<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Quarterly Period Ended September 30, 1999
Commission File Number 0-26055
WOMEN.COM NETWORKS, INC.
(Exact name or registrant as specified in its charter)
DELAWARE 13-4059516
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1820 GATEWAY DRIVE, SAN MATEO, CALIFORNIA 94404-2471
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code: (650) 378-6500
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
The number of shares outstanding of the registrant's common stock as of October
31, 1999 was 45,653,547.
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WOMEN.COM NETWORKS, INC.
FORM 10-Q
SEPTEMBER 30, 1999
INDEX
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Page
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Part I. Financial Information
Item 1. Financial Statements
(a) Balance Sheets
As of September 30, 1999 and December 31, 1998 1
(b) Statements of Operations
For the Three and Nine Months Ended September 30,
1999 and 1998 2
(c) Statements of Cash Flow
For the Nine Months Ended September 30, 1999 and 1998 3
(d) Notes to Financial Statements 5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Part II. Other Information
Item 1. Legal Proceedings 26
Item 2. Changes in Securities and Use of Proceeds 26
Item 3. Defaults Upon Senior Securities 26
Item 4. Submission of Matters to a Vote of Security Holders 26
Item 5. Other Information 26
Item 6. Exhibits and Reports on Form 8-K 27
</TABLE>
Signature
<PAGE> 3
Part I. Financial Information
Item 1. Financial Statements
WOMEN.COM NETWORKS, INC.
BALANCE SHEETS
(In thousands, except per share data)
<TABLE>
<CAPTION>
September 30, 1999 December 31, 1998
------------------ -----------------
(Unaudited)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 40,504 $ 12,235
Accounts receivable, less allowance for doubtful
accounts of $656 and $295, respectively 5,927 2,442
Accounts receivable, related party 1,111 --
Prepaid and other current assets 6,528 526
------------- -------------
Total current assets 54,070 15,203
Property and equipment, net 5,594 1,261
Intangible assets, net 50,902 1,505
Other assets 2,906 93
------------- -------------
Total assets $ 113,472 $ 18,062
============= =============
Liabilities, mandatorily redeemable convertible
preferred stock and warrants and stockholders'
equity (deficit)
Current liabilities
Accounts payable $ 5,216 $ 2,828
Accounts payable, related party 761 --
Accrued liabilities 3,928 337
Accrued compensation and related benefits 1,113 364
Current portion of capital lease obligation -- 15
Notes payable -- 348
Deferred revenue 2,324 1,455
------------- -------------
Total current liabilities 13,342 5,347
------------- -------------
Mandatorily redeemable convertible preferred stock,
no par value:
Authorized: 18,286 shares
Issued and outstanding: 13,438 shares at
December 31, 1998 and none at September 30, 1999 -- 34,905
Mandatorily redeemable convertible preferred
stock warrants 515 515
------------- -------------
515 35,420
Stockholders' equity (deficit):
Preferred stock, $.001 par value:
Authorized 5,000 shares at September 30, 1999
Issued or outstanding; none at September 30, 1999 -- --
Common stock, par value: $.001
Authorized 60,000 shares at September 30, 1999
Issued or outstanding; 1,497 shares at December
31, 1998 and 38,059 shares at September 30, 1999 38 3
Additional paid in capital 177,531 5,269
Notes receivable from stockholders (44) (44)
Unearned compensation (4,221) (1,979)
Accumulated deficit (73,689) (25,954)
------------- -------------
Total stockholders' equity (deficit) 99,615 (22,705)
------------- -------------
Total liabilities, mandatorily redeemable convertible
preferred stock and warrants and stockholders'
equity (deficit) $ 113,472 $ 18,062
============= =============
</TABLE>
The accompanying notes are an integral part of these financial statements
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WOMEN.COM NETWORKS, INC.
STATEMENT OF OPERATIONS
(In thousands, except per share data) (Unaudited)
<TABLE>
<CAPTION>
Quarter Ended Nine Months Ended Quarter Ended Nine Months Ended
September 30, 1999 September 30, 1999 September 30, 1998 September 30, 1998
------------------ ------------------ ------------------ ------------------
<S> <C> <C> <C> <C>
Net revenues $ 6,440 $ 14,952 $ 1,996 $ 4,742
Net revenues, related party 796 1,715 --
------------- ------------- ------------- -------------
Total net revenues 7,236 16,667 1,996 4,742
Operating expenses
Production, product and technology 6,347 15,291 1,288 3,783
Sales and marketing 9,323 26,622 3,734 7,339
General and administrative 2,236 5,780 432 1,054
Stock-based compensation 852 2,392 418 742
Amortization of acquired intangibles 5,870 14,817 172 344
------------- ------------- ------------- -------------
Total operating expenses 24,628 64,902 6,044 13,262
------------- ------------- ------------- -------------
Loss from operations (17,392) (48,235) (4,048) (8,520)
Other income, net 358 838 269 411
Interest expense (17) (43) (10) (32)
------------- ------------- ------------- -------------
Net loss (17,051) (47,440) (3,789) (8,141)
Dividend accretion on mandatorily redeemable
convertible preferred stock 50 295 143 428
------------- ------------- ------------- -------------
Net loss attributable to common stockholders $ (17,101) $ (47,735) $ (3,932) $ (8,569)
============= ============= ============= =============
Basic and diluted net loss per share
attributable to common stockholders $ (0.56) $ (2.23) $ (2.65) $ (6.97)
============= ============= ============= =============
Shares used in computing basic and diluted
net loss per share 30,453 21,365 1,483 1,230
============= ============= ============= =============
</TABLE>
The accompanying notes are an integral part of these financial statements
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WOMEN.COM NETWORKS, INC.
STATEMENTS OF CASH FLOW
(In thousands) (Unaudited)
<TABLE>
<CAPTION>
Nine months ended
----------------------------------------
September 30, 1999 September 30, 1998
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Cash flow from operating activities: $ (47,440) $ (8,141)
Net loss
Adjustments to reconcile net loss to net cash
used in operating activities, net of the effects
of acquisitions
Depreciation and amortization of tangible assets 1,050 563
Amortization of intangibles 14,817 344
Provision for doubtful accounts 361 99
Amortization of stock-based compensation 2,392 742
Issuance of common stock warrant in exchange
for services 231 --
Decrease (increase) in accounts receivable (2,869) (451)
Decrease (increase) in accounts receivable -
related party (1,111) --
Decrease (increase) in prepaids and other
current assets (2,414) (126)
Decrease (increase) in other assets 2,867 8
Increase (decrease) in accounts payable 2,385 437
Increase (decrease) in accounts payable -
related party 761 --
Increase (decrease) in accrued liabilities 411 (229)
Increase (decrease) in deferred revenue 744 (437)
------------ ------------
Net cash used in operating activities (27,815) (7,191)
------------ ------------
Cash flows from investing activities:
Acquisition of property and equipment (3,339) (659)
Acquisition of Internethoroscopes.com (237) --
Cash received from HomeArts acquisition 12,907 --
------------ ------------
Net cash provided by (used in) investing activities 9,331 (659)
------------ ------------
Cash flows from financing activities:
Proceeds from issuance of common stock, preferred stock
and warrants, net of issuance costs 46,749 20,049
Proceeds from issuance of common stock warrants 3 --
Proceeds from exercise of stock options 364 15
Principal payments under capital lease obligations (15) (40)
Principal payment under term loan (348) --
Proceeds from notes payable -- 102
------------ ------------
Net cash provided by investing activities 46,753 20,126
------------ ------------
Net increase in cash and cash equivalents 28,269 12,276
Cash and cash equivalents at beginning of period 12,235 4,885
------------ ------------
Cash and equivalents at end of period $ 40,504 $ 17,161
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements
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WOMEN.COM NETWORKS, INC.
STATEMENTS OF CASH FLOW - CONTINUED
(In thousands) (Unaudited)
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Nine months ended
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September 30, 1999 September 30, 1998
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Supplemental disclosure of cash flow information:
Cash payments for interest $ 35 $ 28
Revenue and advertising expense from barter
transactions $ 220 $ 501
Supplement disclosure of noncash financing
information:
Accretion of preferred stock $ 295 $ 428
Unearned compensation related to stock option
grants $ 4,634 $ 2,283
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 assts acquired $ 76,265
Cash received 12,907
Common stock issued (85,000)
------------
Liabilities assumed $ 4,172
============
</TABLE>
The accompanying notes are integral part of these financial statements
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WOMEN.COM NETWORKS, INC.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
Basis of presentation
In the opinion of management, the accompanying unaudited financial statements
include all adjustments (consisting only of normal recurring items) necessary
for their fair presentation in conformity with generally accepted accounting
principles. Preparing financial statements requires management to make estimates
and assumptions that affect the reported amounts of assets, liabilities, revenue
and expenses. Actual results may differ from these estimates. Interim results
are not necessarily indicative of results for a full year. The information
included in this Form 10-Q should be read in conjunction with Management's
Discussion and Analysis and financial statements and notes thereto included in
the Women.com Networks, Inc. prospectus, dated October 14, 1999.
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.
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 was effective for financial statements for fiscal years
beginning after December 15, 1998. Adoption of SOP No. 98-1 has not had 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 was effective for
financial statements for fiscal years beginning after December 15, 1998.
Adoption of SOP 98-5 has not had 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, as amended, is effective
for all fiscal quarters for fiscal years beginning after June 15, 2000.
Women.com is assessing the potential impact of this pronouncement on the
financial statements, however the company does not expect any significant impact
since Women.com currently does not have any derivative instruments and does not
anticipate acquiring any.
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.
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):
<PAGE> 8
<TABLE>
<CAPTION>
Quarter Ended Nine Months Ended Quarter Ended Nine Months Ended
September 30, 1999 September 30, 1999 September 30, 1998 September 30, 1998
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Numerator:
Net loss $ (17,051) $ (47,440) $ (3,789) $ (8,141)
Accretion of mandatorily
redeemable convertible
preferred stock to
redemption value (50) (295) (143) (428)
------------- ------------- ------------- -------------
Net loss attributable to common
stockholders $ (17,101) $ (47,735) $ (3,932) $ (8,569)
============= ============= ============= =============
Denominator:
Shares used in computing basic
and dilutive net loss per share 30,453 21,365 1,483 1,230
============= ============= ============= =============
Basic and diluted net loss per
share attributable to common
stockholders $ (0.56) $ (2.23) $ (2.65) $ (6.97)
============= ============= ============= =============
Antidilutive securities including
options, warrants, preferred stock and
convertible units not included in net
loss per share calculation 6,804 18,200
============= =============
</TABLE>
Comprehensive income
To date, Women.com has not had any transactions that are required to be reported
as comprehensive income, in accordance with the provisions of SFAS No. 130
"Reporting Comprehensive Income".
Letter of credit
In August 1999, Women.com entered into a 10 year operating lease to commence
January 1, 2000 which is collateralized by an irrevocable standby letter of
credit with a U.S. financial institution. The letter of credit is for
approximately $1.4 million and expires on January 31, 2001 with automatic one
year renewals at the option of the financial institution. If the letter of
credit is renewed, the letter of credit will be reduced by approximately
$237,000 each year on January 1, 2003, 2004 and 2005.
Acquisitions
Effective January 29, 1999, Women.com Networks and Hearst HomeArts, Inc. entered
into a joint venture agreement. Under the terms of the agreement, Women.com
Networks and HomeArts contributed their businesses to 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):
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Intangibles $ 14,078
Goodwill 49,898
Prepaid advertising 5,680
Property & equipment 2,044
Net current assets 14,738
-----------
$ 86,438
===========
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Intangibles include advertising and viewership base and assembled workforce. The
excess of the purchase price over the fair value of the net tangible 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 nine months ended
September 30, 1999 as if the acquisition of HomeArts and HomeArt's acquisition
of Astronet had occurred on January 1, 1998 and 1999, respectively, and after
giving effect to the purchase accounting adjustments and the effects of the
conversion of convertible preferred stock into common stock effective upon the
consummation of the merger and the roll-up of Women.com Networks LLC completed
on August 4, 1999, 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>
Year ended Nine Months ended
December 31, 1998 September 30, 1999
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Net revenues $ 11,650 $ 16,917
Loss from operations (50,140) (51,260)
Net loss attributable to common stockholders (50,171) (50,760)
Pro forma basic and diluted net loss per share $ (1.71) $ (1.47)
</TABLE>
On June 4, 1999, Women.com acquired all of the outstanding stock of
Internethoroscopes.com International. The acquisition has been accounted for
using the purchase method of accounting. The purchase price of $237,000 has
been allocated to the intangible asset (viewership base) acquired.
Equity Transactions
On May 7, 1999, 2.0 million convertible units of Women.com Networks LLC
were issued at a price of $10.00 per unit which were converted into 2.0 million
shares of common stock upon the consummation of the merger and the roll-up of
Women.com Networks LLC.
As a result of the merger of Women.com, HomeArts and Women.com Networks LLC
which was completed on August 4, 1999, all outstanding shares of preferred
stock converted into common stock and all outstanding warrants to purchase
preferred stock became exercisable for an equivalent number of shares of common
stock.
On September 7, 1999, Women.com issued, in two private placements, 2,500,000
shares of common stock at $11 per share. As a result of antidilution provisions
with respect to these private placements, 250,000 shares of common stock were
issued for no additional consideration upon completion of the initial public
offering.
Subsequent events
Women.com completed an initial public offering of its common stock on October
20, 1999 and concurrently sold shares of its common stock in private placements
to The Hearst Corporation and The Walt Disney Company. The initial public
offering, including the exercise of the underwriters' over-allotment option, and
the private placements generated an aggregate of approximately $66.8 million in
net proceeds.
Item 2. 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.
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This Quarterly Report on Form 10-Q (the "Report) contains forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934, including, without
limitation, statements regarding Women.com's expectations, beliefs,
intentions, or future strategies that are signified by the words "expects",
"anticipates", "intends", "believes", or similar language. All forward-looking
statements included in this document are based on information available to
Women.com on the date hereof, and Women.com assumes no obligation to update any
such forward-looking statements. Actual results could differ materially from
those projected in the forward-looking statements. In evaluating Women.com's
business, investors should carefully consider the information set forth below
under the caption "Risk Factors" in addition to the other information set forth
herein. Women.com cautions investors that its business and financial performance
are subject to substantial risks and uncertainties.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
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 19 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 was jointly owned
by Women.com and HomeArts. In August 1999, Women.com and HomeArts merged and the
business previously conducted by Women.com Networks LLC was 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. The HomeArts acquisition resulted in increased
revenues and expenses in 1999 as compared to 1998.
Women.com has incurred significant net losses and negative cash flows from
operations since its inception. As of September 30, 1999, Women.com had an
accumulated deficit of $73.7 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.
Substantially all of Women.com's revenues to date have been generated from
advertising and sponsorships. Advertising and sponsorship revenues represented
79% and 77% of total revenues for the three and nine months ended September 30,
1999, respectively. This compares to 73% and 70% of total revenues for the
comparable periods during the prior year.
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
<PAGE> 11
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 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 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.
Historically e-commerce revenues consisted of commissions from the sale of
magazine subscriptions, sales 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 the network magazine sites.
Astronet e-commerce revenues from services offered on its network include
personalized horoscope reports and readings. Affiliate program e-commerce
revenues are recognized upon notification from the affiliate.
