<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 30, 1999
REGISTRATION NO. 333-78363
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
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 13-4059516
<S> <C> <C>
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL CLASSIFICATION (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CODE) 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:
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<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
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<S> <C> <C> <C> <C>
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TITLE OF EACH CLASS OF PROPOSED PROPOSED PROPOSED
SECURITIES TO BE REGISTERED MAXIMUM MAXIMUM MAXIMUM AMOUNT OF
AMOUNT TO BE OFFERING PRICE AGGREGATE REGISTRATION
REGISTERED(1) PER SHARE(2) OFFERING PRICE FEE(3)
- -------------------------------------------------------------------------------------------------------------------------------
Common stock, $.001 par value per share............ 5,562,500 $12.00 $66,750,000 $18,557
- -------------------------------------------------------------------------------------------------------------------------------
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</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) $12,788 of which has been 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
EXPLANATORY NOTE
This registration statement contains two forms of prospectus. One form of
prospectus will be used by the underwriters in connection with an offering of
3,750,000 shares of common stock to the public. The second form of prospectus
will be used in connection with an offering of up to 1,250,000 shares of common
stock directly by Women.com Networks, Inc. to Torstar Corporation. The Torstar
prospectus is identical in all respects to the prospectus relating to the
underwritten public offering except for (i) the front cover page of the
prospectus, which is included in this registration statement after the back
cover page of the prospectus relating to the underwritten public offering and is
labeled "Alternate Cover Page for Torstar Prospectus," and (ii) the fact that
the information in "Underwriters" is not applicable to purchases pursuant to the
Torstar prospectus. Final forms of each of the prospectuses will be filed with
the Securities and Exchange Commission under Rule 424(b).
<PAGE> 3
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 June 30, 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. 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.
------------------------
TORSTAR CORPORATION MAY PURCHASE UP TO 1,250,000 SHARES OF COMMON STOCK IN A
DIRECT PUBLIC OFFERING FROM WOMEN.COM. CONCURRENT WITH THIS OFFERING, HEARST
COMMUNICATIONS, INC. HAS AGREED TO PURCHASE AN ESTIMATED 2,121,212 SHARES OF
COMMON STOCK FROM WOMEN.COM IN A PRIVATE PLACEMENT AT A PRICE PER SHARE EQUAL TO
THE PRICE TO THE PUBLIC. THE NUMBER OF SHARES TO BE SOLD TO HEARST IN THE
PRIVATE PLACEMENT IS SUBJECT TO ADJUSTMENT BASED UPON THE FINAL OFFERING PRICE
TO THE PUBLIC.
------------------------
WE HAVE APPLIED FOR QUOTATION OF OUR COMMON STOCK ON THE NASDAQ NATIONAL MARKET
UNDER THE SYMBOL "WOMN."
------------------------
INVESTING IN THE COMMON STOCK INVOLVES RISKS. SEE "RISK FACTORS" BEGINNING ON
PAGE 6.
------------------------
PRICE $ A SHARE
------------------------
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<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> 4
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> 5
TABLE OF CONTENTS
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PAGE
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Prospectus Summary................... 3
Risk Factors......................... 6
Use of Proceeds...................... 17
Dividend Policy...................... 17
Capitalization....................... 18
Dilution............................. 19
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
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<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.
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.
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.
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 conversion of all outstanding preferred stock to common stock
immediately prior to the consummation of this offering
- the sale of 2,121,212 shares to Hearst in a concurrent private placement
- the sale of up to 1,250,000 shares to Torstar in a concurrent direct
public offering
- that the underwriters' over-allotment option will not be exercised. See
"Description of Capital Stock" and "Underwriters."
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.
2
<PAGE> 6
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 115 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 first quarter of 1999, we had over 130 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 from three primary sources: advertising,
web site production and e-commerce. Our advertising revenues are obtained from a
variety of advertising forms, including running advertisers' banners on our
network and allowing advertisers to sponsor our content. 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 business through the direct sale of products on our
network.
3
<PAGE> 7
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 the
underwritten public
offering.................... 3,750,000 shares
Common stock offered in the
Torstar offering............ 1,250,000 shares
Common stock to be outstanding
after the underwritten
public offering, the Torstar
offering and the Hearst
private placement........... 42,380,847 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 the underwritten public offering, the 1,250,000
shares offered in the Torstar offering and the 2,121,212 shares to be sold to
Hearst in the concurrent private placement, and excludes the following:
- 4,406,061 shares of common stock issuable upon exercise of outstanding
options under our 1994 Stock Option Plan and 1998 Equity Incentive Plan
- 3,712,848 shares reserved for future issuance under our 1998 Equity
Incentive Plan
- 1,000,000 shares reserved for issuance under our Employee Stock Purchase
Plan
- 2,067,003 shares issuable upon exercise of outstanding warrants
4
<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 pro forma data. 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 $19,250,000 from the sale of 2,000,000
units of Women.com Networks LLC in May 1999, and the conversion of all
outstanding preferred stock into common stock immediately prior to the
underwritten public offering. The pro forma, as adjusted balance sheet data
gives effect to the net proceeds from the sale of common stock offered in the
underwritten public offering, in the Torstar offering and in the Hearst private
placement.
<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 32,770
======== ======== ========
</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 $ 38,414 $108,076
Working capital.............. 16,687 35,937 105,599
Total assets................. 95,377 114,627 184,289
Mandatorily redeemable
convertible preferred stock
and warrants................ 35,515 265 265
Total stockholders' equity... 50,148 104,648 174,310
</TABLE>
5
<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
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. 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 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
- seasonal trends in Internet use and advertising demand
- the loss of existing advertisers or lack of new advertisers
- changes in the advertising budgets of our existing advertisers and of
prospective advertisers
- changes in rates paid for Internet advertising resulting from competition
or other factors
- changes in the level of traffic on our network
- introduction of new sites and products by competitors
- technical difficulties or system downtime affecting the Internet
generally or the operation of our network specifically
- fluctuations in the demand for commerce on the Internet
- fluctuations in marketing expenses and technology infrastructure costs
6
<PAGE> 10
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.
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
and Internet users, and there are few barriers to entry. We expect this
competition to increase. 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, that target women
online
- Internet directories, search engines and other sites that offer original
editorial content
- companies in the print, broadcast and cable television industries
We compete with these companies for the time and attention of Internet
users and for advertising and e-commerce revenues. 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.
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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. In the event that Torstar purchases shares of common stock in the
Torstar offering, 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. If our board size is increased to ten members, 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, Hearst will own approximately 49.4% of our outstanding
common stock. If the underwriters' over-allotment option is exercised in full,
Hearst may purchase up to 250,000 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 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 certain
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.
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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 continue to attract enough user traffic or
advertisers to our network without Hearst's name or promotional capabilities.
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 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 38%
of our page views were generated by Astronet and, during the same period,
approximately 52% 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.
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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 a certain 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 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:
- generate revenue
- increase the volume of our content
- further enhance our brand awareness
- expand and broaden our reach to a wider variety of users
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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.
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 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 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. Our success in this direct
e-commerce model will depend upon our ability to:
- manage inventory and fulfillment operations
- attract shoppers to our network
- implement and update a flexible and scalable direct e-commerce
infrastructure
- establish a secure, reliable and efficient shopping network
- identify and offer attractive products at competitive prices
- establish a responsive and efficient customer service department
- establish relationships with vendors to ensure acquisition of merchandise
in a timely and efficient manner and on acceptable commercial terms
We may not be able to achieve any or all of these necessary components of a
successful e-commerce operation.
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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 BUSINESS IS DEPENDENT ON RETAINING KEY PERSONNEL, PARTICULARLY OUR CHIEF
EXECUTIVE OFFICER AND GENERAL MANAGER, AND SUCCESSFULLY RECRUITING QUALIFIED
CANDIDATES FOR OTHER POSITIONS, PARTICULARLY A VICE PRESIDENT, INTERNATIONAL
OPERATIONS
Our success depends substantially on the performance of our senior
management and key creative, technical and marketing personnel, some of whom
were hired recently. The loss of the services of Marleen McDaniel, our
President, Chief Executive Officer and Chairperson, or Ellen Pack, our Senior
Vice President and General Manager, or any of our other executive officers or
other key employees could materially harm our business, financial condition and
results of operations. Our future success also depends on our continuing ability
to attract and retain highly qualified creative, technical and managerial
personnel. In particular, we are in the process of recruiting a Vice President,
International Operations. Competition for personnel in the Internet industry is
intense and there are a limited number of people with knowledge of and
experience in the Internet. Our employees may voluntarily terminate their
employment at any time. If we fail to attract and retain key managerial,
technical and creative employees, our business would be materially harmed.
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 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
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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.
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.
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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 certain 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 certain 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 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.
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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.
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
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- a limited public float, especially due to Hearst's share ownership and
the restrictions on resale contemplated for any shares purchased by
Torstar in connection with the Torstar 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 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.
16
<PAGE> 20
USE OF PROCEEDS
The net proceeds we will receive from the sale of shares of common stock in
the underwritten public 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 the underwritten
public offering will be $42.9 million. The net proceeds we will receive from the
sale of shares of common stock in the Torstar offering are estimated to be
$13.75 million. Concurrent with this offering, we plan to sell to Hearst
2,121,212 shares of our common stock in a private placement at the per share
price of the underwritten public offering for an aggregate purchase price of
$23.3 million. If the underwriters' over-allotment option is exercised in full,
Hearst may purchase up to 250,000 additional shares of common stock in the
private placement, in which case the total net proceeds from the Hearst private
placement will be approximately $26.1 million.
While we cannot predict with certainty how the proceeds of the underwritten
public offering, the Torstar offering and the Hearst private placement will be
used, we currently intend to use them approximately as follows:
- $20 million for expansion of our sales force, marketing and distribution
activities
- $20 million for expansion of our business operations, including the
launch of international operations, increased staffing, content
production and technology infrastructure
- The remainder for working capital
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. We have not identified specific uses for all of the proceeds and management
will have discretion over their use and investment. We intend to invest the net
proceeds from this offering 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.
17
<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 $19,250,000 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 and (3)
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 the underwritten public
offering, the Torstar offering and in the Hearst private placement 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); 35,053,879 shares, issued and
outstanding (pro forma); and 42,175,091 shares issued
and outstanding (pro forma as adjusted)................ $ 21 $ 34 $ 41
Additional paid-in capital.................................. 92,563 147,050 221,289
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........................ 50,148 104,648 178,894
-------- --------- --------
Total capitalization.............................. $ 85,663 $ 104,913 $179,159
======== ========= ========
</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
- 2,067,003 shares of common stock issuable upon exercise of warrants
outstanding as of March 31, 1999, with a weighted average exercise price
of $3.06 per share
18
<PAGE> 22
DILUTION
The pro forma net tangible book value of Women.com Networks, Inc. at March
31, 1999 was approximately $45.0 million, or $1.21 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 $19,250,000 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
Assuming the sale of the 3,750,000 shares of common stock offered in the
underwritten public offering, the sale of 1,250,000 shares of common stock
offered in the Torstar offering, and the sale of 2,121,212 shares of common
stock in the Hearst private placement at an assumed offering price of $11.00 per
share after deducting estimated underwriting discounts, 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
$119.3 million, or $2.69 per share. This represents an immediate increase in the
pro forma net tangible book value of $1.48 per share to existing stockholders
and an immediate dilution of $8.31 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............................................... $1.21
Increase in pro forma tangible book value per share
attributable to new investors (including the Torstar
offering and the Hearst private placement)............. 1.48
-----
Pro forma, as adjusted, net tangible book value per share
after the underwritten public offering, the Torstar
offering and the Hearst private placement................. 2.69
------
Dilution per share to new investors (including the Torstar
offering and the Hearst private placement)................ $ 8.31
======
</TABLE>
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 sale of shares to investors in the underwritten public offering, the
Torstar offering and in the Hearst private placement
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.................. 35,053,879 83.1% $123,031,561 61.1% $3.51
New investors (including the Torstar
offering and the Hearst private
placement)........................... 7,121,212 16.9 78,333,332 38.9 11.00
---------- ----- ------------ -----
Total........................ 42,175,091 100.0% $201,364,893 100.0% 4.77
========== ===== ============ =====
</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 2,067,003 shares issuable upon exercise of outstanding warrants
with a weighted average exercise price of $3.06 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> 23
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 and are not included in this prospectus. The Women.com statement of
operations data for the three months ended March 31, 1999 and the balance sheet
data as of March 31, 1999 and 1998 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 and 1998 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> 24
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> 25
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.
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.
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
22
<PAGE> 26
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 branded by both Women.com and Hearst. 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
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.
23
<PAGE> 27
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 $500,000 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 $1.0 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.
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.
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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. 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 $359,000, 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 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.
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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 certain 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 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
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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
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.
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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 the underwritten public offering, the Torstar offering and the
Hearst private placement, 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.
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
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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 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.
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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 the control of
Women.com may not be Y2K ready. The failure by such entities to be Y2K ready
could result in a systemic failure beyond the control of Women.com, such as a
prolonged Internet, telecommunications or electrical failure, which could also
prevent Women.com from delivering its services to its customers, decrease the
use of the Internet, or prevent users from accessing its web sites, which could
have a material adverse effect on 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 unique visitors, ranking us among the top 40
Internet sites as measured by reach. During the same period, our users generated
approximately 115 million page views. In the first quarter of 1999, we had over
130 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 response rate 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.
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,
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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 the October 1998 survey of active Internet users conducted
by the Georgia Tech Graphics, Visualization and Usability Center, 87.3%
of women Internet users access the Internet one or more times per day,
compared to only 45% in October 1996. In addition, the percentage of
women Internet users spending 10 or more hours on the Internet per week
increased from 26% in 1996 to 68% in October 1998.
- 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 are involved in 80% of all consumer purchase decisions
and 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 March 1999, we were
one of only three of the top 50 web sites whose
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audience was comprised of at least 60% 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, 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 services to our customers. We believe membership creates
user loyalty, repeat site visits, referrals and
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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 115 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
first quarter of 1999, we had over 130 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 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
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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
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
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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. 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.
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.
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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 first quarter of 1999, we had over 130 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 Discover Brokerage AT&T JC Penney Avon
General Motors Fidelity Investments IBM Macy's Clinique
Mercedes Benz John Hancock Microsoft Sears Kellogg
Toyota Strong Funds Sprint Internet Kraft
Union Bank of Shopping Proctor & Gamble
California Network Unilever
Visa
</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 the underwritten 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, 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
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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
- 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,
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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
certain risks relating to our relationship with Hearst.
HEARST PRIVATE PLACEMENT. Concurrent with the underwritten public offering
and the Torstar offering, 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 1,666,667 shares of common stock at
the public offering price and 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
2,121,212 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 250,000 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 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
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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 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.
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<PAGE> 48
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.
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 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.
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
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<PAGE> 49
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> 50
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
Set forth below is certain 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> 51
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.
James Asher will be appointed to the board of directors as a representative
of Hearst in the event that Torstar purchases shares in the Torstar offering.
Mr. Asher has served as Vice President and Chief
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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 LL.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 in the event that Torstar purchases shares in the Torstar offering. 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. 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 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.
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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 the underwritten public
offering, will consist of two members, both of whom are representatives of
Hearst. The other two classes shall consist of three members each with the last
class comprised solely of non-Hearst representatives. If Torstar purchases
shares in the Torstar offering, Mr. Asher will be added to Class I and Mr.
Galloway will be added to Class II. 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 Mr.
Mark 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 incentive compensation for our officers and
employees and administers our employee benefit plans. Mr. Weinman is chairperson
of the compensation committee.
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<PAGE> 54
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 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 sale commissions.
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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 certain 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 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>
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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, 3,345,038 of which were subject to outstanding
options and 5,380,346 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 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 of Women.com's common
stock 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
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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 3,345,038 shares
of common stock at a weighted average exercise price of $3.96 were outstanding
and 5,380,346 shares remained available for future grant. As of May 31, 1999,
79,304 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 1994 Stock Option 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.
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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 the underwritten public offering 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
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<PAGE> 59
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 certain 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 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
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- 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 shares
of Series C Preferred Stock at a purchase price of $3.04 per share to certain
accredited investors. 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 shares of Series C Preferred Stock at a purchase price of $1.90 per share
to certain accredited investors. 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 shares of Series D Preferred Stock at a purchase price of $3.29 per share
to certain accredited investors. 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 to
certain accredited investors. 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 underwritten
public offering. Pursuant to the terms of the Series E Preferred Stock, if the
per share price in the underwritten public 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 the underwritten public
offering. Accordingly, if the per share price in the underwritten public
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
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common shares into which the Series E Preferred Stock will convert. 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. 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 the
underwritten public 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 the underwritten
public offering. Accordingly, if the per share price in the underwritten public
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
in the event Torstar purchases shares in the Torstar offering, 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, 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 may 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 offering and, if the purchase is made, Mr.
Galloway, the Chief Executive Officer of Torstar, will be appointed to our board
of directors. Torstar has agreed not to sell any shares purchased for a period
of one year except in limited circumstances set forth in their lock-up
agreement.
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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 the underwritten public offering, the Torstar offering
and the Hearst private placement, 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 35,259,635 shares of common stock outstanding
as of May 31, 1999, assuming (1) the conversion of the convertible preferred
stock into shares of common stock, (2) the merger of Women.com Networks into
Hearst HomeArts, Inc. and (3) the split of the outstanding capital stock of
Hearst HomeArts, Inc. into an aggregate of 18,825,171 shares of common stock,
and 42,380,847 shares of common stock outstanding after completion of the
underwritten public offering, the Torstar offering and the Hearst private
placement.
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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) ..................... 21,196,383 53.4% 50.0%
The Hearst Corporation
959 Eighth Avenue
New York, NY 10019
MediaOne Interactive Services, Inc.(2).............. 3,006,985 8.3 7.0
188 Inverness Drive West
Suite 600
Englewood, CO 80112
Natalie Egleston(3)................................. 3,006,985 8.3 7.0
188 Inverness Drive West
Suite 600
Englewood, CO 80112
HC Crown Corp.(4)................................... 2,293,930 6.4 5.3
2501 McGee, Mail Drop 339
Kansas City, MO 64141
Marleen McDaniel(5)................................. 501,666 1.4 1.2
Barry Weinman(6).................................... 1,643,645 4.7 3.9
William Miller(7)................................... 5,000 * --
James Asher......................................... -- -- --
Cathleen Black...................................... -- -- --
Nancy Lindemeyer.................................... -- -- --
Alfred Sikes........................................ -- -- --
Mark Miller......................................... -- -- --
David Galloway(8)................................... 1,250,000 -- 3.0
Ellen Pack(9)....................................... 897,857 2.5 2.1
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 17.7 14.7
</TABLE>
- -------------------------
* Represents beneficial ownership of less than 1%.
(1) Includes 2,121,212 shares that are to be purchased concurrently with this
offering in the Hearst private placement and 250,000 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 expire on the closing of 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 which may be purchased in the Torstar offering.
David Galloway is the President and Chief Executive Officer of Torstar
Corporation. Mr. Galloway will not have voting or investment power over any
shares purchased by Torstar in the Torstar offering. Mr. Galloway disclaims
beneficial ownership of any shares of common stock purchased by Torstar in
the Torstar offering.
(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, if Torstar purchases shares in the Torstar
offering and Messrs. Asher and Galloway join our board, all directors and
officers as a group will increase to 20 persons and will beneficially own
7,531,817 shares or 17.2% of the shares outstanding after the underwritten
public offering, the Torstar offering and the Hearst private placement.
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DESCRIPTION OF CAPITAL STOCK
GENERAL
Immediately prior to the consummation of the underwritten public offering,
the Torstar offering and the Hearst private placement, 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 42,380,847 outstanding shares of
common stock, outstanding options to purchase 4,406,061 shares of common stock
and outstanding warrants to purchase 2,067,003 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
the underwritten public offering, the Torstar offering and the Hearst private
placement 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 4,406,061 shares of
common stock were outstanding and 3,712,848 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 the underwritten public offering, the Torstar offering
and the Hearst private placement, we will have outstanding warrants to purchase
2,067,003 shares of common stock at a weighted average exercise price of $3.06
per share. We expect warrants for a total of 1,148,892 shares to be exercised in
connection with the underwritten public offering. The remaining warrants expire
on dates ranging from October 2000 to February 2006.
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<PAGE> 67
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 the underwritten public offering, the Torstar offering
and the Hearst private placement, 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 certain 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> 68
- 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 the underwritten public offering, the Torstar
offering and the Hearst private placement, the holders of an aggregate of
17,819,008 shares of common stock or securities convertible into common stock
will be entitled to certain registration rights. These rights are provided under
the terms of an Amended and Restated Investor Rights' Agreement between
Women.com and the holders of our registrable securities, who include Ms.
McDaniel, Ms. Pack, AVI Management and all affiliated entities, MediaOne
Interactive Services, Inc., HC Crown Corp., holders of certain 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.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for our common stock is ChaseMellon
Shareholder Services, L.L.C.
LISTING
We have applied for quotation of our common stock on the Nasdaq National
Market under the trading symbol "WOMN."
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<PAGE> 69
SHARES ELIGIBLE FOR FUTURE SALE
Prior to the underwritten public offering, the Torstar offering and the
Hearst private placement, 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 its 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 the underwritten public offering, the Torstar offering
and the Hearst private placement, we will have outstanding 42,380,847 shares of
common stock, assuming no exercise of Hearst's option and the underwriters'
over-allotment option and no exercise of outstanding warrants and options as of
May 31, 1999. Of these shares, all shares of common stock sold in the
underwritten public 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
certain limitations and restrictions described below. In the event that Torstar
purchases shares in the Torstar offering, it has agreed, except under limited
circumstances, not to sell, pledge, contract to sell, sell any option or
contract to purchase, or otherwise transfer or dispose of, directly or
indirectly, these shares for a period of one year after the offering without the
consent of Women.com and, in the event of any proposed sale within 180 days of
the Torstar offering, Morgan Stanley & Co., Incorporated.
SALES OF RESTRICTED SHARES
The remaining 35,259,635 shares of common stock held by existing
stockholders and the 2,121,212 shares sold in the Hearst private placement were
or, in the case of Hearst, will be issued by us in reliance on exemptions from
the registration requirements of the Securities Act. Of these shares,
approximately 35,088,342 shares will be subject to lock-up agreements described
below on the effective date of the underwritten public offering. Upon expiration
of the lock-up agreements after the effective date of the underwritten public
offering, all remaining 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 423,808 shares
immediately after the underwritten public offering, the Torstar offering and the
Hearst private placement, 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 held by Hearst prior to the underwritten public
offering, the Torstar offering and the shares acquired in the Hearst private
placement are restricted securities as such term is defined under Rule 144 of
the Securities Act of 1933. 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 4,406,061 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
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<PAGE> 70
agreements or otherwise subject to restrictions on transfer. Immediately after
the completion of the underwritten public offering, the Torstar offering and the
Hearst private placement, 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
In addition to Torstar, executive officers, directors and other
stockholders subject to lock-up agreements 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 the underwritten public 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, the stockholders subject to "lock-up" agreements have agreed
that, without the prior written consent of Morgan Stanley & Co. Incorporated on
behalf of the underwriters, such stockholder 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.
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<PAGE> 71
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 hereby are subject to the approval of
certain legal matters by their counsel and to certain other conditions. The
underwriters are obligated to take and pay for all of the shares of common stock
offered by this prospectus, 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 certain 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 certain 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 certain 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 Torstar offering, we may sell 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 Torstar at the per share price equal
to the price per share in the underwritten public offering. In the event that
Torstar purchases common stock in the Torstar offering, the underwriters will
not receive any underwriting discount with respect to those shares. Concurrent
with this offering, Hearst is purchasing, in a private placement and at the per
share price equal to the price per share in the underwritten public offering, a
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<PAGE> 72
total of 1,666,667 million shares of our common stock and that number of shares
of our common stock which could be purchased, at a per share price equal to the
price per share in the underwritten public offering, for $5 million. Assuming an
offering price of $11.00 per share in the underwritten public offering, Hearst
will purchase 2,121,212 shares in the private placement.
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 the underwritten public
offering for sale, at the price per share in the underwritten public 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 the underwritten public offering.
We have applied for quotation of our common stock 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
certain circumstances, including:
- the sale of the shares to the underwriters;
- 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 certain 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 stockholders 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 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 the underwritten public 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
the 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
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<PAGE> 73
in the 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 THE UNDERWRITTEN PUBLIC OFFERING, THE TORSTAR OFFERING AND THE HEARST
PRIVATE PLACEMENT
Prior to the underwritten public offering, the Torstar offering and the
Hearst private placement, 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 the underwritten public 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 certain other financial and
operating information in recent periods, and the price-earnings ratios, price-
sales ratios, market prices of securities and certain 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 Torstar offering
and the Hearst private placement are the same as the per share price of the
common stock to be offered in the underwritten public offering.
LEGAL MATTERS
The validity of the issuance of the shares of common stock offered in the
underwritten public offering and the Torstar offering and certain 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 the underwritten public
offering and certain 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 the underwritten public offering and the Torstar
offering. The prospectuses for the underwritten public offering and the Torstar
offering, which constitute a part of the registration statement, do 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
prospectuses for the underwritten public offering and Torstar 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 the underwritten public 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-26
Consolidated Balance Sheets............................... F-27
Consolidated Statements of Operations..................... F-28
Consolidated Statements of Cash Flows..................... F-29
Notes to Consolidated Financial Statements................ F-30
PRO FORMA COMBINED FINANCIAL STATEMENTS
Pro Forma Combined Statements of Operations (unaudited)... F-36
Notes to Pro Forma Combined Statements of Operations
(unaudited)............................................ F-38
</TABLE>
F-1
<PAGE> 76
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 June 28, 1999
- --------------------------------------------------------------------------------
The roll-up of the limited liability company into a Delaware corporation as
described in Note 1 has not been consummated at June 28, 1999. When such roll-up
has been consummated, we will furnish the above report assuming that from June
28, 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
June 28, 1999
F-2
<PAGE> 77
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 $ 19,164
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 26,401
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 $ 95,377
======== ======== ======== ========
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 (Note 7)
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 33,054
(unaudited) shares pro forma....................... 1 3 21 33
Additional paid-in capital............................. 126 5,269 92,563 127,801
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 85,398
-------- -------- -------- --------
Total liabilities, mandatorily redeemable convertible
preferred stock and warrants and stockholders' equity
(deficit).............................................. $ 6,430 $ 18,062 $ 95,377 $ 95,377
======== ======== ======== ========
</TABLE>
See accompanying notes.
F-3
<PAGE> 78
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> 79
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> 80
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> 81
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> 82
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 Inc. ("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.
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.
F-8
<PAGE> 83
WOMEN.COM NETWORKS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION RELATING TO THE THREE MONTHS
ENDED MARCH 31, 1999 IS UNAUDITED)
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 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.
F-9
<PAGE> 84
WOMEN.COM NETWORKS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION RELATING TO THE THREE MONTHS
ENDED MARCH 31, 1999 IS UNAUDITED)
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 revenue 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 ("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.
F-10
<PAGE> 85
WOMEN.COM NETWORKS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION RELATING TO THE THREE MONTHS
ENDED MARCH 31, 1999 IS UNAUDITED)
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> 86
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> 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 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 this offering, the outstanding shares of
mandatorily redeemable convertible preferred stock will automatically convert
into 13,437,879 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 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
F-13
<PAGE> 88
WOMEN.COM NETWORKS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION RELATING TO THE THREE MONTHS
ENDED MARCH 31, 1999 IS UNAUDITED)
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 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
F-14
<PAGE> 89
WOMEN.COM NETWORKS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION RELATING TO THE THREE MONTHS
ENDED MARCH 31, 1999 IS UNAUDITED)
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 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>
F-15
<PAGE> 90
WOMEN.COM NETWORKS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION RELATING TO THE THREE MONTHS
ENDED MARCH 31, 1999 IS UNAUDITED)
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.
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.
F-16
<PAGE> 91
WOMEN.COM NETWORKS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION RELATING TO THE THREE MONTHS
ENDED MARCH 31, 1999 IS UNAUDITED)
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.
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
F-17
<PAGE> 92
WOMEN.COM NETWORKS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION RELATING TO THE THREE MONTHS
ENDED MARCH 31, 1999 IS UNAUDITED)
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>
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).
F-18
<PAGE> 93
WOMEN.COM NETWORKS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION RELATING TO THE THREE MONTHS
ENDED MARCH 31, 1999 IS UNAUDITED)
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 has liquidation preference 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
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 at
the earlier of December 2004 or upon an initial public offering. The fair value
of these warrants is not material to the financial statements.
F-19
<PAGE> 94
WOMEN.COM NETWORKS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION RELATING TO THE THREE MONTHS
ENDED MARCH 31, 1999 IS UNAUDITED)
In 1997, in conjunction with the issuance of Series C preferred stock,
Women.com issued fully exercisable nontransferable warrants to purchase
1,775,330 shares of Series C preferred stock at a price of $3.04 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.
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 the 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.
F-20
<PAGE> 95
WOMEN.COM NETWORKS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION RELATING TO THE THREE MONTHS
ENDED MARCH 31, 1999 IS UNAUDITED)
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>
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-21
<PAGE> 96
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-22
<PAGE> 97
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. The Company'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-23
<PAGE> 98
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.
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
F-24
<PAGE> 99
WOMEN.COM NETWORKS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION RELATING TO THE THREE MONTHS
ENDED MARCH 31, 1999 IS UNAUDITED)
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 1,666,667
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 underwritten public offering. In addition, Hearst
has been granted an option to purchase up to 250,000 additional shares of common
stock in the event that the underwriters' over allotment option in the
underwritten public offering is exercised.
On June 25, 1999, Women.com entered into an agreement with the Torstar
Corporation whereby Women.com is obligated to offer Torstar Corporation 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 underwritten public offering. If Torstar
Corporation purchases the shares, Tostar's chief executive officer will be
appointed to the Board of Directors of Women.com.
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-25
<PAGE> 100
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-26
<PAGE> 101
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-27
<PAGE> 102
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-28
<PAGE> 103
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-29
<PAGE> 104
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 extensive information on every aspect 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, integrated advertising) to a variety of customers.
Astronet is the largest astrology site 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).
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
F-30
<PAGE> 105
CERTAIN OPERATIONS OF THE
NEW MEDIA & TECHNOLOGY DIVISION OF
THE HEARST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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.
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.
F-31
<PAGE> 106
CERTAIN OPERATIONS OF THE
NEW MEDIA & TECHNOLOGY DIVISION OF
THE HEARST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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>
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.
F-32
<PAGE> 107
CERTAIN OPERATIONS OF THE
NEW MEDIA & TECHNOLOGY DIVISION OF
THE HEARST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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.
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.
F-33
<PAGE> 108
CERTAIN OPERATIONS OF THE
NEW MEDIA & TECHNOLOGY DIVISION OF
THE HEARST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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 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
F-34
<PAGE> 109
CERTAIN OPERATIONS OF THE
NEW MEDIA & TECHNOLOGY DIVISION OF
THE HEARST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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-35
<PAGE> 110
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-36
<PAGE> 111
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-37
<PAGE> 112
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 this 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-38
<PAGE> 113
women.comnetworks logo
<PAGE> 114
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.
[ALTERNATIVE COVER PAGE FOR TORSTAR PROSPECTUS]
PROSPECTUS (Subject to Completion)
Issued June 30, 1999
1,250,000 Shares
women.com networks logo
COMMON STOCK
------------------------
WOMEN.COM IS OFFERING UP TO 1,250,000 SHARES DIRECTLY. THE SHARES OF COMMON
STOCK WILL BE ISSUED BY US AND WILL NOT BE UNDERWRITTEN SUBJECT TO THE
ARRANGEMENTS DESCRIBED UNDER "UNDERWRITERS" IN THIS PROSPECTUS. AS A RESULT, THE
INFORMATION IN THE SECTION ENTITLED "UNDERWRITERS" IS NOT APPLICABLE TO THIS
DIRECT OFFERING. THIS OFFERING IS CONDITIONED ON THE COMPLETION OF THE
CONCURRENT UNDERWRITTEN PUBLIC OFFERING AND IS EXPECTED TO BE COMPLETED
CONCURRENTLY WITH THE UNDERWRITTEN PUBLIC OFFERING. NO PUBLIC MARKET CURRENTLY
EXISTS FOR OUR SHARES. WE ANTICIPATE THAT THE PUBLIC OFFERING PRICE WILL BE
BETWEEN $10 AND $12 PER SHARE.
------------------------
CONCURRENT WITH THIS OFFERING AND ASSUMING AN OFFERING PRICE OF $11 PER SHARE,
HEARST COMMUNICATIONS, INC. HAS AGREED TO PURCHASE 2,121,212 SHARES OF COMMON
STOCK FROM WOMEN.COM IN A PRIVATE PLACEMENT AT A PRICE PER SHARE EQUAL TO THE
PRICE TO THE PUBLIC IN THE UNDERWRITTEN PUBLIC OFFERING AND THIS OFFERING.
------------------------
WE HAVE APPLIED FOR QUOTATION OF OUR COMMON STOCK ON THE NASDAQ NATIONAL MARKET
UNDER THE SYMBOL "WOMN."
------------------------
INVESTING IN THE COMMON STOCK INVOLVES RISKS. SEE "RISK FACTORS" BEGINNING ON
PAGE 6.
------------------------
PRICE $ A SHARE
------------------------
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.
, 1999
<PAGE> 115
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........................................ $ 18,557
NASD Filing fee............................................. 7,175
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............................. 39,268
----------
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> 116
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> 117
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 6,515,974 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 $21,437,554. 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 6,515,974 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.
II-3
<PAGE> 118
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.
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>
II-4
<PAGE> 119
<TABLE>
<CAPTION>
EXHIBIT 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* Form of Stock Purchase Agreement by and between Hearst
HomeArts, Inc. and Hearst Communications, Inc.
10.27+* Letter Agreement between Women.com Networks LLC and Torstar
Corporation and Harlequin Enterprise Limited dated June 25,
1999.
23.1* Consent of PricewaterhouseCoopers LLP.
23.2* Consent of Deloitte & Touche LLP.
24.1** Power of attorney.
27.1** Financial Data Schedule.
</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
II-5
<PAGE> 120
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.
II-6
<PAGE> 121
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Amendment No. 1 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 June 29, 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 June 29, 1999
- ------------------------------------------------ Officer and President (Principal
Marleen McDaniel Executive Officer)
/s/ MICHAEL PERRY Chief Financial Officer (Principal June 29, 1999
- ------------------------------------------------ Financial and Accounting Officer)
Michael Perry
* Director June 29, 1999
- ------------------------------------------------
Natalie Egleston
* Director June 29, 1999
- ------------------------------------------------
Barry Weinman
* Director June 29, 1999
- ------------------------------------------------
William Miller
* Director June 29, 1999
- ------------------------------------------------
Cathleen Black
* Director June 29, 1999
- ------------------------------------------------
Alfred Sikes
* Director June 29, 1999
- ------------------------------------------------
Nancy Lindemeyer
* Director June 29, 1999
- ------------------------------------------------
Mark Miller
*By: /s/ MICHAEL PERRY
---------------------------------------
Michael Perry
Attorney-in-fact
</TABLE>
II-7
<PAGE> 122
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> 123
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> 124
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> 125
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.
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.
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.
</TABLE>
<PAGE> 126
<TABLE>
<CAPTION>
EXHIBITS DESCRIPTION
- -------- -----------
<S> <C>
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* Form of Stock Purchase Agreement by and between Hearst
HomeArts, Inc. and Hearst Communications, Inc.
10.27+* Letter Agreement by and between Women.com Networks LLC and
Torstar Corporation and Harlequin Enterprise Limited dated
June 25, 1999.
23.1* Consent of PricewaterhouseCoopers LLP.
23.2* Consent of Deloitte & Touche LLP.
24.1** Power of attorney.
27.1** Financial Data Schedule.
</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 1.1
__________ Shares
WOMEN.COM NETWORKS, INC.
Common Stock
[$_____ ] par value
UNDERWRITING AGREEMENT
_______, 1999
<PAGE> 2
_________ __, 1999
Morgan Stanley & Co. Incorporated
BT Alex Brown Incorporated
Salomon Smith Barney
as Representatives of the several Underwriters
named in Schedule I hereto
c/o Morgan Stanley & Co. Incorporated
1585 Broadway
New York, New York 10036
Ladies and Gentlemen:
Women.com Networks, Inc., a Delaware corporation (the "Company"),
proposes to issue and sell to the several Underwriters named in Schedule I
hereto (the "Underwriters"), an aggregate of __________ shares of its common
stock ([$_____] per share par value) (the "Firm Shares").
The Company also proposes to issue and sell to the several Underwriters
not more than an additional ________ shares of its common stock ($_____ per
share par value) (the "Additional Shares"), if and to the extent that you, as
managers of the offering, shall have determined to exercise, on behalf of the
Underwriters, the right to purchase such shares of common stock granted to the
Underwriters in Article II hereof. The Firm Shares and the Additional Shares are
hereinafter collectively referred to as the "Shares." The shares of common
stock, ($0.001 per share par value), of the Company to be outstanding after
giving effect to the sales contemplated hereby are hereinafter referred to as
the "Common Stock."
The Company has filed with the Securities and Exchange Commission (the
"Commission") a registration statement, including a prospectus, relating to the
Shares. The registration statement as amended at the time it becomes effective,
including the information (if any) deemed to be part of the registration
statement at the time of effectiveness pursuant to Rule 430A under the
Securities Act of 1933, as amended (the "Securities Act"), is hereinafter
referred to as the "Registration Statement;" the prospectus in the form first
used to confirm sales of Shares is hereinafter referred to as the "Prospectus."
As part of the offering contemplated by this Agreement, Morgan Stanley &
Co. Incorporated ("Morgan Stanley") has agreed to reserve out of the Shares set
forth opposite its name on Schedule I to this Agreement, up to _______ shares,
for sale to the Company's employees, officers, and directors and other parties
associated with the Company (collectively, "Participants"), as set forth in the
Prospectus under the heading "Underwriting" (the "Directed Share Program"). The
Shares to be sold by Morgan Stanley pursuant to the Directed Share Program (the
"Directed Shares") will be sold by Morgan Stanley pursuant to this Agreement at
the public offering price. Any Directed Shares not orally confirmed for purchase
by any Participants by the end of the first business day after the date on which
this Agreement is executed will be offered to the public by Morgan Stanley as
set forth in the Prospectus.
<PAGE> 3
I.
The Company represents and warrants to each of the Underwriters that:
(a) The Registration Statement has become effective, no stop order
suspending the effectiveness of the Registration Statement is in effect, and no
proceedings for such purpose are pending before or threatened by the Commission.
