase a total of 2,083,333 shares of common stock at
the public offering price plus that number of shares which could be purchased
for $5 million at a per share price equal to the public offering price. Based on
an assumed public offering price of $11.00 per share, Hearst will purchase
2,537,878 shares of common stock. In addition, Hearst will have an option, but
no obligation, to purchase additional shares in the event the underwriters
exercise their over-allotment option in connection with this offering. In the
event that the underwriters' over-allotment option is exercised in full, Hearst
will have the right to purchase up to 312,500 additional shares of common stock.
If the underwriters exercise the over-allotment option in part, Hearst will have
the option to purchase a pro-rata portion of these additional shares.
OTHER CONTENT RELATIONSHIPS
BLOOMBERG L.P. The Women.com money channel was built in partnership with
Bloomberg, a leader in global business and financial news. This channel is a
financial resource, featuring over 1,000 pages of financial news, articles and
interactive tools. The channel is targeted at professional women seeking sound
financial advice and offers stock and fund quotes, newsfeeds, calculators,
online experts and community features. We are responsible for the channel's
design, some of its original content, hosting and promotion. Bloomberg provides
the channel with up-to-the minute newsfeeds, charts, portfolio tracking tools,
calculators as well as Bloomberg columnists and features. Both parties may sell
advertising inventory on the channel and retain the sales commissions they
generate. We share with Bloomberg the revenues, net of sales commissions,
generated from the respective advertisements sold on the channel branded by
Women.com and Bloomberg. This agreement was entered into in December 1997 and
has an initial term of three years.
CRAYOLA. The Crayola FamilyPlay.com site was developed in partnership with
Crayola, a leading producer of children's art products. FamilyPlay.com is
designed for busy mothers with children ages 2-11. The site is filled with
activities that encourage skill development and imagination through interactive,
personalized crafts and games, providing fun, easy-to-do activities for parents
to explore with their children. Activities are housed in a searchable database
that is organized by age, skill set and location. We produce, host and create
the content for the Crayola FamilyPlay.com site. Crayola lends its
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expertise in children's education as well as promotional support for the site.
We have the sole right to sell advertising on the site. In turn, we share a
percentage of the revenues, net of sales commissions, generated by the site.
This agreement was entered into in April 1998 and has an initial term of five
years.
HARLEQUIN ENTERPRISES. We have entered into an agreement to create a new
web site in cooperation with Harlequin, a leading publisher of romance novels.
Harlequin will be the premier content provider for the site, and the site is
expected to include book sales, reviews, chats with Harlequin's authors and
previews of new books. In addition, Harlequin will use commercially reasonable
efforts to promote the site and its relationship with Women.com in all of its
books published in North America. We have the right to sell advertising on the
proposed web site and will share with Harlequin a percentage of the revenues
generated by the site. In addition, Harlequin will pay us royalties on books and
related merchandise sold through the site.
RODALE PRESS, INC. In 1997, we entered into a partnership with Rodale Press
pursuant to which we develop, produce and host web sites for two leading Rodale
magazines, New Woman and Prevention. As part of this partnership, in May 1997,
we launched HealthyIdeas.com, a web site focused on health and fitness featuring
interactive tools, articles, on-site experts, message boards and chat.
Prevention provides the majority of the content for the HealthyIdeas.com site,
which features personalized information to help visitors achieve better health
for themselves and their families. In May 1999, we re-launched the NewWoman.com
site with Rodale and New Woman. The site is branded by Women.com and New Woman.
New Woman is the primary provider of content on the site, which features message
boards, horoscopes, questions and answers with experts and compelling articles
on news, relationships and beauty for active women. Rodale has agreed to devote
at least one page in each edition of New Woman and Prevention magazines to
promote these web sites. We share a percentage of the revenues, net of
commissions, generated from the ads sold on HealthyIdeas.com and NewWoman.com.
In addition, we receive a percentage of the revenue generated from the New Woman
and Prevention magazine subscription sales on our network. The Prevention
agreement has an initial term of two years and is up for renewal in May 2000.
Although the New Woman site is operational, our agreement with Rodale with
respect to the site is not yet finalized.
DISTRIBUTION RELATIONSHIPS
We believe that brand awareness and broad distribution are critical to our
success. Accordingly, in order to leverage our brand identity and increase
traffic to our network, we have entered into over 30 online distribution
relationships with leading Internet companies, including America Online, CBS
SportsLine, GeoCities, Infoseek, Lycos, Microsoft Network, Mindspring, Netscape,
WebTV, Xoom.com and Yahoo!. Under our online distribution relationships, our
distribution partners host Women.com content on their sites. By clicking on the
Women.com button placed on a partner's site, a user can immediately access our
content, tools and services. The term of these relationships range from six
months to two years.
The Internet landscape is changing as cable companies begin to offer
high-speed Internet access over distribution outlets, also known as broadband.
With broadband, Internet companies are able to deliver not just web pages, but
also combined cable television, telephone, audio and video capabilities. We have
established a partnership with Media One Interactive Services, Inc., one of the
leading broadband communications companies. Under our agreement, we develop
content for MediaOne. This content is distributed through MediaOne's established
customer distribution channel, which assists in promoting the Women.com brand.
MARKETING
Our strategy to build the Women.com brand includes a variety of online and
offline marketing initiatives, which focus on building our brand awareness,
driving traffic to our network, building our
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<PAGE> 49
membership base, maximizing the amount of traffic to our network and minimizing
our customer acquisition costs.
To increase our brand visibility online, we pay for distribution on leading
Internet portals and sites, including America Online, Infoseek, Microsoft
Network, Netscape and Yahoo!, advertise on other Internet sites and engage in
barter transactions. For example, we developed the Your New Baby site for Snyder
Communications in exchange for branding on gift bags in hospital wards. We also
intend to continue to utilize our online distribution relationships to build
brand and generate traffic, while maintaining a low cost of customer
acquisition. We also use other audience building strategies, including links to
search engines and news groups postings.
Our offline brand-building strategy focuses on relationships with media and
advertising partners, including Hearst, Rodale and Unilever. Rodale promotes our
network in the pages of Prevention magazine. We also enjoy cross-promotion from
our advertisers, including Unilever who promotes our brand by placing
www.women.com on their Wisk products and coupons. We also promote our network
through radio broadcasts and newsletter programs. In addition, under our
agreement with Harlequin, Harlequin will promote our jointly developed web site
in all of its books published in North America.
In July 1999, we entered into an agreement with Disney to spend a fixed
amount on advertising and promotion over the next six years on wholly owned
Disney properties, as selected by us. In addition, we have agreed not to enter
into any strategic agreement with, or sell equity to, a television or cable
network not affiliated with Disney for six months, during which time Disney and
we will discuss the possibility of entering into a strategic relationship.
Our marketing department is also engaged in providing support to our sales
effort. The sales marketing staff develops material, sponsorship packages and
proposals and creates minisites and other production activities on behalf of
advertising clients.
As of May 31, 1999, our marketing department consisted of 25 marketing
professionals located in San Mateo and New York.
TRADEMARKS
We own the "HomeArts" and "Women's Wire" registered trademarks. We are also
using the following trademarks for which an application in the United States
Patent and Trademark Office is pending: "Astronet," "Beatrice's Web Guide,"
"Family Play," "Healthy Ideas," "MoneyMode," "PlanetLunch.com" "StorkSite," "The
Smart Way to Get Things Done" and "Women.com." We also have registered
trademarks and trademark applications pending in other countries.
TECHNOLOGY
We rely almost exclusively on a variety of third-party products for our
hardware and software. We operate our network to ensure maximum network uptime,
to obtain, preserve and analyze customer data, and to enhance the user's
experience.
Our goal is to maintain the technological infrastructure required to enable
heavy traffic, e-commerce and memory-intensive graphics on our network. We
maintain several Internet servers and application servers, which each contain
software that balances the amount of content, traffic and transactions conducted
on each. Each server has one or more replicas and our user traffic is balanced
among them. As a result, if a server fails, there are enough back-up servers to
ensure that our service interruption is minimized. We house our servers at Icon
CMT Corp. and Exodus Communications. These are environmentally controlled data
centers with multiple communication lines and uninterrupted power. We are
currently moving all of our hosting services to Exodus.
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<PAGE> 50
We provide ways for our visitors to search through our content using our
servers and are implementing a system that will help us assemble web pages in
real time based upon user or editorial requirements. We utilize third party
software to manage and deliver advertisements and to provide advertisers online
access to the information they need to measure how their advertisements are
performing on our network.
COMPETITION
The market for Internet content and service providers is highly competitive
with few barriers to entry. The market segment that we target is characterized
by an increasing number of market entrants with competing content and services.
We compete, in particular, with the following types of companies:
- publishers of women's print magazines, such as Conde Nast and Hachette
Filipachi, which also host Internet sites with content designed to
complement their magazines
- content aggregators, including America Online, Microsoft and Yahoo!
- Internet companies, such as iVillage and Oxygen Media, which target women
online
- Internet directories, search engines and other sites that offer original
editorial content
- companies in the print, broadcast and television industries
While we believe that this market segment is large enough to support
multiple companies, one or a few content and service providers could dominate
this particular market niche. We must compete with such entities for Internet
user attention, time and for advertising and commerce revenues. In order to
compete successfully, we must provide compelling Internet content to attract
Internet users within our target demographic group and support advertising
intended to reach this audience.
We believe that the principal competitive factors in attracting Internet
users include the quality of presentation and the relevance, depth of
information and name recognition of the services we offer. With respect to
securing advertisers, we believe that the principal competitive factors include
the number of users accessing our network, the demographics of the users, our
ability to deliver interactivity throughout our network and the overall
cost-effectiveness of the advertising offered. The success of our business
strategy depends in part on our ability to achieve premium rates for our
advertising products, based in part on the demographic characteristics of our
users.
EMPLOYEES
As of May 31, 1999, we had 228 full-time employees, of whom 104 are in
content development, 31 are in sales, 27 are in technical operations, 25 are in
marketing, 24 are in general and administrative functions and 17 are in
e-commerce. To support our anticipated future growth, we expect to hire
additional employees, particularly in the areas of content development and sales
and marketing. We believe that our relations with our employees are good.
FACILITIES
As of May 31, 1999, our headquarters are located in approximately 18,000
square feet of office space in San Mateo, California under a lease that expires
on December 31, 2002. We currently utilize all of this space and expect to lease
additional space as we expect to hire additional personnel to support our
anticipated growth. We also lease an aggregate of approximately 20,000 square
feet at two locations in New York, pursuant to lease agreements that expire on
December 31, 1999 and maintain offices in Chicago, Illinois, New Canaan,
Connecticut, and Santa Monica and San Rafael, California.
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<PAGE> 51
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
Set forth below is information regarding our directors and executive
officers as of May 31, 1999:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Marleen McDaniel........................... 49 Chairperson, Chief Executive Officer and
President
Ellen Pack................................. 34 Founder, General Manager and Senior Vice
President
Michael Perry.............................. 52 Chief Financial Officer
Gina Garrubbo.............................. 39 Executive Vice President, Sales
Frances Maier.............................. 37 Senior Vice President, Marketing
Donna McDonald............................. 34 Vice President, E-Commerce
Laura Owen................................. 43 Vice President, Human Resources
Vincent Pangrazio.......................... 35 Vice President, General Counsel and
Secretary
Satish Ramakrishnan........................ 33 Vice President, Engineering
A. Erin Ruane.............................. 34 Vice President, Business Development
Anna Zornosa............................... 40 Senior Vice President, Strategic
Partnerships
James Asher................................ 49 Director
Cathleen Black............................. 55 Director
Natalie Egleston........................... 35 Director
David Galloway............................. 55 Director
Nancy Lindemeyer........................... 64 Director
Mark Miller................................ 51 Director
William Miller............................. 73 Director
Alfred Sikes............................... 59 Director
Barry Weinman.............................. 60 Director
</TABLE>
Marleen McDaniel has served as our President, Chief Executive Officer and
Chairperson of the board of directors since October 1994. From 1992 to 1994, Ms.
McDaniel served as Senior Vice President and General Manager of Interop Company,
a division of Ziff-Davis Publishing. In 1990, Ms. McDaniel served as Vice
President of Marketing for Crescendo Communications, Inc., a high speed
internetworking company that later merged with Cisco Systems, Inc. From 1983 to
1990, Ms. McDaniel served as Director of Sales and Marketing at Sun
Microsystems, Inc. Ms. McDaniel also serves on the board of directors for
eve.com, Inc., an online source for beauty products, and is a trustee for the
Institute for Women in Technology. Ms. McDaniel holds a B.A. in Psychology from
the University of California, Berkeley.
Ellen Pack founded Women.com in 1992 and has served as our General Manager
and Senior Vice President since inception. From 1990 to 1992, Ms. Pack served as
Chief Operating Officer of Torque Systems, Inc., a workflow software company.
Ms. Pack holds a B.A. in Economics and an M.B.A. from Columbia University.
Michael Perry has served as our Chief Financial Officer since October 1998.
From 1987 to 1998, Mr. Perry served as Chief Financial Officer for the Belo
Corporation, a television and newspaper company. Mr. Perry holds a B.A. in
Accounting and Finance and an M.B.A. from Michigan State University.
Gina Garrubbo has served as our Executive Vice President, Sales, since
October 1996. From 1992 to 1996, Ms. Garrubbo served as Vice President of
Discovery Communications, Inc, a cable programming company, where she directed
advertising sales for the Discovery and Learning Channels. From
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<PAGE> 52
1988 to 1992, Ms. Garrubbo served as Vice President of Sales for Action Media
Group, a company involved in television barter syndications. Ms. Garrubbo holds
a B.A. in Government from Wells College in Aurora, New York.
Frances Maier has served as our Senior Vice President, Marketing since
March 1998. From December 1994 to December 1997, Ms. Maier served as Vice
President and General Manager for Match.Com, an online companionship service. In
1994, Ms. Maier served as Senior Product Manager of Membership for Northern
California's American Automobile Association. From 1991 to 1993, Ms. Maier
served as Assistant Brand Manager for the Clorox Company. Ms. Maier holds a B.A.
in Public Policy from Stanford University and an M.B.A. from the Stanford
Graduate School of Business.
Donna McDonald has served as our Vice President, Electronic Commerce, since
January 1998. Prior to becoming Vice President, Electronic Commerce, Ms.
McDonald served as our director of Electronic Commerce. From 1995 to 1997, Ms.
McDonald served as Senior Manager, New Business Development for Ameritech, Inc.,
a communications services company. From 1993 to 1995, Ms. McDonald served as
director, new business development for Bertelsmann Music Group, a media company,
helping establish a product development and direct marketing division for the
sale of music compilation products. Ms. McDonald holds a B.A. in French
Literature and Economics from Tufts University and an M.B.A. in Marketing and
Finance from Columbia University.
Laura Owen has served as our Vice President, Human Resources since May
1999. From 1994 to 1999, Ms. Owen worked as an attorney, specializing in
employment and labor law, for Cooley Godward LLP. Before joining Cooley Godward,
she worked for United Airlines in its human resources department. Ms. Owen holds
a B.S. in Personnel and Industrial Relations from San Francisco State University
and a J.D. from the Santa Clara University School of Law.
Vincent Pangrazio has served as our Vice President, General Counsel and
Secretary since May 1999. From September 1993 to May 1999, Mr. Pangrazio worked
as an attorney for Cooley Godward LLP. Mr. Pangrazio holds a B.S. in Electrical
Engineering from Loyola Marymount University and a J.D. from Loyola Law School.
Satish Ramakrishnan has served as our Vice President, Engineering, since
April 1999. From September 1996 to April 1999, Mr. Ramakrishnan worked as Vice
President, Engineering for PointCast, an online media company. From July 1992 to
September 1996, Mr. Ramakrishnan served as Director of Engineering for Plexus
Software, a document imaging and workflow company. He holds a B.S. in Computer
Science from Mysore University.
A. Erin Ruane has served as our Vice President, Business Development, since
1996. From 1994 to 1996, Ms. Ruane served as Director of Corporate Play Programs
at Gymboree, Inc., a children's clothing and toy company. From 1992 to 1994, Ms.
Ruane served as a manager in the Strategic Planning Corporate Development Group
at The Walt Disney Company. Ms. Ruane holds a B.A. in Economics from Georgetown
University and an M.B.A. from the Darden School at the University of Virginia.
Anna Zornosa has served as our Senior Vice President, Strategic
Partnerships, since February 1999. From April 1998 to November 1998, Ms. Zornosa
served as President and Chief Operating Officer of SmartAge Inc., a
community-based Internet company focused on small businesses. From 1995 to 1998,
Ms. Zornosa served as Senior Vice President, Advertising Sales and Affiliate
Development with PointCast, Inc., an Internet broadcast company. From 1991 to
1995, Ms. Zornosa served in various executive positions at Ziff-Davis
Publishing, Inc. Prior to working at Ziff-Davis, Ms. Zornosa served as publisher
and editor-in-chief of Communications Week, a magazine focused on
telecommunications. Ms. Zornosa holds an M.A. in Communications from the
University of Wisconsin.
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James Asher will be appointed to the board of directors as a representative
of Hearst upon the closing of the Torstar private placement. Mr. Asher has
served as Vice President and Chief Legal and Development Officer of The Hearst
Corporation since October 1997. From 1990 to 1997, Mr. Asher served as Managing
Partner and Executive Committee Chair of the law firm Rogers & Wells. Mr. Asher
holds a B.A. in Government from Harvard University and an L.L.B. from New York
University School of Law.
Cathleen Black has served as one of our directors since January 1999 and
was nominated to the board of directors as a representative of Hearst. She has
served as the President of Hearst Magazines, a division of The Hearst
Corporation, since November 1995. From 1983 to 1991, Ms. Black was the President
of USA Today. From 1991 to November 1995, Ms. Black served as the President and
Chief Executive Officer of the Newspaper Association of America. Ms. Black also
serves on the board of directors of the Coca-Cola Company, International
Business Machines and The Hearst Corporation. Ms. Black holds a B.A. in English
Literature from Trinity College in Washington, D.C.
Natalie Egleston has served as one of our directors since September 1997.
Ms. Egleston is currently the Vice President of Business Development for
MediaOne Interactive Ventures, an affiliate of the MediaOne Group. Prior to her
current position, she served as the Director of Corporate Finance in MediaOne's
Treasury Group. From 1986 to 1996, Ms. Egleston held various positions at the
Bank of New York, Barclay's Bank and Chemical Bank. Ms. Egleston also serves on
the board of directors of TheTrip.com, an Internet travel company. Ms. Egleston
holds a B.S. in Business Management and Marketing from Cornell University.
David Galloway will be appointed as a director as a representative of
Torstar upon the closing of the Torstar private placement. Mr. Galloway has
served the President and Chief Executive Officer of Torstar Corporation, a
Canadian media company, since September 1988. Mr. Galloway joined Torstar in
1981 and served as President and Chief Executive Officer for Harlequin
Enterprises, Ltd., a subsidiary of Torstar from 1982 to 1988. Prior to joining
Torstar, Mr. Galloway was a partner in the Canada Consulting Group, a strategic
management consulting group, for approximately ten years. Mr. Galloway also
serves on the board of directors of Clearnet Communications, Inc., a wireless
communications company, Westburne, Inc., an integrated distributor of industrial
and construction-related supplies and equipment, and the Bank of Montreal. Mr.
Galloway holds a B.A. from the University of Toronto and an M.B.A. from the
Harvard Graduate School of Business.
Nancy Lindemeyer has served as one of our directors since January 1999 and
was nominated to the board of directors as a representative of Hearst. Ms.
Lindemeyer is the editor-in-chief of Victoria Magazine, a magazine owned by
Hearst and focused on women's interests. From 1976 to 1985, Ms. Lindemeyer
served as senior editor of Better Homes and Gardens. Ms. Lindemeyer also serves
on the board of directors of The National Museum of Women in the Arts. Ms.
Lindemeyer holds a B.A. in History from the University of Connecticut.
Mark Miller has served as one of our directors since January 1999 and was
nominated to the board of directors as a representative of Hearst. Mr. Miller
has held several management roles within The Hearst Corporation since 1973,
serving as Executive Vice President and General Manager of Hearst Magazines, a
division of Hearst Communications, Inc., since 1985. Mr. Miller is a Vice
President and serves on the board of directors of The Hearst Corporation and is
a Trustee of The Hearst Family Trust. Mr. Miller holds a B.S. in Economics from
the Wharton School of Commerce and Finance.
William Miller has served as one of our directors since October 1998. Mr.
Miller currently serves as Chairman of the Board of Sentius Corporation, a
communications company. Mr. Miller recently retired from his position as Chief
Executive Officer and Chairman of the Board of SRI Development Company, a market
research company, positions he had held since 1979 and 1983, respectively. Mr.
Miller has been
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<PAGE> 54
a professor at the Stanford Graduate School of Business since 1979. Mr. Miller
also serves on the board of directors of Inprise Corporation and Sentius
Corporation. Mr. Miller holds a Ph.D. in Physics from Purdue University.
Alfred Sikes has served as one of our directors since January 1999 and was
nominated to the board of directors as a representative of Hearst. Mr. Sikes has
served as both a Vice President of The Hearst Corporation, and President of
Hearst New Media & Technology, a unit of The Hearst Corporation, since March
1993. From August 1989 to January 1993, Mr. Sikes served as chairman of the
Federal Communications Commission. Mr. Sikes holds a B.A. from Westminster
College and a J.D. from the University of Missouri Law School.
Barry Weinman has served as one of our directors since August 1995. Mr.
Weinman is a general partner of Media Technology Ventures/AVI Management, and is
Managing Director of Media Technology Equity Partners, a family of venture
capital firms. Mr. Weinman is also on the board of directors of TalkCity, Inc.,
InfoGear, Inc., Quokka Sports, Inc. and Be, Inc. Mr. Weinman holds a B.S. in
Industrial Engineering from Clarkson College of Technology and an M.A. in
International Relations from the London School of Economics/University of
Southern California.
BOARD COMPOSITION
In accordance with the terms of our restated certificate of incorporation,
the terms of office of the members of the board of directors will be divided
into three classes: Class I will expire at the annual meeting of the
stockholders to be held in 2000; Class II will expire at the annual meeting of
stockholders to be held in 2001; and Class III will expire at the annual meeting
of stockholders to be held in 2002. The first class, which is up for election in
the first annual meeting of stockholders following this offering, will consist
of three members, all of whom are representatives of Hearst. Class II shall
consist of four members. Class III shall consist of three members and be
comprised solely of non-Hearst representatives. 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,
our amended and restated 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.
Each officer is elected by, and serves at the discretion of, the board of
directors. Each of our officers and directors, other than non-employee
directors, devotes full time to our affairs. Our non-employee directors devote
such time to our affairs as is necessary to discharge their duties. There are no
family relationships among any of our directors, officers or key employees.
BOARD COMMITTEES
Our board of directors has an audit committee and a compensation committee.
The audit committee of the board of directors consists of Ms. Egleston and
Messrs. Mark Miller and William Miller. The audit committee reviews our
financial statements and accounting practices, makes recommendations to the
board of directors regarding the selection of independent auditors and reviews
the results and scope of the audit and other services provided by our
independent auditors. Ms. Egleston is chairperson of the audit committee.
The compensation committee of the board of directors consists of Messrs.
Sikes and Weinman. The compensation committee makes recommendations to our board
of directors concerning salaries and
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<PAGE> 55
incentive compensation for our officers and employees and administers our
employee benefit plans. Mr. Weinman is chairperson of the compensation
committee.
DIRECTORS' COMPENSATION
Our directors who are also our employees receive no compensation for
serving on the board of directors. We reimburse our non-employee directors for
all travel and other reasonable expenses incurred in attending board of director
and committee meetings to the extent they are not reimbursed by their employers.
Our non-employee directors, who are not officers, employees or directors of
Hearst or any of its subsidiaries, are also eligible to receive nonstatutory
stock option grants under the 1998 Equity Incentive Plan. Pursuant to such plan,
Mr. William Miller received a grant of an option to purchase 15,000 shares of
common stock in December 1998. This option vests monthly over a two-year period.
The exercise price of such option is $2.75 per share.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
None of our executive officers serves as a member of the board of directors
or compensation committee of any entity that has one or more executive officers
serving on our compensation committee. No interlocking relationship exists
between the board of directors or the compensation committee and the board of
directors or the compensation committee of any other company, nor has any such
interlocking relationship existed in the past. See "Certain Relationships and
Related Transactions" for a discussion of matters between Women.com and members
of the compensation committee.
EXECUTIVE COMPENSATION
The following table sets forth the total compensation paid or accrued for
the year ended December 31, 1998 for our Chief Executive Officer and our other
four most highly compensated executive officers whose annual salary and bonus
were in excess of $100,000.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
---------------------
ANNUAL COMPENSATION NUMBER OF
-------------------- SECURITIES UNDERLYING OTHER ANNUAL
NAME AND PRINCIPAL POSITION SALARY($) BONUS($) OPTIONS(#)(1) COMPENSATION($)
--------------------------- --------- -------- --------------------- -----------------
<S> <C> <C> <C> <C>
Marleen McDaniel............................. $200,000 $ -- 650,000 --
Chairperson, Chief Executive Officer and
President
Michael Perry................................ 41,667 -- 300,000 --
Chief Financial Officer
Gina Garrubbo................................ 156,250 9,000 25,000 $54,952(2)
Executive Vice President, Sales
Ellen Pack................................... 140,000 -- 275,000 --
Founder, General Manager and Senior Vice
President
Frances Maier................................ 102,724 -- 125,000 --
Senior Vice President, Marketing
</TABLE>
- -------------------------
(1) Except for the grants of options to purchase 150,000 shares of common stock
to Ms. McDaniel, 25,000 shares of common stock to Ms. Garrubbo and 75,000
shares of common stock to Ms. Pack under our 1994 Stock Option Plan, all of
which vest in 24 equal monthly installments from the
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<PAGE> 56
vesting commencement date, options were granted under our 1994 Stock Option
Plan and our 1998 Equity Incentive Plan and vest 1/4 of the total one year
after the vesting commencement date and 1/48 of the total monthly
thereafter.
(2) Represents sales commissions.
Ms. Zornosa was hired in February 1999 as Senior Vice President, Strategic
Partnerships. Her current annual salary is $175,000. Ms. Maier was hired in
March 1998 and her current annual salary is $150,000. As of March 31, 1999, the
annual salaries of the named executive officers were increased as follows: Ms.
McDaniel's salary was increased to $240,000, Ms. Garrubbo's salary was increased
to $185,000, and Ms. Pack's salary was increased to $185,000. Mr. Perry was
hired in October 1998 and his annual salary is $200,000.
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth information concerning the grant of stock
options to our named executive officers during the fiscal year ended December
31, 1998. The exercise price per share of each option was equal to the fair
market value of the common stock of the date of grant as determined by the board
of directors. The potential realizable value is calculated based on the term of
the option at its time of grant (10 years). It is calculated assuming that the
fair market value of common stock on the date of grant appreciates at the
indicated annual rate compounded annually for the entire term of the option and
that the option is exercised and sold on the last day of its term for the
appreciated stock price. These numbers are calculated based on the requirements
of the Securities and Exchange Commission and do not reflect our estimate of
future stock price growth.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
---------------------------------------------------------- POTENTIAL REALIZABLE VALUE
% OF TOTAL AT ASSUMED ANNUAL RATES
SHARES OPTIONS OF STOCK APPRECIATION FOR
UNDERLYING GRANTED TO OPTION TERM
OPTIONS EMPLOYEES IN EXERCISE PRICE EXPIRATION ---------------------------
GRANTED(#) FISCAL YEAR(%) PER SHARE($) DATE 5% 10%
----------- -------------- -------------- ---------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Marleen
McDaniel........ 150,000 6.95% $ .80 1/15/08 $ 75,467 $ 191,249
500,000 23.18 1.50 7/16/08 471,667 1,195,305
Michael Perry..... 300,000 13.91 2.75 11/12/08 518,834 1,314,836
Gina Garrubbo..... 25,000 1.15 .80 1/15/08 12,577 31,875
Ellen Pack........ 75,000 3.47 .80 1/15/08 37,733 95,624
200,000 9.27 1.50 7/16/08 188,667 478,122
Frances Maier..... 125,000 5.79 .80 3/12/08 62,885 159,375
</TABLE>
FISCAL YEAR-END OPTION VALUES
The following table sets forth summary information concerning the number of
shares underlying unexercised stock options as of December 31, 1998 and the
value of in-the-money options as of December 31, 1998 held by our Chief
Executive Officer and each of our other four most highly compensated executive
officers. The value of unexercised in-the-money options at fiscal year end is
based
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<PAGE> 57
on $2.75 per share, the assumed fair market value of the common stock at
December 31, 1998, less the exercise price per share.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT DECEMBER 31, IN-THE-MONEY OPTIONS AT
1998(#) DECEMBER 31, 1998($)
----------------------- ------------------------
NAME VESTED UNVESTED VESTED UNVESTED
---- -------- --------- --------- -----------
<S> <C> <C> <C> <C>
Marleen McDaniel.............................. 109,583 700,417 $276,107 $1,054,592
Michael Perry................................. -- 300,000 -- --
Gina Garrubbo................................. 94,791 105,208 238,873 250,875
Ellen Pack.................................... 45,833 304,167 113,707 474,042
Frances Maier................................. -- 125,000 -- 243,750
</TABLE>
STOCK BASED PLANS
1998 EQUITY INCENTIVE PLAN
The Amended and Restated 1998 Equity Incentive Plan was adopted by the
board of directors in April 1998 and was subsequently approved by the
stockholders in May 1998. The plan was amended and restated by the board in May
1998, November 1998, March 1999 and May 1999. All of the amendments have been
approved by the stockholders. The plan will terminate in April 2008 unless the
Board terminates it sooner.
As of May 31, 1999, there were 8,822,500 shares of common stock reserved
for issuance under the plan, 3,320,538 of which were subject to outstanding
options and 5,404,101 of which were available for grant, less any options
granted or shares issued under the 1994 Stock Option Plan. If stock awards
granted under the plan expire or otherwise terminate without being exercised,
the shares of common stock not acquired pursuant to those stock awards again
become available for issuance under the plan.
The plan provides for the grant of incentive stock options, nonstatutory
stock options, stock bonuses and restricted stock purchase awards. Incentive
stock options granted under the plan are intended to qualify as "incentive stock
options" within the meaning of Section 422 of the Internal Revenue Code of 1986,
as amended. Nonstatutory stock options granted under the plan are not intended
to qualify as incentive stock options under the Internal Revenue Code.
The board administers the plan. Subject to the provisions of the plan, the
board has the power to construe and interpret the plan and to determine the
persons to whom and the dates on which stock awards will be granted, the number
of shares of common stock to be subject to each stock award, the time or times
during the term of each stock award within which all or a portion of such stock
award may be exercised, the exercise price, the type of consideration and other
terms of the stock award. The board has the power to delegate administration of
the plan to a committee composed of not less than one member of the board.
The board may grant incentive stock options under the plan only to
employees of Women.com and its affiliates. Employees, directors and consultants
of both Women.com and its affiliates are eligible to receive all other types of
stock awards under the plan. However, stock awards may not be granted to any
officer, member of the board of directors or employee of Hearst or to any
officer, member of the board of directors or employee of any affiliate of
Hearst, other than Women.com.
The board may not grant an incentive stock option under the plan to any
person who, at the time of the grant, owns or is deemed to own stock possessing
more than 10% of the total combined voting power of Women.com or any affiliate
of Women.com, unless the exercise price is at least 110% of the fair
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market value of the stock subject to the option on the date of grant and the
term of the option does not exceed five years from the date of grant. In
addition, the aggregate fair market value, determined at the time of grant, of
the shares of common stock with respect to which incentive stock options are
exercisable for the first time by an optionholder during any calendar year under
the plan and all other such plans of Women.com and its affiliates may not exceed
$100,000.
No employee is eligible to receive options under the plan exercisable for
more than 600,000 shares of common stock during any calendar year. However, this
limitation applies only after the closing of this offering and then only upon
the earliest to occur of specified events.
The exercise price of incentive stock options may not be less than 100% of
the fair market value of the stock subject to the option on the date of the
grant. The exercise price of nonstatutory options generally may not be less than
85% of the fair market value of the stock on the date of grant. In the event of
a decline in the value of Women.com's common stock, the board has the authority
to offer optionholders the opportunity to replace outstanding higher priced
options with new lower priced options. To the extent required by Section 162(m)
of the Internal Revenue Code, a repriced option is deemed to be canceled and a
new option granted. Both the option deemed to be canceled and the new option
deemed to be granted will be counted against the Section 162(m) limitation.
The maximum term of options under the plan is ten years. Generally options
under the plan terminate three months after termination of the optionholder's
service. If termination of the optionholder's service is due to the
optionholder's disability, the option generally may be exercised at any time
within 12 months of the termination. If the optionholder dies before the
optionholder's service has terminated, or within three months after termination
of the optionholder's service, the option generally may be exercised within 18
months of the optionholder's death by the person or persons to whom the rights
to the option pass by will or by the laws of descent and distribution. An
optionholder may designate a beneficiary who may exercise the option following
the optionholder's death. Individual option grants by their terms may provide
for exercise within a longer or shorter period of time following termination of
service.
With respect to stock awards other than options, the board determines the
purchase price under a restricted stock purchase agreement but the purchase
price may not be less than 85% of the fair market value of Women.com's common
stock on the date of grant. The board may award stock bonuses in consideration
of past services without a purchase payment. Shares of stock sold or awarded
under the plan may, but need not be, subject to a repurchase option in favor of
Women.com in accordance with a vesting schedule as determined by the board. The
board has the power to accelerate the vesting of stock acquired pursuant to a
restricted stock purchase agreement or stock bonus award under the plan.
Transactions not involving receipt of consideration by Women.com, such as a
merger, consolidation, reorganization, stock dividend, or stock split, may
change the class and number of shares of common stock subject to the plan and
outstanding stock awards. In that event, the board will appropriately adjust the
plan as to the class and the maximum number of shares of common stock subject to
the plan and the Section 162(m) limitation and will adjust outstanding stock
awards as to the class, number of shares and price per share of common stock
subject to such stock awards.
In the event of merger, combination, a sale of substantially all of the
assets of Women.com, or other change of control event, any surviving corporation
may either assume stock awards outstanding under the plan or substitute similar
stock awards for those outstanding under the plan. Whether or not the surviving
corporation does so, with respect to participants whose service has not
terminated prior to such event, the vesting and the time during which such stock
awards may be exercised will be accelerated and any reacquisition or repurchase
rights of Women.com will lapse.
As of May 31, 1999, 17,812 shares of common stock had been issued upon the
exercise of options granted under the plan, options to purchase 3,320,538 shares
of common stock at a weighted average
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exercise price of $3.96 were outstanding and 5,404,101 shares remained available
for future grant less any options granted or shares issued under the 1994 Stock
Option Plan. As of May 31, 1999, 80,049 shares of common stock had been issued
pursuant to stock bonuses and restricted stock awards.
1994 STOCK OPTION PLAN
The Amended and Restated 1994 Stock Option Plan was adopted by the board of
directors in October 1994 and was subsequently approved by the stockholders in
July 1995. The plan was amended and restated by the board in July 1995, February
1996, March 1997, and July 1997. All of the amendments have been approved by the
stockholders. The plan will terminate in October 2004 unless the board
terminates it sooner.
If options granted under the plan expire or otherwise terminate without
being exercised, the shares of common stock not acquired pursuant to these
options again become available for issuance under the 1998 Equity Incentive
Plan. However, the board does not intend to make any further grants under the
plan.
The plan provides for the grant of incentive stock options and nonstatutory
stock options. Incentive stock options granted under the plan are intended to
qualify as "incentive stock options" within the meaning of Section 422 of the
Internal Revenue Code. Nonstatutory stock options granted under the plan are not
intended to qualify as incentive stock options under the Internal Revenue Code.
The maximum term of options under the plan is 10 years. Generally options
under the plan terminate 30 days after termination of the optionholder's
service. If termination of the optionholder's service is due to the
optionholder's disability, the option generally may be exercised at any time
within 12 months of the termination. If the optionholder dies before the
optionholder's service has terminated, or within 30 days after termination of
the optionholder's service, the option generally may be exercised within 12
months of the optionholder's death by the person or persons to whom the rights
to the option pass by will or by the laws of descent and distribution.
Individual option grants by their terms may provide for exercise within a longer
or shorter period of time following termination of service.
Transactions not involving receipt of consideration by Women.com, such as a
merger, consolidation, reorganization, stock dividend, or stock split, may
change the class and number of shares of common stock subject to the plan and
outstanding options. In that event, the board will appropriately adjust the plan
as to the class and the maximum number of shares of common stock subject to the
plan and will adjust outstanding options as to the class, number of shares and
price per share of common stock subject to such options.
In the event of merger, combination, a sale of substantially all of the
assets of Women.com, or other change of control event, any surviving corporation
may either assume stock awards outstanding under the plan or substitute similar
stock awards for those outstanding under the plan. Whether or not the surviving
corporation does so, with respect to participants whose service has not
terminated prior to such event, the vesting and the time during which such stock
awards may be exercised will be accelerated and any reacquisition or repurchase
rights of Women.com will lapse.
As of May 31, 1999, 606,475 shares of common stock had been issued upon the
exercise of options granted under the plan, and options to purchase 1,061,023
shares of common stock at a weighted average exercise price of $.41 were
outstanding.
EMPLOYEE STOCK PURCHASE PLAN
In May 1999, the board approved the Employee Stock Purchase Plan covering
an aggregate of 1,000,000 shares of common stock. The plan will become effective
on the effective date of this offering
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and will terminate at the board's direction or when all of the shares reserved
for issuance under the plan have been issued. The plan was approved by
stockholders in June 1999.
The plan is intended to qualify as an "employee stock purchase plan" within
the meaning of Section 423 of the Internal Revenue Code. Under the plan, the
board may authorize participation by eligible employees, including officers, in
periodic offerings following the adoption of the plan. The offering period for
any offering will be no longer than 27 months.
Employees are eligible to participate if they are employed either by
Women.com or by an affiliate of Women.com designated by the board. However,
employees of Hearst or affiliates of Hearst, other than Women.com, will not be
eligible to participate in an offering.