Recent Developments
Women.com recently launched She Gets Dressed, its first direct retail platform.
She Gets Dressed is an online boutique offering a selection of clothing and
accessories for women. In the future, for product sales through She Gets
Dressed, Women.com will recognize revenue for 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.
Results of Operations
Revenues
Revenues were $7.2 million for the three months ended September 30, 1999, a 263%
increase compared to the same period in 1998. Approximately half of this
increase was related to the combination with HomeArts and Astronet. The
remaining increase in revenues was primarily due to Women.com's higher
advertising and sponsorship revenues during 1999. Advertising and sponsorship
revenues were $5.7 million for the three months ended September 30, 1999, a 408%
increase over the corresponding period in 1998. Production revenues also
increased 147% over the prior year to $1.1 million for the three months ended
September 30, 1999 from $432,000 for the three months ended September 30, 1998.
Barter revenue comprised less than 1% of our total revenues for the three months
ended September 30, 1999 as compared to 13% for the three months ended September
30, 1998.
Revenues for the nine months ended September 30, 1999, were $16.7 million, an
increase of 251% from the same period in 1998. The total increase was primarily
related to the combination with HomeArts and Astronet. Advertising and
sponsorship revenues were $13.0 million for the nine months ended September 30,
1999, a 363% increase over the corresponding period in 1998. Production revenues
also increased 88% over the prior year to $2.3 million for the nine months ended
September 30, 1999 from $1.2 million for the nine months ended September 30,
1998. Barter revenue comprised 1.3% of our total revenues for the nine months
ended September 30, 1999 as compared to 6.5% for the nine months ended September
30, 1998.
<PAGE> 12
Production revenues related to the relaunch of six magazine sites totaled
$800,000 and $1.7 million for the three and nine months ended September 30,
1999, respectively. These revenues, comprising 11% and 10% respectively of total
revenues, are related to Women.com's magazine content license and hosting
agreement with Hearst Communications, Inc., a principal stockholder of
Women.com.
Operating Expenses
The principal elements of Women.com's operating expenses consist of production,
product and technology expenses, sales and marketing expenses and administrative
expenses.
Production, product and technology expenses
Production, product and technology expenses consist primarily of personnel
related costs for technical operations, editorial and design activities and
content acquisition costs. Production, product and technology expenses increased
to $6.3 million for the three months ended September 30, 1999 from $1.3 million
in the same period in 1998. This increase was primarily due to increased
expenses of approximately $2.8 million associated with costs related to the
combination with HomeArts and Astronet, costs related to the hiring of
additional personnel of approximately $1.2 million, as well as increased content
acquisition costs and other production costs associated with growth in
Women.com's business.
Production, product and technology expenses increased 304% to $15.3 million for
the nine months ended September 30, 1999 compared to the same period during
1998. This increase was primarily due to increased expenses of approximately
$6.2 million associated with costs related to the combination with HomeArts and
Astronet, costs related to the hiring of additional personnel of approximately
$2.0 million, as well as increased content acquisition costs and other
production costs associated with growth in Women.com's business. 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 four additional magazine sites under its magazine content license and
hosting agreement with Hearst.
Sales and marketing expenses
Sales and marketing expenses consist primarily of personnel costs and
advertising, distribution and public relations expenses. Sales and marketing
expenses were $9.3 million for the three months ended September 30, 1999, an
increase of 150% over the same period of the prior year. During the three months
ended September 30, 1999 Women.com initiated print campaigns in 10 magazines
under its agreement with Hearst. Although not a cash expenditure, a total of
$1.5 million is included in sales and marketing expenses for the three months
ended September 30, 1999. The remainder of the increase is due to costs of
hiring additional personnel totaling $1.2 million, increased online distribution
costs of $900,000 and other sales and marketing costs associated with growth in
Women.com's business.
Sales and marketing expenses increased 264% to $26.6 million for the nine months
ended September 30, 1999 from $7.3 million for the nine months ended September
30, 1998. This increase was primarily due to increased costs of approximately
$3.2 million related to the combination with HomeArts and Astronet, a $3.8
million increase in online distribution costs, a $2.2 million dollar television
advertising campaign during the second quarter of 1999, $1.5 million in noncash
advertising expenses, a $3.3 million increase in other advertising costs and an
increase of $2.3 million in sales and marketing personnel costs. 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 consist primarily of personnel costs, legal
fees and accounting fees. General and administrative expenses were $2.2 million
for the three months ended September 30, 1999, an increase of 418% over the same
period in the prior year. The increase was primarily attributable to increased
occupancy, insurance and other costs totaling $1.3 million related to
Women.com's growing employee base. Approximately 20% of the total increase was
related to the combination with HomeArts and Astronet.
<PAGE> 13
General and administrative expenses increased 448% to $5.8 million for the nine
months ended September 30, 1999 from $1.1 million for the nine months ended
September 30, 1998. The increase was primarily due to increased occupancy,
insurance and other costs totaling $2.0 million related to a 208% increase in
Women.com's headcount year over year and costs of approximately $1.4 million
related to HomeArts and Astronet. 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 consists 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. Women.com's stock-based
compensation expense was $852,000 for the three months ended September 30, 1999
compared with $418,000 for the same period in 1998 and $2.4 million for the nine
months ended September 30, 1999 compared to $742,000 for the same period in
1998. These increases are due to increased levels of stock option grants and
increases in the deemed fair market value of the underlying common stock.
Amortization of acquired intangibles
Amortization of acquired intangibles consists of the amortization of goodwill
and intangible assets acquired. Women.com reported $5.9 million in amortization
of acquired intangibles for the three months ended September 30, 1999 compared
to $172,000 for the same period in 1998 and $14.8 million for the nine months
ended September 30, 1999 compared to $344,000 for the same period in 1998. These
increases are related to the combination with HomeArts and Astronet in January
1999.
Other income
Other income consists of interest income and other miscellaneous income. Other
income was $358,000 for the three months ended September 30, 1999 compared with
$269,000 for the same period in 1998 and $838,000 for the nine months ended
September 30, 1999 compared with $411,000 for the same period in 1998. The
increases are due to higher cash balances as a result of the private sale of
equity securities.
Interest expense
Interest expense consists of interest charges related to equipment leases and
other company debt. Interest expense was $17,000 for the three months ended
September 30, 1999 compared to $10,000 for the same period in 1998 and $43,000
for the nine months ended September 30, 1999 compared to $32,000 for the same
period in 1998. The increases are due to additional leases for office equipment
during 1999.
Income taxes
No provision for federal and state income taxes has been recorded as Women.com
incurred net losses through December 31, 1998, for the period January 1, 1999
through January 28, 1999 and for the period August 1, 1999 through September 30,
1999. 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.
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 in August 1999.
Federal and state tax effects of Women.com losses during this period were
recorded by the members of the LLC on their respective income tax returns.
Liquidity and capital resources
Until its initial public offering in October 1999, which raised net proceeds of
approximately $38.6 million including the underwriter's over-allotment,
Women.com financed its operations primarily through the private placement of its
convertible preferred stock. As of October 31, 1999 Women.com had
<PAGE> 14
approximately $106.7 million in cash and cash equivalents. Management believes
its existing cash balances are sufficient to enable Women.com to meet its
obligations for at least the next 12 months.
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 have made an assessment of the Y2K readiness of our operating, financial and
administrative systems, including the hardware and software that support our
systems.
Our task force has finished 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 has been to ensure that these third-party systems are Y2K ready. We have
confirmed the readiness of these products from the third parties and rely on
their compliance statements and testing. Women.com Networks will continue to
engage in Y2K assessment, testing and remediation.
Costs
We have spent an immaterial amount on Y2K readiness to date but expect to incur
an additional $150,000 to $200,000 in connection with identify, evaluating and
addressing Y2K readiness issues. Most of these expenses are operating costs
associated with time spent by employees and consultants evaluating Y2K readiness
matters. Such expenses, if higher than anticipated, could have a material
adverse effect on our business, results of operations and financial condition.
Although we cannot predict with any certainty the additional costs which we may
incur in the event our third party vendors and service providers are not Y2K
ready, such costs may be substantial and could have a material and adverse
effect on our business and results of operations.
Risks
We are not currently aware of any Y2K readiness problems relating to our
internally developed systems that would have a material adverse effect on our
business, results of operations and financial condition. There can be no
assurance that we will not discover Y2K readiness problems in our systems that
will require substantial revision. There can also be no assurance that
third-party software, hardware or services incorporated into our systems are Y2K
ready and will not need to be revised or replaced. Any revision or replacement
of our systems or third party system 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
<PAGE> 15
support staff. Either of these reactions could have a material adverse effect on
our business, results of operations and financial condition.
In addition, governmental agencies, utility companies, internet access
companies, third-party service providers and others outside our control may not
be Y2K ready. The failure by such entities to be Y2K ready could result in a
systematic failure beyond our control, such as a prolonged internet,
telecommunications or electrical failure, which could also prevent us from
delivering our services to our customers, decrease the use of the internet, or
prevent users from accessing our web sites, which could have a material adverse
effect on our business, results of operations and financial condition.
Contingency plan
Y2K contingency plans have been developed as part of our Y2K assessment.
RISK FACTORS THAT MAY AFFECT RESULTS OF OPERATIONS AND FINANCIAL CONDITION.
You should carefully consider the risks described below in evaluating our
business. The risks described below are not the only ones we face. Additional
risks not presently known to us or that we currently deem immaterial may also
impair our business operations in the future.
Our business, financial condition or results of operations could be materially
adversely affected by any of these risks. The trading price of our common stock
could decline due to any of these risks, and you may lose all or part of your
investment.
OUR BUSINESS IS DIFFICULT TO EVALUATE BECAUSE OUR OPERATING HISTORY IS LIMITED
AND OUR BUSINESS MODEL IS UNPROVEN
Our historical financial information is of limited value in projecting our
future operating results because of our limited operating history as a combined
organization with the HomeArts and Astronet businesses and the emerging nature
of our market. We first recognized a small amount of subscription revenues in
January 1994 and advertising revenues in March 1996 and our revenues have become
significant only recently. It is difficult to evaluate our business and our
prospects because our revenue and income potential is unproven and our business
model is still emerging. In addition, because our combination with HomeArts and
Astronet has only been effective since the end of January 1999, we are still in
the process of integrating our operations and business activities.
WE HAVE A HISTORY OF OPERATING LOSSES AND WE ANTICIPATE INCREASED LOSSES IN THE
FUTURE
We have had operating losses since we were formed. We expect to incur
significant operating losses and negative cash flows for at least the next
several years. We may never achieve profitability. If we fail to achieve
profitability or sustain or increase profitability if we achieve it, our
financial condition would be materially harmed. As of September 30, 1999, we had
an accumulated deficit of $73.8 million. Successfully achieving our growth and
profitability plan depends on, among other things, our ability to significantly
increase our revenues and meet the other challenges set forth in the following
risk factors.
OUR QUARTERLY OPERATING RESULTS FLUCTUATE SIGNIFICANTLY WHICH MAKES OUR FUTURE
OPERATING RESULTS DIFFICULT TO EVALUATE AND MAY ADVERSELY AFFECT OUR STOCK PRICE
Our operating results have fluctuated and are likely to continue to fluctuate
significantly from quarter to quarter as a result of several factors, many of
which are outside our control, and any of which could materially harm our
business. These factors include:
- fluctuations in the demand for internet advertising or electronic
commerce
<PAGE> 16
- changes in the level of traffic on our network
- fluctuations in marketing expenses and technology infrastructure costs
If our revenues in a particular quarter are lower than we anticipate, we may be
unable to reduce spending in that quarter. As a result, any shortfall in
revenues would likely adversely affect our quarterly operating results.
Specifically, in order to attract and retain a larger user base, we plan to
significantly increase our expenditures on sales and marketing, content
development, technology and infrastructure. Many of these expenditures are
planned or committed in advance and in anticipation of future revenues.
Due to the factors noted above and the other risks discussed in this section,
quarter-to-quarter comparisons of our results of operations may not accurately
predict future performance. It is possible that in some future quarters our
results of operations may be below the expectations of public market analysts or
investors. If this occurs, the price of our common stock may decline.
IF WE ARE UNABLE TO GENERATE ADDITIONAL ADVERTISING REVENUES, WHICH ACCOUNT FOR
SUBSTANTIALLY ALL OF OUR REVENUES, OUR BUSINESS WOULD BE MATERIALLY HARMED
We derive substantially all of our revenues from the sale of advertisements on
our network. If we fail to sell advertising, our revenues will be significantly
reduced. Market acceptance of Internet-based advertising is uncertain and
depends largely on advertisers' determinations that the Internet is an effective
medium for advertising. Most of our customers have limited experience with the
Internet as an advertising medium. Our ability to generate significant
advertising revenues depends upon several other factors, including:
- the development of a large, demographically attractive base of users on
our network
- our ability to continue to develop and update effective advertising
delivery and measurement systems
- our ability to maintain and increase our advertising rates given the
growing number of outlets for advertisers on the Internet
IF WE LOSE ADVERTISING CUSTOMERS TO OUR COMPETITION OR REDUCE ADVERTISING RATES
TO REMAIN COMPETITIVE, OUR REVENUES WILL DECLINE SUBSTANTIALLY AND OUR BUSINESS
WILL BE MATERIALLY HARMED
Many internet content and service providers compete with us for advertisers,
e-commerce partners and Internet users, and there are few barriers to entry. We
expect this competition to increase. Many of our current and potential
competitors in the Internet market have significantly greater financial,
editorial, technical and marketing resources, longer operating histories,
greater name recognition and more established relationships with advertisers and
advertising agencies. These competitors may be able to undertake more extensive
marketing campaigns, adopt aggressive pricing policies and devote substantially
more resources to developing Internet content and services than we can.
THE HEARST CORPORATION CONTROLS ACTIONS REQUIRING BOARD AND STOCKHOLDER APPROVAL
WHICH WEAKENS THE EFFECT OF OTHER STOCKHOLDERS' VOTES
Hearst representatives currently fill five of the ten seats on our board of
directors. In addition, Hearst beneficially owns approximately 48% of our
outstanding common stock. Given Hearst's share ownership, Hearst is able to
elect additional directors. Any action taken by our board requires the approval
of at least six directors. As a result, 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
<PAGE> 17
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.
In addition to the ability to elect additional directors, Hearst has effective
control over all other stockholder actions, including 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
benefits during its initial six-year term, we may not enjoy benefits from our
relationship with Hearst beyond the term of this agreement, including the
benefits we derive from Hearst's reputation, online content and
cross-promotional activities.
We depend on Hearst to effectively market and promote its 10 magazine sites. If
Hearst fails to do so, our brand identity could be negatively affected and our
business, financial condition and operating results would be materially harmed.
We also rely on Hearst to maintain the quality of its magazine content and to
maintain and expand its magazines' readership base. If the quality or
circulation of Hearst's magazines decline, the content of our network would
suffer and our business, financial condition and results of operations would be
materially harmed.
We may not be able to attract enough user traffic or advertisers to our network
to achieve profitability without Hearst's name or promotional capabilities. Even
with Hearst's support, we may never achieve profitability or sustain or increase
profitability if we achieve it.
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
<PAGE> 18
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 September 1999, approximately
49% of our page views were generated by Astronet and, during the same period,
approximately 68% of Astronet's traffic was generated by America Online. If the
popularity of our Astronet site declines, or if America Online stops carrying
our Astronet site, our number of visitors and page views would decrease
significantly and our business could be materially harmed.
