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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTIONS 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
(Mark One)
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2000
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number: 000-25469
iVILLAGE INC.
(Exact name of registrant as specified in its charter)
Delaware 13-3845162
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
500-512 Seventh Avenue,
New York, New York 10018 10018
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (212) 600-6000
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Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock,
$0.01 Par Value
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 [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates of the
registrant, based upon the closing sale price of the Common Stock on March 15,
2001 as reported on the Nasdaq National Market, was approximately $15.1
million. Shares of Common Stock held by each officer and director and by each
person who owns 5% or more of the outstanding Common Stock have been excluded
in that such persons may be deemed to be affiliates. This determination of
affiliate status is not necessarily a conclusive determination for other
purposes.
As of March 15, 2001, the registrant had outstanding 29,701,364 shares of
Common Stock.
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DOCUMENTS INCORPORATED BY REFERENCE
Certain documents incorporated by reference in this Form 10-K are listed in
the Exhibit Index.
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iVILLAGE INC.
FORM 10-K
TABLE OF CONTENTS
Page No.
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PART I
Item 1. Business ................................................ 1
Item 2. Properties .............................................. 18
Item 3. Legal Proceedings ....................................... 18
Item 4. Submission of Matters to a Vote of Security Holders ..... 18
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters ..................................... 19
Item 6. Selected Consolidated Financial Data .................... 20
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations ..................... 21
Item 7A. Quantitative and Qualitative Disclosures about Market
Risk .................................................... 42
Item 8. Consolidated Financial Statements and Supplementary Data 42
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure ..................... 42
PART III
Item 10. Directors and Executive Officers of the Registrant....... 43
Item 11. Executive Compensation................................... 46
Item 12. Security Ownership of Certain Beneficial Owners and
Management .............................................. 50
Item 13. Certain Relationships and Related Transactions........... 52
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on
Form 8-K ................................................ 54
SIGNATURES ........................................................... 58
Index of Consolidated Financial Statements and Financial
Statement Schedule ............................................... F-1
PART I
Certain statements in this Annual Report on Form 10-K, including certain
statements contained in "Item 1. Business" and "Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations,"
constitute "forward-looking statements" within the meaning of Section 27A of
the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E
of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). The
words or phrases "can be", "expects", "may affect", "may depend", "believes",
"estimate", "project", and similar words and phrases are intended to identify
such forward-looking statements. Such forward-looking statements are subject
to various known and unknown risks and uncertainties and iVillage cautions you
that any forward-looking information provided by or on behalf of iVillage is
not a guarantee of future performance. Actual results could differ materially
from those anticipated in such forward-looking statements due to a number of
factors, some of which are beyond iVillage's control, in addition to those
risks discussed below and in iVillage's other public filings, press releases
and statements by iVillage's management, including (i) the volatile and
competitive nature of the Internet industry, (ii) changes in domestic and
foreign economic and market conditions, (iii) the effect of federal, state and
foreign regulation on iVillage's business, (iv) the impact of recent and
future acquisitions and joint ventures on iVillage's business and financial
condition, (v) iVillage's ability to establish and maintain relationships with
advertisers, sponsors and other third party providers and partners, and (vi)
iVillage's ability to successfully consummate, integrate and manage its
proposed acquisition of Women.com Networks, Inc. All such forward-looking
statements are current only as of the date on which such statements were made.
iVillage does not undertake any obligation to publicly update any forward-
looking statement to reflect events or circumstances after the date on which
any such statement is made or to reflect the occurrence of unanticipated
events.
Item 1. Business
OVERVIEW
iVillage is a media company, which operates iVillage.com, Lamaze Publishing
and the Newborn Channel. iVillage.com is a leading women's online destination
providing practical solutions and everyday support for women 18 and over.
Lamaze Publishing produces advertising supported educational materials for
expectant and new parents. The Newborn Channel is a satellite television
network in over 1,000 hospitals nationwide.
iVillage.com is organized into communities across multiple topics of high
importance to women and offers interactive services, peer support, content and
online access to experts and tailored shopping opportunities. The content
areas include Astrology, Babies, Beauty, Books, Computing, Diet & Fitness,
Food, Games, Health, Home & Garden, Lamaze, Money, News & Issues, Parenting,
Pets, Relationships, Shopping and Work. iVillage facilitates use across
content areas by providing the same look and feel within each area and across
the network, resulting in a consistent and strongly branded Web site.
iVillage is recognized as an industry leader in developing innovative
sponsorship and commerce relationships that match the desire of marketers to
reach women with the needs of iVillage.com members for relevant information
and services. Membership to iVillage.com is free and provides features such as
email, personal homepages, instant messaging and other community tools.
iVillage.com's page views have grown to a monthly average of 214 million for
the quarter ended December 31, 2000.
iVILLAGE CONTENT AREAS
iVillage.com is organized around content specific areas that focus on issues
of most importance to women and provide interactive services, peer support and
online access to experts and tailored shopping opportunities.
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iVillage.com is updated daily to promote content and community, including
highlights. The following table provides a brief description of the features
of each content area as of February 15, 2001:
Area Description
Astrology A site providing users with horoscopes, celebrity profiles, romance charts, monthly guidance and the
ability to purchase astrology reports.
Babies A parenting community center site that caters to women who are trying to conceive, are expecting or are
new parents and includes bulletin boards and weekly chats on both AOL and the Web.
Beauty A site offering users beauty advice, product reviews and access to hair, makeup and skincare experts.
The beauty channel is operated by a joint venture between a subsidiary of Unilever United States, Inc.
("Unilever") and iVillage.
Books A book and reading site for readers interested in a wide range of books that allows users to discuss
featured books and offers Monthly Book Picks, Question of the Week, Reading Groups and iVillage.com
Bestsellers.
Diet & Fitness A diet and fitness site which includes Body Calculators, Nutrition Experts and Community Challenges to
improve one's fitness level.
Entertainment An area which includes iVillage Radio, celebrity interviews, jokes, and entertainment-related tools and
quizzes.
Food A food site providing information on meal planning, nutrition and recipes which includes Food Experts
and Cooking Basics.
Games A site offering users the ability to participate in a variety of games.
Health One of the leading health sites on the Internet, Health assists users in becoming better health care
decision makers through bulletin boards and weekly chats on AOL and the Web.
Home & Garden A home and garden site offering users information and tools on gardening issues.
Money A financial planning site providing users with information on savings and investment strategies focusing
on key life stages of women.
News & Issues A site offering users information on current news.
Parenting A parenting site providing users with a branded online community where parents share parenting
solutions, talk with experts and find answers and support.
Pets A site that provides information on caring for your pet, selecting a breed and features an automated
adoption and veterinarian-finder tool sponsored by the American Humane Association and American Animal
Hospital Association.
Pregnancy An area for expectant parents providing information on fertility and pregnancy, including Lamaze.com.
Relationships A site offering users information and conversation on love, marriage, sex and family.
Shopping A one-stop online shopping destination offering users easy access to retail Web sites.
Work A site providing women who work from home with tools and resources such as Home Office Basics, a Tax
Guide and a Software Library. The site also provides women with tools and resources relating to
professional development and career-related issues.
iVillage believes that user support is critical in order to attract and
retain users. iVillage provides user support primarily through e-mail-based
correspondence. Help and feedback buttons are prominently displayed throughout
iVillage.com, and iVillage.com's user support staff attempts to respond to all
e-mail queries within 24 hours. In addition, community leaders provide e-mail
support for broad-ranging issues. iVillage does not charge for these services.
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Sponsorship and Advertising Revenues
iVillage has derived a significant amount of its revenues to date from the
sale of sponsorships and advertisements. For the years ended December 31, 2000
and 1999 sponsorship and advertising revenues represented 92% and 95%,
respectively, of iVillage's revenues.
iVillage's strategy is focused in part on generating a majority of its
advertising revenues from sponsors and merchants who seek a cost-effective
means to reach women online. iVillage is aggressively working to build its
leadership position as the preeminent women's brand to the advertising
community. iVillage's sponsorship arrangements typically differ from
traditional banner advertising in that they are designed to achieve broad
marketing objectives such as brand promotion, awareness, product introductions
and online research. Sponsorships allow iVillage to cater to the specific
goals of advertisers in the areas of impressions, product research, market
research, new product launches, list development, product information,
repositioning, new account openings, lead generation and transactions.
Sponsors also have the opportunity to develop a dialogue with their key
consumer prospects through iVillage's message boards, chats, polls and special
events, which allows sponsors the opportunity to gain insights into their
customers. iVillage's sponsorship arrangements generally have longer terms
than typical banner advertising placements, provide for higher cost per
thousand impressions per advertiser and independence from page-views as the
sole measure of value. In addition, iVillage occasionally develops extensive
content to support the marketing initiatives of advertisers. iVillage's
sponsorship agreements can be exclusive.
iVillage also derives a smaller portion of its sponsorship and advertising
revenues from banner advertisements that are prominently displayed at the top
and bottom of pages throughout iVillage.com. From each banner advertisement,
viewers can hyperlink directly to the advertiser's own Web site, thus
providing the advertiser the opportunity to directly interact with an
interested customer.
During the years ended December 31, 2000 and 1999, iVillage's five largest
advertisers accounted for approximately 23% and 20%, respectively, of its
total revenues. At December 31, 2000, Ford Motor Media accounted for
approximately 11% of the net accounts receivable, and at December 31, 1999, no
advertiser accounted for more than 10% of the net accounts receivable.
Membership
iVillage believes a large and active membership base is critical to its
success. Some features of iVillage's Web sites are restricted to members.
Membership is free and available to iVillage.com visitors who disclose their
names, e-mail addresses, zip codes, ages and gender and choose a member name
and password to be used throughout member-only areas. Members form
iVillage.com's core audience and are its most valuable users. E-mail, instant
messaging, community challenges, message boards and chats are examples of
members-only benefits.
iVillage recognizes the importance of maintaining the confidentiality of
member information and has a privacy policy to protect this information. In
addition, iVillage Health is a founding member of the Health Internet Ethics,
or Hi-Ethics, organization. iVillage's current privacy policy is accessible
through a link from the iVillage.com home page as well as every Web page on
iVillage.com, including the page where a person initially registers for
membership. iVillage's current policy is to never sell or disclose to any
third party any member's personal identifying information such as his or her
name or address, unless the member has provided consent in the form of an
"opt-in" or in certain limited situations as described in iVillage's privacy
policy. For example, in some situations, iVillage does allow a third-party
partner access to database information if it is necessary for the delivery of
a member service, such as e-mail. In these instances, the partner has
generally agreed to be bound by iVillage's current policy. iVillage does share
aggregated member information with third parties, such as average age or
geographic dispersion. iVillage also reserves the right to offer members
products and services. iVillage may use information revealed by members and
information built from user behavior to target advertising, content and e-
mail. For instance, iVillage may, on behalf of an advertiser, send e-mail
offers to all members from a particular region or target advertisements to all
users who frequent a specific area of the site.
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Lamaze Publishing and the Newborn Channel
Lamaze Publishing is used to solidify iVillage's leading position in the
parenting category. Lamaze Publishing produces advertising-supported
educational materials for expectant and new parents and is the exclusive
licensee of the LAMAZE mark for use in connection with consumer publications
and other communications, which include print, audio, visual and other
consumer oriented media, that are commercial in nature. Lamaze Publishing is
also the exclusive marketing agent for Lamaze International, Inc., the owner
of the LAMAZE family of marks. iVillage also operates the Lamaze.com Web site.
Lamaze is a method of childbirth preparation based on the Lamaze philosophy
of birth. The Lamaze philosophy of birth states that birth is "normal, natural
and healthy," and "childbirth education empowers women to make informed
choices in healthcare, to assume responsibility for their health and trust
their inner wisdom".
Lamaze International was founded by interested parents, childbirth educators
and healthcare providers in 1960 to promulgate these ideas. Lamaze Publishing
was established as a for-profit company in 1990 to provide childbirth and
infant care educational materials.
During a pregnancy and immediately after the birth of a child, new parents
spend substantial amounts of time with childbirth educators and maternity
nurses seeking information on healthcare issues, the birth process and infant
care. These busy healthcare professionals typically have neither the time nor
the resources to create the consumer publications or communications that would
assist this process and allow parents to absorb this material at home.
The Lamaze Publishing business strategy is to provide these consumer
publications or communications to childbirth educators and maternity nurses
free of charge, and offset the expense incurred by selling print advertising
and commercial messages to advertisers who target the young family market.
Lamaze Publishing publications, used and distributed to parents by
childbirth educators and maternity nurses nationwide, include:
o Lamaze Parents, a prenatal publication used in childbirth education.
Topics include prenatal nutrition, the role of the childbirth partner,
and the physical and emotional challenges of pregnancy. Childbirth
educators distribute Lamaze Parents to expectant parents on the first
night of class. Lamaze Parents had an average annual circulation of
approximately 2,400,000 for 2000.
o Lamaze Baby, a parenting guide for mothers from the time a child is born
through twelve months of life written entirely by healthcare
professionals. Lamaze Baby is delivered by maternity nurses to new
mothers at the hospital bedside shortly after childbirth. The magazine
covers topics that hospital nurses review with new mothers prior to
discharge serving as a helpful and time saving tool for nurses in
educating mothers about infant care. Lamaze Baby had an average annual
circulation of approximately 3,000,000 for 2000.
o Revista Lamaze para Padres, a Spanish language prenatal magazine which
reaches more expectant Hispanic mothers than any other title. Childbirth
educators distribute Revista Lamaze para Padres to expectant parents on
the first night of class. Revista Lamaze para Padres had an average
annual circulation of approximately 550,000 for 2000.
o "Lamaze You and Your Baby," a 90 minute video textbook providing
expectant parents with important instruction on infant care. Childbirth
educators distribute to expectant parents the video, which is later
returned. This video is distributed yearly to childbirth educators,
typically during the first four months of the year. In 2000,
approximately 13,000 childbirth educators ordered approximately 200,000
copies of this video from Lamaze Publishing.
o "Lo Mejor para Su Bebe," a 60 minute Spanish-language video textbook that
provides expectant parents with important instruction on infant care.
This video is modeled after "Lamaze You and Your Baby". The video is
distributed yearly to childbirth educators, typically during the first
four months of the year. In 2000, approximately 5,000 childbirth
educators ordered approximately 50,000 copies of this video from Lamaze
Publishing.
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o Lamaze Special Delivery, a program offering advertisers the ability to
distribute coupons, samples and promotional literature to expectant and
new parents. Information to be distributed is polybagged with Lamaze
Parents, Lamaze Baby and Revista Lamaze para Padres.
iVillage Integrated Properties, Inc. also owns the Newborn Channel, a
satellite television network that instructs mothers in their hospital rooms
following birth in over 1,000 hospitals nationwide and, as of December 31,
2000, reached approximately 2,400,000 new mothers.
Astrology.com
Astrology.com is a leading destination for women seeking daily horoscopes,
astrology content and personalized forecasts online. Through iVillage's
network of sites organized by topics of interest to women such as family,
love, money and career, Astrology.com provides a timely, personalized
experience for the user, stimulates commerce sales of monthly and annual
forecasts by subject and creates an advertising environment that is appealing
to advertisers due to targeting possibilities within the site and through e-
mail communication.
Astrology.com brings iVillage a content and commerce site that is appealing
to iVillage's core demographic of women and a vehicle to drive repeat visits
to iVillage.com through the use of daily horoscopes. Astrology.com accounts
for a substantial portion of iVillage's traffic. iVillage attempts to leverage
the popularity of Astrology.com by using internal promotion and links to
attract Astrology.com users to other areas of iVillage's Web site, resulting
in higher average page views and time spent per visit. Astrology.com has also
created an interactive commerce system that provides instantaneous, digital
astrology reports. The system consists of software which operates the Web site
and is capable of generating customized astrology reports based on input from
users.