Employees who participate in an offering generally may have up to 15% of
their earnings withheld and applied, on specified dates determined by the board,
to the purchase of shares of common stock, subject to other limitations
specified in the offering or under the Internal Revenue Code. The price of
common stock purchased under the plan generally will be equal to 85% of the
lower of the fair market value of the common stock on the commencement date of
each offering period or the relevant purchase date. If the board provides that
employees who become eligible to participate after the offering period begins
may enroll in the offering, for such employees the price of common stock
purchased under the plan will be equal to 85% of the lower of the fair market
value of the common stock on the day their participation begins or the relevant
purchase date.
Employees may end their participation in the offering as specified by the
board for that offering, and participation ends automatically on termination of
employment with Women.com or an affiliate.
In the event of changes of control, the board has discretion to provide
that each right to purchase common stock will be assumed or an equivalent right
substituted by the successor corporation, or the board may shorten the offering
period and provide for all sums collected by payroll deductions to be applied to
purchase stock immediately prior to the change in control.
As of May 31, 1999, none of the shares of common stock reserved under the
plan had been issued.
EMPLOYMENT ARRANGEMENTS
Pursuant to an employment agreement, dated as of January 29, 1999, between
Women.com and Ms. McDaniel, Ms. McDaniel serves as our Chairperson, Chief
Executive Officer and President through January 29, 2002. Under the terms of her
employment agreement, Ms. McDaniel is entitled to an initial annual base salary
of $200,000, subject to annual adjustment, and is eligible to participate in any
cash bonus program. Ms. McDaniel is entitled to severance benefits in the event
that, prior to January 27, 2002, her employment with Women.com is terminated
involuntarily without cause or voluntarily within sixty days of a material
reduction in her responsibilities or compensation or a relocation of her place
of employment by more than fifty miles. These severance benefits include
continuation of base salary and benefits until the longer of six months from
termination or January 27, 2002, and acceleration of vesting on all options that
would have vested as of January 27, 2002.
401(K) PLAN
Women.com provides a tax-qualified employee savings and retirement plan,
commonly known as a 401(k) plan, which covers our eligible employees. Pursuant
to the 401(k) plan, employees may elect to reduce their current annual
compensation up to the lesser of 15% or the statutorily prescribed limit, which
is $10,000 in calendar year 1999, and have the amount of the reduction
contributed to the 401(k) plan. The 401(k) plan is intended to qualify under
Sections 401(a) and 401(k) of the Internal Revenue Code, so that contributions
by Women.com or our employees to the 401(k) plan, and income earned on
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plan contributions, are not taxable to employees until withdrawn from the 401(k)
plan, and so that contributions will be deductible by Women.com if made. The
trustee of the 401(k) plan invests the assets of the 401(k) plan in the various
investment options as directed by the participants.
LIMITATIONS OF LIABILITY AND INDEMNIFICATION MATTERS
Section 145 of the Delaware General Corporation Law authorizes a
corporation's board of directors to grant indemnity to directors and officers in
terms sufficiently broad to permit such indemnification under some circumstances
for liabilities, including reimbursement for expenses incurred, arising under
the Securities Act of 1933, as amended.
As permitted by Delaware law, our restated certificate of incorporation
includes a provision that eliminates the personal liability of our directors for
monetary damages for breach of fiduciary duty as a director, except for
liability:
- for any breach of the director's duty of loyalty to us or our
stockholders
- for acts or omissions not in good faith or that involve intentional
misconduct or a knowing violation of law
- under Section 174 of the Delaware General Corporation Law regarding
unlawful dividends and stock purchases
- for any transaction from which the director derived an improper personal
benefit
As permitted by Delaware law, our restated certificate of incorporation
provides that:
- we are required to indemnify our directors and officers to the fullest
extent permitted by Delaware law, subject to very limited exceptions
- we are permitted to indemnify our other employees to the extent that we
indemnify our officers and directors, unless otherwise required by law,
our restated certificate of incorporation, our amended and restated
bylaws or agreements
- we are required to advance expenses, as incurred, to our directors and
officers in connection with a legal proceeding to the fullest extent
permitted by Delaware law, subject to very limited exceptions
- the rights conferred in the restated certificate of incorporation are not
exclusive
Our amended and restated bylaws provide that we shall indemnify our
directors and executive officers and may indemnify our other officers and
employees and other agents to the fullest extent permitted by law. We believe
that indemnification under our amended and restated bylaws covers at least
negligence and gross negligence on the part of indemnified parties. Our amended
and restated bylaws also permit us to secure insurance on behalf of any officer,
director, employee or other agent for any liability arising out of his or her
actions in such capacity, regardless of whether the amended and restated bylaws
would permit indemnification.
We have entered into agreements to indemnify our directors and executive
officers, in addition to indemnification provided for in our amended and
restated bylaws. These agreements, among other things, indemnify our directors
and executive officers for expenses, including attorneys' fees, judgments, fines
and settlement amounts incurred by any director or executive officer in any
action or proceeding, including any action by us arising out of services as one
of our directors or executive officers, any of our subsidiaries or any other
company or enterprise to which the director or executive officer provides
services at our request. We believe that these provisions and agreements are
necessary to attract and retain qualified persons as directors and executive
officers.
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In July 1997, Women.com Networks, a California corporation, issued 995,342
shares of Series C Preferred Stock at a purchase price of $3.04 per share. In
connection with such financing, Women.com Networks issued 620,492 shares of
Series C Preferred Stock to affiliates of AVI Management for cash. Each share of
Series C Preferred Stock will convert into one share of our common stock upon
completion of the merger. Mr. Weinman, a director of Women.com, is a general
partner of AVI Management.
In July and August 1997, Women.com Networks, a California corporation,
issued 2,631,580 shares of Series C Preferred Stock at a purchase price of $1.90
per share. In connection with such financing, Women.com Networks issued (1)
1,315,790 shares of Series C Preferred Stock to MediaOne Interactive Services,
Inc. for cash and (2) 1,315,790 shares of Series C Preferred Stock to HC Crown
Corp. for cash. Each share of Series C Preferred Stock will convert into one
share of our common stock upon completion of the merger. Ms. Egleston, a
director of Women.com, is the Vice President of Business Development for
MediaOne Interactive Ventures, an affiliate of MediaOne Interactive Services,
Inc. MediaOne Interactive Services, Inc. and HC Crown Corp. each own in excess
of 5% of our outstanding common stock.
In connection with the issuance of Series C Preferred Stock to MediaOne
Interactive Services, Inc., Women.com Networks agreed to allocate $1,500,000 of
MediaOne's investment to several co-linked products that are to be developed by
Women.com Networks in association with MediaOne and are to be branded by both
Women.com and MediaOne. If these products are not completed by the specified
dates and/or all of the funds are not utilized for the development of the
co-branded and co-linked products, we may be required to return the unused
portion of such funds pro rata to the holders of our Series C Preferred Stock
and Series D Preferred Stock.
In connection with the issuance of Series C Preferred Stock to HC Crown
Corp., Women.com Networks agreed to allocate $1,250,000 of HC Crown's investment
to produce web sites for Hallmark Connections, a division of HC Crown Corp.,
over a two year period.
In June and July of 1998, Women.com Networks, a California corporation,
issued 6,546,369 shares of Series D Preferred Stock at a purchase price of $3.29
per share. In connection with such financing, Women.com Networks issued (1)
151,976 shares of Series D Preferred Stock to entities affiliated with AVI
Management for cash and (2) 607,903 shares of Series D Preferred Stock to
MediaOne Interactive Services, Inc. for cash. Each share of Series D Preferred
Stock will convert into one share of our common stock upon completion of the
merger. Mr. Weinman, a director of Women.com, is a general partner of AVI
Management. Ms. Egleston, a director of Women.com, is the Vice President of
Business Development for MediaOne Interactive Ventures, an affiliate of MediaOne
Interactive Services, Inc. MediaOne Interactive Services, Inc. owns in excess of
5% of our outstanding common stock.
In May 1999, Women.com Networks, a California corporation, issued 924,000
shares of Series E Preferred Stock at a purchase price of $10.00 per share. In
connection with such financing, Women.com Networks issued (1) 105,747 shares of
Series E Preferred Stock to entities affiliated with AVI Management for cash (2)
90,475 shares of Series E Preferred Stock to HC Crown Corp. for cash and (3)
195,627 shares of Series E Preferred Stock to MediaOne Interactive Services,
Inc. for cash. Each share of Series E Preferred Stock will convert into one
share of common stock of Women.com Networks, Inc. a Delaware corporation, upon
completion of the merger. Pursuant to the terms of the Series E Preferred Stock,
if the per share price in this offering is below $10.00, then the Series E
Preferred Stock conversion price will be adjusted to the price per share of the
common stock sold to the public in this offering. Accordingly, if the per share
price in this offering is below $10.00, the total number of outstanding shares
of Women.com post-offering must be adjusted to reflect the increased number of
common shares into which the Series E Preferred Stock will convert. Mr. Weinman,
a director of
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Women.com, is a general partner of AVI Management. Ms. Egleston, a director of
Women.com, is the Vice President of Business Development for MediaOne
Interactive Ventures, an affiliate of MediaOne Interactive Services, Inc. HC
Crown Corp. and MediaOne Interactive Services, Inc. own in excess of 5% of our
outstanding common stock. Women.com Networks utilized the proceeds of such sale
of Series E Preferred Stock to purchase an additional 924,000 units of Women.com
Networks LLC.
In May 1999, Women.com Networks LLC issued 1,076,000 units to Hearst
HomeArts, Inc. at a purchase price of $10.00 per unit. At the time of the merger
of Women.com Networks and Hearst HomeArts, Inc. and the dissolution of Women.com
Networks, LLC, Hearst Communications, Inc. will receive additional shares of
Women.com as a result of this investment. If Women.com sells shares in this
offering below $10.00 per share, then Hearst will receive additional shares in
Women.com so that Hearst will receive the same number of shares in Women.com as
if it had purchased units in Women.com Networks LLC at a purchase price equal to
the lower public offering price in this offering. Accordingly, if the per share
price in this offering is below $10.00, the total number of outstanding shares
in Women.com post-offering must be adjusted to reflect the increased number of
common shares to be held by Hearst as a result of this adjustment. Hearst owns
in excess of 5% of our outstanding common stock.
On January 27, 1999, Women.com Networks and Hearst Communications, Inc.
entered into a Magazine Content License and Hosting Agreement. In addition to
the provisions discussed under "Business -- The Hearst Relationship," the
agreement also contains provisions relating to ownership of intellectual
property rights, representations and warranties by Hearst and Women.com and
indemnification. Ms. Black, Ms. Lindemeyer, Mr. Miller and Mr. Sikes, board
members of Women.com, are the President of Hearst Magazines, the editor-in-chief
of Victoria Magazines, the Executive Vice President and General Manager of
Hearst Magazines and the President of Hearst New Media & Technology, a unit of
Hearst, respectively. In addition, Mr. Asher, who will be appointed to the board
upon the closing of the Torstar private placement, is the Vice President and
Chief Legal and Development Officer of Hearst. See "Risk Factors." In addition,
Hearst owns in excess of 5% of our outstanding common stock.
Concurrent with this offering and the Disney and Torstar private
placements, Hearst will be purchasing additional shares of our common stock in a
private placement. See "Business -- The Hearst Relationship -- Hearst Private
Placement."
In June 1999, Women.com Networks LLC entered into an agreement with Torstar
and its subsidiary, Harlequin Enterprises Limited, pursuant to which Women.com
will produce and host a web site for which Harlequin will be the primary content
provider. Women.com and Harlequin will share revenues from advertising on the
site and Women.com will receive royalties on sales of Harlequin books and
related merchandise on the site. In addition, Torstar will purchase the lesser
of 1,250,000 shares or that number of shares having an aggregate purchase price
of $14.5 million in the Torstar private placement and, upon the closing of the
Torstar private placement, Mr. Galloway, the Chief Executive Officer of Torstar,
will be appointed to our board of directors.
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PRINCIPAL STOCKHOLDERS
The following table sets forth information with respect to beneficial
ownership of the common stock, as of May 31, 1999 and as adjusted to reflect the
sale of common stock in this offering and the Disney, Torstar and Hearst private
placements, for:
- each person known by us to beneficially own more than 5% of the common
stock
- each of our directors and nominees
- each executive officer named in the Summary Compensation Table
- all of our directors, nominees and executive officers 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. 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 May 31, 1999 but excludes shares of common stock
underlying options or warrants held by any other person. Percentage of
beneficial ownership is based on 36,309,481 shares of common stock outstanding
as of May 31, 1999, assuming:
- the exercise of a warrant to acquire 887,665 shares of preferred stock
and net exercise of warrants for a total of 161,436 shares of common
stock
- the conversion of the convertible preferred stock into shares of common
stock
- the merger of Women.com Networks into Hearst HomeArts, Inc.
- the split of the outstanding capital stock of Hearst HomeArts, Inc. into
an aggregate of 18,825,171 shares of common stock
- 45,097,359 shares of common stock outstanding after completion of this
offering and the Disney, Torstar and Hearst private placements.
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<TABLE>
<CAPTION>
PERCENTAGE OF COMMON STOCK
BENEFICIALLY OWNED
NUMBER OF SHARES ---------------------------------
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIALLY OWNED BEFORE OFFERING AFTER OFFERING
------------------------------------ ------------------ --------------- --------------
<S> <C> <C> <C>
Hearst Communications, Inc.(1) ..................... 21,675,549 51.9% 48.1%
The Hearst Corporation
959 Eighth Avenue
New York, NY 10019
MediaOne Interactive Services, Inc.(2).............. 3,006,985 8.1 6.5
188 Inverness Drive West
Suite 600
Englewood, CO 80112
Natalie Egleston(3)................................. 3,006,985 8.1 6.5
188 Inverness Drive West
Suite 600
Englewood, CO 80112
HC Crown Corp.(4)................................... 2,293,930 6.2 5.0
2501 McGee, Mail Drop 339
Kansas City, MO 64141
Marleen McDaniel(5)................................. 501,666 1.4 1.1
Barry Weinman(6).................................... 1,643,645 4.5 3.6
William Miller(7)................................... 5,000 * *
James Asher......................................... -- -- --
Cathleen Black...................................... -- -- --
Nancy Lindemeyer.................................... -- -- --
Alfred Sikes........................................ -- -- --
Mark Miller......................................... -- -- --
David Galloway(8)................................... 1,250,000 -- 2.8
Ellen Pack(9)....................................... 897,857 2.5 2.0
Gina Garrubbo(10)................................... 127,604 * *
Frances Maier(11)................................... 41,666 * *
Michael Perry....................................... -- -- --
All executive officers and directors as a group (18
persons)(12)...................................... 6,281,817 17.2 13.9
</TABLE>
- -------------------------
* Represents beneficial ownership of less than 1%.
(1) Includes 2,537,878 shares that are to be purchased concurrently with this
offering and the Disney and Torstar private placements in the Hearst
private placement and 312,500 shares issuable upon exercise of an option
exercisable within 60 days of May 31, 1999. The Hearst Family Trust is the
sole stockholder of The Hearst Corporation which is directly or indirectly
the sole stockholder of Hearst Communications, Inc.
(2) Includes 887,665 shares issuable pursuant to warrants exercisable within 60
days of May 31, 1999.
(3) Natalie Egleston is the Director of Business Development for MediaOne
Interactive Ventures, an affiliate of MediaOne Interactive Services, Inc.
Ms. Egleston does not have voting or investment power with respect to the
shares of common stock owned by MediaOne. Ms. Egleston disclaims beneficial
ownership of the shares of common stock beneficially owned by MediaOne.
(4) Includes 887,665 shares issuable pursuant to warrants exercisable within 60
days of May 31, 1999. These warrants will be exercised concurrently with
this offering.
(5) Includes 166,666 shares issuable upon exercise of options exercisable
within 60 days of May 31, 1999. Also includes 75,000 shares held by Ms.
McDaniel's spouse in a trust for his benefit, 75,000 shares held in a trust
established for the benefit of Ms. McDaniel and 50,000 shares held in a
trust established for the benefit of Ms. McDaniel's family. Ms. McDaniel
disclaims beneficial ownership of shares held in trust for the benefit of
her spouse.
(6) Includes 231,933 shares held by Associated Venture Investors III, L.P.,
1,395,775 shares held by AVI Capital, L.P. and 15,937 shares held by AVI
Silicon Valley Partners, L.P. Mr. Weinman, a director of Women.com, is a
member of AVI Management Partners III, L.P., which the General Partner of
Associated Venture Investors III, L.P., AVI Capital, L.P. and AVI Silicon
Valley
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Partners, L.P. Mr. Weinman disclaims beneficial ownership of shares held by
such entities except for his proportional interest therein.
(7) Includes 5,000 shares issuable upon exercise of options exercisable within
60 days of May 31, 1999.
(8) Includes 1,250,000 shares that are to be purchased concurrently with this
offering and the Disney and Hearst private placements. David Galloway is
the President and Chief Executive Officer of Torstar Corporation. Mr.
Galloway will not have voting or investment power over the shares purchased
by Torstar in the Torstar private placement. Mr. Galloway disclaims
beneficial ownership of the shares of common stock purchased by Torstar in
the Torstar private placement.
(9) Includes 60,938 shares issuable upon exercise of options exercisable within
60 days of May 31, 1999. Also includes an additional 216,611 shares held by
Ms. Pack's sisters and mother. Ms. Pack disclaims beneficial ownership of
shares held by her sister and mother.
(10) Includes 14,063 shares issuable upon exercise of options exercisable within
60 days of May 31, 1999.
(11) Includes 5,208 shares issuable upon exercise of options exercisable within
60 days of May 31, 1999.
(12) Includes the shares described in footnotes (3) and (5) through (11) and
includes an additional 47,395 shares held by other executive officers, of
which 29,166 were outstanding as of May 31, 1999 and of which 18,229 shares
are subject to options or warrants that are exercisable within 60 days of
May 31, 1999. In addition, upon the closing of the Torstar private
placement, Messrs. Asher and Galloway will join our board, all directors
and officers as a group will increase to 20 persons and this group will
beneficially own 7,531,817 shares or 17.0% of the shares outstanding after
this offering and the Disney, Torstar and Hearst private placements.
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DESCRIPTION OF CAPITAL STOCK
GENERAL
Immediately prior to the consummation of this offering and the Disney,
Torstar and Hearst private placements, our authorized capital stock will consist
of 195,000,000 shares of common stock, par value $.001 per share, and 5,000,000
shares of preferred stock, par value $.001 per share. Upon completion of this
offering, there will be 45,097,359 outstanding shares of common stock,
outstanding options to purchase 4,381,561 shares of common stock and outstanding
warrants to purchase 939,468 shares of common stock.
COMMON STOCK
Subject to preferences that may apply to shares of preferred stock
outstanding at the time, the holders of outstanding shares of common stock are
entitled to received dividends out of assets legally available thereof at any
time and in such amounts as the board of directors may from time to time
determine. Each stockholder is entitled to one vote for each share of common
stock held on all matters submitted to a vote of stockholders. Cumulative voting
for the election of directors is not provided for in our restated certificate of
incorporation, which means that the holders of a majority of the shares voted
can elect all of the directors then standing for election. The common stock is
not entitled to preemptive rights and is not to subject to conversion or
redemption. Upon the occurrence of a liquidation, dissolution or winding-up, the
holders of shares of common stock would be entitled to share ratably in the
distribution of all of the company's assets remaining available for distribution
after satisfaction of all of its liabilities and the payment of any liquidation
preference of any outstanding preferred stock. Each outstanding share of common
stock is, and all shares of common stock to be outstanding upon completion of
this offering and the Disney, Torstar and Hearst private placements will be,
fully paid and nonassessable.
PREFERRED STOCK
The board of directors has the authority, within the limitations and
restrictions stated in the restated certificate of incorporation, to provide by
resolution for the issuance of shares of preferred stock, in one or more classes
or series, and to fix the rights, preferences, privileges and restrictions
thereof, including dividend rights, conversion rights, voting rights, terms of
redemption, liquidation preferences and the number of shares constituting any
series or the designation of such series. The issuance of preferred stock could
have the effect of decreasing the market price of the common stock and could
adversely affect the voting and other rights of the holders of common stock.
OPTIONS
As of May 31, 1999, options to purchase a total of 4,381,561 shares of
common stock were outstanding and 3,736,603 additional shares of common stock
were available for future grant under the 1998 Equity Incentive Plan. See
"Management -- Stock Based Plans."
WARRANTS
Immediately prior to this offering and the Disney, Torstar and Hearst
private placements, we will have outstanding warrants to purchase 939,468 shares
of common stock at a weighted average exercise price of $2.93 per share.
Warrants for a total of 1,049,101 shares will be exercised in connection with
this offering. The remaining warrants expire on dates ranging from October 2000
to February 2006.
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<PAGE> 68
ANTITAKEOVER EFFECTS OF PROVISIONS OF THE RESTATED CERTIFICATE OF INCORPORATION,
AMENDED AND RESTATED BYLAWS AND DELAWARE LAW
RESTATED CERTIFICATE OF INCORPORATION AND AMENDED AND RESTATED BYLAWS
Upon the closing of this offering and the Disney, Torstar and Hearst
private placements, our restated certificate of incorporation will provide that
our board of directors be classified into three classes of directors. The
restated certificate of incorporation also provides that all stockholder action
must be effected at a duly called meeting of stockholders and not by a consent
in writing. In addition, the restated certificate of incorporation and amended
and restated bylaws provide that only our Chief Executive Officer, the
Chairperson of the board of directors or a majority of the members of the board
of directors may call a special meeting of stockholders. In addition, directors
may not be removed without cause. Finally, the amended and restated bylaws
establish procedures including advance notice, with regard to the nomination of
directors and stockholder proposals. These provisions of the restated
certificate of incorporation and amended and restated bylaws could discourage
potential acquisition proposals and could delay or prevent a change in control.
These provisions also may have the effect of preventing changes in our
management.
DELAWARE TAKEOVER STATUTE
We are subject to Section 203 of the Delaware General Corporation Law
which, subject to certain exceptions, prohibits a Delaware corporation from
engaging in any business combination with any interested stockholder for a
period of three years following the date that such stockholder became an
interested stockholder, unless:
- prior to such date, the board of directors approved either the business
combination or the transaction which resulted in the stockholder becoming
an interested stockholder
- upon consummation of the transaction which resulted in the stockholder
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 for purposes of determining the
number of shares outstanding those shares owned (1) by persons who are
directors and also officers and (2) by employee stock plans in which
employee participants do not have the right to determine confidentially
whether shares held subject to the plan will be tendered in a tender or
exchange offer
- on or subsequent to such date, the business combination is approved by
the board of directors and authorized at an annual or special meeting of
stockholders, and not by written consent, by the affirmative vote of at
least 66 2/3% of the outstanding voting stock which is not owned by the
interested stockholder
Section 203 defines business combination to include:
- any merger or consolidation involving the corporation and the interested
stockholder
- any sale, transfer, pledge or other disposition involving the interested
stockholder of 10% or more of the assets of the corporation
- subject to specified exceptions, any transaction which results in the
issuance or transfer by the corporation of any stock of the corporation
to the interested stockholder
- any transaction involving the corporation which has the effect of
increasing the proportionate share of the stock of any class or series of
the corporation beneficially owned by the interested stockholder
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<PAGE> 69
- the receipt by the interested stockholder of the benefit of any loans,
advances, guarantees, pledges or other financial benefits provided by or
through the corporation. In general, Section 203 defines an interested
stockholder as any entity or person beneficially owning 15% or more of
the outstanding voting stock of the corporation and any entity or person
affiliated with or controlling or controlled by such entity or person.
Because the board of directors approved the transaction in which Hearst
became an interested stockholder, Hearst is not subject to the
restrictions of Section 203
REGISTRATION RIGHTS
As of the completion of this offering, the holders of an aggregate of
17,819,008 shares of common stock or securities convertible into common stock
will be entitled to registration rights as provided under the terms of an
Amended and Restated Investor Rights' Agreement. These stockholders include Ms.
McDaniel, Ms. Pack, AVI Management and all affiliated entities, MediaOne
Interactive Services, Inc., HC Crown Corp., holders of warrants and all other
holders of our preferred stock. This agreement provides demand registration
rights to the holders of our registrable securities. In addition, the holders of
all of the registrable securities are entitled under the agreement, subject to
certain limitations, to require us to include their registrable securities in
future registration statements we file. Registration of shares of common stock
pursuant to the rights granted in this agreement will result in such shares
becoming freely tradeable without restriction under the Securities Act of 1933,
as amended. However, the agreement provides that we have the right to delay any
registration request until 180 days after the effective date of this prospectus.
All registration expenses incurred in connection with the above registrations
will be borne by us.
In connection with the Disney and Torstar private placements, Disney and
Torstar are entitled to registration rights. Disney may require us to register
its shares for resale, subject to specified limitations, beginning six months
after this offering. Torstar may require us to register its shares for resale,
subject to specified limitations, beginning twelve months after this offering.
Disney's and Torstar's registration rights terminate two years after this
offering.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for our common stock is ChaseMellon
Shareholder Services, L.L.C.
LISTING
Our common stock has been approved for quotation on the Nasdaq National
Market under the trading symbol "WOMN."
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<PAGE> 70
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no market for our common stock, and
there can be no assurance that a significant public market for our common stock
will develop or be sustained after this offering. Future sales of substantial
amounts of common stock, including shares issued upon exercise of outstanding
options and warrants, in the public market after this offering could adversely
affect market prices prevailing from time to time and could impair our ability
to raise capital through the sale of our equity securities. Sales of substantial
amounts of our common stock in the public market could adversely affect the
prevailing market price and our ability to raise equity capital in the future.
Upon completion of this offering and the Disney, Torstar and Hearst private
placements, we will have outstanding 45,097,359 shares of common stock, assuming
no exercise of Hearst's option and the underwriters' over-allotment option and
no exercise of the outstanding warrants not exercised in connection with this
offering or outstanding options as of May 31, 1999. Of these shares, all shares
of common stock sold in this offering will be freely tradeable without
restriction under the Securities Act unless purchased by our "affiliates" as
that term is defined in Rule 144 under the Securities Act or by persons subject
to other contractual limitations and restrictions described below. Sales by
affiliates are subject to limitations and restrictions described below.
SALES OF RESTRICTED SHARES
The 36,309,481 shares of common stock held by existing stockholders, the
2,500,000 shares sold in the Disney and Torstar private placements and the
2,537,878 shares sold in the Hearst private placement were or, in the case of
Disney, Torstar and Hearst, will be issued by us in reliance on exemptions from
the registration requirements of the Securities Act. Of the shares held by
existing stockholders, approximately 35,877,280 shares will be subject to
lock-up agreements described below on the effective date of this offering. Upon
expiration of the lock-up agreements after the effective date of this offering,
these shares will become eligible for sale in the public market without
restriction except in the case of shares held by affiliates and Hearst. For
those shares held by affiliates other than Hearst, after the expiration of the
lock-up, shares may be sold, subject to the volume limitations provided in Rule
144. Pursuant to the volume limitations of Rule 144, an affiliate would be
entitled to sell within any three-month period a number of shares that does not
exceed the greater of (1) 1% of the number of shares of common stock then
outstanding, which will equal approximately 450,973 shares immediately after
this offering, and the Disney, Torstar and Hearst private placements, or (2) the
average weekly trading volume of the common stock during the four calendar weeks
preceding the filing of a Form 144 with respect to such sale. The shares
acquired by Disney and Torstar in the Disney and Torstar private placements will
be restricted securities as such term is defined under Rule 144 of the
Securities Act. Upon expiration of the required holding period, Disney and
Torstar will be entitled to sell their shares pursuant to the manner of sale,
notice and availability of current public information requirements of Rule 144.
The shares held by Hearst prior to the underwritten public offering and the
shares acquired in the Hearst private placement are also restricted securities.
Upon the expiration of its lock-up agreement, Hearst will be entitled to sell
its shares pursuant to the volume, manner of sale, notice and availability of
current public information requirements of Rule 144 and will remain subject to
such requirements at all times that it is an affiliate of Women.com.
OPTIONS
As of May 31, 1999, there were a total of 4,381,561 shares of common stock
subject to outstanding options under our 1994 Stock Option Plan and under our
1998 Equity Incentive Plan, 380,263 of which were vested and exercisable. All of
the shares issuable under the 1998 Equity Incentive Plan are subject to lock-up
agreements or otherwise subject to restrictions on transfer. Immediately after
the completion of this offering
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and the Disney, Torstar and the Hearst private placements, we intend to file a
registration statement on Form S-8 under the Securities Act to register all of
the shares of common stock issued or reserved for future issuance under our 1994
Stock Option Plan, 1998 Equity Incentive Plan and Employee Stock Purchase Plan.
After the effective dates of the registration statement on Form S-8, shares
purchased upon exercise of options granted pursuant to the 1994 Stock Option
Plan, 1998 Equity Incentive Plan and Employee Stock Purchase Plan generally
would be available for resale in the public market.
LOCK-UP AGREEMENTS
Our executive officers, directors and substantially all of our other
existing stockholders are subject to lock-up agreements under which they have
agreed that they will not, without the prior written consent of Morgan Stanley &
Co. Incorporated, offer, pledge, sell, contract to sell, sell any option or
contract to purchase, purchase any option or contract to sell, grant any option,
right or warrant to purchase, or otherwise transfer or dispose of, directly or
indirectly, any shares of common stock or securities convertible into or
exercisable or exchangeable for common stock of Women.com for a period of 180
days after the date of this offering. Morgan Stanley & Co. Incorporated, in its
sole discretion at any time and without notice, may release any or all shares
from the lock-up agreements and permit holders of the shares to resell all or
any portion of their shares at any time prior to the expiration of the lock-up
period.
In addition, our existing stockholders who are subject to "lock-up"
agreements have agreed that, without the prior written consent of Morgan Stanley
& Co. Incorporated on behalf of the underwriters, such stockholders will not
during the period ending 180 days after the date of the prospectus, make any
demand for, or exercise any right with respect to, the registration of any
shares of common stock or any security convertible into or exercisable or
exchangeable for common stock. Beginning 180 days after the date of this
prospectus, all shares subject to the lock-up agreements will be eligible for
sale in the public market without restriction, except for shares held by
affiliates and Hearst as described above. See "Description of Capital
Stock -- Registration Rights."
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UNDERWRITERS
Under the terms and subject to the conditions contained in an underwriting
agreement dated the date of this prospectus, the underwriters named below, for
whom Morgan Stanley & Co. Incorporated, Deutsche Bank Securities Inc. and
Salomon Smith Barney Inc. are acting as representatives, have severally agreed
to purchase, and we have agreed to sell to them, the respective number of shares
of common stock set forth opposite the names of the underwriters below:
<TABLE>
<CAPTION>
NUMBER OF
NAME SHARES
---- ----------
<S> <C>
Morgan Stanley & Co. Incorporated...........................
Deutsche Bank Securities Inc. ..............................
Salomon Smith Barney Inc. ..................................
----------
Total............................................. 3,750,000
==========
</TABLE>
The underwriters are offering the shares subject to their acceptance of the
shares from us and subject to prior sale. The underwriting agreement provides
that the obligations of the several underwriters to pay for and accept delivery
of the shares of common stock offered in this offering are subject to the
approval of legal matters by their counsel and to other conditions. The
underwriters are obligated to take and pay for all of the shares of common stock
offered in this offering, other than those covered by the over-allotment option
described below, if any such shares are taken.
The underwriters initially propose to offer part of the shares of common
stock directly to the public at the public offering price set forth on the cover
page of this prospectus and part to dealers at a price that represents a
concession not in excess of $ per share under the public offering price. Any
underwriter may allow, and the dealers may reallow, a concession not in excess
of $ per share to other underwriters or to other dealers. After the initial
offering of the shares of common stock, the offering price and other selling
terms may from time to time be varied by the representatives of the
underwriters.
We have granted to the underwriters an option, exercisable for 30 days from
the date of this prospectus, to purchase up to an aggregate of 562,500
additional shares of common stock at the public offering price set forth on the
cover page hereof, less underwriting discounts and commissions. The underwriters
may exercise this option solely for the purpose of covering over-allotments, if
any, made in connection with this offering of common stock. To the extent this
over-allotment option is exercised, each underwriter will become obligated,
subject to other conditions, to purchase approximately the same percentage of
additional shares of common stock as the number set forth next to each
underwriter's name in the preceding table bears to the total number of shares of
common stock set forth next to the names of all underwriters in the preceding
table.
The underwriters have informed us that they do not intend sales to
discretionary accounts to exceed five percent of the total number of shares of
common stock offered by them.
In connection with the Disney and Torstar private placements, each of
Disney and Torstar are purchasing the lesser of 1,250,000 shares or that number
of shares of common stock having an aggregate public offering price of $14.5
million to each of Disney and Torstar at the per share price equal to the price
per share in this offering. In connection with the Hearst private placement,
Hearst is purchasing, at a per share price equal to the price per share in this
offering, a total of 2,083,333 million shares of our
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common stock plus that number of shares of our common stock which could be
purchased, at a per share price equal to the price per share in this offering,
for $5 million. The Disney and Torstar purchases are conditioned upon, among
other things, the sale of at least 3,000,000 shares in this offering. Assuming
an offering price of $11.00 per share in this offering, Hearst will purchase
2,537,878 shares in the Hearst private placement. In addition, Hearst will have
an option, but no obligation, to purchase additional shares in the event the
underwriters exercise their over-allotment option in connection with this
offering. In the event that the underwriters' over-allotment option is exercised
in full, Hearst will have the right to purchase up to 312,500 additional shares
of common stock. If the underwriters exercise their over-allotment option in
part, Hearst will have an option to purchase a pro rata portion of those
additional shares.
At our request, the underwriters have reserved up to five percent of the
shares of common stock to be issued by us and offered in this offering for sale,
at the price per share in this offering, to persons with preexisting strategic
or other relationships with Women.com. The number of shares available for sale
to the general public will be reduced to the extent that such persons purchase
such reserved shares. Any reserved shares which are not so purchased will be
offered by the underwriters to the general public on the same basis as the other
shares of common stock offered by the prospectus for this offering.
Our common stock has been approved for quotation on the Nasdaq National
Market under the symbol "WOMN."
We and our directors, executive officers and substantially all other
stockholders of Women.com have agreed that, without the prior written consent of
Morgan Stanley & Co. Incorporated on behalf of the underwriters, we will not,
during the period ending 180 days after the date of this prospectus:
- offer, pledge, sell, contract to sell, sell any option or contract to
purchase, purchase any option or contract to sell, grant any option,
right or warrant to purchase, lend, or otherwise transfer or dispose of,
directly or indirectly, any shares of common stock or any securities
convertible into or exercisable or exchangeable for common stock; or
- enter into any swap or other arrangement that transfers to another, in
whole or in part, any of the economic consequences of ownership of the
common stock, whether any such transaction described above is to be
settled by delivery of common stock or such other securities, in cash or
otherwise.
The restrictions described in the previous paragraph do not apply to some
circumstances, including:
- the sale of the shares to the underwriters in this offering;
- the sale of shares in the Disney, Torstar and Hearst private placements;
- the issuance by us of restricted stock awards under our existing employee
benefit plans or of shares of common stock upon the exercise of an option
or a warrant or the conversion of a security outstanding on the date of
this prospectus;
- the grant of options to officers, directors, employees or consultants
provided such options are not exercisable prior to the end of the lock-up
period; or
- transactions relating to shares of common stock or other securities
acquired in open market transactions after the date of this prospectus.
In addition, our existing stockholders who are subject to lock-up
agreements have agreed that, without the prior written consent of Morgan Stanley
& Co. Incorporated on behalf of the underwriters, neither they nor any of their
affiliates will, during the period ending 180 days after the date of the
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prospectus, make any demand for, or exercise any right with respect to, the
registration of any shares of common stock or any security convertible into or
exercisable or exchangeable for common stock.
In order to facilitate this offering, the underwriters may engage in
transactions that stabilize, maintain or affect the price of the common stock.
Specifically, the underwriters may over-allot in connection with this offering,
creating a short position in the common stock for their own account. In
addition, to cover over-allotments or to stabilize the price of the common
stock, the underwriters may bid for, and purchase, shares of common stock in the
open market. Finally, the underwriting syndicate may reclaim selling concessions
allowed to an underwriter or a dealer for distributing the common stock in this
offering if the syndicate repurchases previously distributed common stock in
transactions to cover syndicate short positions, in stabilization transactions
or otherwise. Any of these activities may stabilize or maintain the market price
of the common stock above independent market levels. The underwriters are not
required to engage in these activities and may end any of these activities at
any time.
The underwriters and we have agreed to indemnify each other against
liabilities related to this offering, including liabilities we may face under
the Securities Act.
PRICING OF THIS OFFERING AND THE DISNEY, TORSTAR AND HEARST PRIVATE PLACEMENTS
Prior to this offering, there has been no public market for our common
stock. Consequently, the per share price for the shares of common stock to be
offered in this offering will be determined by negotiations between us and the
representatives of the underwriters. Among the factors to be considered in
determining this price will be our future prospects and our industry in general,
our sales, earnings and other financial and operating information in recent
periods, and the price-earnings ratios, price-sales ratios, market prices of
securities and financial and operating information of companies engaged in
activities similar to us. The per share price for the shares of the common stock
to be offered in the Disney, Torstar and Hearst private placements will be the
same as the per share price of the common stock to be offered in this offering.
LEGAL MATTERS
The validity of the issuance of the shares of common stock offered in this
offering and other matters will be passed upon for us by Cooley Godward LLP,
Menlo Park, California and the validity of the shares of common stock offered in
this offering and other matters will be passed upon for the underwriters by
Wilson Sonsini Goodrich & Rosati, Professional Corporation, Palo Alto,
California. An investment partnership comprised of members and senior associates
of Cooley Godward LLP beneficially owns 19,791 shares of common stock.
EXPERTS
The financial statements as of December 31, 1998 and 1997 and for each of
the three years in the period ended December 31, 1998, included in this
prospectus and the financial statement schedule included in the registration
statement, have been so included in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in accounting and auditing.
The consolidated financial statements of Certain Operations of the New
Media & Technology Division of The Hearst Corporation as of December 31, 1998
and 1997, and for each of the three years in the period ended December 31, 1998
included in this prospectus and the related financial statement schedule
included elsewhere in the registration statement have been audited by Deloitte &
Touche LLP, independent auditors, as stated in their report appearing herein,
and are included in reliance upon the report of such firm given upon their
authority as experts in accounting and auditing.