(b) (i) The Registration Statement, when it became effective, did not
contain and, as amended or supplemented, if applicable, will not contain any
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein not misleading,
(ii) the Registration Statement and the Prospectus comply and, as amended or
supplemented, if applicable, will comply in all material respects with the
Securities Act and the applicable rules and regulations of the Commission
thereunder and (iii) the Prospectus does not contain and, as amended or
supplemented, if applicable, will not contain any untrue statement of a material
fact or omit to state a material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading, except that the representations and warranties set forth in this
paragraph (b) do not apply to statements or omissions in the Registration
Statement or the Prospectus based upon information relating to any Underwriter
furnished to the Company in writing by such Underwriter through you expressly
for use therein.
(c) The Company has been duly incorporated, is validly existing as a
corporation in good standing under the laws of the State of Delaware, has the
corporate power and authority to own its property and to conduct its business as
described in the Prospectus and is duly qualified to transact business and is in
good standing in each jurisdiction in which the conduct of its business or its
ownership or leasing of property requires such qualification, except to the
extent that the failure to be so qualified or be in good standing would not have
a material adverse effect on the Company.
(d) The Company does not own or control, directly or indirectly, any
interest in any other corporation, association, or other business entity.
(e) The Company has good and marketable title in fee simple to all real
property and good and marketable title to all personal property owned by it
which is material to the business of the Company in each case free and clear of
all liens, encumbrances and defects except such as are described in the
Prospectus or such as do not materially affect the value of such property and do
not interfere with the use made and proposed to be made of such property by the
Company; and any real property and buildings held under lease by the Company are
held by it under valid, subsisting and enforceable leases with such exceptions
as are not material and do not interfere with the use made and proposed to be
made of such property and buildings by the Company except as described in or
contemplated by the Prospectus.
(f) The authorized capital stock of the Company conforms as to legal
matters to the description thereof contained in the Prospectus.
-2-
<PAGE> 4
(g) The shares of Common Stock outstanding prior to the issuance of the
Shares to be sold by the Company have been duly authorized and are validly
issued, fully paid and non-assessable. Except as set forth in the Prospectus,
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 [Stock Plans] described in the Prospectus. All outstanding shares
of capital stock and options and other rights to acquire capital stock have been
issued in compliance with 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.
(h) The Shares have 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 Shares will not be subject to
any preemptive rights, rights of first refusal or similar rights.
(i) This Agreement has been duly authorized, executed and delivered by
the Company.
(j) The execution and delivery by the Company of, and the performance by
the Company of its obligations under, this Agreement will not contravene any
provision of applicable law or the certificate of incorporation or bylaws of the
Company, or any agreement or other instrument binding upon the Company that is
material to the Company, taken as a whole, or any judgment, order or decree of
any governmental body, agency or court having jurisdiction over the Company, and
no consent, approval, authorization or order of or qualification with any
governmental body or agency is required for the performance by the Company of
its obligations under this Agreement, except such as may be required by the
securities or Blue Sky laws of the various states in connection with the offer
and sale of the Shares.
(k) There has not occurred any material adverse change, or any
development involving a prospective material adverse change, in the condition,
financial or otherwise, or in the earnings, business or operations of the
Company from that set forth in the Prospectus.
(l) Subsequent to the respective dates as of which information is given
in the Registration Statement and the Prospectus, (i) the Company has not
incurred any material liability or obligation, direct or contingent, nor entered
into any material transaction not in the ordinary course of business; (ii) the
Company has not purchased any of its outstanding capital stock, nor declared,
paid or otherwise made any dividend or distribution of any kind on its capital
stock other than ordinary and customary dividends; and (iii) there has not been
any material change in the capital stock, short-term debt or long-term debt of
the Company, except in each case as described in or contemplated by the
Prospectus.
(m) There are no legal or governmental proceedings pending or, to the
Company's knowledge, threatened to which the Company is a party or to which any
of the properties of the Company is subject that are required to be described in
the Registration Statement or the Prospectus
-3-
<PAGE> 5
and are not so described or any statutes, regulations, contracts or other
documents that are required to be described in the Registration Statement or the
Prospectus or to be filed as exhibits to the Registration Statement that are not
described or filed as required.
(n) The Company has all necessary consents, authorizations, approvals,
orders, certificates and permits of and from, and has made all declarations and
filings with, all federal, state, local and other governmental authorities, all
self-regulatory organizations and all courts and other tribunals, to own, lease,
license and use its properties and assets and to conduct its business in the
manner described in the Prospectus, except to the extent that the failure to
obtain or file would not have a material adverse effect on the Company.
(o) Each preliminary prospectus filed as part of the registration
statement as originally filed or as part of any amendment thereto, or filed
pursuant to Rule 424 under the Securities Act, complied when so filed in all
material respects with the Securities Act and the rules and regulations of the
Commission thereunder.
(p) The Company is not and, after giving effect to the offering and sale
of the Shares and the application of the proceeds thereof as described in the
Prospectus, will not be an "investment company" or an entity "controlled" by an
"investment company" as such terms are defined in the Investment Company Act of
1940, as amended.
(q) There is no owner of any securities of the Company who has any
rights, not effectively satisfied or waived, to require registration of any
shares of capital stock of the Company in connection with the filing of the
Registration Statement or the sale of any shares thereunder.
(r) The Company is insured by insurers of recognized financial
responsibility against such losses and risks and in such amounts as are prudent
and customary in the businesses in which it is engaged; the Company has not been
refused any insurance coverage sought or applied for; and the Company has no
reason to believe that it will not be able to renew its existing insurance
coverage as and when such coverage expires or to obtain similar coverage from
similar insurers as may be necessary to continue its business at a cost that
would not materially and adversely affect the condition, financial or otherwise,
or the earnings, business or operations of the Company, except as described in
or contemplated by the Prospectus.
(s) The Company (i) is in compliance with any and all applicable
foreign, federal, state and local laws and regulations relating to the
protection of human health and safety, the environment or hazardous or toxic
substances or wastes, pollutants or contaminants (collectively, "Environmental
Laws"), (ii) has received all permits, licenses or other approvals required of
them under applicable Environmental Laws to conduct their respective businesses
and (iii) is in compliance with all terms and conditions of any such permit,
license or approval, except where such noncompliance with Environmental Laws,
failure to receive required permits, licenses or other approvals or failure to
comply with the terms and conditions of such permits, licenses or approvals
would not, singly or in the aggregate, have a material adverse effect on the
Company.
-4-
<PAGE> 6
(t) There are no costs or liabilities associated with Environmental Laws
(including, without limitation, any capital or operating expenditures required
for clean-up, closure of properties or compliance with Environmental Laws or any
permit, license or approval, any related constraints on operating activities and
any potential liabilities to third parties) which would, singly or in the
aggregate, have a material adverse effect on the Company and its subsidiaries,
taken as a whole.
(u) The Company owns or possesses adequate licenses or other rights to
use all patents, copyrights, trademarks, service marks, trade names, technology
and know-how (including trade secrets and other unpatented and/or unpatentable
proprietary or confidential information, systems or procedures) currently
employed by it in connection with the business in the manner described in the
Prospectus; the Company is not obligated to pay any material royalty, grant a
material license, or provide other material consideration to any third party in
connection with its patents, copyrights, trademarks, service marks, trade names,
or technology other than as disclosed in the Prospectus; except as disclosed in
the Prospectus, the Company has not received any notice of infringement or
conflict with (and the Company knows of any infringement or conflict with)
asserted rights of others with respect to any patents, copyrights, trademarks,
service marks, trade names, technology or know-how which could result in any
material adverse effect upon the Company; and, except as disclosed in the
Prospectus, the discoveries, inventions, products or processes of the Company
referred to in the Prospectus do not, to the best knowledge of the Company,
infringe or conflict with any right or valid and enforceable patent of any third
party, or any discovery, invention, product or process which is the subject of a
patent application filed by any third party, known to the Company which could
have a material adverse effect on the Company.
(v) The Company possesses all consents, approvals, orders, certificates,
authorizations and permits issued by and has made all declarations and filings
with, all appropriate federal, state or foreign governmental or self-regulatory
authorities and all courts and other tribunals necessary to conduct its business
and to own, lease, license and use its properties in the manner described in the
Prospectus, and the Company has not received any notice of proceedings related
to the revocation or modification of any such certificate, authorization or
permit which, singly or in the aggregate, if the subject of any unfavorable
decision, ruling or finding, or failure to obtain or file would result in a
material adverse change in the condition, financial or otherwise, or in the
earnings, business or operations of the Company, except as described in or
contemplated by the Prospectus.
(w) The Company maintains a system of internal accounting controls
sufficient to provide reasonable assurance that (i) transactions are executed in
accordance with management's general or specific authorizations; (ii)
transactions are recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting principles and to
maintain asset accountability; (iii) access to assets is permitted only in
accordance with management's general or specific authorization; and (iv) the
recorded accountability for assets is compared with the existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.
(x) No material labor dispute with the employees of the Company exists,
except as described in or contemplated by the Prospectus, or, to the best
knowledge of the Company, is imminent; and the Company is not aware of any
existing, threatened or imminent labor disturbance
-5-
<PAGE> 7
by the employees of any of its principal suppliers, manufacturers or contractors
that could result in any material adverse change in the condition, financial or
otherwise, or in the earnings, business or operations of the Company.
(y) With the exception of approximately _______ shares outstanding as of
the Effective Date, all outstanding shares of Common Stock, and all securities
convertible into or exercisable or exchangeable for Common Stock, including but
not limited to outstanding options issued under the Company's [Stock Plans] are
subject to valid, binding and enforceable agreements (collectively, the "Lock-up
Agreements") that restrict the holders thereof from (1) offering, pledging,
selling, contracting to sell, selling any option or contract to purchase,
purchasing any option or contract to sell, granting any option, right, or
warrant for the purchase of, or otherwise transferring or disposing of, directly
or indirectly, any shares of Common Stock or any securities convertible into or
exercisable or exchangeable for Common Stock, or (2) entering into any swap or
similar agreement that transfers, in whole or in part, the economic risk of
ownership of Common Stock, whether any such transaction described in clause (1)
or (2) above is to be settled by delivery of Common Stock or such other
securities, in cash or otherwise, otherwise than (i) as a bona fide gift or
gifts, (ii) by will or intestacy to the holder's immediate family or to a trust
the beneficiaries of which are exclusively the holder and/or a member or members
of the holder's immediate family, (iii) as a distribution to limited partners or
shareholders of the holder, or (iv) with the prior written consent of Morgan
Stanley; provided, however, any transferee pursuant to clauses (a) through (d)
above must agree in writing to be bound by the provisions of the Lock-Up
Agreement for the remainder of the lock-up period prior to any such transfer,
and further that such holders will not 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 prior to the
expiration of 180 days after the date of the Prospectus.
(z) As of the date the Registration Statement becomes effective, the
Common Stock will be authorized for quotation on the Nasdaq National Market upon
official notice of issuance.
(aa) The Company has complied with all provisions of Section 517.075,
Florida Statutes (Chapter 92-198, Laws of Florida), relating to issuers doing
business with Cuba.
(bb) The execution and delivery of the Agreement and Plan of Merger
dated as of _______ __, 1999 (the "Merger Agreement") between Hearst HomeArts,
Inc., a Delaware corporation ("Hearst HomeArts"), and Women.com Networks, Inc.,
a California corporation, was duly authorized by all necessary corporate action
on the part of [the Company]. [The Company] had all corporate power and
authority to execute and deliver the Merger Agreement, to file the Merger
Agreement with the Secretary of State of Delaware and to consummate the
transaction contemplated by the Merger Agreement, and the Merger Agreement at
the time of execution and filing constituted a valid and binding obligation of
[the Company].
(cc) The Company has not offered, or caused the Underwriters to offer,
Shares to any person pursuant to the Directed Share Program with the specific
intent to unlawfully influence (i) a customer or supplier of the Company to
alter the customer's or supplier's level or type of business
-6-
<PAGE> 8
with the Company, or (ii) a trade journalist or publication to write or publish
favorable information about the Company or its products.
(dd) The Company represents and warrants to Morgan Stanley that (i) the
Registration Statement, the Prospectus and any preliminary prospectus comply,
and any further amendments or supplements thereto will comply, with any
applicable laws or regulations of foreign jurisdictions in which the Prospectus
or any preliminary prospectus, as amended or supplemented, if applicable, are
distributed in connection with the Directed Share Program, and that (ii) no
authorization, approval, consent, license, order, registration or qualification
of or with any government, governmental instrumentality or court, other than
such as have been obtained, is necessary under the securities laws and
regulations of foreign jurisdictions in which the Directed Shares are offered
outside the United States.
(ee) The [Joint Venture Agreement] among the Company and [LLC parties],
dated as of January 27, 1999 (the "Hearst Joint Venture"), was duly authorized
by all necessary corporate action on the part of the Company. The Company had
the corporate power and authority to execute and deliver the Hearst Joint
Venture and to consummate the transactions contemplated thereby, and the Hearst
Joint Venture at its effective time constituted a valid and binding obligation
on the Company.
II.
The Company hereby agrees to sell to the several Underwriters, and each
Underwriter, upon the basis of the representations and warranties herein
contained, but subject to the conditions hereinafter stated, agrees, severally
and not jointly, to purchase from the Company the respective number of Firm
Shares (subject to such adjustments to eliminate fractional shares as you may
determine) set forth in Schedule I hereto opposite the name of such Underwriter
at $_____ a share (the "Purchase Price").
On the basis of the representations and warranties contained in this
Agreement, and subject to its terms and conditions, the Company hereby agrees to
issue and sell to the Underwriters the Additional Shares, and the Underwriters
shall have a one-time right to purchase, severally and not jointly, up to
_________ Additional Shares at the Purchase Price. If you, on behalf of the
Underwriters, elect to exercise such option, you shall so notify the Company in
writing not later than thirty (30) days after the date of this Agreement, which
notice shall specify the number of Additional Shares to be purchased by the
Underwriters and the date on which such shares are to be purchased. Such date
may be the same as the Closing Date (as defined below) but not earlier than the
Closing Date nor later than then (10) business days after the date of such
notice. Additional Shares may be purchased as provided in Article IV hereof
solely for the purpose of covering over-allotments made in connection with the
offering of the Firm Shares. If any Additional Shares are to be purchased, each
Underwriter agrees, severally and not jointly, to purchase the number of
Additional Shares (subject to such adjustments to eliminate fractional shares as
you may determine) that bears the same proportion to the total number of
Additional Shares to be purchased as the number of Firm Shares set forth in
Schedule I hereto opposite the name of such Underwriter bears to the total
number of Firm Shares.
-7-
<PAGE> 9
The Company hereby agrees that, without the prior written consent of
Morgan Stanley on behalf of the Underwriters, it will not, during the period
ending 180 days after the date of the Prospectus, (1) 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 any securities convertible into or exercisable or exchangeable for
Common Stock, or (2) enter into any swap or similar arrangement that transfers,
in whole or in part, the economic consequences of ownership of the Common Stock,
whether any such transaction described in clause (1) or (2) above is to be
settled by delivery of Common Stock or such other securities, in cash or
otherwise, other than (i) the Shares to be sold hereunder and as otherwise
disclosed in the Prospectus, (ii) any shares of Common Stock sold by the Company
upon the exercise of an option or warrant or other right to acquire shares of
the Company or the conversion of a security outstanding on the date hereof
described in the Prospectus, (iii) any options or other rights to purchase or
acquire any shares of Common Stock or any shares of Common Stock issuable upon
exercise of such options or other rights granted in connection with any
compensatory arrangement with a director, officer, employee, consultant or
advisor, so long as such person is otherwise subject to a Lock-Up Agreement, or
(iv) any shares of Common Stock or other right to acquire shares of the Company
issued pursuant to equipment or lease financing activities entered into in the
ordinary course of the Company's business, so long as each person or entity
acquiring shares of Common Stock or any securities convertible into or
exercisable or exchangeable for Common Stock is otherwise subject to a Lock-Up
Agreement.
III.
The Company is advised by you that the Underwriters propose to make a
public offering of the Shares as soon after the Registration Statement and this
Agreement have become effective as in your judgment is advisable. The Company is
further advised by you that the Shares are to be offered to the public initially
at $_____ per share (the "Public Offering Price") and to certain dealers
selected by you at a price that represents a concession not in excess of $___
per share under the public offering price, and that any Underwriter may allow,
and such dealers may reallow, a concession, not in excess of $___ per share, to
any Underwriter or to certain other dealers.
IV.
Payment for the Firm Shares shall be made in Federal or other funds
immediately available in New York City against delivery of such Firm Shares for
the respective accounts of the several Underwriters, at 7:00 a.m., California
time, on _______, 1999, or at such other time on the same or such other date,
not later than ________, 1999, as shall be designated in writing by you. The
time and date of each such payment are hereinafter referred to as the Closing
Date.
Payment for any Additional Shares shall be made to the Company in
Federal or other funds immediately available in New York City against delivery
of such Additional Shares for the respective accounts of the several
Underwriters, at 7:00 a.m., California time, on or at such other time on the
same or such other date, in any event not later than _______, 1999 as shall be
designated
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<PAGE> 10
in writing by you. The time and date of such payment are hereinafter referred to
as the "Option Closing Date".
Certificates for the Firm Shares and Additional Shares shall be in
definitive form and registered in such names and in such denominations as you
shall request in writing not later than two full business days prior to the
Closing Date or the Option Closing Date, as the case may be. The certificates
evidencing the Firm Shares and Additional Shares shall be delivered to you on
the Closing Date or the Option Closing Date, as the case may be, for the
respective accounts of the several Underwriters, with any transfer taxes payable
in connection with the transfer of the Shares to the Underwriters duly paid,
against payment of the Purchase Price therefor.
V.
The obligations of the Company and the several obligations of the
Underwriters hereunder are subject to the condition that the Registration
Statement shall have become effective not later than ___:____ (California time)
the date hereof.
The several obligations of the Underwriters hereunder are subject to the
following further conditions:
(a) Subsequent to the execution and delivery of this Agreement and prior
to the Closing Date:
(i) there shall not have occurred any downgrading, nor shall any
notice have been given of any intended or potential downgrading or of any review
for a possible change that does not indicate the direction of the possible
change, in the rating accorded any of the Company's securities by any
"nationally recognized statistical rating organization," as such term is defined
for purposes of Rule 436(g)(2) under the Securities Act, and
(ii) there shall not have occurred any change, or any development
involving a prospective change, in the condition, financial or otherwise, or in
the earnings, business or operations, of the Company and its subsidiaries, taken
as a whole, from that set forth in the Registration Statement that, in your
judgment, is material and adverse and that makes it, in your judgment,
impracticable to market the Shares on the terms and in the manner contemplated
in the Prospectus.
(b) The Underwriters shall have received on the Closing Date a
certificate, dated the Closing Date and signed by the chief executive officer
and the chief financial officer of the Company, to the effect set forth in
clause (a)(i) above, and to the effect that the representations and warranties
of the Company contained in this Agreement are true and correct as of the
Closing Date and that the Company has complied with all of the agreements and
satisfied all of the conditions on its part to be performed or satisfied
hereunder on or before the Closing Date.
The officers signing and delivering such certificate may rely upon the
best of their knowledge as to proceedings threatened.
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<PAGE> 11
(c) You shall have received on the Closing Date an opinion of Cooley
Godward LLP, counsel for the Company, dated the Closing Date, to the effect that
(i) the Company has been duly incorporated, is validly existing
as a corporation in good standing under the laws of the State of Delaware, has
the corporate power and authority to own its property and to conduct its
business as described in the Prospectus and is duly qualified to transact
business and is in good standing in each jurisdiction in which the conduct of
its business or its ownership or leasing of property requires such
qualification, except to the extent that the failure to be so qualified or be in
good standing would not have a material adverse effect on the Company;
(ii) the authorized capital stock of the Company conforms as to
legal matters to the description thereof contained in the Prospectus;
(iii) the shares of Common Stock outstanding prior to the
issuance of the Shares to be sold by the Company have been duly authorized and
are validly issued, non-assessable and, to such counsel's knowledge, fully paid;
(iv) the Shares to be sold by the Company have been duly
authorized, and, when issued and delivered in accordance with the terms of this
Agreement, will be validly issued and non-assessable, and to such counsel's
knowledge, fully paid, and the issuance of such Shares will not be subject to
any preemptive rights, rights of first refusal or similar rights;
(v) the Company has corporate power and authority to enter into
this Agreement and to issue, sell and deliver to the Underwriters the Shares to
be issued and sold by the Company. This Agreement has been duly authorized,
executed and delivered by the Company;
(vi) the execution and delivery by the Company of, and the
performance by the Company of its obligations under, this Agreement will not
contravene any provision of applicable law or the certificate of incorporation
or bylaws of the Company or, to such counsel's knowledge, any agreement or other
instrument binding upon the Company that is material to the Company, taken as a
whole, or, to such counsel's knowledge, any judgment, order or decree of any
governmental body, agency or court having jurisdiction over the Company, and no
consent, approval, authorization or order of or qualification with any
governmental body or agency is required for the performance by the Company of
its obligations under this Agreement, except such as may be required by the
securities or Blue Sky laws of the various states and jurisdictions in
connection with the offer and sale of the Shares;
(vii) the statements (1) in the Prospectus under the captions
"Risk Factors - [Hearst]," "Business - Strategic Relationships," "Management,"
"Certain Transactions," "Description of Capital Stock" and "Shares Eligible for
Future Sale" and (2) in the Registration Statement in Items 14 and 15, in each
case insofar as such statements constitute summaries of the legal matters,
documents or proceedings referred to therein, fairly present the information
called for with respect to such legal matters, documents and proceedings and
fairly summarize the matters referred to therein;
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<PAGE> 12
(viii) after due inquiry, such counsel does not know of any
legal, regulatory or governmental proceeding pending or threatened to which the
Company or any of its subsidiaries is a party or to which any of the properties
of the Company is subject that is required to be described in the Registration
Statement or the Prospectus and is not so described or of any contracts or other
documents that are required to be described in the Registration Statement or the
Prospectus or to be filed as exhibits to the Registration Statement that are not
described or filed as required;
(ix) the Company is not an "investment company" as such term is
defined in the Investment Company Act of 1940, as amended;
(x) to the knowledge of such counsel, there is no legal or
beneficial owner of any securities of the Company who has any rights, not
effectively satisfied or waived, to require registration of any shares of
capital stock of the Company in connection with the filing of the Registration
Statement;
(xi) the execution and delivery of the Merger Agreement was duly
authorized by all necessary corporate action on the part of the Company, the
Company had all corporate power and authority to consummate the transactions
contemplated by the Merger Agreement, and the Merger Agreement at the time of
execution and filing constituted a valid and binding obligation of the Company;
(xii) each of the Company and Acquisition Subsidiary had all
corporate power and authority to execute and deliver the Plan of Merger, and to
consummate the transactions contemplated by the Plan of Merger, and the Plan of
Merger at the time of execution constituted a valid and binding obligation of
each of the Company and Acquisition Subsidiary;
(xiii) to the knowledge of such counsel: (1) the Registration
Statement has become effective under the Securities Act, no stop order
proceedings with respect thereto have been instituted or are pending or
threatened under the Securities Act and nothing has come to such counsel's
attention to lead it to believe that such proceedings are contemplated; and (2)
any required filing of the Prospectus and any supplement thereto pursuant to
Rule 424(b) under the Securities Act has been made in the manner and within the
time period required by such Rule 424(b);
(xiv) the Shares to be sold under this Agreement to the
Underwriters are duly authorized for quotation on the Nasdaq National Market;
and
(xv) such counsel shall also state that (i) they believe that the
Registration Statement and the Prospectus (except for financial statements and
schedules and other financial data therein, as to which they need express no
belief) complied as to form in all material respects with the requirements of
the Act and the rules and regulations of the Commission thereunder and (ii) they
confirm that they have no reason to believe that (except for financial
statements and schedules and other financial data therein the Registration
Statement (and the prospectus included therein) as of its effective date,
contained any untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary to make the statements therein
not misleading or that (except for financial statements and schedules and other
financial data therein the Prospectus, as of
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<PAGE> 13
the date of the Prospectus and such date or dates as such opinion is delivered,
contains any untrue statement of a material fact or omits to state a material
fact necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading.
(d) You shall have received on the Closing Date an opinion of Wilson
Sonsini Goodrich & Rosati, Professional Corporation, counsel for the
Underwriters, dated the Closing Date, covering the matters referred to in
subparagraphs (iv), the last sentence of subparagraph (v), (vii) (but only as to
the statements in the Prospectus under "Description of Capital Stock"), stating
that such counsel has read the first [four] paragraphs and the [sixth] paragraph
of the portion of the Registration Statement and the Prospectus entitled
"Underwriters" (the "Underwriter Portion"), and (xv) of paragraph (c) above.
With respect to subparagraph (xv) of paragraph (c) above, Cooley Godward
LLP and Wilson Sonsini Goodrich & Rosati, Professional Corporation, may state
that their belief is based upon their participation in the preparation of the
Registration Statement and Prospectus and any amendments or supplements thereto
and review and discussion of the contents thereof, but is without independent
check or verification, except as specified.
The opinion of Cooley Godward LLP described in paragraph (c) above shall
be rendered to the Representatives at the request of the Company, and shall so
state therein.
(e) You shall have received, on each of the date hereof and the Closing
Date, a letter dated the date hereof or the Closing Date, as the case may be, in
form and substance satisfactory to you, from each of PriceWaterhouseCoopers LLP
and Deloitte & Touche LLP, independent public accountants, containing statements
and information of the type ordinarily included in accountants' "comfort
letters" to underwriters with respect to the financial statements and certain
financial information contained in the Registration Statement and the
Prospectus.
(f) The Lock-up Agreements between the Underwriters and certain
stockholders, officers and directors of the Company relating to sales of shares
of Common Stock of the Company or any securities convertible into or exercisable
or exchangeable for such Common Stock, delivered to Morgan Stanley on or before
the date hereof, shall be in full force and effect on the Closing Date.
(g) The shares of Common Stock of the Company shall have received
approval for listing, upon official notice of issuance, on the Nasdaq National
Market.
(h) The Company shall have complied with the provisions of paragraph (a)
of Section VI hereof with respect to the furnishing of Prospectuses on the
business day next succeeding the date of this Agreement in such quantities as
you may reasonably request.
(i) The Company shall have delivered all other certificates as may be
reasonably requested by Wilson Sonsini Goodrich & Rosati, Professional
Corporation, counsel for the Underwriters.
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<PAGE> 14
All the agreements, opinions, certificates and letters mentioned above
or elsewhere in this Agreement shall be deemed in compliance with the provisions
hereof only if Wilson Sonsini Goodrich & Rosati, Professional Corporation,
counsel for the Underwriters, shall be reasonably satisfied that they comply in
form and scope.
The several obligations of the Underwriters to purchase Additional
Shares hereunder are subject to the delivery to you on the Option Closing Date
of such documents as you may reasonably request with respect to the good
standing of the Company, the due authorization and issuance of the Additional
Shares, other matters related to the issuance of the Additional Shares and an
opinion or opinions of Cooley Godward LLP in form and substance satisfactory to
Wilson Sonsini Goodrich & Rosati, Professional Corporation, counsel for the
Underwriters.
VI.
In further consideration of the agreements of the Underwriters herein
contained, the Company covenants as follows:
(a) To furnish to you, without charge, four (4) signed copies of the
Registration Statement (including exhibits thereto) and for delivery to each
other Underwriter a conformed copy of the Registration Statement (without
exhibits thereto) and to furnish to you in New York City, without charge, prior
to 7:00 a.m. (California time) on the business day following the date of this
Agreement and during the period mentioned in paragraph 6(c) below, as many
copies of the Prospectus and any supplements and amendments thereto or to the
Registration Statement as you may reasonably request.
(b) Before amending or supplementing the Registration Statement or the
Prospectus, to furnish to you a copy of each such proposed amendment or
supplement and not to file any such proposed amendment or supplement to which
you reasonably object, and to file with the Commission within the applicable
period specified in Rule 424(b) under the Securities Act any prospectus required
to be filed pursuant to such Rule.
(c) If, during such period after the first date of the public offering
of the Shares as in the opinion of Wilson Sonsini Goodrich & Rosati,
Professional Corporation, counsel for the Underwriters, the Prospectus is
required by law to be delivered in connection with sales by an Underwriter or
dealer, any event shall occur or condition exist as a result of which it is
necessary to amend or supplement the Prospectus in order to make the statements
therein, in the light of the circumstances when the Prospectus is delivered to a
purchaser, not misleading, or if, in the opinion of your counsel, it is
necessary to amend or supplement the Prospectus to comply with law, forthwith to
prepare, file with the Commission and furnish, at its own expense, to the
Underwriters and to the dealers (whose names and addresses you will furnish to
the Company) to which Shares may have been sold by you on behalf of the
Underwriters and to any other dealers upon request, either amendments or
supplements to the Prospectus so that the statements in the Prospectus as so
amended or supplemented will not, in the light of the circumstances when the
Prospectus is delivered to a purchaser, be misleading or so that the Prospectus,
as amended or supplemented, will comply with law.
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<PAGE> 15
(d) To endeavor to qualify the Shares for offer and sale under the
securities or Blue Sky laws of such jurisdictions as you shall reasonably
request and to pay all expenses (including fees and disbursements of counsel) in
connection with such qualification and in connection with any review of the
offering of the Shares by the National Association of Securities Dealers, Inc.
(e) To make generally available to the Company's security holders and to
you as soon as practicable an earnings statement covering the twelve-month
period ending _______ __, 2000 that satisfies the provisions of Section 11(a) of
the Securities Act and the rules and regulations of the Commission thereunder.
(f) During a period of three years from the effective date of the
Registration Statement, the Company will furnish to you copies of (i) all
reports to its stockholders and (ii) all reports, financial statements and proxy
or information statements filed by the Company with the Commission or any
national securities exchange.
(g) The Company will apply the proceeds from the sale of the Shares as
set forth under in "Use of Proceeds" in the Prospectus.
(h) The Company will use its best efforts to obtain and maintain in
effect the quotation of the Shares on the Nasdaq National Market and will take
all necessary steps to cause the Shares to be included on the Nasdaq National
Market as promptly as practicable and to maintain such inclusion for a period of
three years after the date hereof or until such earlier date as the Shares shall
be listed for regular trading privileges on the Nasdaq National Market or
another national securities exchange approved by you.
(i) The Company will comply with all registration, filing and reporting
requirements of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), which may from time to time be applicable to the Company.
(j) The Company will comply with all provisions of all undertakings
contained in the Registration Statement.
(k) Prior to the Closing Date or the Option Closing Date, as the case
may be, the Company will not, directly or indirectly, issue any press release or
other communication directly or indirectly and will not hold any press
conference with respect to the Company, or its financial condition, results of
operations, business, properties, assets or prospects, or this offering, without
your prior written consent.
(l) If at any time during the 25-day period after the Registration
Statement becomes effective any rumor, publication or event relating to or
affecting the Company shall occur as a result of which in your opinion the
market price for the Stock has been or is likely to be materially affected
(regardless of whether such rumor, publication or event necessitates a
supplement to or amendment of the Prospectus), the Company will, after written
notice from you advising the Company to the effect set forth above, forthwith
prepare, consult with you concerning the substance of, and
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<PAGE> 16
disseminate a press release or other public statement, reasonably satisfactory
to you, responding to or commenting on such rumor, publication or event.
(m) The Company agrees: (i) to issue stop-transfer instructions to the
transfer agent for the Common Stock with respect to any transaction or
contemplated transaction that would constitute a breach of or default under the
applicable Lock-up Agreement, and (ii) upon written request of Morgan Stanley,
to release from the Lock-up Agreements those shares of Common Stock held by
those holders set forth in such request. In addition, except with the prior
written consent of Morgan Stanley, the Company agrees (i) not to amend or
terminate, or waive any right under, any Lock-up Agreement or take any other
action that would directly or indirectly have the same effect as an amendment or
termination, or waiver of any right under, any Lock-up Agreement that would
permit any holder of shares of Common Stock, or securities convertible into or
exercisable or exchangeable for Common Stock, to offer, pledge, sell, contract
to sell, sell any option or contract to purchase, purchase any option or
contract to sell, make any short sale of, grant any option, right, or warrant
for the purchase of, enter into any swap or similar agreement that transfers, in
whole or in part, the economic risk of ownership of Common Stock, or otherwise
transfer or dispose of, directly or indirectly, any of such shares of Common
Stock or other securities prior to the expiration of 180 days after the date of
the Prospectus, (ii) not to release any such stop-transfer instruction as
described in (ii) above prior to the expiration of 180 days after the date of
the Prospectus, and (iii) not to consent to any sale, short sale, grant of an
option for the purchase of, or other disposition or transfer of shares of Common
Stock, or securities convertible into or exercisable or exchangeable for Common
Stock, subject to a Lock-up Agreement.
(n) The Company will place a restrictive legend on any shares of Common
Stock acquired pursuant to the exercise, after the date hereof and prior to the
expiration of the 180-day period after the date of the initial public offering
of the Shares, of any option granted under either of the Option Plans or
pursuant to the exercise of any warrant, which legend shall restrict the
transfer of such shares prior to the expiration of such 180-day period. In
addition, the Company agrees that, without the prior written consent of Morgan
Stanley, it will not release any stockholder, option holder or warrant holder
from the market standoff provision imposed by the Company pursuant to the terms
of either Option Plan, or earlier than 180 days after the date of the initial
public offering of the Shares.
(o) In connection with the Directed Share Program, the Company will
ensure that the Directed Shares will be restricted to the extent required by the
National Association of Securities Dealers, Inc. (the "NASD") or the NASD rules
from sale, transfer, assignment, pledge or hypothecation for a period of three
months following the date of the effectiveness of the Registration Statement.
Morgan Stanley will notify the Company as to which Participants will need to be
so restricted. At the request of Morgan Stanley, the Company will direct the
transfer agent to place stop transfer restrictions upon such securities for such
period of time.
(p) To pay fees and disbursements of counsel incurred by the
Underwriters in connection with the Directed Share Program and stamp duties,
similar taxes or duties or other taxes, if any, incurred by the Underwriters in
connection with the Directed Share Program.
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<PAGE> 17
(q) To comply with all applicable securities and other applicable laws,
rules and regulations in each foreign jurisdiction in which the Directed Shares
are offered in connection with the Directed Share Program.
(r) Whether or not the transactions contemplated in this Agreement are
consummated or this Agreement is terminated, to pay or cause to be paid all
expenses incident to the performance of its obligations under this Agreement,
including; (i) the fees, disbursements and expenses of the Company's counsel and
the Company's accountants in connection with the registration and delivery of
the Shares under the Securities Act and all other fees or expenses in connection
with the preparation and filing of the Registration Statement, any preliminary
prospectus, the Prospectus and amendments and supplements to any of the
foregoing, including all printing costs associated therewith, and the mailing
and delivering of copies thereof to the Underwriters and dealers, in the
quantities hereinabove specified, (ii) all costs and expenses related to the
transfer and delivery of the Shares to the Underwriters, including any transfer
or other taxes payable thereon, (iii) the cost of printing or producing any Blue
Sky or Legal Investment memorandum in connection with the offer and sale of the
Shares under state securities laws and all expenses in connection with the
qualification of the Shares for offer and sale under state securities laws as
provided in Section 6(d) hereof, including filing fees and the reasonable fees
and disbursements of counsel for the Underwriters in connection with such
qualification and in connection with the Blue Sky or Legal Investment
memorandum, (iv) all filing fees and the reasonable fees and disbursements of
counsel to the Underwriters incurred in connection with the review and
qualification of the offering of the Shares by the National Association of
Securities Dealers, Inc., (v) all fees and expenses in connection with the
preparation and filing of the registration statement on Form 8-A relating to the
Common Stock and all costs and expenses incident to listing the Shares on the
Nasdaq National Market, (vi) the cost of printing certificates representing the
Shares, (vii) the costs and charges of any transfer agent, registrar or
depositary, (viii) the costs and expenses of the Company relating to investor
presentations on any "road show" undertaken in connection with the marketing of
the offering of the Shares, including, without limitation, expenses associated
with the production of road show slides and graphics, fees and expenses of any
consultants engaged in connection with the road show presentations with the
prior approval of the Company, travel and lodging expenses of the
representatives and officers of the Company and any such consultants, and the
cost of any aircraft chartered in connection with the road show, and (ix) all
other costs and expenses incident to the performance of the obligations of the
Company hereunder for which provision is not otherwise made in this Section. It
is understood, however, that except as provided in this Section, Section 7, and
the last paragraph of Section 9 below, the Underwriters will pay all of their
costs and expenses, including fees and disbursements of their counsel, stock
transfer taxes payable on resale of any of the Shares by them and any
advertising expenses connected with any offers they may make.
VII.
The Company agrees to indemnify and hold harmless each Underwriter and
each person, if any, who controls any Underwriter within the meaning of either
Section 15 of the Securities Act or Section 20 of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), or is under common control with, or is
controlled by, any Underwriter, from and against any and all losses,
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<PAGE> 18
claims, damages and liabilities (including, without limitation, any legal or
other expenses reasonably incurred in connection with defending or investigating
any such action or claim) caused by any untrue statement or alleged untrue
statement of a material fact contained in the Registration Statement or any
amendment thereof, any preliminary prospectus or the Prospectus (as amended or
supplemented if the Company shall have furnished any amendments or supplements
thereto), or caused by any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, except insofar as such losses, claims, damages or
liabilities are caused by any such untrue statement or omission or alleged
untrue statement or omission based upon information relating to any Underwriter
furnished to the Company in writing by such Underwriter through you expressly
for use therein; provided, however, that the foregoing indemnity agreement with
respect to any preliminary prospectus shall not inure to the benefit of any
Underwriter or any person controlling such Underwriter, from whom the person
asserting any such losses, claims, damages or liabilities purchased Shares, if a
copy of the Prospectus (as then amended or supplemented, if the Company shall
have furnished any amendments or supplements thereto) was not sent or given by
or on behalf of such Underwriter to such person, if required by law so to have
been delivered, at or prior to the written confirmation of the sale of the
Shares to such person, and if the Prospectus (as so amended or supplemented)
would have cured the defect giving rise to such loss, claim, damage or
liability.
The Company agrees to indemnify and hold harmless Morgan Stanley and
each person, if any, who controls Morgan Stanley within the meaning of either
Section 15 of the Securities Act or Section 20 of the Exchange Act ('Morgan
Stanley Entities"), from and against any and all losses, claims, damages and
liabilities (including, without limitation, any legal or other expenses
reasonable incurred in connection with defending or investigating any such
action or claim) (I) caused by any untrue statement or alleged untrue statement
of a material fact contained in the prospectus wrapper material prepared by or
with the consent of the Company for distribution in foreign jurisdictions in
connection with the Directed Share Program attached to the Prospectus or any
preliminary prospectus, or caused by any omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statement therein, when considered in conjunction with the Prospectus or any
applicable preliminary prospectus, not misleading; (ii) caused by the failure of
any Participant to pay for and accept delivery of the shares which, immediately
following the effectiveness of the Registration Statement, were subject to a
properly confirmed agreement to purchase; or (iii) related to, arising out of,
or in connection with the Directed Share Program, provided that, the Company
shall not be responsible under this subparagraph (iii) for any losses, claim,
damages or liabilities (or expenses relating thereto) that are finally
judicially determined to have resulted from the bad faith or gross negligence of
Morgan Stanley Entities.