ASTRONET CURRENTLY GENERATES NO ADVERTISING REVENUES AND WE MAY NOT BE ABLE TO
GENERATE SIGNIFICANT ADVERTISING REVENUES THROUGH ASTRONET IN THE FUTURE
We currently do not sell advertising on the Astronet site on America Online.
Although we intend to do so in the future, we believe advertising rates on the
Astronet site on America Online will be lower than on other areas of our
network. Failure to generate significant revenues through Astronet in the future
may limit our growth and otherwise materially harm our business.
IF WE ARE NOT SUCCESSFUL IN INTEGRATING THE HOMEARTS AND ASTRONET OPERATIONS,
OUR BUSINESS WILL BE MATERIALLY HARMED
Because our relationship with Hearst, including our combination with HomeArts
and Astronet, occurred in January 1999, we are still in the process of
integrating our operations and business activities. If we fail to successfully
integrate these aspects of our business, we may not recognize potential benefits
of the combination and we may have significant duplication of costs and capital
expenditures.
In particular, our integration of HomeArts and Astronet may be complicated by
the fact that management and other operations of these businesses have taken
place and, to some extent, will continue to take place in the eastern United
States as opposed to our headquarters in California. In addition, since HomeArts
has been operated as a division of Hearst, a widely diversified publishing
company, integration difficulties may arise in integrating it into our
stand-alone operations. This integration process involves a significant amount
of our management's time, resources and energy. We are also in the process of
integrating our databases with those of Hearst, including HomeArts, Astronet and
Hearst's magazine sites, and if we experience difficulty integrating these
databases, our costs may increase and our business, financial condition and
results of operations could be materially harmed.
OUR PROMOTION OF THE WOMEN.COM BRAND MUST BE SUCCESSFUL IN ORDER FOR US TO
ATTRACT USERS AS WELL AS ADVERTISERS AND OTHER STRATEGIC PARTNERS
<PAGE> 19
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 further enhance our brand awareness
and expand and broaden our reach to a wider variety of users.
With the exception of our Hearst relationship, our existing branding and content
alliances are short-term agreements. When these agreements terminate, we may not
be able to renew them on favorable terms or to obtain similar agreements with
other parties. Additionally, our competitors may enter into agreements with our
existing partners or other parties that are integral to our prospective content
and brand development.
OUR EXCLUSIVITY AGREEMENT WITH DISNEY MAY PREVENT US FROM SUCCESSFULLY EXPANDING
OUR BRAND AWARENESS AND CONTENT OFFERINGS THROUGH PARTNERSHIPS WITH TELEVISION
OR CABLE NETWORKS
In connection with the Disney private placement, we have agreed not to accept
any equity investment from, or enter into a strategic relationship with, another
television or cable network for a period of six months, during which time Disney
and we will discuss the possibility of entering into a strategic relationship.
We cannot assure you that we will agree to a strategic relationship with Disney
on acceptable terms. If we fail to do so, we may not be able to enter into a
strategic relationship with another television or cable network after the six
month exclusivity period with Disney has ended. If we fail to enter into such a
strategic relationship, our ability to develop greater brand awareness and
expand our content offerings may be limited or delayed.
WE MUST ESTABLISH AND MAINTAIN ONLINE DISTRIBUTION CHANNELS TO GENERATE TRAFFIC
TO OUR NETWORK IN ORDER TO BE SUCCESSFUL
We depend on establishing and maintaining online distribution relationships with
high-traffic Internet sites and leading Internet portals to ensure the
visibility of our network and to generate additional traffic. Our business could
be materially harmed if we do not establish and maintain additional
relationships on commercially reasonable terms or if any of our relationships do
not result in increased network traffic and visibility. In September 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
<PAGE> 20
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 HAVE RECENTLY LAUNCHED A DIRECT E-COMMERCE MODEL AND OUR BUSINESS AND
FINANCIAL CONDITION COULD BE HARMED IF THIS MODEL IS NOT SUCCESSFUL
We may not be able to achieve any or all of the necessary components of a
successful e-commerce operation. We currently operate an affiliate-based
e-commerce model in which we link shoppers on our network to the sites of our
e-commerce partners to complete their online purchases. In this affiliate-based
model, our e-commerce partners pay us for product placement on our network,
which is recognized as advertising revenue. In addition, we have recently
launched a direct e-commerce model in which we may buy inventory and sell
products and services directly to consumers. We have no experience in
implementing or operating a direct e-commerce business, and if we are not
successful in implementing it, our business could be materially harmed. In
addition, unlike our current affiliate-based commerce model, we will assume
liability for any inventory that we acquire and will bear the risk of inventory
damage or loss as well as product returns which may adversely affect our results
of operations.
WE INTEND TO PURSUE STRATEGIC ACQUISITIONS AND OUR BUSINESS COULD BE MATERIALLY
HARMED IF WE FAIL TO SUCCESSFULLY INTEGRATE ACQUIRED BUSINESSES
We often evaluate acquisition opportunities that could provide us with
additional product or content offerings or additional industry expertise. Any
future acquisition could result in difficulties assimilating acquired operations
and products, diversion of management's attention away from other business
issues and amortization of acquired intangible assets. Specifically, we expect
that future transactions may involve the acquisition of early-stage Internet
content and technology companies. Integration of these companies may result in
problems related to integration of technology and inexperienced management
teams. Our management has had limited experience in assimilating acquired
organizations and products into our operations. We may not successfully
integrate any operations, personnel or products that we may acquire in the
future. If we fail to successfully integrate acquisitions, our business would be
materially harmed.
GROWTH IN OUR OPERATION HAS AND WILL CONTINUE TO STRAIN OUR RESOURCES AND OUR
FAILURE TO MANAGE GROWTH EFFECTIVELY COULD HARM OUR BUSINESS
We have recently experienced significant growth and are planning to further
expand our business and operations. If we are unable to successfully manage this
growth our business could be materially harmed. We have had a significant
increase in our number of employees during the last year. 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 Senior Vice President, Marketing and
Strategic Partnerships and our Chief Financial Officer. As a result, our
management team may have difficulty working together to successfully manage our
anticipated growth.
OUR SYSTEMS MAY FAIL OR BE INTERRUPTED AND THEREBY LIMIT OUR USER TRAFFIC AND
POTENTIALLY HARM OUR BUSINESS
If our network fails for any reason, even for only a short period of time, our
business and reputation would be materially harmed. We rely on third parties for
proper functioning of our computer 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
May and June 1999, user access to our pregnancy channel was disrupted as a
result of a system failure. Although this disruption has been remedied, we may
encounter unforeseen difficulties in maintaining full access to this or other
<PAGE> 21
channels on our network, and, therefore, there may be additional delays. This
failure and any additional failures may adversely affect our user traffic
results in our current or any 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
<PAGE> 22
card numbers. Because many of our advertisers seek to advertise on our network
to encourage people to use the Internet to purchase goods or services, the
failure of the Internet as a medium for commerce would seriously harm our
business, financial condition or results of operations.
WE CANNOT PREDICT TO WHAT EXTENT WE MAY BE HELD LIABLE FOR OUR SERVICES AND USER
GENERATED CONTENT AND IF WE ARE SUBJECT TO SUBSTANTIAL LIABILITY OUR BUSINESS
MAY BE MATERIALLY HARMED
We host a wide variety of information, community, communications and commerce
services that enable our users to exchange information, conduct business and
engage in various online activities. Claims could be made against us for
negligence, defamation, libel, copyright or trademark infringement, personal
injury or other legal claims based on the nature and content of information that
may be posted online by our users. The laws relating to the liability of
providers of these online services for the activities of their users are
currently unsettled. In addition, we could be exposed to liability with respect
to the selection of listings that may be accessible through our
Women.com-branded products and properties, or through content and materials that
may be posted by users on message boards or in clubs, chat rooms or other
interactive community-building services. It is also possible that if any
information provided through our services, such as financial information,
contains errors, third parties could make claims against us for losses incurred
in reliance on such information. We offer Internet-based e-mail services, which
expose us to potential risks, such as liabilities or claims resulting from
unsolicited e-mail, lost or misdirected messages, illegal or fraudulent use of
e-mail, or interruptions or delays in e-mail service. Investigating and
defending such claims is expensive, even to the extent these claims do not
result in liability. Although we carry general liability insurance, this
insurance may not be available to cover a particular claim or may be
insufficient.
In addition, we could be exposed to liability arising from the activities of
users of our content or services or with respect to the unauthorized duplication
or insertion of illegal or inappropriate material accessed directly or
indirectly through our services. Several private lawsuits seeking to impose such
liability upon content providers, online services companies and Internet access
providers are currently pending. In addition, legislation currently imposes
liability for, and in some cases prohibits, the transmission over the Internet
of some types of information. This legislation or any similar future regulation
could expose us to significant liabilities associated with our content or
services. Our activities could be or become subject to various forms of
taxation, including but not limited to sales and use taxes, the imposition of
which could materially harm our business, financial condition or results of
operations.
The imposition of potential liability for our content or services could require
us to implement measures to reduce our exposure to such liability arising out of
the content or services we offer, which may require the expenditure of
substantial resources, or to discontinue some content or service offerings. The
increased attention focused upon liability issues as a result of these lawsuits
and legislative proposals could affect the growth of Internet use. While we
carry general liability insurance, it may not be adequate to compensate us in
the event we become liable for our content or services. Any liability in excess
of our general liability insurance could materially harm our business, financial
condition or results of operations.
CONSUMER PROTECTION PRIVACY REGULATIONS COULD IMPAIR OUR ABILITY TO OBTAIN
INFORMATION ABOUT OUR USERS
Our network captures information regarding our registered members in order to
tailor content to them and assist advertisers in targeting their advertising
campaigns to particular demographic groups. However, privacy concerns may cause
users to resist providing the personal data necessary to support this tailoring
capability. Even the perception of security and privacy concerns, whether or not
valid, may indirectly inhibit market acceptance of our network. In addition,
legislative or regulatory requirements 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.
<PAGE> 23
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 the past, third parties have alleged that we have infringed upon
their patent rights and we cannot assure you that in the future third parties
will not bring additional 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
Our stock price may fluctuate dramatically due to a number of factors such as:
- actual or anticipated quarterly variations in our operating results
<PAGE> 24
- changes in market expectations of our future financial performance or
changes in the estimates of securities analysts
- a limited public float due to Hearst's share ownership and, for the six
months following our initial public offering in October 1999,
contractual restrictions on resale
- a significant increase in the number of shares available for resale
beginning in April 2000 as a result of the expiration of the contractual
restrictions on resale
- 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, 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 REPORT CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES AND ACTUAL RESULTS THAT DIFFER FROM THOSE STATEMENTS MAY
MATERIALLY HARM OUR BUSINESS
This report 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 report may also contain
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
<PAGE> 25
anticipated in these forward-looking statements for many reasons, including the
risks faced by us described above in "Risk Factors" and elsewhere in this
report.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Women.com maintains its cash equivalents in an institutional money market fund.
As of September 30, 1999 all of Women.com's cash equivalent investments will
mature in one year or less. Women.com did not hold derivative financial
instruments as of September 30, 1999 and has never held any such instruments.
Currently all sales and expenses are denominated in U.S. dollars and as a result
no foreign exchange gains or losses have been experienced to date. Women.com
Networks does not expect any transactions in foreign currencies during 1999 nor
has it engaged in foreign currency hedging to date.
Part II. Other information
Item 1. Legal Proceedings
None.
Item 2. Changes in Securities and Use of Proceeds
(c) On September 7, 1999, Women.com sold 1,250,000 shares of its
common stock to Hearst Communications, Inc. and 1,250,000 shares of its common
stock to Torstar Corporation. The aggregate proceeds to Women.com from such
sales was $27.5 million. The sales were exempt from registration under Section
4(2) of the Securities Act of 1933, as amended, as the sale did not involve a
public offering.
(d) Women.com's Registration Statement on Form S-1 (No. 333-78363)
was declared effective, and the offering commenced, on October 14, 1999. All
securities were sold and the offering has terminated. The managing underwriters
were Morgan Stanley Dean Witter, Deutsche Banc Alex. Brown and Salomon Smith
Barney. The class of securities registered was common stock. An aggregate of
4,312,500 shares of common stock were registered and sold for the account of
Women.com, and the aggregate offering price was $43,125,000. Aggregate
underwriting discounts and commissions were $3,018,750. Estimated expenses for
the offering were $1,500,000. Net proceeds to Women.com were $38,606,250.
Women.com received the proceeds from the offering after the period covered
by this Report. The net proceeds have been invested in short-term, investment
grade, interest-bearing securities.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) See Exhibit Index on page 28.
(b) No reports on Form 8-K were filed during the three months ended
September 30, 1999.
<PAGE> 26
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: November 12, 1999 Women.com Networks, Inc.
By: /s/ Michael Perry
-------------------------
Title: Chief Financial Officer
Duly authorized officer and
Principal financial officer
<PAGE> 27
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
<S> <C>
3.1 Restated Certificate of Incorporation of the Registrant
3.2 Amended and Restated Bylaws of the Registrant
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 among the
Registrant, Marleen McDaniel, Ellen Pack, certain holders of the Registrant's common
stock and certain holders of warrants to purchase the Registrant's common stock
4.4* Investor Rights Agreement, dated July 9, 1999, between the Registrant and Torstar
Corporation
4.5* Investor Rights Agreement, dated July 9, 1999, between the Registrant and The Walt
Disney Company
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 the Registrant and Hearst Communications, Inc.,
dated January 27, 1999
10.3+* Investment Agreement by and between the Registrant 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 the Registrant 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 the Registrant and Marleen McDaniel,
dated January 29, 1999
10.6+* Investment Agreement by and between the Registrant and Rodale Press, Inc., dated
January 27, 1999
10.7* Letter Agreement by and between the Registrant and Rodale Press, Inc., dated January
27, 1999
10.8+* Website Agreement by and between the Registrant and Rodale Press, Inc., dated May 2,
1997
10.9* Warrant Purchase Agreement by and between the Registrant
and MediaOne Interactive Services, Inc. (formerly known as
US West Interactive Services, Inc.), dated July 7, 1997
10.10* Warrant Agreement by and between the Registrant 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 the
Registrant and Golden Century Investment Company
10.12* Amendment No. 1 to the Master Lease Agreement, dated December 1, 1994, by and between
the Registrant and Golden Century Investment Company
10.13* First Amendment to Lease Agreement, dated July 27, 1997,
by and between the Registrant and Carramerica Realty
Corporation (the successor in interest to Golden Century
Investment Company)
10.14* Second Amendment to Lease Agreement, dated August 31,
1997, by and between the Registrant and Carramerica Realty
Corporation
10.15* Third Amendment to Lease Agreement, dated October 27,
1998, by and between the Registrant and Carramerica Realty
Corporation
10.19* Series D Preferred Stock Purchase Agreement by and among
the Registrant and the purchasers of Series D Preferred
Stock, dated June 5, 1998
</TABLE>
<PAGE> 28
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
<S> <C>
10.20* Series E Preferred Stock Purchase Agreement by and among
the Registrant and the purchasers of Series E Preferred
Stock, dated May 7, 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
10.24* Asset Purchase Agreement by and among the Registrant, Wild Wild Web, Inc., Raymond B.