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ADDITIONAL INFORMATION
We have filed with the Securities and Exchange Commission a registration
statement on Form S-1 under the Securities Act with respect to the shares of
common stock offered in this offering. The prospectus for this offering, which
constitutes a part of the registration statement, does not contain all of the
information set forth in the registration statement or the exhibits and
schedules which are part of the registration statement. For further information
with respect to us and our common stock see the registration statement and the
exhibits and schedules thereto. Statements contained in the prospectus for this
offering regarding the contents of any contract or any other document to which
reference is made are not necessarily complete, and, in each instance where a
copy of such contract or other document has been filed as an exhibit to the
registration statement, reference is made to the copy so filed, each such
statement being qualified in all respects by such reference. Any documents we
file, including a copy of the registration statement and the exhibits thereto
may be inspected without charge at the Public Reference Room of the Commission
at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and copies
of all or any part of the registration statement may be obtained from the Public
Reference Section of the Commission upon the payment of the fees prescribed by
the Commission. The public may obtain information on the operation of the Public
Reference Room by calling the Commission at 1-800-SEC-0330. The Commission also
maintains an Internet site at www.sec.gov that contains reports, proxy and
information statements and other information regarding registrants, such as
Women.com, that file electronically with the Commission.
Upon completion of this offering, we will become subject to the information
and periodic reporting requirements of the Securities and Exchange Act, as
amended, and, accordingly, will file periodic reports, proxy statements and
other information with the Commission. These periodic reports, proxy statements
and other information will be available for inspection and copying at the
Commission's public reference rooms, and the Web site of the Commission referred
to above.
Our principal executive offices are located at 1820 Gateway Drive, Suite
100, San Mateo, California 94404. Our fiscal year ends on December 31. We
maintain an Internet site at www.women.com. The reference to our web address
does not constitute incorporation by reference of the information contained at
this site.
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WOMEN.COM NETWORKS, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
WOMEN.COM NETWORKS, INC.
Report of Independent Accountants......................... F-2
Balance Sheets............................................ F-3
Statements of Operations.................................. F-4
Statements of Stockholders' Equity (Deficit).............. F-5
Statements of Cash Flows.................................. F-6
Notes to Financial Statements............................. F-8
CERTAIN OPERATIONS OF THE NEW MEDIA AND TECHNOLOGY DIVISION
OF THE HEARST CORPORATION (HOMEARTS) FINANCIAL STATEMENTS
Independent Auditors' Report.............................. F-28
Consolidated Balance Sheets............................... F-29
Consolidated Statements of Operations..................... F-30
Consolidated Statements of Cash Flows..................... F-31
Notes to Consolidated Financial Statements................ F-32
PRO FORMA COMBINED FINANCIAL STATEMENTS
Pro Forma Combined Statements of Operations (unaudited)... F-38
Notes to Pro Forma Combined Statements of Operations
(unaudited)............................................ F-40
</TABLE>
F-1
<PAGE> 77
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Stockholders of Women.com Networks, Inc.
In our opinion, the accompanying balance sheets and the related statements
of operations, of stockholders' equity (deficit) and of cash flows present
fairly, in all material respects, the financial position of Women.com Networks,
Inc., as of December 31, 1997 and 1998 and the results of its operations and its
cash flows for each of three years ended December 31, 1996, 1997 and 1998, in
conformity with generally accepted accounting principles. These financial
statements are the responsibility of Women.com Network Inc.'s management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial 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 expressed above.
San Jose, California
May 7, 1999, except for Note 10,
as to which the date is July 9, 1999
- --------------------------------------------------------------------------------
The roll-up of the limited liability company into a Delaware corporation as
described in Note 1 has not been consummated at July 9, 1999. When such roll-up
has been consummated, we will furnish the above report assuming that from July
9, 1999 to the effective date of such roll-up no other events shall have
occurred that would affect the accompanying financial statements or notes
thereto.
/s/ PricewaterhouseCoopers LLP
San Jose, California
July 9, 1999
F-2
<PAGE> 78
WOMEN.COM NETWORKS, INC.
BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31, PRO FORMA
-------------------- MARCH 31, MARCH 31,
1997 1998 1999 1999
-------- -------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.............................. $ 4,885 $ 12,235 $ 19,164 $ 22,266
Accounts receivable, less allowance for doubtful
accounts of $47, $295 and $425 (unaudited),
respectively......................................... 962 2,442 3,577 3,577
Prepaid and other current assets....................... 28 526 3,660 3,660
-------- -------- -------- --------
Total current assets..................................... 5,875 15,203 26,401 29,503
Property and equipment, net.............................. 493 1,261 3,340 3,340
Intangible assets, net................................... -- 1,505 59,863 59,863
Other assets............................................. 62 93 5,773 5,773
-------- -------- -------- --------
Total assets............................................. $ 6,430 $ 18,062 $ 95,377 $ 98,479
======== ======== ======== ========
LIABILITIES, MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED
STOCK AND WARRANTS AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable....................................... $ 611 $ 2,828 $ 4,630 $ 4,630
Accounts payable, related parties...................... -- -- 816 816
Accrued liabilities.................................... 5 337 1,760 1,760
Accrued compensation and related benefits.............. 263 364 925 925
Current portion of capital lease obligation............ 65 15 7 7
Notes payable.......................................... 244 348 348 348
Deferred revenue....................................... 1,813 1,455 1,228 1,228
-------- -------- -------- --------
Total current liabilities................................ 3,001 5,347 9,714 9,714
Other liabilities........................................ 673 -- -- --
-------- -------- -------- --------
Total liabilities........................................ 3,674 5,347 9,714 9,714
-------- -------- -------- --------
Mandatorily redeemable convertible preferred stock, no
par value:
Authorized: 18,286 shares
Issued and outstanding: 6,891 shares at December 31,
1997, 13,438 shares at December 31, 1998, 13,438
shares at March 31, 1999 (unaudited) and none in pro
forma (unaudited)
(Aggregate liquidation value of $37,482 (unaudited) at
March 31, 1999)...................................... 14,512 34,905 35,000 --
Mandatorily redeemable convertible preferred stock
warrants............................................. 500 515 515 265
-------- -------- -------- --------
15,012 35,420 35,515 265
-------- -------- -------- --------
Commitments and contingencies (Notes 7 and 12)
Stockholders' equity (deficit):
Preferred stock, $0.001 par value:
Authorized: none at March 31, 1999 and 5,000 shares
pro forma
None issued or outstanding........................... -- -- -- --
Common stock, par value: $0.001
Authorized: 60,000 shares at March 31, 1999 and
195,000 shares pro forma
Issued and outstanding: 749 shares at December 31,
1997, 1,497 shares at December 31, 1998, 19,616
(unaudited) shares at March 31, 1999 and 34,103
(unaudited) shares pro forma....................... 1 3 21 34
Additional paid-in capital............................. 126 5,269 92,563 130,902
Notes receivable from stockholders..................... (44) (44) (44) (44)
Unearned compensation.................................. -- (1,979) (3,248) (3,248)
Accumulated deficit.................................... (12,339) (25,954) (39,144) (39,144)
-------- -------- -------- --------
Total stockholders' equity (deficit)..................... (12,256) (22,705) 50,148 88,500
-------- -------- -------- --------
Total liabilities, mandatorily redeemable convertible
preferred stock and warrants and stockholders' equity
(deficit).............................................. $ 6,430 $ 18,062 $ 95,377 $ 98,479
======== ======== ======== ========
</TABLE>
See accompanying notes.
F-3
<PAGE> 79
WOMEN.COM NETWORKS, INC.
STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
------------------------------ -------------------
1996 1997 1998 1998 1999
------- ------- -------- ------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net revenues....................... $ 729 $ 2,798 $ 7,247 $ 1,113 $ 3,413
Operating expenses:
Production, product and
technology.................... 1,174 2,922 5,728 1,027 3,848
Sales and marketing.............. 957 3,907 12,042 1,298 6,568
General and administrative....... 956 1,101 1,374 310 1,968
Stock-based compensation......... -- -- 1,170 157 612
Amortization of acquired
intangibles................... -- -- 517 -- 3,671
------- ------- -------- ------- --------
Total operating expenses...... 3,087 7,930 20,831 2,792 16,667
------- ------- -------- ------- --------
Loss from operations............... (2,358) (5,132) (13,584) (1,679) (13,254)
Other income, net.................. 69 154 596 38 176
Interest expense................... (16) (117) (57) -- (17)
------- ------- -------- ------- --------
Net loss........................... (2,305) (5,095) (13,045) (1,641) (13,095)
Dividend accretion on mandatorily
redeemable convertible preferred
stock............................ (682) (1,517) (570) (95) (95)
------- ------- -------- ------- --------
Net loss attributable to common
stockholders..................... $(2,987) $(6,612) $(13,615) $(1,736) $(13,190)
======= ======= ======== ======= ========
Basic and diluted net loss per
share attributable to common
stockholders..................... $ (4.26) $ (9.15) $ (10.52) $ (2.30) $ (.95)
======= ======= ======== ======= ========
Shares used in computing basic and
diluted net loss per share....... 702 722 1,294 754 13,820
======= ======= ======== ======= ========
Basic and diluted pro forma net
loss per share................... $ (1.13) $ (.48)
======== ========
Shares used in computing pro forma
basic and diluted net loss per
share............................ 11,548 27,258
======== ========
</TABLE>
See accompanying notes.
F-4
<PAGE> 80
WOMEN.COM NETWORKS, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS)
<TABLE>
<CAPTION>
NOTES
COMMON STOCK ADDITIONAL RECEIVABLE TOTAL
--------------- PAID-IN FROM UNEARNED ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT CAPITAL STOCKHOLDERS COMPENSATION DEFICIT EQUITY (DEFICIT)
------ ------ ---------- ------------ ------------ ----------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances, December 31,
1995................... 700 $ 1 $ 120 $(44) $ -- $ (2,740) $ (2,663)
Issuance of common stock
pursuant to exercise of
stock options.......... 3 -- -- -- -- -- --
Accretion of mandatorily
redeemable convertible
preferred stock........ -- -- -- -- -- (682) (682)
Net loss................. -- -- -- -- -- (2,305) (2,305)
------ --- ------- ---- ------- -------- --------
Balances, December 31,
1996................... 703 1 120 (44) -- (5,727) (5,650)
Issuance of common stock
pursuant to exercise of
stock options.......... 46 -- 6 -- -- -- 6
Accretion of mandatorily
redeemable convertible
preferred stock........ -- -- -- -- -- (1,517) (1,517)
Net loss................. -- -- -- -- -- (5,095) (5,095)
------ --- ------- ---- ------- -------- --------
Balances, December 31,
1997................... 749 1 126 (44) -- (12,339) (12,256)
Issuance of common stock
pursuant to exercise of
stock options.......... 73 -- 15 -- -- -- 15
Issuance of common stock
pursuant to acquisition
of Wild Wild Web....... 675 2 1,753 -- -- -- 1,755
Issuance of warrants..... -- -- 226 -- -- -- 226
Unearned compensation.... -- -- 3,149 -- (3,149) -- --
Amortization of unearned
compensation........... -- -- -- -- 1,170 -- 1,170
Accretion of mandatorily
redeemable convertible
preferred stock........ (570) (570)
Net loss................. -- -- -- -- -- (13,045) (13,045)
------ --- ------- ---- ------- -------- --------
Balances, December 31,
1998................... 1,497 3 5,269 (44) (1,979) (25,954) (22,705)
Issuance of common stock
pursuant to exercise of
stock options.......... 270 -- 81 -- -- -- 81
Issuance of common stock
pursuant to acquisition
of HomeArts............ 17,849 18 85,332 -- -- -- 85,350
Unearned compensation.... -- -- 1,881 -- (1,881) -- --
Amortization of unearned
compensation........... -- -- -- -- 612 -- 612
Accretion of mandatorily
redeemable convertible
preferred stock........ -- -- -- -- -- (95) (95)
Net loss................. -- -- -- -- -- (13,095) (13,095)
------ --- ------- ---- ------- -------- --------
Balances, March 31, 1999
(unaudited)............ 19,616 $21 $92,563 $(44) $(3,248) $(39,144) $ 50,148
====== === ======= ==== ======= ======== ========
</TABLE>
See accompanying notes.
F-5
<PAGE> 81
WOMEN.COM NETWORKS, INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
---------------------------- ------------------
1996 1997 1998 1998 1999
------- ------- -------- ------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES:
Net loss..................................... $(2,305) $(5,095) $(13,045) $(1,641) $(13,095)
Adjustments to reconcile net loss to net cash
used in operating activities, net of the
effects of acquisitions:
Depreciation and amortization of
tangible assets...................... 78 181 323 74 244
Amortization of intangibles............. -- -- 517 -- 3,661
Provision for doubtful accounts......... -- 47 248 56 130
Interest converted to preferred stock... (226) 109 -- -- --
Amortization of stock-based
compensation......................... -- -- 1,170 157 612
Issuance of common stock warrant in
exchange for financing services...... -- -- 15 -- --
Decrease (increase) in accounts
receivable........................... (27) (783) (1,728) 183 (288)
Decrease (increase) in prepaids and
other current assets................. -- 25 (471) (48) 454
Increase in other assets................ 141 (62) (31) -- --
Decrease (increase) in accounts
payable.............................. 72 439 1,907 (284) 2,618
Increase (decrease) in accrued
liabilities.......................... (252) 133 433 245 (1703)
Increase (decrease) in deferred
revenue.............................. (15) 2,440 (1,031) (299) (352)
Decrease in other liabilities........... -- (18) -- -- --
------- ------- -------- ------- --------
Net cash used in operating
activities......................... (2,534) (2,584) (11,693) (1,557) (7,719)
------- ------- -------- ------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property and equipment........ (117) (506) (1,075) (116) (279)
Cash received from HomeArts acquisition...... -- -- -- -- 14,854
------- ------- -------- ------- --------
Net cash provided by (used in)
investing activities............... (117) (506) (1,075) (116) 14,575
------- ------- -------- ------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of preferred stock and
warrants, net of issuance costs........... 2,296 5,552 20,049 -- --
Proceeds from issuance of promissory note.... 1,517 -- -- -- --
Proceeds from exercise of stock options...... -- 6 15 5 81
Principal payments under capital lease
obligations............................... (61) (88) (50) (15) (8)
Principal payment under term loan............ -- -- (244) (4) --
Proceeds from notes payable.................. 95 744 348 -- --
------- ------- -------- ------- --------
Net cash provided by (used in)
financing activities............... 3,847 6,214 20,118 (14) 73
------- ------- -------- ------- --------
Net increase (decrease) in cash and cash
equivalents.................................. 1,196 3,124 7,350 (1,687) 6,929
Cash and cash equivalents at beginning of
period....................................... 564 1,761 4,885 4,885 12,235
------- ------- -------- ------- --------
Cash and cash equivalents at end of period..... $ 1,760 $ 4,885 $ 12,235 $ 3,198 $ 19,164
======= ======= ======== ======= ========
</TABLE>
F-6
<PAGE> 82
WOMEN.COM NETWORKS, INC.
STATEMENTS OF CASH FLOWS (CONTINUED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
---------------------------- ------------------
1996 1997 1998 1998 1999
------- ------- -------- ------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash payments for interest................ $ 16 $ 24 $ -- $ -- $ --
Revenue and advertising expense from
barter transactions..................... $ -- $ -- $ 656 $ 20 $ 154
SUPPLEMENTAL DISCLOSURE OF NONCASH FINANCING
INFORMATION:
Accretion of preferred stock.............. $ 682 $ 1,517 $ 570 $ 95 $ 95
Conversion of notes payable and accrued
interest to preferred stock............. $ -- $ 2,017 $ -- $ -- $ --
Unearned compensation related to stock
option grants........................... $ -- $ -- $ 3,149 $ 869 $ 1,881
Issuance of Series D mandatorily
redeemable convertible preferred stock
warrant in exchange for services........ $ -- $ -- $ 226 $ -- $ --
Liabilities assumed in connection with
acquisition of Wild Wild Web, Inc.:
Fair value of assets acquired........... $ 2,065
Common stock issued..................... (1,755)
--------
Liabilities assumed..................... $ 310
========
Liabilities assumed in connection with
acquisition of HomeArts:
Fair value of assets acquired........... $ 74,318
Cash received........................... 14,854
Common stock issued..................... (85,000)
--------
Liabilities assumed..................... $ 4,172
========
</TABLE>
See accompanying notes.
F-7
<PAGE> 83
WOMEN.COM NETWORKS, INC.
NOTES TO FINANCIAL STATEMENTS
(INFORMATION RELATING TO THE THREE MONTHS
ENDED MARCH 31, 1999 IS UNAUDITED)
NOTE 1 -- FORMATION AND BUSINESS
Women.com Networks ("Women.com"), a California corporation was incorporated
in October 1992 as Wire Networks, Inc. Women.com provides women with original
content, personalized services, community and shopping on the Internet.
Effective January 29, 1999, Women.com entered into a joint venture
agreement with Hearst HomeArts, Inc. ("HomeArts"), a subsidiary of The Hearst
Corporation.
Concurrent with the joint venture agreement, Women.com and HomeArts entered
a roll-up agreement whereby prior to an initial public offering Women.com and
HomeArts will merge and Women.com Networks LLC will be rolled up in connection
with such merger and Women.com Networks, Inc., a Delaware corporation, will be
the surviving entity. The corporation will be authorized to issue 195,000,000
shares of $0.001 par value common stock and 5,000,000 shares of $0.001 par value
preferred stock. All share and per share data have been retroactively adjusted
to reflect the roll-up.
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
INTERIM FINANCIAL STATEMENTS (UNAUDITED)
The financial statements as of March 31, 1999 and for the three months
ended March 31, 1999 and March 31, 1998 are unaudited but have been prepared in
accordance with generally accepted accounting principles for interim financial
statements and the rules of the Securities and Exchange Commission and do not
include all disclosures required by generally accepted accounting principles for
annual financial statements. In the opinion of management, all adjustments
(consisting of normal recurring adjustments) 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.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
Women.com considers all highly liquid investments with original or
remaining maturities at the date of purchase of three months or less to be cash
equivalents. The majority of Women.com's cash and cash equivalents are held in a
short-term investment portfolio.
F-8
<PAGE> 84
WOMEN.COM NETWORKS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION RELATING TO THE THREE MONTHS
ENDED MARCH 31, 1999 IS UNAUDITED)
FAIR VALUE OF FINANCIAL INSTRUMENTS
Carrying amounts of the Women.com's financial instruments including cash
and cash equivalents, accounts receivable, accounts payable, accrued liabilities
and term loan approximate fair value due to their short maturities.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost and depreciated on a
straight-line basis over an estimated useful life of three years. Leasehold
improvements are amortized on a straight-line basis over their estimated useful
lives or the term of the lease, whichever is shorter.
Maintenance and repairs are charged to expense as incurred. When assets are
sold or retired, the cost and related accumulated depreciation are removed from
the accounts and any resulting gain or loss is included in operations.
INTANGIBLE ASSETS
Goodwill and intangible assets resulting from acquisitions were estimated
by independent appraisers. The intangible asset include the advertising and
viewership base, advertising agreement, trade name, assembled workforce and
covenant not to compete. Goodwill and other intangible assets are amortized on a
straight-line basis over the estimated periods of benefit, which range from two
to five years, except for the advertising agreement, which is being amortized as
utilized.
IMPAIRMENT OF LONG-LIVED ASSETS
Women.com evaluates the recoverability of long-lived assets in accordance
with Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of"
("SFAS No. 121"). SFAS No. 121 requires recognition of impairment of long-lived
assets in the event the net book value of such assets exceeds the future
undiscounted cash flows attributable to such assets.
REVENUE RECOGNITION
Advertising revenues are derived principally from short-term advertising
contracts in which Women.com typically guarantees a minimum number of
impressions or pages to be delivered to users over a specified period of time
for a fixed fee. Advertising revenues are recognized ratably in the period in
which the advertising is displayed, provided that no significant obligations
remain. To the extent that minimum guaranteed page deliveries are not met,
Women.com defers recognition of the corresponding revenues until the guaranteed
page deliveries are achieved.
To date, Women.com's revenues have been derived primarily from the sale of
advertising contracts, advertising sponsorships and production contracts.
Sponsorship revenues are derived principally from contracts ranging from two to
six years in which Women.com commits to provide sponsors enhanced promotional
opportunities beyond traditional banner advertising. Sponsorship agreements
typically include the delivery of impressions, exclusive relationships and the
design and development of
F-9
<PAGE> 85
WOMEN.COM NETWORKS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION RELATING TO THE THREE MONTHS
ENDED MARCH 31, 1999 IS UNAUDITED)
co-branded sites designed to enhance the promotional objective of the sponsor.
Women.com recognizes sponsorship revenues as earned, which is generally ratably
over the contract period, provided that no significant obligations remain. To
the extent that committed obligations are not met, Women.com defers recognition
of the corresponding revenues until the obligations are met.
Sponsorship and advertising revenues were approximately 58%, 88%, 74% and
81% of total revenues for the years ended December 31, 1996, 1997 and 1998 and
the three months ended March 31, 1999, respectively.
Advertising revenues include barter revenues, which are the exchange by
Women.com of advertising space on Women.com's web sites for reciprocal
advertising space 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 received or delivered and are recognized when the
advertisements are run on Women.com's web sites. Barter expenses are recorded
when Women.com's advertisements are run on the reciprocal web sites, which is
typically in the same period as when advertisements are run on Women.com's web
sites. There was no barter revenue in 1996 and 1997. Barter revenues represented
9% of net revenues for the year ended December 31, 1998 and 4% of net revenues
for the three months ended March 31, 1999.
A number of Women.com's agreements provide that it receive revenues from
electronic commerce transactions. These revenues are recognized by Women.com
upon notification from the advertiser of revenues earned by Women.com.
Production revenues represent fees for content and site production.
Production revenues are derived from contracts in which Women.com designs and
develops content for third parties, for use principally on the Women.com
network. Women.com recognizes production revenues as earned, which is generally
as services are performed over the contract period. To the extent that committed
obligations under production agreements are not met, revenue recognition is
deferred until the obligations are met.
ADVERTISING
Women.com expenses advertising costs as they are incurred. Advertising
expense for the years ended December 31, 1996, 1997 and 1998 was $227,000,
$1,600,000 and $4,021,000, respectively, and for the three months ended March
31, 1999 was $1,410,000.
INCOME TAXES
Women.com accounts for income taxes using the liability method under which
deferred tax assets and liabilities are calculated using current tax laws and
rates in effect at the balance sheet date. A valuation allowance is recorded
when it is more likely than not that the net deferred tax asset will not be
recovered.
STOCK-BASED COMPENSATION
Women.com accounts for its stock-based compensation in accordance with
Accounting Principles Board Opinion No. 25 ("APB 25"), "Accounting for Stock
Issued to Employees." Women.com has elected to adopt the disclosure only
provisions of Statement of Financial Accounting Standards No. 123
F-10
<PAGE> 86
WOMEN.COM NETWORKS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION RELATING TO THE THREE MONTHS
ENDED MARCH 31, 1999 IS UNAUDITED)
("SFAS 123"), "Accounting for Stock-Based Compensation," which also requires pro
forma disclosures in the financial statements as if the measurement provisions
of SFAS 123 had been adopted. Under APB No. 25, compensation expense is based on
the difference, if any, on the date of the grant, between the deemed fair value
of Women.com's stock and exercise price. Stock options issued to non-employees
have been accounted for in accordance with SFAS 123 and valued using the
Black-Scholes model.
CERTAIN RISKS AND CONCENTRATIONS
Substantially all of Women.com's cash and cash equivalents as of December
31, 1998 are on deposit with one major financial institution. Deposits at any
point in time may exceed the federally insured limits.
Financial instruments which potentially subject Women.com to concentrations
of credit risk consist principally of trade accounts receivable.
Women.com provides advertising to a variety of customers for placement on
its Web sites and generally does not require collateral. Although Women.com
maintains allowance for potential credit losses that it believes to be adequate,
a payment default on a significant sale could materially and adversely affect
its operating results and financial condition. At December 31, 1997, one
customer accounted for 30.9% of accounts receivable, at December 31, 1998, one
customer accounted for 10.6% of accounts receivable and at March 31, 1999, one
customer accounted for 25% of accounts receivable. For fiscal years 1997 and
1998, and for the three months ended March 31, 1999, one individual customer
accounted for approximately 19%, 13% and 21% of revenues, respectively. No
individual customer accounted for 10% or more of revenues in fiscal year 1996.
Women.com operates in a single business segment which is characterized by
rapid technological advances, changes in customer requirements and evolving
regulatory requirements and industry standards. Any failure by Women.com to
anticipate or to respond adequately to technological changes in its industry,
changes in customer requirements or changes in regulatory requirements or
industry standards, could have a material adverse affect on Women.com's business
and operating results.
Women.com relies on a number of third party suppliers for various services,
including web hosting, banner advertising, delivery software and Internet
traffic measurement software.
NET LOSS PER SHARE
Women.com computes net loss per share in accordance with SFAS No. 128,
"Earnings per Share." Under the provisions of SFAS No. 128, basic net loss per
share is computed by dividing the net loss attributable to common stockholders
for the period by the weighted average number of common shares outstanding
during the period. Diluted net loss per share is computed by dividing the net
loss for the period by the weighted average number of common and common stock
equivalent shares outstanding during the period. Common equivalent shares,
composed of common shares issuable upon the exercise of stock options and
warrants and upon conversion of mandatorily redeemable convertible preferred
stock, are included in the diluted net loss per share to the extent such shares
are dilutive.
F-11
<PAGE> 87
WOMEN.COM NETWORKS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION RELATING TO THE THREE MONTHS
ENDED MARCH 31, 1999 IS UNAUDITED)
The following table sets forth the computation of basic and diluted net
loss per share for the periods indicated, (in thousands, except per share
amounts):
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
---------------------------- ------------------
1996 1997 1998 1998 1999
------- ------- -------- ------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Numerator:
Net loss......................... $(2,305) $(5,095) $(13,045) $(1,641) $(13,095)
Accretion of mandatorily
redeemable convertible
preferred stock to redemption
value......................... (682) (1,517) (570) (95) (95)
------- ------- -------- ------- --------
Net loss attributable to common
stockholders.................. $(2,987) $(6,612) $(13,615) $(1,736) $(13,190)
======= ======= ======== ======= ========
Denominator:
Shares used in computing basic
and diluted net loss per
share......................... 702 722 1,294 754 13,820
Basic and diluted net loss per
share attributable to common
stockholders.................. $ (4.26) $ (9.15) $ (10.52) $ (2.30) $ (.95)
======= ======= ======== ======= ========
Antidilutive securities including
options, warrants and preferred
stock not included in net loss
per share calculation............ 4,014 10,065 18,607 10,558 19,708
======= ======= ======== ======= ========
</TABLE>
PRO FORMA NET LOSS PER SHARE (UNAUDITED)
Pro forma net loss per share for the year ended December 31, 1998 and the
three months ended March 31, 1999, is computed using the weighted average number
of common shares outstanding, including the pro forma effects of the automatic
conversion of mandatorily redeemable convertible preferred stock into common
stock effective upon the closing of Women.com's initial public offering on an
as-if-converted basis. Pro forma diluted net loss per share is computed using
the pro forma weighted average number of common and common equivalent shares
outstanding. Common equivalent shares, composed of common shares issuable upon
the exercise of stock options and warrants, are not included in diluted net loss
per share as such shares are anti-dilutive.
F-12
<PAGE> 88
WOMEN.COM NETWORKS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION RELATING TO THE THREE MONTHS
ENDED MARCH 31, 1999 IS UNAUDITED)
The following table sets forth the computation of pro forma basic and
diluted net loss per share (unaudited) (in thousands, except per share amounts):
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED ENDED
DECEMBER 31, MARCH 31,
1998 1999
------------ ------------
<S> <C> <C>
Numerator:
Net loss............................................... $(13,045) $(13,095)
======== ========
Denominator:
Shares used in computing basic and diluted net loss per
share............................................... 1,294 13,820
Adjustment to reflect assumed conversion of all
preferred stock from date of issuance............... 10,254 13,438
-------- --------
Shares used in computing pro forma basic and diluted
net loss per share.................................. 11,548 27,258
======== ========
Basic and diluted pro forma net loss per share........... $ (1.13) $ (.48)
======== ========
Antidilutive securities including options and warrants
not included in pro form net loss per share
calculation............................................ $ 8,353 $ 6,270
======== ========
</TABLE>
PRO FORMA MARCH 31, 1999 (UNAUDITED)
Effective upon the closing of the offering, warrants to acquire 887,665
shares of Series C preferred stock, which expire upon the closing of the
offering, will be exercised for proceeds of $3.1 million and the outstanding
shares of mandatorily redeemable convertible preferred stock will automatically
convert into 14,325,544 shares of common stock. In addition, warrants to acquire
239,870 shares of common stock, which expire upon the closing of the offering,
will be net exercised for a total of 161,436 shares of common stock.
COMPREHENSIVE INCOME
Effective January 1, 1998, Women.com adopted the provisions of SFAS No.
130, "Reporting Comprehensive Income." This statement requires companies to
classify items of other comprehensive income by their components in the
financial statements and display the accumulated balance of other comprehensive
income separately from retained earnings in the equity section of a statement of
financial position. To date, Women.com has not had any transactions that are
required to be reported as comprehensive income.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 131, "Disclosures about Segments of an Enterprise and Related Information."
This statement established standards for reporting information about operating
segments in annual financial statements. It also established standards for
related disclosures about products and services, geographic areas and major
customers. The disclosures prescribed by SFAS No. 131 are effective for fiscal
years beginning after
F-13
<PAGE> 89
WOMEN.COM NETWORKS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION RELATING TO THE THREE MONTHS
ENDED MARCH 31, 1999 IS UNAUDITED)
December 15, 1997. Women.com has determined that it does not have any separately
reportable business segments as of December 31, 1998.
In March 1998, the American Institute of Certified Public Accountants
issued Statement of Position ("SOP") No. 98-1, "Accounting for the Cost of
Computer Software Developed or Obtained 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 adoption of SOP No. 98-1 will not
have a material impact on the financial statements.
In April 1998, AcSEC issued SOP 98-5, "Reporting on the Costs of Start-Up
Activities." This SOP provides guidance on the financial reporting of start-up
costs and organization costs. It requires the costs of start-up activities and
organization costs to be expensed as incurred. The SOP is effective for
financial statements for fiscal years beginning after December 15, 1998. The
adoption of SOP No. 98-5 will not have a material impact on the financial
statements.
In June 1998, FASB issued SFAS No. 133, "Accounting for Derivative
Instruments 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 for fiscal years beginning after June 15, 1999. Women.com is
assessing the potential impact of this pronouncement on the financial
statements, however they do not expect any significant impact since Women.com
currently does not have any derivative instruments and does not anticipate
acquiring any.
NOTE 3 -- ACQUISITIONS
Effective April 2, 1998, Women.com acquired substantially all the assets of
Wild Wild Web, Inc., which developed the Web site known as Storksite. The
acquisition has been accounted for using the purchase method of accounting and
accordingly, the purchase price has been allocated to the tangible and
intangible assets acquired and liabilities assumed on the basis of their
respective fair values on the acquisition date. The fair value of net assets
acquired was determined by an independent appraiser. The allocation of the
purchase price is summarized below (in thousands):
<TABLE>
<S> <C>
Intangibles................................................. $1,516
Goodwill.................................................... 506
Property and equipment...................................... 16
Net current liabilities assumed............................. (253)
------
Total purchase price.............................. $1,785
======
</TABLE>
Intangibles include advertising and viewership base, trade name, assembled
workforce and a covenant not to compete. The excess of the purchase price over
the fair value of the net tangible and identifiable intangible assets acquired
has been recorded as goodwill.
Effective January 29, 1999, Women.com Networks and HomeArts entered into a
joint venture agreement as described in Note 1. Under the terms of the
agreement, Women.com Networks and HomeArts contributed their businesses to
Women.com Networks LLC. Under the terms of the agreement Women.com Networks and
HomeArts each have fifty percent voting interest, except that
F-14
<PAGE> 90
WOMEN.COM NETWORKS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION RELATING TO THE THREE MONTHS
ENDED MARCH 31, 1999 IS UNAUDITED)
Women.com Networks has the sole authority to initiate an initial public
offering. In addition, senior-management of the joint venture is comprised
solely of Women.com Networks management. Given these facts and that Women.com,
on a fully diluted basis owned 53.6% of Women.com Networks LLC, Women.com was
determined to be the accounting acquirer pursuant to Staff Accounting Bulletin
Topic 2-A2.
The acquisition has been accounted for using the purchase method of
accounting and accordingly, the purchase price has been allocated to the
tangible and intangible assets acquired and liabilities assumed on the basis of
their respective fair values on the acquisition date. The fair value of net
assets acquired was determined by an independent appraiser.
The acquisition has been structured as a tax free exchange of stock,
therefore, the differences between the recognized fair values of the acquired
assets, including tangible assets and their historical tax bases are not
deductible for tax purposes. Women.com Networks LLC elected to be taxed as a
partnership beginning with the formation of the joint venture and until
Women.com Networks LLC is rolled up into Women.com Networks, Inc. in connection
with an initial public offering. As a consequence, for this period the federal
and state tax effects of the tax losses will be recorded by the members of the
joint venture in their respective income tax returns.
The allocation of the purchase price is summarized below (in thousands):
<TABLE>
<S> <C>
Intangibles................................................. $14,078
Goodwill.................................................... 47,951
Prepaid advertising......................................... 5,680
Property and equipment...................................... 2,044
Net current assets.......................................... 16,685
-------
Total purchase price.............................. $86,438
=======
</TABLE>
Intangibles include advertising and viewership base and assembled
workforce. The excess of the purchase price over the fair value of the net
tangibles and identifiable intangible assets acquired has been recorded as
goodwill. The intangibles and goodwill are being amortized on a straight-line
basis over a period of two to five years.
The following unaudited pro forma financial information reflects the
results of operations for the year ended December 31, 1998 and the three months
ended March 31, 1999 as if the acquisition of HomeArts, and HomeArts'
acquisition of Astronet, had occurred on January 1, 1998 and 1999, respectively,
and after giving effect to purchase accounting adjustments and the effects of
the automatic conversion of mandatorily redeemable convertible preferred stock
into common stock effective upon the closing of Women.com's initial public
offering on an as-if-converted basis. These pro forma results have been prepared
for comparative purposes only and do not purport to be indicative of what
operating results
F-15
<PAGE> 91
WOMEN.COM NETWORKS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION RELATING TO THE THREE MONTHS
ENDED MARCH 31, 1999 IS UNAUDITED)
would have been had the acquisition actually taken place on January 1, 1998 or
1999, and may not be indicative of future operating results (in thousands,
except per share amounts):
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED ENDED
DECEMBER 31, MARCH 31,
1998 1999
------------ ------------
<S> <C> <C>
Net revenues......................................... $ 11,650 $ 3,663
Loss from operations................................. (49,827) (16,201)
Net loss attributable to common stockholders......... (49,858) (16,137)
Pro forma basic and diluted net loss per share....... $ (1.70) $ (.49)
</TABLE>
NOTE 4 -- BALANCE SHEET COMPONENTS (IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
--------------- MARCH 31,
1997 1998 1999
----- ------ ------------
(UNAUDITED)
<S> <C> <C> <C>
Prepaid and other current assets
Prepaid advertising.......................... $ -- $ -- $ 3,408
Other prepaid expenses and current assets.... 28 526 252
----- ------ -------
$ 28 $ 526 $ 3,660
===== ====== =======
Property and equipment, net
Computer equipment and software................. $ 709 $1,688 $ 4,030
Furniture and fixtures.......................... 98 195 174
Leasehold improvements.......................... 17 32 34
----- ------ -------
824 1,915 4,238
Less accumulated depreciation and
amortization................................. (331) (654) (898)
----- ------ -------
$ 493 $1,261 $ 3,340
===== ====== =======
Intangible assets
Advertising and viewership base................. $ -- $1,138 $13,444
Assembled workforce............................. -- 100 1,872
Covenant not to compete......................... -- 66 66
Goodwill........................................ -- 506 48,457
Tradename....................................... -- 212 212
----- ------ -------
-- 2,022 64,051
Less accumulated amortization................... -- (517) (4,188)
----- ------ -------
$ -- $1,505 $59,863
===== ====== =======
Other assets
Prepaid advertising............................. -- -- 5,680
Rent deposits and other assets.................. 62 93 93
----- ------ -------
$ 62 $ 93 $ 5,773
===== ====== =======
</TABLE>
Equipment under capital lease obligations totaled $250,580 with accumulated
amortization of $250,580, for the three months ended March 31, 1999,
respectively.
F-16
<PAGE> 92
WOMEN.COM NETWORKS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION RELATING TO THE THREE MONTHS
ENDED MARCH 31, 1999 IS UNAUDITED)
NOTE 5 -- CAPITAL LEASE OBLIGATION AND NOTE PAYABLE
Women.com has acquired equipment under a capital lease agreement. At
December 31, 1998, there are no additional amounts available under the agreement
for capital lease financing. At December 31, 1998, future minimum lease payments
under the capital lease of approximately $15,000 are due in 1999.
In April 1998, Women.com entered into a loan agreement to borrow the lesser
of $3 million or 80% of eligible receivables with a bank, bearing interest at
prime plus 0.5% (8.25% at December 31, 1998) and is collateralized by
substantially all of Women.com's assets. At December 31, 1998, $348,000 was
outstanding. The outstanding principal and interest are due on demand.
NOTE 6 -- DEFERRED REVENUE
In connection with the issuance of Women.com's Series C preferred stock in
July and August 1997, Women.com entered into investment agreements with two
stockholders. Under the terms of the agreements, Women.com's right to retain
$1,500,000 and $1,250,000 in proceeds from each of the two stockholders,
respectively, is contingent upon Women.com's development of Web sites in
accordance with the timetable and requirements set forth in the agreements. In
the event of discontinuation of the projects, the unused portion may be returned
or allocated for use on another project. Women.com has deferred the $1,500,000
and $1,250,000 and is recognizing revenues in accordance with development
efforts. As of December 31, 1998 and March 31, 1999, Women.com has recognized
approximately $1,987,000 and $2,158,000 of revenues, respectively, related to
these agreements.
NOTE 7 -- COMMITMENTS AND CONTINGENCIES
Women.com leases its offices under noncancelable operating leases which
expire through 2001. Women.com is committed to pay a portion of the building's
operating expenses as determined under the agreements.