Each Underwriter agrees, severally and not jointly, to indemnify and
hold harmless the Company, the directors of the Company, the officers of the
Company who sign the Registration Statement and each person, if any, who
controls the Company within the meaning of either Section 15 of the Securities
Act or Section 20 of the Exchange Act from and against any and all losses,
claims, damages and liabilities (including, without limitation, any legal or
other expenses reasonably incurred in connection with defending or investigating
any such action or claim) caused by any untrue statement or alleged untrue
statement of a material fact contained in the Registration
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<PAGE> 19
Statement or any amendment thereof, any preliminary prospectus or the Prospectus
(as amended or supplemented if the Company shall have furnished any amendments
or supplements thereto), or caused by any omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, but only with reference to information
relating to such Underwriter furnished to the Company in writing by such
Underwriter through you expressly for use in the Registration Statement, any
preliminary prospectus, the Prospectus or any amendments or supplements thereto.
In case any proceeding (including any governmental investigation) shall
be instituted involving any person in respect of which indemnity may be sought
pursuant to any of the two preceding paragraphs, such person (the "Indemnified
Party") shall promptly notify the person against whom such indemnity may be
sought (the "Indemnifying Party") in writing and the Indemnifying Party, upon
request of the Indemnified Party, shall retain counsel reasonably satisfactory
to the Indemnified Party to represent the Indemnified Party and any others the
Indemnifying Party may designate in such proceeding and shall pay the fees and
disbursements of such counsel related to such proceeding. In any such
proceeding, any Indemnified Party shall have the right to retain its own
counsel, but the fees and expenses of such counsel shall be at the expense of
such Indemnified Party unless (i) the Indemnifying Party and the Indemnified
Party shall have mutually agreed to the retention of such counsel or (ii) the
named parties to any such proceeding (including any impleaded parties) include
both the Indemnifying Party and the Indemnified Party and representation of both
parties by the same counsel would be inappropriate due to actual or potential
differing interests between them. It is understood that the Indemnifying Party
shall not, in respect of the legal expenses of any Indemnified Party in
connection with any proceeding or related proceedings in the same jurisdiction,
be liable for (a) the fees and expenses of more than one separate firm (in
addition to any local counsel) for all Underwriters and all persons, if any, who
control any Underwriter within the meaning of either Section 15 of the
Securities Act or Section 20 of the Exchange Act, and (b) the fees and expenses
of more than one separate firm (in addition to any local counsel) for the
Company, its directors, its officers who sign the Registration Statement and
each person, if any, who controls the Company within the meaning of either such
Section, and that all such fees and expenses shall be reimbursed as they are
incurred. In the case of any such separate firm for the Underwriters and such
control persons of Underwriters, such firm shall be designated in writing by
Morgan Stanley. In the case of any such separate firm for the Company, and such
directors, officers and control persons of the Company, such firm shall be
designated in writing by the Company. The Indemnifying Party shall not be liable
for any settlement of any proceeding effected without its written consent, but
if settled with such consent or if there be a final judgment for the plaintiff,
the Indemnifying Party agrees to indemnify the Indemnified Party from and
against any loss or liability by reason of such settlement or judgment.
Notwithstanding the foregoing sentence, if at any time an Indemnified Party
shall have requested an Indemnifying Party to reimburse the Indemnified Party
for fees and expenses of counsel as contemplated by the second and third
sentences of this paragraph, the Indemnifying Party agrees that it shall be
liable for any settlement of any proceeding effected without its written consent
if (i) such settlement is entered into more than 30 days after receipt by such
Indemnifying Party of the aforesaid request and (ii) such Indemnifying Party
shall not have reimbursed the Indemnified Party in accordance with such request
prior to the date of such settlement. No Indemnifying Party shall, without the
prior written consent of the Indemnified Party,
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<PAGE> 20
effect any settlement of any pending or threatened proceeding in respect of
which any Indemnified Party is or could have been a party and indemnity could
have been sought hereunder by such Indemnified Party, unless such settlement
includes an unconditional release of such Indemnified Party from all liability
on claims that are the subject matter of such proceeding.
Notwithstanding anything contained herein to the contrary, if indemnity
may be sought pursuant to the second paragraph of Article 8 hereof in respect of
such action or proceeding, then in addition to such separate firm for the
indemnified parties, the indemnifying party shall be liable for the reasonable
fees and expenses of not more than one separate firm (in addition to any local
counsel) for Morgan Stanley for the defense of any losses, claims, damages and
liabilities arising out of the Directed Share Program, and all persons, if any,
who control Morgan Stanley within the meaning of either Section 15 of the Act or
Section 20 of the Exchange Act.
To the extent the indemnification provided for in the first or second
paragraph of this Article VIII is unavailable to an Indemnified Party or
insufficient in respect of any losses, claims, damages or liabilities referred
to therein, then each Indemnifying Party under such paragraph, in lieu of
indemnifying such Indemnified Party thereunder, shall contribute to the amount
paid or payable by such Indemnified Party as a result of such losses, claims,
damages or liabilities (i) in such proportion as is appropriate to reflect the
relative benefits received by the Indemnifying Party or parties on the one hand
and the Indemnified Party or parties on the other hand from the offering of the
Shares or (ii) if the allocation provided by clause (i) above is not permitted
by applicable law, in such proportion as is appropriate to reflect not only the
relative benefits referred to in clause (i) above but also the relative fault of
the Indemnifying Party or parties on the one hand and of the Indemnified Party
or parties on the other hand in connection with the statements or omissions that
resulted in such losses, claims, damages or liabilities, as well as any other
relevant equitable considerations. The relative benefits received by the Company
on the one hand and the Underwriters on the other hand in connection with the
offering of the Shares shall be deemed to be in the same respective proportions
as the net proceeds from the offering of the Shares (before deducting expenses)
received by the Company and the total underwriting discounts and commissions
received by the Underwriters, in each case as set forth in the table on the
cover of the Prospectus, bear to the aggregate public offering price of the
Shares. The relative fault of the Company on the one hand and the Underwriters
on the other hand shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by the Company or by the Underwriters and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission. The Underwriters' respective obligations to contribute
pursuant to this Article VII are several in proportion to the respective number
of Shares they have purchased hereunder, and not joint.
The Company and the Underwriters agree that it would not be just or
equitable if contribution pursuant to this Article VII were determined by pro
rata allocation (even if the Underwriters were treated as one entity for such
purpose) or by any other method of allocation that does not take account of the
equitable considerations referred to in the immediately preceding paragraph. The
amount paid or payable by an Indemnified Party as a result of the losses,
claims, damages and
-19-
<PAGE> 21
liabilities referred to in the immediately preceding paragraph shall be deemed
to include, subject to the limitations set forth above, any legal or other
expenses reasonably incurred by such Indemnified Party in connection with
investigating or defending any such action or claim. Notwithstanding the
provisions of this Article VII, no Underwriter shall be required to contribute
any amount in excess of the amount by which the total price at which the Shares
underwritten by it and distributed to the public were offered to the public
exceeds the amount of any damages that such Underwriter has otherwise been
required to pay by reason of such untrue or alleged untrue statement or omission
or alleged omission. No person guilty of fraudulent misrepresentation (within
the meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. The remedies provided for in this Article VII are not
exclusive and shall not limit any rights or remedies which may otherwise be
available to any Indemnified Party at law or in equity.
The indemnity and contribution provisions contained in this Article VII
and the representations and warranties of the Company contained in this
Agreement shall remain operative and in full force and effect regardless of (i)
any termination of this Agreement, (ii) any investigation made by or on behalf
of any Underwriter or any person controlling any Underwriter, or the Company,
its officers or directors or any person controlling the Company and (iii)
acceptance of and payment for any of the Shares.
VIII.
This Agreement shall be subject to termination by notice given by you to
the Company, if (a) after the execution and delivery of this Agreement and prior
to the Closing Date (i) trading generally shall have been suspended or
materially limited on or by, as the case may be, any of the New York Stock
Exchange, the American Stock Exchange, the National Association of Securities
Dealers, Inc., the Chicago Board of Options Exchange, the Chicago Mercantile
Exchange or the Chicago Board of Trade, (ii) trading of any securities of the
Company shall have been suspended on any exchange or in any over-the-counter
market, (iii) a general moratorium on commercial banking activities in New York
shall have been declared by either Federal or New York State authorities, or
(iv) there shall have occurred any outbreak or escalation of hostilities or any
change in financial markets or any calamity or crisis that, in your sole
judgment, is material and adverse and (b) in the case of any of the events
specified in clauses (a)(i) through (iv), such event singly or together with any
other such event makes it, in your sole judgment, impracticable to market the
Shares on the terms and in the manner contemplated in the Prospectus.
IX.
This Agreement shall become effective upon execution and delivery hereof
by the parties hereto.
If, on the Closing Date or the Option Closing Date, as the case may be,
any one or more of the Underwriters shall fail or refuse to purchase Shares that
it or they have agreed to purchase hereunder on such date, and the aggregate
number of Shares which such defaulting Underwriter or Underwriters agreed but
failed or refused to purchase is not more than one-tenth of the aggregate
-20-
<PAGE> 22
number of the Shares to be purchased on such date, the other Underwriters shall
be obligated severally in the proportions that the number of Firm Shares set
forth opposite their respective names in Schedule I bears to the aggregate
number of Firm Shares set forth opposite the names of all such non-defaulting
Underwriters, or in such other proportions as you may specify, to purchase the
Shares which such defaulting Underwriter or Underwriters agreed but failed or
refused to purchase on such date; provided, however, that in no event shall the
number of Shares that any Underwriter has agreed to purchase pursuant to Article
II be increased pursuant to this Article IX by an amount in excess of one-ninth
of such number of Shares without the written consent of such Underwriter. If, on
the Closing Date or the Option Closing Date, as the case may be, any Underwriter
or Underwriters shall fail or refuse to purchase Shares and the aggregate number
of Shares with respect to which such default occurs is more than one-tenth of
the aggregate number of Shares to be purchased on such date, and arrangements
satisfactory to you and the Company for the purchase of such Shares are not made
within 36 hours after such default, this Agreement shall terminate without
liability on the part of any non-defaulting Underwriter or the Company. In any
such case either you or the Company shall have the right to postpone the Closing
Date or the Option Closing Date, as the case may be, but in no event for longer
than seven days, in order that the required changes, if any, in the Registration
Statement and in the Prospectus or in any other documents or arrangements may be
effected. Any action taken under this paragraph shall not relieve any defaulting
Underwriter from liability in respect of any default of such Underwriter under
this Agreement.
If this Agreement shall be terminated by the Underwriters, or any of
them, because of any failure or refusal on the part of the Company to comply
with the terms or to fulfill any of the conditions of this Agreement, or if for
any reason the Company shall be unable to perform its obligations under this
Agreement, the Company will reimburse the Underwriters or such Underwriters as
have so terminated this Agreement with respect to themselves, severally, for all
out-of-pocket expenses (including the fees and disbursements of their counsel)
reasonably incurred by such Underwriters in connection with this Agreement or
the offering contemplated hereunder.
X.
This Agreement may be signed in two or more counterparts, each of which
shall be an original, with the same effect as if the signatures thereto and
hereto were upon the same instrument.
XI.
This Agreement shall be governed by and construed in accordance with the
internal laws of the State of New York.
-21-
<PAGE> 23
Very truly yours,
Women.com Networks, Inc.
By
-------------------------------
Marleen McDaniel,
President and Chief Executive Officer
Accepted, ____ __, 1999
Morgan Stanley & Co. Incorporated
BT Alex Brown Incorporated
Salomon Smith Barney
Acting severally on behalf of themselves and the
several Underwriters named herein.
By: Morgan Stanley & Co. Incorporated
By
-------------------------------
[ ]
-----------------
[ ]
-----------------
<PAGE> 24
SCHEDULE I
<TABLE>
<CAPTION>
NAME NUMBER OF SHARES
---- ----------------
<S> <C>
</TABLE>
<PAGE> 1
[Share Certificate]
women.com networks
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
CUSIP 978149 10 2
SEE REVERSE FOR CERTAIN DEFINITIONS
FULLY PAID AND NONASSESSABLE SHARES OF COMMON STOCK, $.001 PAR VALUE OF
Women.com Networks, Inc.
transferable on the books of the Corporation by the holder hereof in person or
by duly authorized attorney upon surrender of this certificate properly
endorsed. This certificate is not valid until countersigned by the Transfer
Agent and Registrar.
WITNESS the facsimile signatures of its duly authorized officers.
Dated:
/s/ MARLEEN R. MCDANIEL /s/ MICHAEL PERRY
-------------------------------- --------------------------------
Marleen R. McDaniel Michael Perry
Chairperson, President & Chief Financial Officer &
Chief Executive Officer Treasurer
<PAGE> 2
Women.com Networks, Inc.
The Corporation will furnish without charge to each stockholder who so
requests the powers, designations, preferences and relative, participating,
optional or other special rights of each class of stock or series thereof and
the qualifications, limitations or restrictions of such preferences and/or
rights. Any such request should be directed to the Corporation, attention of its
Secretary at the Corporation's principal executive offices.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations.
TEN COM -- as tenants in common UNIF GIFT MIN ACT- _________________
TEN ENT -- as tenants by the entireties (Cust)
JT TEN -- as joint tenants with right of Custodian _________________
survivorship and not as tenants (Minor)
in common Under Uniform Gifts to Minors
Act _________________
(State)
Additional abbreviations may also be used though not in the above list.
For Value Received _______________________________________ hereby sell(s),
assign(s) and transfer(s) unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
[ ]
________________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE OF ASSIGNEE
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
of the Shares of capital stock represented by the within Certificate and do(es)
hereby irrevocably constitute and appoint ______________________________________
Attorney to transfer the said Shares on the books of the within named
Corporation with full power of substitution in the premises.
Dated ______________________ _________________________________________________
NOTE. The signature to the assignment must
correspond with the names as written upon the
face of the certificate in every particular,
without alteration or enlargement of any change
whatever. Signature must be guaranteed.
Signature(s) Guaranteed
By ____________________________________________________________
THE SIGNATURES MUST BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION (BANKS,
STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH MEMBERSHIP IN
AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM), PURSUANT
TO SEC RULE 17Ad-15
<PAGE> 1
EXHIBIT 5.1
[COOLEY GODWARD LLP LETTERHEAD]
June 29, 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 "Underwritten Offering") and a
direct public offering of up to one million two hundred fifty thousand
(1,250,000) shares of Common Stock of Women.com Networks, Inc. (the "Direct
Offering").
In connection with this opinion, we have (i) examined and relied upon the
Registration Statement and related Prospectuses, 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; (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; and (iii) that the shares of Common Stock to
be sold in the Underwritten Offering will be sold by the Underwriters at a price
(the "Offering Price") established by the Pricing Committee of the Board of
Directors of the Company and that the shares of Common Stock to be sold in the
Direct Offering will be sold by the Company to the offeree at the Offering
Price.
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 10.2
MAGAZINE CONTENT LICENSE AND HOSTING AGREEMENT
THIS MAGAZINE CONTENT LICENSE AND HOSTING AGREEMENT (the "Agreement") is
made and entered into as of the 27th day of January, 1999 (the "Effective
Date"), by and between WOMEN.COM NETWORKS, LLC a Delaware limited liability
company ("Women.com, LLC"), and HEARST COMMUNICATIONS, INC., a Delaware
corporation ("Hearst").
RECITALS
WHEREAS, Women.com, LLC is in the business of, among other things,
developing and maintaining a network of interrelated Web sites, which Web sites
contain content focused primarily on topics of interest to women.
WHEREAS, Hearst is the sole and exclusive owner of certain magazines
that contain content focused primarily on topics of interest to women, each of
which magazines currently maintains, or intends to develop and maintain, an
affiliated Web site.
WHEREAS, Women.com, LLC and Hearst mutually desire: (i) to incorporate
the magazine Web sites into the network of sites maintained by Women.com, LLC;
(ii) for Women.com, LLC to provide Internet hosting services for all such
magazine Web sites, and to produce certain of such sites; and (iii) that
Women.com, LLC have the right to use and publish content from the magazines on
and in connection with the Women.com, LLC network.
NOW, THEREFORE, in consideration of the mutual covenants and
representations set forth herein, the parties hereby agree as follows.
AGREEMENT
1. DEFINITIONS.
1.1 "ADVERTISEMENT" means any banner advertisements, site sponsorship
arrangements, performance-based advertising, referrals, click-throughs, leads
and bounties, and all other similar activities which do not produce revenues
through direct selling, sold with respect to any Magazine Site.
1.2 "CONTENT" means the text, pictures, sound, video, graphical elements
and other data contained in any Web site, excluding all Marks.
1.3 THE "COPYRIGHT ACT" means Title 17 of the United States Code, as
amended from time-to-time, or any successor statute thereto.
1.
<PAGE> 2
1.4 "DERIVATIVE WORK" is original Content contained on a Network site
that is based upon Hearst Content or Magazine Content, such as a translation,
musical arrangement, dramatization, fictionalization, motion picture version,
sound recording, art reproduction, abridgment, condensation, or any other form
in which a work may be recast, transformed, or adapted.
For purposes of this Agreement, excerpts made pursuant to Section 3.3 or
formatting revisions to Hearst Content made by Women.com, LLC in the normal
course of producing or hosting any Magazine Site shall not be deemed a
Derivative Work.
1.5 THE "HEARST CONTENT" means the Content that is proprietary to Hearst
or its third party licensors, which Content Hearst provides for inclusion on any
Magazine Site, whether before or after the Effective Date. As used in this
Agreement, "Hearst Content" specifically excludes Derivative Works.
1.6 "HOSTING SERVICES" means those Internet hosting services to be
performed by Women.com, LLC on behalf of Hearst under the terms of this
Agreement, all as more fully described on Exhibit A.
1.7 "INTERNET" means that certain worldwide system of computer networks,
conceived by the Advanced Research Projects Agency of the United States
Government in 1969 and originally known as ARPANet, which is as of the Effective
Date a public, cooperative and self-sustaining facility accessible to millions
of people worldwide, and is distinguished by its use of TCP/IP protocols, and
hypertext links, and incorporates, among other features, the World Wide Web.
1.8 THE "MAGAZINES" means the U.S. edition of each of the following
print publications (so long as such publications are published by Hearst):
Harper's Bazaar; Cosmopolitan; Country Living; Country Living Gardener; Country
Living's Healthy Living; Good Housekeeping; House Beautiful; Redbook; Town &
Country; and Victoria, each of which is wholly owned by Hearst. If following the
Effective Date, Hearst becomes the sole owner of any other magazine(s), such
magazine(s) may be added to the foregoing list upon the mutual agreement of the
parties. Further, the parties may, by mutual written agreement, add any or all
of the international versions of any of the foregoing Magazines to the scope of
this Agreement. The "Magazines" shall also include Marie-Claire (which is
operated as a joint venture between Hearst and Marie-Claire Album S.A., if
following the Effective Date Hearst obtains the consent of Marie-Claire Album
S.A. to include Marie-Claire within the scope of this Agreement, which consent
Hearst agrees to use commercially reasonable efforts to obtain.
1.9 "MAGAZINE CONTENT" means any and all content (other than advertising
and advertorials) published in any of the Magazines, whether prior to or
following the Effective Date, and including, by way of example and without
limitation, articles, reportage, features, editorials, letters to the editor,
reviews and commentary, provided, however, that Magazine Content shall only
include material with respect to which Hearst owns sufficient electronic rights
to license the use and display of such material for use on the Network.
2.
<PAGE> 3
1.10 "MAGAZINE SITE" means the U.S. edition of a Web site that is
provided by or on behalf of Hearst as an on-line version of a Magazine and/or is
maintained as an on-line adjunct to a Magazine, including all Hearst Content
contained on such site. If following the Effective Date, Hearst becomes the sole
owner of any other magazine(s) which are appropriate for incorporation in the
Network or obtains the consent of Marie-Claire Album S.A. as described in
Section 1.7, the related Magazine Site(s) may be added to the scope of this
Agreement upon the mutual written agreement of the parties. Notwithstanding
anything contained herein to the contrary, in no event shall bazaar411.com be
deemed to be a Magazine Site for purposes of this Agreement.
1.11 "MARK" means any and all trademarks, trade names, service marks,
trade dress, logos, URLs, or identifying slogans of a party, whether or not
registered.
1.12 "NET ADVERTISING REVENUES" means gross revenues recognized by
Women.com, LLC from the sale of Advertisements on (a) the Magazine Sites, (b)
any page of the Network that primarily contains Hearst Content (other than
teasers), and (c) any other page of the Network on which any article or feature
that is Hearst Content is reproduced or duplicated substantially in its
entirety, less agency fees (which shall not exceed fifteen percent (15%) of
gross revenues from the sale of Advertisements), commissions (which shall not
exceed eight percent (8%) of gross revenues from the sale of Advertisements),
credits due to cancellations, and provision for bad debt.
1.13 THE "NETWORK" means that network of Web sites operated by
Women.com, LLC and each bearing the Women.com, LLC brand and directly linked to
the Network Portal Site, including any Web sites that may be added to the
Network during the term of this Agreement.
1.14 "NETWORK PORTAL SITE" means the portal site for the Network, which
site is currently located at www.women.com, or any successor URL.
1.15 "PRODUCTION SERVICES" means those Magazine Site production services
to be performed by Women.com, LLC on behalf of Hearst under the terms of this
Agreement, all as more fully described on Exhibit B.
1.16 "PROMOTIONAL ACTIVITY" means the placing of Advertisements, or the
provision of headlines or teasers (e.g. excerpts of Hearst Content or Magazine
Content).
1.17 THE "WEB" means the World Wide Web portion of the Internet.
1.18 "WOMEN.COM, LLC COMPETITOR" means: (a) any Women's Portal Site and
(b) any Web site that primarily provides content, substantially competes with a
Women.com, LLC site, is targeted specifically to women and is used primarily by
women; or (c) any channel or area of an online content aggregation service (such
as AOL, Compuserve, Yahoo, Excite, etc.), which channel or area substantially
competes with a Women.com, LLC site, is targeted specifically to women and is
used primarily by women.
1.19 "WOMEN'S PORTAL SITE" means a Web site that is meant to function as
an anchor site or entry point for users to the Internet and offers a broad array
of resources and services such as articles, e-mail, discussion forums, search
engines, weather information, stock quotes, phone and map information, and
on-line shopping malls that contains content of interest primarily to women, is
primarily targeted specifically to women and is used primarily by women (e.g.:
iVillage, Oxygen Media and LookSmart).
3.
<PAGE> 4
2. INCORPORATION OF THE MAGAZINE SITES INTO THE NETWORK.
2.1 GENERAL. The incorporation of the Magazine Sites into the Network is
to be accomplished by way of the rights and obligations described in this
Agreement. In addition to such rights and obligations, the parties agree that
they shall, during the term of this Agreement, work together in good faith and
take whatever other actions are reasonably necessary or prudent to accomplish
the goals of this Agreement.
2.2 LINKING AND DISTRIBUTION.
(a) During the term of this Agreement, Women.com, LLC agrees that
it will place direct links to at least four Magazine Sites (to be mutually
agreed upon by Hearst and Women.com, LLC) on the Network. These links will be
placed on the homepage of the Network Portal Site if links to any non-Magazine
Site appear on such page. These links and additional links will also be placed
individually or grouped, throughout the Network on appropriate homepages and any
other appropriate pages on the Network, including, without limitation, any
appropriate pages where other relevant non-Magazine site links appear, and will
be no less favorable in terms of size, placement, rotation, prominence,
frequency and ease of use, than any other link, brand or name of any other site
on the Network. Without limiting the generality of the foregoing, in the event
any Magazine Site link or links appear on the Network together with any
non-Magazine site link that is in the form of a logo, such Magazine Site link or
links shall also be in the form of a logo. During the term of this Agreement,
Hearst shall create and place links to the Network Portal Site homepage from the
homepage of each Magazine Site (and elsewhere within each such Magazine Site, as
the parties may mutually determine).
(b) Women.com, LLC shall distribute the Magazine Sites throughout
the Network in a manner no less favorable than any other site on the Network.
2.3 BRANDING. Hearst shall prominently place Women.com, LLC's branding
above the fold, adjacent to the masthead on each Magazine Site. All Women.com,
LLC branding on each Magazine Site must comply with Women.com, LLC's branding
standards as communicated to Hearst from time to time, and shall be subject to
the prior approval of Women.com, LLC, which shall be deemed given if Women.com,
LLC does not respond within five (5) business days of receipt of request for
approval. Women.com, LLC shall provide navigation capabilities on the Network to
and from each of the Magazine Sites. Such navigation capabilities shall be at
least equal (including, without limitation, with respect to size, placement,
prominence, frequency and ease of use) to the navigation capabilities provided
by Women.com, LLC on the Network with respect to non-Magazine sites. Without
limiting the foregoing, navigation from the Network to each of the Magazine
Sites shall exist from every place on the Network where navigation to all other
non-Magazine site exists. In addition, where a navigational tool is used to link
to a majority of non-Magazine Sites exists, relevant Magazine Sites will also be
linked with such navigational tool. All Hearst and Magazine branding on the
Network must comply with applicable branding standards as communicated by Hearst
to Women.com, LLC from time to
4.
<PAGE> 5
time, and shall be subject to the prior approval of Hearst, which shall be
deemed given if Hearst does not respond within five (5) business days of receipt
of request for approval.
2.4 DEVELOPMENT SCHEDULE. Following the Effective Date, the parties
shall work together in good faith in order to complete all tasks necessary or
desirable to incorporate the Magazine Sites into the Network (the
"Implementation"). Within thirty (30) days following the Effective Date, the
parties shall develop a mutually acceptable schedule ("Schedule") that will
cover each party's respective tasks and obligations with respect to the
Implementation and establish a targeted launch date for each Magazine Site. Each
party shall assign a project manager to be the primary point of contact between
the parties with respect to such efforts. The parties agree to use commercially
reasonable efforts to complete their respective Implementation obligations with
respect to each Magazine Site by the launch date set forth for such in the
Schedule.
2.5 LICENSE. During the term of this Agreement, Hearst hereby grants to
Women.com, LLC a non-exclusive (except as provided in Section 2.7(a)),
royalty-free, worldwide license, with no right to sublicense or to sell, to:
(a) electronically reproduce and distribute, and publicly perform
and display the Hearst Content on the Web, all in connection with the Hosting
Services to be provided by Women.com, LLC pursuant to Section 3 and the
incorporation of the Magazine Sites into the Network as contemplated by this
Agreement; and
(b) electronically reproduce and distribute, and publicly perform
and display the Hearst Content both (i) on the Network, and (ii) otherwise on
the Web in connection with Women.com, LLC's fulfillment of its distribution
commitments to its on-line distribution partners (e.g. America OnLine); and
(c) electronically reproduce and distribute, and publicly perform
and display Magazine Content both (i) on the Network, and (ii) otherwise on the
Web in connection with Women.com, LLC's fulfillment of its distribution
commitments to its on-line distribution partners (e.g. America OnLine);
provided, that electronic publishing rights have been obtained by Hearst with
respect to such Magazine Content (it being understood that Hearst shall not have
any obligation to obtain such rights on behalf of Women.com, LLC); and provided,
further, that Hearst shall not be obligated to deliver to Women.com, LLC any
Magazine Content that was published, in print or electronically, prior to the
Effective Date, where the cost of delivery to Women.com, LLC would, in Hearst's
reasonable estimation, be economically impractical; and
(d) reproduce and distribute through any media now known or
hereafter developed excerpts of the Hearst Content in advertisements for and
marketing and promotional materials related to the Network and the Magazine
Sites; and
(e) subject to Section 8.2 and obtaining the written agreement of
Hearst, make Derivative Works, and to reproduce, publicly perform and display,
and distribute such Derivative Works through the Network and in any media now
known or hereafter developed; and
5.
<PAGE> 6
(f) electronically reproduce and distribute on the Web, and
publicly perform and display on the Web any banner advertisements delivered by
Hearst to Women.com, LLC for placement on the Magazine Site(s) and/or the
Network.
2.6 MAGAZINE SPECIFIC RESTRICTIONS. The rights granted pursuant to
Section 2.5 are subject to any guidelines that may be established by Hearst or
each Magazine from time-to-time with respect to Hearst Content or Magazine
Content. Further, Hearst and each Magazine shall have the right to request,
based on reasonable objections, the removal of, or editorial revisions to, any
of its Hearst Content or Magazine Content that is published through the Network.
Women.com, LLC agrees to take appropriate remedial action with respect to any
such request within twenty four (24) hours after receipt of such request;
provided, that after taking such remedial action, Women.com, LLC shall have the
right to appeal such request directly to the designated personnel at the
applicable Magazine.
2.7 ADDITIONAL RIGHTS AND RESTRICTIONS.
(a) EXCLUSIVITY. During the term of this Agreement, Hearst agrees
that it will not: (i) grant Internet distribution or Interact publication rights
to any of the Hearst Content or Magazine Content to any Women.com, LLC
Competitor including, without limitation, through a direct data feed, cobranding
arrangement, or premium placement arrangement; (ii) advertise or promote the
Magazine Sites on or in connection with any Women.com, LLC Competitor, or (iii)
license any of its Magazine Marks for use on the Web site of any Women.com, LLC
Competitor. Further, Hearst agrees that during the term of this Agreement (x) it
will not license to any Women.com, LLC Competitor the right to use, any URL
incorporating either the name of a Magazine or derivative or diminutive form of
the name of a Magazine (e.g. "Cosmo", "T&C", "Healthy Living", etc.) and (y) it
will not use any URL incorporating either the name of a Magazine or derivative
or diminutive form of the name of a Magazine except, (1) on a site that is part
of the Network, and (2) in connection with any projects with which Hearst or the
Magazines may become involved in compliance with Section 2.8(b).
(b) MAGAZINE-SPECIFIC OFFERINGS. Hearst agrees that during the
term of this Agreement, Women.com, LLC will have the right, subject to the
mutual agreement of the parties, to enter into arrangements specific to each
individual Magazine in order to: (i) develop Magazine-branded offerings to be
made available on areas of the Network other than the associated Magazine Site
and through product and service offerings of Women.com, LLC other than the
Network; and (ii) to distribute the Magazine Content to third parties on the
Web. Women.com, LLC shall have no right to sublicense or to sell the Hearst
Content or the Magazine Content to anyone without Hearst's prior written
consent.
(c) RIGHT OF FIRST OFFER. During the term of this Agreement,
Hearst agrees that Women.com, LLC shall have a right of first offer on all new
Internet-based development projects ("Projects") initiated by the Hearst
Magazine Group or any of the Magazines or Magazine Sites that are appropriate
for placement on the Network, based on the Network's demographics, Content and
similar factors. If Women.com, LLC expresses an interest in any such Project,
the Hearst Magazine Group (or the applicable Magazine or Magazine Site) shall
negotiate the terms of such Project with Women.com, LLC in good faith. In the
event the parties are not able to enter into a definitive agreement, letter of
intent, memorandum of understanding
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or like document within thirty (30) days (or such longer period as the parties
may agree to) following Women.com, LLC's receipt of notice of such Project from
the Hearst Magazine Group or the applicable Magazine or Magazine Site, the
Hearst Magazine Group (or the applicable Magazine or Magazine Site) shall have
the right to offer the Project to a third party; provided, however that prior to
executing a definitive agreement with such third party with respect to the
applicable Project, the Hearst Magazine Group (or the applicable Magazine or
Magazine Site) shall provide Women.com, LLC with a summary of the general terms
of the proposed agreement and discuss with Women.com, LLC ways in which
Women.com, LLC might participate in the Project.
2.8 RESERVATION OF RIGHTS BY HEARST.
(a) FOR PROMOTIONAL PURPOSES. Notwithstanding anything to the
contrary in this Agreement, 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 none of Hearst, the
Magazines or the Magazine Sites receives payments for those Promotional
Activities.
(b) OTHER ONLINE PROJECTS. Subject only to the requirements of
Section 2.7(c), Hearst retains the right on behalf of the Magazines to permit
the Magazines to enter into agreements of any nature with any third party that
is not a Women.com, LLC Competitor with respect to projects focused on specific
topics or applications.
2.9 EXCLUSIVITY OBLIGATIONS OF WOMEN.COM, LLC. Women.com, LLC hereby
agrees that during the term of this Agreement it will not, without the prior
written consent of Hearst, enter into any agreement to produce and/or include as
part of the Network any magazine site or content related to a print publication
that is not a Hearst Publication, if such magazine site may reasonably be
construed to be competitive with any of the Magazines. Notwithstanding the
foregoing, nothing herein shall prohibit Women.com, LLC from performing under or
renewing its agreements with Rodale Press regarding (i) Prevention and (ii) New
Woman Magazine with respect to their Web site, which agreements are in effect as
of the Effective Date.
3. MAGAZINE SITE DEVELOPMENT AND MAINTENANCE.
3.1 HOSTING SERVICES. Hearst agrees that during the term of this
Agreement, Women.com, LLC will provide Internet Hosting Services for each
Magazine Site, regardless of the source of production of such site. In
connection therewith, and independent of the source of production of each
Magazine Site, Women.com, LLC will provide to Hearst during the term of this
Agreement Hosting Services with respect to each Magazine Site. Women.com, LLC
shall make the Hearst Content publicly available to Internet users on a basis
consistent with the performance standards set forth on Exhibit A, which may be
amended from time to time. Women.com, LLC shall upload all Hearst Content,
including updates. Women.com, LLC shall, using industry standard methods,
prevent unauthorized access to any shadow site of any Magazine Site, any
restricted areas of each Magazine Site and any databases or other sensitive
material generated from or used in conjunction with such Magazine Site, as
required by Hearst. Women.com, LLC agrees that Women.com, LLC will host selected
non-Magazine sites for Hearst during a transition period not to exceed ninety
(90) days from and after the Effective Date
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(the "Transition Hosting Services"). Hearst agrees that it shall pay Women.com,
LLC the sum of six thousand six hundred dollars ($6,600.00) for each period of
thirty (30) days during which Women.com, LLC provides Transition Hosting
Services. In the event the final period during which Women.com, LLC provides
Transition Hosting Services consists of fewer than thirty (30) days, then Hearst
shall pay Women.com, LLC for such final period of Transition Hosting Services at
the rate of two hundred and twenty dollars ($220.00) per day.
3.2 DELIVERY OF HEARST CONTENT. Except as set forth in Section 3.4,
Hearst will deliver, and will be solely responsible for providing, to Women.com,
LLC all of Hearst Content that Hearst intends to be published and distributed on
each Magazine Site. [At its option, Hearst may electronically transmit or upload
the Hearst Content directly to the Web site.] Unless otherwise agreed to by
Women.com, LLC, the Hearst Content will be in the format(s) specified by
Women.com, LLC in Exhibit A and conform to any other technical specifications
required by Women.com, LLC from time to time. Hearst will bear all costs
associated with the telecommunications and computer hardware, software and
services necessary to generate the Hearst Content and deliver it to Women.com,
LLC.
3.3 HEARST CONTENT CONTROL. Notwithstanding anything to the contrary
contained herein, Hearst retains complete editorial and creative control over
all aspects, including Content, of the Magazine Sites. Hearst will be solely
responsible for creating, managing, editing, reviewing, deleting and otherwise
controlling all Content, including the Hearst Content, Magazine Content and all
user-generated content, with respect to the Magazine Sites. Women.com, LLC shall
not supplement, modify, alter or excerpt the Hearst Content (other than
modifications strictly necessary to upload the Hearst Content to the Web site),
without Hearst's prior written consent; provided, however, that Women.com, LLC
may, without seeking Hearst's prior written consent, use reasonable excerpts of
the Hearst Content both on and off the Network in connection with its promotion,
marketing and advertising of the Magazine Sites and the Network and other
activities calculated to draw traffic to the Magazine Sites and the Network. No
article, excerpt or other subset of subject matter of the Hearst Content or
Magazine Content may be reproduced on the Network without the proper attribution
to the Magazine in which such Hearst Content or Magazine Content appeared in
print form and to the author or authors (where required) and the copyright owner
to the same extent and in the same manner set forth in the original form of the
Hearst Content or Magazine Content provided by Hearst. Hearst acknowledges that,
by only providing Hearst with the ability to publish and distribute its own
Hearst Content and the content of third parties, Women.com, LLC is acting as a
passive conduit for the distribution and publishing of such content. As a
conduit, Women.com, LLC will give Hearst complete discretion over all Content
reproduced on the Magazine Sites. Women.com, LLC has no obligation to Hearst,
and undertakes no responsibility, to review the Hearst Content or user-generated
content to determine whether any such content may incur liability to third
parties. Notwithstanding anything to the contrary contained herein, if
Women.com, LLC reasonably believes that any Hearst Content on a Magazine Site
may create liability for Women.com, LLC, Hearst agrees that, after prior notice
to Hearst (if reasonably possible under the circumstances), Women.com, LLC may
remove such Hearst Content and/or the applicable Web site(s) as Women.com, LLC
believes is prudent or necessary to minimize or eliminate Women.com, LLC's
potential liability.
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3.4 PRODUCTION SERVICES.
(a) From the date of this Agreement until such time when the
parties agree to the final terms of the Production Services to be provided
pursuant to Section 3.4(b), Women.com, LLC shall assume and perform all
obligations of the HomeArts business unit of the New Media and Technology
Division of Hearst ("HomeArts") to provide Production Services to the Magazine
Sites, in the manner provided by HomeArts at the date hereof. Women.com, LLC
shall be paid for: (i) Women.com, LLC staff employees -- the sum of (1) direct
cost of salary and benefits of those personnel performing the Production
Services, plus (2) the cost of overhead expenses, up to a maximum amount equal
to 15% of the salary and benefit costs described in (1), plus (3) 15% of the sum
of the amounts described in (1) and (2); and (ii) for subcontracted services,
including but not limited to manuscripts, art, photography, software
development, and talent -- the actual cost of the services plus a 15% profit
margin. All amounts paid to Women.com, LLC shall be credited to amounts to be
paid to Women.com, LLC pursuant to Section 3.4(b).