Kropp and Victoria P. Kropp dated April 2, 1998
10.25* Fourth Amendment to Lease Agreement by and between the
Registrant and Carramerica Realty Corporation dated March
24, 1999
10.26* Stock Purchase Agreement by and between the Registrant and
Hearst Communications, Inc., dated July 9, 1999
10.27+* Letter Agreement by and among the Registrant, Torstar
Corporation and Harlequin Enterprise Limited, dated June
25, 1999, as amended July 9, 1999
10.28* Amendment No. 1 to Letter Agreement by and among the Registrant, Torstar Corporation
and Harlequin Enterprise Limited, dated July 9, 1999
10.29* Stock Purchase Agreement by and among the Registrant and Torstar Corporation, dated
July 9, 1999
10.31* Amendment No. 1 to Stock Purchase Agreement by and between the Registrant and Hearst
Communications, Inc., dated September 7, 1999
10.32* Amendment No. 1 to Stock Purchase Agreement by and between the Registrant and Torstar
Corporation, dated September 3, 1999
10.33* Form of Stock Purchase Agreement by and between the Registrant and Hearst
Communications, Inc.
10.34* Warrant Agreement by and between Women.com Networks and HC
Crown Corp., dated August 19, 1997
10.35* Fifth Amendment to Lease Agreement, dated May 25, 1999, by
and between the Registrant and Carramerica Realty
Corporation
10.36* Agreement of Lease between the Registrant and Polestar
Fifth Property Associates LLC, dated July 31, 1999
27.1 Financial Data Schedule
</TABLE>
- ------------------------
*Incorporated by reference to the exhibit to the Registration Statement on Form
S-1 (No. 333-78363).
+Confidential treatment has been granted by the SEC on portions of this Exhibit.
<PAGE> 1
EXHIBIT 3.1
RESTATED CERTIFICATE OF INCORPORATION
OF
HEARST HOMEARTS, INC.
ALFRED C. SIKES AND JODIE W. KING do hereby certify:
ONE: They are the President and Secretary of Hearst HomeArts, Inc., a
corporation organized and existing under the laws of the State of Delaware,
respectively.
TWO: The original name of this corporation is Hearst HomeArts, Inc. and the
original Certificate of Incorporation was filed with the Secretary of State of
the State of Delaware on January 25, 1999.
THREE: The Certificate of Incorporation of this corporation is hereby
amended and restated as follows:
I.
The name of the Corporation is Women.com Networks, Inc. (the "Corporation"
or the "Company").
II.
The address of the Corporation's registered office in the State of Delaware
is Corporation Trust Center, 1209 Orange Street, Wilmington, New Castle County,
Delaware 19801. The name of the registered agent at such address is the
Corporation Trust Company.
III.
The purpose of the Corporation is to engage in any lawful act or activity
for which a corporation may be organized under the General Corporation Law of
the State of Delaware.
IV.
A. This Corporation is authorized to issue two classes of stock to be
designated, respectively, "Common Stock" and "Preferred Stock." The total number
of shares which the Corporation is authorized to issue is Two Hundred Million
(200,000,000) shares, One Hundred Ninety Five Million (195,000,000) shares of
which shall be Common Stock, each having a par value of one tenth of one cent
($0.001) (the "Common Stock") and Five Million (5,000,000) shares of which shall
be Preferred Stock, each having a par value of one tenth of one cent ($0.001)
(the "Preferred Stock").
B. The Preferred Stock may be issued from time to time in one or more
series. The Board of Directors is hereby authorized, by filing a certificate (a
"Preferred Stock Designation") pursuant to the Delaware General Corporation Law,
to fix or alter from time to time the designation, powers, preferences and
rights of the shares of each such series and the qualifications, limitations or
restrictions of any wholly unissued series of Preferred Stock, and to establish
from time to time the number of shares constituting any such series or any of
them; and to increase or decrease the number of shares of any series subsequent
to the issuance of shares of that series, but not below the number of shares of
such series then outstanding. In case the number of shares of any series shall
be decreased in accordance with
1
<PAGE> 2
the foregoing sentence, the shares constituting such decrease shall resume the
status that they had prior to the adoption of the resolution originally fixing
the number of shares of such series.
V.
A. For the management of the business and for the conduct of the affairs
of the Corporation, and in further definition, limitation and regulation of the
powers of the Corporation, of its directors and of its stockholders or any class
thereof, as the case may be, it is further provided that:
1. The management of the business and the conduct of the affairs of
the Corporation shall be vested in its Board of Directors. The number of
directors which shall constitute the whole Board of Directors shall be fixed
exclusively by one or more resolutions adopted by the Board of Directors.
2. Board of Directors.
a. Subject to the rights of the holders of any series of
Preferred Stock to elect additional directors under specified circumstances,
following the closing of the initial public offering pursuant to an effective
registration statement under the Securities Act of 1933, as amended (the "1933
Act"), covering the offer and sale of Common Stock to the public (the "Initial
Public Offering"), the directors shall be divided into three classes designated
as Class I, Class II and Class III, respectively. Directors shall be assigned to
each class in accordance with a resolution or resolutions adopted by the Board
of Directors. At the first annual meeting of stockholders following the closing
of the Initial Public Offering, the term of office of the Class I directors
shall expire and Class I directors shall be elected for a full term of three
years. At the second annual meeting of stockholders following the Initial Public
Offering, the term of office of the Class II directors shall expire and Class II
directors shall be elected for a full term of three years. At the third annual
meeting of stockholders following the Initial Public Offering, the term of
office of the Class III directors shall expire and Class III directors shall be
elected for a full term of three years. At each succeeding annual meeting of
stockholders, directors shall be elected for a full term of three years to
succeed the directors of the class whose terms expire at such annual meeting.
During such time or times that the Corporation is subject to Section 2115(b) of
the California General Corporation Law ("CGCL"), this Section A.2(a) of this
Article V shall become effective and be applicable only when the Corporation is
a "listed" corporation within the meaning of Section 301.5 of the CGCL.
b. In the event that the Corporation (i) is subject to Section
2115(b) of the CGCL and (ii) is not a "listed" corporation or ceases to be a
"listed" corporation under Section 301.5 of the CGCL, Section A. 2(a) of this
Article V shall not apply and all directors shall be shall be elected at each
annual meeting of stockholders to hold office until the next annual meeting.
c. No person entitled to vote at an election for directors may
cumulate votes to which such person is entitled, unless, at the time of such
election, the Corporation (i) is subject to Section 2115(b) of the CGCL and (ii)
is not a "listed" corporation or ceases to be a "listed" corporation under
Section 301.5 of the CGCL. During this time, every stockholder entitled to vote
at an election for directors may cumulate such stockholder's votes and give one
candidate a number of votes equal to the number of directors to be elected
multiplied by the number of votes to which such stockholder's shares are
otherwise entitled, or distribute the stockholder's votes on the same principle
among as many candidates as such stockholder thinks fit. No stockholder,
however, shall be entitled to so cumulate such stockholder's votes unless (i)
the names of such candidate or candidates have been placed in nomination prior
to the voting and (ii) the stockholder has given notice at the meeting, prior to
the
2
<PAGE> 3
voting, of such stockholder's intention to cumulate such stockholder's votes. If
any stockholder has given proper notice to cumulate votes, all stockholders may
cumulate their votes for any candidates who have been properly placed in
nomination. Under cumulative voting, the candidates receiving the highest number
of votes, up to the number of directors to be elected, are elected.
d. Notwithstanding the foregoing provisions of this section,
each director shall serve until his successor is duly elected and qualified or
until his death, resignation or removal. No decrease in the number of directors
constituting the Board of Directors shall shorten the term of any incumbent
director.
3. Removal of Directors.
a. During such time or times that the Corporation is subject to
Section 2115(b) of the CGCL, the Board of Directors or any individual director
may be removed from office at any time without cause by the affirmative vote of
the holders of at least a majority of the outstanding shares entitled to vote on
such removal; provided, however, that unless the entire Board is removed, no
individual director may be removed when the votes cast against such director's
removal, or not consenting in writing to such removal, would be sufficient to
elect that director if voted cumulatively at an election which the same total
number of votes were cast (or, if such action is taken by written consent, all
shares entitled to vote were voted) and the entire number of directors
authorized at the time of such director's most recent election were then being
elected.
b. At any time or times that the Corporation is not subject to
Section 2115(b) of the CGCL and subject to any limitations imposed by law,
Section A. 3(a) above shall no longer apply and removal shall be as provided in
Section 141(k) of the Delaware General Corporation Law.
4. Vacancies.
a. Subject to the rights of the holders of any series of
Preferred Stock, any vacancies on the Board of Directors resulting from death,
resignation, disqualification, removal or other causes and any newly created
directorships resulting from any increase in the number of directors, shall,
unless the Board of Directors determines by resolution that any such vacancies
or newly created directorships shall be filled by the stockholders, except as
otherwise provided by law, be filled only by the affirmative vote of a majority
of the directors then in office, even though less than a quorum of the Board of
Directors, and not by the stockholders. Any director elected in accordance with
the preceding sentence shall hold office for the remainder of the full term of
the director for which the vacancy was created or occurred and until such
director's successor shall have been elected and qualified.
b. If at the time of filling any vacancy or any newly created
directorship, the directors then in office shall constitute less than a majority
of the whole board (as constituted immediately prior to any such increase), then
the Delaware Court of Chancery may, upon application of any stockholder or
stockholders holding at least ten percent (10%) of the total number of shares at
the time outstanding having the right to vote for such directors, summarily
order the election to be held to fill any such vacancies or newly created
directorships, or to replace the directors chosen by the directors then in
offices as aforesaid, which election shall be governed by Section 211 of the
Delaware General Corporation Law.
3
<PAGE> 4
c. At any time or times that the Corporation is subject to
Section 2115(b) of the CGCL, if, after the filing of any vacancy by the
directors then in office who have been elected by stockholders shall constitute
less than a majority of the directors then in office, then
(i) Any holder or holders of an aggregate of five percent
(5%) or more of the total number of shares at the time outstanding having the
right to vote for those directors may call a special meeting of stockholders; or
(ii) The Superior Court of the proper county shall, upon
application of such stockholder or stockholders, summarily order a special
meeting of stockholders, to be held to elect the entire board, all in accordance
with Section 305(c) of the CGCL. The term of office of any director shall
terminate upon that election of a successor.
B.
1. Subject to paragraph (h) of Section 43 of the Bylaws, except for
Sections 6, 13, 15, 17, 18, 20, and 45, which may only be amended by the
affirmative vote of at least sixty-six and two-thirds percent (66 2/3%) of the
voting power of all the then-outstanding shares of the voting stock of the
Corporation entitled to vote, the Bylaws may be altered or amended or new Bylaws
adopted by the affirmative vote of at least a majority of the voting power of
all of the then-outstanding shares of the voting stock of the Corporation
entitled to vote. The Board of Directors shall also have the power to adopt,
amend or repeal Bylaws.
2. The directors of the Corporation need not be elected by written
ballot unless the Bylaws so provide.
3. No action shall be taken by the stockholders of the Corporation
except at an annual or special meeting of stockholders called in accordance with
the Bylaws or by written consent of the stockholders in accordance with the
Bylaws prior to the closing of the Corporation's Initial Public Offering and
following the closing of the Initial Public Offering no action shall be taken by
the stockholders by written consent.
4. Advance notice of stockholder nominations for the election of
directors and of business to be brought by stockholders before any meeting of
the stockholders of the Corporation shall be given in the manner provided in the
Bylaws of the Corporation.
VI.
A. The liability of the directors for monetary damages shall be
eliminated to the fullest extent under applicable law.
B. The Corporation is authorized to provide indemnification of agents (as
defined in Section 317 of the CGCL) for breach of duty to the Corporation and
its stockholders through bylaw provisions or through agreements with agents, or
through stockholder resolutions, or otherwise, in excess of the indemnification
otherwise permitted by Section 317 of the CGCL, subject, at any time or times
the Corporation is subject to Section 2115(b) to the limits on such excess
indemnification set forth in Section 204 of the CGCL.
4
<PAGE> 5
C. Any repeal or modification of this Article VI shall be prospective and
shall not affect the rights under this Article VI in effect at the time of the
alleged occurrence of any act or omission to act giving rise to liability or
indemnification.
VII.
A. The Corporation reserves the right to amend, alter, change or repeal
any provision contained in this Restated Certificate of Incorporation, in the
manner now or hereafter prescribed by statute, except as provided in paragraph
B. of this Article VII, and all rights conferred upon the stockholders herein
are granted subject to this reservation.
B. Notwithstanding any other provisions of this Restated Certificate of
Incorporation or any provision of law which might otherwise permit a lesser vote
or no vote, but in addition to any affirmative vote of the holders of any
particular class or series of the voting stock required by law, this Restated
Certificate of Incorporation or any Preferred Stock Designation, the affirmative
vote of the holders of at least sixty-six and two-thirds percent (66-2/3%) of
the voting power of all of the then-outstanding shares of the Voting Stock,
voting together as a single class, shall be required to alter, amend or repeal
Articles V, VI and VII.
The foregoing Restated Certificate of Incorporation has been duly approved
by the Board of Directors.
The foregoing Restated Certificate of Incorporation has been duly approved
by the vote of the stockholders in accordance with Sections 242 and 245 of the
Delaware General Corporation Law. The number of shares voting in favor of the
amendment equaled or exceeded the vote required.
5
<PAGE> 6
IN WITNESS WHEREOF, the undersigned has signed this certificate this 4th
day of August, 1999, and hereby affirms and acknowledges under penalty of
perjury that the filing of this Restated Certificate of Incorporation is the act
and deed of Hearst HomeArts, Inc.
HEARST HOMEARTS, INC.
By: /s/ Alfred C. Sikes
-------------------------------------
Alfred C. Sikes
President
By: /s/ Jodie W. King
-------------------------------------
Jodie W. King
Secretary
6
<PAGE> 1
EXHIBIT 3.2
AMENDED AND RESTATED
BYLAWS
OF
WOMEN.COM NETWORKS, INC.
(A DELAWARE CORPORATION)
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
ARTICLE I OFFICES....................................................................1
Section 1. Registered Office......................................................1
Section 2. Other Offices..........................................................1
ARTICLE II CORPORATE SEAL.............................................................1
Section 3. Corporate Seal.........................................................1
ARTICLE III STOCKHOLDERS' MEETINGS.....................................................1
Section 4. Place Of Meetings......................................................1
Section 5. Annual Meeting.........................................................1
Section 6. Special Meetings.......................................................3
Section 7. Notice Of Meetings.....................................................4
Section 8. Quorum.................................................................4
Section 9. Adjournment And Notice Of Adjourned Meetings...........................4
Section 10. Voting Rights..........................................................5
Section 11. Joint Owners Of Stock..................................................5
Section 12. List Of Stockholders...................................................5
Section 13. Action Without Meeting.................................................5
Section 14. Organization...........................................................6
ARTICLE IV DIRECTORS..................................................................7
Section 15. Number And Term Of Office..............................................7
Section 16. Powers.................................................................7
Section 17. Classes Of Directors...................................................7
Section 18. Vacancies..............................................................7
Section 19. Resignation............................................................8
Section 20. Removal................................................................8
Section 21. Meetings...............................................................8
Section 22. Quorum And Voting......................................................9
Section 23. Action Without Meeting.................................................9
Section 24. Fees And Compensation..................................................9
Section 25. Committees............................................................10
Section 26. Organization..........................................................11
ARTICLE V OFFICERS..................................................................11
</TABLE>
i.