Alliances
iVillage pursues strategic relationships to increase its access to online
customers, build brand recognition and expand its online presence.
Historically, iVillage has pursued strategic alliances to reach online and
offline customers. iVillage's principal strategic alliances and relationships
include the following:
Media Arrangement
In November 1998, iVillage entered into an advertising and promotional
agreement with NBC pursuant to which NBC promotes iVillage.com on television,
primarily during prime-time programs, as well as through its Web sites. In
February 2001, iVillage further amended its November 1998 agreement with NBC
to provide for an extension of time during which iVillage must purchase its
advertising or promotional spots on the NBC network. The revised terms require
iVillage to purchase approximately $11.6 million of advertising or promotional
spots between January 30, 2001 and December 31, 2002, with $3.0 million of
advertising or promotional spots being telecast during the year 2001 and
approximately $8.6 million during the year 2002.
Sponsorship Arrangements
iVillage has a number of sponsorship arrangements with leading advertisers
and sponsors, including:
o Fuji Photo Film USA - exclusive sponsorship for the photographic film,
disposable camera and digital camera categories throughout iVillage's
network.
o Glaxo Wellcome - exclusive sponsorship for resource centers for smoking
cessation, migraine, and asthma that include interactive assessment
tools, disease-specific newsletters, and enhanced community support.
o Johnson & Johnson - exclusive sponsor of certain birth control, anti-
fungal and other pharmaceutical products as well as sponsor of skin care
resource centers.
o Kimberly-Clark - exclusive sponsor on certain parenting areas of diapers,
wipes, training pants and similar products.
o Unilever - promotion of various Unilever brands in several consumer
product categories.
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Distribution Arrangements
iVillage considers branding an important aspect of its distribution
arrangements and seeks distribution relationships where its brand is promoted.
iVillage periodically enters into distribution and content relationships with
major online service companies on the Internet, including:
o AOL Time Warner Inc. - some of iVillage's icons are placed within the AOL
service and iVillage receives guaranteed impressions.
Joint Venture and International License Arrangements
iVillage has entered into the following joint venture and international
license arrangements:
o Cooperative Beauty Ventures, LLC - iVillage and Unilever have formed,
through a joint venture arrangement, an independently managed company,
Cooperative Beauty Ventures, LLC, to provide women with a focused
community, an array of interactive, customized online services, beauty and
personal care products and personalized product recommendations. iVillage
presently owns 80.1% of the venture and Unilever owns the remaining 19.9%.
iVillage, over the twenty-year term of the venture, is obligated to fund
the ongoing business and operations of the venture, subject to a maximum
funding obligation of $7.0 million. Under certain circumstances, Unilever
can exercise a "put" option to require iVillage to purchase Unilever's
remaining ownership interest in the venture for fair market value and
iVillage, under certain circumstances, can exercise a "call" option to
require Unilever to sell its remaining interest in the venture to iVillage
for fair market value. Also, under certain circumstances, Unilever can
exercise a "call" option to purchase a portion of iVillage's membership
interest in the venture for fair market value, up to a limit of 50% of the
ownership of the venture. During the year ended 2000, iVillage recognized
losses from the joint venture of approximately $0.4 million.
o iVillage UK Limited - In July 2000, iVillage through a foreign
subsidiary, entered into a business arrangement with Tesco PLC, a leading
U.K. supermarket chain, to form iVillage UK Limited, a U.K. company.
iVillage, through its foreign subsidiary, holds approximately a 50%
interest in iVillage UK Limited. Through a newly-developed women's
website (located at www.ivillage.co.uk), iVillage UK Limited serves the
women's online market in the United Kingdom and the Republic of Ireland
through a focused community and an array of interactive, customized
online solutions and services. iVillage, through its foreign subsidiary,
will provide marketing, branding, an immaterial amount of cash,
intellectual property and other resources through online and offline
activities in support of iVillage UK Limited and the U.K. and Ireland
websites. Tesco will provide $18 million in cash over the three-year
period following the establishment of the relationship, and online and
offline promotional considerations. The ivillage.co.uk Web site also will
promote Tesco's retail business. Revenues will be derived primarily from
advertising and sponsorship.
o Hindustan Lever Limited - In December 2000, iVillage and Hindustan Lever
Limited (HLL), a Unilever subsidiary, entered into a licensing and
technology agreement to create a Web site targeting women in India.
iVillage, through a foreign subsidiary, is licensing technology, brands
and other intellectual property to HLL as part of the transaction.
Pursuant to the licensing agreement, HLL will pay an initial set-up fee
of $500,000 and iVillage will receive an annual royalty on revenue
generated. The royalty will be on an annual basis and will be the greater
of 7% of revenues or $500,000. The agreement is subject to necessary
regulatory approvals in India. The government of India has approved the
agreement except for the minimum annual royalty payment of $500,000.
iVillage is currently in discussions with HLL regarding this exception.
The Web site in India will operate under HLL's direction. HLL will also
provide all capital investments required in maintaining the Web site
including technology, staffing and marketing support. The site is
expected to launch in the second half of 2001.
Sales, Marketing and Public Relations
Sales
As of December 31, 2000, iVillage had a direct sales organization consisting
of 20 sales professionals and 25 sales operations staff. iVillage's sales
organization consults regularly with advertisers and agencies on design and
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placement of its Web-based advertising and the production and management of
co-branded bridge sites which provide information about advertisers and/or
their products and services, provides customers with advertising management
analysis and focuses on providing a high level of customer satisfaction. Nine
professionals concentrate primarily on advertising sales for the Newborn
Channel, video products, and print advertising sales. iVillage generally seeks
to hire individuals with significant experience in selling advertising and
pre-existing relationships with advertisers in a variety of media.
Marketing and Public Relations
iVillage employs a variety of methods to promote the iVillage.com brand and
to attract traffic and new members, including advertising on other Internet
sites, targeted publications, radio stations, national television, cross
promotional arrangements to secure advertising and other promotional
considerations. To extend the iVillage.com brand, iVillage has also entered
into several strategic alliances with offline partners. Please see
"Alliances". In addition, iVillage leverages other audience building
strategies, including working closely with search engine submissions, news
group postings and cross-promotion to properly index materials. iVillage's
marketing department consisted of 30 marketing professionals as of December
31, 2000.
iVillage's internal public relations staff oversees a comprehensive public
relations program which iVillage believes is a key component of its marketing
and brand recognition strategy. Organized into two primary components that
promote iVillage and the iVillage.com brand, the program targets a trade/
business and consumer audience, respectively. iVillage has also implemented
national long-lead consumer initiatives, such as radio media tours, regional
broadcast media tours, consumer publicity of its Parent Soup book series and
other related activities, and multiple daily media advisories sent to consumer
outlets throughout the United States.
To maximize distribution of iVillage's publications and the Newborn Channel,
and gain the endorsement of the professional community for these products,
iVillage gives particular attention to marketing efforts targeted to
childbirth educators, maternity nurses and hospitals. A staff of four
marketing professionals contacts hospitals for distribution of the Newborn
Channel and works with the professional community to maintain distribution
levels of iVillage's publications and demonstrate how they can be used as
teaching tools for expectant parents and new mothers. iVillage's
representatives maintain contact with the professional community through trade
shows, professional conferences, consumer publication updates and personal
sales calls.
Operating Infrastructure
iVillage's Internet operating infrastructure has been designed and
implemented to support the delivery of millions of page views a day. Assuming
traffic is evenly distributed in a normal pattern, iVillage believes its
current operating infrastructure can support approximately 13 million page
views per day. If necessary, iVillage can increase its capacity by adding
additional servers or entering into agreements with third parties under which
iVillage would receive credit for page views on third party sites. Web pages
are generated and delivered, in response to end-users requests, by any one of
more than 100 servers. Key attributes of this infrastructure include the
ability to support growth, performance and service availability.
iVillage's servers run on the Sun Solaris, Microsoft NT and Linux operating
systems and use Netscape Enterprise, Apache and Microsoft Corporation's IIS
Web server software.
iVillage maintains all of its production servers at the New Jersey Data
Center of Exodus Communications, Inc. and Verio, Inc. in San Francisco,
California. iVillage's operations are dependent upon these companies' ability
to protect their respective systems against damage from fire, hurricanes,
power loss, telecommunications failure, break-ins and other events.
Exodus provides comprehensive facilities management services, including
human and technical monitoring of all production servers 24 hours per day,
seven days per week. The servers located at Verio are monitored by iVillage's
California operations staff. Exodus and Verio provide the means of
connectivity for iVillage's servers to end-users via the Internet through
multiple connections. Each facility is powered by multiple uninterruptible
power supplies and backup generators.
All of iVillage's production data, except Astrology.com, are copied to
backup tapes each night and stored at a third party, off-site storage
facility. Astrology.com's production data is backed up on a daily basis to
local
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storage. iVillage is in the process of developing a comprehensive disaster
recovery plan to respond to system failures. iVillage keeps all of its
production servers behind firewalls for security purposes and does not allow
outside access, at the operating systems level, except via special secure
channels. Strict password management and physical security measures are
followed. Computer emergency response team alerts are read, and, where
appropriate, recommended action is taken to address security risks and
vulnerabilities.
iVillage's Web sites must accommodate a high volume of traffic and deliver
frequently updated information. Components or features of iVillage's Web sites
have in the past suffered outages or experienced slower response times because
of hardware or software downtime. This has not had a material effect on
iVillage's business.
Broadcasting of the Newborn Channel to hospitals originates from a laser
disc system operated by Group W Network Services, from Group W's facility in
Stamford, Connecticut. The system provides an uplink signal to a satellite
operated by PanAmSat. The signal is received through a satellite dish at each
hospital and distributed to patients' rooms. Group W handles installation and
service of all hospital receiving equipment. iVillage maintains business
interruption insurance in the event programming is interrupted over the
designated satellite.
Competition
The market for members, visitors and Internet advertising is new and rapidly
evolving, and competition for members, visitors and advertisers is intense and
is expected to increase significantly in the future. With no substantial
barriers to entry, iVillage expects that competition will continue to
intensify.
iVillage believes that the primary competitive factors in creating community
on the Internet are:
o functionality;
o brand recognition;
o member affinity and loyalty;
o demographic focus;
o variety of value-added services;
o ease-of-use;
o quality of service; and
o reliability and critical mass.
Other companies or sites which are primarily focused on targeting women
online include Oxygen.com and condenet.com, as well as Web sites targeted to
categories such as health. iVillage will likely also face competition in the
future from:
o developers of Web directories;
o search engine providers;
o shareware archives;
o content sites;
o commercial online services;
o sites maintained by Internet service providers; and
o other entities that attempt to or establish communities on the Internet
by developing their own or purchasing one of iVillage's competitors.
In addition, iVillage could face competition in the future from traditional
media companies, a number of which, including CBS and NBC, have made
significant acquisitions of or investments in Internet companies. Further,
there can be no assurance that iVillage's competitors and potential
competitors will not develop communities that are equal or superior to ours or
that achieve greater market acceptance than iVillage's community.
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iVillage also competes with traditional forms of media, such as newspapers,
magazines, radio and television, for advertisers and advertising revenues.
iVillage believes that the principal competitive factors in attracting
advertisers are:
o the amount of traffic on iVillage's Web sites;
o brand recognition;
o the demographics of iVillage's members and visitors;
o iVillage's ability to offer targeted audiences; and
o the overall cost-effectiveness of the advertising medium offered by us.
iVillage believes that the number of Internet companies relying on Web-based
advertising revenues may increase in the future. Accordingly, iVillage may
face increased competition, which could in turn have a material adverse effect
on its business, results of operations and financial condition.
Many of iVillage's current and potential competitors, including developers
of Web directories and search engines and traditional media companies, have:
o longer operating histories;
o significantly greater financial, technical and marketing resources;
o greater name recognition; and
o larger existing customer bases.
These competitors are able to undertake more extensive marketing campaigns
for their brands and services, adopt more aggressive advertising pricing
policies and make more attractive offers to potential employees, distribution
partners, commerce companies, advertisers and third-party content providers.
There can be no assurance that Internet content providers and Internet service
providers, including developers of Web directories, search engines, sites that
offer professional editorial content and commercial online services, will not
be perceived by advertisers as having more desirable Web sites for placement
of advertisements. In addition, many of iVillage's current advertising
customers and strategic partners also have established collaborative
relationships with certain of iVillage's competitors or potential competitors,
and other high-traffic Web sites. Accordingly, there can be no assurance that:
o iVillage will be able to grow its membership, traffic levels and
advertiser customer-base at historical levels;
o iVillage will be able to retain its current members, traffic levels or
advertiser customers;
o competitors will not experience greater growth in traffic as a result of
these relationships which could have the effect of making their Web sites
more attractive to advertisers; or
o iVillage's strategic partners will not sever or will elect not to renew
their agreements with us.
Several major publishing companies produce products that are directly
competitive with iVillage's magazines. AOL Time Warner, Gruner and Jahr and
Primedia all publish various pre- and post-natal publications. Disney
Publishing and Children's Television Workshop also publish general parenting
magazines. All of these publishers have substantially greater marketing,
research and financial resources than us. iVillage competes by emphasizing the
highly targeted nature of its audience, product quality and the fact that its
publications are used as teaching tools by professionals, and the credibility
and trust parents place in the Lamaze brand name.
While iVillage's Lamaze Publishing instructional videos and the Newborn
Channel currently have no direct competitors, advertisers in this marketplace
are heavy users of daytime network television and cable television networks
targeted to young parents. The broadcasting companies that provide these
opportunities have invested substantial amounts in programming, sales and
marketing and are much better-known to advertisers than Lamaze Publishing and
the Newborn Channel. To compete, Lamaze Publishing and the Newborn Channel
must convince
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them that advertising recall and effectiveness obtained in an educational or
hospital setting is superior to that of traditional broadcasting.
There can be no assurance that iVillage will be able to compete successfully
against its current or future competitors or that competitive pressures faced
by iVillage will not have a material adverse effect on its business, results
of operations and financial condition.
Intellectual Property, Proprietary Rights and Domain Names
iVillage regards its copyrights, service marks, trademarks, trade names,
trade dress, trade secrets, proprietary technology and similar intellectual
property as critical to its success, and relies on trademark and copyright
law, trade secret protection and confidentiality and/or license agreements
with its employees, customers, independent contractors, partners and others to
protect iVillage's proprietary rights. iVillage pursues the registration of
its trademarks and service marks in the United States, and has applied for and
obtained registration in the United States for certain of iVillage's
trademarks and service marks, including "iVillage". Effective trademark,
service mark, copyright and trade secret protection may not be available in
every country in which iVillage's products and services are made available
online.
iVillage has licensed in the past, and expects that it may license in the
future, certain of iVillage's proprietary rights, such as trademarks or
copyrighted material, to third parties. While iVillage attempts to ensure that
the quality of its brand is maintained by these licensees, there can be no
assurance that the licensees will not take actions that might materially
adversely affect the value of its proprietary rights or reputation, which
could have a material adverse effect on its business, financial condition and
results of operations. There can be no assurance that the steps taken by
iVillage to protect its proprietary rights will be adequate or that third
parties will not infringe or misappropriate its copyrights, trademarks, trade
dress and similar proprietary rights. In addition, there can be no assurance
that other parties will not assert claims of infringement of intellectual
property or alter proprietary rights against iVillage.
iVillage has been subject to claims and expects to be subject to legal
proceedings and claims from time to time in the ordinary course of its
business, including claims of alleged infringement of patents, trademarks and
other intellectual property rights of third parties by iVillage and its
licensees. These claims, even if not meritorious, could result in the
expenditure of significant financial and managerial resources. Further, if
these claims are successful, iVillage may be required to change its
trademarks, alter its content, alter its site format and pay financial
damages. There can be no assurance that these changes of trademarks,
alteration of content or format or payment of financial damages will not
adversely affect its business, results of operations and financial condition.
iVillage may be required to obtain licenses from others to refine, develop,
market and deliver new services. There can be no assurance that iVillage will
be able to obtain any license on commercially reasonable terms or at all or
that rights granted pursuant to any licenses will be valid and enforceable.