(b) WORK ORDERS. Hearst hereby agrees to purchase from Women.com,
LLC and Women.com, LLC agrees to provide to Hearst, no fewer than three million
dollars ($3,000,000.00) worth of Production Services (including the Production
Services provided under Section 3.4(a) above during the first year of the term
of this Agreement, and no fewer than six million dollars ($6,000,000.00) worth
of such services (including the Production Services provided under Section
3.4(a) above) during the first two years of the term of this Agreement. The
precise Production Services to be performed with respect to each Magazine Site
shall be determined by mutual agreement of the parties as soon as reasonably
practicable following the mutual execution of this Agreement and shall be
consistent with the performance standards set forth in Exhibit B. A written work
order, signed by both parties, shall be issued with respect to all Production
Services to be rendered. The parties acknowledge that as soon as reasonably
possible following the Effective Date, they shall identify those Magazine Sites
for which Women.com, LLC will have primary production responsibility during the
term of this Agreement, including any renewals thereof.
(c) PERFORMANCE STANDARDS. Hearst understands and agrees that any
Magazine Site that is not produced by Women.com, LLC must conform to the
technical and production standards as may be promulgated by Women.com, LLC from
time-to-time. Hearst shall be solely responsible for ensuring that such sites
meet such requirements, all at Hearst's sole cost and expense. All Magazine
Sites produced by Women.com, LLC pursuant to Section 3.5 shall conform to the
same technical and production standards as those imposed by Women.com, LLC with
respect to third party-produced Magazine Sites.
4. PROMOTION.
4.1 Both parties shall actively promote the rollout and availability of
the Magazine Sites via the Network. Hearst, for its part, agrees to provide the
cable and broadcast television and the print promotion described in Section 3.02
of the Limited Liability Company Agreement of Women.com, LLC. Further, the
parties shall from time-to-time work together in good faith to identify, develop
and pursue joint marketing and promotional activities that are designed to
enhance the value of the Magazine Sites and the Network. The parties shall
mutually agree on the budget, content and development schedule of any such
activities prior to the launch thereof.
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Each party shall assign a point of contact within such party's organization to
coordinate any joint marketing or promotional activities. Costs and expenses
incurred in support of such joint marketing and promotional activities shall be
determined by mutual agreement of the parties.
4.2 PRESS RELEASES. The parties shall issue a joint press release
describing the parties' relationship pursuant to this Agreement and any future
press releases relating to this Agreement, which press releases shall be
mutually approved in writing by the parties prior to any distribution thereof.
5. WOMEN.COM, LLC SOFTWARE AND TECHNOLOGY.
Hearst understand and agrees that Women.com, LLC, in performing its
obligations hereunder, may incorporate or use in connection with the Hosting
Services, Production Services and incorporation of the Magazine Sites into the
Network such software tools or programs or other technology that Women.com, LLC
has developed as of the Effective Date, or which Women.com, LLC may hereafter
develop ("Women.com, LLC Tools"). By way of example, Women.com, LLC Tools could
include without limitation toolbars for maneuvering between pages, search
engines, and Java applets. In the event any Women.com, LLC Tools are
incorporated by Women.com, LLC into or are used by Women.com, LLC in connection
with any Magazine Site, or any Women.com, LLC Tools are used to manipulate
Hearst Content for distribution on the Magazine Site or through the Network,
then Women.com, LLC hereby grants to Hearst during the terms of this Agreement a
worldwide, non-exclusive, nontransferable, royalty-free, free right to use the
Women.com, LLC Tools on and in connection with the Magazine Sites solely in
connection with such use. In the event Hearst would like to license any
Women.com, LLC Tools for any other purpose or after the termination of this
Agreement, Women.com, LLC agrees to negotiate such licenses in good faith with
Hearst; provided, however, that nothing herein shall be deemed to obligate
Women.com, LLC to enter into any such license in the event the parties are
unable to reach mutually agreeable terms within thirty (30) days of the
commencement of such negotiations, or in the event Women.com, LLC reasonably
believes that under such a license, Hearst would be able to use the Women.com,
LLC tools in a manner that may compete with any then-existing or reasonably
anticipated products and/or services of Women.com, LLC.
6. ADVERTISING.
6.1 NET REVENUE SPLIT. Women.com, LLC agrees that Hearst shall be
entitled to receive from Women.com, LLC no later than forty-five (45) days
following the termination of each calendar quarter a royalty (the "Royalty")
computed on Net Advertising Revenues from the preceding quarter. The Royalty
payable to Hearst shall be equal to twenty percent (20%) of the aggregate Net
Advertising Revenues from the applicable quarter, until such time as Hearst has
recouped the cumulative production costs incurred from and after the Effective
Date in the ongoing production of the Magazine Sites as set forth on Exhibit D,
whether or not such Magazine Sites are produced by Women.com, LLC, plus
interest, calculated at an annual rate equal to six percent (6%). Thereafter,
the Royalty shall equal eight percent (8%) of the aggregate Net Advertising
Revenues from the applicable quarter, until such time as the gross revenues
recognized by Women.com, LLC in any period of twelve (12) consecutive months
exceed forty million dollars ($40,000,000.00), whereupon the Royalty payable to
Hearst shall be
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reduced to seven percent (7%) of the aggregate Net Advertising Revenues from the
applicable quarter, until such time as the gross revenues recognized by
Women.com, LLC in any calendar year exceeds sixty million dollars
($60,000,000.00). Thereafter, the Royalty payable to Hearst shall be reduced to
six percent (6%) of the aggregate Net Advertising Revenues from the applicable
quarter through and including the expiration or earlier termination of this
Agreement.
6.2 SALES BY HEARST. Hearst may only sell Advertisements (which sales
are to be made by the Hearst Magazine Division) on the Magazine Sites with the
prior written approval of Women.com, LLC, which approval shall not be
unreasonably withheld. Women.com, LLC shall pay to Hearst a commission with
respect to such sales in an amount to be mutually agreed upon by the parties.
6.3 ADVERTISING POLICIES AND COOPERATION. In the allocation and sale of
Advertisements throughout the Network, Women.com, LLC agrees to treat the
Magazine Sites at least as favorably as the other non-Magazine sites. Women.com,
LLC agrees not to place any advertising on the Magazine Sites or any other place
on the Network where Hearst Content or Magazine Content appears that is in
violation of the then current and applicable advertising policies and standards
established by the applicable Magazine; provided, that such policies have been
communicated to Women.com, LLC in advance. Further, the parties agree to
coordinate their advertising sales efforts as permitted under this Agreement to
ensure that none of such efforts conflict with either party's contractual
arrangements with third parties.
7. E-COMMERCE.
Notwithstanding anything in this Agreement to the contrary, Hearst
reserves the right to sell goods and services on any Internet site or area,
including, without limitation, through the Magazine Sites, both directly and
through third party commerce partners ("e-commerce"), and in connection
therewith, Hearst retains the right to conduct Promotional Activities with
respect to such e-commerce; provided, however that for the benefit of Women.com,
LLC, Hearst agrees that all e-commerce shall be conducted in accordance with
applicable local, state and Federal law including, without limitation, consumer
protection laws. Further, with respect to e-commerce, the parties hereby agree
as follows:
7.1 MAGAZINE SUBSCRIPTIONS. Women.com, LLC shall be entitled to a
commission equal to thirty percent (30%) of gross revenues (less credit for
returns, and provision for bad debt) derived from the sale of Magazine
subscriptions made through the Network, whether or not such sales are made
through the Magazine Sites or any non-Magazine site of the Network, including,
without limitation, the Network Portal Site, and without regard to the entity
actually making such sale.
7.2 DIRECT SALES. Women.com, LLC shall be entitled to a commission equal
to five percent (5%) of gross revenues (less shipping and handling charges,
credit for returns, and provision for bad debt) derived from the direct sale of
goods and services on the Magazine Sites (other than Magazine subscriptions)
("Direct Sales"), i.e. where the applicable sale is made directly between the
customer and the applicable Hearst entity, and not between the customer and any
non-Hearst entity (e.g. Amazon.com, Music Boulevard, etc.). Unless otherwise
agreed to in writing by Women.com, LLC, it shall be the sole responsibility of
Hearst to provide all
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services related to Direct Sales. Hearst will bear full responsibility for all
customer service, including without limitation, order processing, billing,
fulfillment, shipment, collection and other customer service associated with any
Direct Sales offered, sold or licensed through each Magazine Site, and
Women.com, LLC will have no obligations whatsoever with respect thereto. Hearst
will, using no less than industry standard methods for online-order fulfillment,
ensure that all Direct Sales are received, processed, fulfilled and delivered on
a timely and professional basis.
7.3 COMMERCE PARTNERS. The parties agree that for purposes of this
Agreement royalties paid to Hearst (or any entity that controls, is controlled
by, or under common control with Hearst (any such entity, a "Hearst Affiliate"))
by Hearst's third party commerce partners (e.g. Amazon.com), which royalties are
attributable to the sale of goods or services arising from traffic on the
Magazine Sites, shall be deemed to be performance-based advertising and,
consequently, shall contribute to Net Advertising Revenues. For purposes hereof,
the terms "controls", "is controlled by", and "under common control with" refer
to the possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of a business entity, whether through
ownership of voting securities, by contract, or otherwise.
7.4 PAYMENT. All amounts due Women.com, LLC from Hearst pursuant to this
Section 7 shall be paid on a quarterly basis within thirty (30) days following
the end of the quarter in which the applicable Commerce Revenues are generated
and shall be accompanied by a report detailing the calculation of the applicable
payment.
7.5 NON-MAGAZINE SITE TRANSACTIONS. Hearst understands and agrees that,
except as explicitly set forth in Section 6 or this Section 7, neither Hearst,
nor any Hearst Affiliate, shall be entitled to any commission, royalty or
payment of any sort by virtue of the sale of goods or services on the Network.
8. OWNERSHIP.
8.1 HEARST CONTENT AND MAGAZINE CONTENT. Title to and ownership of all
intellectual property rights embodied by or otherwise incorporated into the
Hearst Content and Magazine Content shall remain with Hearst and/or its third
party licensors, if any. Nothing herein shall be construed to grant to Hearst
any right, title or interest in or to any other Content that may be published on
or through the Network, including any Content supplied by Women.com, LLC for use
on or in connection with the Magazine Sites.
8.2 DERIVATIVE WORKS. Neither Women.com, LLC nor Hearst shall create a
Derivative Work without the prior agreement of the other of them, or the
applicable Magazine or Magazine Site. All Derivative Works made or developed by
Women.com, LLC as permitted by Section 2.5(e) shall be jointly owned by Hearst
and Women.com, LLC, each such work being a "joint work" as defined in Section
101 of the Copyright Act, and the parties shall be co-owners of the copyrights
in such works as set forth in Section 201(a) of the Copyright Act.
Notwithstanding anything contained herein or in the Copyright Act to the
contrary, the parties agree that neither party shall make any commercial use of
any Derivative Work without the prior written consent of the other party, which
consent shall not be unreasonably withheld or delayed; provided, however, that
such consent may be conditioned upon the parties' reaching agreement with
respect to the accounting
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for and division of profits, if any, arising from such proposed use.
Notwithstanding the foregoing, during the term of this Agreement Women.com, LLC
may, without payment of any kind to Hearst, use any and all Derivative Works in
any manner that it is permitted to use the Hearst Content and Magazine Content
pursuant to the terms of Section 2.5.
8.3 WOMEN.COM, LLC TOOLS. All Women.com, LLC Tools, including all
intellectual property rights and other proprietary rights embodied therein or
otherwise applicable thereto, are and shall remain the sole and exclusive
property of Women.com, LLC and/or its licensors. All rights not specifically
granted to Hearst herein with respect to the Women.com, LLC Tools are retained
by Women.com, LLC.
8.4 OTHER CONTENT. All Content used on or in connection with the Network
(inclusive of any Content that Women.com, LLC may provide for use on the
Magazine Sites), exclusive of the Hearst Content, Magazine Content and
Derivative Works, is and shall remain the sole and exclusive property of
Women.com, LLC and/or its third party licensors and content providers. Nothing
herein shall be construed to grant to Hearst any right, title or interest in or
to any such Content, and Hearst agrees that it shall not at any time make any
claim to any right, title or interest in or to the such Content.
8.5 URL'S. The Magazine Site URL's shall be the sole and exclusive
property of Hearst. The Network Portal Site URL is and shall remain the sole and
exclusive property of Women.com, LLC. All other Network URL's shall remain the
property of Women.com, LLC or its Network partners, as the case may be.
8.6 USER INFORMATION. The parties agree that any and all user data that
is collected through any user registration process (e.g. name, address, e-mail
address, etc.) ("User Data") on the Magazine Sites shall be jointly owned by
Women.com, LLC and Hearst; provided, however, that despite such joint ownership
each party shall be free to use such information without the consent of the
other party for any lawful purpose and in any lawful manner and free of any duty
to account to the other party for profits arising from such use. Further, the
parties agree that any and all other User Data shall be the sole and exclusive
property of Women.com, LLC and that Hearst shall have no right, title or
interest in or to such User Data. Each party agrees that it shall use any and
all User Data owned by such party only in a manner that is consistent with any
applicable privacy policy or other policy respecting the use of such
information. Women.com, LLC agrees that it will deliver all jointly-owned User
Data, in a mutually agreed upon format, to Hearst within thirty (30) following
the quarter in which such User Data is collected.
9. WARRANTIES.
9.1 HEARST WARRANTIES. Hearst hereby warrants to and for the benefit of
Women.com, LLC that Hearst shall not provide any Hearst Content to Women.com,
LLC or publish any Hearst Content that: (a) infringes on any third party's
copyright, patent, trademark, trade secret or other proprietary rights or rights
of publicity or privacy; (b) violates any law, statute, ordinance or regulation
(including without limitation the laws and regulations governing export
control); (c) is defamatory, trade libelous, unlawfully threatening or
unlawfully harassing; (d) is obscene or pornographic or contains child
pornography; (e) violates any laws regarding unfair competition,
antidiscrimination or false advertising, or (f) to the best of Hearst's
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knowledge, contains any viruses, trojan horses, worms, time bombs, cancelbots or
other computer programming routines that are intended to damage, detrimentally
interfere with, surreptitiously intercept or expropriate any system, data or
personal information. Furthermore, Hearst warrants that to the best of its
knowledge, based on representations and warranties made by third parties,
technology used or supplied by or on behalf of Hearst pursuant to this Agreement
(exclusive of technology supplied by Women.com, LLC) ("Hearst Technology") shall
be Year 2000 Compliant. As used in this Section 9.1, "Year 2000 Compliant" means
that the Hearst Technology is designed to be used prior to, during and after the
calendar Year 2000 A.D., and will accurately receive, provide and process
date/time data (including, but not limited to, calculating, comparing and
sequencing) from, into and between the 20th and 21st centuries, including the
years 1999 and 2000, and leap-year calculations and will not malfunction, cease
to function, or provide invalid or incorrect results as a result of date/time
data; provided that all other hardware, software or firmware used in conjunction
with the Hearst Technology properly exchange accurate and properly formatted
date data with the Hearst Technology being evaluated for Year 2000 Compliance.
Hearst agrees to use commercially reasonable practices (including without
limitation periodic inspections of each Magazine Site) to ensure that
user-generated content published or distributed on such Magazine Sites does not
create liability for Women.com, LLC.
9.2 WOMEN.COM, LLC WARRANTIES. Women.com, LLC hereby warrants to and for
the benefit of Hearst that Women.com, LLC shall not use any Content excluding
Hearst Content or Magazine Content in any manner that (a) infringes on any third
party's copyright, patent, trademark, trade secret or other proprietary rights
or rights of publicity or privacy; (b) violates any law, statute, ordinance or
regulation (including without limitation the laws and regulations governing
export control); (c) is defamatory, trade libelous, unlawfully threatening or
unlawfully harassing; (d) is obscene or pornographic or contains child
pornography; (e) violates any laws regarding unfair competition,
antidiscrimination or false advertising; or (f) to the best of Women.com, LLC's
knowledge, contains any viruses, trojan horses, worms, time bombs, cancelbots or
other computer programming routines that are intended to damage, detrimentally
interfere with, surreptitiously intercept or expropriate any system, data or
personal information. Furthermore, Women.com, LLC warrants that to the best of
its knowledge, based on representations and warranties made by third parties,
the software, hardware and equipment (the "Information Technology") owned,
leased or licensed by Women.com, LLC on the date hereof is Year 2000 Compliant.
As used in this Section 9.2, "Year 2000 Compliant" means the Information
Technology is designed to be used prior to, during and after the calendar Year
2000 A.D., and the Information Technology used during each such time period will
accurately receive, provide and process date/time data (including, but not
limited to, calculating, comparing and sequencing) from, into and between the
20th and 21st centuries, including the years 1999 and 2000, and leap-year
calculations and will not malfunction, cease to function, or provide invalid or
incorrect results as a result of date/time data; provided that all other
hardware, software or firmware used in conjunction with the Information
Technology properly exchange accurate and properly formatted date data with the
Information Technology being evaluated for Year 2000 Compliance. Women.com, LLC
agrees to use commercially reasonable practices (including without limitation
periodic inspections of the Network) to ensure that user-generated content
published or distributed on Network sites (other than the Magazine Sites) does
not create liability for Hearst.
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9.3 RECOURSE AND REMEDIES. Each party agrees that its sole and exclusive
remedy for a breach of any warranty made by the other party pursuant to this
Section 9 shall be indemnification as set forth in Section 11 hereof.
10. TRADEMARKS.
Each party acknowledges and agrees for all purposes that all Marks
associated with the other party and/or the other party's services, products,
literature, promotional materials or otherwise, whether or not registered,
constitute the other party's exclusive property. Each party ("Licensor") hereby
grants to the other party ("Licensee") a non-exclusive, non-transferable,
non-assignable, royalty-free license to use those Marks of Licensor set forth on
Exhibit C solely for purposes of performing Licensee's obligations under this
Agreement including, without limitation, in connection with any advertising,
marketing and promotional activities undertaken and materials developed pursuant
to this Agreement. All uses by Licensee of Licensor's Marks shall be in
accordance with such quality control standards as the Licensor may promulgate
from time to time, and Licensee agrees to refrain from all uses of Licensor's
Marks to which Licensor objects. All uses of Licensor's Marks by Licensee,
including all goodwill arising therefrom shall inure solely to the benefit of
Licensor. All promotional literature and other materials prepared by either
party in connection with its promotional obligations hereunder shall bear
appropriate copyright and/or trademark notices as prescribed by the party whose
content or branding is included therein. Licensee agrees it will not use,
register or attempt to register in any jurisdiction, or otherwise appropriate or
adopt any name, mark or logo that is confusingly similar to Licensor's Marks.
Licensor retains all rights with respect to Licensor's Marks that are not
specifically granted to Licensee herein. At no time during the term of the
Agreement or thereafter shall Licensee attack, challenge or file any application
with respect to any Licensor Mark.
11. INDEMNITY.
11.1 Hearst agrees to defend, indemnify and hold harmless Women.com, LLC
and its directors, officers, agents and employees from and against any and all
claims, suits, damages, losses, costs, liabilities, expenses and fees (including
without limitation reasonable attorneys' and expert witnesses' fees) incurred or
arising from (a) any breach of the warranties set forth in Section 9.1, (b) any
Hearst Content, Magazine Content, or user-generated content on the Magazine
Sites, except to the extent arising from Women.com, LLC's unauthorized or
unapproved use of Hearst Content or Magazine Content on the Magazine Sites, or
(c) e-commerce conducted on any Magazine Site. Women.com, LLC may, at its own
expense, participate in any defense or settlement negotiations with respect to
any claim to which it is entitled to indemnification with counsel of its own
choosing. Hearst agrees not to enter into any settlement of any claim without
the prior written consent of Women.com, LLC, which consent shall not be
unreasonably withheld or delayed.
11.2 Women.com, LLC agrees to defend, indemnify and hold harmless Hearst
and its directors, officers, agents and employees from and against any and all
claims, suits, damages, losses, costs, liabilities, expenses and fees (including
without limitation reasonable attorneys' and expert witnesses' fees) incurred or
arising from (a) any breach of the warranties set forth in Section 9.2, (b) any
Content (excluding Hearst Content, Magazine Content or user-generated
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content on the Magazine Sites) created, developed, published or distributed by
Women.com, LLC (c) the manner in which Women.com, LLC uses any of the Hearst
Content or Magazine Content on the Network, other than on the Magazine Sites and
(d) e-commerce conducted other than on a Magazine Site. Hearst may, at its own
expense, participate in any defense or settlement negotiations with respect to
any claim to which it is entitled to indemnification with counsel of its own
choosing. Women.com, LLC agrees not to enter into any settlement of any claim
without the prior written consent of Hearst, which consent shall not be
unreasonably withheld or delayed.
12. LIMITATIONS ON LIABILITY.
IN NO EVENT SHALL EITHER PARTY BE LIABLE TO THE OTHER PARTY FOR ANY
SPECIAL, INDIRECT, INCIDENTAL OR CONSEQUENTIAL DAMAGES ARISING OUT OF OR IN
CONNECTION WITH THIS AGREEMENT (INCLUDING BUT NOT LIMITED TO SUCH DAMAGES
ARISING FROM TORT, INCLUDING NEGLIGENCE AND STRICT LIABILITY, BREACH OF CONTRACT
OR WARRANTY), INCLUDING WITHOUT LIMITATION DAMAGES FOR INTERRUPTED
COMMUNICATIONS, LOST DATA OR LOST PROFITS, EVEN IF SUCH PARTY HAS BEEN ADVISED
OF (OR KNOWS OR SHOULD KNOW OF) THE POSSIBILITY OF SUCH DAMAGES AND
NOTWITHSTANDING THE FAILURE OF ESSENTIAL PURPOSE OF ANY REMEDY.
13. TERM AND TERMINATION.
13.1 THE TERM. This Agreement shall be effective from and after the
Effective Date for a period of six consecutive years (the "Initial Term").
Following the Initial Term, this Agreement shall automatically renew for three
consecutive terms of six (6) years each (each, a "Renewal Term"); provided that
prior to the commencement of each Renewal Term the parties shall reach agreement
as to any modifications to be made to the royalties or commissions to be paid
hereunder. In the event the parties do not reach such agreement, the applicable
Renewal Term shall, nevertheless, commence on a month-to-month basis under the
then-existing terms of the Agreement until such time as the parties agree to any
new terms or either party provides the other with no less than ninety (90) days
notice of termination of this Agreement.
13.2 TERMINATION FOR CAUSE. In the event either party materially
breaches this Agreement, the other party may terminate this Agreement by
providing the breaching party with no fewer than ninety (90) days notice of
termination; provided, that in the event of breaches capable of cure, the
breaching party shall have the right to cure the default within such period (or
such longer period as then non-breaching party may agree to in writing) and
thereby forestall termination of this Agreement.
13.3 EFFECT OF TERMINATION. Upon the expiration or termination of this
Agreement, Women.com, LLC shall (i) download all Hearst Content and Magazine
Content to a medium of Hearst's choosing and deliver such Hearst Content and
Magazine Content to Hearst within five (5) business days following such
expiration or termination, (ii) immediately cease using the Hearst Content and
Magazine Content, including but not limited to, all electronic copies and
reproductions on the Network, (iii) within forty-five (45) days of such
termination, pay to Hearst any amounts of Royalty that as of the effective date
of termination were due and owed to Hearst pursuant to this Agreement and (iv)
after receipt by Hearst of the Hearst Content and Magazine
16.
<PAGE> 17
Content in the manner requested, upon the direction of Hearst, delete all Hearst
Content and Magazine Content from the entire Network, including the Magazine
Sites and any other place in which such Content appears as promptly as
practicable.,
13.4 SURVIVAL. The terms of Sections 1, 8, 9, 11, 12, 13.3, 13.4, 14,
15, and 16 shall survive the expiration or earlier termination of this Agreement
for any reason.
14. CONFIDENTIAL INFORMATION.
14.1 DEFINITION OF CONFIDENTIAL INFORMATION. "Confidential Information"
as used in this Agreement shall mean any and all technical and non-technical
information of a party (the "Disclosing Party") to this Agreement (including,
without limitation, patents, copyrights and works of authorship, trade secrets,
and proprietary information, techniques, sketches, drawings, models, inventions,
know-how, processes, apparatus, equipment, algorithms, software programs, and
software source documents) related to the current, future and proposed business,
products and services of such party, and its suppliers and customers, and
includes, without limitation, information concerning development, design details
and specifications, engineering, customer lists, business forecasts, sales, and
marketing plans and any other similar information or data which is disclosed to
the other party (the "Recipient") or to which the Recipient otherwise gains
access as a result of performing under this Agreement. "Confidential
Information" also includes proprietary or confidential information of any third
party that may disclose such information to the Disclosing Party in the course
of the Disclosing Party's business. Confidential Information does not include
information, technical data or know-how which: (i) is in the Receiving Party's
possession at the time of disclosure as shown by the Receiving Party's files and
records immediately prior to the time of disclosure; (ii) before or after it has
been disclosed to the Receiving Party, enters the public domain, not as a result
of any action or inaction of the Receiving Party; (iii) is approved for release
by written authorization of the Disclosing Party; (iv) is disclosed to the
Receiving Party by a third party not in violation of any obligation of
confidentiality; or (v) is independently developed by the Receiving Party
without reference to the Disclosing Party's Confidential Information.
14.2 USE AND DISCLOSURE. The Receiving Party agrees not to use the
Confidential Information of the Disclosing Party for any purpose except to the
extent necessary to fulfill its obligations under this Agreement. The Receiving
Party agrees not to copy, alter, modify, disassemble, reverse engineer or
&compile any of the materials comprising Confidential Information, unless
permitted in writing by the Disclosing Party. The Receiving Party agrees not to
disclose the Confidential Information to any third parties or to any of its
employees, contractors or agent except those of whom who have a need to know the
Disclosing Party's Confidential Information to enable the Receiving Party to
fulfill its obligations under this Agreement; provided, that such parties shall
be made aware that such Confidential Information is confidential to the
Disclosing Party and shall be under a written contractual restriction on
nondisclosure and proper treatment of Confidential Information that is
consistent with and no less restrictive than the terms of this Section 15.
Notwithstanding the foregoing, the Receiving Party may disclose the Disclosing
Party's Confidential Information to the extent required by a valid order of a
court or other governmental body or by applicable law; provided, however, that
the Receiving Party will use all reasonable efforts to notify the Disclosing
Party of the obligation to make such disclosure in advance so that the
Disclosing Party will have a reasonable
17.
<PAGE> 18
opportunity to object to such disclosure. The Receiving Party agrees that it
shall treat the Confidential Information with the same degree of care as it
accords its own Confidential Information of a similar nature; provided that in
no event shall the Receiving Party exercise less than reasonable care to protect
the Disclosing Party's Confidential Information. The Receiving Party agrees to
advise the Disclosing Party in writing of any misappropriation or misuse by any
person of the Disclosing Party's Confidential Information of which the Receiving
Party may become aware. The Receiving Party will not communicate any information
to the Disclosing Party in violation of the proprietary rights of any third
party.
14.3 RETURN OF MATERIALS. Any Confidential Information furnished to the
Receiving Party, and all copies thereof, at the earlier of the Disclosing
Party's request, or the termination of the business relationship between the
Disclosing Party and the Receiving Party, at the Disclosing Party's option, will
either be: (i) promptly returned to the Disclosing Party; or (ii) destroyed by
the Receiving Party (with the Receiving Party providing written certification of
such destruction to the Disclosing Party).
15. BOOKS AND RECORDS.
15.1 RECORDS. Each party shall during the term of this Agreement and for
a period of three years thereafter, keep and maintain full and complete records
and books of account, maintained in accordance with generally accepted
accounting principals, related to its activities under this Agreement
("Records") including, without limitation, relating to any payments of any kind
to be made to the other party pursuant to this Agreement.
15.2 AUDIT RIGHT. During the term of this Agreement and for a period of
three years thereafter, each party shall have the right, on no more than one
occasion in any consecutive twelve (12) month period, to audit, or to engage a
third party auditor, reasonably acceptable to the other party, to audit the
Records of the other party to ensure compliance with the terms of this Agreement
and the accuracy of all amounts paid to the auditing party pursuant to this
Agreement; provided, that the auditing party provide the other party with no
fewer than fifteen (15) days notice of such audit and conducts such audit in a
manner calculated to minimize interference with the other party's business.
Unless otherwise agreed to by the parties, any such audit shall be conducted on
the audited party's premises. The auditing party shall bear the cost of the
audit; provided, however, that in the event the audit reveals an underpayment to
the auditing party in excess of five percent (5%), the audited party shall
reimburse the auditing party for the cost of the audit.
16. GENERAL PROVISIONS.
16.1 TAXES. Each party shall be responsible for, and shall indemnify and
hold the other party harmless from and against, any and all taxes, customs,
duties or other amounts that may be imposed by any governmental authority on any
amount paid to such party by the other party hereunder, except for taxes based
upon the other party's net income or gross receipts.
16.2 LATE PAYMENTS. Each party reserves the right to charge the other
party interest at the lower of 1 1/2% per month or the highest rate permissible
under applicable law on any amount due such party from the other party under
this Agreement, which amount is not paid when due.
18.
<PAGE> 19
16.3 GOVERNING LAW/JURISDICTION/VENUE. This Agreement will be governed
and interpreted in accordance with the laws of the State of New York as applied
to agreements made, entered into and performed entirely in New York and solely
by New York residents. The parties hereby agree that all causes of action
brought in connection with this Agreement shall be brought in the State or
Federal Courts located in New York County, New York, and each party hereby
irrevocably consents to the personal jurisdiction of such courts for such
purpose.
16.4 EXPENSES. Unless otherwise set forth herein to the contrary, each
party shall be solely responsible for payment of any expenses such party incurs
in connection with its performance under this Agreement.
16.5 SEVERABILITY; WAIVER. If any provision of this Agreement is held to
be invalid or unenforceable for any reason, the remaining provisions will
continue in full force without being impaired or invalidated in any way. The
parties agree to replace any invalid provision with a valid provision that most
closely approximates the intent and economic effect of the invalid provision.
The waiver by either party of a breach of any provision of this Agreement will
not operate or be interpreted as a waiver of any other or subsequent breach.
16.6 HEADINGS. Headings used in this Agreement are for reference
purposes only and in no way define, limit, construe or describe the scope or
extent of such section, or in any way affect this Agreement.
16.7 SUCCESSORS AND ASSIGNS. The parties' rights and obligations will
bind and inure to the benefit of their respective successors, heirs, executors
and administrators and permitted assigns. Women.com, LLC may subcontract all or
any portion of its service obligations hereunder; provided that Women.com, LLC
remains primarily responsible for such subcontracted service obligations and
that Hearst reserves the right to remove and/or have a subcontractor replaced if
Hearst is not reasonably satisfied with such subcontractor's performance.
16.8 ATTORNEYS' FEES. If any legal action is brought to construe or
enforce any provision of this Agreement, the prevailing party shall be entitled
to receive its reasonable attorneys' fees and court costs in addition to any
other relief it may receive.
16.9 FORCE MAJEURE. If the performance of this Agreement, or any
obligation hereunder, except the making of payments hereunder, is prevented,
restricted or interfered with by any act or condition whatsoever beyond the
reasonable control of the affected party, the party so affected, upon giving
prompt notice to the other party, shall be excused from such performance to the
extent of such prevention, restriction or interference.
16.10 INDEPENDENT CONTRACTORS. The parties to this Agreement are
independent contractors, and no agency, partnership, joint venture or
employee-employer relationship is intended or created by this Agreement.
16.11 NOTICE. Any notices required or permitted hereunder shall be given
to the appropriate party at the address specified below or at such other address
as the party shall specify in writing. Such notice shall be deemed given: upon
personal delivery; if sent by telephone
19.
<PAGE> 20
facsimile, upon confirmation of receipt; if sent by electronic mail, upon
confirmation of delivery; or if sent by certified or registered mail, postage
prepaid, five (5) days after the date of mailing.
16.12 MODIFICATIONS. This Agreement may only be modified or revised by a
written agreement or amendment hereto that is executed by both of the parties.
16.13 ENTIRE AGREEMENT. This Agreement, including the Exhibits attached
hereto, sets forth the complete and final statement of the agreement between the
parties with respect to the subject matter hereof, and supersedes any and all
oral or written agreements, negotiations or understandings between the parties
as to such subject matter. Any terms on any Hearst work order that purport to
modify the terms of this Agreement, or that are in addition to or different from
the terms of this Agreement shall be void and of no force or effect,
notwithstanding Women.com, LLC's provisions of the services requested in such
work order, unless specifically agreed to in writing by Women.com, LLC.
Wheresoever the terms of any mutually executed work order differ from or
conflict with the terms of this Agreement, the terms of the work order shall
prevail, but only to the extent of the specific project covered by such work
order.
IN WITNESS WHEREOF, each of the parties hereto have executed this
Agreement as of the date first written above.
WOMEN.COM, LLC: HEARST:
By: /s/ Marleen R. McDaniel By: /s/ Alfred C. Sikes
-------------------------- ----------------------------
Marleen R. McDaniel Alfred C. Sikes
Title: President Title: Vice President
Street Address: Street Address:
1820 Gateway Drive 959 Eighth Avenue
Suite 100 New York, NY 10019
San Mateo, CA 94404
Mail Address: Mail Address:
1820 Gateway Drive 959 Eighth Avenue
Suite 100 New York, NY 10019
San Mateo, CA 94404
Fax: 650-378-6511 Fax: 212-582-7739
E-Mail: E-Mail: [email protected]
20.
<PAGE> 21
Exhibit A
HOSTING SERVICES
Hearst agrees that during the term of this Agreement, Women.com, LLC
will provide Internet hosting services for each Magazine Site, regardless of the
source of production of such site.
Women.com, LLC shall provide Internet hosting services that are equal
to, or improve on, the quality of Internet hosting services currently available
to the Magazines through the Internet hosting facility maintained for the Hearst
New Media and Technology Center ("Hearst New Media") at Exodus Communication's
Internet Data Center in Jersey City, New Jersey. The specific hardware
configuration, software and connectivity shall be mutually agreed upon by the
parties as soon as reasonably practicable following the Effective Date.
Hosting services provided by Women.com, LLC to Hearst shall be fully
managed services that conform to Network operational standards established by
Women.com, LLC. Fully managed means that, in addition to providing all hardware,
software, connectivity and bandwidth required to insure that Hearst Content is
publicly available to Internet users, Women.com, LLC will provide appropriate
monitoring of all systems, and full systems' administration support for all
Magazine Sites hosted by Women.com, LLC.
Women.com, LLC shall, using industry standard methods, prevent
unauthorized access to any production system, Magazine Site, any restricted area
of a Magazine Site and any database or other sensitive material generated from
or used in conjunction with a Magazine Site, as required by Hearst. As part of
this security consideration, Women.com, LLC shall have periodic security audits
performed by an independent third party, the frequency of which audits shall be
mutually agreed upon.
Women.com, LLC will provide and fully manage both live servers and
staging servers used for the production of Magazine Sites, whether Content is
produced by Women.com, LLC or a third party. Women.com, LLC shall also put in
place and support promotion scripts for the timely updating of Content to the
sites by production teams employed to produce Magazine Sites, whether at
Women.com, LLC or at third party location. The specific requirements for
promotion of Content shall be mutually agreed to as soon as reasonably
practicable following the Effective Date.
Women.com, LLC shall insure that the best commercially available service
level agreement is in place for hosting services provided to Hearst and the
Magazines. In particular, the terms of the Women.com, LLC service level
agreement shall be at least as favorable to Hearst as the service level
agreement which is currently in place between Exodus Communications and Hearst
New Media, including, without limitation, the terms regarding remedies for
interruption of services.
As part of its hosting services, Women.com, LLC shall make available to
the Magazine Sites all core functionality of the Network, whether the Content
for the Magazine Sites is produced by Women.com, LLC or a third party. The scope
of this functionality shall be mutually agreed as soon as reasonably practicable
following the Effective Date. Core
A-1.
<PAGE> 22
functionality of the Network shall include, but not be limited to, all
functionality currently available to the Magazines through the HomeArts Network,
e.g., engineering functionality (i.e. registration, ad management, surveys,
polls, quizzes, use of relational database systems, user profiling,
personalization techniques for delivery of content or advertising, and standard
user tracking reports made available to Magazines in an online format), and
third party functionality (i.e. search, chat, forums, email, listserve, ad
serving, and third party auditing).
Additionally, Women.com, LLC shall make available to the Magazine Sites
any new functionality at the time it is introduced to the Network; provided,
that some production or third party fees may arise for the Magazine Sites if
they choose to implement the functionality offered.
Hearst agrees that all Magazine Sites, whether produced by Women.com,
LLC or a third party, shall be produced in compliance with Network standards.
Women.com, LLC will make available to Hearst documentation of Network standards
and permit Hearst to provide the documentation to all third parties producing
Content for Magazine Sites.
Women.com, LLC shall provide Magazine Site-specific maintenance and end
user support, periodic technical consulting as required by Hearst, and technical
phone support for any third parties contracted to produce Content for Magazine
Sites that will be hosted by Women.com, LLC.
A-2.
<PAGE> 23
Exhibit B
PRODUCTION SERVICES
Women.com, LLC will collaborate with designated Magazines in the
development of a Magazine Web strategy, plan and budget.
Women.com, LLC will make available Production Services to Hearst upon
request at rates pre-established for the first two years of the Agreement. The
rates shall be mutually agreed upon as soon as possible following the Effective
Date; however, the basis for the rate structure shall be as follows: (i) for
Women.com, LLC staff employees -- the sum of (1) direct cost of salary and
benefits of those personnel performing the Production Services, plus (2) the
cost of overhead expenses up to a maximum equal to 15% of the salary and benefit
costs described in (1), plus (3) 15% of the sum of the amounts described in (1)
and (2); and (ii) for subcontracted services, including but not limited to
manuscripts, art, photography, software development, and talent -- the actual
cost of the services plus a 15% profit margin.
The number of sites to be produced by Women.com, LLC and the development
plan and budget for those sites will be mutually agreed upon as soon as
reasonably practicable following the Effective Date.
Women.com, LLC will provide full Production Services for the selected
Magazine Sites. These services shall include, but shall not be limited to:
1. overall management and direction of the site;
2. creation of editorial features for the site, including original and
interactive Content;
3. software/coding support for all features;
4. conversion of Hearst Content to HTML or other formats
appropriate for Web presentation, as designated by Hearst;
5. all site quality control;
6. interactive design and navigation;
7. all graphic design work and conversions, including art, photos
and illustration;
8. rich media production support; and
9. all production tools, processes, and systems necessary to support
production personnel, which are part of the Network standard,
including template-based production systems, e.g., Inso Dynabase,
used to streamline or automate production. The production tools,
processes and systems that are part of the Network standard shall
be available and supported for all Magazine Site
B-1.
<PAGE> 24
production whether provided by Women.com, LLC or a third party,
so long as the Magazine Site is hosted by Women.com, LLC.
The management of the Hearst Magazine Division and its representatives
will be viewed by Women.com, LLC as a "customer" of Women.com, LLC and as such
will provide ongoing input and direction to Women.com, LLC regarding all aspects
of the Magazine Sites.