<PAGE> 3
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
<S> <C>
Section 27. Officers Designated...................................................11
Section 28. Tenure And Duties Of Officers.........................................11
Section 29. Delegation Of Authority...............................................12
Section 30. Resignations..........................................................12
Section 31. Removal...............................................................13
ARTICLE VI EXECUTION OF CORPORATE INSTRUMENTS AND VOTING OF SECURITIES OWNED
BY THE CORPORATION........................................................13
Section 32. Execution Of Corporate Instruments....................................13
Section 33. Voting Of Securities Owned By The Corporation.........................13
ARTICLE VII SHARES OF STOCK...........................................................14
Section 34. Form And Execution Of Certificates....................................14
Section 35. Lost Certificates.....................................................14
Section 36. Transfers.............................................................14
Section 37. Fixing Record Dates...................................................15
Section 38. Registered Stockholders...............................................16
ARTICLE VIII OTHER SECURITIES OF THE CORPORATION.......................................16
Section 39. Execution Of Other Securities.........................................16
ARTICLE IX DIVIDENDS.................................................................16
Section 40. Declaration Of Dividends..............................................16
Section 41. Dividend Reserve......................................................16
ARTICLE X FISCAL YEAR...............................................................17
Section 42. Fiscal Year...........................................................17
ARTICLE XI INDEMNIFICATION...........................................................17
Section 43. Indemnification Of Directors, Executive Officers, Other
Officers, Employees And Other Agents..................................17
ARTICLE XII NOTICES...................................................................20
Section 44. Notices...............................................................20
ARTICLE XIII AMENDMENTS................................................................21
Section 45. Amendments............................................................21
ARTICLE XIV LOANS TO OFFICERS.........................................................22
Section 46. Loans To Officers.....................................................22
</TABLE>
ii.
<PAGE> 4
AMENDED AND RESTATED
BYLAWS
OF
WOMEN.COM NETWORKS, INC.
(A DELAWARE CORPORATION)
ARTICLE I
OFFICES
SECTION 1. REGISTERED OFFICE. The registered office of the corporation
in the State of Delaware shall be in the City of Wilmington, County of New
Castle.
SECTION 2. OTHER OFFICES. The corporation shall also have and maintain
an office or principal place of business at such place as may be fixed by the
Board of Directors, and may also have offices at such other places, both within
and without the State of Delaware as the Board of Directors may from time to
time determine or the business of the corporation may require.
ARTICLE II
CORPORATE SEAL
SECTION 3. CORPORATE SEAL. The corporate seal shall consist of a die
bearing the name of the corporation and the inscription, "Corporate
Seal-Delaware." Said seal may be used by causing it or a facsimile thereof to be
impressed or affixed or reproduced or otherwise.
ARTICLE III
STOCKHOLDERS' MEETINGS
SECTION 4. PLACE OF MEETINGS. Meetings of the stockholders of the
corporation shall be held at such place, either within or without the State of
Delaware, as may be designated from time to time by the Board of Directors, or,
if not so designated, then at the office of the corporation required to be
maintained pursuant to Section 2 hereof.
SECTION 5. ANNUAL MEETING.
(a) The annual meeting of the stockholders of the corporation,
for the purpose of election of directors and for such other business as may
lawfully come before it, shall be held on such date and at such time as may be
designated from time to time by the Board of Directors.
(b) At an annual meeting of the stockholders, only such business
shall be conducted as shall have been properly brought before the meeting. To be
properly brought before an annual meeting, business must be: (A) specified in
the notice of meeting (or any
1.
<PAGE> 5
supplement thereto) given by or at the direction of the Board of Directors, (B)
otherwise properly brought before the meeting by or at the direction of the
Board of Directors, or (C) otherwise properly brought before the meeting by a
stockholder. For business to be properly brought before an annual meeting by a
stockholder, the stockholder must have given timely notice thereof in writing to
the Secretary of the corporation. To be timely, a stockholder's notice must be
delivered to or mailed and received at the principal executive offices of the
corporation not later than the close of business on the sixtieth (60th) day nor
earlier than the close of business on the ninetieth (90th) day prior to the
first anniversary of the preceding year's annual meeting; provided, however,
that in the event that no annual meeting was held in the previous year or the
date of the annual meeting has been changed by more than thirty (30) days from
the date contemplated at the time of the previous year's proxy statement, notice
by the stockholder to be timely must be so received not earlier than the close
of business on the ninetieth (90th) day prior to such annual meeting and not
later than the close of business on the later of the sixtieth (60th) day prior
to such annual meeting or, in the event public announcement of the date of such
annual meeting is first made by the corporation fewer than seventy (70) days
prior to the date of such annual meeting, the close of business on the tenth
(10th) day following the day on which public announcement of the date of such
meeting is first made by the corporation. A stockholder's notice to the
Secretary shall set forth as to each matter the stockholder proposes to bring
before the annual meeting: (i) a brief description of the business desired to be
brought before the annual meeting and the reasons for conducting such business
at the annual meeting, (ii) the name and address, as they appear on the
corporation's books, of the stockholder proposing such business, (iii) the class
and number of shares of the corporation which are beneficially owned by the
stockholder, (iv) any material interest of the stockholder in such business and
(v) any other information that is required to be provided by the stockholder
pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended
(the "1934 Act"), in his capacity as a proponent to a stockholder proposal.
Notwithstanding the foregoing, in order to include information with respect to a
stockholder proposal in the proxy statement and form of proxy for a
stockholder's meeting, stockholders must provide notice as required by the
regulations promulgated under the 1934 Act. Notwithstanding anything in these
Bylaws to the contrary, no business shall be conducted at any annual meeting
except in accordance with the procedures set forth in this paragraph (b). The
chairman of the annual meeting shall, if the facts warrant, determine and
declare at the meeting that business was not properly brought before the meeting
and in accordance with the provisions of this paragraph (b), and, if he should
so determine, he shall so declare at the meeting that any such business not
properly brought before the meeting shall not be transacted.
(c) Only persons who are nominated in accordance with the
procedures set forth in this paragraph (c) shall be eligible for election as
directors. Nominations of persons for election to the Board of Directors of the
corporation may be made at a meeting of stockholders by or at the direction of
the Board of Directors or by any stockholder of the corporation entitled to vote
in the election of directors at the meeting who complies with the notice
procedures set forth in this paragraph (c). Such nominations, other than those
made by or at the direction of the Board of Directors, shall be made pursuant to
timely notice in writing to the Secretary of the corporation in accordance with
the provisions of paragraph (b) of this Section 5. Such stockholder's notice
shall set forth (i) as to each person, if any, whom the stockholder proposes to
nominate for election or re-election as a director: (A) the name, age, business
address and residence address of such person, (B) the principal occupation or
employment of such person, (C) the class and number of shares of the corporation
which are beneficially owned by such
2.
<PAGE> 6
person, (D) a description of all arrangements or understandings between the
stockholder and each nominee and any other person or persons (naming such person
or persons) pursuant to which the nominations are to be made by the stockholder,
and (E) any other information relating to such person that is required to be
disclosed in solicitations of proxies for election of directors, or is otherwise
required, in each case pursuant to Regulation 14A under the 1934 Act (including
without limitation such person's written consent to being named in the proxy
statement, if any, as a nominee and to serving as a director if elected); and
(ii) as to such stockholder giving notice, the information required to be
provided pursuant to paragraph (b) of this Section 5. At the request of the
Board of Directors, any person nominated by a stockholder for election as a
director shall furnish to the Secretary of the corporation that information
required to be set forth in the stockholder's notice of nomination which
pertains to the nominee. No person shall be eligible for election as a director
of the corporation unless nominated in accordance with the procedures set forth
in this paragraph (c). The chairman of the meeting shall, if the facts warrant,
determine and declare at the meeting that a nomination was not made in
accordance with the procedures prescribed by these Bylaws, and if he should so
determine, he shall so declare at the meeting, and the defective nomination
shall be disregarded.
(d) For purposes of this Section 5, "public announcement" shall
mean disclosure in a press release reported by the Dow Jones News Service,
Associated Press or comparable national news service or in a document publicly
filed by the corporation with the Securities and Exchange Commission pursuant to
Section 13, 14 or 15(d) of the 1934 Act.
SECTION 6. SPECIAL MEETINGS.
(a) Special meetings of the stockholders of the corporation may
be called, for any purpose or purposes, by (i) the Chairman of the Board of
Directors, (ii) the Chief Executive Officer, or (iii) the Board of Directors
pursuant to a resolution adopted by a majority of the total number of authorized
directors (whether or not there exist any vacancies in previously authorized
directorships at the time any such resolution is presented to the Board of
Directors for adoption).
(b) If a special meeting is called by any person or persons
other than the Board of Directors, the request shall be in writing, specifying
the general nature of the business proposed to be transacted, and shall be
delivered personally or sent by registered mail or by telegraphic or other
facsimile transmission to the Chairman of the Board of Directors, the Chief
Executive Officer, or the Secretary of the corporation. No business may be
transacted at such special meeting otherwise than specified in such notice. The
Board of Directors shall determine the time and place of such special meeting,
which shall be held not less than thirty-five (35) nor more than one hundred
twenty (120) days after the date of the receipt of the request. Upon
determination of the time and place of the meeting, the officer receiving the
request shall cause notice to be given to the stockholders entitled to vote, in
accordance with the provisions of Section 7 of these Bylaws. If the notice is
not given within sixty (60) days after the receipt of the request, the person or
persons requesting the meeting may set the time and place of the meeting and
give the notice. Nothing contained in this paragraph (b) shall be construed as
limiting, fixing, or affecting the time when a meeting of stockholders called by
action of the Board of Directors may be held.
SECTION 7. NOTICE OF MEETINGS. Except as otherwise provided by law or
the Certificate of Incorporation, written notice of each meeting of stockholders
shall be given not
3.
<PAGE> 7
less than ten (10) nor more than sixty (60) days before the date of the meeting
to each stockholder entitled to vote at such meeting, such notice to specify the
place, date and hour and purpose or purposes of the meeting. Notice of the time,
place and purpose of any meeting of stockholders may be waived in writing,
signed by the person entitled to notice thereof, either before or after such
meeting, and will be waived by any stockholder by his attendance thereat in
person or by proxy, except when the stockholder attends a meeting for the
express purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully called or
convened. Any stockholder so waiving notice of such meeting shall be bound by
the proceedings of any such meeting in all respects as if due notice thereof had
been given.
SECTION 8. QUORUM. At all meetings of stockholders, except where
otherwise provided by statute or by the Certificate of Incorporation, or by
these Bylaws, the presence, in person or by proxy duly authorized, of the
holders of a majority of the outstanding shares of stock entitled to vote shall
constitute a quorum for the transaction of business. In the absence of a quorum,
any meeting of stockholders may be adjourned, from time to time, either by the
chairman of the meeting or by vote of the holders of a majority of the shares
represented thereat, but no other business shall be transacted at such meeting.
The stockholders present at a duly called or convened meeting, at which a quorum
is present, may continue to transact business until adjournment, notwithstanding
the withdrawal of enough stockholders to leave less than a quorum. Except as
otherwise provided by law, the Certificate of Incorporation or these Bylaws, all
action taken by the holders of a majority of the vote cast, excluding
abstentions, at any meeting at which a quorum is present shall be valid and
binding upon the corporation; provided, however, that directors shall be elected
by a plurality of the votes of the shares present in person or represented by
proxy at the meeting and entitled to vote on the election of directors. Where a
separate vote by a class or classes or series is required, except where
otherwise provided by the statute or by the Certificate of Incorporation or
these Bylaws, a majority of the outstanding shares of such class or classes or
series, present in person or represented by proxy, shall constitute a quorum
entitled to take action with respect to that vote on that matter and, except
where otherwise provided by the statute or by the Certificate of Incorporation
or these Bylaws, the affirmative vote of the majority (plurality, in the case of
the election of directors) of the votes cast, including abstentions, by the
holders of shares of such class or classes or series shall be the act of such
class or classes or series.
SECTION 9. ADJOURNMENT AND NOTICE OF ADJOURNED MEETINGS. Any meeting of
stockholders, whether annual or special, may be adjourned from time to time
either by the chairman of the meeting or by the vote of a majority of the shares
casting votes, excluding abstentions. When a meeting is adjourned to another
time or place, notice need not be given of the adjourned meeting if the time and
place thereof are announced at the meeting at which the adjournment is taken. At
the adjourned meeting, the corporation may transact any business which might
have been transacted at the original meeting. If the adjournment is for more
than thirty (30) days or if after the adjournment a new record date is fixed for
the adjourned meeting, a notice of the adjourned meeting shall be given to each
stockholder of record entitled to vote at the meeting.
SECTION 10. VOTING RIGHTS. For the purpose of determining those
stockholders entitled to vote at any meeting of the stockholders, except as
otherwise provided by law, only persons in whose names shares stand on the stock
records of the corporation on the record date,
4.
<PAGE> 8
as provided in Section 12 of these Bylaws, shall be entitled to vote at any
meeting of stockholders. Every person entitled to vote or execute consents shall
have the right to do so either in person or by an agent or agents authorized by
a proxy granted in accordance with Delaware law. An agent so appointed need not
be a stockholder. No proxy shall be voted after three (3) years from its date of
creation unless the proxy provides for a longer period.
SECTION 11. JOINT OWNERS OF STOCK. If shares or other securities having
voting power stand of record in the names of two (2) or more persons, whether
fiduciaries, members of a partnership, joint tenants, tenants in common, tenants
by the entirety, or otherwise, or if two (2) or more persons have the same
fiduciary relationship respecting the same shares, unless the Secretary is given
written notice to the contrary and is furnished with a copy of the instrument or
order appointing them or creating the relationship wherein it is so provided,
their acts with respect to voting shall have the following effect: (a) if only
one (1) votes, his act binds all; (b) if more than one (1) votes, the act of the
majority so voting binds all; (c) if more than one (1) votes, but the vote is
evenly split on any particular matter, each faction may vote the securities in
question proportionally, or may apply to the Delaware Court of Chancery for
relief as provided in the General Corporation Law of Delaware, Section 217(b).
If the instrument filed with the Secretary shows that any such tenancy is held
in unequal interests, a majority or even-split for the purpose of subsection (c)
shall be a majority or even-split in interest.
SECTION 12. LIST OF STOCKHOLDERS. The Secretary shall prepare and make,
at least ten (10) days before every meeting of stockholders, a complete list of
the stockholders entitled to vote at said meeting, arranged in alphabetical
order, showing the address of each stockholder and the number of shares
registered in the name of each stockholder. Such list shall be open to the
examination of any stockholder, for any purpose germane to the meeting, during
ordinary business hours, for a period of at least ten (10) days prior to the
meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not
specified, at the place where the meeting is to be held. The list shall be
produced and kept at the time and place of meeting during the whole time thereof
and may be inspected by any stockholder who is present.
SECTION 13. ACTION WITHOUT MEETING.