At December 31, 1998, future minimum lease payments are as follows (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
1998
------------
<S> <C>
1999........................................................ $ 610
2000........................................................ 598
2001........................................................ 608
------
Total future minimum lease payments............... $1,816
======
</TABLE>
Rent expense was $163,400, $304,534 $603,702 and $334,337 for the years
ended December 31, 1996, 1997 and 1998, and the three months ended March 31,
1999, respectively.
ADVERTISING
In 1998, Women.com entered into certain non-cancelable on-line distribution
agreements. At December 31, 1998, $1.7 million of minimum payments are due in
1999.
F-17
<PAGE> 93
WOMEN.COM NETWORKS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION RELATING TO THE THREE MONTHS
ENDED MARCH 31, 1999 IS UNAUDITED)
ROYALTIES
In connection with the acquisition of HomeArts (See Note 3), Women.com
agreed to pay Hearst a royalty on the net advertising revenues generated from
the Hearst magazine sites on the Women.com network or from proprietary Hearst
content, until such time as Hearst has recouped the cumulative production costs
incurred in the ongoing production of the Hearst magazine sites. The minimum
aggregate royalty payable under this agreement is $6 million with a maximum
amount payable in any year of $5 million. Thereafter, a royalty shall be
payable, calculated as a percentage of the net advertising revenues dependent on
the gross revenues generated.
LITIGATION
From time to time, the Company may be involved in litigation arising out of
claims in the normal course of business. Based upon the information presently
available, including discussion with outside legal counsel, management believes
that there are no claims or actions pending or threatened against the Company,
the ultimate resolution of which will have a material adverse effect on the
Company's financial position, liquidity or results of operations.
NOTE 8 -- MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED STOCK (IN THOUSANDS):
The following table summarizes the activity on mandatorily redeemable
convertible preferred stock and warrants to purchase mandatorily redeemable
convertible preferred stock (in thousands):
<TABLE>
<CAPTION>
SERIES A SERIES B SERIES C SERIES D
--------------- --------------- --------------- ---------------- TOTAL
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT AMOUNT
------ ------ ------ ------ ------ ------ ------ ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 1, 1996............. 1,937 $2,839 -- $ -- -- $ -- -- $ -- $ 2,839
Issuance of preferred stock............. -- -- 579 1,286 -- -- -- -- 1,286
Accretion on preferred stock............ -- 519 -- 163 -- -- -- -- 682
Issuance and exercise of warrants....... 748 1,010 -- -- -- -- -- -- 1,010
----- ------ --- ------ ----- ------ ----- ------- -------
Balance at December 31, 1996............ 2,685 4,368 579 1,449 -- -- -- -- 5,817
Issuance of preferred stock............. -- -- -- -- 3,627 7,178 -- -- 7,178
Accretion on preferred stock............ -- 545 -- 195 -- 777 -- -- 1,517
Issuance of warrants.................... -- -- -- -- -- 500 -- -- 500
----- ------ --- ------ ----- ------ ----- ------- -------
Balance at December 31, 1997............ 2,685 4,913 579 1,644 3,627 8,455 -- -- 15,012
Issuance of preferred stock............. -- -- -- -- -- -- 6,546 19,823 19,823
Issuance of warrants.................... -- -- -- -- -- -- -- 15 15
Accretion on preferred stock............ -- -- -- -- -- 570 -- -- 570
----- ------ --- ------ ----- ------ ----- ------- -------
Balance at December 31, 1998............ 2,685 4,913 579 1,644 3,627 9,025 6,546 19,838 35,420
Accretion on preferred stock............ -- -- -- -- -- 95 -- -- 95
----- ------ --- ------ ----- ------ ----- ------- -------
Balance at March 31, 1999
(unaudited)........................... 2,685 $4,913 579 $1,644 3,627 $9,120 6,546 $19,838 $35,515
===== ====== === ====== ===== ====== ===== ======= =======
Authorized at March 31, 1999
(unaudited)........................... 2,707 579 7,000 8,000
===== === ===== =====
</TABLE>
F-18
<PAGE> 94
WOMEN.COM NETWORKS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION RELATING TO THE THREE MONTHS
ENDED MARCH 31, 1999 IS UNAUDITED)
VOTING
Each share of Series A, B, C, and D preferred stock entitles a holder to
the number of votes per share equal to the number of shares of common stock into
which each share of preferred stock is then convertible.
CONVERSION
Each share of Series A, B, C and D preferred stock is convertible into
common stock determined by dividing the original issue price by the current
conversion price for each series of preferred stock. The current conversion
price equates to the original issue price. Conversion is at the option of the
holder at any time after issuance.
The preferred stock would mandatorily convert into common stock at the
conversion price relevant at that time, if Women.com closes a firm commitment
underwritten public offering of shares of common stock in which the aggregate
price received for such shares by Women.com (net of underwriting discount,
commissions and expenses) was at least $20 million for Series D preferred stock
and $10 million for Series A, B and C preferred stock, and at a price per common
share of at least $7.50 for Series C and D preferred stock and $6.75 for Series
A and B preferred stock (subject to adjustment for stock splits, stock
dividends, recapitalizations and the like).
In addition, the preferred stockholders have certain registration rights
and other rights and the right to one vote for each share of common stock into
which such shares of preferred stock are convertible.
LIQUIDATION
The Series A, B, C and D preferred stock have liquidation preferences of
$1.35, $2.25, $3.04 and $3.29 per share, respectively, subject to adjustment for
splits or other recapitalization, plus all declared but unpaid dividends. Upon
liquidation, the holders of Series C and D preferred stock shall be entitled to
be paid out the assets of Women.com before any distribution or payment shall be
made to the holders of Series A preferred stock, Series B preferred stock or any
common stock. If funds are insufficient to permit the payment of the full
preferential amount to the holders of Series C and D preferred stock, then the
entire assets of Women.com legally available for distribution shall be
distributed ratably among the holders of the Series C and D preferred stock.
After the payment of the full liquidation preference of the Series C and D
preferred stock, the assets of Women.com legally available for distribution, if
any, shall be distributed ratably to the holders of Series A and B preferred
stock. If funds are insufficient for full payment to holders of Series A and B
preferred stock, the entire assets and funds of Women.com legally available are
to be distributed ratably among the holders of Series A and B preferred stock.
After the preferred stockholders have received the full amount to which they are
entitled, the remaining assets shall be paid ratably to the holders of the
common stock.
DIVIDENDS
The holders of Series A, B, C and D preferred stock are entitled to
noncumulative dividends at the rate of $.08, $.225, $.304 and $.329 per share
per annum, respectively, when and if declared by Women.com's Board of Directors.
Such dividends will be declared or paid prior and in preference to any
F-19
<PAGE> 95
WOMEN.COM NETWORKS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION RELATING TO THE THREE MONTHS
ENDED MARCH 31, 1999 IS UNAUDITED)
declaration or payment of any dividend on the common stock, other than a common
stock dividend payable solely in shares of common stock.
REDEMPTION
At the election of at least a majority of the holders of preferred stock,
Women.com is required to redeem the Series A, B, C and D preferred stock in
three equal annual installments beginning no earlier than March 31, 2001. Upon
redemption, Women.com shall pay in cash in exchange for preferred shares to be
redeemed at their respective original issue price per shares plus a premium of
fifteen percent per year accruing from the original issue dates through December
31, 1997, minus any previously paid dividends. If Women.com does not have
sufficient funds, the redemption shall be effected on a pro-rata basis to the
extent possible and shall redeem the remaining redeemable shares or as soon as
sufficient funds are legally available.
If required by the stockholders, the redeemable preferred stock payments,
including required accretion would be $13.4 million per year for three years
commencing in 2001.
CONVERTIBLE PREFERRED STOCK WARRANTS
In 1994, in conjunction with a capital lease agreement, Women.com issued
fully exercisable nontransferable warrants to purchase 22,222 shares of its
Series A preferred stock at a price of $1.35 per share. The warrants expire
December 2004. The fair value of these warrants is not material to the financial
statements.
In 1997, in conjunction with the issuance of Series C preferred stock,
Women.com issued fully exercisable nontransferable warrants to purchase
1,331,498 shares of Series C preferred stock at a price of $3.04 per share and
443,832 shares of Series C preferred stock at a price of $3.95 per share.
Warrants for 887,665 shares expire in August 2000 or upon an initial public
offering and warrants for 887,665 shares expire in October 2000 and have been
valued, in aggregate, at $500,000 using the Black-Scholes option pricing model.
In 1998, in conjunction with a financing arrangement, Women.com issued to
Imperial Bank fully exercisable warrants to purchase 8,224 shares of Series D
preferred stock at an exercise price of $3.29 per share. The warrants expire
April 9, 2003. Women.com valued the warrant using the Black-Scholes option
pricing model. The fair value was recorded as a discount to the amount borrowed
and is being amortized to interest expense.
NOTE 9 -- STOCKHOLDERS' EQUITY
COMMON STOCK
Each share of common stock has the right to one vote. The holders of common
stock are also entitled to receive dividends whenever funds are legally
available and when declared by the Board of Directors, subject to the prior
rights of holders of all classes of stock at the time outstanding having
priority rights as to dividends.
F-20
<PAGE> 96
WOMEN.COM NETWORKS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION RELATING TO THE THREE MONTHS
ENDED MARCH 31, 1999 IS UNAUDITED)
At December 31, 1998, the Company had reserved shares of common stock for
future issuance as follows (in thousands):
<TABLE>
<S> <C>
Convertible preferred stock................................. 13,438
Warrants.................................................... 2,067
Stock option plan........................................... 3,693
------
19,198
======
</TABLE>
COMMON STOCK WARRANTS
In February 1996, in conjunction with a facility lease agreement, Women.com
issued fully exercisable and transferable warrants to purchase 21,357 shares of
common stock at a price of $0.13 per share. These warrants, which were granted
at the fair market value of the common stock at the date of grant as determined
by the Board of Directors, expire on February 15, 2006. The fair value of these
warrants is not material to the financial statements.
In connection with its Series C preferred stock offering, Women.com issued
warrants to an investment banker to purchase up to 89,167 shares of Women.com's
common stock, at an exercise price of $3.00 per share. These warrants are fully
exercisable for a period of five years expiring in July and August 2002 or upon
an initial public offering. The fair value of these warrants is not material to
the financial statements.
In connection with its Series D preferred stock offering, Women.com issued
to an investment banker warrants to purchase up to 150,703 shares of Women.com's
common stock, at an exercise price of $3.95 per share. These warrants are fully
exercisable and expire at the earlier of July 2003 or upon an initial public
offering. Women.com valued the warrants using the Black-Scholes option pricing
model. The fair value was recorded as issuance costs. Warranty activity is as
follows (in thousands):
<TABLE>
<CAPTION>
WARRANTS OUTSTANDING
----------------------------
EXERCISE
SHARES PRICE AMOUNT
------ -------- ------
<S> <C> <C> <C>
Balance, December 31, 1995............................ 21 $ .13 $ 3
Warrants granted...................................... -- --
--- ----
Balance, December 31, 1996............................ 21 3
Warrants granted...................................... 89 $3.00 267
--- ----
Balance, December 31, 1997............................ 110 270
Warrants granted...................................... 151 $3.95 496
--- ----
Balance, December 31, 1998............................ 261 766
--- ----
Balance, March 31, 1999 (unaudited)................... 261 $766
=== ====
</TABLE>
F-21
<PAGE> 97
WOMEN.COM NETWORKS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION RELATING TO THE THREE MONTHS
ENDED MARCH 31, 1999 IS UNAUDITED)
NOTE 10 -- EMPLOYEE BENEFIT PLANS
401(K) SAVINGS PLAN
Women.com's 401(k) savings plan (the "401(k) Plan") is a defined
contribution retirement plan intended to qualify under Section 401(a) and 401(k)
of the Internal Revenue Code. All full-time employees of Women.com are eligible
to participate in the 401(k) Plan pursuant to the terms of the Plan.
Contributions by Women.com are discretionary and no contributions have been made
by Women.com for the years ended December 31, 1996, 1997 and 1998 and for the
three months ended March 31, 1999.
STOCK OPTION PLAN
Under Women.com's 1994 Stock Option Plan and 1998 Equity Incentive Plan,
shares of Women.com's common stock have been reserved for the grant of stock
purchase rights and stock options to employees, directors, or consultants under
terms and provisions established by the Board of Directors. Under the terms of
the Plans, incentive options may be granted to employees, and nonstatutory
options and stock purchase rights may be granted to employees and consultants at
prices no less than 100% and 85%, respectively, of the fair market value of
Women.com's common stock at the date of grant, as determined by the Board of
Directors. The options vest at a rate of 25% or 20% per year over a period of
four or five years and expire ten years after the date of grant. In addition,
under the 1994 Stock Option Plan, Women.com has a repurchase right for shares
exercised when an employee ceases to be employed by Women.com.
F-22
<PAGE> 98
WOMEN.COM NETWORKS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION RELATING TO THE THREE MONTHS
ENDED MARCH 31, 1999 IS UNAUDITED)
The following table summarizes activity under the Plans (in thousands,
except per share amounts):
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
--------------------------------
WEIGHTED
SHARES AVERAGE
AVAILABLE FOR NUMBER OF EXERCISE
GRANT SHARES PRICE AMOUNT
------------- --------- -------- -------
<S> <C> <C> <C> <C>
Balance, December 31, 1995................... 192 271 $ .13 $ 35
Additional shares reserved................. 400 -- --
Options granted............................ (502) 502 .18 91
Options canceled........................... 65 (65) .13 (8)
Options exercised.......................... -- (2) .13 (1)
------ ----- -------
Balance, December 31, 1996................... 155 706 .18 117
Additional shares reserved................. 1,100 -- --
Options granted............................ (682) 682 .37 254
Options canceled........................... 77 (77) .15 (12)
Options exercised.......................... -- (45) .13 (6)
------ ----- -------
Balance, December 31, 1997................... 650 1,266 .28 353
Additional shares reserved................. 1,850 -- --
Options granted............................ (2,111) 2,111 1.65 3,493
Options canceled........................... 202 (202) .37 (75)
Options exercised.......................... -- (73) .20 (15)
------ ----- -------
Balance, December 31, 1998................... 591 3,102 1.21 3,756
Additional shares reserved................. 5,000 -- --
Options granted............................ (1,655) 1,655 4.20 6,946
Options canceled........................... 234 (234) 3.46 (786)
Options exercised.......................... -- (320) .25 (81)
------ ----- -------
Balance, March 31, 1999 (unaudited).......... 4,170 4,203 $2.34 $ 9,835
====== ===== =======
</TABLE>
<TABLE>
<CAPTION>
OPTIONS EXERCISABLE AT
OPTIONS OUTSTANDING AT DECEMBER 31, 1998 DECEMBER 31, 1998
----------------------------------------- ----------------------
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
REMAINING AVERAGE AVERAGE
NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
EXERCISE PRICE OUTSTANDING LIFE IN YEARS PRICE EXERCISABLE PRICE
- -------------- ------------ -------------- --------- ----------- --------
<S> <C> <C> <C> <C> <C>
$.13 - .30 819 7.66 $ .21 484 $.20
.60 182 8.90 .60 55 .60
.80 568 9.10 .80 28 .80
1.25 - 1.50 885 9.53 1.46 -- --
2.50 - 2.75 648 9.81 2.68 -- --
----- ---
3,102 567 $.27
===== ===
</TABLE>
At December 31, 1996 and 1997, 101,792 and 274,521 shares, respectively,
were exercisable at a weighted average price of $.15 and $.17, respectively.
F-23
<PAGE> 99
WOMEN.COM NETWORKS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION RELATING TO THE THREE MONTHS
ENDED MARCH 31, 1999 IS UNAUDITED)
FAIR VALUE DISCLOSURES
Women.com has adopted the disclosure only provisions of Statement of
Financial Accounting Standards No. 123 (SFAS No. 123), "Accounting for
Stock-Based Compensation." Women.com, however, continues to apply APB Opinion
No. 25, "Accounting for Stock Issued to Employees," and related interpretations
in accounting for its plans.
The fair value of each option grant is estimated on the date of grant using
the minimum value method with the following weighted average assumptions used
for grants:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------
1996 1997 1998
------- ------- -------
<S> <C> <C> <C>
Risk-free interest rate......................... 6.09% 5.84% 5.00%
Expected life................................... 5 years 5 years 5 years
Dividend yield.................................. -- -- --
</TABLE>
The weighted average fair value of options granted in 1996, 1997 and 1998
are $0.19, $0.37 and $3.11, respectively.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options's vesting period. Women.com's
pro forma information follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1996 1997 1998
------- ------- --------
<S> <C> <C> <C>
Net loss attributable to common stockholders..... $(2,987) $(6,612) $(13,615)
======= ======= ========
Net loss -- FAS 123 adjusted..................... $(2,990) $(6,627) $(13,862)
======= ======= ========
Net loss per share-as reported (Note 2)
Basic and diluted.............................. $ (4.26) $ (9.15) $ (10.52)
======= ======= ========
Net loss per share -- FAS 123 adjusted
Basic and diluted.............................. $ (4.26) $ (9.18) $ (10.71)
======= ======= ========
</TABLE>
The effects of applying SFAS No. 123 in this pro forma disclosure may not
be indicative of future amounts. Additional awards in future years are
anticipated.
STOCK-BASED COMPENSATION
In connection with certain stock option grants during the year ended
December 31, 1998, Women.com recorded stock-based compensation totaling $3.1
million, which is being amortized in accordance with FASB Interpretation No. 28
over the vesting periods of the related options, which is generally four years.
Stock-based compensation amortization recognized during the year ended December
31, 1998 totaled $1,170,000. An additional $1,881,000 of unearned stock-based
compensation has been recorded for the three months ended March 31, 1999.
Amortization of the total stock-based compensation during the three months ended
March 31, 1999 totaled $612,000. If the stock-based compensation for the year
ended December 31, 1998 and the three months ended March 31, 1999 had
F-24
<PAGE> 100
WOMEN.COM NETWORKS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION RELATING TO THE THREE MONTHS
ENDED MARCH 31, 1999 IS UNAUDITED)
been allocated across the relevant functional expense categories within
operating expenses, it would be allocated as follows (in thousands):
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED ENDED MARCH 31,
DECEMBER 31, -------------------
1998 1998 1999
------------ ---- -----------
(UNAUDITED)
<S> <C> <C> <C>
Production, product and technology............. $ 396 $ 61 $145
Sales and marketing............................ 220 31 195
General and administrative..................... 554 65 272
------ ---- ----
$1,170 $157 $612
====== ==== ====
</TABLE>
NOTE 11 -- INCOME TAXES
The components of the net deferred tax asset as of December 31, 1996, 1997
and 1998 are as follows (in thousands):
<TABLE>
<CAPTION>
1996 1997 1998
------- ------- -------
<S> <C> <C> <C>
Net operating loss carryforwards.................. $ 1,546 $ 2,844 $ 7,034
Deferred revenue.................................. -- 569 306
Other............................................. 49 85 483
------- ------- -------
1,595 3,498 7,823
Less valuation allowance.......................... (1,595) (3,498) (7,823)
------- ------- -------
Net deferred tax asset.................. $ -- $ -- $ --
======= ======= =======
</TABLE>
Women.com has established a valuation allowance to the extent of its
deferred tax asset due to the uncertainty that the benefit may not be realized
in the future.
At December 31, 1998, Women.com had federal and state net operating loss
carryforwards of approximately $19 million and $9 million, respectively,
available to offset future regular and alternative minimum taxable income.
Women.com's federal net operating loss carryforwards will expire in the years
2011 and 2013. For state tax purposes, the net operating loss carryforwards will
expire in the years 2001 and 2003.
The Tax Reform Act of 1986 limits the use of net operating loss and tax
credit carryforwards in certain situations where changes occur in the stock
ownership of a company. Women.com may have had an ownership change which may
limit the utilization of these carryforwards.
NOTE 12 -- RELATED PARTIES
In 1998, Women.com issued for cash 911,855 shares of Series D preferred
stock to a customer. Total revenues from this customer in 1996, 1997 and 1998
were $3,300, zero and $167,000, respectively. Receivable due from this customer
at December 31, 1997 and 1998 was zero and $125,000, respectively.
F-25
<PAGE> 101
WOMEN.COM NETWORKS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION RELATING TO THE THREE MONTHS
ENDED MARCH 31, 1999 IS UNAUDITED)
In 1998, Women.com issued 33,000 shares of Series D preferred stock to an
officer of Women.com's recruiting service provider, who had been granted 41,119
shares of Series C preferred stock. Total expense incurred for this party in
1996, 1997 and 1998 were zero, $63,502 and $133,000, respectively. Payable due
to the officer at December 31, 1997 and 1998 was zero and $17,000, respectively.
NOTE 13 -- SUBSEQUENT EVENTS
OFFERING OF LLC UNITS
On May 7, 1999, 2,000,000 units of Women.com Networks LLC were issued at a
price of $10.00 per unit which will convert to 2,000,000 shares of common stock
upon the initial public offering. However, if the underwritten public offering
is below $10.00 per share then the conversion price will be adjusted to the
price per share of the common stock sold to the public in the underwritten
public offering.
OFFERING OF SHARES
Women.com has agreed to sell and Hearst has agreed to purchase 2,083,333
shares of common stock plus that number of shares of common stock which could be
purchased for $5 million at the initial public offering price in a private
placement concurrent with the offering. In addition, Hearst has been granted an
option to purchase up to 312,500 additional shares of common stock in the event
that the underwriters' over allotment option in the offering is exercised.
On July 9, 1999, Women.com entered into an agreement with Torstar
Corporation whereby Women.com agreed to sell and Torstar Corporation agreed to
purchase, in a concurrent private placement, the lesser of 1,250,000 shares of
common stock or the number of shares which could be purchased for $14.5 million
at a per share price equal to the per share price of the shares offered in the
offering. Upon the closing of the Torstar concurrent private placement,
Torstar's chief executive officer will be appointed to the Board of Directors of
Women.com. If the public offering does not occur by October 31, 1999, Women.com
has agreed to sell Torstar up to $14.5 million worth of Series E preferred stock
of Women.com at $10 per share. Such option shall expire on November 10, 1999.
On July 9, 1999, Women.com entered into an agreement with The Walt Disney
Company whereby Women.com agreed to sell and The Walt Disney Company agreed to
purchase, in a concurrent private placement, the lesser of 1,250,000 shares of
common stock or the number of shares which could be purchased for $14.5 million
at a per share price equal to the per share price of the shares offered in the
offering. If the public offering does not occur by October 31, 1999, Women.com
has agreed to sell The Walt Disney Company up to $14.5 million worth of Series E
preferred stock of Women.com at $10 per share. Such option shall expire on
November 10, 1999.
ADVERTISING COMMITMENT
On July 6, 1999, Women.com entered into an agreement with The Walt Disney
Company whereby Women.com has agreed to purchase $16.5 million of advertising
and promotion on wholly owned broadcast properties of The Walt Disney Company
over the next six years with a minimum purchase of $2.4 million per year for the
first two years and $2.9 million thereafter.
F-26
<PAGE> 102
WOMEN.COM NETWORKS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION RELATING TO THE THREE MONTHS
ENDED MARCH 31, 1999 IS UNAUDITED)
EMPLOYEE STOCK PURCHASE PLAN
In May 1999, the Board approved the Employee Stock Purchase Plan covering
an aggregate of 1,000,000 shares of Common Stock. The Employee Stock Purchase
Plan will become effective on the effective date of the initial public offering
and is intended to qualify as an "employee stock purchase plan" within the
meaning of Section 423 of the Internal Revenue Code of 1986, as amended.
F-27
<PAGE> 103
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of
The Hearst Corporation
We have audited the accompanying consolidated balance sheets of Certain
Operations of the New Media & Technology Division of The Hearst Corporation (the
"Unit") as of December 31, 1998 and 1997, and the related consolidated
statements of operations and cash flows for each of the three years in the
period ended December 31, 1998. Our audits also included the financial statement
schedule listed in Item 16(b) herein. These consolidated financial statements
and financial statement schedule are the responsibility of the Unit's
management. Our responsibility is to express an opinion on these consolidated
financial statements and financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of the Unit at December 31, 1998
and 1997, and the results of its operations and its cash flows for each of the
three years in the period ended December 31, 1998 in conformity with generally
accepted accounting principles. Also, in our opinion, such financial statement
schedule, when considered in relation to the basic consolidated financial
statements taken as a whole, present fairly in all material respects the
information set forth therein.
The accompanying consolidated financial statements and financial statement
schedule have been prepared from the separate records maintained by the Unit and
may not necessarily be indicative of the conditions that would have existed or
the results of operations if the Unit had been operated as an unaffiliated
company. Portions of certain expenses represent allocations made from The Hearst
Corporation.
/s/ DELOITTE & TOUCHE LLP
New York, New York
April 29, 1999
F-28
<PAGE> 104
CERTAIN OPERATIONS OF THE
NEW MEDIA & TECHNOLOGY DIVISION OF
THE HEARST CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1998 1997
----------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 23,508 $ --
Accounts receivable, net of allowance for doubtful
accounts of $79,655 and $21,114 in 1998 and 1997,
respectively........................................... 1,216,094 652,701
Prepaid expenses.......................................... 154,751 31,345
----------- -----------
Total current assets.............................. 1,394,353 684,046
----------- -----------
Property, plant and equipment:
Furniture and fixtures.................................... 515,016 369,768
Computer equipment........................................ 4,127,939 3,422,417
Leasehold improvements.................................... 475,174 475,174
Less accumulated depreciation and amortization............ (3,595,579) (2,572,186)
----------- -----------
Property, plant and equipment, net................ 1,522,550 1,695,173
Other Assets................................................ 540,887 125,000
Goodwill.................................................... 4,760,389 --
----------- -----------
Total assets................................................ $ 8,218,179 $ 2,504,219
=========== ===========
LIABILITIES AND DUE TO PARENT COMPANY AND AFFILIATES
Current liabilities:
Accounts payable.......................................... $ 108,446 $ 96,160
Accrued liabilities (Note 4).............................. 2,077,015 1,304,722
Other current liabilities................................. 60,218 96,170
Deferred advertising revenue.............................. 137,750 16,967
----------- -----------
Total current liabilities......................... 2,383,429 1,514,019
Other long-term liabilities................................. 570,873 62,727
Commitments and contingencies
(Note 9)
Due to parent company and affiliates........................ 5,263,877 927,473
----------- -----------
Total liabilities and due to parent company and
affiliates................................................ $ 8,218,179 $ 2,504,219
=========== ===========
</TABLE>
See notes to consolidated financial statements.
F-29
<PAGE> 105
CERTAIN OPERATIONS OF THE
NEW MEDIA & TECHNOLOGY DIVISION
OF THE HEARST CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------------
1998 1997 1996
------------ ----------- -----------
<S> <C> <C> <C>
Net revenues.................................. $ 2,957,387 $ 1,895,715 $ 1,278,572
Operating expenses:
Production, product and technology.......... 8,095,577 4,997,679 4,254,427
Sales and marketing......................... 8,625,079 5,945,733 3,528,495
General and administration.................. 969,616 878,203 989,936
------------ ----------- -----------
Net loss...................................... $(14,732,885) $(9,925,900) $(7,494,286)
============ =========== ===========
</TABLE>
See notes to consolidated financial statements.
F-30
<PAGE> 106
CERTAIN OPERATIONS OF THE
NEW MEDIA & TECHNOLOGY DIVISION
OF THE HEARST CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------------
1998 1997 1996
------------ ----------- -----------
<S> <C> <C> <C>
Operating activities:
Net loss.................................... $(14,732,885) $(9,925,900) $(7,494,286)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization of
property, plant and equipment.......... 1,105,301 1,152,941 906,023
Provision for doubtful accounts.......... 58,541 21,114 --
Changes in operating assets and
liabilities:
Accounts receivable.................... (476,659) (366,543) (307,272)
Prepaid expenses....................... (123,406) 19,661 (10,366)
Other assets........................... (549,383) (150,000) --
Accounts payable....................... (54,720) 93,911 (561,501)
Accrued liabilities.................... 771,654 265,316 593,862
Other liabilities...................... 472,194 36,833 18,782
Deferred advertising revenue........... 120,783 (28,333) 45,300
------------ ----------- -----------
Net cash used in operating
activities....................... (13,408,580) (8,881,000) (6,809,458)
------------ ----------- -----------
Investing activities:
Purchases of property, plant and
equipment................................ (756,369) (860,346) (501,264)
Payments for acquisition.................... (4,880,832) -- --
------------ ----------- -----------
Net cash used in financing
activities....................... (5,637,201) (860,346) (501,264)
------------ ----------- -----------
Financing activities -- Due to parent company
and affiliates.............................. 19,069,289 9,741,346 7,310,722
Change in cash and
cash equivalents............................ 23,508 -- --
Cash and cash equivalents, beginning of
year........................................ -- -- --
------------ ----------- -----------
Cash and cash equivalents, end of year........ $ 23,508 $ -- $ --
============ =========== ===========
SUPPLEMENTAL INFORMATION:
Business acquired:
Fair value of assets acquired............... $ 4,962,937
Liabilities assumed......................... 82,105
------------
Cash paid for business acquired............. $ 4,880,832
============
</TABLE>
See notes to consolidated financial statements.
F-31
<PAGE> 107
CERTAIN OPERATIONS OF THE
NEW MEDIA & TECHNOLOGY DIVISION OF
THE HEARST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND NATURE OF OPERATIONS
The accompanying consolidated financial statements include the operations
of the HomeArts Unit ("HomeArts") of the New Media & Technology Division (the
"Division") of The Hearst Corporation (the "Corporation"), certain property,
plant and equipment of Hearst Leasing, Co., a subsidiary of Hearst
Communications, Inc., a subsidiary of the Corporation and certain property,
plant and equipment of the Division, for all years presented and the operations
of the Astronet Unit ("Astronet") of the Division of the Corporation for the
period December 24, 1998 to December 31, 1998, which are subsequent to the date
of acquisition, (collectively the "Unit"). Such consolidated financial
statements have been prepared from the separate records maintained by the Unit
and may not necessarily be indicative of the conditions that would have existed
or the results of operations if the Unit had been operated as an unaffiliated
company. Portions of certain expenses represent allocations made from The Hearst
Corporation (see Note 6). In addition, it is the Corporation's present intention
to continue to provide funding to the Unit for working capital and operations.
Based upon regular assessments of the Unit's operations performed by key
management, the Corporation has determined that its reportable segment is online
advertising.
HomeArts is a women's lifestyle network site on the World Wide Web that
provides information on several aspects of a woman's life: family, self, career,
food, finance, health, relationships, and home. The HomeArts internet site
provides articles from popular magazines of the Corporation, and HomeArts sells
advertising messages for business, links and other on line service marketing
tools (including but not limited to split-screen sponsorship, program
sponsorship and integrated advertising) to a variety of customers.
Astronet is one of the largest astrology sites on the Internet. In addition
to daily, weekly, and monthly horoscopes from some of the world's most renowned
sources, Astronet provides cosmic views on a wide variety of subjects.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND USE OF ESTIMATES
CONCENTRATION OF CREDIT RISK
The Unit performs ongoing credit evaluations of its customers and generally
does not require collateral. Although the Unit maintains an allowance for
potential credit losses that it believes to be adequate, the loss of a
significant account could materially affect its operating results and financial
condition. One customer represented approximately 8%, 19% and 15% of the Unit's
net revenues for the years ended December 31, 1998, 1997 and 1996, respectively.
One customer represented approximately 13% and 21% of accounts receivable as of
December 31, 1998 and 1997, respectively.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost less accumulated
depreciation and amortization. Depreciation and amortization are generally
calculated on the straight-line method over the estimated useful lives of the
assets ranging from 3 to 8 years (or lease terms, whichever is shorter).
F-32
<PAGE> 108
CERTAIN OPERATIONS OF THE
NEW MEDIA & TECHNOLOGY DIVISION OF
THE HEARST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
GOODWILL
Goodwill resulting from an acquisition is recorded based upon the excess of
the purchase price over the net assets acquired. Amortization is calculated on
the straight-line method over 3 years. The recoverability of the carrying value
of the excess purchase price over the net assets acquired is evaluated quarterly
to determine if an impairment in value has occurred. At December 31, 1998, it
has been determined that there has been no impairment.
NET REVENUES
Revenues are stated net of commissions and provisions for uncollectible
receivables and are recognized on a prorated basis over the period of display of
the advertisement on the Internet site. Amounts received in advance of providing
advertisements are deferred until such time that they are displayed on the
Internet site.
INCOME TAXES
The Unit is included in the Corporation's consolidated Federal, state and
local income tax returns. The Unit's pro rata share of the Corporation's
consolidated income tax liabilities or tax assets are allocated to the Unit on a
separate return basis. Federal income taxes payable are paid directly to the
Corporation. In accordance with Statement of Financial Accounting Standards No.
109, Accounting for Income Taxes, deferred income tax assets and liabilities are
measured based upon the difference between the financial accounting and tax
bases of assets and liabilities. A valuation allowance is recorded when it is
more likely than not that the net deferred tax asset will not be recovered in
the future. No deferred tax assets have been recorded for the Unit's operating
losses because the Unit is part of a division of the Corporation and any such
losses would be recorded at the Corporation level.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities,
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses during the
reporting period. Significant accounting estimates used in the preparation of
the Unit's financial statements include estimates of allowance for uncollectible
accounts and accrued liabilities and payables. In management's opinion, actual
results are not expected to vary materially from the estimates and assumptions
used in preparing these financial statements.
CASH FLOWS
For purposes of the statements of consolidated cash flows, the Unit
considers all highly liquid debt instruments in which it invests and which have
original maturity of three months or less to be short-term investments.
F-33
<PAGE> 109
CERTAIN OPERATIONS OF THE
NEW MEDIA & TECHNOLOGY DIVISION OF
THE HEARST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. ACQUISITIONS
On December 24, 1998, the Corporation acquired Astronet, Inc. ("Astronet"),
an online astrology site, for approximately $5,000,000. The purchase price and
related acquisition costs have been allocated to the acquired assets and
liabilities based upon their fair market values. The excess of the purchase
price over the net fair market value of the tangible assets acquired and
liabilities assumed was allocated to goodwill. The fair value of Astronet's net
assets have been included in the accompanying consolidated financial statements
as a capital contribution from the Corporation.
The following unaudited pro forma information presents the results of
operations of the Unit as if the acquisition of Astronet, Inc. had taken place
on January 1, 1998 and 1997, respectively, and after giving effect to purchase
accounting adjustments.
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
Net revenues................................. $ 4,403,478 $ 2,895,986
Operating expenses........................... 21,236,224 15,042,511
------------ ------------
Net loss..................................... $(16,832,746) $(12,146,525)
============ ============
</TABLE>
The acquisition has been accounted for by the purchase method. The
preliminary purchase cost allocations are subject to adjustment when additional
information concerning asset and liability valuations are obtained. The final
asset and liability fair values may differ from those set forth on the
accompanying consolidated balance sheet at December 31, 1998; however, the
changes are not expected to have a material effect on the consolidated financial
statements of the Unit. The consolidated financial statements include the
operating results of this acquisition subsequent to the date of acquisition.
4. ACCRUED LIABILITIES
Accrued liabilities at December 31, 1998 and 1997 consist of the following:
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Payroll, benefits and related costs.................... $ 166,411 $ 374,171
Accrued payables....................................... 149,278 128,640
Accrued marketing...................................... 1,154,070 308,863
Accrued bonuses........................................ 425,169 395,351
Accrued pension cost................................... 50,531 42,873
Accrued insurance...................................... 10,428 14,999
Other accrued liabilities.............................. 121,128 39,825
---------- ----------
$2,077,015 $1,304,722
========== ==========
</TABLE>
F-34
<PAGE> 110
CERTAIN OPERATIONS OF THE
NEW MEDIA & TECHNOLOGY DIVISION OF
THE HEARST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. INCOME TAXES
Deferred income tax assets at December 31, 1998 and 1997 consist of the
following:
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
Deferred income tax assets:
Tax basis versus book basis depreciation.............. $ 97,948 $ 165,739
Allowance for doubtful accounts and others............ 111,792 155,359
Deferred rent......................................... 878 21,954
--------- ---------
Total deferred income tax assets........................ 210,618 343,052
Less valuation allowance................................ (210,618) (343,052)
--------- ---------
Net deferred tax asset.................................. $ -- $ --
========= =========
</TABLE>
The Unit has established a valuation allowance to the extent of deferred
tax assets, since it is more likely than not that the benefit may not be
realized in the future.
6. RELATED PARTY TRANSACTIONS
Certain management services are provided to the Unit by the Corporation.
Such services include data processing, payroll, legal, tax, treasury, internal
audit, risk management, and other support services. The Unit was allocated
expenses for the years ended December 31, 1998, 1997 and 1996 of $142,500,
$126,672 and $143,872, respectively, related to these services.
The Unit was charged $2,779,235, $681,199 and $-0- for software development
services rendered by the Division during 1998, 1997 and 1996, respectively.
Allocated expenses are based on the Corporation's estimate of expenses
related to the services provided to the Unit in relation to those provided to
other units, divisions or subsidiaries of the Corporation. Management believes
that these allocations were made on a reasonable basis. The allocations are not
necessarily indicative of the level of expenses that might have been incurred
had the Unit contracted directly with third parties. However, management
believes that the level of expenses would not have been materially different if
such services had been provided by third parties.
The Unit advertised its Internet site in various magazines of the
Corporation and was charged approximately $3,039,467, $2,504,000 and $789,000
for such services in 1998, 1997 and 1996, respectively. In addition, the Unit
provided advertising to certain magazines of the Corporation in the amount of
$206,826, $162,483 and $34,663 in 1998, 1997 and 1996, respectively.
Payment of trade payables and other disbursements are processed through a
cash concentration account maintained by the Corporation. Billings to customers
are made as part of the services provided to the Unit by the Corporation. All
receipts from customers are collected in a divisional lock box and then
transferred to the Corporation.
F-35
<PAGE> 111
CERTAIN OPERATIONS OF THE
NEW MEDIA & TECHNOLOGY DIVISION OF
THE HEARST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The activity in the Due to Parent Company and Affiliates account for the
years ended December 31, 1998, 1997 and 1996 is as follows:
<TABLE>
<CAPTION>
1998 1997 1996
------------ ----------- -----------
<S> <C> <C> <C>
Balance, beginning of year............ $ 927,473 $ 1,112,027 $ 1,295,591
Net loss.............................. (14,732,885) (9,925,900) (7,494,286)
Transfers from the Corporation and
affiliated companies -- net......... 19,069,289 9,741,346 7,310,722
------------ ----------- -----------
Balance, end of year.................. $ 5,263,877 $ 927,473 $ 1,112,027
============ =========== ===========
</TABLE>
The Corporation does not assess interest to the Unit on its outstanding
intercompany balances.