Human Resources
As of February 20, 2001, iVillage employed 309 full-time employees, of whom
96 were in sales and marketing, 85 were in editorial and community, 53 were in
administration and customer service, and 75 were in technology, operations and
support. As iVillage continues to grow and introduce more products, iVillage
may need to hire more personnel, particularly in the areas of product
development and sponsorship. None of iVillage's current employees are
represented by a labor union or is the subject of a collective bargaining
agreement. iVillage believes that relations with its employees are good.
Proposed Merger with Women.com
Merger Agreement
On February 5, 2001, iVillage, Stanhope Acquisition Sub, LLC ("merger sub"),
a Delaware limited liability company and wholly-owned subsidiary of iVillage,
and Women.com, Networks, Inc. ("Women.com") entered into an Agreement and Plan
of Merger (the "original merger agreement"). On February 22, 2001, the parties
to the original merger agreement entered into Amendment No. 1 to Agreement and
Plan of Merger (together with
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the original merger agreement, the "merger agreement") that amends the
original merger agreement. The merger agreement provides for a taxable merger
of merger sub with and into Women.com (the "merger"), with Women.com
continuing as the surviving corporation (the "surviving corporation"). The
certificate of merger filed in Delaware to effect the merger will provide that
a restated certificate of incorporation, as amended and restated, will become
the certificate of incorporation of the surviving corporation. The bylaws of
the surviving corporation will be those of Women.com. The directors and
officers of the merger sub will become the directors and officers of Women.com
after the merger. Following the merger, Women.com will become a wholly-owned
subsidiary of iVillage and Women.com's common stock will be delisted from the
Nasdaq National Market.
At the effective time of the merger, each share of Women.com common stock
issued and outstanding immediately before such time (other than shares held by
Women.com, iVillage or merger sub, which will be canceled and retired, or
shares as to which appraisal rights have been demanded, exercised or perfected
in accordance with Delaware law, which shares will be converted into the right
to receive any amount required by Delaware law) will be converted into 0.322
(the "exchange ratio") of a share of iVillage common stock and the right to
receive cash equal to 1% of the product of the average of the high and low
prices of a share of iVillage common stock on the Nasdaq National Market on
the closing date multiplied by 0.322 (subject to adjustment as described
below).
The exchange ratio will be decreased if Women.com does not have at least
$12,000,000 of working capital and $20,000,000 in cash as of March 31, 2001.
In addition, if the actual cash and working capital of Women.com as of
March 31, 2001 is less than the required amounts of cash and working capital,
then Hearst Communications, Inc., the largest stockholder of Women.com and a
Delaware corporation ("Hearst Communications"), would have the option to
purchase additional shares of iVillage common stock in an amount equal to the
amount of the shortfall up to $2,000,000 divided by $1.875. If the shortfall
is more than $2,000,000 as of March 31, 2001, but less than $4,000,000, then
Hearst Communications must purchase additional shares of iVillage common stock
pursuant to the merger agreement for the amount of the shortfall which exceeds
$2,000,000, and Hearst Communications will have the option to purchase shares
with respect to the additional $2,000,000 shortfall amount. Hearst
Communications will pay $1.875 for each share purchased due to any shortfall.
iVillage may terminate the merger agreement if:
o the shortfall is more than $4,000,000 as of March 31, 2001;
o Women.com's cash on hand immediately prior to the closing of the merger
is not equal to or greater than the difference between the amount of cash
on hand as of March 31, 2001 minus the product of $166,666 multiplied by
the number of days elapsed from March 31, 2001 to the date which is one
day prior to the date of the closing of the merger; or
o working capital immediately prior to such closing is materially less than
the difference between the amount of working capital as at March 31, 2001
minus the reduction in Women.com's cash on hand since March 31, 2001.
The merger agreement does not specify the manner in which the parties would
determine whether or not such working capital amount is "materially less" than
the difference between the amount of working capital at March 31, 2001 and the
reduction in Women.com's cash since March 31, 2001.
Certificates for fractional shares of iVillage common stock will not be
issued in the merger. Women.com's stockholders who would otherwise receive
fractional shares will, instead, be entitled to receive a cash payment equal
to the value of these fractional share interests, determined by multiplying
(i) the per share closing price of iVillage common stock on the closing date
by (ii) the fraction of the share of iVillage common stock to which the holder
would otherwise have been entitled.
At the effective time of the merger, each outstanding stock option granted
or issued under Women.com's stock option plans in effect on the date of the
merger agreement will be converted into a stock option to acquire iVillage
common stock, with appropriate adjustments to reflect the exchange ratio.
Pursuant to the merger agreement, Women.com and its directors, officers,
employees and representatives are prohibited from negotiating with, soliciting
offers from, or providing information to any third party with respect to any
"acquisition proposal" (generally, any proposal or offer to acquire 20% or
more of the assets of
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Women.com and its subsidiaries or 20% or more of the voting power of the
shares of Women.com or any merger or other business combination). However, if
within 60 days of the date of the original merger agreement (i.e., February 5,
2001) (or, if earlier than the end of such 60-day period, no later than the
date of the stockholders' meeting held to vote on the merger), Women.com's
Board of Directors, in exercise of its fiduciary duties, reasonably determines
in good faith that the Board is required to do so to comply with its fiduciary
duties to Women.com's stockholders under applicable law, the Board may, in
response to a "superior proposal" that did not result in a breach of the
foregoing prohibition, furnish information to, and engage in negotiations
with, the proponent of such superior proposal. The merger agreement generally
defines a superior proposal as an acquisition proposal relating to
substantially all the assets of Women.com or 80% of the shares of Women.com
which is on terms which the Board determines in good faith (x) to be more
favorable from a financial point of view to the stockholders of Women.com than
the merger, (y) is reasonably capable of being completed and (z) for which
financing, to the extent required, is then committed or can be obtained.
In accordance with the merger agreement, the Board of Directors of Women.com
has unanimously adopted resolutions approving, and recommending that
Women.com's stockholders approve and adopt, the merger agreement and the
merger. The merger agreement generally prohibits the Board from withdrawing or
modifying, in either case in a manner adverse to iVillage, its approval or
recommendation of the merger or the merger agreement. If, within 60 days of
the date of the original merger agreement (or, if earlier than the end of such
60-day period, no later than the date of the stockholders' meeting held to
vote on the merger), the Board, in the exercise of its fiduciary duties,
reasonably determines in good faith that the Board is required to do so to
comply with its fiduciary duties to Women.com's stockholders under applicable
law, in response to a "superior proposal" that did not result in a breach of
the prohibitions described in the preceding paragraph and after providing
iVillage with at least 72 hours advance notice of its decision to take such
action, the Board may modify or propose publicly to modify, in a manner
adverse to iVillage, its approval or recommendation of the merger or the
merger agreement.
If iVillage terminates the merger agreement because Women.com withdraws or
modifies its recommendation for approval of the merger or approves or
recommends an acquisition proposal (provided that it may recommend a superior
proposal, as indicated in the previous paragraph), Women.com is obligated to
pay iVillage a termination fee of $1,000,000 (the "termination fee").
If iVillage terminates the merger agreement because Women.com's stockholders
do not approve the merger, Women.com is obligated to pay iVillage the
termination fee; if Women.com terminates the merger agreement because
iVillage's stockholders do not approve the merger, iVillage is obligated to
pay Women.com the termination fee.
In connection with the merger agreement, iVillage entered into agreements
with four of its stockholders, America Online, Inc., National Broadcasting
Company, Inc., GE Investments Subsidiary, Inc. and Rho Management Trust I,
pursuant to which these iVillage stockholders have agreed to vote all shares
of iVillage common stock beneficially owned by them in favor of the merger at
the meeting of iVillage stockholders to be held to vote on the merger. As of
February 5, 2001, these stockholders beneficially owned (after taking into
account exercisable warrants) an aggregate of approximately 21.2% of the
outstanding iVillage common stock.
Also in connection with the merger agreement, iVillage and Hearst
Communications have entered into a Stockholder Voting Agreement, dated as of
February 5, 2001 (the "voting agreement"), and an Amended and Restated
Securities Purchase Agreement, dated as of February 22, 2001 (the "securities
purchase agreement").
Voting Agreement
The voting agreement obligates Hearst Communications to vote its shares in
favor of the approval and adoption of the merger agreement and each of the
other transactions contemplated in the merger agreement, including the merger
and against:
o any action or agreement that would result in a breach by Women.com
under the merger agreement;
o any extraordinary corporate transaction involving Women.com, such as a
merger, consolidation or other business combination;
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o a sale, lease or transfer of a material amount of assets of Women.com
or a reorganization, recapitalization, dissolution or liquidation of
Women.com;
o any change in the board of directors of Women.com;
o any amendment of the certificate of incorporation of Women.com; or
o any other action which is intended, or could reasonably be expected, to
impede, interfere with, delay, postpone, discourage or materially and
adversely affect the contemplated benefits to iVillage of the merger
and the other transactions contemplated by the merger agreement.
Hearst Communications has also agreed that it will not, directly or
indirectly:
o solicit, initiate or encourage (including by way of furnishing
information) or otherwise take any action to facilitate, a competing
acquisition proposal relating to Women.com; or
o participate in any discussions or negotiations regarding any proposal
that constitutes, or that may lead to, a competing acquisition
proposal.
Hearst Communications has also agreed not to authorize or permit any of its
officers, directors, employees, agents or representatives to engage in these
activities and to keep iVillage informed of the status and details of any
requests, competing acquisition proposals or inquiries.
Securities Purchase Agreement
Pursuant to the securities purchase agreement, Hearst Communications has
agreed to purchase up to 9,324,000 shares of iVillage common stock and a
warrant (with an exercise price of $0.01 per share) to purchase up to
2,100,000 shares of iVillage common stock for an aggregate purchase price of
up to $20,000,000. Pursuant to the securities purchase agreement, iVillage has
agreed to conduct a registered rights offering (the "rights offering") whereby
all stockholders of Women.com will be given the right to purchase their pro-
rata portion (based upon their ownership of the outstanding shares of
Women.com) of the shares of iVillage common stock and warrant covered by the
securities purchase agreement. Hearst Communications has agreed to reimburse
iVillage for expenses related to the rights offering that exceed $100,000. The
term "rights offering" does not include any additional shares of iVillage
common stock purchased by Hearst Communications as a result of Women.com
failing to meet the cash and working capital requirements specified by the
merger agreement or the exercise of appraisal rights by Women.com's
stockholders (as described below).
The number of shares of iVillage common stock to be purchased by Hearst
Communications under the securities purchase agreement, as well as the number
of shares of iVillage common stock underlying the warrant, will be reduced on
a one-for-one basis by the number of shares and warrant shares purchased by
Women.com's stockholders (other than Hearst Communications) in the rights
offering. Also, the aggregate purchase price payable by Hearst Communications
will be reduced by the amount received by iVillage from Women.com's
stockholders (other than Hearst Communications) in the rights offering.
If appraisal rights are demanded, exercised or perfected by any of
Women.com's stockholders pursuant to Section 262 of Delaware corporate law,
and the shares of Women.com associated with such appraisal rights exceed 2.0%
of the shares of Women.com outstanding as of the record date of Women.com's
special stockholders' meeting called for the purpose of approving the merger,
Hearst Communications will, if requested by iVillage, purchase from iVillage,
at a $1.875 per share purchase price, a number of shares of iVillage common
stock equal to the number of shares of Women.com in excess of such 2% amount
multiplied by the exchange ratio, rounded down to the nearest whole share.
The closing of the transactions contemplated by the securities purchase
agreement will occur concurrently with the closing of the merger and after the
satisfaction or waiver of the conditions thereto.
Stockholder Agreement
Upon Hearst Communications' purchase of iVillage common stock pursuant to
the securities purchase agreement, iVillage and Hearst Communications will
enter into a stockholder agreement that sets forth certain obligations,
restrictions and limitations relating to the securities purchased by Hearst
Communications pursuant
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to the merger agreement and the securities purchase agreement. The stockholder
agreement applies to all voting securities of iVillage owned by Hearst
Communications on the date of the agreement and all voting securities of
iVillage subsequently acquired by Hearst Communications.
Restrictions on Securities Ownership. The stockholder agreement places a
cap on the number of iVillage voting securities that Hearst Communications and
its affiliates may own. This cap may be exceeded only with (i) the unanimous
written consent of iVillage's board of directors or (ii) the approval of all
of the non-Hearst Communications board designees present at a meeting of
iVillage's board of directors at which a quorum is present. Under the
stockholder agreement, Hearst Communications and its affiliates will be
prohibited from owning voting securities of iVillage in excess of a specified
percentage of the total number of iVillage voting securities outstanding at
any time.
This specified percentage, which will not be calculated until the closing of
the merger, will be determined by calculating (x) the total number of
outstanding iVillage voting securities owned by Hearst Communications or its
affiliates on the closing date of the merger and the total number of
outstanding convertible securities, options, warrants or other rights
exercisable for or convertible into voting securities, with or without the
passage of time or the satisfaction of specified conditions, owned by Hearst
Communications or its affiliates on the closing date of the merger; and (y)
dividing the number calculated in the manner described above by the sum of the
total number of iVillage voting securities outstanding on the closing date of
the merger and the number of shares of iVillage voting securities represented
by warrants for iVillage common stock held by Hearst Communications or its
affiliates on the closing date of the merger. Assuming that: (1) no Women.com
stockholders participate in the rights offering; (2) Hearst Communications is
not required to, and does not elect to, purchase additional iVillage common
stock pursuant to the merger agreement; (3) there are 54,233,431 shares of
iVillage common stock outstanding after the merger; and (4) Women.com
stockholders holding in excess of 2% of the number of shares of Women.com
outstanding as of the record date for the Women.com special stockholders'
meeting do not exercise appraisal rights in connection with the merger, the
cap would equal 32.6% and Hearst Communications and its affiliates would be
prohibited from owning iVillage voting securities or securities convertible
into or exercisable for iVillage voting securities in excess of 32.6% of the
total number of outstanding iVillage voting securities.
Restrictions on Stockholder Activities. The stockholder agreement provides
that unless Hearst Communications obtains (i) the unanimous written consent of
iVillage's board of directors or (ii) the approval of all of the non-Hearst
Communications board designees present at a meeting of iVillage board of
directors at which a quorum is present, Hearst Communications may not, as it
relates to iVillage, initiate or engage in proxy solicitations, solicit
stockholders or induce others to do so, initiate stockholder proposals or
tender offers, call stockholders' meetings, act by written consent or place
any voting securities in a voting trust or other voting agreement.
Quorum Obligations. The stockholder agreement requires Hearst
Communications and each of its affiliates to be present in person or
represented by proxy at all iVillage stockholder meetings so that their
iVillage common stock may be counted for the purpose of determining a quorum.
Voting Obligations. The stockholder agreement does not restrict Hearst
Communications' or its affiliates' ability to vote their iVillage common stock
to the extent that the aggregate amount of such shares does not exceed 25% of
the outstanding iVillage voting securities as of the date of the calculation.
However, any voting securities held by Hearst Communications or its affiliates
in excess of 25% of the outstanding voting securities must be voted by Hearst
Communications and its affiliates in the manner recommended to iVillage
stockholders by (i) the unanimous written consent of iVillage's board of
directors or (ii) the non-Hearst Communications board designees present at a
meeting of iVillage's board of directors at which a quorum is present. This
25% threshold will be increased to the extent Hearst Communications is
required to purchase additional shares of iVillage common stock pursuant to
the securities purchase agreement.