Hearst will secure electronic rights and inform Women.com, LLC regarding
any limitations to these rights for content supplied by Hearst for inclusion on
the Magazine Sites. The formats in which Hearst will deliver content to
Women.com, LLC and the methods of transmission or transport, and timing, will be
mutually agreed during the production planning process.
In supporting Women.com, LLC's production of Magazine Sites, the
editorial staff of the applicable Magazines will:
1. provide all appropriate content in formats to be mutually agreed;
2. provide ongoing direction to and liaison with Women.com, LLC, and
3. be responsible for final approval of their brand's on-line
representation.
In providing these Production Services, Women.com, LLC will assign
dedicated personnel for the production of Magazine Sites, including editorial,
creative, production and technical support to production. The exact structure of
the terms will be mutually agreed between Women.com, LLC and the Magazines. As
part of that organizational structure, primary points of contact and liaison
will also be established between Women.com, LLC and the Magazines to facilitate
efficient communications between Hearst and Women.com, LLC regarding production
of the Magazine Sites.
For Magazine Sites not produced by Women.com, LLC, Women.com, LLC will
provide management and technical resources to ensure the efficient integration
of the site into the Network. These services shall include:
1. ongoing assistance in the efficient application of Network standards
and tools;
2. assistance in the development of special features;
3. assistance in marketing and distribution programs; and
4. support for other needs as appropriate.
B-2.
<PAGE> 25
EXHIBIT C
TRADEMARKS
I. Women.com, LLC Marks:
II. Hearst Marks:
C-1.
<PAGE> 26
I - HEARST TRADEMARKS
REGISTRATION TRADEMARKS
After College
Bedside Astrologer
Better Way (The)
Cosmopolitan
Cosmopolitan All About Men
Country Living Country Travels
Country Living Restoration
Cosmopolitan (stylized)
Good Housekeeping
Good Housekeeping Decorating & Home Improvement
Good Housekeeping Editors Entertain
Good Housekeeping Holiday Best
Good Housekeeping Smart Cooking
Green Watch
House Beautiful
House Beautiful Building Manual
House Beautiful Holidays
House Beautiful Home Remodeling & Decorating
House Beautiful's Home Remodeling
Houses & Plans
Life After College
Redbook
Stylewatch
Town & Country
APPLIED FOR
Country Living's Healthy Living
Easy Cooking
Fun-Fearless-Female
Good Housekeeping Family Adventures
COMMON LAW
Country Living
Victoria
<PAGE> 27
EXHIBIT D
RECOUPABLE MAGAZINE-SPECIFIC INITIAL PRODUCTION COSTS
Up to five million dollars ($5,000,000) of production costs may be recouped on
account of the first year of the term of the Agreement. For each subsequent year
of the term, such amount shall equal 110% of the recoupable production costs for
the prior year of the term
D-1.
<PAGE> 1
Certain confidential information contained in this document, marked by brackets,
is filed separately with the Securities and Exchange Commission pursuant to
Rule 406 of the Securities Act of 1933, as amended.
EXHIBIT 10.3
INVESTMENT AGREEMENT
THIS INVESTMENT AGREEMENT (this "Agreement"), made as of the 19th day of
August, 1997 by and between WIRE NETWORKS, INC., a California corporation ("WNI"
or the "Company") and GRAPHICS INTERNATIONAL, INC., D/B/A HALLMARK CONNECTIONS,
a California corporation ("Hallmark"), (Hallmark and WNI are sometimes referred
to herein collectively as the "Parties" and individually as a "Party").
WHEREAS, WNI has developed informational websites, and desires to
further develop a mini-site and websites in conjunction with Hallmark; and
WHEREAS, Hallmark, through an affiliated corporation, HC Crown Corp.
(the "Hallmark Affiliate"), desires to purchase and WNI desires to sell an
ownership interest in WNI; and
WHEREAS, the Parties are, together with certain other investors in the
Series C Preferred Stock financing of WNI and concurrently with the execution of
this Agreement, entering or have entered into that certain Series C Preferred
Stock Purchase Agreement dated as of July 9, 1997, a copy of which is attached
hereto as Exhibit A, an Amended and Restated Investors Rights Agreement, a copy
of which is attached hereto as Exhibit B, an Amended and Restated Co-Sale and
Voting Agreement, a copy of which is attached hereto as Exhibit C, a form of
Warrant, a copy of which is attached hereto as Exhibit D, and other documents
necessary to consummate this transaction, (collectively, these documents shall
be referred to as the "Transaction Documents"); and
WHEREAS, the Parties desire to set forth the terms and conditions of and
certain understandings with respect to the acquisition by the Hallmark Affiliate
of an ownership interest in WNI.
NOW, THEREFORE, in consideration of the representations, warranties and
covenants contained herein and other good and valuable consideration, the
receipt of which is hereby acknowledged, the Parties hereby agree as follows:
1. HALLMARK AFFILIATE'S PURCHASE OF AN INTEREST IN COMPANY.
(a) HALLMARK AFFILIATE'S PURCHASE. Subject to the terms and conditions
of this Agreement, the other Transaction Documents and any other agreement
governing the relationship between the Parties, Hallmark hereby agrees to cause
the Hallmark Affiliate to purchase one million three hundred fifteen thousand
seven hundred ninety (1,315,790) shares of
1.
<PAGE> 2
Series C Convertible Preferred Stock (the "Stock") of WNI at a total purchase
price of four million one dollars and 60/100 ($4,000,001.60) (the "Proceeds"),
or three dollars and 4/100 ($3.04) per share (the "Series C Stock Price"). In
full consideration of such subscription and payment, and the other transactions
contemplated hereby and in the Transaction Documents, WNI hereby accepts such
purchase and upon payment therefore, shall issue to the Hallmark Affiliate the
Stock.
(b) The Company will also grant to the Hallmark Affiliate warrants (the
"Series C Warrants") to acquire at the Series C Stock Price, as adjusted
pursuant to the term of the Series C Warrants, up to eight hundred eighty-seven
thousand six hundred sixty five (887,665) shares of Series C Convertible
Preferred Stock (the "Warrant Stock") of the Company. Upon exercise of fifty
percent (50%) of the Series C Warrants, Hallmark will be entitled to appoint one
(1) additional director to the Board of Directors of the Company.
(c) WNI shall allocate [*] of the Proceeds ("Allocated Funds") over a
period of two years ("Term") for the development of websites for Hallmark. WNI
will allocate [*] of the Allocated Funds to the development of a mini-site for
Hallmark currently titled [*] ("Mini-Site"). WNI will host this Mini-Site on one
of WNI's websites and Hallmark will appear as the exclusive sponsor of this
Mini-Site. WNI will complete the development of the Mini-Site within 6 months of
the date hereof. WNI will allocate [*] of the Allocated Funds to other websites
to be mutually agreed upon by WNI and Hallmark. These co-branded websites will
sell advertising in accordance with Hallmark's standard advertising guidelines
which shall be delivered to WNI as soon as possible in conjunction with the
development of the websites which accept advertising. Hallmark reserves the
right to require the withdrawal of the use of its name(s) and sponsorship within
48 business hours upon a clear deviation from such advertising guidelines. WNI
will receive revenues generated from these properties as defined in Section
1(e).
(d) If WNI fails to spend all of the Allocated Funds as set forth above
within the two year limit, Hallmark will have the option of (a) allocating the
unused portion of the funds for usage on the Mini-Site at an amount of [*] per
year for as long as it takes for the unused portion to be spent (in the event
that the Mini-Site is not active at the end of the two year term, the funds will
be allocated against another active site approved by Hallmark created at the
same dollar amounts) or (b) having the unused amount returned to the Hallmark
Affiliate without decreasing the equity interest of the Hallmark Affiliate in
the Company if and only if WNI fails to make a minimum of 4 commercially
reasonably proposals to Hallmark with regard to new projects which are
consistent with Hallmark's image and strategy. In addition, if WNI does not
launch the Mini-Site within nine months of the date hereof, Hallmark will have
the option of re-allocating the unused portion of the [*] to another project or
have the unused amount returned to Hallmark without decreasing Hallmark's equity
interest in the Company.
(e) Hallmark will retain the copyright and all other rights to the
content on all Hallmark sites created pursuant to the terms of this Agreement
(the "Content"), including the Mini-Site, during the Term and in perpetuity
thereafter, provided, however; WNI shall have an exclusive license to use any
such Content during the Term solely for purposes of the internet.
*Certain information on this page has been omitted and filed separately with the
Commission. Confidential treatment has been requested with respect to the
omitted portions.
2.
<PAGE> 3
However, Hallmark will be obligated to pay WNI, in perpetuity, for use of this
Content as follows: for all Advertising Revenues (defined as advertising
revenues after sales commissions and agency fees) and Ancillary Revenues
(defined as all revenues generated from a source other than advertising revenue)
generated ("Total Revenues") from use of the Content or unique concepts
developed by WNI on behalf of Hallmark, Hallmark will pay WNI [*] of the Total
Revenues until all of WNI's production costs are reimbursed. Once WNI has been
fully reimbursed, WNI will receive [*] of the net profit collected from any use
of the Content off the web, [*] of the net profit for any product sold on the
web and [*] of all other revenues collected on the web. WNI recognizes that net
profit may not be the best way to divide funds and commits to evaluating other
revenue sharing options on a case by case basis. During the Term, Hallmark shall
not enter into any agreement with any other party relating to the use of said
Content without WNI's prior written permission. During the Term and in
perpetuity, WNI will receive author attribution whenever the said Content is
used (unless WNI gives permission otherwise).
(f) In the event that Hallmark reasonably believes that WNI's actual
investment in producing the Content for these sites significantly varies from
the amount reported or either party believes that an error has occurred with
regard to revenue sharing, such party may, but no more than twice during any
twelve month period, at its own expense and upon ten (10) days prior written
notice to the other party (the "Audited Party"), designate independent auditors
or accountants (the "Auditor") to examine or audit the Audited Party's records
in a reasonable manner to verify the figures reported or amounts paid, as the
case may be. In the event that the Auditor determines that either (x) the actual
amount invested by the Audited Party is less than ninety percent (90%) of the
amount reported by the Audited Party, or (y) the amount paid by the Audited
Party is less than ninety percent (90%) of the actual amount owed by the Audited
Party, as the case may be, then such difference, plus the fees of the Auditor,
shall become immediately due and payable by the Audited Party upon written
notice to the Audited Party.
(g) Hallmark will have ongoing access and the right to use demographic
information/profiles and names that are collected with respect to the sites
created hereunder in all cases where the user is notified that this information
may be disseminated.
(h) The Hallmark.com site will be prominently linked to all sites
created hereunder in partnership with Hallmark and WNI. In addition, a minimum
of [*] Hallmark sites designated by Hallmark and approved by WNI will be
prominently linked to each site created hereunder. Additional links will be
added as mutually agreed upon.
(i) All Hallmark sites and all links to Hallmark sites created hereunder
will be subject to well-outlined taste and quality guidelines that Hallmark will
provide to WNI . Hallmark reserves the right to require withdrawal of the use of
its name(s) and sponsorship within 48 business hours upon a clear contravention
of such guidelines ("Contravention") and in any case, upon 30 days written
notice, which notice shall be given in the manner provided in Section 8(e) of
this Agreement. WNI will have 30 days to cure such a Contravention. In the event
that WNI does not cure the Contravention to Hallmark's satisfaction, the fund
re-allocation guidelines as defined in Section 1(d) will apply.
*Certain information on this page has been omitted and filed separately with the
Commission. Confidential treatment has been requested with respect to the
omitted portions.
3.
<PAGE> 4
(j) WNI will not enter any similar agreement with American Greetings, Gibson
Greetings or Greet Street and will be prohibited from offering free electronic
greetings or selling greetings on any of its sites except as mutually agreed
with Hallmark. If Hallmark does not agree with the use of pre-existing cards on
the WNI sites (pre-dating the signing of this agreement), there will be a 60 day
negotiation / phase out period before the cards are removed (or as long as
advertising has been pre-sold for the post-card areas).
2. TRADEMARKS AND INTELLECTUAL PROPERTY RIGHTS OF THE PARTIES. Any and all
trademarks, service marks, copyrights (including the Content) and trade names of
Hallmark and its affiliates are, and shall remain, the exclusive property of
Hallmark or its affiliates, as the case may be. Any and all trademarks, service
marks, copyrights and trade names of WNI are, and shall remain, the exclusive
property of WNI. WNI shall retain, obtain or acquire and thereafter preserve
(including, but not limited to, placing trademark notices on all Content,
advertising materials and any products which WNI may distribute), trademarks
and/or service marks in the name of WNI with respect to WNI's products.
3. CONFIDENTIALITY.
(a) NEW INITIATIVES. The Parties anticipate that, as long as Hallmark or
the Hallmark Affiliate holds the Stock, they may, from time to time, discuss,
and exchange with each other, ideas, concepts or information to be used in
connection with the creation or development of possible future initiatives,
ventures, products or services, not contemplated by this Agreement. The Parties
agree that this Agreement is in no way intended to limit such discussions or
exchanges and that such ideas, concepts or information referred to in the
previous sentence shall, without limitation, constitute Confidential Information
(as hereinafter defined).
(b) CONFIDENTIALITY. The Parties will each regard and preserve as
strictly confidential all information and material, including, but not limited
to, non-public information included as part of the transactions contemplated
hereby and by the other Transaction Documents and all other material or
information, including without limitation, customer or client information,
provided to one another in connection with the participation and development of
products, or services (hereinafter, "Confidential Information"). Each of the
Parties agrees that, except as provided in this Agreement or any other
Transaction Document or as otherwise agreed by them in writing, it shall not use
the Confidential Information of the other Party for its own benefit or for the
benefit of any third Person. Each of the Parties agrees not to interfere with,
circumvent, frustrate or otherwise impede in any manner the realization by WNI
of any of the objectives it seeks or benefits derived, or to be derived, from
any of such Confidential Information. The Parties further acknowledge and agree
that in the event of a breach or threatened breach of this Section 4, the
non-breaching Party or Parties may have no adequate remedy in money damages and,
accordingly, may be entitled to appropriate injunctive relief against such
breach. The Parties agree that they each will have no obligation in connection
with specific Confidential Information of any other Party to the extent, but
only to the extent that: (i) such Confidential Information is already known to
any of them, free from any obligation to keep such Confidential Information
confidential at the time it was obtained from any other Party; (ii) such
Confidential Information is or becomes publicly known in the trade or otherwise
through no wrongful act of the receiving
4.
<PAGE> 5
Party or any third Person owing a duty of confidentiality to the disclosing
Party; or (iii) such Confidential Information is rightfully received by the
receiving Party from a third Person without restriction and without breach of
this Agreement or any obligation of such third Person to the disclosing Party.
Upon the request of any of the Parties following the termination or expiration
of this Agreement as otherwise provided herein, all tangible and machine
readable copies of any Confidential Information of any other Party shall be
returned to such Party and Confidential Information relating to WNI shall be
returned to or remain with WNI. Should WNI cease to exist, and there is no
successor entity thereto, including a purchaser or other transferee of assets,
Hallmark shall have non-exclusive rights to such Confidential Information.
4. REPRESENTATIONS AND WARRANTIES.
(a) HALLMARK REPRESENTATIONS AND WARRANTIES. Hallmark represents and
warrants to WNI that:
(i) it is a corporation duly organized validly existing and in
good standing under the laws of the State of California;
(ii) it has all requisite corporate power and authority to enter
into this Agreement and the other Transaction Documents to which it is a party
and to carry out its obligations hereunder and thereunder;
(iii) this Agreement and the other Transaction Documents have
been duly authorized, executed and delivered by it and are a valid and binding
obligations of such Party enforceable in accordance with their terms;
(iv) the execution, delivery and performance of and compliance
with this Agreement and the other Transaction Documents do not and will not
conflict with, or constitute a default under, or result in the creation of any
mortgage, pledge, lien, encumbrance or charge upon any of its properties or
assets, nor result in any violation of (A) any term of its certificate or
articles of incorporation or bylaws, (B) any term or provision of any mortgage,
indenture, contract, agreement, instrument, judgment or decree of such Party, or
(C) any order, statute, rule or regulation applicable to it, the violation of
which would have a material adverse effect on its ability to perform its
obligations under this Agreement or the other Transaction Documents to which it
is a party;
(v) the Hallmark Affiliate is acquiring the Stock for investment
for its own account and not with a view to, or for offer or sale in connection
with, any public distribution thereof and that it is an "accredited investor" as
defined in Regulation D promulgated under the Securities Act of 1933;
(vi) it is not relying on any information provided by WNI with
respect to the tax and other economic considerations of an investment in the
Stock, and the undersigned has relied on the advice of, or has consulted with,
only the undersigned's own advisor(s); and
5.
<PAGE> 6
(vii) the representations and warranties made by it in this
Agreement, and in any certificate or schedule referenced hereby or attached
hereto, do not contain any statement which is false or misleading with respect
to any material fact and do not omit to state a material fact required to be
stated herein or therein or necessary in order to make the statements contained
herein or therein not materially false or misleading. The representations,
warranties and agreements of it contained herein are true and correct as of the
date hereof and may be relied upon by WNI, and it will notify WNI immediately of
any adverse change in any such representations and warranties which may occur
prior to the acceptance of the subscription and will promptly send WNI written
confirmation thereof. The representations, warranties and agreements of it
contained herein shall survive the execution and delivery of this Agreement and
the purchase of the Stock.
(b) COMPANY REPRESENTATIONS AND WARRANTIES. WNI represents and warrants
to Hallmark that:
(i) it is a corporation duly organized validly existing and in
good standing under the laws of the State of California;
(ii) it has all requisite corporate power and authority to enter
into this Agreement and the other Transaction Documents to which it is a party
and to carry out its obligations hereunder and thereunder;
(iii) this Agreement and the other Transaction Documents have
been duly authorized, executed and delivered by it and are valid and binding
obligations of such Party enforceable in accordance with their terms;
(iv) the execution, delivery and performance of and compliance
with this Agreement and the other Transaction Documents do not and will not
conflict with, or constitute a default under, or result in the creation of any
mortgage, pledge, lien, encumbrance or charge upon any of its properties or
assets, nor result in any violation of (A) any term of its articles of
incorporation or bylaws, (B) any term or provision of any mortgage, indenture,
contract, agreement, instrument, judgment or decree of such Party, or (C) any
order, statute, rule or regulation applicable to it, the violation of which
would have a material adverse effect on its ability to perform its obligations
under this Agreement or the other Transaction Documents to which it is a party;
(v) it is not relying on any information provided by Hallmark
with respect to the tax and other economic considerations in connection with
this transaction, and has relied on the advice of, or has consulted with, only
its own advisor(s);
(vi) with the exception of Volpe, Welty & Company, there is no
investment banker, broker, finder or other intermediary which has been retained
by, or is authorized to act on behalf of, it, any shareholder of it or their
respective Affiliates who might be entitled to any fee or commission from WNI or
its Affiliates upon the consummation of the transactions contemplated hereby or
thereafter; and
6.
<PAGE> 7
(vii) the representations and warranties made by it in this
Agreement, and in any certificate or schedule referenced hereby or attached
hereto, do not contain any statement which is false or misleading with respect
to any material fact and do not omit to state a material fact required to be
stated herein or therein or necessary in order to make the statements contained
herein or therein not materially false or misleading. The representations,
warranties and agreements of it contained herein are true and correct as of the
date hereof and may be relied upon by Hallmark, and it will notify Hallmark
immediately of any adverse change in any such representations and warranties
which may occur prior to the acceptance of the subscription and will promptly
send Hallmark written confirmation thereof. The representations, warranties and
agreements of it contained herein shall survive the execution and delivery of
this Agreement and the purchase by Hallmark of the Stock.
5. INDEMNIFICATION.
(a) EACH PARTY (THE "INDEMNIFYING PARTY") shall indemnify, defend and
hold the other Party (including WNI), their respective officers, managers,
employees, shareholders, managers, members and agents (an "Indemnitee")
harmless, on an after tax basis, from any claims, actions, suits, demands,
liabilities, obligations, losses, damages, judgments or settlements of
whatsoever kind and nature, including any and all reasonable costs and expenses
related thereto including reasonable attorneys' fees (the "Claims"), directly or
indirectly arising from (i) any failure by the Indemnifying Party to comply with
or perform any of the terms of this Agreement, or (ii) a misrepresentation or
Material Breach of any representation, warranty, covenant, or agreement of the
Indemnifying Party contained in this Agreement, any Transaction Documents or any
other agreement, instrument, certificate or other document delivered by the
Indemnifying Party in connection with the transactions contemplated hereby.
(b) ASSERTION OF RIGHT OF INDEMNIFICATION. To assert its rights of
indemnification hereunder, an Indemnitee shall:
(i) promptly notify the Indemnifying Party in writing of any
Claim or legal proceedings which gives rise to such right;
(ii) afford the Indemnifying Party the opportunity to participate
in, or fully control, in its sole discretion, any proceeding and the compromise,
settlement, resolution or other disposition of such Claim or proceeding so long
as such settlement involves payment of money damages only and provides the
Indemnitees with a general release; and
(iii) fully cooperate with the Indemnifying Party, at the
Indemnifying Party's expense, in such Indemnifying Party's participation and
control of any proceeding and the compromise, settlement, resolution or other
disposition of such claim or proceeding; provided, however, that if such
compromise, settlement or resolution or other disposition could have an adverse
effect on the Indemnitee, the Indemnitee's consent to such compromise,
settlement, resolution or other disposition shall be required but shall not be
unreasonably withheld. The Indemnifying Party shall bear all out of pocket
expenses of the Indemnitee in connection with such cooperation.
7.
<PAGE> 8
6. LIMITATION OF LIABILITY. NEITHER PARTY SHALL BE LIABLE TO THE OTHER, IN ANY
CIRCUMSTANCES, FOR ANY LOSS OF BUSINESS OR PROFITS, OR FOR ANY CONSEQUENTIAL,
INCIDENTAL, PUNITIVE OR SIMILAR DAMAGES.
7. TERMINATION; SURVIVAL.
(a) TERMINATION. In the event of a Material Breach of any
representation, warranty or covenant contained in this Agreement or any
Transaction Document, the non-breaching Party may (reserving cumulatively all
other rights and remedies at law or in equity unless otherwise expressly stated
herein) terminate this Agreement with respect to the breaching Party by giving
twenty (20) days prior written notice to the breaching Party specifying such
breach. If within such twenty (20) day period, the breaching Party fails to
remedy any such breach, this Agreement shall terminate with respect to the
breaching Party without further act or notice and all of the rights and
obligations with respect to the breaching Party hereunder shall cease and
terminate except as otherwise provided herein, or in any other Transaction
Document.
(b) ADDITIONAL TERMINATION RIGHTS. This Agreement may be terminated by
either party:
(i) if the other Party is declared insolvent or bankrupt by a
court of competent jurisdiction;
(ii) if the other Party files or consents, by answer or
otherwise, to the filing against it of a petition for relief or reorganization
or arrangement under the insolvency or bankruptcy laws of any jurisdiction, and
any such petition is not dismissed within sixty (60) days, thereafter; or
(iii) if a trustee in bankruptcy or a receiver or similar entity
is appointed for the other Party or the other Party makes an assignment for the
benefit of its creditors, consents to the appointment of a custodian, receiver,
trustee or other officer with similar powers for itself or for any substantial
part of its property, or enters into an agreement for the composition,
extension, or readjustment of substantially all of its obligations; or
(iv) if any governmental entity of competent jurisdiction shall
enter an order appointing any of the foregoing for such Party or with respect to
any substantial portion of its property, or seeking the dissolution, winding-up
or liquidation of such Party.
(c) SURVIVAL. The following Sections or provisions of this Agreement
shall survive any termination of this Agreement until the obligation of the
Parties set forth therein shall have been fully performed by the Parties: 2, 3,
5, 6, and 8(a), 8(c), 8(e), 8(f), 8(g), 8(h), 8(l) and 8(n).
8. GENERAL.
(a) INDEPENDENT CONTRACTOR. The Parties agree that each Party is an
independent contractor and that no Party is an agent of the other. No Party will
be entitled to compensation for its services hereunder except as expressly
provided herein, or in any separate agreements
8.
<PAGE> 9
entered into among the Parties and/or WNI from time to time. Each of the Parties
will be responsible for, among other things, payment of workers' compensation,
disability benefits, unemployment insurance, and for withholding income taxes
and social security for any of their respective employees that devote a portion
of their time to the business of WNI, unless and until any of such personnel
become employees of WNI. No Party will have any authority to make any agreements
or representations on behalf of any other Party or to hold itself out to be an
agent, or representative of any other Party.
(b) PUBLIC ANNOUNCEMENTS. The Parties will jointly coordinate press and
other public announcements of Hallmark's involvement in WNI in order to maximize
public, investor and advertiser interest. Such announcements may not be used
until WNI shall have received written notice from Hallmark that it may use such
announcements.
(c) ENTIRE AGREEMENT. This Agreement, together with the other
Transaction Documents, sets forth the entire agreement between the Parties in
connection with the subject matter hereof and incorporates, replaces, and
supersedes all prior agreements, promises, proposals, representations,
understandings and negotiations, written or not, between the Parties. The
making, execution, and delivery of this Agreement have been induced by no
representations, statements, warranties or agreements other than those expressed
herein and in the other Transaction Documents.
(d) FORCE MAJEURE. No Party will be liable for any delay or failure to
perform under this Agreement if, and to the extent, such failure is due to an
act of God, war, fire, national disaster, accident, act of government or other
similar cause beyond the control and without the fault or negligence of the
Party claiming excusable delay, and the Party claiming excusable delay uses its
best efforts to avoid or remove the cause of the delay. The Party claiming
excusable delay must promptly notify the other Party of such delay. If the delay
continues for more than thirty (30) days and involves a material obligation, the
Party not claiming excusable delay may terminate this Agreement by giving
fourteen (14) calendar days written notice to the other Party; provided that the
Agreement will not terminate if the Party claiming excusable delay substantially
performs the obligation which has been delayed within fourteen (14) days after
receipt of notice of such termination. Notwithstanding the foregoing, there
shall be no excusable delay pursuant to this Section 11 (d) applicable to any
obligation of payment hereunder.
(e) NOTICE. All notices shall be in writing and will be delivered
personally or sent by confirmed facsimile transmission, or overnight carrier at
the addresses specified below:
If to Hallmark: If to WNI:
Hallmark Cards Incorporated WIRE Networks, Inc.
2501 McGee, Box 419580 1820 Gateway Drive, Suite 150
Kansas City, Missouri 64141 San Mateo, California 94404
Fax (816) 274-5458 Fax (415) 378-6599
Attn: John McCallister Attn: Marleen McDaniel
9.
<PAGE> 10
Any Party may change the person or the address to which notices are directed by
giving written notice to the other Party in accordance with this Section.
Personally delivered or confirmed facsimile notices will be deemed given when
delivered. Notices sent by overnight carrier will be deemed given on the second
business day after dispatch. Notwithstanding the foregoing, notices of change of
address will be deemed given only upon receipt by the Party to which it is
directed.
(f) GOVERNING LAW; CONSENT TO JURISDICTION. This Agreement shall be
governed by and interpreted in accordance with the laws of the State of
California (without giving effect to principles of conflicts of law).
(g) MODIFICATION. No modification, amendment, supplement to or waiver of
any provision of this Agreement shall be binding upon the Parties unless made in
writing and duly signed by all of the Parties.
(h) WAIVER. A failure of any Party to exercise any right provided for
herein shall not be deemed to be a waiver of any right hereunder.
(i) SEVERABILITY. Whenever possible, each provision of this Agreement
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement shall be prohibited or
invalid under applicable law, such provision shall be ineffective to the extent
of such prohibition or invalidity without invalidating the remainder of such
provision or the remaining provisions of this Agreement. Any unenforceable
provision will be replaced by a mutually acceptable provision which comes
closest to the intention of the Parties at the time the original provision was
agreed upon.
(j) HEADINGS. The headings of this Agreement are for purposes of
reference only and shall not in any way limit or otherwise affect the meanings
or interpretations of any of the terms hereof.
(k) COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which when so executed and delivered shall be deemed to be
an original, but all of which together shall constitute one and the same
agreement.
(l) ASSIGNMENT. This Agreement and the rights and obligations of the
Parties hereunder shall not be assigned or delegated by any Party to any other
Person without the prior written consent of the other Party, except that,
Hallmark shall have the right on notice to WNI, but without requiring WNI's
consent, to assign all of its respective rights hereunder to any Person to
which, Hallmark may transfer, assign or convey all or substantially all of the
business, assets or properties of Hallmark, or to any Person with which,
Hallmark may hereafter merge or consolidate, or in connection with a
reorganization transaction, and WNI shall have the right on notice to Hallmark,
to assign this Agreement without the consent of Hallmark in connection with a
sale of all or substantially all of WNI's assets, merger, consolidation or other
reorganization transaction.
(m) FURTHER ASSURANCES. The Parties agree to execute and deliver, or to
cause to be executed and delivered, such further instruments or documents, and
take such other actions as
10.
<PAGE> 11
may be reasonably required effectively to carry out the transactions
contemplated herein, in each case provided the same do not impose any additional
liabilities or obligations upon the Parties.
(n) DISPUTE RESOLUTION.
(i) Any claim, controversy or dispute, whether sounding in
contract, statute, tort, fraud, misrepresentation or other legal theory,
whenever brought and whether between the parties to this Agreement or between
one of the parties of this Agreement and the employees, agents or affiliated
businesses of the other party, shall be resolved by arbitration as prescribed in
this Section 8(n). The Federal Arbitration Act, 9 U.S.C. Section 1-15, not state
law, shall govern the arbitrability of all claims.
(ii) A single arbitrator engaged in the practice of law and
experienced in transactions of the sort contemplated hereby and by the
Transaction Documents shall conduct the arbitration under the then current rules
of the American Arbitration Association (AAA), unless otherwise provided herein.
The arbitrator shall be selected in accordance with AAA procedures from a list
of qualified people maintained by AAA. The arbitration shall be conducted in the
regional AAA office closest to the principal office of WNI, and all expedited
procedures prescribed by AAA rules shall apply.
(iii) Except as provided in Section 11(n)(v), the arbitrator
shall only have authority to award compensatory damages and shall not have
authority to award punitive damages, other non-compensatory damages or any other
form of relief. Each party shall bear its own costs and attorneys' fees and the
Parties shall share equally the fees and expenses of the arbitration; provided
that the arbitrator may provide for the reimbursement by one Party of the costs
and attorneys' fees of the other Party incurred in enforcing such Party's rights
under this Agreement. The arbitrator's decision and award shall be final and
binding, and judgment upon the award rendered by the arbitrator may be entered
in any court having jurisdiction thereof.
(iv) If any Party files a judicial or administrative action
asserting claims subject to arbitration, as prescribed herein, and another party
successfully stays such action and/or compels arbitration of said claims, the
Party filing said action shall pay the other Party's costs and expenses incurred
in seeking such stay and/or compelling arbitration, including reasonable
attorneys' fees.
(v) The Parties each acknowledge and agree that either party will
be irreparably harmed as a result of a breach by the other Party of Section 2 or
3 of this Agreement and that it would be difficult, if not impossible, to
measure the damages resulting from such a breach. Accordingly, in the event of
any actual or threatened breach by either party of Section 2 or 3, the
non-breaching party shall, in addition to any other legal remedies permitted
hereunder or by applicable law, be entitled to obtain equitable remedies from a
court of competent jurisdiction, without the need for any bond or security,
including, without limitation, specific performance, a temporary restraining
order or a permanent injunction to prevent or otherwise restrain a breach hereof
and to recover all costs and expenses, including, without limitation, reasonable
attorneys' fees, incurred in enforcing this Agreement. Such relief shall be in
addition to and not in substitution for any other remedies available to such
Party. Notwithstanding
11.
<PAGE> 12
anything herein to the contrary, the Parties agree that the non-breaching Party
may seek a temporary restraining order or a preliminary injunction or other
equitable relief from any court of competent jurisdiction in order to prevent or
restrain a breach hereof pending the selection of an arbitrator to render a
decision on the ultimate merits of any dispute, controversy or claim.
(o) COMPLIANCE WITH LAWS. This Agreement and the Parties' actions under
this Agreement shall comply with all applicable federal, state, and local laws,
rules, regulations, court orders, and governmental or regulatory agency orders,
including the Telecommunications Act of 1996 and specifically the separated
affiliate requirements for the provision of electronic publishing.
12.
<PAGE> 13
IN WITNESS WHEREOF, the Parties have signed this Agreement as of the
Effective Date.
GRAPHICS INTERNATIONAL, INC.
D/B/A HALLMARK CONNECTIONS
By: /s/ Graphics International, Inc.
------------------------------------------
Title:
WIRE NETWORKS, INC.
By: /s/ Marleen McDaniel
------------------------------------------
Title: CEO and President
13.
<PAGE> 14
INVESTMENT AGREEMENT
DATED AS OF AUGUST 19, 1997
BY AND BETWEEN
GRAPHICS INTERNATIONAL, INC.
D/B/A HALLMARK CONNECTIONS
AND
WIRE NETWORKS, INC.
<PAGE> 15
EXHIBIT 10.3(a)
WOMEN.COM NETWORKS
AMENDMENT AGREEMENT
THIS AMENDMENT AGREEMENT (the "AMENDMENT") is made as of May 7, 1998, by
and between WOMEN.COM NETWORKS, a California corporation, formerly Wire
Networks, Inc. (the "COMPANY") and GRAPHICS INTERNATIONAL, INC. D/B/A HALLMARK
CONNECTIONS, a California corporation ("HALLMARK").
RECITALS
WHEREAS, the Company and Hallmark entered into that certain Investment
Agreement dated August 19, 1997 (the "INVESTMENT AGREEMENT") (capitalized terms
not otherwise defined herein shall have the meanings ascribed to them in the
Purchase Agreement); and
WHEREAS, in accordance with Section 8(g) of the Investment Agreement,
the Company and Hallmark wish to amend the Investment Agreement pursuant to this
Amendment.
NOW, THEREFORE, in consideration of the mutual agreements, covenants and
considerations contained herein, the undersigned hereby agree as follows:
AGREEMENT
1. Section 1(b) of the Investment Agreement is hereby amended by adding
a sentence to such subsection which shall read as follows:
"Hallmark's right to appoint such additional director to
the Board of Directors of the Company shall terminate upon
the closing of the Company's first underwritten public
offering of its Common Stock registered under the
Securities Act of 1933, as amended."
2. Section 1(d) of the Investment Agreement is hereby amended to read in
full as follows:
"(d) If WNI fails to spend all of the Allocated Funds as
set forth above within the two year limit, Hallmark will
have the right to direct how and on what sites WNI shall
expend the unused portion of the funds, including
maintenance and updating of the Mini-Site and other
websites designated by Hallmark. WNI shall account, no
more often than monthly, to Hallmark in such detail as
Hallmark requires on how the Allocated Funds have been
expended and are anticipated to be expended."
3. The parties hereto hereby acknowledge that the development of the
Mini-Site has been completed by the Company in accordance with Section 1(c) of
the Investment Agreement.
1.
<PAGE> 16
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.
[THIS SPACE INTENTIONALLY LEFT BLANK]
2.
<PAGE> 17
IN WITNESS WHEREOF, the undersigned have executed this AMENDMENT
AGREEMENT as of the day and year first set forth above.
GRAPHICS INTERNATIONAL, INC. WOMEN.COM NETWORKS
D/B/A HALLMARK CONNECTIONS
By: /s/ Graphics International, Inc. By: /s/ Marleen McDaniel
---------------------------------- ----------------------------------
Title: Marleen McDaniel, President
-------------------------------
AMENDMENT AGREEMENT
<PAGE> 1
EXHIBIT 10.4
INVESTMENT AGREEMENT
DATED AS OF JULY 7, 1997
BY AND BETWEEN
U S WEST INTERACTIVE SERVICES, INC.
AND
WIRE NETWORKS, INC.
<PAGE> 2
INVESTMENT AGREEMENT
This INVESTMENT AGREEMENT (this "Agreement"), made as of the 7th day of
July 1997 by and between U S WEST INTERACTIVE SERVICES, INC., a Colorado
corporation ("U S West"), and WIRE NETWORKS, INC., a California corporation (the
"Company") (U S West and the Company are sometimes referred to herein
collectively as the "Parties" and individually as a "Party").
WHEREAS, the Company has developed an informational web site, and
desires to further develop such site in conjunction with the U S West Dive-In
Project and High Bandwidth Project, each described below; and
WHEREAS, U S West desires to purchase and the Company desires to sell an
ownership interest in the Company; and
WHEREAS, the Parties are, together with certain other investors in the
Series C Preferred Stock financing of the Company and concurrently with the
execution of this Agreement, entering into the Series C Preferred Stock Purchase
Agreement Wire Networks, Inc., a copy of which is attached hereto as Exhibit A,
an Amended and Restated Investors Rights Agreement, a copy of which is attached
hereto as Exhibit B, an Amended and Restated Co-Sale and Voting Agreement, a
copy of which is attached hereto as Exhibit C, a Web Site Linking and Promotion
Agreement, a copy of which is attached hereto as Exhibit D, and other documents
necessary to consummate this transaction, (collectively, these documents shall
be referred to as the "Transaction Documents"); and
WHEREAS, the Parties desire to set forth the terms and conditions of and
certain understandings with respect to the acquisition by U S West of an
ownership interest in the Company.
NOW, THEREFORE, in consideration of the representations, warranties and
covenants contained herein and other good and valuable consideration, the
receipt of which is hereby acknowledged, the Parties hereby agree as follows:
1. DEFINITIONS. For purposes of this Agreement, capitalized terms used
herein shall, unless otherwise expressly provided for or defined hereto,
have the respective meanings set forth on Annex A hereto.
2. U S WEST'S PURCHASE OF AN INTEREST IN COMPANY.
(a) U S WEST'S PURCHASE. Subject to the terms and conditions of this
Agreement, the other Transaction Documents and any other
agreement governing the relationship between the Parties, U S
West hereby agrees to purchase one million three hundred fifteen
thousand seven hundred eighty-nine ( 1,315,789) shares of Series
C Convertible Preferred Stock (the "Stock") of the Company at a
total purchase price of four million one dollars and 60/100
($4,000,001.60) (the "Proceeds"), or three dollars and 4/100
($3.04) per share (the "Series C Stock Price"). In full
consideration of such subscription and payment, and the other
transactions contemplated hereby and in the Transaction
Documents, the Company hereby
1.
<PAGE> 3
accepts such purchase and upon payment therefore, shall issue to
U S West the Stock representing, on the date hereof,
approximately a seventeen percent (17%) Ownership Interest in
the Company on an as-converted basis.
(b) The Company's right to retain $1,500,000.00 of the Proceeds
shall be contingent upon the Company developing the Dive-in
Project and/or the High Bandwidth Project, each described below,
to the reasonable satisfaction of U S West, and in accordance
with the timetable and requirements set forth below. If the
Company fails to develop the Dive-In Project and/or the High
Bandwidth Project as provided below, the Series C Stock Price
for the Stock will be reduced by the Company returning the
unused portion of the Dive-In Allocated Funds and/or the High
Bandwidth Allocated Funds, each defined below, to U S West
without decreasing U S West's equity interest in the Company.