(a) Unless otherwise provided in the Certificate of
Incorporation, any action required by statute to be taken at any annual or
special meeting of the stockholders, or any action which may be taken at any
annual or special meeting of the stockholders, may be taken without a meeting,
without prior notice and without a vote, if a consent in writing, setting forth
the action so taken, shall be signed by the holders of outstanding stock having
not less than the minimum number of votes that would be necessary to authorize
or take such action at a meeting at which all shares entitled to vote thereon
were present and voted.
(b) Every written consent shall bear the date of signature of
each stockholder who signs the consent, and no written consent shall be
effective to take the corporate action referred to therein unless, within sixty
(60) days of the earliest dated consent delivered to the corporation in the
manner herein required, written consents signed by a sufficient number of
stockholders to take action are delivered to the corporation by delivery to its
registered office in the State of Delaware, its principal place of business or
an officer or agent of the corporation having custody of the book in which
proceedings of meetings of stockholders are recorded.
5.
<PAGE> 9
Delivery made to a corporation's registered office shall be by hand or by
certified or registered mail, return receipt requested.
(c) Prompt notice of the taking of the corporate action without
a meeting by less than unanimous written consent shall be given to those
stockholders who have not consented in writing. If the action which is consented
to is such as would have required the filing of a certificate under any section
of the General Corporation Law of the State of Delaware if such action had been
voted on by stockholders at a meeting thereof, then the certificate filed under
such section shall state, in lieu of any statement required by such section
concerning any vote of stockholders, that written consent has been given in
accordance with Section 228 of the General Corporation Law of Delaware.
(d) Notwithstanding the foregoing, no such action by written
consent may be taken following the closing of the initial public offering
pursuant to an effective registration statement under the Securities Act of
1933, as amended (the "1933 Act"), covering the offer and sale of Common Stock
of the corporation (the "Initial Public Offering").
SECTION 14. ORGANIZATION.
(a) At every meeting of stockholders, the Chairman of the Board
of Directors, or, if a Chairman has not been appointed or is absent, the
President, or, if the President is absent, a chairman of the meeting chosen by a
majority in interest of the stockholders entitled to vote, present in person or
by proxy, shall act as chairman. The Secretary, or, in his absence, an Assistant
Secretary directed to do so by the President, shall act as secretary of the
meeting.
(b) The Board of Directors of the corporation shall be entitled
to make such rules or regulations for the conduct of meetings of stockholders as
it shall deem necessary, appropriate or convenient. Subject to such rules and
regulations of the Board of Directors, if any, the chairman of the meeting shall
have the right and authority to prescribe such rules, regulations and procedures
and to do all such acts as, in the judgment of such chairman, are necessary,
appropriate or convenient for the proper conduct of the meeting, including,
without limitation, establishing an agenda or order of business for the meeting,
rules and procedures for maintaining order at the meeting and the safety of
those present, limitations on participation in such meeting to stockholders of
record of the corporation and their duly authorized and constituted proxies and
such other persons as the chairman shall permit, restrictions on entry to the
meeting after the time fixed for the commencement thereof, limitations on the
time allotted to questions or comments by participants and regulation of the
opening and closing of the polls for balloting on matters which are to be voted
on by ballot. Unless and to the extent determined by the Board of Directors or
the chairman of the meeting, meetings of stockholders shall not be required to
be held in accordance with rules of parliamentary procedure.
ARTICLE IV
DIRECTORS
SECTION 15. NUMBER AND TERM OF OFFICE. The authorized number of
directors of the corporation shall be fixed in accordance with the Certificate
of Incorporation. Directors need not be stockholders unless so required by the
Certificate of Incorporation. If for any cause, the directors shall not have
been elected at an annual meeting, they may be elected as soon thereafter
6.
<PAGE> 10
as convenient at a special meeting of the stockholders called for that purpose
in the manner provided in these Bylaws.
SECTION 16. POWERS. The powers of the corporation shall be exercised,
its business conducted and its property controlled by the Board of Directors,
except as may be otherwise provided by statute or by the Certificate of
Incorporation.
SECTION 17. CLASSES OF DIRECTORS.
(a) Subject to the rights of the holders of any series of Preferred
Stock to elect additional directors under specified circumstances, following the
closing of the Initial Public Offering, the directors shall be divided into
three classes designated as Class I, Class II and Class III, respectively.
Directors shall be assigned to each class in accordance with a resolution or
resolutions adopted by the Board of Directors. At the first annual meeting of
stockholders following the closing of the Initial Public Offering, the term of
office of the Class I directors shall expire and Class I directors shall be
elected for a full term of three years. At the second annual meeting of
stockholders following the Closing of the Initial Public Offering, the term of
office of the Class II directors shall expire and Class II directors shall be
elected for a full term of three years. At the third annual meeting of
stockholders following the Closing of the Initial Public Offering, the term of
office of the Class III directors shall expire and Class III directors shall be
elected for a full term of three years. At each succeeding annual meeting of
stockholders, directors shall be elected for a full term of three years to
succeed the directors of the class whose terms expire at such annual meeting.
During such time or times that the corporation is subject to Section 2115(b) of
the CGCL, this Section 17(a) shall become effective and apply only when the
corporation is a "listed" corporation within the meaning of Section 301.5 of
the CGCL.
(b) In the event that the corporation (i) is subject to Section 2115(b)
of the CGCL and (ii) is not a "listed" corporation or ceases to be a "listed"
corporation under Section 301.5 of the CGCL, Section 17(a) of these Bylaws shall
not apply and all directors shall be elected at each annual meeting of
stockholders to hold office until the next annual meeting.
(c) No person entitled to vote at an election for directors may cumulate
votes to which such person is entitled, unless, at the time of such election,
the corporation (i) is subject to Section 2115(b) of the CGCL and (ii) is not a
"listed" corporation or ceases to be a "listed" corporation under Section 301.5
of the CGCL. During this time, every stockholder entitled to vote at an election
for directors may cumulate such stockholder's votes and give one candidate a
number of votes equal to the number of directors to be elected multiplied by the
number of votes to which such stockholder's shares are otherwise entitled, or
distribute the stockholder's votes on the same principle among as many
candidates as such stockholder thinks fit. No stockholder, however, shall be
entitled to so cumulate such stockholder's votes unless (i) the names of such
candidate or candidates have been placed in nomination prior to the voting and
(ii) the stockholder has given notice at the meeting, prior to the voting, of
such stockholder's intention to cumulate such stockholder's votes. If any
stockholder has given proper notice to cumulate votes, all stockholders may
cumulate their votes for any candidates who have been properly placed in
nomination. Under cumulative voting, the candidates receiving the highest number
of votes, up to the number of directors to be elected, are elected.
Notwithstanding the foregoing provisions of this Article, each director
shall serve until his successor is duly elected and qualified or until his
death, resignation or removal. No decrease in the number of directors
constituting the Board of Directors shall shorten the term of any incumbent
director.
SECTION 18. VACANCIES. Unless otherwise provided in the Certificate of
Incorporation, any vacancies on the Board of Directors resulting from death,
resignation, disqualification, removal or other causes and any newly created
directorships resulting from any increase in the number of directors shall,
unless the Board of Directors determines by resolution that any such vacancies
or newly created directorships shall be filled by stockholders, be filled only
by the affirmative vote of a majority of the directors then in office, even
though less than a quorum of the Board of Directors. Any director elected in
accordance with the preceding sentence shall hold office for the remainder of
the full term of the director for which the vacancy was created or occurred and
until such director's successor shall have been elected and qualified. A vacancy
in the Board of Directors shall be deemed to exist under this Bylaw in the case
of the death, removal or resignation of any director.
SECTION 19. RESIGNATION. Any director may resign at any time by
delivering his written resignation to the Secretary, such resignation to specify
whether it will be effective at a particular time, upon receipt by the Secretary
or at the pleasure of the Board of Directors. If no such specification is made,
it shall be deemed effective at the pleasure of the Board of Directors. When one
or more directors shall resign from the Board of Directors, effective at a
future date, a majority of the directors then in office, including those who
have so resigned, shall have power to fill such vacancy or vacancies, the vote
thereon to take effect when such resignation or resignations shall become
effective, and each Director so chosen shall hold office for the
7.
<PAGE> 11
unexpired portion of the term of the Director whose place shall be vacated and
until his successor shall have been duly elected and qualified.
SECTION 20. REMOVAL.
(a) During such time or times that the corporation is subject to Section
2115(b) and the CGCL, the Board of Directors or any individual director may be
removed from office at any time without cause by the affirmative vote of the
holders of at least a majority of the voting power of all the then-outstanding
shares of voting stock of the corporation (the "Voting Stock") entitled to vote
on such removal; provided, however, that unless the entire Board is removed, no
individual director may be removed when the votes cast against such director's
removal, or not consenting in writing to such removal, would be sufficient to
elect that director if voted cumulatively at an election which the same total
number of votes were cast (or, if such action is taken by written consent, all
shares entitled to vote were voted) and the entire number of directors
authorized at the time of such director's most recent election were then being
elected.
(b) Following any date on which the corporation is no longer subject to
Section 2115(b) of the CGCL and subject to any limitations imposed by law,
Section 20(a) above shall no longer apply and removal shall be as provided in
Section 141(k) of the DGCL.
SECTION 21. MEETINGS.
(a) ANNUAL MEETINGS. The annual meeting of the Board of
Directors shall be held immediately before or after the annual meeting of
stockholders and at the place where such meeting is held. No notice of an annual
meeting of the Board of Directors shall be necessary and such meeting shall be
held for the purpose of electing officers and transacting such other business as
may lawfully come before it.
(b) REGULAR MEETINGS. Except as hereinafter otherwise provided,
regular meetings of the Board of Directors shall be held in the office of the
corporation required to be maintained pursuant to Section 2 hereof. Unless
otherwise restricted by the Certificate of Incorporation, regular meetings of
the Board of Directors may also be held at any place within or without the State
of Delaware which has been designated by resolution of the Board of Directors or
the written consent of all directors.
(c) SPECIAL MEETINGS. Unless otherwise restricted by the
Certificate of Incorporation, special meetings of the Board of Directors may be
held at any time and place within or without the State of Delaware whenever
called by the Chairman of the Board, the President or any two of the directors.
(d) TELEPHONE MEETINGS. Any member of the Board of Directors, or
of any committee thereof, may participate in a meeting by means of conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other, and participation in a meeting
by such means shall constitute presence in person at such meeting.
(e) NOTICE OF MEETINGS. Notice of the time and place of all
special meetings of the Board of Directors shall be orally or in writing, by
telephone, including a voice messaging system or other system or technology
designed to record and communicate messages, facsimile, telegraph or telex, or
by electronic mail or other electronic means, during normal business hours, at
least twenty-four (24) hours before the date and time of the meeting, or sent in
writing to each director by first class mail, charges prepaid, at least three
(3) days before the date of the meeting.
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Notice of any meeting may be waived in writing at any time before or after the
meeting and will be waived by any director by attendance thereat, except when
the director attends the meeting for the express purpose of objecting, at the
beginning of the meeting, to the transaction of any business because the meeting
is not lawfully called or convened.
(f) WAIVER OF NOTICE. The transaction of all business at any
meeting of the Board of Directors, or any committee thereof, however called or
noticed, or wherever held, shall be as valid as though had at a meeting duly
held after regular call and notice, if a quorum be present and if, either before
or after the meeting, each of the directors not present shall sign a written
waiver of notice. All such waivers shall be filed with the corporate records or
made a part of the minutes of the meeting.
SECTION 22. QUORUM AND VOTING.
(a) Unless the Certificate of Incorporation requires a greater
number and except with respect to indemnification questions arising under
Section 43 hereof, for which a quorum shall be one-third of the exact number of
directors fixed from time to time in accordance with the Certificate of
Incorporation, a quorum of the Board of Directors shall consist of a majority of
the exact number of directors fixed from time to time by the Board of Directors
in accordance with the Certificate of Incorporation; provided, however, at any
meeting, whether a quorum be present or otherwise, a majority of the directors
present may adjourn from time to time until the time fixed for the next regular
meeting of the Board of Directors, without notice other than by announcement at
the meeting.
(b) At each meeting of the Board of Directors at which a quorum
is present, all questions and business shall be determined by the affirmative
vote of a majority of the directors present, unless a different vote be required
by law, the Certificate of Incorporation or these Bylaws.
SECTION 23. ACTION WITHOUT MEETING. Unless otherwise restricted by the
Certificate of Incorporation or these Bylaws, any action required or permitted
to be taken at any meeting of the Board of Directors or of any committee thereof
may be taken without a meeting, if all members of the Board of Directors or
committee, as the case may be, consent thereto in writing, and such writing or
writings are filed with the minutes of proceedings of the Board of Directors or
committee.
SECTION 24. FEES AND COMPENSATION. Directors shall be entitled to such
compensation for their services as may be approved by the Board of Directors,
including, if so approved, by resolution of the Board of Directors, a fixed sum
and expenses of attendance, if any, for attendance at each regular or special
meeting of the Board of Directors and at any meeting of a committee of the Board
of Directors. Nothing herein contained shall be construed to preclude any
director from serving the corporation in any other capacity as an officer,
agent, employee, or otherwise and receiving compensation therefor.
SECTION 25. COMMITTEES.
(a) EXECUTIVE COMMITTEE. The Board of Directors may appoint an
Executive Committee to consist of one (1) or more members of the Board of
Directors. The Executive Committee, to the extent permitted by law and provided
in the resolution of the Board of
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Directors shall have and may exercise all the powers and authority of the Board
of Directors in the management of the business and affairs of the corporation,
and may authorize the seal of the corporation to be affixed to all papers which
may require it; but no such committee shall have the power or authority in
reference to (i) approving or adopting, or recommending to the stockholders, any
action or matter expressly required by the Delaware General Corporation Law to
be submitted to stockholders for approval, or (ii) adopting, amending or
repealing any bylaw of the corporation.
(b) OTHER COMMITTEES. The Board of Directors may, from time to
time, appoint such other committees as may be permitted by law. Such other
committees appointed by the Board of Directors shall consist of one (1) or more
members of the Board of Directors and shall have such powers and perform such
duties as may be prescribed by the resolution or resolutions creating such
committees, but in no event shall any such committee have the powers denied to
the Executive Committee in these Bylaws.
(c) TERM. Each member of a committee of the Board of Directors
shall serve a term on the committee coexistent with such member's term on the
Board of Directors. The Board of Directors, subject to the provisions of
subsections (a) or (b) of this Bylaw may at any time increase or decrease the
number of members of a committee or terminate the existence of a committee. The
membership of a committee member shall terminate on the date of his death or
voluntary resignation from the committee or from the Board of Directors. The
Board of Directors may at any time for any reason remove any individual
committee member and the Board of Directors may fill any committee vacancy
created by death, resignation, removal or increase in the number of members of
the committee. The Board of Directors may designate one or more directors as
alternate members of any committee, who may replace any absent or disqualified
member at any meeting of the committee, and, in addition, in the absence or
disqualification of any member of a committee, the member or members thereof
present at any meeting and not disqualified from voting, whether or not he or
they constitute a quorum, may unanimously appoint another member of the Board of
Directors to act at the meeting in the place of any such absent or disqualified
member.