Board Representation. Effective upon the closing of the merger, the
stockholder agreement requires iVillage to have a Board of Directors
consisting of ten members (subject to increase under certain circumstances as
described below). The stockholder agreement also requires iVillage to appoint
three representatives of Hearst Communications to separate classes of
iVillage's board of directors. iVillage must appoint one of these board
members to the nominating committee and one to the compensation committee of
its board. In addition, the
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stockholder agreement requires iVillage to appoint five independent directors
to its board. An independent director is defined as any person who is not and
has not been for the past three years affiliated with Hearst Communications or
its affiliates or an employee of iVillage or any of its subsidiaries.
So long as Hearst Communications or its affiliates holds at least 10% of the
outstanding voting securities of iVillage, Hearst Communications may recommend
and iVillage's nominating committee must recommend to iVillage's board of
directors that number of nominees of Hearst Communications or its affiliates
as follows: (1) so long as Hearst Communications holds at least 80% of its
initial equity investment, Hearst Communications may designate three nominees;
(2) so long as Hearst Communications holds at least 66%, but less than 80%, of
its initial equity investment, Hearst Communications may designate two
nominees; and (3) so long as Hearst Communications holds at least 10% of the
voting securities of iVillage, but less than 66% of its initial equity
investment, Hearst Communications may designate one nominee.
If the number of voting securities later held by Hearst Communications
decreases below the stated thresholds, any excess directors must immediately
resign. If the number of voting securities later held by Hearst Communications
falls below 10% of its initial equity investment, all Hearst Communications
designated board members must immediately resign and all quorum and voting
obligations cease. However, if the number of voting securities held by Hearst
Communications subsequently returns to 10% or more of its initial equity
investment, all rights and obligations under the stockholder agreement revive
for the duration of the term of the stockholder agreement.
The stockholder agreement also provides that if iVillage issues voting
securities in a single transaction or a series of related transactions and the
number of iVillage voting securities outstanding immediately after such
transaction or series of related transactions: (x) is greater than 20% but
less than 40%, then, at the request of iVillage, Hearst Communications and its
affiliates must cooperate with iVillage and take all action reasonably
necessary to increase the size of iVillage's board of directors to 11 and to
fill the vacancy resulting therefrom with an independent director; or (y) is
equal to or greater than 40%, then, at the request of iVillage, Hearst
Communications and its affiliates must cooperate with iVillage and take all
action reasonably necessary to increase the size of iVillage's board of
directors to 12 and to fill the vacancies resulting therefrom with two
independent directors.
In either case, the independent directors appointed as a result of the
increased board size must be approved by either (i) the unanimous written
consent of iVillage's board of directors or (ii) all members of iVillage's
board of directors at any properly noticed board meeting at which a quorum is
present, including all of the non-Hearst Communications board designees
present at the meeting.
Transfer Restrictions. Except for certain permitted transfers, for so long
as Hearst Communications and its affiliates own voting securities representing
at least 10% of iVillage's outstanding voting securities, Hearst
Communications may not transfer any voting securities of iVillage without (1)
the approval of all of the non-Hearst Communications directors present at a
meeting of the board of directors of iVillage at which a quorum is present or
(2) the unanimous written consent of iVillage's board of directors.
The following transfers will be permitted without the approval of the non-
Hearst Communications directors or the unanimous written consent of iVillage's
board of directors:
o a pledge of voting securities pursuant to a bona fide loan transaction
that creates a mere security interest;
o a repurchase of voting securities by iVillage;
o a bona fide gift of voting securities;
o a sale or transfer of voting securities to a third party that does not
result in the third party holding more than 10% of iVillage's voting
securities;
o a sale or transfer of voting securities pursuant to a tender offer or
exchange approved by iVillage's board of directors;
o a sale or transfer of voting securities in connection with a merger or
consolidation approved by iVillage's board of directors; and
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o a sale or transfer in connection with the sale of all or substantially
all of iVillage's assets approved by iVillage's board of directors.
In addition, without obtaining approval from the non-Hearst Communications
members of iVillage's board of directors, Hearst Communications may transfer
voting securities to its affiliates provided that the affiliates agree to be
bound by the terms of the stockholder agreement.
Term. The stockholder agreement expires five years after its effectiveness,
unless earlier terminated by the mutual written consent of iVillage and Hearst
Communications. Upon any early termination, any Hearst Communications
designees serving on iVillage's board of directors must resign immediately.
Magazine Content License Agreement
Pursuant to the merger, iVillage will assume an amended and restated
magazine content license and hosting agreement, which was originally entered
into between Women.com and Hearst Communications. Under this agreement, and an
amendment number two to the agreement which iVillage and Hearst Communications
intend to execute upon the closing of the merger, iVillage will provide
production and hosting services for certain web sites affiliated with selected
Hearst magazines, including Good Housekeeping, Redbook, Cosmopolitan and
Country Living. These sites will be part of the iVillage network. The magazine
sites will be on URL's owned by Hearst Communications.
Under the agreement, as amended, iVillage agrees to provide Hearst
Communications web site production and hosting services, including the
creation of original site content which will be owned by Hearst
Communications. In consideration for these services, Hearst Communications
agrees to:
o pay iVillage at least $5.0 million per year for production services
during the three-year term of the agreement, for a total of at least
$15.0 million;
o place at least $2.0 million of Hearst Communications advertising per
year (total of $6 million) on the network, which amount may be
increased in the second and third years of the agreement if Hearst
Communications fails to pay iVillage the required fees for production
services as described above. If such a shortfall in production fees
occurs in the second and third years of the agreement, Hearst
Communications must place additional advertising in an amount equal to
40% of the production fee shortfall; and
o grant to iVillage a right of first offer on any new internet-based
development projects initiated by Hearst Communications that are
appropriate for inclusion on the network.
iVillage will not be required to pay any monies under its agreement to
provide Hearst Communications website production, content and hosting
services. Any such services will be provided to Hearst Communications by
iVillage's internal production and technology staff in exchange for the
payments described in the agreement.
There are no material expenses to iVillage associated with the magazine
content license and hosting agreement, other than the advertising revenue
share, which is estimated to cost iVillage approximately $3.9 million over the
term of the agreement, though it could be less if Hearst Communications fails
to expend its full production commitment to iVillage, and could be more if
iVillage sells a significant amount of additional advertising on those
portions of the iVillage network that are subject to the advertising revenue
share. iVillage currently believes that all other costs associated with the
agreement can be absorbed into the combined company's technical and advertising
sales and servicing infrastructure, without any additional material expense
being incurred by iVillage.
The agreement also provides for revenue sharing between iVillage and Hearst
Communications with respect to advertising revenues obtained by iVillage from
the Hearst magazine websites and other iVillage websites containing
substantial Hearst content. This revenue sharing arrangement requires that
iVillage pay Hearst Communications a royalty payment based on net advertising
revenues of at least $3.9 million during the three-year term of the agreement.
This amount is reducible pro rata if Hearst Communications fails to expend the
$5.0 million in production fees in the second and third years of the
agreement.
Exclusivity. Pursuant to the agreement, iVillage agrees that it will not,
without the prior written consent of Hearst Communications:
16
o enter into any agreement to include in iVillage's network of websites
any sites for magazines that compete with the Hearst magazines listed
in the agreement;
o display on the magazine websites any advertising or other promotional
materials from magazines that compete with the Hearst magazines listed
in the agreement; or
o display on an iVillage webpage the brands, logos, trademarks or
proprietary content of both Hearst Communications and a Hearst
Communications competitor.
Under the agreement, Hearst Communications agrees that it will not enter
into, with an iVillage competitor, any internet distribution agreements that
relate to Hearst content covered by the agreement nor will it grant any entity
the right to display on the internet content that has appeared on the magazine
websites in substantially the same form and format as it appeared on the
magazine website (other than materials posted on the website verbatim to the
way they were initially published by Hearst Communications). However, Hearst
Communications is permitted to license the content or trademarks of its
magazines to any internet site or portal that is not deemed to be an iVillage
competitor, subject only to the restrictions in the foregoing sentence, and to
use the Hearst content in international editions of its magazine on the
internet. The agreement defines an iVillage competitor to include any internet
site, channel, area or online content aggregation service that provides
content primarily for women, is targeted primarily at women, is used primarily
by women and is primarily targeted to any country or region in the world where
iVillage is targeted.
Warranties. In the agreement Hearst Communications warrants that it will
not provide any content to iVillage or publish any content that, and iVillage
warrants that it will not post to the magazine websites any content that:
o infringes on any third party's proprietary rights or rights to
publicity or privacy;
o violates any law, statute, ordinance or regulation;
o is defamatory, trade libelous, unlawfully threatening or harassing;
o is obscene or pornographic;
o violates any laws regarding unfair competition, antidiscrimination or
false advertising; or
o to the best of the party's knowledge, contains any viruses or other
damaging computer problems.
Term. The term of the magazine content license and hosting agreement will
be three years from the effective date of the amendment. However, the
agreement may be terminated by either party immediately upon written notice if
the other party:
o becomes the subject of any proceeding relating to insolvency,
receivership or liquidation;
o files or has filed against it a petition in bankruptcy that is not
discharged within 30 days;
o makes an assignment for the benefit of its creditors; or
o admits in writing its inability to pay debts as they become due.
In addition, either party has the right to terminate the magazine content
license and hosting agreement in the event of a "change of control" of the
other party. A "change of control" is defined in the magazine content license
and hosting agreement to mean (i) a sale of all or substantially all of the
assets of iVillage; (ii) a merger or consolidation of iVillage with or into
another corporation or entity with the effect that, immediately after such
merger or consolidation, none of the existing holders of iVillage voting stock
immediately before such merger or consolidation holds, and the existing
holders of iVillage voting stock immediately before such merger or
consolidation do not hold, in the aggregate, at least 50% of the combined
voting power of the then voting stock of the surviving corporation of such
merger or the corporation or other entity resulting from such consolidation,
(iii) the acquisition of 20% or more of the voting stock of iVillage by an
entity other than Hearst Communications, (iv) the adoption by iVillage of a
plan of complete or partial liquidation or (v) certain bankruptcy events.
17
Item 2. Properties
iVillage is headquartered in New York, New York. In March 2000, iVillage
entered into a fifteen-year lease for approximately 105,000 square feet at
500-512 Seventh Avenue in which iVillage has consolidated its New York City
operations.
iVillage also leases two floors at 149 Fifth Avenue, which are each for
approximately 10,000 square feet. The lease expires on June 30, 2001 and
iVillage is exploring the possibility of subleasing this space.
iVillage also leases a sales office that is located at 645 North Michigan
Avenue, Chicago, Illinois. The lease is on a month-to-month basis.
iVillage's subsidiary, IVN, Inc., formerly known as iBaby, Inc., is
currently leasing approximately 74,000 rentable square feet at a facility
located at 6910 Carroll Road in San Diego, California for use as general
office, administrative, storage, warehousing and distribution which expires in
November 2001. iVillage is exploring the possibility of subleasing this space.
Lamaze Publishing subleases approximately 10,300 square feet of space at 9
Old Kings Highway, Darien, Connecticut. The sublease expires on June 30, 2005.
Astrology.com leases approximately 7,400 square feet of space in San
Francisco, California. The lease expires in November 2002.
Item 3. Legal Proceedings
On May 24, 2000, a complaint was filed in the Supreme Court of the State of
New York in New York County by Insignia/ESG, Inc. f/k/a Insignia/Edward S.
Gordon, Inc., a real estate broker, against iVillage. The complaint alleges a
breach of the provisions of a written agreement between Insignia and iVillage
related to iVillage's failure to pay Insignia a broker's commission in
connection with its lease of office space at 500-512 Seventh Avenue in New
York City. In addition to unspecified damages, the complaint seeks an award of
$2.0 million plus interest thereon. On July 10, 2000, iVillage filed an answer
and counterclaim to Insignia's complaint alleging intentional, malicious,
wrongful and tortious interference by Insignia with iVillage's prospective
contractual relationship with the owner of another New York office building.
In addition to unspecified damages, iVillage's counterclaim seeks an award of
$7.0 million in compensatory damages and $1.0 million in punitive damages as
well as interest thereon from Insignia.
iVillage believes that the lawsuit and claims asserted against it by
Insignia are without merit and intends to vigorously defend against these
claims.
On July 22, 1998, Jewish Family and Children's Services filed a Notice of
Opposition in the Trademark Trial and Appeal Board of the U.S. Patent and
Trademark Office to iVillage's service mark application for the mark
"PARENTSPLACE.COM". On January 22, 1999, iVillage filed an Answer to the
Notice of Opposition, denying that there was any likelihood of confusion
between iVillage's mark and the mark used by Jewish Family and Children's
Services. In September 2000, iVillage and Jewish Family and Children's
Services entered into a settlement agreement permitting each party to use its
respective mark in a manner that does not infringe on the other party's
primary use of its mark. The parties also plan to move for dismissal of the
Trademark Trial and Appeal Board proceedings.
iVillage is not currently subject to any other material legal proceedings.
iVillage may from time to time become a party to various legal proceedings
arising in the ordinary course of its business.
Item 4. Submission of Matters to a Vote of Security Holders
Not Applicable.
18
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
Our common stock has been listed and traded on the Nasdaq National Market
since March 19, 1999 and trades under the symbol "IVIL". Prior to that time,
there was no public market for our common stock. The following table sets
forth, for the periods indicated, the high and low closing prices per share of
the common stock as reported on the Nasdaq National Market.
High Low
---- ---
2000
----
First Quarter .............................................. $ 26.11 $13.56
Second Quarter ............................................. 13.63 6.22
Third Quarter .............................................. 8.94 3.06
Fourth Quarter ............................................. 3.63 0.66
1999
----
First Quarter (from March 19, 1999) ........................ 104.63 70.75
Second Quarter ............................................. 113.75 33.38
Third Quarter .............................................. 62.75 28.06
Fourth Quarter ............................................. 34.50 20.25
On March 15, 2001, the closing sales price of our common stock was $0.75 per
share. There were 400 holders of record as of March 15, 2001.
We have never declared or paid any cash dividends on our capital stock. We
presently intend to retain future earnings, if any, to finance the expansion
of our business and do not expect to pay any cash dividends in the foreseeable
future.
19
Item 6. Selected Consolidated Financial Data
The selected consolidated financial data should be read in conjunction with
"Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations" and iVillage's consolidated financial statements and
notes to those statements and other financial information included elsewhere
in this Form 10-K. iVillage acquired ParentsPlace.com, Inc. in December 1996,
Health ResponseAbility Systems, Inc. in May 1997, Astrology.Net in February
1999, OnLine Psychological Services, Inc. in June 1999, and Lamaze Publishing
and Family Point Inc. in August 1999. The financial data reflect the results
of operations of these subsidiaries since their dates of acquisition. In April
1998 and March 1999, iVillage acquired the majority interest and remaining
minority interest in iBaby, Inc. In June 2000, iVillage decided to discontinue
the operations of iBaby, Inc. and, as such, all discussion and analysis below
represents solely the continuing operations of iVillage.