(i) The Company agrees to allocate $750,000.00 (the "Dive-In
Allocated Funds ") in a reasonably detailed development
plan and budget approved by U S West, and to use the
Dive-in Allocated Funds for customizing the Company's
product such that the customized Company product may be
co-branded and co-linked with U S West's local on-line
service ("the Dive-In Project") in the cities where U S
West offers such service. The Company shall complete the
Dive-in Project within twelve (12) months of the date of
the first closing (the "Closing Date") of the Series C
Preferred Stock financing of the Company (the "Dive-in
Completion Date"). If the Company fails to use all of
the Dive-in Allocated Funds for the Dive-In Project,
and/or fails to complete the Dive-In Project by the
Dive-in Completion Date, the Company shall return all
Dive-in Allocated Funds unused as of the Dive-In
Completion Date to U S West without affecting U S West's
equity interest in the Company.
(ii) The Company agrees to allocate $750,000.00 (the "High
Bandwidth Allocated Funds") in a reasonably detailed
development plan and budget approved by U S West, and to
use the High Bandwidth Allocated Funds for developing
and customizing the Company's product and purchasing
equipment in connection with the deployment of high
bandwidth content (i.e. video) over U S West's domestic
cable assets pursuant to a mutually satisfactory
agreement between U S West, its domestic cable assets
and the Company for the provision of such high bandwidth
content ("the High Bandwidth Project"). The Company
shall complete the High Bandwidth Project within
eighteen (18) months of the Closing Date ("the High
Bandwidth Completion Date"). If the Company fails to use
all of the High Bandwidth Allocated Funds for the High
Bandwidth Project, and/or fails to complete the High
Bandwidth Project by the High Bandwidth Completion Date,
the Company shall return all High Bandwidth Allocated
Funds unused as of the High Bandwidth Completion Date to
U S West without affecting U S West's equity interest in
the Company.
2.
<PAGE> 4
The Company will also grant to U S West warrants (the
"Series C Warrants") to acquire at the Series C Stock
Price up to eight hundred eighty-seven thousand six
hundred sixty five (887,665) shares of Series C
Convertible Preferred Stock (the "Warrant Stock") of the
Company. Upon exercise of fifty percent (50%) of the
Series C Warrants, U S West will be entitled to appoint
one (l) additional director to the Board of D/rectors of
the Company.
(c) U S WEST'S RIGHTS. U S West shall have the right to delay,
suspend, discontinue or terminate the Dive-In Project and/or the
High Bandwidth Project upon not less than thirty (30) days
written notice to the Company (a "Discontinuation"), which
notice shall be given in the manner provided in Section 12(e) of
this Agreement. In the event of a Discontinuation of either the
Dive-in Project or High Bandwidth Project, U S West may
reallocate the unused portion of the Dive-In Allocated Funds or
the High Bandwidth Allocated Funds, as the case may be, to the
other project not subject to a Discontinuation. In the event
that both the Dive-In Project and the High Bandwidth Project are
subject to a Discontinuation, the Company may retain the unused
portion of the Dive-In Allocated Funds and High Bandwidth
Allocated Funds for use on other projects.
3. TRADEMARKS AND INTELLECTUAL PROPERTY RIGHTS OF THE PARTIES.
(a) INTELLECTUAL PROPERTY RIGHTS. Except for the licenses expressly
granted to the Company under any Transaction Document, any and
all trademarks, service marks, copyrights and trade names of U S
West are, and shall remain, the exclusive property of U S West.
(b) INTELLECTUAL PROPERTY OF THE COMPANY. The Company shall retain,
obtain or acquire, and thereafter preserve (including, but not
limited to, placing trademark notices on all Content,
advertising materials and any products which the Company may
distribute), trademarks and/or service marks in the name of the
Company with respect to the Company products. Except for such
licenses as may be expressly granted to U S West in or pursuant
to any Transaction Document, any and all intellectual property
now owned or hereafter developed by the Company for the Dive-In
Project or the High Bandwidth Project pursuant to this Agreement
shall be the exclusive property of the Company. The right, title
and interest in and to any intellectual property developed
jointly by U S West and the Company or funded in whole or in
part by U S West, in addition to the investment hereunder, shall
be negotiated in a separate written agreement between the
Parties.
4. CUSTOMER LISTS. Lists of actual and potential end-users of the Company's
products, shall be deemed to be owned by the Company. Should the Company
cease to exist, and there is no successor entity thereto, including a
purchaser or other transferee of assets, U S West shall have
non-exclusive rights to use such lists.
3.
<PAGE> 5
5. CAPITALIZATION, COSTS AND FEES. Except as otherwise expressly provided
herein, in the other Transaction Documents, the marketing plan or in any
business plan which may hereafter be developed by or on behalf of the
Company, each of the Parties shall bear and shall be responsible for its
own costs and expenses related to the Company products.
6. CONFIDENTIALITY.
(a) NEW INITIATIVES. The Parties anticipate that, as long as U S
West has an Ownership Interest in the Company, they may, from
time to time, discuss, and exchange with each other, ideas,
concepts or information to be used in connection with the
creation or development of possible future initiatives,
ventures, products or services, not contemplated by this
Agreement. The Parties agree that this Agreement is in no way
intended to limit such discussions or exchanges and that such
ideas, concepts or information referred to in the previous
sentence shall, without limitation, constitute Confidential
Information (as hereinafter defined).
(b) CONFIDENTIALITY. The Parties will each regard and preserve as
strictly confidential all information and material, including,
but not limited to, non-public information included as pan of
the transactions contemplated hereby and by the other
Transaction Documents and all other material or information,
including without limitation, customer or client information,
provided to one another in connection with the participation and
development of products, services or information for the Dive-in
Project or the High Bandwidth Project (hereinafter,
"Confidential Information"). Each of the Parties agrees that,
except as provided in this Agreement or any other Transaction
Document or as otherwise agreed by them in writing, it shall not
use the Confidential Information of the other Party for its own
benefit or for the benefit of any third Person. Each of the
Parties agrees not to interfere with, circumvent, frustrate or
otherwise impede in any manner the realization by the Company of
any of the objectives it seeks or benefits derived, or to be
derived, from any of such Confidential Information. The Parties
further acknowledge and agree that in the event of a breach or
threatened breach of this Section 6, the non-breaching Party or
Parties may have no adequate remedy in money damages and,
accordingly, may be entitled to appropriate injunctive relief
against such breach. The Parties agree that they each will have
no obligation in connection with specific Confidential
Information of any other Party to the extent, but only to the
extent that: (i) such Confidential Information is already known
to any of them, free from any obligation to keep such
Confidential Information confidential at the time it was
obtained from any other Party; (ii) such Confidential
Information is or becomes publicly known in the trade or
otherwise through no wrongful act of the receiving Party or any
third Person owing a duty of confidentiality to the disclosing
Party; or (iii) such Confidential Information is rightfully
received by the receiving Party from a third Person without
restriction and without breach of this Agreement or any
obligation of such third Person to the disclosing Party. Upon
the request of any of the Parties following the termination or
expiration of this Agreement as otherwise provided herein, all
tangible and machine readable copies of any Confidential
Information of any other Party shall be returned to such Party
and Confidential Information relating to the Company
4.
<PAGE> 6
shall be returned to or remain with the Company. Should the
Company cease to exist, and there is no successor entity
thereto, including a purchaser or other transferee of assets,
U S West shall have non-exclusive rights to such Confidential
Information.
7. REPRESENTATIONS AND WARRANTIES.
(a) U S WEST REPRESENTATIONS AND WARRANTIES. U S West represents and
warrants to the Company that:
(i) it is a corporation duly organized validly existing and
in good standing under the laws of the State of
Colorado;
(ii) it has all requisite corporate power and authority to
enter into this Agreement and the other Transaction
Documents to which it is a party and to carry out its
obligations hereunder and thereunder;
(iii) this Agreement and the other Transaction Documents have
been duly authorized, executed and delivered by it and
are a valid and binding obligation of such Party
enforceable in accordance with their terms;
(iv) the execution, delivery and performance of and
compliance with this Agreement and the other Transaction
Documents do not and will not conflict with, or
constitute a default under, or result in the creation of
any mortgage, pledge, lien, encumbrance or charge upon
any of its properties or assets, nor result in any
violation of (A) any term of its certificate or articles
of incorporation or bylaws, (B) any term or provision of
any mortgage, indenture, contract, agreement,
instrument, judgment or decree of such Party, or (C) any
order, statute, rule or regulation applicable to it, the
violation of which would have a material adverse effect
on its ability to perform its obligations under this
Agreement or the other Transaction Documents to which it
is a party;
(v) it is acquiring the Stock and/or the Warrant Stock for
investment for its own account and not with a view to,
or for offer or sale in connection with, any public
distribution thereof and that it is an "accredited
investor" as defined in Regulation D promulgated under
the Securities Act of 1933;
(vi) it is not relying on any information provided by the
Company with respect to the tax and other economic
considerations of an investment in the Stock and/or the
Warrant Stock, and the undersigned has relied on the
advice of, or has consulted with, only the undersigned's
own advisor(s); and
(vii) the representations and warranties made by it in this
Agreement, and in any certificate or schedule referenced
hereby or attached hereto, do not contain any statement
which is false or misleading with respect to any
material fact and do not omit to state a material fact
required to be stated herein or therein or necessary in
order to make the statements contained
5.
<PAGE> 7
herein or therein not materially false or misleading.
The representations, warranties and agreements of it
contained herein are true and correct as of the date
hereof and may be relied upon by the Company, and it
will notify the Company immediately of any adverse
change in any such representations and warranties which
may occur prior to the acceptance of the subscription
and will promptly send the Company written confirmation
thereof. The representations, warranties and agreements
of it contained herein shall survive the execution and
delivery of this Agreement and the purchase of the Stock
and/or the Warrant Stock.
(b) COMPANY REPRESENTATIONS AND WARRANTIES. The Company represents
and warrants to U S West that:
(i) it is a corporation duly organized validly existing and
in good standing under the laws of the State of
California;
(ii) it has all requisite corporate power and authority to
enter into this Agreement and the other Transaction
Documents to which it is a party and to carry out its
obligations hereunder and thereunder;
(iii) this Agreement and the other Transaction Documents have
been duly authorized, executed and delivered by it and
are valid and binding obligations of such Party
enforceable in accordance with their terms;
(iv) the execution, delivery and performance of and
compliance with this Agreement and the other Transaction
Documents do not and will not conflict with, or
constitute a default under, or result in the creation of
any mortgage, pledge, lien, encumbrance or charge upon
any of its properties or assets, nor result in any
violation of (A) any term of its articles of
incorporation or bylaws, (B) any term or provision of
any mortgage, indenture, contract, agreement,
instrument, judgment or decree of such Party, or (C) any
order, statute, code or regulation applicable to it, the
violation of which would have a material adverse effect
on its ability to perform its obligations under this
Agreement or the other Transaction Documents to which it
is a party;
(v) it is not relying on any information provided by U S
West with respect to the tax and other economic
considerations in connection with this transaction, and
has relied on the advice of, or has consulted with, only
its own advisor(s);
(vi) with the exception of Volpe, Welty & Company, there is
no investment banker, broker, finder or other
intermediary which has been retained by, or is
authorized to act on behalf of, it, any shareholder of
it or their respective Affiliates who might be entitled
to any fee or commission from the Company or its
Affiliates upon the consummation of the transactions
contemplated hereby or thereafter; and
6.
<PAGE> 8
(vii) the representations and warranties made by it in this
Agreement, and in any certificate or schedule referenced
hereby or attached hereto, do not contain any statement
which is false or misleading with respect to any
material fact and do not omit to state a material fact
required to be stated herein or therein or necessary in
order to make the statements contained herein or therein
not materially false or misleading. The representations,
warranties and agreements of it contained herein are
true and correct as of the date hereof and may be relied
upon by U S West, and it will notify U S West
immediately of any adverse change in any such
representations and warranties which may occur prior to
the acceptance of the subscription and will promptly
send U S West written confirmation thereof. The
representations, warranties and agreements of it
contained herein shall survive the execution and
delivery of this Agreement and the purchase by U S West
of the Stock and/or Warrant Stock.
8. INDEMNIFICATION.
(a) Each Party (the "Indemnifying Party") shall indemnify, defend
and hold the other Party (including the Company), their
respective officers, managers, employees, shareholders,
managers, members and agents (an "Indemnitee") harmless, on an
after tax basis, from any claims, actions, suits, demands,
liabilities, obligations, losses, damages, judgments or
settlements of whatsoever kind and nature, including any and all
reasonable costs and expenses related thereto including
reasonable attorneys' fees (the "Claims"), directly or
indirectly arising from (i) any failure by the Indemnifying
Party to comply with or perform any of the terms of this
Agreement, or (ii) a misrepresentation or Material Breach of any
representation, warrant3,, covenant, or agreement of the
Indemnifying Party contained in this Agreement, any Transaction
Documents or any other agreement, instrument, certificate or
other document delivered by the Indemnifying Party in connection
with the transactions contemplated hereby.
(b) ASSERTION OF RIGHT OF INDEMNIFICATION. To assert its rights of
indemnification hereunder, an Indemnitee shall:
(i) promptly notify the Indemnifying Party in writing of any
Claim or legal proceedings which gives rise to such
right;
(ii) afford the Indemnifying Party the opportunity to
participate in, or fully control, in its sole
discretion, any proceeding and the compromise,
settlement, resolution or other disposition of such
Claim or proceeding so long as such settlement involves
payment of money damages only and provides the
Indemnitees with a general release; and
(iii) fully cooperate with the Indemnifying Party, at the
Indemnifying Party's expense, in such Indemnifying
Party's participation and control of any proceeding and
the compromise, settlement, resolution or other
disposition of such claim or proceeding; provided,
however, that if such compromise,
7.
<PAGE> 9
settlement or resolution or other disposition could have
an adverse effect on the Indemnitee, the Indemnitee's
consent to such compromise, settlement, resolution or
other disposition shall be required but shall not be
unreasonably withheld. The Indemnifying Party shall bear
all out of pocket expenses of the Indemnitee in
connection with such cooperation.
9. LIMITATION OF LIABILITY. EXCEPT AS SPECIFICALLY PROVIDED IN SECTION 7 OF
THE WEB SITE LINKING AND PROMOTION AGREEMENT, NEITHER PARTY SHALL BE
LIABLE TO THE OTHER, IN ANY CIRCUMSTANCES, FOR ANY LOSS OF BUSINESS OR
PROFITS, OR FOR ANY CONSEQUENTIAL, INCIDENTAL, PUNITIVE OR SIMILAR
DAMAGES.
10. TERMINATION; SURVIVAL.
(a) TERMINATION. In the event of a Material Breach of any
representation, warranty or covenant contained in this Agreement
or any Transaction Document, the non-breaching Party may
(reserving cumulatively all other rights and remedies at law or
in equity unless otherwise expressly stated herein) terminate
this Agreement with respect to the breaching Party by giving
twenty (20) days prior written notice to the breaching Party
specifying such breach. If within such twenty (20) day period,
the breaching Party fails to remedy any such breach, this
Agreement shall terminate with respect to the breaching Party
without further act or notice and all of the rights and
obligations with respect to the breaching Patty hereunder shall
cease and terminate except as otherwise provided herein, or in
any other Transaction Document.
(b) ADDITIONAL TERMINATION RIGHTS. This Agreement may be terminated
by either party:
(i) if the other Party is declared insolvent or bankrupt by
a court of competent jurisdiction;
(ii) if the other Party files or consents, by answer or
otherwise, to the filing against it of a petition for
relief or reorganization or arrangement under the
insolvency or bankruptcy laws of any jurisdiction, and
any such petition is not dismissed within sixty (60)
days, thereafter; or
(iii) if a trustee in bankruptcy or a receiver or similar
entity is appointed for the other Party or the other
Party makes an assignment for the benefit of its
creditors, consents to the appointment of a custodian,
receiver, trustee or other officer with similar powers
for itself or for any substantial part of its property,
or enters into an agreement for the composition,
extension, or readjustment of substantially all of its
obligations; or
(iv) if any governmental entity of competent jurisdiction
shall enter an order appointing any of the foregoing for
such Party or with respect to any substantial portion of
its property, or seeking the dissolution, winding-up or
liquidation of such Party.
8.
<PAGE> 10
(c) SURVIVAL. The following Sections or provisions of this Agreement
shall survive any termination of this Agreement until the
obligation of the Parties set forth therein shall have been
fully performed by the Parties: 3, 4, 6, 8, 9 and 11(a), 11(c),
11(e), 11(f), 11(g), 11(h), 11(1) and 11(n).
11. GENERAL.
(a) INDEPENDENT CONTRACTOR. The Parties agree that each Party is an
independent contractor and that no Party is an agent of the
other. No Party will be entitled to compensation for its
services hereunder except as expressly provided herein, or in
any separate agreements entered into among the Parties and/or
the Company from time to time. Each of the Parties, and not the
Company, will be responsible for, among other things, payment of
workers' compensation, disability benefits, unemployment
insurance, and for withholding income taxes and social security
for any of their respective employees that devote a portion of
their time to the business of the Company, unless and until any
of such personnel become employees of the Company. No Party will
have any authority to make any agreements or representations on
behalf of any other Party or to hold itself out to be an agent,
or representative of any other Party.
(b) PUBLIC ANNOUNCEMENTS. The Parties will jointly coordinate press
and other public announcements of US West's involvement in the
Company in order to maximize public, investor and advertiser
interest. Such announcements may not be used until the Company
shall have received written notice from U S West that it may use
such announcements.
(c) ENTIRE AGREEMENT. This Agreement, together with the other
Transaction Documents, sets forth the entire agreement between
the Parties in connection with the subject matter hereof and
incorporates, replaces, and supersedes all prior agreements,
promises, proposals, representations, understandings and
negotiations, written or not, between the Parties. The making,
execution, and delivery of this Agreement have been induced by
no representations, statements, warranties or agreements other
than those expressed herein and in the other Transaction
Documents.
(d) FORCE MAJEURE. No Party will be liable for any delay or failure
to perform under this Agreement if, and to the extent, such
failure is due to an act of God, war, fire, national disaster,
accident, act of government or other similar cause beyond the
control and without the fault or negligence of the Party
claiming excusable delay, and the Party claiming excusable delay
uses its best efforts to avoid or remove the cause of the delay.
The Party claiming excusable delay must promptly notify the
other Party of such delay. If the delay continues for more than
thirty (30) days and involves a material obligation, the Party
not claiming excusable delay may terminate this Agreement by
giving fourteen (14) calendar days written notice to the other
Party; provided that the Agreement will not terminate if the
Party claiming excusable delay substantially performs the
obligation which has been delayed within fourteen (14) days
after receipt of notice of such termination.
9.
<PAGE> 11
Notwithstanding the foregoing, there shall be no excusable delay
pursuant to this Section 11(d) applicable to any obligation of
payment hereunder.
(e) NOTICE. All notices shall be in writing and will be delivered
personally or sent by confirmed facsimile transmission, or
overnight carrier at the addresses specified below:
If to U S West: If to the Company:
U S West Interactive Services, Inc. Wire Networks, Inc.
9000 E. Nichols Avenue, Suite 100 1820 Gateway Drive
Englewood, Colorado 80112 San Mateo, CA 94404
Fax (303) 705-5163 Fax: (415) 378-6599
Attn:_____________________________ Attn: Marleen McDaniel
Any Party may change the person or the address to which notices are directed by
giving written notice to the other Party in accordance with this Section.
Personally delivered or confirmed facsimile notices will be deemed given when
delivered. Notices sent by overnight carrier will be deemed given on the second
business day after dispatch. Notwithstanding the foregoing, notices of change of
address will be deemed given only upon receipt by the Party to which it is
directed.
(f) GOVERNING LAW; CONSENT TO JURISDICTION. This Agreement shall be
governed by and interpreted in accordance with the laws of the
State of Colorado (without giving effect to principles of
conflicts of law).
(g) MODIFICATION. No modification, amendment, supplement to or
waiver of any provision of this Agreement shall be binding upon
the Parties unless made in writing and duly signed by all of the
Parties.
(h) WAIVER. A failure of any Party to exercise any right provided
for herein shall not be deemed to be a waiver of any right
hereunder.
(i) SEVERABILITY. Whenever possible, each provision of this
Agreement shall be interpreted in such manner as to be effective
and valid under applicable law, but if any provision of this
Agreement shall be prohibited or invalid under applicable law,
such provision shall be ineffective to the extent of such
prohibition or invalidity without invalidating the remainder of
such provision or the remaining provisions of this Agreement.
Any unenforceable provision will be replaced by a mutually
acceptable provision which comes closest to the intention of the
Parties at the time the original provision was agreed upon.
(j) HEADINGS. The headings of this Agreement are for purposes of
reference only and shall not in any way limit or otherwise
affect the meanings or interpretations of any of the terms
hereof.
10.
<PAGE> 12
(k) COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which when so executed and delivered shall
be deemed to be an original, but all of which together shall
constitute one and the same agreement.
(l) ASSIGNMENT. This Agreement and the rights and obligations of the
Parties hereunder shall not be assigned or delegated by any
Party to any other Person without the prior written consent of
the other Party, except that, U S West shall have the right on
notice to the Company, but without requiring the Company's
consent, to assign all of its respective rights hereunder to any
Person to which, U S West may transfer, assign or convey all or
substantially all of the business, assets or properties of U S
West, or to any Person with which, U S West may hereafter merge
or consolidate, or in connection with a reorganization
transaction, and the Company shall have the right on notice to U
S West, to assign this Agreement without the consent of U S West
in connection with a sale of all or substantially all of the
Company's assets, merger, consolidation or other reorganization
transaction.
(m) FURTHER ASSURANCES. The Parties agree to execute and deliver, or
to cause to be executed and delivered, such further instruments
or documents, and take such other actions as may be reasonably
required effectively to carry out the transactions contemplated
herein, in each case provided the same do not impose any
additional liabilities or obligations upon the Parties.
(n) DISPUTE RESOLUTION.
(i) Any claim, controversy or dispute, whether sounding in
contract, statute, tort, fraud, misrepresentation or
other legal theory, whenever brought and whether between
the parties to this Agreement or between one of the
parties of this Agreement and the employees, agents or
affiliated businesses of the other party, shall be
resolved by arbitration as prescribed in this Section
11(n). The Federal Arbitration Act, 9 U.S.C. Section
1-15, not state law, shall govern the arbitrability of
all claims.
(ii) A single arbitrator engaged in the practice of law and
experienced in transactions of the sort contemplated
hereby and by the Transaction Documents shall conduct
the arbitration under the then current rules of the
American Arbitration Association (AAA), unless otherwise
provided herein. The arbitrator shall be selected in
accordance with AAA procedures from a list of qualified
people maintained by AAA. The arbitration shall be
conducted in the regional AAA office closest to the
principal office of the Company, and all expedited
procedures prescribed by AAA. rules shall apply.
(iii) Except as provided in Section 11 (n)(v), the arbitrator
shall only have authority to award compensatory damages
and shall not have authority to award punitive damages,
other non-compensatory damages or any other form of
relief. Each party shall bear its own costs and
attorneys' fees and
11.
<PAGE> 13
the Parties shall share equally the fees and expenses of
the arbitration; provided that the arbitrator may
provide for the reimbursement by one Party of the costs
and attorneys' fees of the other Party incurred in
enforcing such Party's rights under this Agreement- The
arbitrator's decision and award shall be final and
binding, and judgment upon the award rendered by the
arbitrator may be entered in any court having
jurisdiction thereof.
(iv) If any Party files a judicial or administrative action
asserting claims subject to arbitration, as prescribed
herein, and another party successfully stays such action
and/or compels arbitration of said claims, the Party
filing said action shall pay the other Party's costs and
expenses incurred in seeking such stay and/or compelling
arbitration, including reasonable attorneys' fees.
(v) The Parties each acknowledge and agree that either party
will be irreparably harmed as a result of a breach by
the other Party of Section 3 or 6 of this Agreement and
that it would be difficult, if not impossible, to
measure the damages resulting from such a breach.
Accordingly, in the event of any actual or threatened
breach by either party of Section 3 or 6, the
non-breaching party shall, in addition to any other
legal remedies permitted hereunder or by applicable law,
be entitled to obtain equitable remedies from a court of
competent jurisdiction, without the need for any bond or
security, including, without limitation, specific
performance, a temporary restraining order or a
permanent injunction to prevent or otherwise restrain a
breach hereof and to recover all costs and expenses,
including, without limitation, reasonable attorneys'
fees, incurred in enforcing this Agreement. Such relief
shall be in addition to and not in substitution for any
other remedies available to such Party. Notwithstanding
anything herein to the contrary, the Parties agree that
the non-breaching Party may seek a temporary restraining
order or a preliminary injunction or other equitable
relief from any court of competent jurisdiction in order
to prevent or restrain a breach hereof pending the
selection of an arbitrator to render a decision on the
ultimate merits of any dispute, controversy or claim.
(o) COMPLIANCE WITH LAWS. This Agreement and the Parties'
actions under this Agreement shall comply with all
applicable federal, state, and local laws, roles,
regulations, court orders, and governmental or
regulatory agency orders, including the
Telecommunications Act of 1996 and specifically the
separated affiliate requirements for the provision of
electronic publishing.
12.
<PAGE> 14
IN WITNESS WHEREOF, the Parties have signed this Agreement as of the
Effective Date.
U S WEST INTERACTIVE SERVICES, INC.
By:/s/ US West Interactive Services, Inc.
---------------------------------------------
Title:
WIRE NETWORKS, INC.
By: /s/ Marleen R. McDaniel
---------------------------------------------
Title: CEO and President
13.
<PAGE> 15
ANNEX A
DEFINITIONS
"AFFILIATE" shall mean a Person that directly, or indirectly through one
or more intermediaries, controls, or is controlled by, or is under common
control with, the party specified. For purposes of this definition, the term
"control" (including the terms "controlling," "controlled by" and "under common
control with") means the possession, direct or indirect, of the power to direct
or cause the direction of the management and policies of a Person, whether
through the ownership of voting securities, by contract or otherwise.
"COMPANY" shall mean Wire Networks, Inc., a California corporation.
"CONFIDENTIAL INFORMATION" shall have the meaning set forth in Section 6
of the Investment Agreement.
"DISCONTINUATION" shall have the meaning set forth in Section 2(c) of
the Investment Agreement.
"DIVE-IN PROJECT" shall mean the U S West product which provides an
entertainment, educational, and informational service targeted at local
geographic territories on numerous U S West sites on the World Wide Web part of
the Internet.
"EFFECTIVE DATE" shall mean July 7, 1997.
"HIGH BANDWIDTH PROJECT" shall have the meaning set forth in Section
2(b)(ii) of the Investment Agreement
"INDEMNIFYING PARTY" shall have the meaning set forth in Section 8 of
the Investment Agreement.
"INDEMNITEE" shall have the meaning set forth in Section 8 of the
Investment Agreement.
"INVESTMENT AGREEMENT" shall mean the Investment Agreement dated July 7,
1997 between U S West and the Company.
"MARKETING PLAN" shall have the meaning set forth in Section 3 of the
Investment Agreement.
"MATERIAL BREACH" shall mean a breach of any representation, warranty or
covenant by any party to a Transaction Document which is material in nature.
"OWNERSHIP INTEREST" shall mean, with respect to each Person holding of
record an interest in the Company, all of the interests of such Person in the
Company (including its Stock, interest in the Net Profits and Net Losses of the
Company, the Capital Account of such Person and all other rights and obligations
of such Person under this Agreement) that relate to such ownership status,
expressed as a percentage determined as of any particular time by dividing the
number of shares of Stock of the Company held of record by such Person by the
total number of shares of Stock of the Company then outstanding.
14.
<PAGE> 16
"PERSON" shall mean a natural person, partnership (whether general or
limited and whether domestic or foreign), limited liability company, foreign
limited liability company, trust, estate, association, corporation, custodian,
nominee, government or any agency or political subdivision thereof or any other
individual or entity in its own or any representative capacity.
"TERRITORY" shall mean the United States, and its respective territories
and possessions.
"TRANSACTION DOCUMENTS" shall mean the Investment Agreement, the Amended
and Restated Investor Rights Agreement, the Amended and Restated Co-Sale and
Voting Agreement, the Web Site Linking and Promotion Agreement, and any other
agreement governing the relationship of the parties.
"TRANSFER" shall mean a sale, exchange, assignment, transfer, pledge,
hypothecation or other disposition of Stock of the Company (whether voluntary or
involuntary) other than by operation of law or to an Affiliate.
"WEB SITE LINKING AND PROMOTION AGREEMENT" shall mean the Web Site
Linking and Promotion Agreement dated July 7, 1997 between the Company and US
West.
15.
<PAGE> 17
EXHIBIT 10.4(a)
WOMEN.COM NETWORKS
AMENDMENT AGREEMENT
THIS AMENDMENT AGREEMENT (the "AMENDMENT") is made as of April ___,
1998, by and between WOMEN.COM NETWORKS, a California corporation, formerly Wire
Networks, Inc. (the "COMPANY") and U S WEST INTERACTIVE SERVICES, INC., a
Colorado corporation ("U S WEST").
RECITALS
WHEREAS, the Company and MediaOne entered into that certain Investment
Agreement dated July 7, 1997 (the "INVESTMENT AGREEMENT") (capitalized terms not
otherwise defined herein shall have the meanings ascribed to them in the
Purchase Agreement); and
WHEREAS, in accordance with Section 11(g) of the Investment Agreement,
the Company and MediaOne wish to amend the Investment Agreement pursuant to this
Amendment.
NOW, THEREFORE, in consideration of the mutual agreements, covenants and
considerations contained herein, the undersigned hereby agree as follows:
AGREEMENT
1. Section 2(b)(ii) of the Investment Agreement is hereby amended by
adding a sentence to the last paragraph of such subsection which shall read as
follows:
"U S WEST's right to appoint such additional director to
the Board of Directors of the Company shall terminate
upon the closing date of the Company's first
underwritten public offering of its Common Stock
registered under the Securities Act of 1933, as
amended."
2. Section 2(b) of the Investment Agreement is hereby amended by adding
subsection (iii) which shall read in full as follows:
"(iii) In the event the Company is required to return to
U S WEST the unused portion of the Dive-In Allocated
Funds and/or the High Bandwidth Allocated Funds pursuant
to this Section 2(b) (the "Unused Portion"), in lieu of
returning the Unused Portion to U S WEST, the Company
shall distribute a "pro rata portion" of the Unused
Portion to each of the holders of the Company's Series C
Preferred Stock and Series D Preferred Stock. For the
purposes of this Section 2(b)(iii), the "pro rata
portion" for each holder of Series C Preferred Stock or
Series D Preferred Stock shall be determined in
accordance with the liquidation preference of such
1.
<PAGE> 18
shares of Series C Preferred Stock or Series D Preferred
Stock as set forth in the Company's then current
Articles of Incorporation."
3. Section 2(d) of the Investment Agreement is hereby amended to read in
full as follows with additions shown by double underlined text:
"(d) U S WEST'S RIGHTS. U S WEST shall have the right to
delay, suspend, discontinue or terminate the Dive-In
Project and/or the High Bandwidth Project upon not less
than thirty (30) days written notice to the Company (a
"DISCONTINUATION"), which notice shall be given in the
manner provided in Section 12(e) of this Agreement. In
the event U S WEST delays or suspends the Dive-In
Project and/or the High Bandwidth Project, the Dive-in
Completion Date and/or the High Bandwidth Completion
Date, respectively, shall be extended by the length of
such delay or suspension. In the event of a
Discontinuation of either the Dive-In Project or the
High Bandwidth Project, U S WEST may reallocate the
unused portion of the Dive-In Allocated Funds or the
High Bandwidth Allocated Funds, as the case may be, to
the other project not subject to a Discontinuation;
provided, that such unused portion of the project
subject to Discontinuation shall be used by the Company
in connection with the project not subject to
Discontinuation prior to the later of the Dive-In
Completion Date or the High Bandwidth Completion Date.
In the event that both the Dive-In Project and the High
Bandwidth Project are subject to a Discontinuation, the
Company may retain the unused portion of the Dive-In
Allocated Funds and the High Bandwidth Allocated Funds
for use on other projects."
4. The parties hereto hereby acknowledge that the High Bandwidth Project
has been delayed and the High Bandwidth Completion Date is April 30, 1999; which
date is subject to further adjustments pursuant to Section 2(d) of the
Investment Agreement.
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.
[THIS SPACE INTENTIONALLY LEFT BLANK]
2.
<PAGE> 19
AMENDMENT AGREEMENT
IN WITNESS WHEREOF, the undersigned have executed this AMENDMENT
AGREEMENT as of the day and year first set forth above.
U S WEST INTERACTIVE SERVICES, INC. WOMEN.COM NETWORKS
By: /s/ Thomas A. Cullen By: /s/ Marleen R. McDaniel
--------------------------------- ----------------------------------
Title: Thomas A. Cullen, President Marleen McDaniel, President
AMENDMENT AGREEMENT
<PAGE> 1
Certain confidential information contained in this document, marked by
brackets, is filed separately with the Securities and Exchange Commission
pursuant to Rule 406 of the Securities Act of 1933, as amended.
EXHIBIT 10.6
AGREEMENT
THIS AGREEMENT (this "Agreement"), is made and entered into as of the
_______ day of June ___, 1998 (the "Effective Date") by and between WOMEN.COM
NETWORKS, a California corporation ("WOMEN.COM" or the "Company") and RODALE
PRESS, INC., a Pennsylvania corporation ("Rodale"), (Rodale and WOMEN.COM are
sometimes referred to herein collectively as the "Parties" and individually as a
"Party").
WHEREAS, WOMEN.COM has developed informational Web sites, including in
conjunction with Rodale pursuant to that certain Website Agreement, dated May 2,
1997, (the "Initial Website Agreement"), and the parties desire to further
mutually develop an additional cobranded site.
NOW, THEREFORE, in consideration of the representations, warranties and
covenants contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Parties hereby
agree as follows:
1. COBRANDED SITE. WOMEN.COM agrees to invest no fewer than [*] ("Directed
Funds") for the development of a co-branded website with Rodale, which website
will be based upon content from New Woman Magazine (the "Co-Branded Site"), upon
terms to be mutually agreed upon by WOMEN.COM and Rodale in the Co-Branded Site
Agreement (as hereinafter defined). Promptly following the Effective Date, the
parties will enter into good-faith negotiations for a period of sixty (60) days,
or such longer period as the parties may agree to in writing (the "Negotiation
Period"), with the goal of entering into a mutually acceptable agreement with
respect to the development and maintenance of the Co-Branded Site (the
"Co-Branded Site Agreement). The business terms for the Co-Branded Site
Agreement will be based upon and similar to those set forth in the Initial
Website Agreement. All Directed Funds will contribute to the Investment
Differential (which shall be defined and set forth in the Co-Branded Site
Agreement, and shall be reflect methodology similar to that found in the
definition of Investment Differential set forth in the Initial Website
Agreement). In addition, Rodale will be obligated, as it is in the Initial
Website Agreement, to provide content and cross promotion for the Co-Branded
Site.
2. ONLINE TRANSACTIONS. Women.com agrees to invest [*] within the twelve months
following the effective date of such agreement in an effort to develop a system
for conducting on-line business transactions. Such investment will include, but
not be limited to, equipment purchases and the licensing of appropriate
software, as well as allocation of headcount and other resources as reasonably
necessary to develop and maintain such transactions systems.
3. AUDIT RIGHT. WOMEN.COM agrees that it shall provided to Rodale on a timely
basis a statement (the "Statement"), prepared in accordance with generally
accepted accounting principles, detailing the expenditures made by WOMEN.COM in
satisfaction of its obligations pursuant to Sections 1 and 2 of this Agreement.
Rodale may at its own expense and upon no fewer than ten (10) days prior written
notice to WOMEN.COM, designate independent auditors or accountants (the
"Auditor") to examine or audit WOMEN.COM's records relevant to the
*Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
1.
<PAGE> 2
Statement to verify the figures reported, such audit to be conducted in a
manner calculated to minimize interference with WOMEN.COM's business. In the
event that the Auditor determines that the actual amount invested by WOMEN.COM
pursuant to Sections 1 and 2 is less than ninety-five percent (95%) of the
amount reported by WOMEN.COM in the Statement (an "Underexpenditure"), then
WOMEN.COM shall pay the cost of such Audit. Further, in the event such
Underexpenditure signifies a failure on the part of WOMEN.COM to invest the
amounts required by Sections 1 and/or 2, the WOMEN.COM shall remedy such failure
by making appropriate expenditures consistent with the terms of Sections 1 and 2
within sixty (60) days after WOMEN.COM's receipt of written notice of such
Underexpenditure.
4. CONFIDENTIALITY.
(a) CONFIDENTIALITY. The Parties will each regard and preserve as strictly
confidential all information and material, including, but not limited to,
non-public information included as part of the transactions contemplated hereby
and all other material or information, including without limitation, customer or
client information, provided to one another in connection with the development
of the Co-Branded Site (hereinafter, "Confidential Information"). Each Party
shall not use the Confidential Information of the other Party except as
necessary to fulfill its obligations under this or any other related agreements
between the parties. Further, each Party agrees not to disclose the Confidential
Information of the other Party to any except those of its employees, consultants
and agents who have been apprised of the confidential nature of such information
and are under a written obligation, consistent with this Section, to maintain
the confidentiality of the other Party's Confidential Information. Each of the
Parties agrees that, except as provided in this Agreement or as otherwise agreed
by them in writing, it shall not use the Confidential Information of the other
Party for its own benefit or for the benefit of any third Person. The Parties
agree that they each will have no obligation in connection with specific
Confidential Information of the disclosing Party to the extent that: (i) such
Confidential Information is already known to the receiving Party, free from any
obligation to keep such Confidential Information confidential at the time it was
obtained from any other Party; (ii) such Confidential Information is or becomes
publicly known through no wrongful act of the receiving Party or any third
Person owing a duty of confidentiality to the disclosing Party; (iii) such
Confidential Information is rightfully received by the receiving Party from a
third Person without restriction and without breach of this Agreement or any
obligation of such third Person to the disclosing Party; or (iv) such
Confidential Information is independently developed by the receiving Party
without reference to the Confidential Information of the disclosing Party. Upon
the request of the disclosing Party, following the termination or expiration of
this Agreement, all tangible and machine readable copies of any Confidential
Information of the disclosing Party in the possession or under the control of
the Receiving Party shall, at the disclosing Party's request, be returned to the
disclosing Party or destroyed, and the receiving Party shall confirm in writing
to the disclosing Party that such destruction has taken place. Notwithstanding
anything contained herein to the contrary, the obligations set forth in this
Section shall not apply to a receiving Party to the extent that the receiving
Party is required by order of court or any other governmental agency, or
otherwise by law, to disclose the Confidential Information of the other Party;
under such circumstances, the receiving Party agrees to give such notice to the
disclosing Party as is reasonably possible under the circumstances in order to
permit the disclosing Party to take legal action in an effort to limit or
prevent such disclosure.