In accordance with the requirements of SFAS No. 107, Disclosures About Fair
Value of Financial Instruments, the Unit believes that it is not practicable to
estimate the current fair value of the amounts due to the Corporation because of
the related party nature of the transactions.
7. INCENTIVE COMPENSATION PLAN
The Corporation has a long-term incentive compensation plan that covers one
employee of the Unit who is considered by management to be making substantial
contributions to the growth and profitability of the Unit and the Corporation.
Grants awarded under this plan cover three-year operating cycles, with cash
payouts made after the close of each three-year cycle based upon growth in
operating performance. The annual amount charged to expense, which amounted to $
66,195 in 1998, $35,592 in 1997 and $0 in 1996, is determined by estimating the
aggregate expense for each open three-year cycle.
8. PENSION AND EMPLOYEE SAVINGS PLANS
Certain employees of the Unit are eligible for participation in the
Corporation's noncontributory defined benefit plan. The Unit's pension cost for
this plan is allocated to the Unit through the Due to Parent Company and
Affiliates account. The cost of this plan was $52,641 in 1998, $20,036 in 1997
and $53,866 in 1996.
Substantially all of the Unit's employees are eligible to participate in
the Corporation's defined contribution plan. The Unit's expense recognized for
this plan was $41,744 in 1998, $30,373 in 1997 and $20,771 in 1996.
9. COMMITMENTS AND CONTINGENCIES
HomeArts has an agreement relating to a noncancelable operating lease which
expires on January 15, 2000, in connection with its office space at Four
Columbus Circle in New York City. Astronet has an agreement relating to a
noncancelable operating lease which expires on October 31, 1999 in connection
with its office space in New Canaan, CT and other operating leases relating to
various pieces of equipment that have expiration dates through August 2001.
Additionally, HomeArts has
F-36
<PAGE> 112
CERTAIN OPERATIONS OF THE
NEW MEDIA & TECHNOLOGY DIVISION OF
THE HEARST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
employment contracts with three key employees. Future minimum payments under the
terms of these agreements at December 31, 1998 are as follows:
<TABLE>
<CAPTION>
OPERATING EMPLOYMENT
LEASES CONTRACTS
--------- ----------
<S> <C> <C>
1999............................................. $419,372 $1,400,833
2000............................................. 19,278 650,833
2001............................................. 2,183 --
-------- ----------
$440,833 $2,051,666
======== ==========
</TABLE>
Rent expense for the operating lease was $314,806 for the year ended
December 31, 1998 and $313,782 for the years ended December 31, 1997 and 1996.
In the normal course of business, the Unit is subject to various claims and
lawsuits. In the opinion of the Unit's management, liabilities, if any, arising
from these matters will not have a material effect on the Unit's consolidated
financial statements.
10. SUBSEQUENT EVENTS
On January 27, 1999, Hearst HomeArts, Inc. ("Hearst") and Women.com
Networks ("Women.com") signed an agreement to form a limited liability company
and named it Women.com Networks LLC (the "Company"). Under the terms of this
agreement, Hearst will create a new wholly-owned subsidiary (the "Hearst
Subsidiary") and contribute HomeArts, $5,000,000 in cash and certain other
assets of Hearst, including certain property, plant and equipment of Hearst
Leasing, Co. and certain property, plant and equipment of the New Media &
Technology Division, to the Hearst Subsidiary. The Hearst Subsidiary will
contribute its assets and Women.com will contribute its assets and liabilities
to the Company subject to certain adjustments at the time of closing, including
a payment by the Hearst Subsidiary equal to the difference between the amount by
which the Women.com cash balance exceeds the Hearst Subsidiary cash balance.
Such payment is expected to approximate $10,000,000. In addition, the Hearst
Subsidiary will purchase and contribute to the Company an agreed-upon amount of
television and cable advertising time on behalf of the Company as well as
contribute print promotions in magazines of the Corporation. Both Women.com and
Hearst will receive an approximately 50% interest in the Company for their
respective contributions.
******
F-37
<PAGE> 113
WOMEN.COM NETWORKS, INC.
PRO FORMA COMBINED STATEMENTS OF OPERATIONS
(UNAUDITED)
Effective January 29, 1999, Women.com Networks entered into a joint venture
agreement with Hearst HomeArts Inc. ("HomeArts"), a subsidiary of The Hearst
Corporation. Under the terms of the agreement, Women.com Networks and HomeArts
contributed their businesses to Women.com Networks LLC. Under the terms of the
agreement Women.com Networks and HomeArts each have fifty percent voting
interest, except that, Women.com Networks has the sole authority to initiate an
initial public offering. In addition, senior management of the joint venture is
comprised solely of Women.com Networks management. Given these facts and that
Women.com, on a fully diluted basis owned 53.6% of Women.com Networks LLC,
Women.com was determined to be the accounting acquirer pursuant to Staff
Accounting Bulletin Topic 2-A2. The acquisition has been accounted for using the
purchase method of accounting and accordingly the purchase price has been
allocated to the tangible and intangible assets acquired and liabilities assumed
on the basis of their respective fair values on the acquisition date. The fair
value of net assets acquired was determined by an independent appraiser.
The allocation of the purchase price is summarized below (in thousands):
<TABLE>
<S> <C>
Intangibles................................................. $14,078
Goodwill.................................................... 47,951
Prepaid advertising......................................... 5,680
Property and equipment...................................... 2,044
Net current assets.......................................... 16,685
-------
Total purchase price.............................. $86,438
=======
</TABLE>
The acquisition has been structured as a tax free exchange of stock,
therefore, the differences between the recognized fair values of acquired
assets, including tangible assets, and their historical tax bases are not
deductible for tax purposes.
Prior to entering into the joint venture agreement with Women.com, The
Hearst Corporation acquired Astronet Inc, an online astrology site. Astronet,
Inc. ("Astronet") was part of the business contributed by HomeArts to Women.com
Networks LLC. The acquisition was accounted for using the purchase method and
the operations of Astronet have been included in the historical financial
statements of HomeArts from December 24, 1998, the date of acquisition. The
total purchase price was approximately $5,000,000 of which approximately
$200,000 was allocated to net tangible assets and $4,800,000 was allocated to
intangibles and goodwill.
The following unaudited pro forma combined financial statements of
operations for the year ended December 31, 1998 and the three months ended March
31, 1999 gives effect to the acquisition of HomeArts and HomeArts acquisition of
Astronet as if they had occurred on January 1, 1998, by combining the results of
operations of HomeArts and Astronet with results of operations of Women.com for
the respective periods.
The unaudited pro forma combined statements of operations are not
necessarily indicative of the operating results that would have been achieved
had the transactions been in effect as of the beginning of the periods presented
and should not be construed as being representative of future operating results.
The historical financial statements of Women.com and HomeArts are included
elsewhere in this prospectus and the unaudited pro forma financial information
presented herein should be read in conjunction with those financial statements
and related notes. The historical financial statements of Astronet are not
included in this prospectus.
F-38
<PAGE> 114
WOMEN.COM NETWORKS, INC.
PRO FORMA COMBINED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
FOR THE
PERIOD
JANUARY 1,
1998 THROUGH
DECEMBER 23, YEAR ENDED DECEMBER 31, 1998
1998 ------------------------------------------------------------------------
------------ HOMEARTS WOMEN.COM
ASTRONET HOMEARTS ADJUSTMENTS PRO FORMA WOMEN.COM ADJUSTMENTS PRO FORMA
-------- -------- ----------- --------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Net revenues............ $1,446 $ 2,957 $ -- $ 4,403 $ 7,247 $ -- $ 11,650
------ -------- ------- -------- -------- -------- --------
Operating expenses:
Production, product
and technology...... 1,192 8,095 -- 9,287 5,728 -- 15,015
Sales and marketing... 357 8,625 -- 8,982 12,042 -- 21,024
General and
administrative...... 410 970 -- 1,380 1,374 -- 2,754
Stock-based
compensation........ -- -- -- -- 1,170 -- 1,170
Amortization of
acquired
intangibles......... -- 1,587(A) 1,587 517 19,410(B) 21,514
------ -------- ------- -------- -------- -------- --------
Total operating
expenses............ 1,959 17,690 1,587 21,236 20,831 19,410 61,477
------ -------- ------- -------- -------- -------- --------
Loss from operations.... (513) (14,733) (1,587) (16,833) (13,584) (19,410) (49,827)
Other income, net....... -- -- -- -- 596 -- 596
Interest expense........ -- -- -- -- (57) -- (57)
------ -------- ------- -------- -------- -------- --------
Net loss................ (513) (14,733) (1,587) (16,833) (13,045) (19,410) (49,288)
Dividend accretion on
mandatorily redeemable
convertible preferred
stock................. -- -- -- -- (570) -- (570)
------ -------- ------- -------- -------- -------- --------
Net loss attributable to
common stockholders... $ (513) $(14,733) $(1,587) $(16,833) $(13,615) $(19,410) $(49,858)
====== ======== ======= ======== ======== ======== ========
Basic and diluted pro
forma net loss per
share................. $ (1.70)(C)
========
Shares used in computing
pro forma basic and
diluted net loss per
share................. 29,347
========
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, 1999
----------------------------------------------
WOMEN.COM HOMEARTS ADJUSTMENTS PRO FORMA
--------- -------- ----------- ---------
<S> <C> <C> <C> <C>
Net revenues.............................................. $ 3,413 $ 250 $ -- $ 3,663
-------- ------- ------- --------
Operating expenses:
Production, product and technology...................... 3,848 671 -- 4,519
Sales and marketing..................................... 6,568 752 -- 7,320
General and administrative.............................. 1,968 28 -- 1,996
Stock-based compensation................................ 612 -- -- 612
Amortization of acquired intangibles.................... 3,671 133 1,613(B) 5,417
-------- ------- ------- --------
Total operating expenses................................ 16,667 1,584 1,613 19,864
-------- ------- ------- --------
Loss from operations...................................... (13,254) (1,334) (1,613) (16,201)
Other income, net......................................... 176 -- -- 176
Interest expense.......................................... (17) -- -- (17)
-------- ------- ------- --------
Net loss.................................................. (13,095) (1,334) (1,613) (16,042)
Dividend accretion on mandatorily redeemable convertible
preferred stock......................................... (95) -- -- (95)
-------- ------- ------- --------
Net loss attributable to common stockholders.............. $(13,190) $(1,334) $(1,613) $(16,137)
======== ======= ======= ========
Basic and diluted pro forma net loss per share............ $ (.49)(C)
========
Shares used in computing pro forma basic and diluted net
loss per share.......................................... 32,851
========
</TABLE>
F-39
<PAGE> 115
WOMEN.COM NETWORKS, INC.
NOTES TO PRO FORMA COMBINED STATEMENT OF OPERATIONS
(UNAUDITED)
The following adjustments were applied to Women.com's historical financial
statements and those of HomeArts and Astronet to arrive at the pro forma
financial information.
(A) The HomeArts and Astronet historical financial information for 1998
were adjusted to record the amortization of goodwill related to the
acquisition of Astronet as if the transaction occurred January 1,
1998. Goodwill recorded in relation to the acquisition was $4.8
million and is being amortized on a straight-line basis over three
years following the acquisition.
(B) The pro forma HomeArts and Women.com financial information for 1998
and 1999 were adjusted to record the amortization of intangible
assets and goodwill related to Women.com's acquisition of HomeArts as
if the transaction occurred January 1, 1998 as follows (in
thousands).
<TABLE>
<CAPTION>
AMORTIZATION EXPENSE
----------------------------
THREE
MONTHS
YEAR ENDED ENDED
AMORTIZATION DECEMBER 31, MARCH 31,
AMOUNT PERIOD 1998 1999
------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Advertiser base............... $ 4,041 2 years $ 2,021 $ 505
Viewership base............... 8,265 3 years 2,755 689
Assembled workforce........... 1,772 5 years 354 87
Goodwill...................... 47,951 3 years 15,867 3,967
</TABLE>
(C) Pro forma basic and diluted net loss per share for the year ended
December 31, 1998 and the three months ended March 31, 1999, is
computed using the weighted average number of common shares
outstanding, including the pro forma effects of the automatic
conversion of Women.com's convertible preferred stock effective upon
the closing of the offering as if such conversion occurred on January
1, 1998 or at date of original issuance, if later and the shares
issued in conjunction with the acquisition as if such shares were
outstanding from January 1, 1998, for the year ended December 31,
1998 and for the three months ended March 31, 1999.
F-40
<PAGE> 116
Women.comNetworks logo
<PAGE> 117
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
underwriting discounts and commissions, payable by us in connection with the
sale of common stock being registered. All amounts are estimates.
<TABLE>
<S> <C>
SEC registration fee........................................ $ 14,387
NASD Filing fee............................................. 5,675
Nasdaq National Market listing fee.......................... 90,000
Printing and engraving expenses............................. 200,000
Legal fees and expenses..................................... 500,000
Accounting fees and expenses................................ 325,000
Blue sky fees and expenses.................................. 10,000
Transfer agent fees......................................... 10,000
Miscellaneous fees and expenses............................. 44,938
----------
Total....................................................... $1,200,000
==========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
As permitted by Delaware law, Article VI of our restated certificate of
incorporation provides that limited exceptions; we are required to advance
expenses, as incurred, to our directors and officers in connection with a legal
proceeding to the fullest extent permitted by Delaware law, subject to certain
very limited exceptions; and (4) the rights conferred in the restated
certificate of incorporation are not exclusive.
Section 145 of the Delaware General Corporation Law authorizes a
corporation's board of directors to grant indemnity to directors and officers in
terms sufficiently broad to permit such indemnification under certain
circumstances for liabilities, including reimbursement for expenses incurred,
arising under the Securities Act of 1933.
As permitted by Delaware law, our restated certificate of incorporation
includes a provision that eliminates the personal liability of our directors for
monetary damages for breach of fiduciary duty as a director, except for
liability (1) for any breach of the director's duty of loyalty to us or our
stockholders; (2) for acts of omissions not in good faith or that involve
intentional misconduct or a knowing violation of law; (3) under Section 174 of
Delaware General Corporation Law regarding payments of dividends, stock
purchases or redemptions which are unlawful; or (4) for any transaction from
which the director derived an improper personal benefit. This provision in the
restated certificate of incorporation does not eliminate the directors'
fiduciary duty, and in appropriate circumstances equitable remedies such as
injunctive or other forms of non-monetary relief will remain available under
Delaware law. In addition, each director will continue to be subject to
liability for breach of the director's duty of loyalty to us for acts or
omissions not in good faith or involving intentional misconduct, for knowing
violations of law, for actions leading to improper personal benefit to the
director, and for payment of dividends or approval of stock repurchases or
redemptions that are unlawful under Delaware law. The provision also does not
affect a director's responsibilities under any other law, such as the federal
securities laws or state or federal environmental laws.
As permitted by Delaware law, we intend to purchase insurance covering our
directors and officers against liability asserted against them in their capacity
as such. Reference is made to the Underwriting
II-1
<PAGE> 118
Agreement contained in Exhibit 1.1 hereto, which contains provisions
indemnifying our officers and directors against certain liabilities.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
Since May 31, 1996, the Registrant has issued and sold the following
unregistered securities:
(1) In June 1997, Women.com Networks, a California corporation, issued
and sold a stock subscription warrant to purchase 49,167 shares of common
stock at a price of $3.00 per share to Volpe Brown Whelan & Company, LLC.
This warrant may be exercised to purchase up to 49,167 shares of common
stock of the Registrant upon the closing of the merger of Hearst HomeArts,
Inc., a Delaware corporation, and Women.com Networks, a California
corporation.
(2) In July 1997, Women.com Networks, a California corporation, issued
and sold an aggregate of 995,342 shares of Series C Preferred Stock at a
price of $3.04 per share to a group of accredited investors for an
aggregate purchase price of $3,025,839. Women.com Networks paid Volpe Brown
Whelan & Company, LLC a commission of $552,499 in connection with such
issuance. Such shares of Series C Preferred Stock will be converted into
995,342 shares of common stock of the Registrant upon the closing of the
merger of Hearst HomeArts, Inc., a Delaware corporation, and Women.com
Networks, a California corporation.
(3) In July and August 1997, Women.com Networks, a California
corporation, issued and sold an aggregate of 2,631,580 shares of Series C
Preferred Stock at a price of $1.90 per share to a group of accredited
investors for an aggregate purchase price of $5,000,002. Women.com Networks
paid Volpe Brown Whelan & Company, LLC a commission as referenced in (2)
above in connection with such issuance. Such shares of Series C Preferred
Stock will be converted into 2,631,580 shares of common stock of the
Registrant upon the closing of the merger of Hearst HomeArts, Inc., a
Delaware corporation, and Women.com Networks, a California corporation
(4) In July 1997, Women.com Networks, a California corporation, issued
a stock subscription warrant to purchase 887,665 shares of Series C
Preferred Stock at a price per share of $3.04 to MediaOne Interactive
Services, Inc. This warrant may be exercised to purchase up to 887,665
shares of common stock of the Registrant upon the closing of the merger of
Hearst HomeArts, Inc., a Delaware corporation, and Women.com Networks, a
California corporation.
(5) In August 1997, Women.com Networks, a California corporation,
issued a stock subscription warrant to purchase 40,000 shares of common
stock at a price of $3.00 per share to Volpe Brown Whelan & Company, LLC.
This warrant may be exercised to purchase up to 40,000 shares of common
stock of the Registrant upon the closing of the merger of Hearst HomeArts,
Inc., a Delaware corporation, and Women.com Networks, a California
corporation.
(6) In August 1997, Women.com Networks, a California corporation,
issued and a stock subscription warrant to purchase 887,665 shares of
Series C Preferred Stock at purchase price of $3.04 per share to HC Crown
Corp. This warrant may be exercised to purchase up to 887,665 shares of
common stock of the Registrant upon the closing of the merger of Hearst
HomeArts, Inc., a Delaware corporation, and Women.com Networks, a
California corporation.
(7) In April 1998, Women.com Networks, a California corporation,
issued and a stock subscription warrant to purchase 8,224 shares of Series
D Preferred Stock at a price of $3.29 per share to Imperial Bank. This
warrant may be exercised to purchase up to 8,224 shares of common stock of
the Registrant upon the closing of the merger of Hearst HomeArts, Inc., a
Delaware corporation, and Women.com Networks, a California corporation.
(8) In April 1998, Women.com Networks, a California corporation,
issued 675,000 shares of common stock to the shareholders of Wild Wild Web,
Incorporated in exchange for substantially all
II-2
<PAGE> 119
of the assets of Wild Wild Web, Incorporated. Such shares of common stock
will be converted into 675,000 shares of common stock of the Registrant
upon the closing of the merger of Hearst HomeArts, Inc., a Delaware
corporation, and Women.com Networks, a California corporation.
(9) In June 1998, Women.com Networks, a California corporation, issued
and sold a stock subscription warrant to purchase 150,703 shares of common
stock at a purchase price of $3.95 per share to BT Alex. Brown
Incorporated. This warrant may be exercised to purchase up to 150,703
shares of common stock of the Registrant upon the closing of the merger of
Hearst HomeArts, Inc., a Delaware corporation, and Women.com Networks, a
California corporation.
(10) In June and July 1998, Women.com Networks, a California
corporation, issued and sold an aggregate of 6,546,369 shares of Series D
Preferred Stock at a price of $3.29 per share to a group of accredited
investors for an aggregate purchase price of $21,537,554. Women.com
Networks paid BT Alex. Brown Incorporated a commission of $1,267,268 in
connection with such issuance. Such shares of Series D Preferred Stock will
be converted into 6,546,369 shares of common stock of the Registrant upon
the closing of the merger of Hearst HomeArts, Inc., a Delaware corporation,
and Women.com Networks, a California corporation.
(11) In January 1999, the Registrant issued shares of common stock to
Hearst Communications, Inc. Upon the closing of the merger between Hearst
HomeArts, Inc., a Delaware corporation, and Woman.com Networks, a
California corporation, such shares will split into 18,825,171 shares of
common stock of the Registrant.
(12) In March and April 1999, Women.com Networks, a California
corporation issued an aggregate of 78,304 shares of common stock pursuant
to stock awards granted under the Amended and Restated 1998 Equity
Incentive Plan in consideration for services rendered. Such shares of
common stock will be converted into 78,304 shares of common stock of the
Registrant upon the closing of the merger of Hearst HomeArts, Inc., a
Delaware corporation, and Women.com Networks, a California corporation.
(13) In May 1999, Women.com Networks, a California corporation, issued
924,000 shares of Series E Preferred Stock at a price of $10.00 per share
to existing, accredited shareholders of the company for an aggregate
purchase price of $9,240,000. Such shares of Series E Preferred Stock will
be converted into 924,000 shares of common stock of the Registrant upon the
closing of the merger of Hearst HomeArts, Inc., a Delaware corporation, and
Women.com Networks, a California corporation. Women.com Networks paid BT
Alex. Brown Incorporated a commission of $750,000 in connection with such
issuance.
(14) During the period, the Registrant granted stock options to
employees, directors and consultants under its Amended and Restated 1994
Stock Option Plan and Amended and Restated 1998 Equity Incentive Plan
covering an aggregate of 5,234,054 shares of the Company's common stock, at
an average exercise price of $2.95. Options to purchase 562,635 shares of
common stock have been canceled or terminated. The Registrant sold an
aggregate of 615,537 shares of its common stock to employees, directors and
consultants of the Registrant for consideration in the aggregate amount of
$208,257 pursuant to the exercise of stock options granted under the
Amended and Restated 1994 Stock Option Plan and Amended and Restated 1998
Equity Incentive Plan.
The issuances described above in this Item 15 were deemed exempt from
registration under the Securities Act in reliance on either (1) Rule 701
promulgated under the Securities Act as offers and sales of securities pursuant
to certain compensatory benefit plans and contracts relating to compensation in
compliance with Rule 701 or (2) Section 4(2) of the Securities Act as
transactions by an issuer not involving any public offering.
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<PAGE> 120
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(A) EXHIBITS:
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
--------- -----------
<S> <C>
1.1** Form of Underwriting Agreement.
2.1** Form of Agreement of Merger between Women.com Networks and
Hearst HomeArts, Inc.
3.1** Certificate of Incorporation of Hearst HomeArts, Inc.
3.2** By-Laws of Hearst HomeArts, Inc.
3.3** Form of Restated Certificate of Incorporation of the
registrant to be filed on the closing of the offering made
hereby.
3.4** Form of Amended and Restated Bylaws of the registrant to be
filed on the closing of the offering made hereby.
4.1** Reference is made to Exhibits 3.1 and 3.2 hereof.
4.2** Specimen Certificate for registrant's common stock.
4.3** Amended and Restated Investors' Rights Agreement dated May
7, 1999 by and between the Registrant, Ms. Marleen McDaniel,
Ms. Ellen Pack, holders of Women.com Networks preferred
stock and certain warrant holders of Women.com Networks.
4.4* Investor Rights Agreement dated July 9, 1999 between the
Registrant and Torstar Corporation.
4.5* Investor Rights Agreement dated July 9, 1999 between the
Registrant and The Walt Disney Company.
5.1* Opinion of Cooley Godward LLP.
10.1.1** Amended and Restated 1998 Equity Incentive Plan.
10.1.2** Employee Stock Purchase Plan.
10.1.3** Amended and Restated 1994 Stock Option Plan.
10.2** Magazine Content License and Hosting Agreement by and
between Women.com Networks LLC and Hearst Communications,
Inc. dated January 27, 1999.
10.3+** Investment Agreement by and between Women.com Networks and
Graphics International, Inc. d/b/a Hallmark Connections
dated August 19, 1997, as amended on May 7, 1998.
10.4** Investment agreement by and between Women.com Networks and
MediaOne Interactive Services, Inc. (formerly known as US
West Interactive Services, Inc.) dated July 7, 1997, as
amended on April 7, 1998.
10.5** Executive Employment Agreement by and between Women.com
Networks, Women.com Networks LLC and Marleen McDaniel dated
January 29, 1999.
10.6+** Investment Agreement by and between Rodale Press, Inc. and
Women.com Networks dated January 27, 1999.
10.7** Letter Agreement by and between Women.com Networks and
Rodale Press, Inc. dated January 27, 1999.
10.8+** Website Agreement by and between Women.com Networks and
Rodale Press, Inc. dated May 2, 1997.
10.9** Warrant Purchase Agreement by and between Women.com Networks
and MediaOne Interactive Services, Inc. (formerly known as
US West Interactive Services, Inc.) dated July 7, 1997.
10.10** Warrant Agreement by and between Women.com Networks and
MediaOne Interactive Services, Inc. (formerly known as US
West Interactive Services, Inc.) dated July 7, 1997.
</TABLE>
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<PAGE> 121
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
--------- -----------
<S> <C>
10.11** Lease Agreement dated November 7, 1994 and Addendum thereto
dated November 8, 1994 by and between Golden Century
Investment Company and Women.com Networks.
10.12** Amendment No. 1 to the Master Lease Agreement dated December
1, 1994 by and between Golden Century Investment Company,
Inc. and Women.com Networks.
10.13** First Amendment to Lease Agreement dated July 27, 1997 by
and between Carramerica Realty Corporation (a successor in
interest to Golden Century Investment Company) and Women.com
Networks.
10.14** Second Amendment to Lease by and between Carramerica Realty
Corporation and Women.com Networks dated August 31, 1997.
10.15** Third Amendment to Lease by and between Carramerica Realty
Corporation and Women.com Networks dated October 27, 1998.
10.16** Loan and Security Agreement between Women.com Networks and
Imperial Bank dated April 9, 1998.
10.17** Warrant Agreement by and between Women.com Networks and
Imperial Bank dated April 9, 1998.
10.18** Series C Preferred Stock Purchase Agreement by and between
Women.com Networks and the purchasers of Series C Preferred
Stock dated July 9, 1997.
10.19** Series D Preferred Stock Purchase Agreement by and between
Women.com Networks and the purchasers of Series D Preferred
Stock dated June 5, 1998.
10.20** Series E Preferred Stock Purchase Agreement by and between
Women.com Networks and the purchasers of Series E Preferred
Stock dated May 7, 1998.
10.21** Engagement Letter by and between Women.com Networks and BT
Alex. Brown Incorporated dated October 22, 1998.
10.22** Agreement of Merger and Purchase, by and among Hearst
Communications, Inc., Astronet, Inc., Hearst New Media, LLC
and certain shareholders and option holders of Astronet,
Inc. dated December 23, 1998.
10.23** Engagement Letter by and between Women.com Networks and BT
Alex. Brown Incorporated dated April 22, 1999.
10.24** Asset Purchase Agreement by and among Women.com Networks,
Wild Wild Web, Incorporated, Raymond B. Kropp and Victoria
P. Kropp dated April 2, 1998.
10.25** Fourth Amendment to Lease by and between Carramerica Realty
Corporation and Women.com Networks dated March 24, 1999.
10.26* Stock Purchase Agreement by and between Hearst HomeArts,
Inc. and Hearst Communications, Inc. dated July 9, 1999.
10.27+** Letter Agreement between Women.com Networks LLC, Torstar
Corporation and Harlequin Enterprise Limited dated June 25,
1999, as amended July 9, 1999.
10.28* Amendment No. 1 to the Letter Agreement between Women.com
Networks LLC, Torstar Corporation and Harlequin Enterprise
Limited dated July 9, 1999.
10.29* Stock Purchase Agreement by and between Hearst HomeArts,
Inc., Women.com Networks, Women.com Networks LLC and Torstar
Corporation dated July 9, 1999.
10.30* Stock Purchase Agreement by and between Hearst HomeArts,
Inc., Women.com Networks LLC and The Walt Disney Company
dated July 9, 1999.
23.1* Consent of PricewaterhouseCoopers LLP.
23.2* Consent of Deloitte & Touche LLP.
24.1** Power of attorney.
</TABLE>
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<PAGE> 122
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
--------- -----------
<S> <C>
27.1** Financial Data Schedule.
99.1* Consent of David Galloway to be named as a director.
99.2* Consent of James Asher to be named as a director.
</TABLE>
- -------------------------
* Filed herewith
** Previously filed
+ Confidential treatment requested on portions of this exhibit. Unredacted
versions of this exhibit have been filed separately with the Commission.
(B) FINANCIAL STATEMENT SCHEDULES:
Schedule II(a) Valuation and Qualifying Accounts........................S-2
Schedule II(b) Valuation and Qualifying Accounts........................S-3
All schedules not listed above have been omitted because the information
required to be set forth therein is not applicable or is shown in the combined
financial statements or notes thereto.
ITEM 17. UNDERTAKINGS
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.
Insofar as indemnification for liabilities arising under the Securities 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 Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
by undertakes that:
(1) For purposes of determining any liability under the Securities
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) of
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purposes of determining any liability under the Securities
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.
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<PAGE> 123
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Amendment No. 3 to the Registration Statement to
be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of San Mateo, State of California, on July 9, 1999.
WOMEN.COM NETWORKS, INC.
By: *
------------------------------------
Marleen McDaniel
Chairperson, Chief Executive Officer
and President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
* Chairperson, Chief Executive July 9, 1999
- ------------------------------------------------ Officer and President (Principal
Marleen McDaniel Executive Officer)
/s/ MICHAEL PERRY Chief Financial Officer (Principal July 9, 1999
- ------------------------------------------------ Financial and Accounting Officer)
Michael Perry
* Director July 9, 1999
- ------------------------------------------------
Natalie Egleston
* Director July 9, 1999
- ------------------------------------------------
Barry Weinman
* Director July 9, 1999
- ------------------------------------------------
William Miller
* Director July 9, 1999
- ------------------------------------------------
Cathleen Black
* Director July 9, 1999
- ------------------------------------------------
Alfred Sikes
* Director July 9, 1999
- ------------------------------------------------
Nancy Lindemeyer
* Director July 9, 1999
- ------------------------------------------------
Mark Miller
*By: /s/ MICHAEL PERRY
---------------------------------------
Michael Perry
Attorney-in-fact
</TABLE>
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<PAGE> 124
REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULE
To the Board of Directors and Stockholders of Women.com Networks, Inc.
In connection with our audits of the financial statements of Women.com
Networks, Inc. as of December 31, 1997 and 1998, and for each of the three years
in the period ended December 31, 1998, which financial statements are included
in the Prospectus, we have also audited the financial statement schedule listed
in Item 16(b) herein. In our opinion, this financial statement schedule, when
considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information required to be
included therein.
San Jose, California
May 7, 1999
- --------------------------------------------------------------------------------
The roll-up of the limited liability company into a Delaware corporation as
described in Note 1 to the financial statements has not been consummated at May
7, 1999. When such roll-up has been consummated, we will furnish the above
report assuming that from May 7, 1999 to the effective date of such roll-up no
other events shall have occurred that would affect the accompanying financial
statement schedule.
/s/ PRICEWATERHOUSECOOPERS LLP
San Jose, California
May 7, 1999
S-1
<PAGE> 125
SCHEDULE II(A)
WOMEN.COM NETWORKS, INC.
VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE AT
BEGINNING ADDITIONS BALANCE AT
OF YEAR (REDUCTIONS) WRITE-OFFS END OF YEAR
---------- ------------ ---------- -----------
<S> <C> <C> <C> <C>
Allowance for doubtful accounts:
Year ended December 31, 1996............... $ -- $ -- $ -- $ --
Year ended December 31, 1997............... -- 47 -- 47
Year ended December 31, 1998............... 47 248 -- 295
Valuation allowance for deferred tax assets:
Year ended December 31, 1996............... 750 845 -- 1,595
Year ended December 31, 1997............... 1,595 1,903 -- 3,498
Year ended December 31, 1998............... 3,498 4,325 -- 7,823
</TABLE>
S-2
<PAGE> 126
SCHEDULE II(b)
CERTAIN OPERATIONS OF THE
NEW MEDIA & TECHNOLOGY DIVISION
OF THE HEARST CORPORATION
<TABLE>
<CAPTION>
BALANCE AT
BEGINNING ADDITIONS BALANCE AT
OF YEAR (REDUCTIONS) WRITE-OFFS END OF YEAR
---------- ------------ ---------- -----------
<S> <C> <C> <C> <C>
Allowance for doubtful accounts:
Year ended December 31, 1996............... $ -- $ -- $ -- $ --
Year ended December 31, 1997............... -- 21,114 -- 21,114
Year ended December 31, 1998............... 21,114 58,541 -- 79,655
</TABLE>
S-3
<PAGE> 127
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBITS DESCRIPTION
- -------- -----------
<S> <C>
1.1** Form of Underwriting Agreement.
2.1** Form of Agreement of Merger between Women.com Networks and
Hearst HomeArts, Inc.
3.1** Certificate of Incorporation of Hearst HomeArts, Inc.
3.2** By-Laws of Hearst HomeArts, Inc.
3.3** Form of Restated Certificate of Incorporation of the
registrant to be filed on the closing of the offering made
hereby.
3.4** Form of Amended and Restated Bylaws of the registrant to be
filed on the closing of the offering made hereby.
4.1** Reference is made to Exhibits 3.1 and 3.2 hereof.
4.2** Specimen Certificate for registrant's common stock.
4.3** Amended and Restated Investors' Rights Agreement dated May
7, 1999 by and between the Registrant, Ms. Marleen McDaniel,
Ms. Ellen Pack, holders of Women.com Networks preferred
stock and certain warrant holders of Women.com Networks.
4.4* Investor Rights Agreement dated July 9, 1999 between the
Registrant and Torstar Corporation.
4.5* Investor Rights Agreement dated July 9, 1999 between the
Registrant and The Walt Disney Company.
5.1* Opinion of Cooley Godward LLP.
10.1.1** Amended and Restated 1998 Equity Incentive Plan.
10.1.2** Employee Stock Purchase Plan.
10.1.3** Amended and Restated 1994 Stock Option Plan.
10.2** Magazine Content License and Hosting Agreement by and
between Women.com Networks LLC and Hearst Communications,
Inc. dated January 27, 1999.
10.3+** Investment Agreement by and between Women.com Networks and
Graphics International, Inc. d/b/a Hallmark Connections
dated August 19, 1997, as amended on May 7, 1998.
10.4** Investment agreement by and between Women.com Networks and
MediaOne Interactive Services, Inc. (formerly known as US
West Interactive Services, Inc.) dated July 7, 1997, as
amended on April 7, 1998.
10.5** Executive Employment Agreement by and between Women.com
Networks, Women.com Networks LLC and Marleen McDaniel dated
January 29, 1999.
10.6+** Investment Agreement by and between Rodale Press, Inc. and
Women.com Networks dated January 27, 1999.
10.7** Letter Agreement by and between Women.com Networks and
Rodale Press, Inc. dated January 27, 1999.
10.8+** Website Agreement by and between Women.com Networks and
Rodale Press, Inc. dated May 2, 1997.
10.9** Warrant Purchase Agreement by and between Women.com Networks
and MediaOne Interactive Services, Inc. (formerly known as
US West Interactive Services, Inc.) dated July 7, 1997.
10.10** Warrant Agreement by and between Women.com Networks and
MediaOne Interactive Services, Inc. (formerly known as US
West Interactive Services, Inc.) dated July 7, 1997.
10.11** Lease Agreement dated November 7, 1994 and Addendum thereto
dated November 8, 1994 by and between Golden Century
Investment Company and Women.com Networks.
</TABLE>
<PAGE> 128
<TABLE>
<CAPTION>
EXHIBITS DESCRIPTION
- -------- -----------
<S> <C>
10.12** Amendment No. 1 to the Master Lease Agreement dated December
1, 1994 by and between Golden Century Investment Company,
Inc. and Women.com Networks.
10.13** First Amendment to Lease Agreement dated July 27, 1997 by
and between Carramerica Realty Corporation (a successor in
interest to Golden Century Investment Company) and Women.com
Networks.
10.14** Second Amendment to Lease by and between Carramerica Realty
Corporation and Women.com Networks dated August 31, 1997.
10.15** Third Amendment to Lease by and between Carramerica Realty
Corporation and Women.com Networks dated October 27, 1998.
10.16** Loan and Security Agreement between Women.com Networks and
Imperial Bank dated April 9, 1998.
10.17** Warrant Agreement by and between Women.com Networks and
Imperial Bank dated April 9, 1998.
10.18** Series C Preferred Stock Purchase Agreement by and between
Women.com Networks and the purchasers of Series C Preferred
Stock dated July 9, 1997.
10.19** Series D Preferred Stock Purchase Agreement by and between
Women.com Networks and the purchasers of Series D Preferred
Stock dated June 5, 1998.
10.20** Series E Preferred Stock Purchase Agreement by and between
Women.com Networks and the purchasers of Series E Preferred
Stock dated May 7, 1998.
10.21** Engagement Letter by and between Women.com Networks and BT
Alex. Brown Incorporated dated October 22, 1998.
10.22** Agreement of Merger and Purchase, by and among Hearst
Communications, Inc., Astronet, Inc., Hearst New Media, LLC
and certain shareholders and option holders of Astronet,
Inc. dated December 23, 1998.
10.23** Engagement Letter by and between Women.com Networks and BT
Alex. Brown Incorporated dated April 22, 1999.
10.24** Asset Purchase Agreement by and among Women.com Networks,
Wild Wild Web, Incorporated, Raymond B. Kropp and Victoria
P. Kropp dated April 2, 1998.
10.25** Fourth Amendment to Lease by and between Carramerica Realty
Corporation and Women.com Networks dated March 24, 1999.
10.26* Stock Purchase Agreement by and between Hearst HomeArts,
Inc. and Hearst Communications, Inc. dated July 9, 1999.
10.27+** Letter Agreement between Women.com Networks LLC, Torstar
Corporation and Harlequin Enterprise Limited dated June 25,
1999, as amended July 9, 1999.
10.28* Amendment No. 1 to the Letter Agreement between Women.com
Networks LLC, Torstar Corporation and Harlequin Enterprises
Limited dated July 9, 1999.
10.29* Stock Purchase Agreement by and between Hearst HomeArts,
Inc., Women.com Networks, Women.com Networks LLC and Torstar
Corporation dated July 9, 1999.
10.30* Stock Purchase Agreement by and between Hearst HomeArts,
Inc., Women.com Networks LLC and The Walt Disney Company
dated July 9, 1999.