Year Ended December 31,
-------------------------------------------------------
2000 1999 1998 1997 1996
--------- --------- -------- -------- -------
(in thousands, except per share data)
Consolidated Statement of Operations Data:
Revenues................................................................ $ 76,352 $ 36,576 $ 12,451 $ 6,019 $ 732
--------- --------- -------- -------- -------
Operating Expenses:
Editorial, product development and technology........................... 35,327 20,652 11,742 7,606 4,521
Sales and marketing..................................................... 54,098 63,526 28,177 8,771 2,709
General and administrative.............................................. 22,634 13,164 9,546 7,841 3,104
Depreciation and amortization........................................... 37,681 25,720 5,500 2,886 109
Impairment of goodwill.................................................. 98,056 -- -- -- --
--------- --------- -------- -------- -------
Total operating expenses............................................... 247,796 123,062 54,965 27,104 10,443
--------- --------- -------- -------- -------
Loss from operations.................................................... (171,444) (86,486) (42,514) (21,085) (9,711)
Interest income (expense), net.......................................... 5,261 4,085 571 (216) 28
Other income, net....................................................... 595 271 -- -- --
Loss on sale of Web site (1)............................................ -- -- (504) -- --
Minority interest....................................................... -- -- 587 -- --
Write-down of note receivable and investments........................... (13,496) -- -- -- --
Loss from affiliate..................................................... (422) -- -- -- --
--------- --------- -------- -------- -------
Net loss from continuing operations..................................... (179,506) (82,130) (41,860) (21,301) (9,683)
Preferred stock deemed dividend......................................... -- (23,612) -- -- --
--------- --------- -------- -------- -------
Net loss attributable to common stockholders
from continuing operations............................................. $(179,506) $(105,742) $(41,860) $(21,301) $(9,683)
========= ========= ======== ======== =======
Basic and diluted net loss per share from
continuing operations.................................................. $ (6.05) $ (5.06) $ (20.24) $ (13.65) $ (8.91)
========= ========= ======== ======== =======
Weighted average shares of common stock
outstanding used in computing basic and
diluted net loss per share............................................. 29,683 20,901 2,068 1,561 1,087
========= ========= ======== ======== =======
- ---------------
(1) Please see note 6 to iVillage's consolidated financial statements.
Year Ended December 31,
--------------------------------------------------
2000 1999 1998 1997 1996
-------- -------- ------- ------- ------
(in thousands)
Consolidated Balance Sheet Data:
Cash and cash equivalents ....................... $ 48,963 $106,010 $30,825 $ 4,335 $2,102
Working capital ................................. 40,252 90,752 19,919 1,114 1,006
Total assets ................................... 132,459 312,748 45,721 16,236 4,997
Long-term liabilities ........................... 4,818 -- -- 139 --
Stockholders' equity ............................ 101,366 283,850 32,022 10,522 3,259
20
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following discussion should be read in conjunction with our consolidated
financial statements and notes to those statements and the other financial
information appearing elsewhere in this Form 10-K. In addition to historical
information, the following discussion and other parts of this Form 10-K
contain forward-looking information that involves risks and uncertainties.
Overview
iVillage is a media company that operates iVillage.com, Lamaze Publishing
and the Newborn Channel. iVillage.com is a leading women's online destination
providing practical solutions and everyday support for women 18 and over.
Lamaze Publishing produces advertising supported educational materials for
expectant and new parents. The Newborn Channel is a satellite television
network in over 1,000 hospitals nationwide.
In June 2000, iVillage decided to discontinue the operations of its iBaby,
Inc. subsidiary. As such, all discussion and analysis below represents solely
the continuing operations of iVillage.
To date iVillage's revenues have been derived primarily from the sale of
sponsorship and advertising contracts. Sponsorship revenues are derived
principally from contracts ranging from one to three years. Sponsorships are
designed to support broad marketing objectives, including brand promotion,
awareness, product introductions and online research. Sponsorship agreements
typically include the delivery of impressions on iVillage's Web sites and
occasionally the design and development of customized sites that enhance the
promotional objectives of the sponsor. An impression is the viewing of
promotional material on a Web page, which may include banner advertisements,
links, buttons, or other text or images. As part of certain sponsorship
agreements, sponsors who also sell products may provide iVillage with a
commission on sales of their products generated through iVillage's Web site.
To date, these amounts have not been significant.
Advertising revenues are derived principally from short-term advertising
contracts in which iVillage typically guarantees a minimum number of
impressions or pages to be delivered to users over a specified period of time
for a fixed fee. Sponsorship and advertising revenues are recognized ratably
in the period in which the advertisement is displayed, provided that iVillage
has no continuing obligations and the collection of the receivable is
reasonably assured, at the lesser of the ratio of impressions delivered over
total guaranteed impressions or the straight-line basis over the term of the
contract. To the extent that minimum guaranteed impressions are not met,
iVillage defers recognition of the corresponding revenues until the guaranteed
impressions are achieved.
Included in sponsorship and advertising revenues are revenues from
advertising placements in Lamaze Publishing's publications, videos and website
and satellite broadcasts on the Newborn Channel. In addition, revenues are
generated through a sampling and coupon program which offers advertisers the
ability to distribute samples, coupons and promotional literature to new and
expectant mothers.
Sponsorship and advertising revenues also include barter revenues, which
represent exchanges by iVillage of advertising space on iVillage's Web sites
for reciprocal advertising space or traffic on other Web sites. Revenues and
expenses from these barter transactions are recorded based upon the fair value
of the advertisements delivered. Fair value of advertisements delivered is
based upon iVillage's recent historical practice of receiving cash from
similar advertisers. Barter revenues are recognized when the advertisements
are displayed on iVillage.com and its affiliated properties. Barter expenses
are recognized at the value of advertisements received when iVillage's
advertisements are displayed on the reciprocal Web sites or properties, which
is typically in the same period as when advertisements are displayed on
iVillage.com and its affiliated properties, and are included as part of sales
and marketing expenses. Revenues from barter transactions were approximately
$3.6 million, $3.3 million and $3.0 million for the years ended December 31,
2000, 1999 and 1998, respectively. iVillage anticipates that barter revenues
will continue to increase in the future and will remain constant or increase
slightly as a percentage of total revenues depending on iVillage's future
revenue growth.
Revenues from the e-commerce portion of Astrology.com consist of the sale of
astrological charts and other related products to visitors to the
Astrology.com Web site. iVillage recognizes revenues from Astrology.com
product sales, net of any discounts, when products are shipped to customers
and the collection of the receivable is reasonably assured.
21
iVillage received fees from the licensing of portions of its content in
connection with the PlanetRx.com relationship. These fees are recognized on a
straight-line basis over the life of the contract.
iVillage has and will continue to reduce its costs through several expense
reduction initiatives targeted at certain expenses, including, without
limitation, reduced advertising, targeted staff reductions primarily through
attrition, reduced company employee benefit plan costs, as well as other
initiatives. iVillage management expects to be able to significantly reduce
expenditures of the combined company through elimination of overlapping
personnel, facilities, marketing expenses, technology, and legal, accounting
and regulatory fees. iVillage also believes that it generally can leverage its
current operating infrastructure to meet its future operational needs.
Results of Operations
The following table sets forth iVillage's results of operations expressed as
a percentage of total revenues:
Year Ended December
31,
-------------------
2000 1999 1998
---- ---- ----
Revenues ....................................................................... 100% 100% 100%
Operating expenses:
Editorial, product development and technology ................................. 46 56 94
Sales and marketing ........................................................... 71 174 226
General and administrative .................................................... 30 36 77
Depreciation and amortization ................................................. 49 70 44
Impairment of goodwill ........................................................ 128 -- --
---- ---- ----
Total operating expenses ................................................... 324 336 441
---- ---- ----
Loss from operations ........................................................... (225) (236) (341)
==== ==== ====
Net loss from continuing operations ............................................ (235)% (225)% (336)%
==== ==== ====
Comparison of Years Ended December 31, 2000 and December 31, 1999
Revenues
Revenues were $76.4 million for the year ended December 31, 2000, which
represents an increase of 109% when compared with 1999. The increase in
revenues was primarily due to iVillage's ability to generate significantly
higher sponsorship and advertising revenues during 2000 and the benefit of
receiving revenues from Lamaze Publishing and the Newborn Channel for the
entire 2000 period. Sponsorship, advertising and other revenues were $69.9
million for the year ended December 31, 2000, compared to $35.0 million for
1999. The increase in sponsorship, advertising and other revenues was
primarily due to an increase in the number of impressions sold, an increase in
the number of sponsors advertising on iVillage's Web sites during 2000, and
from operating Lamaze Publishing and the Newborn Channel for the entire 2000
period. Sponsorship, advertising and other revenues accounted for
approximately 92% and 95% of total revenues for the years ended December 31,
2000 and 1999, respectively. Revenues from Lamaze Publishing and the Newborn
Channel accounted for approximately 20% and 10% of sponsorship, advertising
and other revenues for the years ended December 31, 2000 and 1999,
respectively.
Although no one advertiser accounted for greater than 10% of iVillage's
total revenues for the year ended December 31, 2000, iVillage's five largest
advertisers accounted for 23% of total revenues. The five largest advertisers
accounted for 20% of total revenues for the year ended December 31, 1999.
Included in sponsorship and advertising revenues are barter transactions,
which accounted for approximately 5% of sponsorship and advertising revenues
for the year ended December 31, 2000, compared to 10% for 1999.
Included in total revenues are fees received from the licensing of portions
of iVillage's content and fees from chart sales through Astrology.com, which
accounted for approximately 8% of total revenues for the year ended December
31, 2000, compared to 5% for 1999.
22
Operating Expenses
Editorial, Product Development and Technology. Editorial, product
development and technology expenses consist primarily of payroll and related
expenses for the editorial, technology, Web site design and production staffs,
the cost of communications, related expenditures necessary to support
iVillage's Web sites, software development, technology and support operations,
and an allocation of facility expenses, which is based on the number of
personnel. Editorial, product development and technology expenses for the year
ended December 31, 2000 were approximately $35.3 million, or 46% of total
revenues. Editorial, product development and technology expenses were
approximately $20.7 million, or 56% of total revenues, for 1999. The increase
was primarily attributable to additional personnel costs related to creating
and testing new concepts and tools used throughout iVillage's network of Web
sites of $5.0 million and the acquisition of Lamaze Publishing in August 1999
which resulted in an incremental cost of $6.9 million in 2000. Editorial,
product development and technology expenses decreased as a percentage of total
revenues as a result of the growth in revenues for the year ended December 31,
2000 compared to 1999.
Sales and Marketing. Sales and marketing expenses consist primarily of
costs related to distribution agreements, payroll and related expenses for
sales and marketing personnel, commissions, advertising and other marketing-
related expenses, and an allocation of facility expenses, which is based on
the number of personnel. Sales and marketing expenses for the year ended
December 31, 2000 were approximately $54.1 million, or 71% of total revenues.
Sales and marketing expenses were approximately $63.5 million, or 174% of
total revenues, for 1999. The dollar decrease in sales and marketing expenses
in 2000 was primarily attributable to the launch of a national advertising
campaign in the third quarter of 1999 which was substantially completed by
early 2000, coupled with cost reduction initiatives instituted in the second
quarter of 2000 and continued throughout the year, which resulted in a $21.3
million decrease in advertising expenses, offset primarily by an increase in
personnel costs of $4.1 million, incremental costs from the acquisition of
Lamaze Publishing of $2.4 million, allocation of costs associated with
iVillage's office space of $1.7 million and an increase in consultant costs
for corporate communications and sales marketing research of $1.0 million.
Sales and marketing expenses decreased as a percentage of total revenues as a
result of the growth in revenues for the year ended December 31, 2000 compared
to 1999.
Included in sales and marketing expenses are barter transactions, which
amounted to approximately 7% of total sales and marketing costs during the
year ended December 31, 2000, compared to 5% of total sales and marketing
costs during 1999.
General and Administrative. General and administrative expenses consist
primarily of payroll and related expenses and related costs for general
corporate overhead, including executive management, finance, allocated
facilities, and legal and other professional fees. General and administrative
expenses for the year ended December 31, 2000 were $22.6 million, or 30% of
total revenues. For 1999, general and administrative expenses were $13.2
million, or 36% of total revenues. The increase in general and administrative
expenses was primarily due to an increase in salaries and benefits of $3.6
million, expenses incurred for international endeavors of $1.2 million,
allocation of costs associated with iVillage's office space of $0.4 million,
and the acquisition of Lamaze Publishing in August 1999, which resulted in an
incremental cost of $1.4 million in 2000. General and administrative expenses
decreased as a percentage of total revenues as a result of the growth in
revenues for the year ended December 31, 2000 compared to 1999.
Depreciation and Amortization. Depreciation and amortization expenses for
the year ended December 31, 2000 were approximately $37.7 million, or 49% of
total revenues. For 1999, depreciation and amortization expenses were $25.7
million, or 70% of total revenues. The dollar increase between 1999 and 2000
was primarily attributable to a full year of amortization expense resulting
from iVillage's acquisitions of Astrology.Net, OnLine Psychological Services,
Inc., Lamaze Publishing and Family Point Inc. in 1999. In the third quarter of
2000, iVillage recorded a charge of approximately $98.1 million, or $3.30 per
share, for the impairment of goodwill relating to certain 1999 acquisitions.
The approximately $98.1 million charge consists of the following: OnLine
Psychological Services, Inc. and Code Stone Technologies, Inc. - $17.7
million, Lamaze Publishing - $62.0 million, and Family Point Inc. - $18.4
million. The remaining goodwill from the acquisitions of Astrology.Net and
Lamaze Publishing will be fully amortized in February 2002 and August 2009,
respectively.
23
This non-cash charge represents the difference between the historical book
value of the goodwill and the discounted estimated future cash flows expected
from the related operations. The discounted future cash flows were determined
using the best available estimates. iVillage estimated future cash flows
based upon historical results, current projections and internal earnings
targets, as well as business trends, prospects and market and economic
conditions. The projected future cash flows were then discounted at a rate of
20% corresponding to iVillage's estimated cost of capital. Considerable
management judgment is necessary to estimate discounted future cash flows.
Accordingly, actual results could vary from management's estimates. Yearly
amortization of impaired goodwill was approximately $26.6 million.
Interest Income, Net
Interest income, net includes interest income from iVillage's cash balances.
Interest income, net for the year ended December 31, 2000 was $5.3 million, or
7% of total revenues. For 1999, interest income, net was $4.1 million, or 11%
of total revenues. The increase between 1999 and 2000 was due to higher
interest rates in 2000 despite slightly lower average net cash and cash
equivalents balances in 2000 resulting primarily from the cash received from
iVillage's initial public offering of common stock in March 1999, and
secondary offering of common stock in October 1999.
Net Loss
iVillage recorded a net loss of $191.4 million, or $6.45 per share, for the
year ended December 31, 2000. For 1999, iVillage recorded a net loss of $116.6
million, or $5.58 per share. The net loss for the year ended December 31, 2000
includes one-time expenses totaling approximately $118.7 million. These one-
time expenses consisted of a charge for the impairment of goodwill of
approximately $98.1 million in the third quarter of 2000, the write-down of
marketable and non-marketable investments of approximately $8.4 million ($0.3
million in the fourth quarter of 2000 and $8.1 million in the second quarter
of 2000), whose decline was considered other than temporary, the write-down of
a note receivable of approximately $5.1 million in the third quarter of 2000,
and an estimated loss on the sale of iBaby, Inc. assets of $7.1 million. The
net loss for the year ended December 31, 1999 includes a deemed dividend of
$23.6 million incurred as a result of the difference between the purchase
price of the series E convertible preferred stock sold to NBC during the first
quarter of 1999, and the fair market value on the date of issuance.
Comparison of Years Ended December 31, 1999 and December 31, 1998
Revenues
Revenues were $36.6 million for the year ended December 31, 1999, which
represented an increase of 194%, when compared with 1998. The increase in
revenues was primarily due to iVillage's ability to generate significantly
higher sponsorship and advertising revenues during 1999 and from the
acquisition of Lamaze Publishing in the third quarter of 1999, and
Astrology.com in the first quarter of 1999. Sponsorship, advertising and other
revenues were $35.0 million for the year ended December 31, 1999, compared to
$12.5 million for 1998. The increase in sponsorship, advertising and other
revenues was primarily due to an increase in the number of impressions sold
and an increase in the number of sponsors advertising on iVillage's Web sites
during 1999. Sponsorship, advertising and other revenues accounted for
approximately 95% and 100% of total revenues for the years ended December 31,
1999 and 1998, respectively.