2.
<PAGE> 3
5. LIMITATION OF LIABILITY. NEITHER PARTY SHALL BE LIABLE TO THE OTHER, IN ANY
CIRCUMSTANCES, FOR ANY INDIRECT, SPECIAL, CONSEQUENTIAL, INCIDENTAL, EXEMPLARY,
PUNITIVE OR SIMILAR NON-DIRECT DAMAGES THAT MAY ARISE OUT OF THIS AGREEMENT.
6. TERM OF AGREEMENT.
(a) TERM AND TERMINATION. This Agreement shall be in effect from and
after the Effective Date until the date the parties enter into the Co-Branded
Site Agreement.
(b) SURVIVAL. The following Sections or provisions of this Agreement
shall survive any termination of this Agreement: 4, 6(b), and 7.
7. GENERAL.
(a) INDEPENDENT CONTRACTOR. The Parties agree that each Party is an
independent contractor and that no Party is an agent of the other. No Party will
be entitled to compensation for its services hereunder except as expressly
provided herein, or in any separate agreements entered into between the Parties
from time to time. No Party will have any authority to make any agreements or
representations on behalf of any other Party or to hold itself out to be an
agent, or representative of any other Party.
(b) PUBLIC ANNOUNCEMENTS. The Parties will jointly coordinate press and
other public announcements of Rodale's involvement in WOMEN.COM in order to
maximize public, investor and advertiser interest. Such announcements may not be
used until WOMEN.COM shall have received written notice from Rodale that it may
use such announcements.
(c) NOTICE. All notices shall be in writing and will be delivered
personally or sent by confirmed facsimile transmission, or overnight carrier at
the addresses specified below:
If to Rodale: If to WOMEN.COM:
1820 Gateway Drive, Suite 100
San Mateo, CA 94404
Attn:
Fax: (650) 677-1976
Any Party may change the person or the address to which notices are directed by
giving written notice to the other Party in accordance with this Section.
Personally delivered or confirmed facsimile notices will be deemed given when
delivered. Notices sent by overnight carrier will be deemed given on the second
business day after dispatch. Notwithstanding the foregoing, notices of change of
address will be deemed given only upon receipt by the Party to which it is
directed.
(d) JURISDICTION. This Agreement shall be construed in accordance with the laws
of the State of New York, as such laws are applied to agreements made, entered
into and performed entirely in New York and solely by New York State residents.
3.
<PAGE> 4
(e) MODIFICATION. No modification, amendment, supplement to or waiver of
any provision of this Agreement shall be binding upon the Parties unless made in
writing and duly signed by all of the Parties.
(f) WAIVER. A failure of any Party to exercise any right provided for
herein shall not be deemed to be a waiver of any right hereunder.
(g) SEVERABILITY. Whenever possible, each provision of this Agreement
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement shall be prohibited or
invalid under applicable law, such provision shall be ineffective to the extent
of such prohibition or invalidity without invalidating the remainder of such
provision or the remaining provisions of this Agreement. Any unenforceable
provision will be replaced by a mutually acceptable provision that comes closest
to the intention of the Parties at the time the original provision was agreed
upon.
(h) HEADINGS. The headings of this Agreement are for purposes of
reference only and shall not in any way limit or otherwise affect the meanings
or interpretations of any of the terms hereof.
(i) ASSIGNMENT. This Agreement and the rights and obligations of the
Parties hereunder shall not be assigned or delegated by any Party to any other
Person without the prior written consent of the other Party.
(j) FURTHER ASSURANCES. The Parties agree to execute and deliver, or to
cause to be executed and delivered, such further instruments or documents, and
take such other actions as may be reasonably required effectively to carry out
the transactions contemplated herein, in each case provided the same do not
impose any additional liabilities or obligations upon the Parties.
(k) INJUNCTIVE RELIEF. The Parties each acknowledge and agree that
either Party will be irreparably harmed as a result of a breach by the other
Party of Section 4 of this Agreement and that it would be difficult, if not
impossible, to measure the damages resulting from such a breach. Accordingly, in
the event of any actual or threatened breach by either Party of Section 4, the
non-breaching Party shall, in addition to any other legal remedies permitted
hereunder or by applicable law, be entitled to obtain equitable remedies from a
court of competent jurisdiction, without the need for any bond or security,
including, without limitation, specific performance, a temporary restraining
order or a permanent injunction to prevent or otherwise restrain a breach
thereof and to recover all costs and expenses, including, without limitation,
reasonable attorneys' fees, incurred in enforcing the terms of Section 4.
(l) COMPLIANCE WITH LAWS. This Agreement and the Parties' actions under
this Agreement shall comply with all applicable federal, state, and local laws,
rules, regulations, court orders, and governmental or regulatory agency orders.
(m) ENTIRE AGREEMENT. This Agreement, sets forth the entire and sole and
exclusive understanding and agreement between the Parties in connection with the
subject matter hereof and incorporates, replaces, and supersedes all prior
agreements, promises, proposals, representations, understandings and
negotiations, written or not, between the Parties. The making, execution, and
delivery of this Agreement have been induced by no representations, statements,
warranties or agreements other than those expressed herein.
4.
<PAGE> 5
IN WITNESS WHEREOF, the Parties have signed this Agreement as of the
Effective Date.
RODALE PRESS, INC.
By: /s/ Barbara Newton
---------------------------------------
Title: Director of Publishing
WOMEN.COM
By: /s/ Marleen R. McDaniel
---------------------------------------
Title: CEO and President
5.
<PAGE> 1
EXHIBIT 10.7
January 27, 1999
Ms. Barbara Newton
Vice President & Publishing Director
Rodale Press, Inc.
33 East Minor Street
Emmaus, Pennsylvania 18098-0099
RE: AFFIRMATION OF WOMEN.COM OBLIGATIONS TO RODALE PRESS, INC. ("RODALE")
Dear Barb:
As you know: (i) Women.com Networks, Inc. ("Women.com, Inc.") has entered into a
joint venture (the "Joint Venture") with Hearst Communications, Inc. ("Hearst");
(ii) the company formed by the Joint Venture is named Women.com Networks, LLC
("Women.com, LLC); and that in connection with the Joint Venture, Women.com,
Inc.'s existing agreements with Rodale have or will be assigned to Women.com,
LLC.
This letter agreement (the "Letter Agreement") serves to confirm Women.com,
LLC's commitment to faithfully perform under: (i) that certain WebSite Agreement
(the "Prevention Agreement"), dated as of March 2, 1997, between Rodale and
Women.com, Inc.; (ii) that certain other Agreement ("Directed Funds Agreement"),
dated as of June, 1998, between Rodale and Women.com, Inc.; and (iii) that
certain Letter of Agreement, dated December 2, 1998 between Rodale and
Women.com, Inc. (the "Transaction Agreement"). Further, this Letter Agreement
shall serve to confirm the following understanding and agreement among Rodale,
Women.com, LLC and Hearst:
1. For purposes of this Letter Agreement: (a) the "Network" means that
certain network of Web sites maintained by Women.com, LLC and currently located
at www.women.com.; and (b) the "Prevention Site" means that certain Web site
developed pursuant to the Prevention Agreement.
2. Any and all Hearst print publications are hereby added to Exhibit E of the
Prevention Agreement, i.e. the list of third parties with whom Women.com, LLC
agrees that it will not create a separate Internet site with interactive health
content focused toward women. Notwithstanding the foregoing, nothing herein
shall prevent or be deemed to prevent Women.com, LLC from incorporating into or
including on any Network Web site other than the Prevention Site any women's
health related content, provided that such Web site, taken as a whole, could not
reasonably be deemed, during the term of the Prevention Agreement, to directly
compete with the Prevention Web Site, it being understood and agreed that (i)
the Hearst magazine sites (the "Hearst Magazine Sites") to be incorporated into
the Network, (ii) other Hearst content to which Women.com, LLC will have access
pursuant to the Joint Venture, and (iii) other non-Prevention Network Sites may
contain some women's health related content. Further, Women.com, LLC agrees that
during the term of the New Woman Agreement (as hereinafter defined) Women.com,
LLC will not enter into an agreement with any third party print publication
("Third Party Publication") to incorporate into the Network any Web site based
upon such Third Party Publication if the Web site based upon such Third Party
Publication, taken as a whole, may reasonably be deemed to compete with the New
Woman Site (as hereinafter
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<PAGE> 2
defined); provided, that any print publication now or hereafter owned by Hearst
is excluded from the foregoing restriction on Women.com, LLC.
3. The parties to the following agreements will faithfully perform their
respective obligations pursuant thereto: (i) the Directed Funds Agreement,
including without limitation the obligation to negotiate in good faith a
mutually acceptable agreement (the "New Woman Agreement") covering the creation
and launch of a co-branded Web site based upon content from New Woman Magazine
(the "New Woman Site"), which New Woman Agreement is to be concluded on
substantially similar business terms to those set forth in the Prevention
Agreement, except as may be otherwise agreed to by Rodale and Women.com, LLC;
(ii) the Prevention Agreement; (iii) the Transaction Agreement; and (iv) the New
Woman Agreement (from and after the date it is mutually executed by Rodale and
Women.com, LLC).
4. During the terms of the Prevention Agreement and the New Woman
Agreement, Women.com, LLC will treat the Prevention Site and the New Woman Site,
respectively, without prejudice in relation to, and in a manner no less
favorable than, its treatment of the Hearst Magazine Sites.
5. Women.com, LLC will neither share with Hearst any confidential or
proprietary information of Rodale, nor share with Rodale any confidential or
proprietary information of Hearst, except as and unless specifically permitted
under Women.com, LLC's written agreements with each of Rodale and Hearst,
including any and all such agreements originally entered into by Women.com, Inc.
Further, Women.com, LLC will: (a) neither share with Hearst, nor place on any
Hearst Magazine Site, any content that Women.com, LLC obtains from Rodale, and
(ii) neither share with Rodale, nor place on either the Prevention Site or the
New Woman Site, any content that Women.com, LLC obtains from Hearst. In
addition, Women.com, LLC will neither divulge to or otherwise share with Hearst
any user names that Women.com, LLC may collect from either the Prevention Site
or the New Woman Site, nor divulge to or otherwise share with Rodale any user
names that Women.com, LLC may collect from any Hearst Magazine Site.
6. From and after the date of this Letter Agreement until such time as
this Letter Agreement is terminated in accordance with its terms, Women.com, LLC
shall permit one representative of Rodale (the "Rodale Rep") to attend, on no
more than 4 occasions in any period of twelve (12) consecutive months, in a
nonvoting capacity only, the operational portion of any meetings of the managing
members of Women.com, LLC. Any materials or information provided to Rodale
during or otherwise in connection with any such meeting, and in any manner
disclosed, shall be deemed to be the confidential and proprietary information of
Women.com, LLC and may not be disclosed by Rodale to any third party or used for
any purpose by Rodale except as necessary to confirm that Women.com, LLC is
fulfilling its obligations pursuant to this Letter Agreement. Notwithstanding
the foregoing, Rodale understands and agrees that the Rodale Rep may be required
to absent herself or himself from any such meeting during any portion of such
meeting in which the confidential or proprietary information of Hearst is, or is
likely to be, discussed or otherwise disclosed, and nothing herein shall entitle
the Rodale Rep to receive or otherwise obtain such confidential or proprietary
information of Hearst.
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<PAGE> 3
7. Subject to the terms governing effect of termination and survival
therein, if any, Rodale may terminate this Letter Agreement, the Prevention
Agreement, the Directed Funds Agreement, the Transaction Agreement and/or the
New Woman Agreement in the event that Women.com or Hearst breaches its
obligations under this Letter Agreement in any material respect and fails to
cure such breach within thirty (30) days following receipt of written notice of
such breach; provided, that in no event shall termination of the Directed Funds
Agreement give rise to any obligation of Women.com to refund any amounts
invested by Rodale in Women.com, Inc. prior to or in connection with the
Directed Funds Agreement.
8. This Letter Agreement represents the sole, exclusive and final
statement of the agreement among the parties with respect to the subject matter
hereof and supercedes all prior or contemporaneous negotiations and agreements,
oral or written, and may not be modified except by a writing signed by all of
the parties hereto. This Letter Agreement shall be interpreted and governed by
the law of the State of California as applied to agreements made, entered into
and performed entirely in California solely by California residents.
We look forward to a mutually beneficial relationship with Rodale and to the
success of the Prevention Site and the New Woman Site. If the foregoing
accurately represents your understanding of our agreement, please indicate your
assent by signing in the signature block provided below. The signature of the
authorized representative of each of the parties below indicates the intention
of each such party to be bound by the terms and conditions set forth herein.
I have provided this Letter Agreement in triplicate with the intention that all
three duplicate originals be executed by all of the parties, with one
fully-executed copy to be retained by each of the parties.
Sincerely yours,
WOMEN.COM NETWORKS, LLC
By: /s/ Marleen McDaniel
------------------------------------------
Name: Marleen McDaniel
Title: CEO and President
AGREED AND ACCEPTED:
RODALE PRESS, INC.
By: /s/ Barbara Newton
------------------------------------------
Name: Barbara Newton
Title: VP and Publishing Director
HEARST COMMUNICATIONS, INC.
By: /s/ Alfred Sikes
------------------------------------------
Name: Alfred Sikes
Title:
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<PAGE> 1
EXHIBIT 10.8
Certain confidential information contained in this document, marked by brackets,
is filed separately with the Securities and Exchange Commission pursuant to
Rule 406 of the Securities Act of 1933, as amended.
RODALE PRESS, INC.
WEBSITE AGREEMENT
THIS WEBSITE AGREEMENT (the "Agreement") is made as of this 2nd day of
May, 1997 (the "Effective Date") between Rodale Press, Inc. ("Rodale"), a
Pennsylvania corporation, with offices at 33 East Minor Street, Emmaus,
Pennsylvania, and WIRE NETWORKS, INC. ("WNI"), a California corporation, with
offices at 1820 Gateway Drive, Suite 150, San Mateo, California 94404.
WHEREAS Rodale is a book and magazine publisher;
WHEREAS WNI has substantial Internet design, editorial and
community-building expertise and is a leading provider of interactive content;
and
WHEREAS both parties deem their respective services and products to be
largely complementary and have agreed to jointly produce a content and community
site on the World Wide Web and to grant certain rights to each other in
furtherance of promoting such site, on the terms and conditions set forth in
this Agreement,
NOW THEREFORE, in consideration of mutual promises contained herein, the
parties agree as follows:
ARTICLE 1: CERTAIN DEFINITIONS
1.1 Certain Definitions. As used herein, the following terms shall have
the following defined meanings:
"Advertising Revenue" shall mean, for any period, the sum of the
aggregate amounts collected by or on behalf of either party hereto arising from
the license or sale of any Advertising Rights on the Site, and excluding amounts
allocable to any credits granted for unused services, discounts, any direct
costs of collection (including, without limitation, fees paid to third parties,
agency fees and fees paid between parties to WNI's internal sales personnel or
to Rodale).
"Intellectual Property" shall mean all rights in and to trade secrets,
patents, copyrights, trademarks, know-how, as well as moral rights and similar
rights of any type under the laws of any governmental authority, domestic or
foreign, including rights in and to all applications and registrations relating
to any of the foregoing.
"Internet" shall mean the collection of computer networks commonly known
as the Internet.
1.
<PAGE> 2
"Page View" shall mean each occasion in which a user visiting the Site
accesses a page from the Site.
"Prevention(R)" shall mean the registered trademark of Rodale Press,
Inc. which trademark is used as a designation for the origin of Rodale's
Prevention(R) magazine.
"Site" shall mean the site on the WWW currently referred to as
"Prevention(R)," which is the site to be jointly produced by WNI and Rodale
pursuant to Article 2 of this Agreement, and which includes the collection of
the HTML files, brand features and concepts, database, and related scripts, all
trademarks, servicemarks, logos and other distinctive brand features that relate
to the Site excluding Rodale and Wire Networks' marks.
"Site Name" shall mean the name or names jointly selected by the parties
as the trademark(s) for the Site.
"URL" shall mean the Universal Resource Locator, which provides a unique
Internet protocol address for accessing an Internet page.
"WWW" shall mean the World Wide Web, a system for accessing and viewing
text, graphics, sound and other media via the Internet.
1.2 Rules of Construction. As used in this Agreement, all terms used in
the singular shall be deemed to include the plural, and vice versa, as the
context may require. The words "hereof," "herein," and "hereunder," and other
words of similar import refer to this Agreement as a whole, including the
Exhibits hereto, as the same may from time to time be amended or supplemented.
The word "including," when used hereof is not intended to be exclusive and means
"including, without limitation." References to "dollars" and "$$" are to be
United States dollars. Headings contained in this Agreement are for ease of
reference only and shall have no legal effect. The term "party" or "parties"
shall mean, as the case may be, Rodale or WNI, individually or collectively. In
constructing the terms of this Agreement, no presumption shall operate in favor
of or against any party as a result of its counsel's role in drafting the terms
and provisions hereof.
ARTICLE 2: THE SITE
2.1 General Responsibilities of the Parties.
(a) WNI's Responsibilities. WNI will be responsible for creating
the initial design for the Site, based upon the Product Plan mutually agreed
upon by both parties. WNI will have primary responsibility for producing,
hosting and creating content for the Site during the Term of this Agreement.
(b) Rodale's Responsibilities. Rodale will be responsible for
providing content and resources from its print magazines and libraries and
providing its promotional capabilities in accordance with the Product Plan.
2.2 Product Plan.
2.
<PAGE> 3
The parties will jointly develop the Product Plan as soon as practicable
after the execution hereof. Any change or additions to the Product Plan must be
mutually agreed by the parties. The Product Plan wilt consist of an editorial
plan, a site production and hosting plan and Site links.
2.3 Editorial Plan.
(a) An editorial plan will be developed by WNI and be approved by
Rodale to articulate the editorial mix and subject matter categories for the
Site. Editorial standards will be articulated in advance in the editorial plan
so that a common understanding of article length, editorial tone and attitude is
jointly understood. The editorial mix will be designed specifically for the [*].
The editorial plan will be documented as a part of the Product Plan and an
editorial calendar will be created for the marketing plan and production
schedule.
(b) Rodale will assign one primary representative to carry out
its responsibilities in accordance with the editorial plan. Rodale will be
responsible for providing the editorial content (on disk), photos/artwork and
other health content (e.g., video, databases, research) according to the
production schedule set forth in the editorial plan and submitting it to WNI's
Product Development manager. WNI will transform the content to WWW form (edit,
add interactivity, audio, video, etc.). In addition, WNI will create original
works for the Site, including derivative works based on content/resources
provided by Rodale. All editorial content will be approved by the Rodale
representative before being uploaded to the Site.
2.4 Site Production and Hosting.
(a) The Site will be developed in accordance with the Product
Plan that Rodale and WNI have mutually agreed upon. Such mutual agreement will
be required for any changes or additions to the Product Plan.
(b) WNI will have primary responsibility for the Site design.
Rodale will assign a single representative to carry out Rodale's
responsibilities hereunder who will work in concert with a team from WNI to
review the design and collaboratively work on changes to it. The initial Site
design will be mutually agreed upon by the parties. Changes to the Site design
after launch of the Site will be developed following the same process.
(c) Upon approval of all editorial content, WNI will be
responsible for formatting and uploading all data to the Site.
(d) WNI will be in charge of creating and producing advertising
banners, as well as uploading and rotating them on the Site. WNI will track
advertising performance and provide weekly reports to Rodale detailing this
performance. WNI will be in charge of tracking traffic on the Site, including
visits and Page Views. Rodale will have daily access to traffic reports as well
as original log files.
(e) WNI will provide hosting services for the Site. This includes
setup, monitoring and maintenance of the web server(s), providing Internet
connectivity for the server(s) and producing reports on Site traffic.
*Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
3.
<PAGE> 4
2.5 Site Links.
(a) WNI will provide promotional links to the Site. WNI will
also promote the Site through advertising banners on its own WWW sites if there
is available unsold advertising inventory.
(b) At its discretion, Rodale will provide a link from all of
its sites to the Site. Rodale will also promote the Site through advertising
banners on its WWW sites if there is available unsold advertising inventory.
(c) As soon as practicable after the execution of this Agreement,
the parties will mutually agree on the content or a message to appear on the
current "Women's Edge" site. In addition, a link will be provided on the Women's
Edge quote/message page to the Women's Wire Body channel.
(d) The design of the advertising banners or logo treatments will
be mutually agreed upon by both parties.
2.6 Advertising Rights.
(a) WNI will have primary responsibility for the advertising
strategy, advertising rates and discount policy and for selling and scheduling
advertising space and managing inventory availability for the Site. In addition,
WNI will be responsible for managing an advertising scheduling and tracking
system to be implemented by WNI and Rodale as described in the Product Plan.
(b) WNI and Rodale each agree to use reasonable commercial
efforts to sell advertising space on the Site; provided, however, that neither
party makes any representation or warranty with respect to the amount of
advertising revenue to be generated by such party.
(c) Both parties have the right to sell Advertising Rights
inventory and receive a sales commission therefore in an amount not to exceed
[*], provided, however, that no sales commission shall be paid based on any
barter or other trade pursuant to Section 2.6(d) below. In such cases where
Rodale or WNI bundles advertising on the Site with other advertising properties
for a blended rate, the Advertising Revenue will be determined by calculating
its pro rata share based on the rate card of each property. Each proposed sales
transaction by Rodale shall be approved by WNI. Neither party shall sell to any
party that sells tobacco or spirits. All ads will conform with Rodale's
standards as set forth in Exhibit A.
(d) Rodale and WNI agree that [*] of the total advertising
inventory for the Site will be reserved ("Reserved Avails") for barters or other
co-marketing arrangements intended to increase traffic or provide merchandise on
the Site during its launch. [*]. At such time as [*] of available advertising
inventory is sold out, such Reserved Avails will be eliminated and one hundred
percent (100%) of the total advertising inventory will be available for sale.
*Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
4.
<PAGE> 5
(e) As soon as WNI sells advertising for the Site or hosts the
server on which it resides (whichever is first), the Advertising Revenue shall
become allocatable as set forth in 2.8(b) below.
2.7 Marketing. In addition to the respective responsibilities of Rodale
and WNI for links and advertising banners as set forth in Sections 2.5 and 2.6
above, WNI will have primary responsibility for performing all other consumer
marketing activities, including the development of marketing programs and
marketing collateral, to promote the Site; provided, however, that Rodale and
WNI will mutually agree upon a product positioning strategy before any marketing
program is commenced or before any changes are made to an ongoing marketing
program. Rodale shall promote the Site in its print magazines and the magazines'
specials. [*] Rodale shall promote the Site in all other franchise extensions as
appropriate.
2.8 Payments.
(a) At the end of each three month period ("quarter") of this
Agreement, representatives of Rodale and WNI will meet to report their
respective cash investments in the Site for the preceding quarter and the Net
Revenue (as defined below) in the quarter to determine the "Net Investment
Differential" for the quarter and the "Cumulative Net Investment Differential"
for the quarter. The Net Investment Differential for the quarter shall be
calculated as:
[*]
At the end of each quarter, new Cumulative Net Investment Differential
will be calculated as:
[*]
The party entitled to recoup a Cumulative Net Investment Differential
shall also be entitled to "Interest" calculated as follows:
At the end of each quarter, Interest will be added to the Cumulative Net
Investment Differential. The previous Cumulative Net Investment Differential, if
any, will be charged interest at a rate of 1.5% (.015) per month for the quarter
outstanding. This Interest amount and the Net Investment Differential will be
added to the previous Cumulative Net Investment Differential to arrive at the
new Cumulative Net Investment Differential. In any quarter in which the new
Cumulative Net Investment Differential becomes negative, Rodale will receive one
half of the new Cumulative Net Investment Differential as of the end of that
quarter.
*Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
5.
<PAGE> 6
Each of the parties hereto agrees that each such report shall reflect
accurately and correctly its respective investment in the Site and that each
such estimate shall be prepared in good faith and with best efforts to
accurately estimate such party's investment.
(b) Net Revenue (advertising revenue plus ancillary revenue)
received from the Site shall be allocated between the parties in the following
manner during each year of the Agreement: (i) [*]; (ii) thereafter [*]; and
(iii) such allocation shall apply to all revenue generated from the WWW
including ancillary revenues generated by either party.
(c) Both parties will submit budgets in advance to calculate the
total development cost of the Site. Neither party shall deviate from the budget
by more than [*] without the prior approval of the other party. WNI's budget is
attached hereto as Exhibit B; Rodale's budget is attached hereto as Exhibit C.
(d) Within forty-five (45) days following the end of each
quarter, WNI will provide to Rodale a quarterly report of advertising sales (in
a format mutually agreed upon by the parties) and will transfer to Rodale such
portion of the Advertising Revenue for such quarter in accordance with the
calculation set forth in Section 2.8(b) above.
(e) In the event that (i) either party reasonably believes that
the other's actual investment significantly varies from the amount reported in
any given quarter or quarters pursuant to Section 2.8(b) above, or (ii) Rodale
reasonably believes that an error has occurred in the monthly reports provided
or amounts paid by WNI with respect to Advertising Revenue, such party may, at
its own expense and upon ten (10) days prior written notice to the other party
(the "Audited Party"), designate independent auditors or accountants (the
"Auditor") to examine or audit the Audited party's records in a reasonable
manner to verify the figures reported or amounts paid, as the case may be. In
the event that the Auditor determines that either (x) the actual amount invested
by the Audited Party is less than ninety percent (90%) of the amount reported by
the Audited Party, or (y) the amount paid by the Audited Party is less than
ninety percent (90%) of the actual amount owed by the Audited Party, as the case
may be, then such difference, plus the fees of the Auditor, shall become
immediately due and payable by the Audited Party upon notice to the Audited
Party.
2.9 Restrictive Covenants.
(a) WNI recognizes that Rodale wishes to expose its users to the
breadth and depth of its content in many forms. Similarly, Rodale recognizes
that WNI relies on relationships with other WWW sites to drive traffic to its
site and that the new Site is one of many WWW sites that it will manage.
(b) Notwithstanding the foregoing, during the Term of this
Agreement each party agrees not to enter into a relationship with a third party
to create [*]
*Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
6.
<PAGE> 7
[*]. During the term hereof, both parties may amend the listing set forth in its
Exhibit with the prior written approval of the other party.
ARTICLE 3: REPRESENTATIONS AND WARRANTIES
3.1 By Each Party. Each party to this Agreement represents and warrants
to the other party that:
(i) such party has the full corporate right, power and
authority to enter into this Agreement and to perform the acts required of it
hereunder;
(ii) the execution of this Agreement by such party, and
the performance by such party of its obligations and duties hereunder, do not
and will not violate any agreement to which such party is a party or by which it
is otherwise bound;
(iii) when executed and delivered by such party, this
Agreement will constitute the legal, valid and binding obligation of such party,
enforceable against such party in accordance with its terms; and
(iv) such party acknowledges that the other party makes no
representations, warranties or agreements related to the subject matter hereof
that are not expressly provided for in this Agreement.
3.2 By WNI. In addition to the representations and warranties set forth
in Section 3.1 hereto, WNI represents and warrants to Rodale that the rights
granted under this Agreement to Rodale and the performance of WNI's obligations
under this Agreement will not knowingly infringe in any manner any U.S.
Intellectual Property right of any third party and that the Site will not
knowingly contain any information that is obscene, defamatory, libelous,
slanderous or that would otherwise result in any injury, damage or harm to any
person or that infringes any U.S. Intellectual Property rights of any third
party. WNI makes no representations or warranties that the content and its
supporting code will be compatible with any systems other than the systems being
utilized for the Site.
3.3 By Rodale. In addition to the representations and warranties set
forth in Section 3.1 hereto, Rodale represents and warrants to WNI that the
rights granted under this Agreement to WNI and the performance of Rodale's
obligations under this Agreement will not knowingly infringe in any manner any
U.S. Intellectual Property right of any third party and that the Site will not
knowingly contain any information that is obscene, defamatory, libelous,
slanderous or that would otherwise result in any injury, damage or harm to any
person or that infringes any U.S. Intellectual Property rights of any third
party.
3.4 No Additional Warranties. EXCEPT AS SET FORTH IN THIS AGREEMENT,
NEITHER PARTY MAKES ANY, AND EACH PARTY HEREBY SPECIFICALLY DISCLAIMS ANY
REPRESENTATIONS OR WARRANTIES, EXPRESS OR IMPLIED, REGARDING THE PRODUCTS AND
SERVICES INCLUDING THE CONTENT AND SOFTWARE CONTEMPLATED BY THIS AGREEMENT,
INCLUDING ANY IMPLIED WARRANTY OR MERCHANTABILITY OR FITNESS FOR A PARTICULAR
PURPOSE
*Certain information on this page has been omitted and filed separately with the
Commission. Confidential treatment has been requested with respect to the
omitted portions.
7.
<PAGE> 8
AND IMPLIED WARRANTIES ARISING FROM COURSE OF DEALING OR COURSE OF
PERFORMANCE.
ARTICLE 4: INDEMNIFICATION; LIMITATION OF LIABILITY
4.1 Indemnification by WNI. WNI, at its own expense, will indemnify,
defend and hold harmless Rodale, and its employees, representatives and agents,
against any claim, suit, action, or other proceeding brought against Rodale, to
the extent that such claim, suit, action or other proceeding is based on or
arises from:
(i) a claim that the use of the Site in accordance
with this Agreement infringes any Intellectual Property right of any third
party, or any right of personality or publicity, is libelous or defamatory, or
otherwise results in injury or damage to any third party;
(ii) any misrepresentation or breach of representation
or warranty of WNI contained herein; or
(iii) any breach of any covenant or agreement to be
performed by WNI hereunder.
WNI will pay any and all costs, damages, and expenses, including, but not
limited to, reasonable attorneys' fees and costs awarded against or otherwise
incurred by or in connection with or arising from any such claim, suit, action
or proceeding attributable to any such claim.
4.2 Indemnification by Rodale. Rodale, at its own expense, will
indemnify, defend and hold harmless WNI, and its employees, representatives and
agents, against any claim, suit, action, or other proceeding brought against
WNI, to the extent that such claim, suit, action or other proceeding is based on
or arises from:
(i) a claim that the use of the Site in accordance
with this Agreement infringes any Intellectual Property right of any third
party, or any right of personality or publicity, is libelous or defamatory, or
otherwise results in injury or damage to any third party;
(ii) any misrepresentation or breach of representation
or warranty of Rodale contained herein; or
(iii) any breach of any covenant or agreement to be
performed by Rodale hereunder.
Rodale will pay any and all costs, damages, and expenses, including, but not
limited to, reasonable attorneys' fees and costs awarded against or otherwise
incurred by WNI in connection with or arising from any such claim, suit, action
or proceeding attributable to any such claim.
4.3 Limitation of Liability. EXCEPT AS EXPRESSLY SET FORTH IN THIS
AGREEMENT, UNDER NO CIRCUMSTANCES SHALL EITHER PARTY BE LIABLE TO THE OTHER
PARTY FOR INDIRECT, INCIDENTAL, CONSEQUENTIAL, SPECIAL, PUNITIVE OR EXEMPLARY
DAMAGES, EVEN IF THAT PARTY HAS BEEN ADVISED
8.
<PAGE> 9
OF THE POSSIBILITY OF SUCH DAMAGES, ARISING FROM ANY PROVISION OF THIS
AGREEMENT, SUCH AS, BUT NOT LIMITED TO, LOSS OF REVENUE OR ANTICIPATED PROFITS
OR LOST BUSINESS. IN NO EVENT SHALL EITHER PARTY'S LIABILITY UNDER THIS
AGREEMENT EXCEED THE COSTS EXPENDED BY THE OTHER PARTY HEREUNDER.
ARTICLE 5: TERM AND TERMINATION
5.1 Initial Term and Renewals. This Agreement will become effective as
of the Effective Date and shall, unless sooner terminated as provided below or
as otherwise agreed, remain effective for an initial term of two years from the
launch date of the Site (the "Initial Term"). After the Initial Term, this
Agreement shall automatically be extended for successive additional one-year
periods (each an "Extension Term"), unless otherwise terminated by either party
by giving written notice to the other party not less than thirty (30) days prior
to the end of the initial Term or any Extension Term then in effect. As used
herein, the "Term" shall mean the Initial Term and any Extension Term(s).
5.2 Early Termination. Notwithstanding the foregoing, this Agreement
may be terminated at any time by either party, effective immediately upon
notice, if the other party: (i) becomes insolvent; (ii) files a petition in
bankruptcy; (iii) makes an assignment for the benefit of its creditors; or (iv)
breaches its obligations of confidentiality set forth in Article 6 below. Either
party may terminate this Agreement, effective upon thirty (30) days notice, in
the event that the other party breaches any of its responsibilities or
obligations under this Agreement in any material respect (including, without
limitation, failure to pay) which breach is not remedied within thirty (30) days
following written notice to such party.
5.3 Change in Control of WNI. In the event of a change of control of
WNI. which results in a controlling interest of WNI being owned by [*]
listed in Exhibit F, (a controlling interest being defined as an ownership
interest which permits the election of that number of directors of WNI required
to approve of a sale, merger, dissolution and liquidation of WNI under WNI's
Articles of Incorporation and Bylaws), Rodale may: (i) immediately withdraw the
use of any Rodale wholly-owned trademark, including Prevention(R)
(notwithstanding that such withdrawal may require the Site Name to be changed);
and (ii) Rodale shall have the right to terminate the Agreement upon [*] written
notice. During the term hereof, both parties may amend the listing set forth in
this Exhibit with the prior written approval of the other party.
5.4 Effect of Termination. Any termination pursuant to this Article 5
shall be without any liability or obligation of the terminating party, other
than with respect to any breach of obligations under this Agreement prior to
termination. The provisions in Articles 3, 4, 6, 7 and 8 shall survive any
termination or expiration of this Agreement.
ARTICLE 6: CONFIDENTIALITY
Rodale and WNI hereby acknowledge that each of them may have access to
confidential and proprietary information which relates to the other party's
technology, marketing and business (the "Confidential Information"). Each party
agrees to preserve and protect the
*Certain information on this page has been omitted and filed separately with the
Commission. Confidential treatment has been requested with respect to the
omitted portions.
9.
<PAGE> 10
confidentiality of the Confidential Information and not to disclose any
applicable Confidential Information to any third party without the prior written
consent of the other party; provided, however, that any party hereto may
disclose to any other party any information which receiving party can prove is:
(i) already publicly known; (ii) discovered or created by the receiving party
without reference to the Confidential Information; or (iii) otherwise learned
through legitimate means other than from a third party under confidentiality
obligations. Moreover, any party hereto may disclose any Confidential
Information hereunder to such party's agents, attorneys and other
representatives or any court or competent jurisdiction or any other party
empowered hereunder as reasonably required to resolve any dispute between the
parties hereto.
ARTICLE 7: OWNERSHIP
7.1 Site Name.
(a) As between the parties, Rodale will retain all rights to the
names and trademarks "Prevention(R)" and "Prevention(R)'s Bodysense" and
existing department names in the Prevention(R) Magazine and WNI will retain all
rights to the names and trademark "Women's Wire" and "Beatrice's Web Guide" and
existing department names in "Women's Wire" website and "Beatrice's Web Guide"
website.
(b) If the parties chose a different name or names other than
"Prevention(R)" or "Prevention(R)'s Bodysense" for the Site Name, such name or
names and all rights including trademark in and to such name or names will be
jointly owned (50%/50%) by each party.
7.2 Site Content.
(a) The parties shall jointly own (50%/50%) all rights including
copyright, in and to the original works created hereunder for the Site including
derivative works based on existing works owned by either party.
(b) The parties shall jointly own (50%/50%) all rights including
copyright in and to the compilation prepared by WNI comprised of the works
including code set forth in (a) above. Such jointly owned property is
hereinafter referred to as Site Content.
(c) WNI shall have the responsibility for registration of the
copyright and trademark of the Site Content and Site Name in the United States
Copyright Office and Trademark Office and in such other jurisdictions as the
parties mutually agree. All such registrations shall be in the names of both
parties.
7.3 Right of First Refusal and Rights Upon Termination.
(a) At any time, one party may make an offer to purchase all of
the other party's ownership interest in the Site Content (and if the Site Name
is jointly owned, the Site Name) from the other party. The parties agree that
neither party can license, sell or otherwise transfer any or all rights in the
Site, Site Content and/or Site Name to a third party without the prior written
consent from the other. Each party has the right of first refusal to purchase
all or part of the ownership interest in the Site Content of the other party (at
the same price and on the terms
10.
<PAGE> 11
and conditions) if the other party has received an offer to license or sell it
or them to a third party.
(b) If this Agreement is terminated by one party for any reason,
the following will occur:
(i) The rights to the Site Content created up to the
date of termination will continue to be co-owned by Rodale and WNI. Both parties
may continue to use the Site Content without the right to license or sell to
third parties unless one party buys the rights ownership interest of the other
party. Each party using the Site Content must pay to the other a royalty of 50%
of net revenues it receives from such use. Each party commits that it will
evaluate a new royalty rate on a case-by-case basis.
(ii) If the Site Name is Prevention(R) and Rodale chooses
to allow continued use of the name, WNI shall pay Rodale a royalty of [*] of net
revenues for the usage of the Site Name as long as the name is used.
(iii) If the party that terminates the contract or
breaches the contract resulting in a termination of the contract also owns all
rights to the Site Name, that party will be prevented from using that URL for a
period of one year unless permission is granted from the other party.
(iv) If the Site Name (and all related names) is jointly
owned by Rodale and Wire Networks and one party terminates the contract or
breaches the contract, resulting in termination of the contract, the second
party will have the exclusive right to use the jointly owned names and must pay
the first party a royalty of [*] of net revenues when using such names.
If the second party does not exercise its right to
exclusive use of the name(s), then the first party will have the right to use
the name(s) and must pay the second party [*].
At any time either party may purchase the exclusive
right to (the name from the other party upon terms and conditions to be
negotiated between the parties.
ARTICLE 8: MISCELLANEOUS
8.1 Public Announcement. The parties hereto will issue a joint press
release regarding this Agreement at a time that is mutually agreed to by the
parties. No party will make any separate public announcement regarding this
Agreement or any of the contents contained herein without the prior consent of
the other party.
8.2 Assignment. This Agreement will bind and inure to the benefit of
each party's permitted successors and assigns. Either party may assign this
Agreement to a wholly owned subsidiary provided that the Assignor shall remain
responsible for its obligations hereunder, otherwise, neither party may assign
this Agreement, in whole or in part, without the other party's prior written
consent which shall not unreasonably be withheld.