23.1* Consent of PricewaterhouseCoopers LLP.
23.2* Consent of Deloitte & Touche LLP.
24.1** Power of attorney.
27.1** Financial Data Schedule.
99.1* Consent of David Galloway to be named as a director.
99.2* Consent of James Asher to be named as a director.
</TABLE>
- -------------------------
* Filed herewith
** Previously filed
+ Confidential treatment requested on portions of this exhibit. Unredacted
versions of this exhibit have been filed separately with the Commission.
<PAGE> 1
EXHIBIT 4.4
HEARST HOMEARTS, INC.
INVESTOR RIGHTS AGREEMENT
This INVESTOR RIGHTS AGREEMENT (the "AGREEMENT") is entered into as of
July 9, 1999, by and among HEARST HOMEARTS, INC., a Delaware corporation (the
"COMPANY") and TORSTAR CORPORATION (the "INVESTOR").
RECITALS
WHEREAS, the Company is proposing to undertake an initial public
offering, and, immediately prior to such initial public offering, is proposing
to undertake a merger whereby it will be the surviving corporation and renamed
Women.com Networks, Inc.;
WHEREAS, the Company and the Investor are party to that certain Letter
Agreement dated June 28, 1999, as amended (the "LETTER AGREEMENT");
WHEREAS, the Investor pursuant to Section 3 of such Letter Agreement
desires to purchase common stock of the Company and in connection therewith the
Investor has requested that the Company extend to it certain registration rights
as set forth below;
NOW, THEREFORE, in consideration of the mutual promises,
representations, warranties, covenants and conditions set forth in this
Agreement, the parties mutually agree as follows:
AGREEMENT
SECTION 1. GENERAL.
1.1 DEFINITIONS. As used in this Agreement the following terms shall
have the following respective meanings:
"FORM S-3" means such form under the Securities Act (as
hereinafter defined) as in effect on the date hereof or any successor
registration form under the Securities Act subsequently adopted by the SEC (as
hereinafter defined) which permits inclusion or incorporation of substantial
information by reference to other documents filed by the Company with the SEC.
"HOLDER" means any person owning or having the right to acquire
Registrable Securities (as hereinafter defined) or any assignee of record
thereof in accordance with Section 2.8 hereof.
"REGISTER," "REGISTERED," and "REGISTRATION" refer to a
registration effected by preparing and filing a registration statement or
similar document in compliance with the Securities Act, and the declaration or
ordering of effectiveness of such registration statement or document.
"REGISTRABLE SECURITIES" means common stock of the Company
acquired from the Company by the Investor or any common stock of the Company
issued as (or issuable upon the conversion or exercise of any warrant, right or
other security which is issued as) a dividend or other distribution with respect
to, or in exchange for or in replacement of, such above-described securities.
Notwithstanding the foregoing, Registrable Securities shall not include any
securities sold by a person to
1.
<PAGE> 2
the public either pursuant to a registration statement or Rule 144 or sold in a
private transaction in which the transferror's rights under Section 2 of this
Agreement are not assigned.
"REGISTRABLE SECURITIES THEN OUTSTANDING" shall be the number of
shares determined by calculating the total number of shares of the Company's
common stock that are Registrable Securities and either (i) are then issued and
outstanding or (ii) are issuable pursuant to then exercisable or convertible
securities.
"REGISTRATION EXPENSES" shall mean all expenses incurred by the
Company in complying with Sections 2.2 hereof, including, without limitation,
all registration, filing and qualification fees, printing expenses, fees and
disbursements of counsel and accountants for the Company, reasonable fees and
disbursements not to exceed twenty-five thousand dollars ($25,000) of a single
special counsel for the Holder, blue sky fees and expenses and the expense of
any special audits incident to or required by any such registration (but
excluding the compensation of regular employees of the Company which shall be
paid in any event by the Company).
"SECURITIES ACT" shall mean the Securities Act of 1933, as
amended.
"SELLING EXPENSES" shall mean all underwriting discounts, selling
commissions and stock transfer taxes applicable to the sale.
"SHARES" shall mean the Company's common stock issued to the
Investor pursuant to the Stock Purchase Agreement of even date herewith.
"SEC" or "COMMISSION" means the Securities and Exchange
Commission.
SECTION 2. REGISTRATION; RESTRICTIONS ON TRANSFER.
2.1 RESTRICTIONS ON TRANSFER.
(a) The Investor agrees not to make any disposition of all or any
portion of the Shares unless and until the transferee has agreed in writing for
the benefit of the Company to be bound by the terms of this Agreement and:
(i) There is then in effect a registration statement under
the Securities Act covering such proposed disposition and such disposition is
made in accordance with such registration statement; or
(ii) (a) The Investor shall have notified the Company of
the proposed disposition and shall have furnished the Company with a detailed
statement of the circumstances surrounding the proposed disposition, and (b) if
reasonably requested by the Company, the Investor shall have furnished the
Company with an opinion of counsel, reasonably satisfactory to the Company, that
such disposition will not require registration of such shares under the
Securities Act. It is agreed that the Company will not require opinions of
counsel for transactions made pursuant to Rule 144 except in unusual
circumstances.
(iii) Notwithstanding the provisions of paragraphs (i) and
(ii) above, no such registration statement or opinion of counsel shall be
necessary for a transfer by the Investor to its shareholders in accordance with
their interest in the corporation, provided the transferee agrees in writing
2.
<PAGE> 3
to be subject to the terms of this Agreement to the same extent as if it, he or
she were the original Investor hereunder.
(b) Each certificate representing Shares or Registrable
Securities shall (unless otherwise permitted by the provisions of the Agreement)
be stamped or otherwise imprinted with a legend substantially similar to the
following (in addition to any legend required under applicable state securities
laws or as provided elsewhere in the Agreement):
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933 (THE "ACT") AND MAY NOT
BE OFFERED, SOLD OR OTHERWISE TRANSFERRED, PLEDGED OR
HYPOTHECATED UNLESS AND UNTIL REGISTERED UNDER THE ACT OR,
IN THE OPINION OF COUNSEL OR BASED ON OTHER WRITTEN
EVIDENCE IN FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER
OF THESE SECURITIES, SUCH OFFER, SALE OR TRANSFER, PLEDGE
OR HYPOTHECATION IS IN COMPLIANCE THEREWITH.
(c) The Company shall be obligated to reissue promptly unlegended
certificates at the request of any holder thereof if the holder shall have
obtained an opinion of counsel (which counsel may be counsel to the Company)
reasonably acceptable to the Company to the effect that the securities proposed
to be disposed of may lawfully be so disposed of without registration,
qualification or legend.
(d) Any legend endorsed on an instrument pursuant to applicable
state securities laws and the stop-transfer instructions with respect to such
securities shall be removed upon receipt by the Company of an order of the
appropriate blue sky authority authorizing such removal.
2.2 FORM S-3 REGISTRATION. In case the Company shall receive from the
Holder a written request that the Company effect a registration on Form S-3 and
any related qualification or compliance with respect to all or a part of the
Registrable Securities owned by the Holder, the Company will:
(a) as soon as practicable, effect such registration and all such
qualifications and compliances as may be so requested and as would permit or
facilitate the sale and distribution of all or such portion of the Holder's
Registrable Securities as are specified in such request; provided, however, that
the Company shall not be obligated to effect any such registration,
qualification or compliance pursuant to this Section 2.2: (i) if Form S-3 is not
available for such offering by the Holder; provided, however, if the Holder's
request is received on a date more than one year following the Company's initial
public offering and Form S-3 is not available to the Company, the Company shall
as soon as practicable effect such registration on Form S-1 under the Securities
Act (or any successor to form S-1); (ii) if the Company shall furnish to the
Holder a certificate signed by the President or Chairperson of the Board of
Directors of the Company stating that in the good faith judgment of the Board of
Directors of the Company, it would be seriously detrimental to the Company and
its stockholders for such Form S-3 Registration or Form S-1 Registration to be
effected at such time, in which event the Company shall have the right to defer
the filing of the Form S-3 or Form S-1 registration statement for a period of
not more than thirty (30) days after receipt of the request of the Holder under
this Section 2.2; provided that such right to delay a request shall be exercised
by the Company no more than once in any one-year period; (iii) if the Company
has already effected two registrations for the Holder pursuant to this Section
2.2; (iv) if the date of such request is earlier than 365 days from closing of
the Company's initial public offering; or (v) in any particular jurisdiction in
which the Company would be required to qualify to do
3.
<PAGE> 4
business or to execute a general consent to service of process in effecting such
registration, qualification or compliance. Subject to the foregoing, the Company
shall file a Form S-3 or Form S-1 registration statement covering the
Registrable Securities and other securities so requested to be registered as
soon as practicable after receipt of the request of the Holder.
2.3 EXPENSES OF REGISTRATION. All Registration Expenses incurred in
connection with any registration, qualification or compliance pursuant to
Section 2.2 herein shall be borne by the Company. All Selling Expenses incurred
in connection with any registrations hereunder, shall be borne by the Investor.
The Company shall not, however, be required to pay for the Registration Expenses
of any registration proceeding begun pursuant to Sections 2.2, the request of
which has been subsequently withdrawn by the Investor unless (a) the withdrawal
is based upon material adverse information concerning the Company of which the
Investor was not aware at the time of such request or (b) the Investor agrees to
forfeit its right to one requested registration pursuant to Section 2.2. If the
Company is required to pay the Registration Expenses of a withdrawn offering
pursuant to this Section 2.3, then the Holder shall not forfeit its rights
pursuant to Section 2.2.
2.4 OBLIGATIONS OF THE COMPANY. Whenever required to effect the
registration of any Registrable Securities, the Company shall, as expeditiously
as reasonably possible:
(a) Prepare and file with the SEC a registration statement with
respect to such Registrable Securities and use its best efforts to cause such
registration statement to become effective, and, upon the request of the Holder
of the Registrable Securities registered thereunder, keep such registration
statement effective for up to thirty (30) days.
(b) Prepare and file with the SEC such amendments and supplements
to such registration statement and the prospectus used in connection with such
registration statement as may be necessary to comply with the provisions of the
Securities Act with respect to the disposition of all securities covered by such
registration statement.
(c) Furnish to the Holder such number of copies of a prospectus,
including a preliminary prospectus, in conformity with the requirements of the
Securities Act, and such other documents as it may reasonably request in order
to facilitate the disposition of Registrable Securities owned by them.
(d) Use its best efforts to register and qualify the securities
covered by such registration statement under such other securities or blue sky
laws of such jurisdictions as shall be reasonably requested by the Holder,
provided that the Company shall not be required in connection therewith or as a
condition thereto to qualify to do business or to file a general consent to
service of process in any such states or jurisdictions.
(e) Notify the Holder at any time when a prospectus relating
thereto is required to be delivered under the Securities Act of the happening of
any event as a result of which the prospectus included in such registration
statement, as then in effect, includes an untrue statement of a material fact or
omits to state a material fact required to be stated therein or necessary to
make the statements therein not misleading in the light of the circumstances
then existing.
2.5 TERMINATION OF REGISTRATION RIGHTS. All registration rights granted
under this Section 2 shall terminate and be of no further force and effect two
years from the closing date of the Company's initial public offering.
4.
<PAGE> 5
2.6 DELAY OF REGISTRATION: FURNISHING INFORMATION.
(a) The Holder shall not have any right to obtain or seek an
injunction restraining or otherwise delaying any such registration as the result
of any controversy that might arise with respect to the interpretation or
implementation of this Section 2.
(b) It shall be a condition precedent to the obligations of the
Company to take any action pursuant to Section 2 that the selling Holder shall
furnish to the Company such information regarding itself, the Registrable
Securities held by it and the intended method of disposition of such securities
as shall be required to effect the registration of its Registrable Securities.
2.7 INDEMNIFICATION. In the event any Registrable Securities are
included in a registration statement under Sections 2.2:
(a) The Company will indemnify and hold harmless the Holder, the
partners, officers and directors of the Holder, any underwriter (as defined
under the Securities Act) for the Holder and each person, if any, who controls
the Holder or underwriter within the meaning of the Securities Act or the
Securities Exchange Act of 1934, as amended, (the "1934 ACT"), against any
losses, claims, damages, or liabilities (joint or several) to which they may
become subject under the Securities Act, the 1934 Act or other federal or state
law, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon any of the following statements,
omissions or violations (collectively a "VIOLATION") by the Company: (i) any
untrue statement or alleged untrue statement of a material fact contained in
such registration statement, including any preliminary prospectus or final
prospectus contained therein or any amendments or supplements thereto; (ii) the
omission or alleged omission to state therein a material fact required to be
stated therein, or necessary to make the statements therein not misleading; or
(iii) any violation or alleged violation by the Company of the Securities Act,
the 1934 Act, any state securities law or any rule or regulation promulgated
under the Securities Act, the 1934 Act or any state securities law in connection
with the offering covered by such registration statement; and the Company will
reimburse the Holder, partner, officer or director, underwriter or controlling
person for any legal or other expenses reasonably incurred by them in connection
with investigating or defending any such loss, claim, damage, liability or
action; provided, however, that the indemnity agreement contained in this
Section 2.7(a) shall not apply to amounts paid in settlement of any such loss,
claim, damage, liability or action if such settlement is effected without the
consent of the Company (which consent shall not be unreasonably withheld) nor
shall the Company be liable in any such case for any such loss, claim, damage,
liability or action to the extent that it arises out of or is based upon a
Violation which occurs solely in reliance upon and in conformity with written
information furnished expressly for use in connection with such registration by
the Holder, partner, officer, director, underwriter or controlling person of the
Holder.
(b) The Holder will indemnify and hold harmless the Company, each
of its directors, each of its officers, each person, if any, who controls the
Company within the meaning of the Securities Act, or any underwriter, against
any losses, claims, damages or liabilities (joint or several) to which the
Company or any such director, officer, controlling person or underwriter may
become subject under the Securities Act, the 1934 Act or other federal or state
law, insofar as such losses, claims, damages or liabilities (or actions in
respect thereto) arise out of or are based upon any Violation, in each case to
the extent (and only to the extent) that such Violation occurs solely in
reliance upon and in conformity with written information furnished by the Holder
under an instrument duly executed by the Holder and stated to be specifically
for use in connection with such registration; and the Holder will reimburse any
legal or other expenses reasonably incurred by the Company or any such director,
officer, controlling person or
5.
<PAGE> 6
underwriter in connection with investigating or defending any such loss, claim,
damage, liability or action; provided, however, that the indemnity agreement
contained in this Section 2.7(b) shall not apply to amounts paid in settlement
of any such loss, claim, damage, liability or action if such settlement is
effected without the consent of the Holder, which consent shall not be
unreasonably withheld. Notwithstanding the foregoing, the maximum liability of
the Holder pursuant to this Section 2.7(b) shall be equal to the net proceeds
received by the Holder from the sale of its shares pursuant to the registration
statement relating to such sale.
(c) Promptly after receipt by an indemnified party under this
Section 2.7 of notice of the commencement of any action (including any
governmental action), such indemnified party will, if a claim in respect thereof
is to be made against any indemnifying party under this Section 2.7, deliver to
the indemnifying party a written notice of the commencement thereof and the
indemnifying party shall have the right to participate in, and, to the extent
the indemnifying party so desires, jointly with any other indemnifying party
similarly noticed, to assume the defense thereof with counsel mutually
satisfactory to the parties; provided, however, that an indemnified party shall
have the right to retain its own counsel, with the fees and expenses to be paid
by the indemnifying party, if representation of such indemnified party by the
counsel retained by the indemnifying party would be inappropriate due to actual
or potential differing interests between such indemnified party and any other
party represented by such counsel in such proceeding. The failure to deliver
written notice to the indemnifying party within a reasonable time of the
commencement of any such action, if materially prejudicial to its ability to
defend such action, shall relieve such indemnifying party of any liability to
the indemnified party under this Section 2.7, but the omission so to deliver
written notice to the indemnifying party will not relieve it of any liability
that it may have to any indemnified party otherwise than under this Section 2.7.
(d) If the indemnification provided for in this Section 2.7 is
held by a court of competent jurisdiction to be unavailable to an indemnified
party with respect to any losses, claims, damages or liabilities referred to
herein, the indemnifying party, in lieu of indemnifying such indemnified party
thereunder, shall to the extent permitted by applicable law contribute to the
amount paid or payable by such indemnified party as a result of such loss,
claim, damage or liability in such proportion as is appropriate to reflect the
relative fault of the indemnifying party on the one hand and of the indemnified
party on the other in connection with the Violation(s) that resulted in such
loss, claim, damage or liability, as well as any other relevant equitable
considerations. The relative fault of the indemnifying party and of the
indemnified party shall be determined by a court of law by reference to, among
other things, whether the Violation relates to information supplied by the
indemnifying party or by the indemnified party and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission. Notwithstanding the foregoing, the maximum liability of
the Holder pursuant to this Section 2.7(d) shall be equal to the net proceeds
received by the Holder from the sale of its shares pursuant to the registration
statement relating to such sale.
(e) The foregoing indemnity agreements of the Company and the
Holder are subject to the condition that, insofar as they relate to any
Violation made in a preliminary prospectus but eliminated or remedied in the
amended prospectus on file with the SEC at the time the registration statement
in question becomes effective or the amended prospectus filed with the SEC
pursuant to SEC Rule 424(b) (the "FINAL PROSPECTUS"), such indemnity agreement
shall not inure to the benefit of any person if a copy of the Final Prospectus
was furnished to the indemnified party and was not furnished to the person
asserting the loss, liability, claim or damage at or prior to the time such
action is required by the Securities Act.
6.
<PAGE> 7
(f) The obligations of the Company and the Holder under this
Section 2.7 shall survive the completion of any offering of Registrable
Securities in a registration statement and otherwise.
2.8 RULE 144 REPORTING. With a view to making available to the Holder
the benefits of certain rules and regulations of the SEC which may permit the
sale of the Registrable Securities to the public without registration, the
Company agrees to use its best efforts to:
(a) Make and keep public information available, as those terms
are understood and defined in SEC Rule 144 or any similar or analogous rule
promulgated under the Securities Act, at all times after the effective date of
the first registration filed by the Company for an offering of its securities to
the general public;
(b) File with the SEC, in a timely manner, all reports and other
documents required of the Company under the Exchange Act;
(c) So long as a Holder owns any Registrable Securities furnish
to such Holder forthwith upon request: a written statement by the Company as to
its compliance with the reporting requirements of said Rule 144 of the
Securities Act and of the Exchange Act (at any time after it has become subject
to such reporting requirements); a copy of the most recent annual or quarterly
report of the Company; and such other reports and documents as a Holder may
reasonably request in availing itself of any rule or regulation of the SEC
allowing it to sell any such securities without registration.
2.9 ASSIGNMENT OF REGISTRATION RIGHTS. The rights to cause the Company
to register Registrable Securities pursuant to this Section 2 may be assigned by
the Holder to a transferee or assignee of Registrable Securities; provided,
however, that no such transferee or assignee shall be entitled to registration
rights under Section 2.2 hereof unless it acquires at least fifty percent (50%)
of the Holder's Registrable Securities (as adjusted for stock splits and
combinations) and the Company shall, within twenty (20) days after such
transfer, be furnished with written notice of the name and address of such
transferee or assignee and the securities with respect to which such
registration fights are being assigned. Notwithstanding the foregoing, rights to
cause the Company to register securities may be assigned to any subsidiary,
parent, general partner or limited partner of the Holder.
SECTION 3. MISCELLANEOUS.
3.1 GOVERNING LAW. This Agreement shall be governed by and construed
under the laws of the State of California as applied to agreements among
California residents entered into and to be performed entirely within the State
of California.
3.2 SURVIVAL. The representations, warranties, covenants, and agreements
made herein shall survive any investigation made by the Holder and the closing
of the transactions contemplated hereby. All statements as to factual matters
contained in any certificate or other instrument delivered by or on behalf of
the Company pursuant hereto in connection with the transactions contemplated
hereby shall be deemed to be representations and warranties by the Company
hereunder solely as of the date of such certificate or instrument.
3.3 SUCCESSORS AND ASSIGNS. Except as otherwise expressly provided
herein, this Agreement, and the rights and obligations hereunder, may not be
assigned by any party hereto without the prior written consent of the Company.
The provisions hereof shall inure to the benefit of, and be binding upon, the
successors, permitted assigns, heirs, executors, and administrators of the
parties hereto;
7.
<PAGE> 8
provided, however, that prior to the receipt by the Company of adequate written
notice of the transfer of any Registrable Securities specifying the full name
and address of the transferee, the Company may deem and treat the person listed
as the holder of such shares in its records as the absolute owner and holder of
such shares for all purposes, including the payment of dividends or any
redemption price.
3.4 SEPARABILITY. In case any provision of the Agreement shall be
invalid, illegal, or unenforceable, the validity, legality, and enforceability
of the remaining provisions shall not in any way be affected or impaired
thereby.
3.5 AMENDMENT AND WAIVER.
(a) Except as otherwise expressly provided, this Agreement may be
amended or modified only upon the written consent of the Company and the Holder.
(b) Except as otherwise expressly provided, the obligations of
the Company and the rights of the Holder under this Agreement may be waived only
with the written consent of the Company and the Holder.
(c) Any amendment or waiver effected in accordance with this
Section 3.5 shall be binding upon the Holder, its successors and assigns, and
the Company, its successors and assigns.
3.6 DELAYS OR OMISSIONS. It is agreed that no delay or omission to
exercise any right, power, or remedy accruing to any party hereto, upon any
breach, default or noncompliance of any other party hereto under this Agreement
shall impair any such right, power, or remedy, nor shall it be construed to be a
waiver of any such breach, default or noncompliance, or any acquiescence
therein, or of any similar breach, default or noncompliance thereafter
occurring. It is further agreed that any waiver, permit, consent, or approval of
any kind or character on any party's part of any breach, default or
noncompliance under the Agreement or any waiver on such party's part of any
provisions or conditions of this Agreement must be in writing and shall be
effective only to the extent specifically set forth in such writing. All
remedies, either under this Agreement, by law, or otherwise afforded to the
parties hereto, shall be cumulative and not alternative.
3.7 NOTICES. All notices required or permitted hereunder shall be in
writing and shall be deemed effectively given: (a) upon personal delivery to the
party to be notified; (b) when sent by confirmed telex; (c) five days after
having been sent by registered or certified mail, return receipt requested,
postage prepaid; or (d) one day after deposit with a nationally recognized
overnight courier, specifying next day delivery, with written verification of
receipt. All communications shall be sent to the party to be notified at the
address as set forth on the signature page hereof or at such other address as
such party may designate by ten days advance written notice to the other parties
hereto.
3.8 ATTORNEYS' FEES. In the event that any dispute among the parties to
this Agreement should result in litigation, the prevailing party in such dispute
shall be entitled to recover from the losing party all fees, costs and expenses
of enforcing any right of such prevailing party under or with respect to this
Agreement, including without limitation, such reasonable fees and expenses of
attorneys and accountants, which shall include, without limitation, all fees,
costs and expenses of appeals.
3.9 ACKNOWLEDGEMENT. The Investor hereby acknowledges certain
stockholders of the Company may have "piggyback" registration rights with
respect to the registration statements requested by the Holder hereunder
pursuant to that certain Amended and Restated Investors' Rights Agreement
8.
<PAGE> 9
dated May 7, 1999 and filed as Exhibit 4.3 to the Company registration statement
on Form S-1 (No. 333-78363) as filed with the SEC on May 13, 1999, as amended to
date.
3.10 TITLES AND SUBTITLES. The titles of the sections and subsections of
this Agreement are for convenience of reference only and are not to be
considered in construing this Agreement.
3.11 PRONOUNS. All pronouns contained herein and any variations thereof
shall be deemed to refer to the masculine, feminine or neuter, singular or
plural, as the identity of the parties hereto may require.
3.12 COUNTERPARTS.
This Agreement may be executed in any number of counterparts, each of
which shall be an original, but all of which together shall constitute one
instrument.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK.]
9.
<PAGE> 10
IN WITNESS WHEREOF, the parties hereto have executed this INVESTOR
RIGHTS AGREEMENT as of the date first above written.
COMPANY: HEARST HOMEARTS, INC.
By: /s/ Alfred Sikes
-------------------------------------------
(Signature)
Title: President
-----------------------------------------
Address: 959 Eighth Avenue
--------------------------------------
New York, New York 10019
----------------------------------------------
----------------------------------------------
INVESTOR: TORSTAR CORPORATION
By: /s/ Dave Samuel
-------------------------------------------
(Signature)
Title: Vice President of Corporate Development
-----------------------------------------
Address: One Yonge Street
--------------------------------------
Toronto, Canada M5E 1P9
----------------------------------------------
----------------------------------------------
<PAGE> 11
================================================================================
HEARST HOMEARTS, INC.
INVESTOR RIGHTS AGREEMENT
JULY 9, 1999
================================================================================
<PAGE> 12
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
SECTION 1. GENERAL...........................................................................1
1.1 Definitions...................................................................1
SECTION 2. REGISTRATION; RESTRICTIONS ON TRANSFER............................................2
2.1 Restrictions on Transfer......................................................2
2.2 Form S-3 Registration.........................................................3
2.3 Expenses of Registration......................................................4
2.4 Obligations of the Company....................................................4
2.5 Termination of Registration Rights............................................4
2.6 Delay of Registration: Furnishing Information.................................5
2.7 Indemnification...............................................................5
2.8 Rule 144 Reporting............................................................7
2.9 Assignment of Registration Rights.............................................7
SECTION 3. MISCELLANEOUS.....................................................................7
3.1 Governing Law.................................................................7
3.2 Survival......................................................................7
3.3 Successors and Assigns........................................................7
3.4 Separability..................................................................8
3.5 Amendment and Waiver..........................................................8
3.6 Delays or Omissions...........................................................8
3.7 Notices.......................................................................8
3.8 Attorneys' Fees...............................................................8
3.9 Acknowledgement...............................................................8
3.10 Titles and Subtitles..........................................................9
3.11 Pronouns......................................................................9
3.12 Counterparts..................................................................9
</TABLE>
<PAGE> 1
EXHIBIT 4.5
HEARST HOMEARTS, INC.
INVESTOR RIGHTS AGREEMENT
This INVESTOR RIGHTS AGREEMENT (the "AGREEMENT") is entered into as of
July 9, 1999, by and among HEARST HOMEARTS, INC., a Delaware corporation (the
"COMPANY") and THE WALT DISNEY COMPANY, a Delaware corporation (the "INVESTOR").
RECITALS
WHEREAS, the Company and the Investor are party to that certain Letter
Agreement dated July 9, 1999, as amended (the "LETTER AGREEMENT");
WHEREAS, the Investor pursuant to Section 1 of such Letter Agreement
desires to purchase common stock of the Company and in connection therewith the
Investor has requested that the Company extend to it certain registration rights
as set forth below;
NOW, THEREFORE, in consideration of the mutual promises,
representations, warranties, covenants and conditions set forth in this
Agreement, the parties mutually agree as follows:
AGREEMENT
SECTION 1. GENERAL.
1.1 DEFINITIONS. As used in this Agreement the following terms shall
have the following respective meanings:
"FORM S-3" means such form under the Securities Act (as
hereinafter defined) as in effect on the date hereof or any successor
registration form under the Securities Act subsequently adopted by the SEC (as
hereinafter defined) which permits inclusion or incorporation of substantial
information by reference to other documents filed by the Company with the SEC.
"HOLDER" means any person owning or having the right to acquire
Registrable Securities (as hereinafter defined) or any assignee of record
thereof in accordance with Section 2.10 hereof.
"REGISTER," "REGISTERED," and "REGISTRATION" refer to a
registration effected by preparing and filing a registration statement or
similar document in compliance with the Securities Act, and the declaration or
ordering of effectiveness of such registration statement or document.
"REGISTRABLE SECURITIES" means common stock of the Company
acquired from the Company by the Investor or any common stock of the Company
issued as (or issuable upon the conversion or exercise of any warrant, right or
other security which is issued as) a dividend or other distribution with respect
to, or in exchange for or in replacement of, such above-described securities.
Notwithstanding the foregoing, Registrable Securities shall not include any
securities sold by a person to the public either pursuant to a registration
statement or Rule 144 or sold in a private transaction in which the
transferror's rights under Section 2 of this Agreement are not assigned.
1.
<PAGE> 2
"REGISTRABLE SECURITIES THEN OUTSTANDING" shall be the number of
shares determined by calculating the total number of shares of the Company's
common stock that are Registrable Securities and either (i) are then issued and
outstanding or (ii) are issuable pursuant to then exercisable or convertible
securities.
"REGISTRATION EXPENSES" shall mean all expenses incurred by the
Company in complying with Sections 2.2 and 2.3 hereof, including, without
limitation, all registration, filing and qualification fees, printing expenses,
fees and disbursements of counsel and accountants for the Company, reasonable
fees and disbursements not to exceed fifteen thousand dollars ($15,000) of a
single special counsel for the Holder, blue sky fees and expenses and the
expense of any special audits incident to or required by any such registration
(but excluding the compensation of regular employees of the Company which shall
be paid in any event by the Company).
"SECURITIES ACT" shall mean the Securities Act of 1933, as
amended.
"SELLING EXPENSES" shall mean all underwriting discounts, selling
commissions and stock transfer taxes applicable to the sale.
"SHARES" shall mean the Company's common stock issued to the
Investor pursuant to the Stock Purchase Agreement of even date herewith.
"SEC" or "COMMISSION" means the Securities and Exchange
Commission.
SECTION 2. REGISTRATION; RESTRICTIONS ON TRANSFER.
2.1 RESTRICTIONS ON TRANSFER.
(a) The Investor agrees not to make any disposition of all or any
portion of the Shares unless and until the transferee has agreed in writing for
the benefit of the Company to be bound by the terms of this Agreement and:
(i) There is then in effect a registration statement
under the Securities Act covering such proposed disposition and such disposition
is made in accordance with such registration statement; or
(ii) (a) The Investor shall have notified the Company of
the proposed disposition and shall have furnished the Company with a detailed
statement of the circumstances surrounding the proposed disposition, and (b) if
reasonably requested by the Company, the Investor shall have furnished the
Company with an opinion of counsel, reasonably satisfactory to the Company, that
such disposition will not require registration of such shares under the
Securities Act. It is agreed that the Company will not require opinions of
counsel for transactions made pursuant to Rule 144 except in unusual
circumstances.
(iii) Notwithstanding the provisions of paragraphs (i)
and (ii) above, no such registration statement or opinion of counsel shall be
necessary for a transfer by the Investor to its stockholders in accordance with
their interest in the corporation, provided the transferee agrees in writing to
be subject to the terms of this Agreement to the same extent as if it, he or she
were the original Investor hereunder.
2.
<PAGE> 3
(b) Each certificate representing Shares or Registrable
Securities shall (unless otherwise permitted by the provisions of the Agreement)
be stamped or otherwise imprinted with a legend substantially similar to the
following (in addition to any legend required under applicable state securities
laws or as provided elsewhere in the Agreement):
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933 (THE "ACT") AND MAY NOT
BE OFFERED, SOLD OR OTHERWISE TRANSFERRED, PLEDGED OR
HYPOTHECATED UNLESS AND UNTIL REGISTERED UNDER THE ACT OR,
IN THE OPINION OF COUNSEL OR BASED ON OTHER WRITTEN
EVIDENCE IN FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER
OF THESE SECURITIES, SUCH OFFER, SALE OR TRANSFER, PLEDGE
OR HYPOTHECATION IS IN COMPLIANCE THEREWITH.
(c) The Company shall be obligated to reissue promptly unlegended
certificates at the request of any holder thereof if the holder shall have
obtained an opinion of counsel (which counsel may be counsel to the Company)
reasonably acceptable to the Company to the effect that the securities proposed
to be disposed of may lawfully be so disposed of without registration,
qualification or legend.
(d) Any legend endorsed on an instrument pursuant to applicable
state securities laws and the stop-transfer instructions with respect to such
securities shall be removed upon receipt by the Company of an order of the
appropriate blue sky authority authorizing such removal.
2.2 FORM S-3 REGISTRATION. In case the Company shall receive from the
Holder a written request that the Company effect a registration on Form S-3 and
any related qualification or compliance with respect to all or a part of the
Registrable Securities owned by the Holder, the Company will:
(a) as soon as practicable, effect such registration and all such
qualifications and compliances as may be so requested and as would permit or
facilitate the sale and distribution of all or such portion of the Holder's
Registrable Securities as are specified in such request; provided, however, that
the Company shall not be obligated to effect any such registration,
qualification or compliance pursuant to this Section 2.2: (i) if Form S-3 is not
available for such offering by the Holder; (ii) if the Holder proposes to sell
Registrable Securities and such other securities (if any) at an aggregate price
to the public of less than $1,000,000; (iii) if the Company shall furnish to the
Holder a certificate signed by the President or Chairperson of the Board of
Directors of the Company stating that in the good faith judgment of the Board of
Directors of the Company, it would be seriously detrimental to the Company and
its stockholders for such Form S-3 Registration to be effected at such time, in
which event the Company shall have the right to defer the filing of the Form S-3
registration statement for a period of not more than sixty (60) days after
receipt of the request of the Holder under this Section 2.2; provided that such
right to delay a request shall be exercised by the Company no more than once in
any one-year period; (iv) if the Company has already effected two registrations
on Form S-3 for the Holder pursuant to this Section 2.2; (v) if the date of such
request is earlier than 365 days from closing of the Company's initial public
offering; or (vi) in any particular jurisdiction in which the Company would be
required to qualify to do business or to execute a general consent to service of
process in effecting such registration, qualification or compliance. Subject to
the foregoing, the Company shall file a Form S-3 registration statement covering
the Registrable Securities and other securities so requested to be registered as
soon as practicable after receipt of the request of the Holder.
3.
<PAGE> 4
2.3 DEMAND REGISTRATION.
(a) Subject to the conditions of this Section 2.3, if the Company
shall receive at any time and from time to time on or following the five months
after the closing date of the Company's initial public offering (the "INITIAL
OFFERING"), a written request from the Holder that the Company file a
registration statement under the Securities Act covering the registration of at
least fifty percent (50%) of the Registrable Securities then held by the Holder,
then the Company shall take commercially reasonable efforts to have a
registration statement filed and declared effective as soon as practicable
following the date that is one hundred and eighty (180) days after the closing
of the Company's Initial Public Offering, subject to the limitations of Section
2.3(c), for the Registrable Securities of the Holder requested to be registered.
(b) If the Holder intends to distribute the Registrable
Securities covered by its request by means of an underwriting, it shall so
advise the Company as a part of its request made pursuant to this Section 2.3
and shall enter into an underwriting agreement in customary form with the
underwriter or underwriters selected for such underwriting by the Holder (which
underwriter(s) shall be reasonably acceptable to the Company).
(c) The Company shall not be obligated to effect more than one
registration pursuant to this Section 2.3.
(d) The Company shall not be required to effect a registration
pursuant to this Section 2.3 during the period starting with the date of filing
of, and ending on the date one hundred eighty (180) days following the effective
date of the registration statement pertaining to its Initial Offering, provided
that the Company is making reasonable and good faith efforts to cause such
registration statement to become effective.
(e) Notwithstanding the foregoing, if the Company shall furnish
to Holders requesting a registration statement pursuant to this Section 2.3, a
certificate signed by the President or the Chairperson of the Board stating that
in the good faith judgment of the Board of Directors of the Company, it would be
seriously detrimental to the Company and its stockholders for such registration
statement to be filed and it is therefore essential to defer the filing of such
registration statement, the Company shall have the right to defer such filing
for a period of not more than sixty (60) days after receipt of the request of
the Holder; provided that such right to delay a request shall be exercised by
the Company no more than once.
(f) No filing of a registration statement by the Company shall
effect the Holder's rights contained in this Section 2.3. The Company and the
Holder agree that if the Company intends to file a registration statement
unrelated to a request pursuant to this Section 2.3, the Company will inform
such Holder of such intention and the parties will discuss in good faith
including such Holder's shares in such proposed registration statement rather
than pursuant to a separate registration statement effected pursuant to this
Section 2.3.
2.4 EXPENSES OF REGISTRATION. All Registration Expenses incurred in
connection with any registration, qualification or compliance pursuant to
Section 2.2 or Section 2.3 herein shall be borne by the Company. All Selling
Expenses incurred in connection with any registrations hereunder, shall be borne
by the Investor. The Company shall not, however, be required to pay for the
Registration
4.
<PAGE> 5
Expenses of any registration proceeding begun pursuant to Sections 2.2 or
Section 2.3, the request of which has been subsequently withdrawn by the
Investor unless (a) the withdrawal is based upon material adverse information
concerning the Company of which the Investor was not aware at the time of such
request or (b) the Investor agrees to forfeit its right to one requested
registration pursuant to Section 2.2 or Section 2.3. If the Company is required
to pay the Registration Expenses of a withdrawn offering pursuant to this
Section 2.4, then the Holder shall not forfeit its rights pursuant to Section
2.2 or Section 2.3, as applicable.
2.5 OBLIGATIONS OF THE COMPANY. Whenever required to effect the
registration of any Registrable Securities, the Company shall, as expeditiously
as reasonably possible:
(a) With regard to Section 2.3 hereof, prepare and file with the
SEC a registration statement with respect to such Registrable Securities and use
its best efforts to cause such registration statement to become effective, and,
upon the request of the Holder of the Registrable Securities registered
thereunder, keep such registration statement effective for up to one hundred and
eighty (180) days from the effective date of such registration statement.
Notwithstanding the foregoing, the Holder acknowledges that there may
occasionally be times when the Company must suspend the use of the prospectus
forming a part of the registration statement until such time as an amendment to
the registration statement has been filed by the Company and declared effective
by the SEC, or until such time as the Company has filed an appropriate report
with the SEC pursuant to the Exchange Act (the "BLACK OUT PERIOD"); provided,
however, no Black Out Period shall exceed sixty (60) days in the aggregate and
no more than thirty (30) consecutive days; provided, further, that if the
Company is in the process of filing a quarterly or annual report pursuant to the
Exchange Act reporting requirements the Company agrees to file an amendment to
the Investor's registration statement as soon as reasonably practicable in
connection with such filings. The Investor hereby covenants that it will not
sell any Shares pursuant to said prospectus during the period commencing at the
time at which the Company gives the Investor notice of the suspension of the use
of said prospectus and ending at the time the Company gives the Investor notice
that the Investor may thereafter effect sales pursuant to said prospectus. The
Investor further covenants to notify the Company promptly of the sale of all of
its Shares.