Although no one advertiser accounted for greater than 10% of total revenues
for the years ended December 31, 1999 and 1998, iVillage's five largest
advertisers accounted for 20% of total revenues in each period.
Included in sponsorship and advertising revenues are barter transactions,
which accounted for approximately 10% of sponsorship and advertising revenues
for the year ended December 31, 1999, compared to 24% for 1998.
Operating Expenses
Editorial, Product Development and Technology. Editorial, product
development and technology expenses consist primarily of payroll and related
expenses for the editorial, technology, Web site design and
24
production staffs, the cost of communications, related expenditures necessary
to support iVillage's Web sites, software development, technology and support
operations, and an allocation of facility expenses, which is based on the
number of personnel. Editorial, product development and technology expenses
for the year ended December 31, 1999 were approximately $20.7 million, or 56%
of total revenues. Editorial, product development and technology expenses were
$11.7 million, or 94% of total revenues, for 1998. The increase was primarily
attributable to additional personnel costs related to creating and testing new
concepts and tools to be used throughout iVillage's network of Web sites of
$2.0 million and incremental costs from iVillage's 1999 acquisitions of $2.7
million.
Sales and Marketing. Sales and marketing expenses consist primarily of
costs related to distribution agreements, payroll and related expenses for
sales and marketing personnel, commissions, advertising and other marketing-
related expenses, and an allocation of facility expenses, which is based on
the number of personnel. Sales and marketing expenses for the year ended
December 31, 1999 were approximately $63.5 million, or 174% of total revenues.
Sales and marketing expenses were $28.2 million, or 226% of total revenues,
for 1998. The dollar increase in sales and marketing expenses was primarily
attributable to iVillage's national advertising campaign on the Internet and
television in accordance with iVillage's agreement with NBC. Sales and
marketing expenses as a percentage of revenues decreased between 1998 and 1999
as a result of the growth in revenues.
Included in sales and marketing are barter transactions which amounted to
approximately 5% of sales and marketing costs during the year ended December
31, 1999, compared to 10% of sales and marketing costs during 1998.
General and Administrative. General and administrative expenses consist
primarily of payroll and related expenses and related costs for general
corporate overhead, including executive management, finance, allocated
facilities, and legal and other professional fees. General and administrative
expenses for the year ended December 31, 1999 were $13.2 million, or 36% of
total revenues. For 1998, general and administrative expenses were $9.5
million, or 77% of total revenues. The increase in general and administrative
expenses between 1998 and 1999 was primarily due to an increase in salaries
and benefits of $1.5 million and facilities expenses of $1.5 million resulting
from an increase in the number of personnel hired to support the growth of
iVillage's business. General and administrative expenses decreased as a
percentage of total revenues as a result of the growth in revenues in the year
ended December 31, 1999 compared to 1998.
Depreciation and Amortization. Depreciation and amortization expenses for
the year ended December 31, 1999 were $25.7 million, or 70% of total revenues.
For 1998, depreciation and amortization expenses were $5.5 million, or 44% of
total revenues. The dollar increase between 1998 and 1999 was primarily
attributable to increased amortization expense resulting from iVillage's
acquisitions of Astrology.Net, OnLine Psychological Services, Inc., Lamaze
Publishing and Family Point Inc.
Interest Income, Net
Interest income, net includes interest income from iVillage's cash balances
and interest expenses related to iVillage's financing obligations. Interest
income, net for the year ended December 31, 1999 was $4.1 million, or 11% of
total revenues. For 1998, interest income, net was $0.6 million, or 5% of
total revenues. The increase between 1998 and 1999 was primarily due to higher
average net cash and cash equivalents balances resulting primarily from the
cash received from iVillage's initial public offering of common stock in March
1999, and secondary offering of common stock in October 1999.
Net Loss
iVillage recorded a net loss of $116.6 million, or $5.58 per share, for the
year ended December 31, 1999. The net loss per share for the year ended
December 31, 1999 includes a deemed dividend of $23.6 million incurred as a
result of the difference between the purchase price of the series E
convertible preferred stock sold to NBC during the first quarter of 1999, and
the fair market value on the date of issuance. For 1998, iVillage recorded a
net loss of $43.7 million.
25
Income Taxes
As of December 31, 2000, iVillage had approximately $196.0 million of net
operating loss carryforwards for federal tax reporting purposes available to
offset future taxable income. iVillage's federal net operating loss
carryforwards expire beginning in 2010. Certain future changes in the share
ownership of iVillage, as defined in the Tax Reform Act of 1986, may restrict
the utilization of carryforwards. A valuation allowance has been recorded for
the entire deferred tax asset as a result of uncertainties regarding the
realization of the asset due to the lack of iVillage's earnings history.
Recent Events
Cooperative Beauty Ventures, LLC. On February 15, 2000, iVillage and
Unilever announced the formation of an independently managed company to
provide women within a highly focused community, an array of interactive,
customized online services, beauty and personal care products and personalized
product recommendations. Unilever and iVillage plan to provide cash,
intellectual property, marketing and other resources. Unilever will provide
capital as well as sponsorship and promotional initiatives. iVillage will
provide its Beauty channel, capital, intellectual property, services and
promotion. iVillage's funding obligations shall not exceed in the aggregate
$1.5 million in calendar year 2000 and $2.0 million in calendar year 2001,
however any unused funding for calendar year 2000 or 2001 may be carried over
and used in calendar year 2001 or 2002, respectively. As of December 31,
2000, iVillage had not contributed any capital to the joint venture. During
the year ended 2000, iVillage recognized losses from the joint venture of
approximately $0.4 million.
Additionally, in February 2000 iVillage entered into a multi-year
advertising agreement with Unilever for $12.0 million.
In March 2001, iVillage purchased 30.1% of Cooperative Beauty Ventures, LLC
(the "venture") from Unilever for $1.5 million increasing its ownership to
80.1%. The agreement provides that iVillage will fund the ongoing business and
operations of the venture, but not to exceed $7.0 million, and terminates
Unilever's funding obligation. Under certain circumstances, Unilever can
exercise a "put" option to require iVillage to purchase Unilever's remaining
ownership interest for fair value in the venture and iVillage, under certain
circumstances, can exercise a "call" option to require Unilever to sell its
remaining interest in the venture to iVillage for fair value. Also, under
certain circumstances, Unilever can exercise a "call" option to purchase a
portion of iVillage's membership interest in the venture for fair value, up
to a limit of 50% of the ownership of the venture. As a result of the purchase
transaction described above, iVillage gained operational control of the
venture and the venture will be consolidated within iVillage's financial
statements.
In addition, iVillage amended its February 2000 advertising agreement with
Unilever. The amendment increased Unilever's advertising purchase commitment
to $14.5 million.
Women.com. On February 5, 2001, iVillage signed a definitive agreement to
acquire all outstanding shares of Women.com Networks, Inc. The overall
transaction has an approximate aggregate value of $29.5 million. Under terms
of the merger agreement, iVillage will issue 0.322 shares (subject to
adjustment) of iVillage common stock for each share of Women.com common stock
on the closing date of the acquisition, plus an aggregate amount of cash
currently anticipated to be approximately $250,000.
The acquisition is subject to the approval of iVillage's stockholders and
Women.com's stockholders and other customary closing conditions.
In addition, Hearst Communications and Women.com's other public stockholders
will have the opportunity to invest an aggregate of $20.0 million in iVillage
in exchange for approximately 9.3 million shares, and warrants to purchase an
additional 2.1 million shares, of iVillage common stock through a registered
rights offering. The warrants are exercisable until December 31, 2004 at an
exercise price of $0.01, but only if the average closing market price of
iVillage common stock, on any 15 consecutive trading days, has been above
$3.75 per share. To the extent any of Women.com's other stockholders do not
purchase their pro rata percentage of iVillage shares and warrants in this
rights offering, Hearst Communications has agreed to purchase any shortfall.
26
Hearst Communications has also committed to purchase from iVillage between
$15.0 and $21.0 million of production and advertising services over a three-
year period. Please see "Item 1. Business--Proposed Merger with Women.com" for
more information regarding these transactions.
A severance and retention plan of up to $5 million is currently being
finalized for Women.com employees in connection with the merger.
NBC. In February 2001, iVillage further amended its November 1998 agreement
with NBC to provide for an extension of time during which iVillage must
purchase its advertising or promotional spots on the NBC network. The revised
terms require iVillage to purchase approximately $11.6 million of advertising
or promotional spots between January 30, 2001 and December 31, 2002, with $3.0
million of advertising or promotional spots being telecast during the year
2001 and approximately $8.6 million during the year 2002.
Related-Party Transaction. As of April 1, 2001, iVillage and Candice
Carpenter, iVillage's former Chief Executive Officer, amended their previous
agreement to provide that Ms. Carpenter would resign as a member of iVillage's
board of directors but would remain an iVillage employee available for special
projects at the request of iVillage's Chief Executive Officer and board of
directors through December 31, 2002. Ms. Carpenter received a one-time lump
sum cash payment of $1,327,900 (less an overdue interest payment of $27,900 on
her promissory note to iVillage) in lieu of the salary, bonus and other
payments set forth in the October agreement and will receive a monthly salary
of $3,433.33 (less set-offs for future interest payments on her promissory
note) through December 31, 2002. The amendment also provided that Ms.
Carpenter would surrender 333,334 iVillage stock options with an exercise
price of $24.00 and 75,000 iVillage stock options with an exercise price of
$17.17 to iVillage. Please see "Item 11. Executive Compensation--Employment
Arrangements" for more information regarding these agreements.
Liquidity and Capital Resources
Until iVillage's initial public offering in March 1999, which raised net
proceeds of $91.4 million, iVillage financed its operations primarily through
the private placement of its convertible preferred stock. On November 3, 1999,
iVillage consummated a secondary offering of 2.7 million shares of common
stock and received net proceeds of $70.8 million. As of December 31, 2000,
iVillage had approximately $58.2 million in cash, cash equivalents and
restricted cash.
iVillage has sustained net losses and negative cash flows from operations
since its inception. iVillage's ability to meet its obligations in the
ordinary course of business is dependent upon its ability to achieve
profitable operations and/or raise additional financing through public or
private equity financings, collaborative or other arrangements with corporate
sources, or other sources of financing to fund operations. However, there is
no assurance that iVillage will achieve profitable operations or that it will
be able to raise adequate financing from other sources. Management believes
without giving consideration to the effects of the proposed merger with
Women.com that its current funds will be sufficient to enable iVillage to meet
its planned expenditures through at least December 31, 2001. If anticipated
operating results are not achieved, management has the intent and believes it
has the ability to delay or reduce expenditures so as not to require
additional financial resources, if these resources were not available on terms
acceptable to iVillage.
If the proposed merger with Women.com is consummated management believes
that its current funds, along with the investment of $20 million in connection
with the rights offering and management's intent and ability to significantly
reduce expenditures of the combined company, will be sufficient to enable
iVillage to meet its planned expenditures through at least December 31, 2001.
Net cash used in operating activities from continuing operations decreased
to $39.4 million for the year ended December 31, 2000, from $48.6 million for
the year ended December 31, 1999. The overall decrease in net cash used in
operating activities from continuing operations during the year resulted
primarily from a decrease in losses from continuing operations, excluding non-
cash charges, a decrease in deferred revenue, offset by an increase in
restricted cash and other assets and depreciation and amortization expenses.
Non-cash charges include the write-down of a note receivable and investments,
and an impairment of goodwill. The decreased loss from continuing operations,
excluding non-cash charges, was primarily due to the increase in revenue
coupled with iVillage's expense reduction initiatives. Net cash used in
operating activities amounted to $31.0 million for the year ended December 31,
1998. The increase in net cash used from 1998 to 1999 resulted primarily from
increasing net losses and other assets and decreasing accounts payable and
accrued expenses, offset by an increase in deferred revenue and depreciation
and amortization expense.
27
Cash used in investing activities from continuing operations was $17.7
million for the year ended December 31, 2000. This compares to cash used in
investing activities from continuing operations of $32.9 million and $5.4
million for the years ended December 31, 1999 and 1998, respectively. The
overall decrease in cash used in investing activities from continuing
operations for the year ended December 31, 1999 to 2000 resulted primarily
from the acquisition of iBaby and Astrology.Net in the first quarter of 1999,
the acquisitions of OnLine Psychological Services, Inc. and Code Stone
Technologies, Inc. during the second quarter of 1999, and Lamaze Publishing
and Family Point Inc. in the third quarter of 1999, offset by higher fixed
asset purchases in 2000 for the build-out of iVillage's New York City office.
Through December 31, 2000, approximately $9.9 million has been disbursed for
the build-out of iVillage's office space. Net cash used in investing
activities increased from 1998 to 1999, primarily from the acquisitions of
iBaby, Inc. and Astrology.Net in the first quarter of 1999, the acquisitions
of OnLine Psychological Services, Inc. and Code Stone Technologies, Inc.
during the second quarter of 1999, and the acquisition of Lamaze Publishing
and Family Point Inc. in August 1999.
Net cash provided by financing activities from continuing operations
amounted to $5.5 million for the year ended December 31, 2000, compared to
$166.9 million for the year ended December 31, 1999. The overall decrease in
net cash provided by financing activities from continuing operations was
primarily due to the receipt of $91.4 million of net proceeds from iVillage's
initial public offering in March 1999 and $70.8 million of net proceeds from
its secondary public offering consummated in November 1999. Net cash provided
by financing activities from continuing operations was $63.1 million for 1998.
The increase from 1998 to 1999 was primarily due to the receipt of $91.4
million in net proceeds from iVillage's initial public offering in March 1999
and $70.8 million of net proceeds from its secondary public offering
consummated in November 1999, offset by $63.6 million of net proceeds from the
sale of shares of its series D and E convertible preferred stock, and common
stock in 1998.
On September 3, 1999, iVillage paid approximately $7.5 million to
PlanetRx.com for 371,103 shares of series D preferred stock of PlanetRx.com,
which was converted into the same number of shares of PlanetRx.com, common
stock upon the closing of PlanetRx.com's initial public offering in October
1999. At June 30, 2000, the investment in PlanetRx.com was written down
approximately $7.1 million, and at December 31, 2000 the investment was
further written down approximately $0.3 million, to its estimated fair market
value due to a decline in value deemed to be other than temporary.
In addition, in September 1999 iVillage entered into a content license
agreement with PlanetRx.com for $7.5 million and a multi-year sponsorship
agreement for $15.0 million. In June 2000, iVillage's sponsorship agreement
with PlanetRx.com was amended to reduce the aggregate value of the agreement
to approximately $9.3 million, as well as reduce iVillage's obligations
thereunder. In September 2000, iVillage's sponsorship agreement with
PlanetRx.com was further amended to reduce the aggregate value of the
agreement to approximately $4.0 million, further reduce iVillage's obligations
thereunder, and terminate the agreement as of December 31, 2000.
As of September 28, 1999, iVillage entered into a financial advisory
agreement with Allen & Company Incorporated pursuant to which Allen & Company
will act as iVillage's financial advisor with respect to various matters from
time to time. iVillage paid Allen & Company $0.3 million upon execution of the
agreement. In February 2000, iVillage executed an amendment to the agreement
that extended its term to September 28, 2000 and set forth additional fees
payable to Allen & Company for up to 12 months after expiration of the
agreement upon the occurrence of certain events. Upon consummation of the
merger with Women.com, iVillage will be obligated to pay Allen & Company a fee
of up to $2.0 million in connection with their services.