*Certain information on this page has been omitted and filed separately with the
Commission. Confidential treatment has been requested with respect to the
omitted portions.
11.
<PAGE> 12
8.3 Governing Law. This Agreement will be governed by and construed in
accordance with the laws of the State of New York, without reference to
conflicts of laws rules, and without regard to its location of execution or
performance.
8.4 Severability. If any provision of this Agreement is found invalid
or unenforceable, that provision will be enforced to the maximum extent
permissible, and the other provisions of this Agreement will remain in force.
8.5 Notices. All notices, requests and other communications called for
by this Agreement shall be deemed to have given upon receipt if made by mail,
courier or personal delivery, or immediately if made by telecopy or electronic
mail (confirmed by concurrent written notice sent first-class U.S. mail, postage
prepaid), if to Rodale at 33 East Minor Street, Emmaus, Pennsylvania 18098-0099,
Attention Barbara Newton (FAX (610) 967-7723; E-mail: bnewton 1
@rodalepress.com) and if to WNI at 1820 Gateway Drive, Suite l50, San Mateo,
California 94404, Attention: Ellen Pack, Vice President (FAX (415) 378-6599;
E-mail: [email protected]), or to such other addresses as either party shall
specify to the other. Notice by any other means shall be deemed made when
actually received by the party to which notice is provided.
8.6 Relationship of Parties. Neither this Agreement, nor any terms and
conditions contained herein may be construed as creating or constituting a
partnership, joint venture or agency relationship between the parties. Neither
party will have the power to bind the other or incur obligations on the other's
behalf without the other's prior written consent.
8.7 Waiver. No failure of either party to exercise or enforce any of its
rights under this Agreement will act as a waiver of such rights.
8.8 Entire Agreement. This Agreement and its exhibits are the complete
and exclusive agreement between the parties with respect to the subject matter
hereof, superseding and replacing any and all prior agreements, communications,
and understandings, both written and oral, regarding such subject matter. This
Agreement may only be modified, or any rights under it waived, by a written
document executed by both parties.
8.9 Expenses. Each party shall bear its own expenses, including legal
fees, incurred in the negotiation and documentation of this Agreement.
8.10 Counterparts. This Agreement may be executed in any number of
counterparts, all of which taken together shall constitute a single instrument.
Execution and delivery of this Agreement may be evidenced by facsimile
transmission.
8.11 Force Majeure. Neither party shall be liable for any failure or
delay in its performance under this Agreement due to causes including, but not
limited to, acts of God, acts of civil or military authority, fires, floods,
earthquakes, riots, wars, sabotage, or governmental actions, which are beyond
its reasonable control; provided, however, that such affected party take
reasonable efforts to mitigate the effects of such causes.
12.
<PAGE> 13
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed by their duly authorized representatives as of the date first written
above.
RODALE WIRE NETWORKS, INC.
By:/s/ Barbara Newton By: /s/ Marleen R. McDaniel
------------------------------- ------------------------
Title: VP, Director of Publishing Title: CEO & President
------------------------------- ----------------------
13.
<PAGE> 14
EXHIBIT A
PREVENTION MAGAZINE ADVERTISING STANDARDS
Advertising will not be accepted:
1. That promotes a product deemed defective or unsafe by the FDA.
2. That promotes a product, therapy, or service whose possible harm to the
customer outweighs its benefits.
3. That promotes a health product for which there is no good evidence of
benefit, and no good reason to believe there is a benefit.
If there is any question about whether an advertiser is acceptable or not, WNI
will contact Gloria McVeigh at Rodale at (610) 967-8201 or Karyn Barczewski,
Advertising Business Manager. at (610) 967-8503.
14.
<PAGE> 15
EXHIBIT B
WNI BUDGET
<PAGE> 16
HEALTHY _________________
REVENUE AND EXPENSE STATEMENT
<TABLE>
<S> <C>
Revenue [*]
Less Commissions
NET REVENUE
EDITORIAL & PRODUCTION:
Editorial Expense
Production Expense
Design Expense
Product Development Expense
Content Expense
TOTAL EDITORIAL & PRODUCTION
OPERATIONS & TECHNICAL:
Operations Expense
Tech Ops Expense
TOTAL OPERATIONS & TECHNICAL
MARKETING EXPENSE:
Marketing Staff
Advertising
Promotional
Other
TOTAL MARKETING
Sales Expense
TOTAL SALES EXPENSE
Legal/Other Expense
TOTAL LEGAL/OTHER EXPENSE
TOTAL DEPT EXPENSE
OVERHEAD ALLOCATION (30%)
TOTAL EXPENSE
</TABLE>
*Certain information on this page has been omitted and filed separately with the
Commission. Confidential treatment has been requested with respect to the
omitted portions.
<PAGE> 17
EXHIBIT B
<TABLE>
<CAPTION>
WIRE NETWORKS' PREVENTION COST PROJECTIONS
- -----------------------------------------------------------------------------------------------------------------------
Overhead: 30%
------- -------- -------- -------- ----------
1Q97 2Q97 3Q97 4Q97 TOTAL
------- -------- -------- -------- ----------
<S> <C> <C> <C> <C> <C>
Costs:
Editorial & Design
- -------------------------------------------------- [*]
Producer
Editorial Staff
Illustration/Design
HTML Design & Production
Programming (JAVA, Perl, CGI)
Travel
Content/Writing
Other
Site Hosting & Software
- --------------------------------------------------
Server Fees & Maintenance
Software Licenses, Reporting/Audit
Technical Staff
Sales and Marketing
- --------------------------------------------------
Sales Staff
Travel & Entertainment
Public Relations
Sales Materials/Collateral
Marketing Staff
Market Research
Creative/Production
Site Promotion
Banner Advertising
Sub-Total
Overhead
TOTAL COSTS
</TABLE>
*Certain information on this page has been omitted and filed separately with the
Commission. Confidential treatment has been requested with respect to the
omitted portions.
<PAGE> 18
EXHIBIT C
RODALE BUDGET
<PAGE> 19
Exhibit C
<TABLE>
<CAPTION>
RODALE PRESS PREVENTION COST PROJECTIONS
- -----------------------------------------------------------------------------------------------------------------------
Overhead: 30%
------ ------- ------- ------- --------
1Q97 2Q97 3Q97 4Q97 TOTAL
------ ------- ------- ------- --------
<S> <C> <C> <C> <C> <C>
EDITORIAL [*]
Researcher
ADVERTISING
Cost of Page
Page in Specials
PR
Sub-Total
Overhead
TOTAL
</TABLE>
*Certain information on this page has been omitted and filed separately with the
Commission. Confidential treatment has been requested with respect to the
omitted portions.
<PAGE> 20
EXHIBIT D
RESTRICTIONS ON RODALE THIRD PARTY RELATIONSHIPS
[*]
*Certain information on this page has been omitted and filed separately with the
Commission. Confidential treatment has been requested with respect to the
omitted portions.
<PAGE> 21
EXHIBIT E
RESTRICTION ON WNI THIRD PARTY RELATIONSHIPS
[*]
*Certain information on this page has been omitted and filed separately with the
Commission. Confidential treatment has been requested with respect to the
omitted portions.
<PAGE> 22
EXHIBIT F
WNI CHANGE [N CONTROL - RESTRICTED ENTITLES
[*]
*Certain information on this page has been omitted and filed separately with the
Commission. Confidential treatment has been requested with respect to the
omitted portions.
<PAGE> 1
EXHIBIT 10.26
HEARST HOMEARTS, INC.
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (the "Agreement") is made as of the ___
day of June, 1999, by and between HEARST HOMEARTS, INC., a Delaware
corporation (the "Company"), and HEARST COMMUNICATIONS, INC. ("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 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 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 (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. 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:
----------------------------------------
Title:
-------------------------------------
Address:
-----------------------------------
PURCHASER:
HEARST COMMUNICATIONS, INC.
By:
----------------------------------------
Title:
-------------------------------------
Address:
-----------------------------------
6.
<PAGE> 1
EXHIBIT 10.27
Certain confidential information contained in this document, marked by
brackets, is filed separately with the Securities and Exchange Commission
pursuant to Rule 406 of the Securities Act of 1933, as amended.
June 25, 1999
David Galloway
President
Torstar Corporation
One Yonge Street, Toronto,
Ontario, Canada, M5E 1P9
RE: WOMEN.COM / HARLEQUIN
Dear Mr. Galloway:
This letter agreement (the "Agreement") sets forth the agreement between
Women.com Networks, LLC, a Delaware limited liability company with offices at
1820 Gateway Drive, Suite 150, San Mateo, California 94404 ("Women.com"),
Torstar Corporation, an Ontario corporation with offices at One Yonge Street,
Toronto, Ontario, Canada, M5E 1P9 ("Torstar"), and Harlequin Enterprises
Limited, an Ontario corporation and a wholly-owned subsidiary of Torstar with
offices at 225 Duncan Mill Road, Don Mills, Ontario, Canada, M3B 3K9
("Harlequin"), with respect to (1) the production and hosting of a Web site to
be located at www.harlequin.com or some alternative address (the "Site") on
Women.com's Network and (2) the offer of stock of Women.com Networks, Inc. to
Torstar (collectively, the "Transactions"). This Agreement is intended to
confirm the understandings that have been reached by Women.com, Torstar and
Harlequin regarding the Transactions and is binding on the parties. It is
anticipated that the parties will enter into supplemental agreements (the
"Supplemental Agreements") within sixty (60) days relating to the production,
operation, maintenance, hosting and marketing of the Site. All rights and
obligations of Women.com under this Agreement will be assumed by Women.com
Networks, Inc. upon the consummation of the roll-up of Women.com into Hearst
HomeArts, Inc., a Delaware corporation, in connection with the merger of
Women.com Networks, a California corporation, into Hearst HomeArts, Inc. (to be
renamed Women.com Networks, Inc. upon the consummation of the merger). After
consummation of the merger, references to Women.com shall be deemed to refer to
Women.com Networks, Inc. The terms and conditions of the Agreement are as
follows:
1. BACKGROUND. Torstar publishes romance fiction paperbacks through
Harlequin and wishes to launch the Site to use the Internet and the
World Wide Web (the "Web") to market and sell its products. Women.com
maintains a proprietary network of related Web sites and plans to add
additional sites (the "Network") - with a gateway to such network
located at www.women.com - and owns or licenses a wide array of content
and tools, including interactive content and tools, targeted to the
interests and concerns of women. Accordingly, Women.com has substantial
expertise in the design and development of interactive Web sites and
communities. Women.com will produce, operate, maintain, host and market
the Site as part of the Network (all as more fully described below).
Women.com Networks, Inc. will offer shares of its stock to Torstar as
set forth below.
1
<PAGE> 2
2. THE SITE.
(a) LOCATION. The Site will be located at www.harlequin.com or some
alternative address (the "Site URL"). The Site URL and all
matters relating to the Site will continue to be owned by
Harlequin. All pages of the Site will reside on a Network server
paid for and maintained by Women.com.
(b) PRODUCTION. Women.com and Harlequin will work in cooperation
with each other on the creative development and operation of the
Site. Approval of Harlequin will be required for all decisions
relating to style, content, look and feel and other portions of
the Site and use of any Harlequin Content outside of the Site on
the Network. Harlequin reserves the right to initiate editorial
changes to the Site. Additional responsibilities of Women.com
related hereto will be set forth in the Supplemental Agreements.
Harlequin agrees that the Romance.net site will be incorporated
into the Site as appropriate, and will not be run as a separate
site after the launch of the Site. Women.com will use its
commercially reasonable efforts to launch the Site on or before
October 31, 1999, but will launch the fully operational version
of the Site no later than December 31, 1999, assuming that no
material delays are caused by Harlequin. During the term of this
Agreement, Harlequin will pay Women.com US$750,000 per year for
developing, producing, operating, maintaining and hosting the
Site, and all expenses associated therewith shall be borne by
Women.com. Once launched, Women.com shall be fully responsible
for operating, maintaining, revising and fixing problems
associated with the Site. The Site shall be operational and
accessible 24 hours a day 7 days a week, except for periodic
scheduled maintenance times and for rare outages not the fault
of Women.com. The Site shall be kept current and revised
reasonably regularly. Additional obligations of Women.com
regarding the Site production will be set forth in the
Supplemental Agreements. Harlequin reserves the right to program
manage the community elements of the Site and author relations.
(c) INTEGRATION INTO NETWORK. The Site will be included within the
Network. Visitors to the Site may access the Site through the
Site URL or through the Network. All pages of the Site will
include the Women.com navigation bar. The Site's content will be
used by Women.com to build a channel relating to romance (the
"Channel"). The name of the Channel will be determined by
Women.com in its sole reasonable discretion. This Channel shall
be the exclusive section within the Women.com site and the
Network primarily relating to romance. Harlequin.com will be the
premier content provider within the Channel. For purposes of the
foregoing, "premier content provider" means the provider of a
majority of the content on the Channel. The parties will
incorporate, where appropriate, links between the Site and the
Network.
(d) MARKETING. Women.com will use its commercially reasonable
efforts to market the Site and maximize traffic to the Site in a
manner at least as favorable as other sites in the Network.
Women.com will be responsible for marketing the Site
2
<PAGE> 3
online via the Network and through its online distribution
relationships. Women.com will promote the Site on the Network.
At a minimum, Women.com will promote the Site on the Network
wherever all Hearst magazine sites are listed or promoted (e.g.
the navigation bar). For the first two years after the launch of
the Site, Harlequin will use commercially reasonable efforts to
promote the Site and Women.com on a co-branded basis with
Harlequin in every one of its North American romance books
(subject to any required approval from authors) and in 20
million direct mail pieces (subject to testing as to
effectiveness). In the event the co-branding promotion in any
year is less than seventy five percent (75%) of Harlequin's
North American books, then the two-year commitment will be
extended an additional year. Torstar will link to the Site from
its corporate site. Upon launch of the Site, the Romance.net URL
will point to the Site URL. Harlequin reserves the right to
promote the Site itself online and offline.
(e) MEMBERSHIP. The Site will use and be part of the Women.com
universal registration. All users that register for the Site
("Site Registrants") will automatically become registered users
of Women.com. The parties will agree as to the type of
information to be solicited from Site Registrants. Women.com
will contact its registered users via email or member newsletter
at least four times per year with information or promotion
related to the Site. Within the universal registration process,
the Site will receive equal treatment to the individual Hearst
magazine titles with regard to registration. The information
concerning the Site Registrants shall be deemed co-owned by the
parties, but Women.com may only use the names and information
itself to market to Site Registrants and may not sell, license
or swap the names of Site Registrants with any third party and
must use the Site Registrant Information consistent with the
Site's Privacy Policy to be developed. Harlequin may use the
information regarding Site Registrants in any manner it
determines appropriate, provided that (i) it may use the
information for online marketing purposes only with respect to
the Site and (ii) it shall use the information consistent with
the Site's Privacy Policy to be developed.
(f) METRICS. For purposes of third party Internet industry traffic
and usage measurement metrics (e.g., Media Metrix), all Site
page views and visitors shall be attributed solely to Women.com.
(g) ADVERTISING. Women.com will have the exclusive right to sell
advertisements, site sponsorships and other promotions ("Ads")
on the Site. Harlequin may sell Ads, subject to Women.com's
approval for all transactions, which approval shall not be
unreasonably withheld or delayed. Women.com shall use its
reasonable commercial efforts to maximize revenues from Ads on
the Site. Women.com will pay Harlequin a royalty on gross
revenues (net of taxes and uncollectable amounts) from Ads on
the Site as follows: [*] in years one and two, [*] in year three
and [*] thereafter. Women.com does not guarantee a minimum level
of Ad revenues to Harlequin. For the purposes of this Agreement,
commerce affiliate revenues will be included in revenues from
Ads. In the event that
3
* Certain confidential information on this page has been omitted and filed
separately with the Commission. Confidential treatment has been requested
with respect to the omitted portions.
<PAGE> 4
Harlequin Content is used in other areas of the Network other
than the Site, Harlequin will be entitled to its share of
associated Ad revenues. The following categories of Ads (or
sites linked from Ads) are not acceptable on the Site or the
Network: .advertisements for tobacco, gambling or firearms,
advertisements that would violate any applicable law, regulation
or third party right; advertisements or sites containing
pornographic or sexually explicit material, links to
pornographic sites; advertising that is degrading or demeaning
to women or that promotes violence or abuse of women;
advertising or sites encouraging illegal activity or racism,
sites providing instructions or discussions about illegal
activities; sites that promote or utilize software or services
designed to deliver unsolicited e-mail; sites with products or
advertisements that are offensive or inappropriate; or any
advertising that has resulted or could result in legal liability
or adverse publicity to Women.com as a result of such
advertising being offensive, inaccurate, defamatory, libelous or
slanderous or involving potential infringement of third party's
intellectual property rights. No Ads may be sold on the Site to
a competitor of Torstar identified in Section 6.
(h) E-COMMERCE. Harlequin will be responsible for the execution of
all elements of Harlequin book sales on the Site, including
merchandising, billing, delivery of books to purchasers, and
related customer service. Harlequin will pay Women.com a [*]
royalty (net of shipping, taxes, handling charges, returns, and
uncollectable amounts) for all Harlequin books purchased in
North America from the Site and a [*] royalty (net of shipping,
taxes, handling charges, returns, and uncollectable amounts) for
all Harlequin books purchased outside North America from the
Site. Notwithstanding the foregoing, Women.com will receive a
[*] royalty on revenues (net of shipping, taxes, handling
charges, returns and uncollectable amounts) from the first paid
month of Harlequin Reader Service Memberships (as that term is
currently used by Harlequin) generated from the Site (excluding
persons responding to offline direct marketing efforts and
members purchasing Harlequin subscriptions who had previously
purchased a subscription within the 12 month period prior to the
new subscription purchase). Women.com will receive a [*] royalty
on gross income (net of shipping, taxes, handling charges,
returns, and uncollectable amounts) from merchandise sales
(excluding books) in the Site's store. Harlequin will pay
Women.com a [*] royalty on premium content services from the
Site (e.g. writing workshops), net of direct costs. Harlequin
Site purchases will be billed and shipped separately by
Harlequin.
(i) OTHER REVENUES. Allocation of revenues not contemplated herein
will be determined in the Supplemental Agreements.
3. PURCHASE AND SALE OF STOCK. Women.com Networks, Inc. agrees to offer to
sell to Torstar the lesser of (1) one million two hundred fifty thousand
(1,250,000) shares of common stock (the "Common Stock") of Women.com
Networks, Inc. at a per share price
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* Certain confidential information on this page has been omitted and filed
separately with the Commission. Confidential treatment has been requested
with respect to the omitted portions.
<PAGE> 5
equal to the per share price to the public (the "Purchase Price") of the
Common Stock sold pursuant to a registration statement on Form S-1 (No.
333-78363) (the "Registration Statement") under the Securities Act of
1933, as amended, relating to the initial public offering of Women.com
Networks, Inc. (the "Initial Public Offering"), or (ii) that number of
shares of the Common Stock of Women.com Networks, Inc. which could be
purchased at the Purchase Price for $14,500,000. The purchase, if made,
will be pursuant to the Registration Statement, and the prospectus
contained therein, entitling Torstar to all rights under applicable
securities laws as a purchaser of Women.com Network, Inc.'s Common
Stock. Torstar agrees not to sell, pledge, hypothecate or otherwise
transfer any shares purchased under the Registration Statement for a
period of one (1) year following the date the Registration Statement is
declared effective pursuant to an agreement (the "Lock-up Agreement")
with Women.com and its managing underwriters to such effect. The Lock-up
Agreement shall provide that Torstar shall be released from the Lock-up
Agreement upon (1) the proposed sale of Women.com pursuant to a tender
offer made to Women.com's stockholders or an executed agreement of
merger, reorganization or otherwise in which the stockholders prior to
such sale will hold less than 50% of the shares outstanding after such
sale, or some other proposed sale of the Company announced by Women.com
or Hearst, (2) the consent of Women.com and the managing underwriters
(provided the consent of the managing underwriters shall only be
required during the initial six (6) months of the lock-up period) and
(3) such other events as may be agreed to in the Lock-up Agreement.
4. BOARD SEAT. If Torstar purchases, pursuant to Section 3 above, at least
1,250,000 shares of Common Stock or $14,500,000 of Common Stock,
whichever is less, Mr. Galloway, as a designee of Torstar, will be
appointed to the Board of Directors of Women.com Networks, Inc.
effective one day after the closing of the Initial Public Offering, for
a Class II director term. During the term of this Agreement, Women.com
Networks, Inc. agrees to nominate Mr. Galloway, as a Torstar designee,
to the Board of Directors of Women.com Networks, Inc. at all elections
of the Class II members of the Board of Directors and to recommend to
its stockholders the election of Mr. Galloway, all subject to the
fiduciary obligations of the Board. In the event Mr. Galloway is unable
to serve as director after his appointment, Torstar may designate
another director or executive officer of Torstar or Harlequin or any
other person reasonably acceptable to the Board of Directors of
Women.com Networks, Inc.
5. LICENSE. As part of the Supplemental Agreements, the parties are
expected to agree upon the terms and conditions of the license of
Harlequin Content to Women.com for the transactions contemplated herein,
and the terms and conditions of license of Women.com Content for the
Site.
The "Harlequin Content" means the Content (as defined below) that is
proprietary to Harlequin or its affiliates or third party licensors,
which Content Harlequin provides for inclusion on the Site. The
"Women.com Content" means the Content (as defined below) that is
proprietary to Women.com or its affiliates or third party licensors.
"Content" means the text, pictures, html, sound, video, graphical
elements and other data contained in any Web site, including all
trademarks, trade names, service marks, trade dress, logos, URLs, or
identifying slogans of a party, whether or not registered. "Derivative
Work" is original Content contained on the Site or the Network that is
based upon Harlequin Content, such as a translation, musical
arrangement, dramatization, fictionalization, motion picture version,
sound recording, art reproduction, abridgment, condensation, or any
other form in which a work may be recast, transformed, or adapted. All
Harlequin Content and Derivative Works, together with all other Content
on the Site or relating primarily to the Site that is not Women.com
Content will be deemed solely owned by Harlequin. Any Content (together
with any other copyrightable matters) developed or prepared for the Site
by Women.com will be deemed "work for hire" and owned solely by
Harlequin.
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<PAGE> 6
6. EXCLUSIVITY. During the term of this Agreement, Harlequin will not enter
into any relationship substantially of the kind set forth herein with
any of the following companies: iVillage, Oxygen Media and CondeNast
(the "Women.com Competitors"). In addition, during the term of this
Agreement, (1) Torstar, Harlequin or any affiliates under their control
will not establish or operate an Internet or Web site that substantially
competes with the Site, and (2) Torstar will not make an equity
investment in any Women.com Competitor, provided that Torstar may,
directly or indirectly, purchase or hold no more than one percent (1%)
of the outstanding equity securities of a Women.com Competitor. During
the term of this Agreement, Women.com will not enter into a marketing,
distribution, content, or other strategic relationship with any of the
following companies as such relationship relates to romance or
romance-related topics: Avon Books, Bantam Doubleday Dell, Berkeley
Books, Doubleday Bookclub, Harper Collins, Leisure Books, Penguin,
Putnam, Pocket Books, St. Martin's Press, Warner Books and Zebra Books.
7. TERM AND TERMINATION. The Agreement shall have a term of four (4) years
that commences on the date hereof (the "Initial Term"). Following the
Initial Term, this Agreement shall automatically renew for additional
one-year terms (each a "Renewal Term"), until such time as either party
terminates the Agreement upon written notice to the other parties given
no less than ninety (90) days prior to the end of the Initial Term or
any Renewal Term, as applicable. In the event that Women.com, on the one
hand, or Torstar or Harlequin, on the other hand, materially breaches
this Agreement, the other party may terminate this Agreement by
providing the breaching party with no fewer than thirty (30) days notice
of termination; provided, that in the event of breaches capable of cure,
the breaching party shall have the right to cure the default within such
period (or such longer period as then non-breaching party may agree to
in writing) and thereby forestall termination of this Agreement. If the
default is not cured within such thirty (30) day period, the
non-breaching party may terminate this Agreement by providing the
breaching party with no fewer than thirty (30) days notice of
termination. In addition, Harlequin may terminate this Agreement upon at
least ninety (90) days written notice to Women.com upon either of the
following events:
(a) The loss of Women.com's rights to the Hearst magazine content
under the Magazine Content, License and Hosting Agreement by and
between Women.com and Hearst Communications, Inc., dated January
27, 1999.
(b) If within two (2) years after the launch of the Site, the number
of Site Registrants is less than 700,000. If Harlequin
terminates pursuant to this Section 7(b), then Harlequin shall
pay to Women.com an amount equal to the sum of the prior
calendar year's: (1) revenues from Ads on the Site (less
royalties paid to Harlequin pursuant to Section 2(g)); and (2)
book royalties paid to Women.com pursuant to the first sentence
of Section 2(h).
In addition, Women.com, on the one hand, and Torstar or Harlequin, on
the other hand, may terminate this Agreement upon the institution of
proceedings for the other party to
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<PAGE> 7
be adjudicated a bankrupt or insolvent, or the consent by the other
party to institution of bankruptcy or insolvency proceedings against it
or the filing of a petition or answer or consent seeking reorganization
or release under the Federal Bankruptcy Act, or any other applicable
Federal or state law, or the consent by the other party to the filing of
any such petition or the appointment of a receiver, liquidator,
assignee, trustee, or other similar official or of any substantial part
of its property, or the making by the other party of an assignment for
the benefit of creditors, or the admission in writing by the other party
of an assignment for the benefit of creditors, or the admission in
writing by the other party of its inability to pay its debts generally
as they become due or the taking of corporate action by the other party
in furtherance of any such actions.
Upon proper notice of termination given by any party, the parties agree
to cooperate in good faith to effect an orderly transition of the Site
in a manner to allow Harlequin to independently operate the Site,
subject to Harlequin obtaining any third-party licenses necessary to
operate the Site.
8. OBLIGATIONS UPON TERMINATION. Upon termination of this Agreement for any
reason:
(a) Women.com shall cease use of, and shall deliver to Harlequin,
all Harlequin Content and other Content deemed to be solely
owned by Harlequin pursuant to Section 5 above.
(b) Women.com shall provide Harlequin a non-exclusive license to use
Women.com proprietary code, technology or software necessary to
operate the Site. Such license shall be free of charge for a
period of six (6) months following termination, and thereafter
shall be licensed to Harlequin on commercially reasonable terms
for a period of up to three (3) years from termination.
(c) The parties shall comply with any additional obligations
relating to post-termination matters as may be set forth in the
Supplemental Agreements.
(d) No party shall use, sell, license or trade the co-owned Site
Registrants list to promote the competitors of the other parties
as defined in Section 6 for a period of five (5) years from
termination.
9. WARRANTIES.
(a) WARRANTIES OF ALL PARTIES. Each party to this Agreement
represents and warrants to the other parties that:
(i) such party has the full corporate right, power and
authority to enter into this Agreement and to perform
the acts required of it hereunder;
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<PAGE> 8
(ii) the execution of this Agreement by such party, and the
performance by such party of its obligations and duties
hereunder, do not and will not violate any agreement to
which such party is a party or by which it is otherwise
bound;
(iii) when executed and delivered by such party, this
Agreement will constitute the legal, valid and binding
obligation of such party, enforceable against such party
in accordance with its terms; and
(iv) such party acknowledges that the other party makes no
representations, warranties or agreements related to the
subject matter hereof that are not expressly provided
for in this Agreement.
(b) HARLEQUIN WARRANTIES. Harlequin hereby warrants to and for the
benefit of Women.com that Harlequin shall not provide any
Harlequin Content to Women.com that: (a) infringes on any third
party's copyright, patent, trademark, trade secret or other
proprietary rights or rights of publicity or privacy; (b)
violates any law, statute, ordinance or regulation (including
without limitation the laws and regulations governing export
control); (c) is defamatory, trade libelous, unlawfully
threatening or unlawfully harassing; (d) is obscene or
pornographic or contains child pornography; (e) violates any
laws regarding unfair competition, antidiscrimination or false
advertising; or (f) to the best of Harlequin's knowledge,
contains any viruses, trojan horses, worms, time bombs,
cancelbots or other computer programming routines that are
intended to damage, detrimentally interfere with,
surreptitiously intercept or expropriate any system, data or
personal information .
(c) WOMEN.COM WARRANTIES. Women.com hereby warrants to and for the
benefit of Harlequin that Women.com shall not use any Content
(excluding Harlequin Content) or operate the Network or the Site
in any manner that (a) infringes on any third party's copyright,
patent, trademark, trade secret or other proprietary rights or
rights of publicity or privacy; (b) violates any law, statute,
ordinance or regulation (including without limitation the laws
and regulations governing export control); (c) is defamatory,
trade libelous, unlawfully threatening or unlawfully harassing;
(d) is obscene or pornographic or contains child pornography;
(e) violates any laws regarding unfair competition,
antidiscrimination or false advertising; or (f) to the best of
Women.com's knowledge, contains any viruses, trojan horses,
worms, time bombs, cancelbots or other computer programming
routines that are intended to damage, detrimentally interfere
with, surreptitiously intercept or expropriate any system, data
or personal information.
(e) REMEDIES. Each party agrees that its sole and exclusive remedy
for a breach of any warranty made by the other party pursuant to
this Section 9 shall be indemnification as set forth in Section
10 hereof.
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10. INDEMNIFICATION.
(a) HARLEQUIN INDEMNITY. Harlequin agrees to defend, indemnify and
hold harmless Women.com and its directors, officers, agents and
employees from and against any and all claims, suits, damages,
losses, costs, liabilities, expenses and fees (including without
limitation reasonable attorneys' and expert witnesses' fees)
incurred or arising from (a) any breach of the warranties set
forth in Section 9, (b) any Harlequin Content, or (c) e-commerce
conducted on the Site (other than due to the fault of
Women.com). Women.com may, at its own expense, participate in
any defense or settlement negotiations with respect to any claim
to which it is entitled to indemnification with counsel of its
own choosing. Harlequin agrees not to enter into any settlement
of any claim without the prior written consent of Women.com,
which consent shall not be unreasonably withheld or delayed.
(b) WOMEN.COM INDEMNITY. Women.com agrees to defend, indemnify and
hold harmless Harlequin and its directors, officers, agents and
employees from and against any and all claims, suits, damages,
losses, costs, liabilities, expenses and fees (including without
limitation reasonable attorneys' and expert witnesses' fees)
incurred or arising from (a) any breach of the warranties set
forth in Section 9, (b) any Content (excluding Harlequin
Content) created, developed, published or distributed by
Women.com (c) the manner in which Women.com uses any of the
Harlequin Content on the Network, other than on the Site and (d)
e-commerce problems on the Site due to the fault of Women.com or
e-commerce conducted elsewhere on the Network . Harlequin may,
at its own expense, participate in any defense or settlement
negotiations with respect to any claim to which it is entitled
to indemnification with counsel of its own choosing. Women.com
agrees not to enter into any settlement of any claim without the
prior written consent of Harlequin, which consent shall not be
unreasonably withheld or delayed.
11. LIMITATIONS ON LIABILITY/DISCLAIMERS OF WARRANTIES. IN NO EVENT SHALL
ANY PARTY BE LIABLE TO ANY OTHER PARTY FOR ANY SPECIAL, INDIRECT,
INCIDENTAL OR CONSEQUENTIAL DAMAGES ARISING OUT OF OR IN CONNECTION WITH
THIS AGREEMENT (INCLUDING BUT NOT LIMITED TO SUCH DAMAGES ARISING FROM
TORT, INCLUDING NEGLIGENCE AND STRICT LIABILITY, BREACH OF CONTRACT OR
WARRANTY), INCLUDING WITHOUT LIMITATION DAMAGES FOR INTERRUPTED
COMMUNICATIONS, LOST DATA OR LOST PROFITS, EVEN IF SUCH PARTY HAS BEEN
ADVISED OF (OR KNOWS OR SHOULD KNOW OF) THE POSSIBILITY OF SUCH DAMAGES
AND NOTWITHSTANDING THE FAILURE OF ESSENTIAL PURPOSE OF ANY REMEDY.
12. LIAISON. Each party shall appoint an individual to act as a primary
point of contact for the other party with respect to all activities and
issues arising under this Agreement.
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13. CONFIDENTIAL INFORMATION.
(a) DEFINITION. "Confidential Information" as used in this Agreement
shall mean any and all technical and non-technical information
of a party (the "Disclosing Party") to this Agreement
(including, without limitation, patents, copyrights and works of
authorship, trade secrets, and proprietary information,
techniques, sketches, drawings, models, inventions, know-how,
processes, apparatus, equipment, algorithms, software programs,
and software source documents) related to the current, future
and proposed business, products and services of such party, and
its suppliers and customers, and includes, without limitation,
information concerning development, design details and
specifications, engineering, customer lists, business forecasts,
sales, and marketing plans and any other similar information or
data which is disclosed to the other party (the "Recipient") or
to which the Recipient otherwise gains access as a result of
performing under this Agreement. "Confidential Information" also
includes proprietary or confidential information of any third
party that may disclose such information to the Disclosing Party
in the course of the Disclosing Party's business. Confidential
Information does not include information, technical data or
know-how which: (i) is in the Receiving Party's possession at
the time of disclosure as shown by the Receiving Party's files
and records immediately prior to the time of disclosure; (ii)
before or after it has been disclosed to the Receiving Party,
enters the public domain, not as a result of any action or
inaction of the Receiving Party; (iii) is approved for release
by written authorization of the Disclosing Party; (iv) is
disclosed to the Receiving Party by a third party not in
violation of any obligation of confidentiality; or (v) is
independently developed by the Receiving Party without reference
to the Disclosing Party's Confidential Information.
(b) USE AND DISCLOSURE. The Receiving Party agrees not to use the
Confidential Information of the Disclosing Party for any purpose
except to the extent necessary to fulfill its obligations under
this Agreement. The Receiving Party agrees not to copy, alter,
modify, disassemble, reverse engineer or decompile any of the
materials comprising Confidential Information, unless permitted
in writing by the Disclosing Party. The Receiving Party agrees
not to disclose the Confidential Information to any third
parties or to any of its employees, contractors or agent except
those of whom who have a need to know the Disclosing Party's
Confidential Information to enable the Receiving Party to
fulfill its obligations under this Agreement; provided, that
such parties shall be made aware that such Confidential
Information is confidential to the Disclosing Party and shall be
under a written contractual restriction on nondisclosure and
proper treatment of Confidential Information that is consistent
with and no less restrictive than the terms of this Section 13.
Notwithstanding the foregoing, the Receiving Party may disclose
the Disclosing Party's Confidential Information to the extent
required by a valid order of a court or other governmental body
or by applicable law; provided, however, that the Receiving
Party will use all reasonable efforts to notify the Disclosing
Party of the obligation to make such disclosure in advance
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so that the Disclosing Party will have a reasonable opportunity
to object to such disclosure. The Receiving Party agrees that it
shall treat the Confidential Information with the same degree of
care as it accords its own Confidential Information of a similar
nature; provided that in no event shall the Receiving Party
exercise less than reasonable care to protect the Disclosing
Party's Confidential Information. The Receiving Party agrees to
advise the Disclosing Party in writing of any misappropriation
or misuse by any person of the Disclosing Party's Confidential
Information of which the Receiving Party may become aware. The
Receiving Party will not communicate any information to the
Disclosing Party in violation of the proprietary rights of any
third party.
(c) RETURN OF MATERIALS. Any Confidential Information furnished to
the Receiving Party, and all copies thereof, at the earlier of
the Disclosing Party's request, or the termination of the
business relationship between the Disclosing Party and the
Receiving Party, at the Disclosing Party's option, will either
be: (i) promptly returned to the Disclosing Party; or (ii)
destroyed by the Receiving Party (with the Receiving Party
providing written certification of such destruction to the
Disclosing Party).
14. MISCELLANEOUS. This Agreement sets forth the entire understanding and
agreement of the parties with respect to the subject matter hereof and
supersedes any and all oral or written agreements or understandings
between the parties as to the subject matter hereof. This Agreement may
be changed only by a writing signed by both parties. No party may assign
this Agreement or any of its rights or delegate any of its duties here
under this Agreement without the consent of all other parties, provided
that (i) Women.com may assign its rights and obligations to Women.com
Networks, Inc. in connection with the merger described in the
introductory paragraph of this Agreement, (ii) Harlequin or Torstar may
assign its rights and obligations to any subsidiary or affiliate of
Torstar or Harlequin provided that such assignee continues to perform
all obligations of Torstar or Harlequin under this Agreement, or (iii)
any party may assign this Agreement in connection with the sale or
transfer of substantially all the assets or stock of the party, or
merger, reorganization or similar transaction in which control of the
corporation is transferred. All notices, demands and other communication
hereunder must be in writing or by written telecommunications and will
be deemed to have been duly given: (a) if mailed by certified mail,
postage prepaid, on the date three (3) days from the date of mailing,
(b) if delivered by overnight courier, when received by the addressee or
if sent by confirmed telecommunication, one business day following
receipt by the addressee at the addresses set forth above, or such other
address as the party may specify in writing. In the event that any
provision of this Agreement shall for any reason be held to be invalid,
illegal or unenforceable in any respect, the remaining provisions shall
remain in full force and effect. The parties' rights and obligations
will bind and inure to the benefit of their respective successors,
heirs, executors and administrators and permitted assigns. The parties
are independent contractors, and no agency, partnership, joint venture
or
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employee-employer relationship is intended or created hereby. This
agreement will be construed in accordance with the laws of the state of
California without regard to its conflict of law principles, and the
parties consent to the exclusive jurisdiction of the state and federal
courts having jurisdiction over San Mateo County, California.
Announcements or press releases concerning this Agreement shall be
subject to the approval of all parties.
15. SUPPLEMENTAL AGREEMENTS. With respect to matters that are to be covered
in the Supplemental Agreements, Women.com agrees that Harlequin will
receive terms, covenants, representations and other rights at least as
favorable as those granted to Hearst or Rodale, taken as a whole ;
provided, however, that the terms of this Agreement shall govern in any
case where this Agreement conflicts with the terms of the agreements
between Women.com and Hearst or Women.com and Rodale.
Very Truly Yours,
WOMEN.COM NETWORKS, LLC
By: /s/ Marleen McDaniel
-------------------------------
Marleen McDaniel
President & CEO
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ACCEPTED AND AGREED:
TORSTAR CORPORATION HARLEQUIN ENTERPRISES LIMITED
By: /s/ David Galloway By: /s/ David Galloway
------------------------------- -------------------------------
Name: David Galloway Name: David Galloway
----------------------------- -----------------------------
Title: Title:
---------------------------- ----------------------------
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EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Amendment No. 1 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 June 28, 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
June 28, 1999
<PAGE> 1
Exhibit 23.2
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Amendment No. 1 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
June 28, 1999