(b) With regard to Section 2.2 hereof, prepare and file with the
SEC a registration statement with respect to such Registrable Securities and use
its best efforts to cause such registration statement to become effective, and,
upon the request of the Holder of the Registrable Securities registered
thereunder, keep such registration statement effective for up to thirty (30)
days.
(c) Prepare and file with the SEC such amendments and supplements
to such registration statement and the prospectus used in connection with such
registration statement as may be necessary to comply with the provisions of the
Securities Act with respect to the disposition of all securities covered by such
registration statement.
(d) Furnish to the Holder such number of copies of a prospectus,
including a preliminary prospectus, in conformity with the requirements of the
Securities Act, and such other documents as it may reasonably request in order
to facilitate the disposition of Registrable Securities owned by them.
(e) Use its best efforts to register and qualify the securities
covered by such registration statement under such other securities or blue sky
laws of such jurisdictions as shall be reasonably requested by the Holder,
provided that the Company shall not be required in connection
5.
<PAGE> 6
therewith or as a condition thereto to qualify to do business or to file a
general consent to service of process in any such states or jurisdictions.
(f) Notify the Holder at any time when a prospectus relating
thereto is required to be delivered under the Securities Act of the happening of
any event as a result of which the prospectus included in such registration
statement, as then in effect, includes an untrue statement of a material fact or
omits to state a material fact required to be stated therein or necessary to
make the statements therein not misleading in the light of the circumstances
then existing.
2.6 TERMINATION OF REGISTRATION RIGHTS. The registration rights granted
under Section 2.2 shall terminate and be of no further force and effect two
years from the closing date of the Company's Initial Offering. The rights
granted under Section 2.3 shall terminate after one year.
2.7 DELAY OF REGISTRATION: FURNISHING INFORMATION.
(a) The Holder shall not have any right to obtain or seek an
injunction restraining or otherwise delaying any such registration as the result
of any controversy that might arise with respect to the interpretation or
implementation of this Section 2.
(b) It shall be a condition precedent to the obligations of the
Company to take any action pursuant to Section 2 that the selling Holder shall
furnish to the Company such information as reasonably necessary regarding
itself, the Registrable Securities held by it and the intended method of
disposition of such securities as shall be required to effect the registration
of its Registrable Securities.
2.8 INDEMNIFICATION. In the event any Registrable Securities are
included in a registration statement under Sections 2.2 or Section 2.3:
(a) To the extent permitted by law, the Company will indemnify
and hold harmless the Holder, the partners, officers and directors of the
Holder, any underwriter (as defined under the Securities Act) for the Holder and
each person, if any, who controls the Holder or underwriter within the meaning
of the Securities Act or the Securities Exchange Act of 1934, as amended, (the
"1934 ACT"), against any losses, claims, damages, or liabilities (joint or
several) to which they may become subject under the Securities Act, the 1934 Act
or other federal or state law, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon any
of the following statements, omissions or violations (collectively a
"VIOLATION") by the Company: (i) any untrue statement or alleged untrue
statement of a material fact contained in such registration statement, including
any preliminary prospectus or final prospectus contained therein or any
amendments or supplements thereto; (ii) the omission or alleged omission to
state therein a material fact required to be stated therein, or necessary to
make the statements therein not misleading; or (iii) any violation or alleged
violation by the Company of the Securities Act, the 1934 Act, any state
securities law or any rule or regulation promulgated under the Securities Act,
the 1934 Act or any state securities law in connection with the offering covered
by such registration statement; and the Company will reimburse the Holder,
partner, officer or director, underwriter or controlling person for any legal or
other expenses reasonably incurred by them in connection with investigating or
defending any such loss, claim, damage, liability or action; provided, however,
that the indemnity agreement contained in this Section 2.8(a) shall not apply to
amounts paid in settlement of any such loss, claim, damage, liability or action
if such settlement is effected without the consent of the Company (which consent
shall not be unreasonably withheld) nor shall the Company be liable in any such
case for any such loss, claim, damage, liability or action to the extent that it
arises out of or is based upon a Violation which occurs solely in reliance upon
and in
6.
<PAGE> 7
conformity with written information furnished expressly for use in connection
with such registration by the Holder, partner, officer, director, underwriter or
controlling person of the Holder.
(b) To the extent permitted by law, the Holder will indemnify and
hold harmless the Company, each of its directors, each of its officers, each
person, if any, who controls the Company within the meaning of the Securities
Act, or any underwriter, against any losses, claims, damages or liabilities
(joint or several) to which the Company or any such director, officer,
controlling person or underwriter may become subject under the Securities Act,
the 1934 Act or other federal or state law, insofar as such losses, claims,
damages or liabilities (or actions in respect thereto) arise out of or are based
upon any Violation, in each case to the extent (and only to the extent) that
such Violation occurs solely in reliance upon and in conformity with written
information furnished by the Holder under an instrument duly executed by the
Holder and stated to be specifically for use in connection with such
registration; and the Holder will reimburse any legal or other expenses
reasonably incurred by the Company or any such director, officer, controlling
person or underwriter in connection with investigating or defending any such
loss, claim, damage, liability or action; provided, however, that the indemnity
agreement contained in this Section 2.8(b) shall not apply to amounts paid in
settlement of any such loss, claim, damage, liability or action if such
settlement is effected without the consent of the Holder, which consent shall
not be unreasonably withheld; provided further, that in no event shall any
indemnity under this Section 2.8 exceed the net proceeds from the offering
received by such Holder.
(c) Promptly after receipt by an indemnified party under this
Section 2.8 of notice of the commencement of any action (including any
governmental action), such indemnified party will, if a claim in respect thereof
is to be made against any indemnifying party under this Section 2.8, deliver to
the indemnifying party a written notice of the commencement thereof and the
indemnifying party shall have the right to participate in, and, to the extent
the indemnifying party so desires, jointly with any other indemnifying party
similarly noticed, to assume the defense thereof with counsel mutually
satisfactory to the parties; provided, however, that an indemnified party shall
have the right to retain its own counsel, with the fees and expenses to be paid
by the indemnifying party, if representation of such indemnified party by the
counsel retained by the indemnifying party would be inappropriate due to actual
or potential differing interests between such indemnified party and any other
party represented by such counsel in such proceeding. The failure to deliver
written notice to the indemnifying party within a reasonable time of the
commencement of any such action, if materially prejudicial to its ability to
defend such action, shall relieve such indemnifying party of any liability to
the indemnified party under this Section 2.8, but the omission so to deliver
written notice to the indemnifying party will not relieve it of any liability
that it may have to any indemnified party otherwise than under this Section 2.8.
(d) If the indemnification provided for in this Section 2.8 is
held by a court of competent jurisdiction to be unavailable to an indemnified
party with respect to any losses, claims, damages or liabilities referred to
herein, the indemnifying party, in lieu of indemnifying such indemnified party
thereunder, shall to the extent permitted by applicable law contribute to the
amount paid or payable by such indemnified party as a result of such loss,
claim, damage or liability in such proportion as is appropriate to reflect the
relative fault of the indemnifying party on the one hand and of the indemnified
party on the other in connection with the Violation(s) that resulted in such
loss, claim, damage or liability, as well as any other relevant equitable
considerations. The relative fault of the indemnifying party and of the
indemnified party shall be determined by a court of law by reference to, among
other things, whether the Violation relates to information supplied by the
indemnifying party or by the indemnified party and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission. In no event shall any indemnity under this Section 2.8(d)
exceed the net proceeds from the offering received by such Holder.
7.
<PAGE> 8
(e) The foregoing indemnity agreements of the Company and the
Holder are subject to the condition that, insofar as they relate to any
Violation made in a preliminary prospectus but eliminated or remedied in the
amended prospectus on file with the SEC at the time the registration statement
in question becomes effective or the amended prospectus filed with the SEC
pursuant to SEC Rule 424(b) (the "FINAL PROSPECTUS"), such indemnity agreement
shall not inure to the benefit of any person if a copy of the Final Prospectus
was furnished to the indemnified party and was not furnished to the person
asserting the loss, liability, claim or damage at or prior to the time such
action is required by the Securities Act.
(f) The obligations of the Company and the Holder under this
Section 2.8 shall survive the completion of any offering of Registrable
Securities in a registration statement and otherwise.
2.9 RULE 144 REPORTING. With a view to making available to the Holder
the benefits of certain rules and regulations of the SEC which may permit the
sale of the Registrable Securities to the public without registration, the
Company agrees to use its best efforts to:
(a) Make and keep public information available, as those terms
are understood and defined in SEC Rule 144 or any similar or analogous rule
promulgated under the Securities Act, at all times after the effective date of
the first registration filed by the Company for an offering of its securities to
the general public;
(b) File with the SEC, in a timely manner, all reports and other
documents required of the Company under the Exchange Act;
(c) So long as a Holder owns any Registrable Securities furnish
to such Holder forthwith upon request: a written statement by the Company as to
its compliance with the reporting requirements of said Rule 144 of the
Securities Act and of the Exchange Act (at any time after it has become subject
to such reporting requirements); a copy of the most recent annual or quarterly
report of the Company; and such other reports and documents as a Holder may
reasonably request in availing itself of any rule or regulation of the SEC
allowing it to sell any such securities without registration.
2.10 ASSIGNMENT OF REGISTRATION RIGHTS. The rights to cause the Company
to register Registrable Securities pursuant to this Section 2 may be assigned by
the Holder to a transferee or assignee of Registrable Securities; provided,
however, that no such transferee or assignee shall be entitled to registration
rights under Section 2.2 or Section 2.3 hereof unless it acquires at least fifty
percent (50%) of the Holder's Registrable Securities (as adjusted for stock
splits and combinations) and the Company shall, within twenty (20) days after
such transfer, be furnished with written notice of the name and address of such
transferee or assignee and the securities with respect to which such
registration fights are being assigned. Notwithstanding the foregoing, rights to
cause the Company to register securities may be assigned to any subsidiary,
parent, general partner or limited partner of the Holder.
SECTION 3. MISCELLANEOUS.
3.1 GOVERNING LAW. This Agreement shall be governed by and construed
under the laws of the State of California as applied to agreements among
California residents entered into and to be performed entirely within the State
of California.
3.2 SURVIVAL. The representations, warranties, covenants, and agreements
made herein shall survive any investigation made by the Holder and the closing
of the transactions contemplated hereby.
8.
<PAGE> 9
All statements as to factual matters contained in any certificate or other
instrument delivered by or on behalf of the Company pursuant hereto in
connection with the transactions contemplated hereby shall be deemed to be
representations and warranties by the Company hereunder solely as of the date of
such certificate or instrument.
3.3 SUCCESSORS AND ASSIGNS. Except as otherwise expressly provided
herein, this Agreement, and the rights and obligations hereunder, may not be
assigned by any party hereto without the prior written consent of the Company.
The provisions hereof shall inure to the benefit of, and be binding upon, the
successors, permitted assigns, heirs, executors, and administrators of the
parties hereto; provided, however, that prior to the receipt by the Company of
adequate written notice of the transfer of any Registrable Securities specifying
the full name and address of the transferee, the Company may deem and treat the
person listed as the holder of such shares in its records as the absolute owner
and holder of such shares for all purposes, including the payment of dividends
or any redemption price. The Investor's rights and obligations hereunder may be
transferred to any wholly-owned subsidiary of such Investor.
3.4 SEPARABILITY. In case any provision of the Agreement shall be
invalid, illegal, or unenforceable, the validity, legality, and enforceability
of the remaining provisions shall not in any way be affected or impaired
thereby.
3.5 AMENDMENT AND WAIVER.
(a) Except as otherwise expressly provided, this Agreement may be
amended or modified only upon the written consent of the Company and the Holder.
(b) Except as otherwise expressly provided, the obligations of
the Company and the rights of the Holder under this Agreement may be waived only
with the written consent of the Company and the Holder.
(c) Any amendment or waiver effected in accordance with this
Section 3.5 shall be binding upon the Holder, its successors and assigns, and
the Company, its successors and assigns.
3.6 DELAYS OR OMISSIONS. It is agreed that no delay or omission to
exercise any right, power, or remedy accruing to any party hereto, upon any
breach, default or noncompliance of any other party hereto under this Agreement
shall impair any such right, power, or remedy, nor shall it be construed to be a
waiver of any such breach, default or noncompliance, or any acquiescence
therein, or of any similar breach, default or noncompliance thereafter
occurring. It is further agreed that any waiver, permit, consent, or approval of
any kind or character on any party's part of any breach, default or
noncompliance under the Agreement or any waiver on such party's part of any
provisions or conditions of this Agreement must be in writing and shall be
effective only to the extent specifically set forth in such writing. All
remedies, either under this Agreement, by law, or otherwise afforded to the
parties hereto, shall be cumulative and not alternative.
3.7 NOTICES. All notices required or permitted hereunder shall be in
writing and shall be deemed effectively given: (a) upon personal delivery to the
party to be notified; (b) when sent by confirmed telex; (c) five days after
having been sent by registered or certified mail, return receipt requested,
postage prepaid; or (d) one day after deposit with a nationally recognized
overnight courier, specifying next day delivery, with written verification of
receipt. All communications shall be sent to
9.
<PAGE> 10
the party to be notified at the address as set forth on the signature page
hereof or at such other address as such party may designate by ten days advance
written notice to the other parties hereto.
3.8 ATTORNEYS' FEES. In the event that any dispute among the parties to
this Agreement should result in litigation, the prevailing party in such dispute
shall be entitled to recover from the losing party all fees, costs and expenses
of enforcing any right of such prevailing party under or with respect to this
Agreement, including without limitation, such reasonable fees and expenses of
attorneys and accountants, which shall include, without limitation, all fees,
costs and expenses of appeals.
3.9 ACKNOWLEDGEMENT. The Investor hereby acknowledges that the Company
is subject to that certain Amended and Restated Investors' Rights Agreement
dated May 7, 1999, filed as Exhibit 4.3 to the Company's registration statement
on Form S-1 (No. 333-78363) as filed with the SEC on May 13, 1999, as amended to
date.
3.10 TITLES AND SUBTITLES. The titles of the sections and subsections of
this Agreement are for convenience of reference only and are not to be
considered in construing this Agreement.
3.11 PRONOUNS. All pronouns contained herein and any variations thereof
shall be deemed to refer to the masculine, feminine or neuter, singular or
plural, as the identity of the parties hereto may require.
3.12 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK.]
10.
<PAGE> 11
IN WITNESS WHEREOF, the parties hereto have executed this INVESTOR
RIGHTS AGREEMENT as of the date first above written.
COMPANY: HEARST HOMEARTS, INC.
By: /s/ ALFRED SIKES
----------------------------------
(Signature)
Title: President
--------------------------------
Address: 959 Eighth Avenue
-----------------------------
New York, New York 10019
--------------------------------------
INVESTOR: THE WALT DISNEY COMPANY
By: /s/ THOMAS SKAGGS
----------------------------------
(Signature)
Title: Chief Financial Officer
--------------------------------
Address: 500 South Buena Vista Street
-----------------------------
Burbank, CA 91521
--------------------------------------
<PAGE> 12
================================================================================
HEARST HOMEARTS, INC.
INVESTOR RIGHTS AGREEMENT
JULY 9, 1999
================================================================================
<PAGE> 13
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
SECTION 1.GENERAL............................................................................1
1.1 Definitions...................................................................1
SECTION 2.REGISTRATION; RESTRICTIONS ON TRANSFER.............................................2
2.1 Restrictions on Transfer......................................................2
2.2 Form S-3 Registration.........................................................3
2.3 Demand Registration...........................................................4
2.4 Expenses of Registration......................................................4
2.5 Obligations of the Company....................................................5
2.6 Termination of Registration Rights............................................6
2.7 Delay of Registration: Furnishing Information.................................6
2.8 Indemnification...............................................................6
2.9 Rule 144 Reporting............................................................8
2.10 Assignment of Registration Rights.............................................8
SECTION 3.MISCELLANEOUS......................................................................8
3.1 Governing Law.................................................................8
3.2 Survival......................................................................8
3.3 Successors and Assigns........................................................9
3.4 Separability..................................................................9
3.5 Amendment and Waiver..........................................................9
3.6 Delays or Omissions...........................................................9
3.7 Notices.......................................................................9
3.8 Attorneys' Fees..............................................................10
3.9 Acknowledgement..............................................................10
3.10 Titles and Subtitles.........................................................10
3.11 Pronouns.....................................................................10
3.12 Counterparts.................................................................10
</TABLE>
<PAGE> 1
EXHIBIT 5.1
[COOLEY GODWARD LLP LETTERHEAD]
July 12, 1999
Women.com Networks, Inc.
1820 Gateway Drive, Suite 100
San Mateo, CA 94404
Ladies and Gentlemen:
You have requested our opinion with respect to certain matters in connection
with the filing by Women.com Networks, Inc. (the "Company") of a Registration
Statement on Form S-1 (the "Registration Statement") with the Securities and
Exchange Commission (the "Commission") covering an underwritten public offering
of up to three million seven hundred fifty thousand (3,750,0000) shares of
Common Stock of Women.com Networks, Inc. (the "Offering").
In connection with this opinion, we have (i) examined and relied upon the
Registration Statement and related Prospectus, the Company's Certificate of
Incorporation and Bylaws, as currently in effect, and the originals or copies
certified to our satisfaction of such records, documents, certificates,
memoranda and other instruments as in our judgment are necessary or appropriate
to enable us to render the opinion expressed below; and (ii) assumed that the
Restated Certificate of Incorporation, as set forth in Exhibit 3.3 of the
Registration Statement, shall have been duly approved and filed with the office
of the Delaware Secretary of State.
On the basis of the foregoing, and in reliance thereon, we are of the opinion
that the Common Stock, when sold and issued in accordance with the Registration
Statement and related Prospectuses, will be validly issued, fully paid and
non-assessable.
We consent to the reference to our firm under the caption "Legal Matters" in the
Prospectuses included on the Registration Statement and to the filing of this
opinion as an exhibit to the Registration Statement.
Very truly yours,
Cooley Godward LLP
By: /s/ Mark P. Tanoury
--------------------------
Mark P. Tanoury
<PAGE> 1
EXHIBIT 10.26
HEARST HOMEARTS, INC.
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (the "Agreement") is made as of the 9th
day of July, 1999, by and between HEARST HOMEARTS, INC., a Delaware
corporation (the "Company"), and HEARST COMMUNICATIONS, INC. ("Purchaser").
WHEREAS, the parties entered into that certain Stock Purchase Agreement
on July 6, 1999 and the parties wish to terminate such prior agreement in its
entirety and restate such agreement herein;
WHEREAS, the Company desires to issue, and Purchaser desires to acquire,
stock of the Company as herein described, on the terms and conditions
hereinafter set forth;
WHEREAS, the issuances hereunder are intended to comply with the
provisions of Rule 506 promulgated by the Securities and Exchange Commission
under the Securities Act of 1933, as amended (the "Act").
NOW, THEREFORE, IT IS AGREED between the parties as follows:
1. PURCHASE AND SALE OF STOCK. Purchaser hereby agrees to purchase from
the Company, and the Company hereby agrees to sell to Purchaser, a whole number
of shares of common stock of the Company equal to the sum of (a) 33% of (i) the
total number of shares of common stock of the Company actually sold in the
Company's initial public offering (the "Initial Public Offering") (excluding any
shares issuable upon exercise of any overallotment option granted to the
underwriters of the Initial Public Offering) under a registration statement on
Form S-1 (No. 333-78363) filed with the Securities and Exchange Commission
("SEC") under the Securities Act of 1933, as amended (the "Act") (such shares of
common stock being referred to as the "Initial Purchaser Stock") plus (ii) the
total number of shares sold in the Disney and Torstar private placements as
described in the registration statement, plus (b) that number of shares of the
common stock of the Company which could be purchased at the IPO Price (as
defined in the next sentence) for $5 million (such shares being referred to as
the "Additional Purchaser Stock," and together with the Initial Purchaser Stock,
the "Stock"). The term "IPO Price" means the initial price per share to the
public of the common stock being offered in the Initial Public Offering, as
reflected on the cover page of the final prospectus filed with the SEC pursuant
to Rule 424(b) filed under the Act. The total purchase price for the Stock shall
be the product of the total number of shares of Stock multiplied by the IPO
Price. The closing hereunder (the "Closing"), including payment for and delivery
of the Stock in cash shall occur at the offices of Cooley Godward LLP, counsel
to the Company ("Company Counsel"), 3000 Sand Hill Road, Building Three, Suite
230, Menlo Park, CA 94025, concurrently with the closing of the Initial Public
Offering, or at such other time and place as the parties may mutually agree.
2. OPTION TO PURCHASE STOCK. Purchaser shall have the option ("Option")
to purchase a number of shares equal to the product of (a) the ratio of (i) the
number of shares, if any, purchased by the underwriters in the Initial Public
Offering in connection with the exercise of any over-allotment option granted by
the Company to (ii) the total number of shares sold in the Initial Public
Offering (without giving effect to any shares purchased pursuant to any
over-allotment option or any shares sold in the Initial Public Offering by the
Company directly to Torstar Corporation) and (b) the number of shares of Initial
Purchaser Stock, at a per share price equal to the IPO Price (the "Option
Stock"). Upon exercise by the underwriters of their over-allotment option or
portion thereof, Purchaser may exercise such Option in the same proportion
exercised by the underwriters as determined above and in the same period of time
as exercised by the underwriters. Upon receipt of notice from the underwriters
that such entire over-allotment option or portion thereof shall be exercised,
the Company shall immediately give notice to the Purchaser and the Purchaser
shall then in the same period of time as the underwriters exercise the Option
(or portion thereof as determined by the proportion exercised by the
underwriters of their over-allotment option specified above) upon written or
telegraphic notice by Purchaser to the Company setting forth the aggregate
number of shares of the Option Stock as to which the Purchaser is exercising its
Option. Delivery of certificates for the shares of Option Stock, and payment
therefor, shall be made on the third business day after the exercise of such
option at the offices of Company Counsel. Purchaser shall have no rights to
exercise the foregoing Option except upon the last to occur of the (A) closing
of the Initial Public Offering; (B) closing of the sale of Stock contemplated
under Section 1, above; and (C) exercise of the underwriters' over-allotment
option as described above.
3. LIMITATIONS ON TRANSFER. Purchaser shall not assign, hypothecate,
donate, encumber or otherwise dispose of any interest in the Stock or Option
Stock except in compliance with the provisions
1.
<PAGE> 2
herein and applicable securities laws. The Company and its transfer agent shall
not be required (a) to transfer on its books any shares of Stock or Option Stock
of the Company which shall have been transferred in violation of any of the
provisions set forth in this Agreement or (b) to treat as owner of such shares
or to accord the right to vote as such owner or to pay dividends to any
transferee to whom such shares shall have been so transferred.
4. RESTRICTIVE LEGENDS. All certificates representing the Stock shall
have endorsed thereon legends in substantially the following forms (in addition
to any other legend which may be required by other agreements between the
parties hereto):
(a) THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THEY MAY NOT BE SOLD,
OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT AS TO THE SECURITIES UNDER SAID ACT OR AN OPINION OF
COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED.
(b) Any legend required by appropriate blue sky officials.
5. PURCHASER REPRESENTATIONS. In connection with the purchase of the
Stock, Purchaser represents to the Company the following:
(a) Purchaser has all necessary power and authority under all
applicable provisions of law to execute and deliver this Agreement and to carry
out its provisions. All action on Purchaser's part required for the lawful
execution and delivery of this Agreement has been or will be effectively taken
prior to the Closing. Upon its execution and delivery, this Agreement will be a
valid and binding obligation of Purchaser, enforceable in accordance with its
terms.
(b) Purchaser is aware of the Company's business affairs and
financial condition and has acquired sufficient information about the Company to
reach an informed and knowledgeable decision to acquire the Stock and the Option
Stock. Purchaser is purchasing the Stock and Option Stock, if any, for
investment for Purchaser's own account only and not with a view to, or for
resale in connection with, any "distribution" thereof within the meaning of the
Act.
(c) Purchaser understands that the Stock and Option Stock, if
any, have not been registered under the Act by reason of a specific exemption
therefrom, which exemption depends upon, among other things, the bona fide
nature of Purchaser's investment intent as expressed herein.
(d) Purchaser further acknowledges and understands that the Stock
and Option Stock, if any, must be held indefinitely unless it is subsequently
registered under the Act or an exemption from such registration is available.
Purchaser further acknowledges and understands that the Company is under no
obligation to register the Stock or Option Stock. Purchaser understands that the
certificate evidencing the Stock and the Option Stock will be imprinted with a
legend which prohibits its transfer unless it is registered or such registration
is not required in the opinion of counsel for the Company.
(e) Purchaser is familiar with the provisions of Rule 144, under
the Act, as in effect from time to time, which, in substance, permits limited
public resale of "restricted securities" acquired, directly or indirectly, from
the issuer thereof (or from an affiliate of such issuer), in a non-public
offering subject to the satisfaction of certain conditions including, among
other things: (i) the availability of
2.
<PAGE> 3
certain public information about the Company and (ii) the resale occurring
following the required holding period under Rule 144 after the Purchaser has
purchased, and made full payment of (within the meaning of Rule 144), the
securities to be sold.
(f) Purchaser further understands that at the time Purchaser
wishes to sell the Stock there may be no public market upon which to make such a
sale, and that, even if such a public market then exists, the Company may not be
satisfying the current public information requirements of Rule 144, and that, in
such event, Purchaser would be precluded from selling the Stock under Rule 144
even if the minimum holding period requirement had been satisfied.
(g) Purchaser is a "qualified institutional buyer" as that term
is defined in Rule 144A under the Act.
6. COMPANY REPRESENTATIONS. The Company hereby represents and warrants
to the Purchaser as follows:
(a) The Company has all requisite corporate power and authority
to execute and deliver this Agreement, to issue and sell the Stock and the
Option Stock, and to carry out the provisions of this Agreement.
(b) All corporate action on the part of the Company, its
officers, directors and stockholders necessary for the authorization of this
Agreement, the performance of all obligations of the Company hereunder and
thereunder at the Closing and the authorization, sale, issuance and delivery of
the Stock and Option Stock has been taken or will be taken prior to the Closing.
Upon its execution and delivery, this Agreement will be a valid and binding
obligation of the Company, enforceable in accordance with its terms.
(C) When issued in compliance with the provisions of this
Agreement, the Stock and the Option Stock will be validly issued, fully paid and
nonassessable, and will be free of any liens or encumbrances; provided, however,
that the Stock and the Option Stock may be subject to restrictions on transfer
under state and/or federal securities laws as set forth herein or as otherwise
required by such laws at the time a transfer is proposed.
7. CONDITIONS TO PURCHASER'S OBLIGATIONS AT THE CLOSING. Purchaser's
obligations to purchase the Stock at the Closing (or the Option Stock at any
subsequent closing) are subject to the satisfaction, at or prior to such
Closing, of the following conditions:
(a) REPRESENTATIONS AND WARRANTIES TRUE; PERFORMANCE OF
OBLIGATIONS. The representations and warranties made by the Company in Section 6
hereof shall be true and correct in all material respects as of the Closing (or
any subsequent closing as the case may be) with the same force and effect as if
they had been made as of the Closing, and the Company shall have performed all
obligations and conditions herein required to be performed or observed by it on
or prior to the Closing.
(b) LEGAL INVESTMENT. As of the Closing, the sale and issuance of
the Stock (or the Option Stock as the case may be) shall be legally permitted by
all laws and regulations to which Purchaser and the Company are subject.
3.
<PAGE> 4
(c) CONSENTS, PERMITS, AND WAIVERS. The Company shall have
obtained any and all consents, permits and waivers necessary or appropriate for
consummation of the transactions contemplated by the Agreement.
(d) EFFECTIVENESS OF REGISTRATION STATEMENT. A registration
statement relating to the Initial Public Offering shall have become effective
and no stop order suspending the effectiveness thereof shall have been issued
and no proceedings therefor shall be pending or threatened by the Securities and
Exchange Commission.
8. CONDITIONS TO OBLIGATIONS OF THE COMPANY. The Company's obligation to
issue and sell the Stock at the Closing (or the Option Stock at any subsequent
closing) is subject to the satisfaction, on or prior to such Closing, of the
following conditions:
(a) REPRESENTATIONS AND WARRANTIES TRUE. The representations and
warranties in Section 5 made by Purchaser shall be true and correct in all
material respects at the date of the Closing (or any subsequent closing as the
case may be), with the same force and effect as if they had been made on and as
of said date.
(b) PERFORMANCE OF OBLIGATIONS. Purchaser shall have performed
and complied with all agreements and conditions herein required to be performed
or complied with by Purchaser on or before the Closing.
(c) LEGAL INVESTMENT. As of the Closing, the sale and issuance of
the Stock (or the Option Stock as the case may be) shall be legally permitted by
all laws and regulations to which Purchaser and the Company are subject.
(d) CONSENTS, PERMITS, AND WAIVERS. The Company shall have
obtained any and all consents, permits and waivers necessary or appropriate for
consummation of the transactions contemplated by the Agreement.
(e) EFFECTIVENESS OF REGISTRATION STATEMENT. A registration
statement relating to the Initial Public Offering shall have become effective
and no stop order suspending the effectiveness thereof shall have been issued
and no proceedings therefor shall be pending or threatened by the Securities and
Exchange Commission.
4.
<PAGE> 5
9. MISCELLANEOUS.
(a) TERMINATION. This Agreement shall terminate in its entirety
and shall be of no further force and effect in the event that a registration
statement relating to the Initial Public Offering shall not have been declared
effective and the sale contemplated by Section 1 hereof completed on or prior to
October 31, 1999.
(b) NOTICES. Any notice required or permitted hereunder shall be
given in writing and shall be deemed effectively given upon personal delivery or
sent by telegram or fax or upon deposit in the United States Post Office, by
registered or certified mail with postage and fees prepaid, addressed to the
other party hereto at his address hereinafter shown below its signature or at
such other address as such party may designate by ten (10) days advance written
notice to the other party hereto.
(c) SUCCESSORS AND ASSIGNS. This Agreement shall inure to the
benefit of the successors and assigns of the Company and, subject to the
restrictions on transfer herein set forth, be binding upon Purchaser,
Purchaser's successors and assigns.
(d) ATTORNEYS' FEES; SPECIFIC PERFORMANCE. Purchaser shall
reimburse the Company for all costs incurred by the Company in enforcing the
performance of, or protecting its rights under, any part of this Agreement,
including reasonable costs of investigation and attorneys' fees.
(e) GOVERNING LAW; VENUE. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware. The parties
agree that any action brought by either party to interpret or enforce any
provision of this Agreement shall be brought in, and each party agrees to, and
does hereby, submit to the jurisdiction and venue of, the appropriate state or
federal court for the district encompassing the Company's principal place of
business.
(f) FURTHER EXECUTION. The parties agree to take all such further
action(s) as may reasonably be necessary to carry out and consummate this
Agreement as soon as practicable, and to take whatever steps may be necessary to
obtain any governmental approval in connection with or otherwise qualify the
issuance of the securities that are the subject of this Agreement.
(g) ENTIRE AGREEMENT; AMENDMENT. Whereas this Agreement is
intended to amend, restate and supercede in its entirety the Stock Purchase
Agreement between the parties entered into on July 6, 1999 (the "Prior
Agreement"). The parties hereto agree that such Prior Agreement is void as of
the date hereof and has no further force and effect. This Agreement constitutes
the entire agreement between the parties with respect to the subject matter
hereof and supersedes and merges all prior agreements or understandings, whether
written or oral. This Agreement may not be amended, modified or revoked, in
whole or in part, except by an agreement in writing signed by each of the
parties hereto.
(h) SEVERABILITY. If one or more provisions of this Agreement are
held to be unenforceable under applicable law, the parties agree to renegotiate
such provision in good faith. In the event that the parties cannot reach a
mutually agreeable and enforceable replacement for such provision, then (i) such
provision shall be excluded from this Agreement, (ii) the balance of the
Agreement shall be interpreted as if such provision were so excluded and (iii)
the balance of the Agreement shall be enforceable in accordance with its terms.
(i) COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original and all of which
together shall constitute one instrument.
5.
<PAGE> 6
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
HEARST HOMEARTS, INC.
By: /s/ Alfred Sikes
----------------------------------------
Title: President
-------------------------------------
Address: 959 Eighth Avenue
New York, New York 10019
-----------------------------------
PURCHASER:
HEARST COMMUNICATIONS, INC.
By: /s/ James Asher
----------------------------------------
Title: Vice President
-------------------------------------
Address: 959 Eighth Avenue
New York, New York 10019
-----------------------------------
6.
<PAGE> 1
EXHIBIT 10.28
AMENDMENT NO. 1 TO LETTER AGREEMENT
THIS AMENDMENT NO. 1 (the "AMENDMENT") is made as of July 9, 1999, by
and among WOMEN.COM NETWORKS LLC, a Delaware limited liability company (the
"COMPANY"), Torstar Corporation, an Ontario corporation ("TORSTAR") and
Harlequin Enterprises Limited, an Ontario corporation ("HARLEQUIN") to the
Letter Agreement dated June 28, 1999 by and between such parties. Capitalized
terms not otherwise defined herein shall have the meanings ascribed to them in
the Letter Agreement (as defined below).
RECITALS
WHEREAS, the Company, Torstar and Harlequin entered into that certain
Letter Agreement dated June 28, 1999 (the "LETTER AGREEMENT");
WHEREAS, in accordance with Section 14 of the Letter Agreement, the
Company and Torstar wish to amend the Letter Agreement as set forth below.
NOW, THEREFORE, in consideration of the mutual agreements, covenants
and considerations contained herein, the undersigned hereby agree as follows:
AGREEMENT
1. Section 3 of the Letter Agreement is amended and restated to read in
full as follows:
"SECTION 3. PURCHASE AND SALE OF STOCK. The Company and Torstar agree
to enter into that certain Stock Purchase Agreement attached hereto as EXHIBIT A
and that certain Investor Rights Agreement attached hereto as EXHIBIT B."
2. Except as set forth in this Amendment, the Letter Agreement shall remain
in full force and effect.
3. This Amendment may be executed in two or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
1.
<PAGE> 2
IN WITNESS WHEREOF, the undersigned have executed this AMENDMENT as of the
day and year first set forth above.
WOMEN.COM NETWORKS LLC TORSTAR CORPORATION
By: /s/ Marleen McDaniel /s/ Dave Samuel
--------------------------- ----------------------------------------------
(Signature)
Name: Marleen McDaniel By: Dave Samuel
------------------------- ------------------------------------------
Title: President Title: Vice-President of Corporate Development
------------------------ ---------------------------------------
HARLEQUIN ENTERPRISES LIMITED
/s/ Dave Samuel
----------------------------------------------
(Signature)
By: Dave Samuel
------------------------------------------
Title: Executive Vice President
---------------------------------------
<PAGE> 1
EXHIBIT 10.29
HEARST HOMEARTS, INC.
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (the "Agreement") is made as of the 9th
day of July, 1999, by and between HEARST HOMEARTS, INC., a Delaware corporation,
(the "Company"), WOMEN.COM NETWORKS LLC ("Women.com"), WOMEN.COM NETWORKS, a
California corporation, and TORSTAR CORPORATION ("Purchaser").
WHEREAS, the Company is proposing to undertake an initial public
offering, and, immediately prior to such initial public offering, is proposing
to undertake a merger whereby it will be the surviving corporation and renamed
Women.com Networks, Inc.;
WHEREAS, the Company desires to issue, and Purchaser desires to acquire,
stock of the Company as herein described, on the terms and conditions
hereinafter set forth;
WHEREAS, the issuance hereunder is intended to comply with the
provisions of Rule 506 promulgated by the Securities and Exchange Commission
under the Securities Act of 1933, as amended (the "Act").
NOW, THEREFORE, IT IS AGREED between the parties as follows:
1. PURCHASE AND SALE OF STOCK. Purchaser hereby agrees to purchase from
the Company, and the Company hereby agrees to sell to Purchaser the lesser of
1,250,000 shares of the Company's Common Stock or that number of shares of the
Company's Common Stock having an aggregate purchase price of $14.5 million (the
"Stock") following the effectiveness of a registration statement under the Act
relating to the Company's initial public offering (the "Initial Public
Offering") at a per share price equal to the per share price to the public in
the Initial Public Offering; provided, however, the Company agrees not to enter
into any agreement with another party to sell shares of capital stock of the
Company upon more favorable terms than contained herein (excluding all
securities of the Company outstanding on the date hereof or proposed to be
issued pursuant to the Agreement and Plan of Merger by and between Women.com
Networks, a California corporation, and the Company, including outstanding
options, options reserved to be issued pursuant to the Company's 1998 Equity
Incentive Plan, warrants and other convertible securities) in a private
placement transaction under the Securities Act of 1933, as amended, prior to the
effectiveness of the Company's Initial Public Offering (a "New Transaction"). If
the Company shall enter into such a New Transaction, the Company shall sell the
Stock to the Purchaser on terms as favorable as those agreed to in such New
Transaction. Notwithstanding the foregoing, the Company may enter into an
investor rights agreement with The Walt Disney Company, a Delaware corporation,
or its affiliates providing for registration rights more favorable to those
provided Purchaser without providing such terms to Purchaser. The closing
hereunder (the "Closing"), including payment for and delivery of the Stock shall
occur at the offices of Cooley Godward LLP, counsel to the Company ("Company
Counsel"), 3000 Sand Hill Road, Building Three, Suite 230, Menlo Park, CA 94025,
concurrently with the closing of the Initial Public Offering, or at such other
time and place as the parties may mutually agree.
2. OPTION. If the Initial Public Offering does not occur by October 31,
1999, the Purchaser shall have the option to purchase $14.5 million worth of
Series E Preferred Stock of Women.com
1.
<PAGE> 2
Networks, the California corporation, at $10.00 per share (the "OPTION"). Such
Option shall expire on November 10, 1999. If the Initial Public Offering does
not occur and the Purchaser elects to exercise such Option, Purchaser shall
enter into a Series E Preferred Stock Purchase Agreement with Women.com
Networks, the form of which will be the same as the Series E Preferred Stock
Purchase Agreement dated May 7, 1999 between Women.com Networks and its Series E
Preferred Stock holders with such changes as are reasonably requested by
Purchaser.