(d) MEETINGS. Unless the Board of Directors shall otherwise
provide, regular meetings of the Executive Committee or any other committee
appointed pursuant to this Section 25 shall be held at such times and places as
are determined by the Board of Directors, or by any such committee, and when
notice thereof has been given to each member of such committee, no further
notice of such regular meetings need be given thereafter. Special meetings of
any such committee may be held at any place which has been determined from time
to time by such committee, and may be called by any director who is a member of
such committee, upon written notice to the members of such committee of the time
and place of such special meeting given in the manner provided for the giving of
written notice to members of the Board of Directors of the time and place of
special meetings of the Board of Directors. Notice of any special meeting of any
committee may be waived in writing at any time before or after the meeting and
will be waived by any director by attendance thereat, except when the director
attends such special meeting for the express purpose of objecting, at the
beginning of the meeting, to the transaction of any business because the meeting
is not lawfully called or convened. A majority of the authorized number of
members of any such committee shall constitute a quorum for the transaction of
business, and the act of a majority of those present at any meeting at which a
quorum is present shall be the act of such committee.
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SECTION 26. ORGANIZATION. At every meeting of the directors, the
Chairman of the Board of Directors, or, if a Chairman has not been appointed or
is absent, the President, or if the President is absent, the most senior Vice
President, or, in the absence of any such officer, a chairman of the meeting
chosen by a majority of the directors present, shall preside over the meeting.
The Secretary, or in his absence, an Assistant Secretary directed to do so by
the President, shall act as secretary of the meeting.
ARTICLE V
OFFICERS
SECTION 27. OFFICERS DESIGNATED. The officers of the corporation shall
include, if and when designated by the Board of Directors, the Chairman of the
Board of Directors, the Chief Executive Officer, the President, one or more Vice
Presidents, the Secretary, the Chief Financial Officer, the Treasurer and the
Controller, all of whom shall be elected at the annual organizational meeting of
the Board of Directors. The Board of Directors may also appoint one or more
Assistant Secretaries, Assistant Treasurers, Assistant Controllers and such
other officers and agents with such powers and duties as it shall deem
necessary. The Board of Directors may assign such additional titles to one or
more of the officers as it shall deem appropriate. Any one person may hold any
number of offices of the corporation at any one time unless specifically
prohibited therefrom by law. The salaries and other compensation of the officers
of the corporation shall be fixed by or in the manner designated by the Board of
Directors.
SECTION 28. TENURE AND DUTIES OF OFFICERS.
(a) GENERAL. All officers shall hold office at the pleasure of
the Board of Directors and until their successors shall have been duly elected
and qualified, unless sooner removed. Any officer elected or appointed by the
Board of Directors may be removed at any time by the Board of Directors. If the
office of any officer becomes vacant for any reason, the vacancy may be filled
by the Board of Directors.
(b) DUTIES OF CHAIRMAN OF THE BOARD OF DIRECTORS. The Chairman
of the Board of Directors, when present, shall preside at all meetings of the
stockholders and the Board of Directors. The Chairman of the Board of Directors
shall perform other duties commonly incident to his office and shall also
perform such other duties and have such other powers as the Board of Directors
shall designate from time to time. If there is no President, then the Chairman
of the Board of Directors shall also serve as the Chief Executive Officer of the
corporation and shall have the powers and duties prescribed in paragraph (c) of
this Section 28.
(c) DUTIES OF PRESIDENT. The President shall preside at all
meetings of the stockholders and at all meetings of the Board of Directors,
unless the Chairman of the Board of Directors has been appointed and is present.
Unless some other officer has been elected Chief Executive Officer of the
corporation, the President shall be the chief executive officer of the
corporation and shall, subject to the control of the Board of Directors, have
general supervision, direction and control of the business and officers of the
corporation. The President shall perform other duties commonly incident to his
office and shall also perform such other duties and have such other powers as
the Board of Directors shall designate from time to time.
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(d) DUTIES OF VICE PRESIDENTS. The Vice Presidents may assume
and perform the duties of the President in the absence or disability of the
President or whenever the office of President is vacant. The Vice Presidents
shall perform other duties commonly incident to their office and shall also
perform such other duties and have such other powers as the Board of Directors
or the President shall designate from time to time.
(e) DUTIES OF SECRETARY. The Secretary shall attend all meetings
of the stockholders and of the Board of Directors and shall record all acts and
proceedings thereof in the minute book of the corporation. The Secretary shall
give notice in conformity with these Bylaws of all meetings of the stockholders
and of all meetings of the Board of Directors and any committee thereof
requiring notice. The Secretary shall perform all other duties given him in
these Bylaws and other duties commonly incident to his office and shall also
perform such other duties and have such other powers as the Board of Directors
shall designate from time to time. The President may direct any Assistant
Secretary to assume and perform the duties of the Secretary in the absence or
disability of the Secretary, and each Assistant Secretary shall perform other
duties commonly incident to his office and shall also perform such other duties
and have such other powers as the Board of Directors or the President shall
designate from time to time.
(f) DUTIES OF CHIEF FINANCIAL OFFICER. The Chief Financial
Officer shall keep or cause to be kept the books of account of the corporation
in a thorough and proper manner and shall render statements of the financial
affairs of the corporation in such form and as often as required by the Board of
Directors or the President. The Chief Financial Officer, subject to the order of
the Board of Directors, shall have the custody of all funds and securities of
the corporation. The Chief Financial Officer shall perform other duties commonly
incident to his office and shall also perform such other duties and have such
other powers as the Board of Directors or the President shall designate from
time to time. The President may direct the Treasurer or any Assistant Treasurer,
or the Controller or any Assistant Controller to assume and perform the duties
of the Chief Financial Officer in the absence or disability of the Chief
Financial Officer, and each Treasurer and Assistant Treasurer and each
Controller and Assistant Controller shall perform other duties commonly incident
to his office and shall also perform such other duties and have such other
powers as the Board of Directors or the President shall designate from time to
time.
SECTION 29. DELEGATION OF AUTHORITY. The Board of Directors may from
time to time delegate the powers or duties of any officer to any other officer
or agent, notwithstanding any provision hereof.
SECTION 30. RESIGNATIONS. Any officer may resign at any time by giving
written notice to the Board of Directors or to the President or to the
Secretary. Any such resignation shall be effective when received by the person
or persons to whom such notice is given, unless a later time is specified
therein, in which event the resignation shall become effective at such later
time. Unless otherwise specified in such notice, the acceptance of any such
resignation shall not be necessary to make it effective. Any resignation shall
be without prejudice to the rights, if any, of the corporation under any
contract with the resigning officer.
SECTION 31. REMOVAL. Any officer may be removed from office at any time,
either with or without cause, by the affirmative vote of a majority of the
directors in office at the time, or by the unanimous written consent of the
directors in office at the time, or by any committee or
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superior officers upon whom such power of removal may have been conferred by the
Board of Directors.
ARTICLE VI
EXECUTION OF CORPORATE INSTRUMENTS AND VOTING OF
SECURITIES OWNED BY THE CORPORATION
SECTION 32. EXECUTION OF CORPORATE INSTRUMENTS. The Board of Directors
may, in its discretion, determine the method and designate the signatory officer
or officers, or other person or persons, to execute on behalf of the corporation
any corporate instrument or document, or to sign on behalf of the corporation
the corporate name without limitation, or to enter into contracts on behalf of
the corporation, except where otherwise provided by law or these Bylaws, and
such execution or signature shall be binding upon the corporation.
Unless otherwise specifically determined by the Board of Directors or
otherwise required by law, promissory notes, deeds of trust, mortgages and other
evidences of indebtedness of the corporation, and other corporate instruments or
documents requiring the corporate seal, and certificates of shares of stock
owned by the corporation, shall be executed, signed or endorsed by the Chairman
of the Board of Directors, or the President or any Vice President, and by the
Secretary or Treasurer or any Assistant Secretary or Assistant Treasurer. All
other instruments and documents requiring the corporate signature, but not
requiring the corporate seal, may be executed as aforesaid or in such other
manner as may be directed by the Board of Directors.
All checks and drafts drawn on banks or other depositaries on funds to
the credit of the corporation or in special accounts of the corporation shall be
signed by such person or persons as the Board of Directors shall authorize so to
do.
Unless authorized or ratified by the Board of Directors or within the
agency power of an officer, no officer, agent or employee shall have any power
or authority to bind the corporation by any contract or engagement or to pledge
its credit or to render it liable for any purpose or for any amount.
SECTION 33. VOTING OF SECURITIES OWNED BY THE CORPORATION. All stock and
other securities of other corporations owned or held by the corporation for
itself, or for other parties in any capacity, shall be voted, and all proxies
with respect thereto shall be executed, by the person authorized so to do by
resolution of the Board of Directors, or, in the absence of such authorization,
by the Chairman of the Board of Directors, the Chief Executive Officer, the
President, or any Vice President.
ARTICLE VII
SHARES OF STOCK
SECTION 34. FORM AND EXECUTION OF CERTIFICATES. Certificates for the
shares of stock of the corporation shall be in such form as is consistent with
the Certificate of Incorporation and applicable law. Every holder of stock in
the corporation shall be entitled to have a certificate signed by or in the name
of the corporation by the Chairman of the Board of Directors, or the
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President or any Vice President and by the Treasurer or Assistant Treasurer or
the Secretary or Assistant Secretary, certifying the number of shares owned by
him in the corporation. Any or all of the signatures on the certificate may be
facsimiles. In case any officer, transfer agent, or registrar who has signed or
whose facsimile signature has been placed upon a certificate shall have ceased
to be such officer, transfer agent, or registrar before such certificate is
issued, it may be issued with the same effect as if he were such officer,
transfer agent, or registrar at the date of issue. Each certificate shall state
upon the face or back thereof, in full or in summary, all of the powers,
designations, preferences, and rights, and the limitations or restrictions of
the shares authorized to be issued or shall, except as otherwise required by
law, set forth on the face or back a statement that 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. Within a reasonable time after
the issuance or transfer of uncertificated stock, the corporation shall send to
the registered owner thereof a written notice containing the information
required to be set forth or stated on certificates pursuant to this section or
otherwise required by law or with respect to this section a statement that 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. Except as
otherwise expressly provided by law, the rights and obligations of the holders
of certificates representing stock of the same class and series shall be
identical.
SECTION 35. LOST CERTIFICATES. A new certificate or certificates shall
be issued in place of any certificate or certificates theretofore issued by the
corporation alleged to have been lost, stolen, or destroyed, upon the making of
an affidavit of that fact by the person claiming the certificate of stock to be
lost, stolen, or destroyed. The corporation may require, as a condition
precedent to the issuance of a new certificate or certificates, the owner of
such lost, stolen, or destroyed certificate or certificates, or his legal
representative, to advertise the same in such manner as it shall require or to
give the corporation a surety bond in such form and amount as it may direct as
indemnity against any claim that may be made against the corporation with
respect to the certificate alleged to have been lost, stolen, or destroyed.
SECTION 36. TRANSFERS.
(a) Transfers of record of shares of stock of the corporation
shall be made only upon its books by the holders thereof, in person or by
attorney duly authorized, and upon the surrender of a properly endorsed
certificate or certificates for a like number of shares.
(b) The corporation shall have power to enter into and perform
any agreement with any number of stockholders of any one or more classes of
stock of the corporation to restrict the transfer of shares of stock of the
corporation of any one or more classes owned by such stockholders in any manner
not prohibited by the General Corporation Law of Delaware.
SECTION 37. FIXING RECORD DATES.
(a) In order that the corporation may determine the stockholders
entitled to notice of or to vote at any meeting of stockholders or any
adjournment thereof, the Board of Directors may fix, in advance, a record date,
which record date shall not precede the date upon
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which the resolution fixing the record date is adopted by the Board of
Directors, and which record date shall not be more than sixty (60) nor less than
ten (10) days before the date of such meeting. If no record date is fixed by the
Board of Directors, the record date for determining stockholders entitled to
notice of or to vote at a meeting of stockholders shall be at the close of
business on the day next preceding the day on which notice is given, or if
notice is waived, at the close of business on the day next preceding the day on
which the meeting is held. A determination of stockholders of record entitled to
notice of or to vote at a meeting of stockholders shall apply to any adjournment
of the meeting; provided, however, that the Board of Directors may fix a new
record date for the adjourned meeting.
(b) Prior to the Initial Public Offering, in order that the
corporation may determine the stockholders entitled to consent to corporate
action in writing without a meeting, the Board of Directors may fix a record
date, which record date shall not precede the date upon which the resolution
fixing the record date is adopted by the Board of Directors, and which date
shall not be more than ten (10) days after the date upon which the resolution
fixing the record date is adopted by the Board of Directors. Any stockholder of
record seeking to have the stockholders authorize or take corporate action by
written consent shall, by written notice to the Secretary, request the Board of
Directors to fix a record date. The Board of Directors shall promptly, but in
all events within ten (10) days after the date on which such a request is
received, adopt a resolution fixing the record date. If no record date has been
fixed by the Board of Directors within ten (10) days of the date on which such a
request is received, the record date for determining stockholders entitled to
consent to corporate action in writing without a meeting, when no prior action
by the Board of Directors is required by applicable law, shall be the first date
on which a signed written consent setting forth the action taken or proposed to
be taken is delivered to the corporation by delivery to its registered office in
the State of Delaware, its principal place of business or an officer or agent of
the corporation having custody of the book in which proceedings of meetings of
stockholders are recorded. Delivery made to the corporation's registered office
shall be by hand or by certified or registered mail, return receipt requested.
If no record date has been fixed by the Board of Directors and prior action by
the Board of Directors is required by law, the record date for determining
stockholders entitled to consent to corporate action in writing without a
meeting shall be at the close of business on the day on which the Board of
Directors adopts the resolution taking such prior action.
(c) In order that the corporation may determine the stockholders
entitled to receive payment of any dividend or other distribution or allotment
of any rights or the stockholders entitled to exercise any rights in respect of
any change, conversion or exchange of stock, or for the purpose of any other
lawful action, the Board of Directors may fix, in advance, a record date, which
record date shall not precede the date upon which the resolution fixing the
record date is adopted, and which record date shall be not more than sixty (60)
days prior to such action. If no record date is fixed, the record date for
determining stockholders for any such purpose shall be at the close of business
on the day on which the Board of Directors adopts the resolution relating
thereto.
SECTION 38. REGISTERED STOCKHOLDERS. The corporation shall be entitled
to recognize the exclusive right of a person registered on its books as the
owner of shares to receive dividends, and to vote as such owner, and shall not
be bound to recognize any equitable or other claim to or interest in such share
or shares on the part of any other person whether or not it shall have express
or other notice thereof, except as otherwise provided by the laws of Delaware.
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ARTICLE VIII
OTHER SECURITIES OF THE CORPORATION
SECTION 39. EXECUTION OF OTHER SECURITIES. All bonds, debentures and
other corporate securities of the corporation, other than stock certificates
(covered in Section 34), may be signed by the Chairman of the Board of
Directors, the President or any Vice President, or such other person as may be
authorized by the Board of Directors, and the corporate seal impressed thereon
or a facsimile of such seal imprinted thereon and attested by the signature of
the Secretary or an Assistant Secretary, or the Chief Financial Officer or
Treasurer or an Assistant Treasurer; provided, however, that where any such
bond, debenture or other corporate security shall be authenticated by the manual
signature, or where permissible facsimile signature, of a trustee under an
indenture pursuant to which such bond, debenture or other corporate security
shall be issued, the signatures of the persons signing and attesting the
corporate seal on such bond, debenture or other corporate security may be the
imprinted facsimile of the signatures of such persons. Interest coupons
appertaining to any such bond, debenture or other corporate security,
authenticated by a trustee as aforesaid, shall be signed by the Treasurer or an
Assistant Treasurer of the corporation or such other person as may be authorized
by the Board of Directors, or bear imprinted thereon the facsimile signature of
such person. In case any officer who shall have signed or attested any bond,
debenture or other corporate security, or whose facsimile signature shall appear
thereon or on any such interest coupon, shall have ceased to be such officer
before the bond, debenture or other corporate security so signed or attested
shall have been delivered, such bond, debenture or other corporate security
nevertheless may be adopted by the corporation and issued and delivered as
though the person who signed the same or whose facsimile signature shall have
been used thereon had not ceased to be such officer of the corporation.