In March 2000, iVillage entered into a fifteen-year lease for approximately
105,000 square feet at 500-512 Seventh Avenue in which iVillage has recently
consolidated its New York City operations. The financial commitment for rent
at this office space is approximately $4.7 million for the next 12 months.
Pursuant to the terms of the lease, iVillage received approximately $3.8
million in January 2001 and anticipates receiving another approximately $1.5
million for reimbursement of certain construction expenses. iVillage also
expects to spend an additional approximately $2.1 million to complete the
construction project.
In June 2000, iVillage decided to discontinue the operations of iBaby, Inc.
iVillage recorded a loss on disposal of approximately $7.1 million, which
includes a loss on sale of assets of approximately $3.6 million and
28
an estimated loss from operations during the phase-out period of approximately
$3.4 million. Results of these operations have been classified as
discontinued operations and all prior period results have been reclassified.
In July 2000, iVillage sold certain assets of iBaby, Inc. to Babygear.com,
Inc. Under the Asset Purchase Agreement dated July 6, 2000, iVillage received
a convertible promissory note of approximately $9.7 million. Pursuant to the
terms of the Asset Purchase Agreement, in October 2000 the note was converted
into 890,198 shares of Babygear.com Series C Convertible Preferred Stock.
Subsequent to the conversion of the note, Babygear.com filed for bankruptcy.
In calculating the loss on sale of assets, iVillage valued the note at $5.1
million as of June 30, 2000, due to uncertainties surrounding the
recoverability of the convertible note. At September, 30, 2000, the
convertible note was fully reserved due to uncertainties surrounding
Babygear.com's ability to sustain their operations, and is included in the
caption write-down of note receivable and investments in the consolidated
statements of operations.
In December 2000, iVillage entered into an exclusive licensing and
technology agreement with Hindustan Lever Limited to create a Web site
targeting women in India. As part of the licensing agreement, Hindustan Lever
Limited will pay an initial set-up fee for certain services and domain
knowledge and iVillage will receive an annual royalty on any revenue
generated. The license agreement is subject to necessary regulatory approvals
in India.
iVillage's capital requirements depend on numerous factors, including:
o market acceptance of its services;
o the amount of resources iVillage devotes to investments in the
iVillage.com network, including entering into joint ventures with and/or
the acquisition of other entities;
o the resources iVillage devotes to marketing; and
o the resources iVillage devotes to selling its services and brand
promotions.
iVillage has experienced a substantial increase in its expenditures since
its inception. The increase in expenditures is consistent with the growth in
iVillage's operations and staffing. iVillage anticipates that it will continue
to evaluate possible investments in businesses and products and technologies,
either of which could reduce iVillage's liquidity.
Recent Accounting Pronouncements
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivatives and
Hedging Activities", which establishes accounting and reporting standards for
derivative instruments and hedging activities. The effective date of this
standard was deferred to all fiscal quarters of fiscal years beginning after
June 15, 2000 by SFAS No. 137, "Accounting for Derivative Instruments and
Hedging Activities - Deferral of the Effective Date of FASB Statement No.
133," which was issued on June 30, 1999. iVillage does not expect the adoption
of this statement to have a significant impact on iVillage's results of
operations, financial position or cash flows.
In December 1999, the SEC issued Staff Accounting Bulletin No. 101, "Revenue
Recognition in Financial Statements" ("SAB 101"). This accounting bulletin
summarizes certain of the SEC's views in applying generally accepted
accounting principles to revenue recognition in financial statements. This
accounting bulletin is not a rule or interpretation of the SEC; however, it
represents interpretations and practices followed by the Division of
Corporation Finance and the Office of the Chief Accountant in administering
the disclosure requirements of the Federal securities laws. iVillage does not
believe that the interpretations outlined in this accounting bulletin will
have an impact on its revenue recognition policies.
In March 2000, the Financial Accounting Standards Board issued FASB
Interpretation No. 44, "Accounting for Certain Transactions Involving Stock
Compensation an Interpretation of APB 25." This interpretation became
effective July 1, 2000, but certain conclusions cover specific events that
occur after either December 15, 1998 or January 12, 2000. The adoption of this
interpretation did not have a material effect on iVillage's financial position
or results of operations.
29
Risk Factors That May Affect Results of Operations and Financial Condition
Risks Relating to the Proposed Merger with Women.com
iVillage may abandon the proposed merger with Women.com if Women.com does not
have specified amounts of cash and working capital on March 31, 2001. Failure
to complete the merger could negatively impact the business of iVillage and
the market price of iVillage common stock.
iVillage may terminate the merger and the rights offering if:
o Women.com has less than $20.0 million of cash or less than $12.0 million
of working capital on March 31, 2001 and the shortfall in cash or working
capital is more than $4.0 million on March 31, 2001;
o as of the day prior to the closing of the merger, Women.com's cash is
less than the amount on hand as of March 31, 2001 $166,666 per day for
every day elapse since March 31, 2001; or
o Women.com's working capital immediately prior to the closing of the
merger is materially less than the difference between the amount of
working capital as of March 31, 2001 minus the reduction in Women.com's
cash on hand since March 31, 2001.
As of December 31, 2000, Women.com had $30.1 million of cash and $29.4
million of working capital. There can be no assurance that Women.com had at
least $20.0 million of cash and at least $12.0 million of working capital on
March 31, 2001.
If the merger is not completed for any reason, iVillage will be subject to a
number of risks that may affect its business and stock price, including:
o iVillage could be required to pay Women.com a $1.0 million termination
fee;
o the market price of shares of iVillage common stock may decline to the
extent that the current market price of those shares reflects a market
assumption that the merger will be completed;
o costs related to the merger, such as legal and accounting fees and a
portion of the investment banking fees must be paid even if the merger is
not completed;
o the benefits that iVillage expects to realize from the merger would not
be realized; and
o the diversion of management attention from the day-to-day business of
iVillage and the unavoidable disruption to its employees and its
relationships with customers and joint venturers during the period before
consummation of the merger, may make it difficult for the companies to
regain their market positions if the merger does not occur.
In attempting to integrate the business and technology of Women.com, iVillage
will incur significant costs which may harm its business.
iVillage expects to incur costs and commit significant management time
integrating Women.com's operations, technology, Web sites, products, customers
and personnel. These costs may be substantial and may include costs for:
o integration of operations, including combining teams and processes in
various functional areas;
o reorganization or closure of operations and/or facilities, including the
cost of office space that iVillage is unable to sublease;
o integration of technology, Web sites and products;
o fees and expenses of professionals and consultants involved in completing
the integration process; and
o potential existing liabilities of Women.com.
Successful integration of Women.com's operations, technology, Web sites,
products, customers and personnel will place a significant burden on the
management and internal resources of the combined company. The diversion of
the attention of management and any difficulties encountered in the transition
and integration
30
process could have a material adverse effect on the future business, financial
condition and operating results of the combined company.
If iVillage does not successfully integrate the business and operations of
Women.com, iVillage's financial results and its ability to achieve
profitability will be adversely affected.
Upon the closing of the merger, iVillage will commence the integration of
Women.com's operations, technology, Web sites, products, customers and
personnel. iVillage will strive to maintain the companies' relationships with
key customers and joint venturers. Integration efforts may be difficult and
unpredictable because of possible cultural conflicts and different opinions on
strategic plans, personnel and other decisions. Integration may be made more
difficult because iVillage's operations are centered in New York while
Women.com's operations are centered in California. iVillage does not know
whether it will be successful in these integration efforts and it cannot
assure you that it will be able to integrate the business and operations of
Women.com in a timely and efficient manner. If iVillage cannot successfully
integrate Women.com's operations, technology, Web sites, products, customers
and personnel and maintain its and Women.com's relationships with key
customers and joint venturers, the business, financial condition and results
of operations of the combined company may be seriously harmed.
The market price of iVillage common stock may decline after completion of the
merger.
The market price of iVillage common stock may decline after completion of
the merger if:
o the integration of the business and operations of Women.com is
unsuccessful or takes longer than anticipated;
o the effect of the merger on the combined company's financial results is
not consistent with the expectations of securities analysts or investors;
o iVillage does not achieve the perceived benefits of the merger as rapidly
as, or to the extent, anticipated by securities analysts or investors; or
o significant stockholders of iVillage following the merger decide to
dispose of their shares because the results of the merger are not
consistent with their expectations.
Following the merger, Hearst Communications is expected to own approximately
30.0% of the outstanding shares of iVillage common stock and will have three
representatives on the iVillage board of directors, and therefore Hearst
Communications will be able to significantly influence iVillage's corporate
direction and policies.
Following the merger, Hearst Communications is expected to own approximately
30.0% of the outstanding shares of iVillage common stock. This assumption
assumes that:
o no Women.com stockholders participate in the rights offering;
o Hearst Communications is not required to, and does not elect to, purchase
additional iVillage common stock pursuant to the merger agreement; and
o there are 54,245,076 shares of iVillage common stock outstanding after
the merger.
In addition:
o if the actual cash and working capital of Women.com as of March 31, 2001
is less than $20.0 million of cash and $12.0 million of working capital,
then Hearst Communications would have the option to purchase additional
shares of iVillage common stock in an amount equal to the amount of the
shortfall up to $2.0 million divided by $1.875; or
o if the shortfall is more than $2.0 million as of March 31, 2001, but less
than $4.0 million, then Hearst Communications must purchase additional
shares of iVillage common stock pursuant to the merger agreement for the
amount of the shortfall which exceeds $2.0 million, and Hearst
Communications will have the option to purchase shares with respect to
the additional $2.0 million shortfall amount.
31
In addition, if Women.com stockholders holding in excess of two percent of
the shares of Women.com outstanding on April 16, 2001 exercise dissenters'
rights under Delaware law, then Hearst Communications would be required, if
requested by iVillage, to purchase additional shares of iVillage common stock.
Any shares of iVillage common stock purchased by Hearst Communications as a
result of a cash or working capital shortfall would be purchased at a per
share price of $1.875. If Hearst Communications is required to purchase
additional shares of iVillage common stock because Women.com stockholders
holding in excess of two percent of the shares of Women.com outstanding on
April 16, 2001 exercise dissenters' rights under Delaware law, those shares
would also be purchased at a per share price of $1.875. The number of shares
so purchased would be calculated by multiplying the number of Women.com shares
associated with the exercise of appraisal rights in excess of the two percent
threshold by the 0.322 exchange ratio (subject to adjustment), rounded down to
the nearest whole share.
In addition, Hearst Communications will hold a warrant entitling it to
purchase up to 2,100,000 shares of iVillage common stock, less the number of
shares of iVillage common stock represented by warrants subscribed for by the
other stockholders of Women.com in the rights offering.
Hearst Communications has agreed not to participate in the rights offering.
Accordingly, any shares of iVillage common stock that Hearst Communications
acquires from iVillage will be shares which are acquired either pursuant to
the merger agreement or the amended and restated securities purchase
agreement.
Pursuant to a stockholder agreement to be entered into between iVillage and
Hearst Communications, iVillage must appoint three representatives of Hearst
Communications to iVillage's board of directors, with one Hearst
Communications designee appointed to each class of director. The stockholder
agreement provides that the number of Hearst Communications' representatives
is subject to reduction if Hearst Communications' ownership of iVillage common
stock falls below certain threshold levels. There will also be a Hearst
Communications representative on each of the iVillage nominating and
compensation committees.
Hearst Communications' board representation and stock ownership will allow
Hearst Communications to significantly influence iVillage's corporate
direction and policies, including any mergers, acquisitions, consolidations,
strategic relationships or sales of assets. This board representation and
stock ownership may also discourage or prevent transactions involving an
actual or potential change of control, including transactions in which
iVillage stockholders would otherwise receive a premium for their shares. In
addition, the interests of Hearst Communications, 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, iVillage's interests,
particularly with respect to new business opportunities and future
acquisitions.
Although Hearst Communications is required to vote all shares that it holds
in excess of 25% (subject to adjustment) of iVillage's voting securities in
accordance with the recommendation of the iVillage board of directors, Hearst
Communications may effectively control stockholder actions, including
approving changes to iVillage's certificate of incorporation or bylaws and
adopting or changing equity incentive plans. Hearst Communications' effective
control over stockholder actions may also determine the outcome of any merger,
consolidation, sale of all or substantially all of iVillage's assets or other
form of change of control that iVillage might consider.
Exercise of the warrants will cause dilution to the iVillage stockholders and
could negatively impact the price of iVillage common stock.
Exercise of warrants, whether by Hearst Communications or by Women.com
stockholders acquiring them in the rights offering, would cause dilution to
the voting power and interests of the then current iVillage stockholders and
to the net income or loss per share of iVillage common stock. In addition, the
sale of a significant number of the shares of iVillage common stock acquired
on exercise of the warrants in the open market could cause a decline in the
market value of iVillage common stock. Stockholders of iVillage will
experience additional ownership dilution if Hearst Communications is required,
or elects, to purchase additional shares of iVillage common stock in the event
of a Women.com cash or working capital shortfall as of March 31,
32
2001, or in the event that Women.com stockholders holding in excess of two
percent of the shares of Women.com outstanding as of the record date exercise
dissenters' rights under Delaware law.
Risks Relating to Current and Future Operations
iVillage has a limited operating history and may face difficulties encountered
in the new and rapidly evolving markets in which it operates.
iVillage has a limited operating history and face many of the risks and
difficulties frequently encountered in new and rapidly evolving markets,
including the Internet advertising market. The risks and difficulties that
will be faced by iVillage include its ability to:
o attract a larger audience to iVillage.com;
o increase awareness of the iVillage brand;
o strengthen user loyalty;
o offer compelling content;
o maintain current, and develop new, strategic relationships;
o attract a large number of advertisers from a variety of industries;
o respond effectively to competitive pressures;
o continue to develop and upgrade iVillage's technology; and
o attract, retain and motivate qualified personnel.
iVillage has not achieved profitability and has recent and anticipated
continuing losses.
iVillage has not achieved profitability and expects to continue to incur
operating losses for the foreseeable future. iVillage incurred net losses
attributable to common stockholders of $191.4 million for the year ended
December 31, 2000, $116.6 million for the year ended December 31, 1999 and
$43.7 million for the year ended December 31, 1998. As of December 31, 2000,
iVillage's accumulated deficit was $384.3 million. iVillage expects to
continue to incur significant operating and capital expenditures and, as a
result, it will need to generate significant revenues to achieve and maintain
profitability.
Although iVillage's revenues have generally grown in recent quarters, there
can be no assurance that it will achieve sufficient revenues for
profitability. Even if iVillage does achieve profitability, there can be no
assurance that it will be able to sustain or increase profitability on a
quarterly or annual basis. If revenues grow slower than iVillage anticipates,
or if operating expenses exceed iVillage's expectations or cannot be adjusted
accordingly, its business, results of operations and financial condition will
be materially and adversely affected. Because iVillage's strategy includes
acquisitions of and joint ventures with other businesses, acquisition and
joint venture expenses and any cash used to make these acquisitions and joint
ventures will reduce its available cash.
iVillage's quarterly revenues and operating results are not indicative of
future performance, are difficult to forecast and have been and are likely to
continue to fluctuate.
As a result of iVillage's limited operating history, iVillage does not have
historical financial data for a significant number of periods upon which to
forecast quarterly revenues and results of operations. iVillage does not
believe that period-to-period comparisons of its operating results are
necessarily meaningful nor should they be relied upon as reliable indicators
of future performance. In addition, the operating results of iVillage are
likely to fluctuate significantly from quarter to quarter as a result of
several factors, many of which are outside iVillage's control, and any of
which could materially harm the business of iVillage. These factors include:
o fluctuations in the demand for Internet advertising or electronic
commerce;
o bankruptcies or other payment default of Internet companies which are a
source of advertising revenues;
o changes in the level of traffic on its network; and
o fluctuations in marketing expenses and technology infrastructure costs.