3. LIMITATIONS ON TRANSFER. Purchaser shall not assign, hypothecate,
donate, encumber or otherwise dispose of any interest in the Stock except in
compliance with the provisions herein and applicable securities laws. The
Company and its transfer agent shall not be required (a) to transfer on its
books any shares of Stock of the Company, which shall have been transferred in
violation of any of the provisions set forth in this Agreement or (b) to treat
as owner of such shares or to accord the right to vote as such owner or to pay
dividends to any transferee to whom such shares shall have been so transferred.
4. PURCHASER REPRESENTATIONS. In connection with the purchase of the
Stock, Purchaser represents to the Company the following:
(a) Purchaser has all necessary power and authority under all
applicable provisions of law to execute and deliver this Agreement and to carry
out its provisions. All action on Purchaser's part required for the lawful
execution and delivery of this Agreement has been or will be effectively taken
prior to the Closing. Upon its execution and delivery, this Agreement will be a
valid and binding obligation of Purchaser, enforceable in accordance with its
terms.
(b) Purchaser acknowledges receipt of the Registration Statement
(defined under Section 4(i) hereof). Purchaser is purchasing the Stock, if any,
for investment for Purchaser's own account only and not with a view to, or for
resale in connection with, any "distribution" thereof within the meaning of the
Act.
(c) Purchaser understands that the Stock, if any, has not been
registered under the Act by reason of a specific exemption therefrom, which
exemption depends upon, among other things, the bona fide nature of Purchaser's
investment intent as expressed herein.
(d) Purchaser understands that the certificate evidencing the
Stock will be imprinted with a legend which prohibits its transfer unless it is
registered or such registration is not required.
(e) Purchaser is familiar with the provisions of Rule 144, under
the Act, as in effect from time to time, which, in substance, permits limited
public resale of "restricted securities" acquired, directly or indirectly, from
the issuer thereof (or from an affiliate of such issuer), in a non-public
offering subject to the satisfaction of certain conditions including, among
other things: (i) the availability of certain public information about the
Company and (ii) the resale occurring following the required holding period
under Rule 144 after the Purchaser has purchased, and made full payment of
(within the meaning of Rule 144), the securities to be sold.
(f) Purchaser further understands that at the time Purchaser
wishes to sell the Stock there may be no public market upon which to make such a
sale, and that, even if such a public market then exists, the Company may not be
satisfying the current public information requirements of Rule 144, and that, in
such event, Purchaser would be precluded from selling the Stock under Rule 144
even if the minimum holding period requirement had been satisfied.
2.
<PAGE> 3
(g) Purchaser is a "qualified institutional buyer" as that term
is defined in Rule 144A under the Act.
5. COMPANY REPRESENTATIONS. The Company and Women.com hereby jointly and
severally represent and warrant to the Purchaser as follows:
(a) AUTHORIZATION. All corporate action on the part of the
Company and Women.com, their officers, members, directors and stockholders
necessary for the authorization, execution and delivery of this Agreement have
been taken. The Company and Women.com have the requisite corporate power to
enter into this Agreement and carry out and perform their obligations under this
Agreement. At the Closing, the Company will have the requisite corporate power
to sell the shares of the Stock to be sold at such Closing. This Agreement has
been duly authorized, executed and delivered by the Company and Women.com and,
upon due execution and delivery by Purchaser, this Agreement will be a valid and
binding agreement of the Company and Women.com enforceable in accordance with
its terms.
(b) NO CONFLICT WITH OTHER INSTRUMENTS. The execution, delivery
and performance of this Agreement will not result in any violation of, be in
conflict with, or constitute a default under, with or without the passage of
time or the giving of notice (a) any provision of the Company's or Women.com's
charter documents as either shall be in effect, (b) any provision of any
judgment, decree or order to which the Company or Women.com is a party or by
which they are bound, (c) any contract, obligation or commitment to which the
Company or Women.com is a party or by which either is bound or (d) to the
Company's or Women.com's knowledge, any statute, law, rule or governmental
regulation applicable to the Company or Women.com or this transaction.
(c) ORGANIZATION AND GOOD STANDING. Women.com is a limited
liability corporation duly organized, validly existing and in good standing
under the laws of the State of Delaware and has all requisite corporate power
and authority to carry on its business as now conducted and as proposed to be
conducted. Women.com is duly qualified to transact business and is in good
standing in each jurisdiction in which the failure to so qualify would have a
material adverse effect on its business or properties. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware and has all requisite corporate power and authority to
carry on its business as now conducted and as proposed to be conducted. The
Company is duly qualified to transact business and is in good standing in each
jurisdiction in which the failure to so qualify would have a material adverse
effect on its business or properties.
(d) CAPITALIZATION.
(i) As of the Closing, the authorized capital stock of
the Company shall conform as to legal and factual matters to the description
thereof contained in the Registration Statement.
(ii) The shares of capital stock outstanding prior to
the issuance of the shares to be sold by the Company in the Initial Public
Offering have been duly authorized and are validly issued, fully paid and
non-assessable. Except as set forth in the Registration Statement, the Company
does not have outstanding any options to purchase, or any preemptive rights or
other rights to subscribe for or to purchase, any securities or obligations
convertible into, or any contracts or commitments to issue or sell, shares of
its capital stock or any such options, rights, convertible securities or
obligations, other than non-material amounts of options granted pursuant to the
Company's 1994 Stock Option Plan and 1998 Equity Incentive Plan described in the
Registration Statement. All outstanding shares of capital stock and options and
other rights to acquire capital stock have been issued in compliance with the
registration
3.
<PAGE> 4
and qualification provisions of all applicable securities laws and were not
issued in violation of any preemptive rights, rights of first refusal or other
similar rights.
(iii) The Stock has been duly authorized and, when
issued and delivered in accordance with the terms of this Agreement, will be
validly issued, fully paid and non-assessable, and the issuance of such Stock
will not be subject to any preemptive rights, rights of first refusal or similar
rights.
(e) VALID ISSUANCE OF SHARES. The shares of Stock which will be
purchased by Purchaser hereunder, when issued, sold and delivered in accordance
with the terms hereof for the consideration expressed herein, will be duly and
validly authorized and issued, and shall be fully paid and nonassessable and
free of any liens, encumbrances or security interests; provided, however, that
the shares of Stock may be subject to restrictions on transfer under state
and/or federal securities laws as set forth herein or as otherwise required by
such laws at the time a transfer is proposed.
(f) LITIGATION, ETC. There is no action, suit, proceeding nor, to
the best of its knowledge, any investigation pending or currently threatened
against the Company or Women.com, nor, to the best of their knowledge, is there
any basis therefor, which might result, either individually or in the aggregate,
in any material adverse change in the assets, condition, affairs or prospects of
the Company or Women.com, financial or otherwise. The foregoing includes,
without limitation, any action, suit, proceeding or investigation, pending or
threatened, that questions the validity of this Agreement or any other agreement
contemplated hereby or the right of the Company to enter into such agreements.
(g) GOVERNMENTAL CONSENTS. No consent, approval, order or
authorization of, or registration, qualification, designation, declaration or
filing with, any federal, state, local or provincial governmental authority on
the part of the Company is required in connection with the consummation of the
transactions contemplated by this Agreement, except for notices required or
permitted to be filed with certain state and federal securities commissions,
which notices will be filed on a timely basis.
(h) BROKER'S FEES. No broker, finder or investment banker is
entitled to any brokerage, finder's or other fee or commission in connection
with the transactions contemplated by this Agreement based on arrangements made
by the Company or Women.com.
(i) NO MATERIAL MISSTATEMENTS OR OMISSIONS. Form S-1 (No.
333-78363) (the "Registration Statement") filed with the Securities Exchange
Commission on May 13, 1999, complies in all material respects as of the filing
date and the date hereof, with the provisions of the Securities Act of 1933, as
amended, and the rules and regulations of the SEC promulgated thereunder; as of
the filing date and the date hereof, the Registration Statement did not and does
not contain any untrue statement of material fact and did not and does not omit
to state any material fact required to be stated herein or necessary in order to
make the statements therein, in light of the circumstances under which they were
made, not misleading.
(j) FINANCIAL STATEMENTS. The Registration Statement includes (i)
Women.com Network's audited balance sheet as of December 31, 1998, and the
related audited statements of operations, stockholders' equity and cash flows
for the twelve months ended December 31, 1999, (ii) the audited balance sheet as
of March 31, 1999, and the related audit statements of operations, stockholders'
equity and cash flows for the three months ended March 31, 1999, and (iii) the
Company's audited balance sheet as of December 31, 1998, and the related audited
statements of operations, stockholders' equity and cash flows for the
twelve-month period ended December 31, 1998 (collectively, the "Company
Financials"). The Company Financials have been prepared in accordance with U.S.
generally
4.
<PAGE> 5
accepted accounting principles consistent with the reporting practices and
principles ("GAAP"), applied on a basis consistent throughout the periods
indicated and consistent with each other. The Company Financials present fairly
the financial condition, operating results and cash flows of the Company as of
the dates and during the periods indicated therein.
(k) NO MATERIAL CHANGES. Since March 31, 1999, there has not been
any materially adverse change in the business, properties, financial condition
or results of operations of the Company, whether or not arising from
transactions in the ordinary course of business, other than as set forth in the
Registration Statement, and since such date, except in the ordinary course of
business, the Company has not entered into any material transaction not referred
to in the Registration Statement.
6. CONDITIONS TO PURCHASER'S OBLIGATIONS AT THE CLOSING. Purchaser's
obligations to purchase the Stock at the Closing are subject to the
satisfaction, at or prior to such Closing, of the following conditions:
(a) REPRESENTATIONS AND WARRANTIES TRUE; PERFORMANCE OF
OBLIGATIONS. The representations and warranties made by the Company and
Women.com in Section 5 hereof shall be true and correct in all material respects
as of the Closing (or any subsequent closing as the case may be) with the same
force and effect as if they had been made as of the Closing, and the Company
shall have performed all obligations and conditions herein required to be
performed or observed by it on or prior to the Closing.
(b) LEGAL INVESTMENT. As of the Closing, the sale and issuance of
the Stock shall be legally permitted by all laws and regulations to which
Purchaser and the Company are subject.
(c) CONSENTS, PERMITS, AND WAIVERS. The Company shall have
obtained any and all consents, permits and waivers necessary or appropriate for
consummation of the transactions contemplated by the Agreement.
(d) CERTIFICATE OF INCORPORATION; BYLAWS. The Company shall have
adopted and filed with the Secretary of State of Delaware the Certificate of
Incorporation and Bylaws of the Company in the form attached to the Registration
Statement as Exhibits 3.3 and 3.4, respectively.
(e) EFFECTIVENESS OF REGISTRATION STATEMENT. The Registration
Statement relating to the Initial Public Offering shall have become effective
and no stop order suspending the effectiveness thereof shall have been issued
and no proceedings therefor shall be pending or threatened by the Securities and
Exchange Commission.
(f) NO MATERIAL ADVERSE CHANGE. There shall have been no material
adverse change in Women.com's or the Company's business, condition, assets,
liabilities, operations or financial performance since the date of this
Agreement.
(g) INVESTOR RIGHTS AGREEMENT. An Investor Rights Agreement
substantially in the form attached hereto as EXHIBIT A shall have been executed
and delivered by the parties.
(h) LETTER AGREEMENT. The Letter Agreement by and between the
Purchaser and Women.com dated June 25, 1999 shall be in full force and effect
and shall have been assumed by the Company.
5.
<PAGE> 6
(i) INITIAL PUBLIC OFFERING. The Company shall have closed the
sale of at least eighty percent (80%) of the 3,750,000 shares proposed to be
sold in the firm commitment offering under the Registration Statement.
(j) LEGAL OPINION. The Purchaser shall have received from legal
counsel to the Company an opinion addressed to it dated as of the Closing date
in form and substance reasonably acceptable to the Purchaser.
7. CONDITIONS TO OBLIGATIONS OF THE COMPANY. The Company's obligation to
issue and sell the Stock at the Closing is subject to the satisfaction, on or
prior to such Closing, of the following conditions:
(a) REPRESENTATIONS AND WARRANTIES TRUE. The representations and
warranties in Section 4 made by Purchaser shall be true and correct in all
material respects at the date of the Closing (or any subsequent closing as the
case may be), with the same force and effect as if they had been made on and as
of said date.
(b) PERFORMANCE OF OBLIGATIONS. Purchaser shall have performed
and complied with all agreements and conditions herein required to be performed
or complied with by Purchaser on or before the Closing.
(c) LEGAL INVESTMENT. As of the Closing, the sale and issuance of
the Stock shall be legally permitted by all laws and regulations to which
Purchaser and the Company are subject.
(d) CONSENTS, PERMITS, AND WAIVERS. The Company shall have
obtained any and all consents, permits and waivers necessary or appropriate for
consummation of the transactions contemplated by the Agreement and which it
shall diligently seek to obtain.
(e) EFFECTIVENESS OF REGISTRATION STATEMENT. The Registration
Statement relating to the Initial Public Offering shall have become effective
and no stop order suspending the effectiveness thereof shall have been issued
and no proceedings therefor shall be pending or threatened by the Securities and
Exchange Commission.
8. MISCELLANEOUS.
(a) TERMINATION. This Agreement shall terminate in its entirety
and shall be of no further force and effect in the event that a registration
statement relating to the Initial Public Offering shall not have been declared
effective and the sale contemplated by Section 1 hereof completed on or prior to
October 31, 1999; provided that such termination shall not effect Purchaser's
rights under Section 2 above.
(b) NOTICES. Any notice required or permitted hereunder shall be
given in writing and shall be deemed effectively given upon personal delivery or
sent by telegram or fax or upon deposit in the United States Post Office, by
registered or certified mail with postage and fees prepaid, addressed to the
other party hereto at its address hereinafter shown below its signature or at
such other address as such party may designate by ten (10) days advance written
notice to the other party hereto.
(c) SUCCESSORS AND ASSIGNS. This Agreement shall inure to the
benefit of the successors and assigns of the Company and, subject to the
restrictions on transfer herein set forth, be binding upon Purchaser,
Purchaser's successors and assigns.
6.
<PAGE> 7
(d) ATTORNEY'S FEES. In the event that any dispute among the
parties to this Agreement should result in litigation, the prevailing party in
such dispute shall be entitled to recover from the losing party all fees, costs
and expenses of enforcing any right of such prevailing party under or with
respect to this Agreement, including without limitation, such reasonable fees
and expenses of attorneys and accountants, which shall include, without
limitation, all fees, costs and expenses of appeals.
(e) GOVERNING LAW; VENUE. This Agreement shall be governed by and
construed in accordance with the laws of the State of California. The parties
agree that any action brought by either party to interpret or enforce any
provision of this Agreement shall be brought in, and each party agrees to, and
does hereby, submit to the jurisdiction and venue of, the appropriate state or
federal court for the district encompassing the Company's principal place of
business.
(f) FURTHER EXECUTION. The parties agree to take all such further
action(s) as may reasonably be necessary to carry out and consummate this
Agreement as soon as practicable, and to take whatever steps may be necessary to
obtain any governmental approval in connection with or otherwise qualify the
issuance of the securities that are the subject of this Agreement.
(g) ENTIRE AGREEMENT; AMENDMENT. This Agreement constitutes the
entire agreement between the parties with respect to the subject matter hereof
and supersedes and merges all prior agreements or understandings, whether
written or oral. This Agreement may not be amended, modified or revoked, in
whole or in part, except by an agreement in writing signed by each of the
parties hereto.
(h) SEVERABILITY. If one or more provisions of this Agreement are
held to be unenforceable under applicable law, the parties agree to renegotiate
such provision in good faith. In the event that the parties cannot reach a
mutually agreeable and enforceable replacement for such provision, then (i) such
provision shall be excluded from this Agreement, (ii) the balance of the
Agreement shall be interpreted as if such provision were so excluded and (iii)
the balance of the Agreement shall be enforceable in accordance with its terms.
(i) COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original and all of which
together shall constitute one instrument.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK.]
7.
<PAGE> 8
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
HEARST HOMEARTS, INC.
By: /s/ Alfred Sikes
-----------------------------------------
Title: President
--------------------------------------
Address: 959 Eighth Avenue
-----------------------------------
New York, New York 10019
-----------------------------------
WOMEN.COM NETWORKS LLC
By: /s/ Marleen McDaniel
-----------------------------------------
Title: President
--------------------------------------
Address: 1820 Gateway Drive
-----------------------------------
Suite 100
-----------------------------------
San Mateo, CA 94404
-----------------------------------
WOMEN.COM NETWORKS
By: /s/ Marleen McDaniel
-----------------------------------------
Title: President
--------------------------------------
Address: 1820 Gateway Drive
-----------------------------------
Suite 100
-----------------------------------
San Mateo, CA 94404
-----------------------------------
PURCHASER:
TORSTAR CORPORATION
By: /s/ Dave Samuel
-----------------------------------------
Title: Vice-President of Corporate
Development
--------------------------------------
Address: One Yonge Street
-----------------------------------
Toronto, Canada M5E 1P9
-----------------------------------
8.
<PAGE> 1
EXHIBIT 10.30
HEARST HOMEARTS, INC.
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (the "Agreement") is made as of the 9th
day of July, 1999, by and between HEARST HOMEARTS, INC., a Delaware corporation,
(the "Company"), WOMEN.COM NETWORKS LLC ("Women.com") and THE WALT DISNEY
COMPANY, a Delaware corporation ("Purchaser").
WHEREAS, the Company desires to issue, and Purchaser desires to acquire,
stock of the Company as herein described, on the terms and conditions
hereinafter set forth;
WHEREAS, the issuance hereunder is intended to comply with the
provisions of Rule 506 promulgated by the Securities and Exchange Commission
under the Securities Act of 1933, as amended (the "Act").
NOW, THEREFORE, IT IS AGREED between the parties as follows:
1. PURCHASE AND SALE OF STOCK. Purchaser hereby agrees to purchase from
the Company, and the Company hereby agrees to sell to Purchaser the lesser of
1,250,000 shares of the Company's Common Stock or that number of shares of the
Company's Common Stock having an aggregate purchase price of $14.5 million (the
"Stock") following the effectiveness of a registration statement under the Act
relating to the Company's initial public offering (the "Initial Public
Offering") at a per share price equal to the per share price to the public in
the Initial Public Offering; provided, however, the Company agrees not to enter
into any agreement with another party to sell shares of capital stock of the
Company upon more favorable terms than contained herein (excluding all
securities of the Company outstanding on the date hereof or proposed to be
issued pursuant to the Agreement and Plan of Merger by and between Women.com
Networks, a California corporation, and the Company, including outstanding
options, options reserved to be issued pursuant to the Company's 1998 Equity
Incentive Plan, warrants and other convertible securities) in a private
placement transaction under the Securities Act of 1933, as amended, prior to the
effectiveness of the Company's Initial Public Offering (a "New Transaction"). If
the Company shall enter into such a New Transaction, the Company shall sell the
Stock to the Purchaser at the price proposed in such New Transaction. The
closing hereunder (the "Closing"), including payment for and delivery of the
Stock shall occur at the offices of Cooley Godward LLP, counsel to the Company
("Company Counsel"), 3000 Sand Hill Road, Building Three, Suite 230, Menlo Park,
CA 94025, concurrently with the closing of the Initial Public Offering, or at
such other time and place as the parties may mutually agree.
2. OPTION. If the Initial Public Offering does not occur by October 31,
1999, the Purchaser shall have the option to purchase $14.5 million worth of
Series E Preferred Stock of Women.com Networks, the California corporation, at
$10.00 per share (the "Option"). Such Option shall expire on November 10, 1999.
If the Initial Public Offering does not occur and the Purchaser elects to
exercise such Option, Purchaser shall enter into a Series E Preferred Stock
Purchase Agreement with Women.com Networks, the form of which will be the same
as the Series E Preferred Stock Purchase Agreement dated May 7, 1999 between
Women.com Networks and its Series E Preferred Stock holders with such changes as
are reasonably requested by Purchaser.
1.
<PAGE> 2
3. LIMITATIONS ON TRANSFER. Purchaser shall not assign, hypothecate,
donate, encumber or otherwise dispose of any interest in the Stock except in
compliance with the provisions herein and applicable securities laws. The
Company and its transfer agent shall not be required (a) to transfer on its
books any shares of Stock of the Company, which shall have been transferred in
violation of any of the provisions set forth in this Agreement or (b) to treat
as owner of such shares or to accord the right to vote as such owner or to pay
dividends to any transferee to whom such shares shall have been so transferred.
4. PURCHASER REPRESENTATIONS. In connection with the purchase of the
Stock, Purchaser represents to the Company the following:
(a) Purchaser has all necessary power and authority under all
applicable provisions of law to execute and deliver this Agreement and to carry
out its provisions. All action on Purchaser's part required for the lawful
execution and delivery of this Agreement has been or will be effectively taken
prior to the Closing. Upon its execution and delivery, this Agreement will be a
valid and binding obligation of Purchaser, enforceable in accordance with its
terms.
(b) Purchaser acknowledges receipt of the Registration Statement
(defined under Section 5(i) hereof). Purchaser is purchasing the Stock, if any,
for investment for Purchaser's own account only and not with a view to, or for
resale in connection with, any "distribution" thereof within the meaning of the
Act.
(c) Purchaser understands that the Stock, if any, has not been
registered under the Act by reason of a specific exemption therefrom, which
exemption depends upon, among other things, the bona fide nature of Purchaser's
investment intent as expressed herein.
(d) Purchaser further acknowledges and understands that the Stock
must be held indefinitely unless it is subsequently registered under the Act or
an exemption from such registration is available. Purchaser understands that the
certificate evidencing the Stock will be imprinted with a legend which prohibits
its transfer unless it is registered or such registration is not required in the
opinion of counsel for the Company.
(e) Purchaser is familiar with the provisions of Rule 144, under
the Act, as in effect from time to time, which, in substance, permits limited
public resale of "restricted securities" acquired, directly or indirectly, from
the issuer thereof (or from an affiliate of such issuer), in a non-public
offering subject to the satisfaction of certain conditions including, among
other things: (i) the availability of certain public information about the
Company and (ii) the resale occurring following the required holding period
under Rule 144 after the Purchaser has purchased, and made full payment of
(within the meaning of Rule 144), the securities to be sold.
(f) Purchaser further understands that at the time Purchaser
wishes to sell the Stock there may be no public market upon which to make such a
sale, and that, even if such a public market then exists, the Company may not be
satisfying the current public information requirements of Rule 144, and that, in
such event, Purchaser would be precluded from selling the Stock under Rule 144
even if the minimum holding period requirement had been satisfied.
(g) Purchaser is a "qualified institutional buyer" as that term
is defined in Rule 144A under the Act.
2.
<PAGE> 3
5. COMPANY REPRESENTATIONS. The Company and Women.com hereby jointly and
severally represent and warrant to the Purchaser as follows:
(a) AUTHORIZATION. All corporate or limited liability company
action on the part of the Company and Women.com, their officers, members,
directors and stockholders necessary for the authorization, execution and
delivery of this Agreement have been taken. The Company and Women.com have the
requisite corporate power to enter into this Agreement and carry out and perform
their obligations under this Agreement. At the Closing, the Company will have
the requisite corporate power to sell the shares of the Stock to be sold at such
Closing. This Agreement has been duly authorized, executed and delivered by the
Company and Women.com and, upon due execution and delivery by Purchaser, this
Agreement will be a valid and binding agreement of the Company and Women.com,
except as enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting creditors' rights generally
or by equitable principles.
(b) NO CONFLICT WITH OTHER INSTRUMENTS. The execution, delivery
and performance of this Agreement will not result in any violation of, be in
conflict with, or constitute a default under, with or without the passage of
time or the giving of notice (a) any provision of the Company's or Women.com's
charter documents as either shall be in effect, (b) any provision of any
judgment, decree or order to which the Company or Women.com is a party or by
which they are bound, (c) any material contract, obligation or commitment to
which the Company or Women.com is a party or by which either is bound or (d) to
the Company's or Women.com's knowledge, any statute, rule or governmental
regulation applicable to the Company or Women.com.
(c) ORGANIZATION AND GOOD STANDING. Women.com is a limited
liability corporation duly organized, validly existing and in good standing
under the laws of the State of Delaware and has all requisite corporate power
and authority to carry on its business as now conducted and as proposed to be
conducted. Women.com is duly qualified to transact business and is in good
standing in each jurisdiction in which the failure to so qualify would have a
material adverse effect on its business or properties. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware and has all requisite corporate power and authority to
carry on its business as now conducted and as proposed to be conducted. The
Company is duly qualified to transact business and is in good standing in each
jurisdiction in which the failure to so qualify would have a material adverse
effect on its business or properties.
(d) CAPITALIZATION.
(i) As of the Closing, the authorized capital stock of
the Company shall conform as to legal matters to the description thereof
contained in the Registration Statement.
(ii) The shares of Common Stock outstanding prior to the
issuance of the shares to be sold by the Company in the Initial Public Offering
have been duly authorized and are validly issued, fully paid and non-assessable.
Except as set forth in the Registration Statement, the Company does not have
outstanding any options to purchase, or any preemptive rights or other rights to
subscribe for or to purchase, any securities or obligations convertible into, or
any contracts or commitments to issue or sell, shares of its capital stock or
any such options, rights, convertible securities or obligations, other than
non-material amounts of options granted pursuant to the Company's 1994 Stock
Option Plan and 1998 Equity Incentive Plan described in the Registration
Statement. All outstanding shares of capital stock and options and other rights
to acquire capital stock have been issued in compliance with
3.
<PAGE> 4
the registration and qualification provisions of all applicable securities laws
and were not issued in violation of any preemptive rights, rights of first
refusal or other similar rights.
(iii) The Stock has been duly authorized and, when
issued and delivered in accordance with the terms of this Agreement, will be
validly issued, fully paid and non-assessable, and the issuance of such Stock
will not be subject to any preemptive rights, rights of first refusal or similar
rights.
(e) VALID ISSUANCE OF SHARES. The shares of Stock which will be
purchased by Purchaser hereunder, when issued, sold and delivered in accordance
with the terms hereof for the consideration expressed herein, will be duly and
validly authorized and issued, and shall be fully paid and nonassessable.
(f) LITIGATION, ETC. There is no action, suit, proceeding nor, to
the best of its knowledge, any investigation pending or currently threatened
against the Company or Women.com, nor, to the best of their knowledge, is there
any basis therefor, which might result, either individually or in the aggregate,
in any material adverse change in the assets, condition, affairs or prospects of
the Company or Women.com, financial or otherwise. The foregoing includes,
without limitation, any action, suit, proceeding or investigation, pending or
threatened, that questions the validity of this Agreement or any other agreement
contemplated hereby or the right of the Company to enter into such agreements.
(g) GOVERNMENTAL CONSENTS. No consent, approval, order or
authorization of, or registration, qualification, designation, declaration or
filing with, any federal, state, local or provincial governmental authority on
the part of the Company is required in connection with the consummation of the
transactions contemplated by this Agreement, except for notices required or
permitted to be filed with certain state and federal securities commissions,
which notices will be filed on a timely basis.
(h) BROKER'S FEES. No broker, finder or investment banker is
entitled to any brokerage, finder's or other fee or commission in connection
with the transactions contemplated by this Agreement based on arrangements made
by the Company or Women.com.
(i) NO MATERIAL MISSTATEMENTS OR OMISSIONS. Form S-1 (No.
333-78363) (the "Registration Statement") filed with the Securities Exchange
Commission on May 13, 1999, complies in all material respects as of the filing
date and the date hereof, with the provisions of the Securities Act of 1933, as
amended, and the rules and regulations of the SEC promulgated thereunder; as of
the filing date and the date hereof, the Registration Statement did not and does
not contain any untrue statement of material fact and did not and does not omit
to state any material fact required to be stated herein or necessary in order to
make the statements therein, in light of the circumstances under which they were
made, not misleading. As of the Closing, the Registration Statement filed with
and declared effective by the Securities and Exchange Commission shall comply in
all material respects with the provisions of the Securities Act of 1933, as
amended, and the rules and regulations of the SEC promulgated thereunder and
will not contain any untrue statement of material fact and will not omit to
state any material fact required to be stated herein or necessary in order to
make the statements therein, in light of the circumstances under which they were
made, not misleading.
(j) FINANCIAL STATEMENTS. The Registration Statement includes (i)
Women.com Network's audited balance sheet as of December 31, 1998, and the
related audited statements of operations, stockholders' equity and cash flows
for the twelve months ended December 31, 1999, (ii) the audited balance sheet as
of March 31, 1999, and the related audit statements of operations, stockholders'
4.
<PAGE> 5
equity and cash flows for the three months ended March 31, 1999, and (iii) the
Company's audited balance sheet as of December 31, 1998, and the related audited
statements of operations, stockholders' equity and cash flows for the
twelve-month period ended December 31, 1998 (collectively, the "Company
Financials"). The Company Financials have been prepared in accordance with U.S.
generally accepted accounting principles consistent with the reporting practices
and principles ("GAAP"), applied on a basis consistent throughout the periods
indicated and consistent with each other. The Company Financials present fairly
the financial condition, operating results and cash flows of the Company as of
the dates and during the periods indicated therein.
(k) NO MATERIAL CHANGES. Since March 31, 1999, there has not been
any materially adverse change in the business, properties, financial condition
or results of operations of the Company, whether or not arising from
transactions in the ordinary course of business, other than as set forth in the
Registration Statement, and since such date, except in the ordinary course of
business, the Company has not entered into any material transaction not referred
to in the Registration Statement.
6. CONDITIONS TO PURCHASER'S OBLIGATIONS AT THE CLOSING. Purchaser's
obligations to purchase the Stock at the Closing are subject to the
satisfaction, at or prior to such Closing, of the following conditions:
(a) REPRESENTATIONS AND WARRANTIES TRUE; PERFORMANCE OF
OBLIGATIONS. The representations and warranties made by the Company and
Women.com in Section 5 hereof shall be true and correct in all material respects
as of the Closing (or any subsequent closing as the case may be) with the same
force and effect as if they had been made as of the Closing, and the Company
shall have performed all obligations and conditions herein required to be
performed or observed by it on or prior to the Closing.
(b) LEGAL INVESTMENT. As of the Closing, the sale and issuance of
the Stock shall be legally permitted by all laws and regulations to which
Purchaser and the Company are subject.
(c) CONSENTS, PERMITS, AND WAIVERS. The Company shall have
obtained any and all consents, permits and waivers necessary or appropriate for
consummation of the transactions contemplated by the Agreement.
(d) CERTIFICATE OF INCORPORATION; BYLAWS. The Company shall have
adopted and filed with the Secretary of State of Delaware the Certificate of
Incorporation and Bylaws of the Company in the form attached to the Registration
Statement as Exhibits 3.3 and 3.4, respectively.
(e) EFFECTIVENESS OF REGISTRATION STATEMENT. The Registration
Statement relating to the Initial Public Offering shall have become effective
and no stop order suspending the effectiveness thereof shall have been issued
and no proceedings therefor shall be pending or threatened by the Securities and
Exchange Commission.
(f) NO MATERIAL ADVERSE CHANGE. There shall have been no material
adverse change in Women.com's or the Company's business, condition, assets,
liabilities, operations or financial performance since the date of this
Agreement.
(g) INVESTOR RIGHTS AGREEMENT. An Investor Rights Agreement
substantially in the form attached hereto as EXHIBIT A shall have been executed
and delivered by the parties.
5.
<PAGE> 6
(h) LETTER AGREEMENTS. The Letter Agreements by and between the
Purchaser and Women.com dated July 9, 1999 shall be in full force and effect and
Women.com's obligations thereunder shall have been assumed by the Company.
(i) INITIAL PUBLIC OFFERING. The Company shall have closed the
sale of at least eighty percent (80%) of the 3,750,000 shares proposed to be
sold in the firm commitment offering under the Registration Statement.
(j) LEGAL OPINION. The Purchaser shall have received from legal
counsel to the Company an opinion addressed to it dated as of the Closing date
in the form and substance reasonably acceptable to Purchaser.
7. CONDITIONS TO OBLIGATIONS OF THE COMPANY. The Company's obligation to
issue and sell the Stock at the Closing is subject to the satisfaction, on or
prior to such Closing, of the following conditions:
(a) REPRESENTATIONS AND WARRANTIES TRUE. The representations and
warranties in Section 4 made by Purchaser shall be true and correct in all
material respects at the date of the Closing (or any subsequent closing as the
case may be), with the same force and effect as if they had been made on and as
of said date.
(b) PERFORMANCE OF OBLIGATIONS. Purchaser shall have performed
and complied with all agreements and conditions herein required to be performed
or complied with by Purchaser on or before the Closing.
(c) LEGAL INVESTMENT. As of the Closing, the sale and issuance of
the Stock shall be legally permitted by all laws and regulations to which
Purchaser and the Company are subject.
(d) CONSENTS, PERMITS, AND WAIVERS. The Company shall have
obtained any and all consents, permits and waivers necessary or appropriate for
consummation of the transactions contemplated by the Agreement.
(e) EFFECTIVENESS OF REGISTRATION STATEMENT. The Registration
Statement relating to the Initial Public Offering shall have become effective
and no stop order suspending the effectiveness thereof shall have been issued
and no proceedings therefor shall be pending or threatened by the Securities and
Exchange Commission.
8. MISCELLANEOUS.
(a) TERMINATION. This Agreement shall terminate in its entirety
and shall be of no further force and effect in the event that a registration
statement relating to the Initial Public Offering shall not have been declared
effective and the sale contemplated by Section 1 hereof completed on or prior to
October 31, 1999, except for rights pursuant to Section 2 hereof.
(b) NOTICES. Any notice required or permitted hereunder shall be
given in writing and shall be deemed effectively given upon personal delivery or
sent by telegram or fax or upon deposit in the United States Post Office, by
registered or certified mail with postage and fees prepaid, addressed to the
other party hereto at its address hereinafter shown below its signature or at
such other address as such party may designate by ten (10) days advance written
notice to the other party hereto.
6.
<PAGE> 7
(c) SUCCESSORS AND ASSIGNS. This Agreement shall inure to the
benefit of the successors and assigns of the Company and, subject to the
restrictions on transfer herein set forth, be binding upon Purchaser,
Purchaser's successors and assigns. The Purchaser's rights and obligations
hereunder may be transferred to any wholly-owned subsidiary of such Purchaser.
(d) GOVERNING LAW; VENUE. This Agreement shall be governed by and
construed in accordance with the laws of the State of California. The parties
agree that any action brought by either party to interpret or enforce any
provision of this Agreement shall be brought in, and each party agrees to, and
does hereby, submit to the jurisdiction and venue of, the appropriate state or
federal court for the district encompassing the Company's principal place of
business.
(e) FURTHER EXECUTION. The parties agree to take all such further
action(s) as may reasonably be necessary to carry out and consummate this
Agreement as soon as practicable, and to take whatever steps may be necessary to
obtain any governmental approval in connection with or otherwise qualify the
issuance of the securities that are the subject of this Agreement.
(f) ENTIRE AGREEMENT; AMENDMENT. This Agreement constitutes the
entire agreement between the parties with respect to the subject matter hereof
and supersedes and merges all prior agreements or understandings, whether
written or oral. This Agreement may not be amended, modified or revoked, in
whole or in part, except by an agreement in writing signed by each of the
parties hereto.
(g) SEVERABILITY. If one or more provisions of this Agreement are
held to be unenforceable under applicable law, the parties agree to renegotiate
such provision in good faith. In the event that the parties cannot reach a
mutually agreeable and enforceable replacement for such provision, then (i) such
provision shall be excluded from this Agreement, (ii) the balance of the
Agreement shall be interpreted as if such provision were so excluded and (iii)
the balance of the Agreement shall be enforceable in accordance with its terms.
(h) COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original and all of which
together shall constitute one instrument.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK.]
7.
<PAGE> 8
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
HEARST HOMEARTS, INC.
By: /s/ ALFRED SIKES
-----------------------------------------
Title: President
--------------------------------------
Address: 959 Eighth Avenue
-----------------------------------
New York, New York 10019
-----------------------------------
WOMEN.COM NETWORKS LLC
By: /s/ MARLEEN MCDANIEL
-----------------------------------------
Title: President
--------------------------------------
Address: 1820 Gateway Drive
-----------------------------------
Suite 100
-----------------------------------
San Mateo, CA 94404
-----------------------------------
PURCHASER
THE WALT DISNEY COMPANY
By: /s/ THOMAS SKAGGS
-----------------------------------------
Title: Chief Financial Officer
--------------------------------------
Address: 500 South Buena Vista Street
-----------------------------------
Burbank, CA 91521
-----------------------------------
8.
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Amendment No. 3 to the Registration
Statement on Form S-1 of our reports dated May 7, 1999, except for Note 10, as
to which the dated is July 9, 1999, relating to the financial statements and
financial statement schedule of Women.com Networks, Inc., which appear in such
Registration Statement. We also consent to the references to us under the
headings "Experts" and "Selected Financial Data" in such Registration Statement.
/s/ PricewaterhouseCoopers LLP
---------------------------------------
San Jose, California
July 12, 1999
<PAGE> 1
Exhibit 23.2
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Amendment No. 3 to the Registration Statement No.
333-78363 of Women.Com Networks, Inc. of our report dated April 29, 1999
relating to the consolidated financial statements and financial statement
schedule of Certain Operations of the New Media & Technology Division of The
Hearst Corporation as of December 31, 1998 and 1997 and for the three years in
the period ended December 31, 1998, appearing in the Prospectus, which is part
of this Registration Statement.
We also consent to the reference to us under the headings "Selected Financial
Data" and "Experts " in such Prospectus.
/s/ DELOITTE & TOUCHE LLP
New York, New York
July 12, 1999
<PAGE> 1
EXHIBIT 99.1
July 9, 1999
Women.com Networks, Inc.
1820 Gateway Drive, Suite 100
San Mateo, CA 94404
To the Board of Directors:
The undersigned hereby consents to being named as a potential director of
Women.com Networks, Inc. ("Women.com") in Women.com's Registration Statement on
Form S-1 (No. 333-78363) filed with the Securities and Exchange Commission.
Your truly,
/s/ DAVID GALLOWAY
- -------------------------
David Galloway
<PAGE> 1
EXHIBIT 99.2
July 9, 1999
Women.com Networks, Inc.
1820 Gateway Drive, Suite 100
San Mateo, CA 94404
To the Board of Directors:
The undersigned hereby consents to be being named as a potential director of
Women.com Networks, Inc. ("Women.com") in Women.com's Registration Statement on
Form S-1 (No. 333-78363) filed with the Securities and Exchange Commission.
Yours truly,
/s/ JAMES ASHER
- ------------------------
James Asher