ARTICLE IX
DIVIDENDS
SECTION 40. DECLARATION OF DIVIDENDS. Dividends upon the capital stock
of the corporation, subject to the provisions of the Certificate of
Incorporation, if any, may be declared by the Board of Directors pursuant to law
at any regular or special meeting. Dividends may be paid in cash, in property,
or in shares of the capital stock, subject to the provisions of the Certificate
of Incorporation.
SECTION 41. DIVIDEND RESERVE. Before payment of any dividend, there may
be set aside out of any funds of the corporation available for dividends such
sum or sums as the Board of Directors from time to time, in their absolute
discretion, think proper as a reserve or reserves to meet contingencies, or for
equalizing dividends, or for repairing or maintaining any property of the
corporation, or for such other purpose as the Board of Directors shall think
conducive to the interests of the corporation, and the Board of Directors may
modify or abolish any such reserve in the manner in which it was created.
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ARTICLE X
FISCAL YEAR
SECTION 42. FISCAL YEAR. The fiscal year of the corporation shall be
fixed by resolution of the Board of Directors.
ARTICLE XI
INDEMNIFICATION
SECTION 43. INDEMNIFICATION OF DIRECTORS, EXECUTIVE OFFICERS, OTHER
OFFICERS, EMPLOYEES AND OTHER AGENTS.
(a) DIRECTORS AND EXECUTIVE OFFICERS. The corporation shall
indemnify its directors and executive officers (for the purposes of this Article
XI, "executive officers" shall have the meaning defined in Rule 3b-7 promulgated
under the 1934 Act) to the fullest extent not prohibited by the Delaware General
Corporation Law; provided, however, that the corporation may modify the extent
of such indemnification by individual contracts with its directors or executive
officer; and, provided, further, that the corporation shall not be required to
indemnify any director or executive officer in connection with any proceeding
(or part thereof) initiated by such person unless (i) such indemnification is
expressly required to be made by law, (ii) the proceeding was authorized by the
Board of Directors of the corporation, (iii) such indemnification is provided by
the corporation, in its sole discretion, pursuant to the powers vested in the
corporation under the Delaware General Corporation Law or (iv) such
indemnification is required to be made under subsection (d).
(b) OTHER OFFICERS, EMPLOYEES AND OTHER AGENTS. The corporation
shall have power to indemnify its other officers, employees and other agents as
set forth in the Delaware General Corporation Law.
(c) EXPENSES. The corporation shall advance to any person who
was or is a party or is threatened to be made a party to any threatened, pending
or completed action, suit or proceeding, whether civil, criminal, administrative
or investigative, by reason of the fact that he is or was a director or
executive officer, of the corporation, or is or was serving at the request of
the corporation as a director or executive officer of another corporation,
partnership, joint venture, trust or other enterprise, prior to the final
disposition of the proceeding, promptly following request therefor, all expenses
incurred by any director or executive officer in connection with such proceeding
upon receipt of an undertaking by or on behalf of such person to repay said
amounts if it should be determined ultimately that such person is not entitled
to be indemnified under this Bylaw or otherwise.
Notwithstanding the foregoing, unless otherwise determined pursuant to paragraph
(e) of this Bylaw, no advance shall be made by the corporation to an executive
officer of the corporation (except by reason of the fact that such executive
officer is or was a director of the corporation in which event this paragraph
shall not apply) in any action, suit or proceeding, whether civil, criminal,
administrative or investigative, if a determination is reasonably and promptly
made (i) by the Board of Directors by a majority vote of a quorum consisting of
directors who were not parties to the proceeding, or (ii) if such quorum is not
obtainable, or, even if obtainable, a
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quorum of disinterested directors so directs, by independent legal counsel in a
written opinion, that the facts known to the decision-making party at the time
such determination is made demonstrate clearly and convincingly that such person
acted in bad faith or in a manner that such person did not believe to be in or
not opposed to the best interests of the corporation.
(d) ENFORCEMENT. Without the necessity of entering into an
express contract, all rights to indemnification and advances to directors and
executive officers under this Bylaw shall be deemed to be contractual rights and
be effective to the same extent and as if provided for in a contract between the
corporation and the director or executive officer. Any right to indemnification
or advances granted by this Bylaw to a director or executive officer shall be
enforceable by or on behalf of the person holding such right in any court of
competent jurisdiction if (i) the claim for indemnification or advances is
denied, in whole or in part, or (ii) no disposition of such claim is made within
ninety (90) days of request therefor. The claimant in such enforcement action,
if successful in whole or in part, shall be entitled to be paid also the expense
of prosecuting his claim. In connection with any claim for indemnification, the
corporation shall be entitled to raise as a defense to any such action that the
claimant has not met the standards of conduct that make it permissible under the
Delaware General Corporation Law for the corporation to indemnify the claimant
for the amount claimed. In connection with any claim by an executive officer of
the corporation (except in any action, suit or proceeding, whether civil,
criminal, administrative or investigative, by reason of the fact that such
executive officer is or was a director of the corporation) for advances, the
corporation shall be entitled to raise a defense as to any such action clear and
convincing evidence that such person acted in bad faith or in a manner that such
person did not believe to be in or not opposed to the best interests of the
corporation, or with respect to any criminal action or proceeding that such
person acted without reasonable cause to believe that his conduct was lawful.
Neither the failure of the corporation (including its Board of Directors,
independent legal counsel or its stockholders) to have made a determination
prior to the commencement of such action that indemnification of the claimant is
proper in the circumstances because he has met the applicable standard of
conduct set forth in the Delaware General Corporation Law, nor an actual
determination by the corporation (including its Board of Directors, independent
legal counsel or its stockholders) that the claimant has not met such applicable
standard of conduct, shall be a defense to the action or create a presumption
that claimant has not met the applicable standard of conduct. In any suit
brought by a director or executive officer to enforce a right to indemnification
or to an advancement of expenses hereunder, the burden of proving that the
director or executive officer is not entitled to be indemnified, or to such
advancement of expenses, under this Article XI or otherwise shall be on the
corporation.
(e) NON-EXCLUSIVITY OF RIGHTS. The rights conferred on any
person by this Bylaw shall not be exclusive of any other right which such person
may have or hereafter acquire under any statute, provision of the Certificate of
Incorporation, Bylaws, agreement, vote of stockholders or disinterested
directors or otherwise, both as to action in his official capacity and as to
action in another capacity while holding office. The corporation is specifically
authorized to enter into individual contracts with any or all of its directors,
officers, employees or agents respecting indemnification and advances, to the
fullest extent not prohibited by the Delaware General Corporation Law.
18.
<PAGE> 22
(f) SURVIVAL OF RIGHTS. The rights conferred on any person by
this Bylaw shall continue as to a person who has ceased to be a director,
officer, employee or other agent and shall inure to the benefit of the heirs,
executors and administrators of such a person.
(g) INSURANCE. To the fullest extent permitted by the Delaware
General Corporation Law, the corporation, upon approval by the Board of
Directors, may purchase insurance on behalf of any person required or permitted
to be indemnified pursuant to this Bylaw.
(h) AMENDMENTS. Any repeal or modification of this Bylaw shall
only be prospective and shall not affect the rights under this Bylaw in effect
at the time of the alleged occurrence of any action or omission to act that is
the cause of any proceeding against any agent of the corporation.
(i) SAVING CLAUSE. If this Bylaw or any portion hereof shall be
invalidated on any ground by any court of competent jurisdiction, then the
corporation shall nevertheless indemnify each director and executive officer to
the full extent not prohibited by any applicable portion of this Bylaw that
shall not have been invalidated, or by any other applicable law.
(j) CERTAIN DEFINITIONS. For the purposes of this Bylaw, the
following definitions shall apply:
(1) The term "proceeding" shall be broadly construed and
shall include, without limitation, the investigation, preparation, prosecution,
defense, settlement, arbitration and appeal of, and the giving of testimony in,
any threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative.
(2) The term "expenses" shall be broadly construed and
shall include, without limitation, court costs, attorneys' fees, witness fees,
fines, amounts paid in settlement or judgment and any other costs and expenses
of any nature or kind incurred in connection with any proceeding.
(3) The term the "corporation" shall include, in
addition to the resulting corporation, any constituent corporation (including
any constituent of a constituent) absorbed in a consolidation or merger which,
if its separate existence had continued, would have had power and authority to
indemnify its directors, officers, and employees or agents, so that any person
who is or was a director, officer, employee or agent of such constituent
corporation, or is or was serving at the request of such constituent corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, shall stand in the same position under
the provisions of this Bylaw with respect to the resulting or surviving
corporation as he would have with respect to such constituent corporation if its
separate existence had continued.
(4) References to a "director," "executive officer,"
"officer," "employee," or "agent" of the corporation shall include, without
limitation, situations where such person is serving at the request of the
corporation as, respectively, a director, executive officer, officer, employee,
trustee or agent of another corporation, partnership, joint venture, trust or
other enterprise.
19.
<PAGE> 23
(5) References to "other enterprises" shall include
employee benefit plans; references to "fines" shall include any excise taxes
assessed on a person with respect to an employee benefit plan; and references to
"serving at the request of the corporation" shall include any service as a
director, officer, employee or agent of the corporation which imposes duties on,
or involves services by, such director, officer, employee, or agent with respect
to an employee benefit plan, its participants, or beneficiaries; and a person
who acted in good faith and in a manner he reasonably believed to be in the
interest of the participants and beneficiaries of an employee benefit plan shall
be deemed to have acted in a manner "not opposed to the best interests of the
corporation" as referred to in this Bylaw.
ARTICLE XII
NOTICES
SECTION 44. NOTICES.
(a) NOTICE TO STOCKHOLDERS. Whenever, under any provisions of
these Bylaws, notice is required to be given to any stockholder, it shall be
given in writing, timely and duly deposited in the United States mail, postage
prepaid, and addressed to his last known post office address as shown by the
stock record of the corporation or its transfer agent.
(b) NOTICE TO DIRECTORS. Any notice required to be given to any
director may be given by the method stated in subsection (a), or by facsimile,
telex or telegram, except that such notice other than one which is delivered
personally shall be sent to such address as such director shall have filed in
writing with the Secretary, or, in the absence of such filing, to the last known
post office address of such director.
(c) AFFIDAVIT OF MAILING. An affidavit of mailing, executed by a
duly authorized and competent employee of the corporation or its transfer agent
appointed with respect to the class of stock affected, specifying the name and
address or the names and addresses of the stockholder or stockholders, or
director or directors, to whom any such notice or notices was or were given, and
the time and method of giving the same, shall in the absence of fraud, be prima
facie evidence of the facts therein contained.
(d) TIME NOTICES DEEMED GIVEN. All notices given by mail, as
above provided, shall be deemed to have been given as at the time of mailing,
and all notices given by facsimile, telex or telegram shall be deemed to have
been given as of the sending time recorded at time of transmission.
(e) METHODS OF NOTICE. It shall not be necessary that the same
method of giving notice be employed in respect of all directors, but one
permissible method may be employed in respect of any one or more, and any other
permissible method or methods may be employed in respect of any other or others.
(f) FAILURE TO RECEIVE NOTICE. The period or limitation of time
within which any stockholder may exercise any option or right, or enjoy any
privilege or benefit, or be required to act, or within which any director may
exercise any power or right, or enjoy any privilege, pursuant to any notice sent
him in the manner above provided, shall not be affected or extended in any
manner by the failure of such stockholder or such director to receive such
notice.
20.
<PAGE> 24
(g) NOTICE TO PERSON WITH WHOM COMMUNICATION IS UNLAWFUL.
Whenever notice is required to be given, under any provision of law or of the
Certificate of Incorporation or Bylaws of the corporation, to any person with
whom communication is unlawful, the giving of such notice to such person shall
not be required and there shall be no duty to apply to any governmental
authority or agency for a license or permit to give such notice to such person.
Any action or meeting which shall be taken or held without notice to any such
person with whom communication is unlawful shall have the same force and effect
as if such notice had been duly given. In the event that the action taken by the
corporation is such as to require the filing of a certificate under any
provision of the Delaware General Corporation Law, the certificate shall state,
if such is the fact and if notice is required, that notice was given to all
persons entitled to receive notice except such persons with whom communication
is unlawful.
(h) NOTICE TO PERSON WITH UNDELIVERABLE ADDRESS. Whenever notice
is required to be given, under any provision of law or the Certificate of
Incorporation or Bylaws of the corporation, to any stockholder to whom (i)
notice of two consecutive annual meetings, and all notices of meetings or of the
taking of action by written consent without a meeting to such person during the
period between such two consecutive annual meetings, or (ii) all, and at least
two, payments (if sent by first class mail) of dividends or interest on
securities during a twelve-month period, have been mailed addressed to such
person at his address as shown on the records of the corporation and have been
returned undeliverable, the giving of such notice to such person shall not be
required. Any action or meeting which shall be taken or held without notice to
such person shall have the same force and effect as if such notice had been duly
given. If any such person shall deliver to the corporation a written notice
setting forth his then current address, the requirement that notice be given to
such person shall be reinstated. In the event that the action taken by the
corporation is such as to require the filing of a certificate under any
provision of the Delaware General Corporation Law, the certificate need not
state that notice was not given to persons to whom notice was not required to be
given pursuant to this paragraph.
ARTICLE XIII
AMENDMENTS
SECTION 45. AMENDMENTS.
Subject to paragraph (h) of Section 43 of the Bylaws, except for
Sections 6, 13, 15, 17, 18, 20 and 45 of the Bylaws, which may only be amended
by the affirmative vote of at least sixty-six and two thirds percent (66-2/3%)
of the voting power of all then outstanding shares of Voting Stock, the Bylaws
may be altered or amended or new Bylaws adopted by the affirmative vote of at
least a majority of the voting power of all of the then-outstanding shares of
the Voting Stock. The Board of Directors shall also have the power to adopt,
amend, or repeal Bylaws.
ARTICLE XIV
LOANS TO OFFICERS
SECTION 46. LOANS TO OFFICERS. The corporation may lend money to, or
guarantee any obligation of, or otherwise assist any officer or other employee
of the corporation or of its subsidiaries, including any officer or employee who
is a Director of the corporation or its
21.
<PAGE> 25
subsidiaries, whenever, in the judgment of the Board of Directors, such loan,
guarantee or assistance may reasonably be expected to benefit the corporation.
The loan, guarantee or other assistance may be with or without interest and may
be unsecured, or secured in such manner as the Board of Directors shall approve,
including, without limitation, a pledge of shares of stock of the corporation.
Nothing in these Bylaws shall be deemed to deny, limit or restrict the powers of
guaranty or warranty of the corporation at common law or under any statute.
22.
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