33
iVillage's revenues for the foreseeable future will remain dependent on user
traffic levels and advertising activity on its Web sites. Future revenues are
difficult to forecast. iVillage plans to expand and develop content, and to
upgrade and enhance its technology and infrastructure development in order to
support its growth. iVillage may be unable to adjust spending quickly enough
to offset any unexpected reduction in revenues in a particular quarter, which
may materially and adversely affect its business, results of operations and
financial condition.
In one or more future quarters, iVillage's results of operations may fall
below the expectations of securities analysts and investors. If iVillage's
results of operations fall below expectations, the trading price of its common
stock would likely be materially adversely affected. In addition, if the
revenues of iVillage in a particular quarter are lower than anticipated,
iVillage may be unable to reduce spending in that quarter. If iVillage has a
shortfall in revenues in relation to its expenses, then iVillage's business,
results of operations and financial condition would be materially and
adversely affected.
iVillage may need to raise additional capital and its prospects for obtaining
additional financing are uncertain.
iVillage currently anticipates that its existing cash and cash equivalents
will be sufficient to meet its anticipated capital expenditures and working
capital requirements for at least the next twelve months. The amount of cash
and cash equivalents that will be available to iVillage upon completion of the
merger cannot be accurately predicted and depends on many factors, including
the amount of revenues received and expenses incurred by each company during
the period prior to the merger and the date on which the merger is completed.
Accordingly, the combined company may need to raise additional funds in the
near future to fund its operations. There can be no assurance that additional
financing will be available to the combined company on acceptable terms, or at
all. In particular, unless the market price of iVillage's common stock
increases dramatically, it is unlikely that the company will be able to raise
funds through a public offering of its common stock. If adequate funds are not
available or are not available on acceptable terms, the combined company would
have to scale back its business and its business and financial condition would
be harmed, or it may be forced to cease its operations entirely.
iVillage common stock may be delisted and, if it is delisted, trading in
iVillage common stock would decrease substantially and the market price of
iVillage common stock may decline further.
As of the close of the market on March 30, 2001, the minimum bid price of
iVillage common stock had been below $1.00 for 15 consecutive trading days. If
the minimum bid price of iVillage common stock is below $1.00 for 30
consecutive trading days, Nasdaq will send a notice to iVillage informing the
company that unless it is able to regain compliance with the required minimum
bid price of $1.00 within 90 calendar days of the date of the notice, iVillage
common stock will be delisted from trading by Nasdaq. In that event, trading
of iVillage shares would decrease substantially or possibly cease altogether,
and the market price of iVillage common stock may decline further, potentially
to zero.
iVillage's business will be harmed if Internet usage does not continue to
grow.
iVillage's market is new and rapidly evolving. iVillage's business would be
adversely affected if Internet usage does not continue to grow, particularly
usage by women. A number of factors may inhibit Internet usage, including:
o inadequate network infrastructure;
o security concerns;
o inconsistent quality of service;
o lack of availability of cost-effective, high-speed service;
o consumers returning to traditional or alternative sources for
information, shopping and services; and
o privacy concerns, including those related to the ability of Web sites to
gather information about users without their knowledge or consent.
34
If Internet usage continues to grow significantly, the Internet
infrastructure may not be able to support the demands placed on it by this
growth and its performance and reliability may decline. In addition, Web sites
have experienced interruptions in their services as a result of outages and
other delays occurring throughout the Internet network infrastructure. If
these outages and delays frequently occur in the future, Internet usage,
including the usage of iVillage Web sites, could grow more slowly or decline.
The market for Internet advertising is still developing. If the Internet fails
to gain further acceptance as a medium for advertising, iVillage would have
slower revenue growth than expected and would incur greater than expected
losses.
iVillage expects to continue to derive a substantial portion of its revenues
from sponsorships and advertising for the foreseeable future, as demand and
market acceptance for Internet advertising continues to develop. Accordingly,
iVillage's business depends on market acceptance of the Internet as a medium
for advertising.
Although there are currently several standards for the measurement of the
effectiveness of Internet advertising, the industry has had difficulty
convincing potential advertisers that Internet advertising is a significant
advertising medium. Advertisers and advertising agencies that have
historically relied on traditional forms of advertising may be reluctant or
slow to adopt online advertising. In addition, advertisers and advertising
agencies that use the Internet as an advertising medium may find online
advertising to be less effective for promoting their products and services
than traditional advertising media, including television, radio and print.
Advertisers and advertising agencies that have invested substantial resources
in traditional methods of advertising may also be reluctant to reallocate
their resources to online advertising. Moreover, software programs that limit
or prevent advertising from being delivered to an Internet user's computer are
available. Widespread adoption of this software could adversely affect the
commercial viability of Internet advertising. The market for online
advertising also depends on the overall growth and acceptance of electronic
commerce. If the markets for online advertising and electronic commerce fail
to develop or develop more slowly than iVillage expects, or if iVillage is
unable to adapt to new forms of Internet advertising, iVillage would have
slower than expected revenue growth and would incur greater than expected
losses, and iVillage's business and financial condition would be harmed.
Furthermore, different pricing models are used to sell advertising on the
Internet and it is difficult to predict which, if any, of the models will
emerge as the industry standard. This makes it difficult to project iVillage's
future advertising rates and revenues.
iVillage has a small number of advertisers and the loss of a number of these
advertisers could adversely affect its financial condition and results of
operations.
iVillage depends on a small number of advertisers for a significant portion
of its revenues. In 2000, 1999, and 1998, respectively, revenues from
iVillage's five largest advertisers accounted for approximately 23%, 20%, and
20% of total revenues; however, no one advertiser accounted for greater than
10% of total revenues. At December 31, 2000, Ford Motor Media accounted for
approximately 11% of the net accounts receivable. At December 31, 1999, no
advertiser accounted for greater than 10% of the net accounts receivable.
iVillage anticipates that after the completion of the merger its results of
operations in any given period will continue to depend to a significant extent
upon revenues from a small number of advertisers. In addition, iVillage's
largest advertisers have in the past varied over time, and iVillage
anticipates that they will continue to do so in the future.
Consequently, the loss of even a small number of its largest advertisers at
any one time may adversely affect iVillage's business, financial condition and
results of operations, unless iVillage is able to enter into a sufficient
number of new comparable contracts.
iVillage may be unable to respond to the rapid technological change in its
industry.
iVillage's market is characterized by rapidly changing technologies,
frequent new product and service introductions and evolving industry
standards. The recent growth of the Internet and intense competition in
iVillage's industry exacerbate these market characteristics. To achieve its
goals, iVillage needs to effectively integrate the various software programs
and tools required to enhance and improve its product offerings and manage its
business. iVillage's future success will depend on its ability to adapt to
rapidly changing technologies by continually improving the performance
features and reliability of its services. iVillage may experience difficulties
that could delay or prevent the successful development, introduction or
marketing of new products
35
and services. In addition, iVillage's new enhancements must meet the
requirements of its current and prospective users and must achieve significant
market acceptance. iVillage also could incur substantial costs if it needs to
modify its services or infrastructures to adapt to these changes.
Government regulation and legal uncertainties could add additional costs to
doing business on the Internet.
There are currently few laws or regulations that specifically regulate
communications or commerce on the Internet. However, laws and regulations may
be adopted in the future that address issues such as user privacy, pricing and
taxation, content, copyrights, distribution, antitrust matters and the
characteristics and quality of products and services. For example, the
Telecommunications Act sought to prohibit transmitting various types of
information and content over the Internet. Several telecommunications
companies have petitioned the Federal Communications Commission to regulate
Internet service providers and online service providers in a manner similar to
long distance telephone carriers and to impose access fees on those companies.
This could increase the cost of transmitting data over the Internet. Moreover,
it may take years to determine the extent to which existing laws relating to
issues such as property ownership, obscenity, libel and personal privacy are
applicable to the Internet or the application of laws and regulations from
jurisdictions whose laws do not currently apply to iVillage's business. Any
new laws or regulations relating to the Internet could adversely affect
iVillage's business.
In addition, it has been reported that the Labor Department is investigating
the use of volunteers on Web sites. iVillage uses volunteers as Web site
community leaders and there can be no assurance that new government
regulations will not require iVillage to stop using volunteers or,
alternatively, treat them as employees.
Due to the global nature of the Internet, it is possible that, although
iVillage's transmissions over the Internet originate primarily in New York,
the governments of other states and foreign countries might attempt to
regulate iVillage's business activities. In addition, because iVillage's
service is available over the Internet in multiple states and foreign
countries, these jurisdictions may require iVillage to qualify to do business
as a foreign corporation in each of these states or foreign countries, which
could subject iVillage to taxes and other regulations.
Seasonal and cyclical patterns may adversely affect iVillage's business.
iVillage believes that advertising sales in traditional media, such as
television and radio, generally are lower in the first and third calendar
quarters of each year. If iVillage's market makes the transition from an
emerging to a more developed market, seasonal and cyclical patterns may
develop also in its market, which, if similar to those in traditional media,
may result in lower advertising revenues in the first and third calendar
quarters of each year. In addition, traffic levels on iVillage's Web sites
typically fluctuate during the summer and year-end vacation and holiday
periods.
These seasonal and cyclical patterns may adversely affect iVillage's
business, financial condition and results of operations.
iVillage's uncertain sales cycles could adversely affect its business.
The time between the date of initial contact with a potential advertiser or
sponsor and the execution of a contract with the advertiser or sponsor is
often lengthy, typically six weeks for smaller agreements and longer for
larger agreements, and is subject to delays over which iVillage has little or
no control, including:
o advertisers' and sponsors' budgetary constraints;
o advertisers' and sponsors' internal acceptance reviews;
o the success and continued internal support of advertisers' and sponsors'
own development efforts; and
o the possibility of cancellation or delay of projects by advertisers or
sponsors.
During the sales cycle, iVillage may expend substantial funds and management
resources and yet not obtain sponsorship or advertising revenues. Accordingly,
iVillage's results of operations for a particular period may be adversely
affected if sales to advertisers or sponsors forecasted in a particular period
are delayed or do not otherwise occur.
36
iVillage relies on third parties to adequately measure the demographics of its
user base and delivery of advertisements on its Web sites. iVillage's business
would be harmed if these third parties fail to provide this service to
iVillage.
It is important to iVillage advertisers that iVillage accurately measures
the demographics of its user base and the delivery of advertisements on its
Web site. iVillage depends on third parties to provide many of these
measurement services. If these third parties are unable or unwilling to
provide these services to iVillage in the future, iVillage would need to
perform them itself or obtain them from another provider. This could cause
iVillage to incur additional costs or cause interruptions in its business
until it replaces these services. Companies may choose to not advertise on
iVillage Web sites or may pay less for advertising if they perceive iVillage's
demographic measurements are not reliable. Either of these events would
adversely affect iVillage's business.
iVillage relies on third parties to drive traffic to its sites and generate
page views, and the business and financial condition of iVillage would be
harmed if these third parties were to no longer provide this service.
America Online has accounted for a significant portion of iVillage's online
traffic based on the delivery to iVillage of a guaranteed number of
impressions. Although it is difficult to accurately measure, iVillage believes
that America Online accounts for in excess of 15% of iVillage's online
traffic. iVillage's agreement with America Online does not prohibit America
Online from carrying online sites or developing and providing content that
compete with iVillage's sites, and America Online currently carries competing
Web sites. Although iVillage's agreement with America Online expired on
December 31, 2000, it is subject to extension by either party for one year and
iVillage is currently negotiating a new agreement with America Online and, in
the interim, iVillage and America Online have extended the agreement on a
monthly basis. If America Online discontinues carrying iVillage channels,
iVillage's business, results of operations and financial condition would be
materially adversely affected.
iVillage may not be able to deliver various services if third parties fail to
provide reliable software, systems and related services to it.
iVillage is dependent on various third parties for software, systems and
related services. For example, iVillage relies on Doubleclick Inc.'s software
for the placement of advertisements, Trellix Corporation for personal space
home pages and Critical Path Inc. for e-mail. Several of the third parties
which provide software and services to iVillage have a limited operating
history, have relatively immature technology and are themselves dependent on
reliable delivery of services from others. As a result, iVillage's ability to
deliver various services to its users may be adversely affected by the failure
of these third parties to provide reliable software, systems and related
services to it.
America Online's investments in iVillage competitors may result in conflicts
of interest for America Online that could be adverse to iVillage.
America Online, which has accounted for a significant portion of iVillage's
online traffic, has invested in Oxygen Media, an Internet and television
company that is developing cable and interactive content for women and
children. In addition, Oxygen Media has acquired from America Online the
assets of electra.com, an online women's network, and Thrive Partners LLC, the
operator of thriveonline.com, a health site. The relationship between America
Online and Oxygen Media and the relationship between America Online and
iVillage may result in a conflict of interest for America Online, which could
have an adverse effect on iVillage's relationship with America Online,
including in the current negotiations of a new agreement with America Online
or through diversion of attractive business opportunities from America Online
to another entity rather than iVillage. Other principal investors in iVillage,
such as NBC, Rho Management Company, Inc. and, after the merger, Hearst
Communications, may have similar conflicts of interests by virtue of their
other investments.
Restrictions on iVillage's ability to enter into sponsorship, advertising or
other business relationships with Hearst Communications competitors, and
Hearst Communications' right to license its content to other parties, may both
adversely affect iVillage's business.
In connection with the merger, iVillage will assume a magazine content
license and hosting agreement originally entered into between Women.com and
Hearst Communications. Under that agreement, iVillage may not, without Hearst
Communications' consent:
37
o enter into any agreement to include in iVillage's network any Web sites
for magazines that compete with Hearst Communications magazines;
o display on the magazine Web sites any advertising or other promotional
materials from magazines that compete with Hearst Communications
magazines; or
o display on an iVillage Web page the brands, logos, trademarks or
proprietary content of both Hearst Communications and a Hearst
Communications competitor.
These restrictions on iVillage's ability to enter into relationships with
Hearst Communications competitors may prevent iVillage from expanding its
network and enhancing its content and the visibility of its brand and may
cause it to forego potential advertising revenues from Hearst Communications
competitors.
Under the magazine content license and hosting agreement, Hearst
Communications will be permitted to license the content or trademarks of its
magazines to any Internet site or portal that is not deemed to be an iVillage
competitor as defined in the agreement (subject only to the limitation that
Hearst Communications may not license content in substantially the same format
as it appeared on the iVillage magazine Web sites, unless it appeared on the
iVillage magazine Web sites verbatim to the form initially published by Hearst
Communications), and to use Hearst Communications content in international
editions of its magazines. As a result of these rights granted to Hearst
Communications, the value to iVillage of the Hearst Communications content
included in the iVillage network could be diluted.
If iVillage fails to manage its growth effectively, its business and financial
condition could be harmed.
If iVillage is unable to manage its growth effectively, its business could
be adversely affected. iVillage has experienced and continues to experience
significant growth, both internally and through acquisitions and joint
ventures. This growth has placed, and the proposed merger with Women.com and
iVillage's anticipated future growth in its operations will continue to place,
a significant strain on iVillage's resources. As part of this growth, iVillage
will have to implement new operational and financial systems, procedures and
controls. iVillage's business would be harmed if it is unable to implement
these new systems in a timely and effective manner.
iVillage may not be able to integrate the operations from future acquisitions
and/or joint ventures.
As part of iVillage's business strategy, it expects to enter into additional
business combinations, acquisitions and joint ventures. The particular risks
associated with the Women.com merger are described above. The risks
accompanying other future acquisition and joint venture transactions include,
among other things:
o the difficulty of assimilating the operations and personnel of the
acquired companies and joint venture entities;
o the difficulty of establishing a new joint venture including, without
limitation, attracting qualified personnel, potential adverse financial
and accounting consequences, high initial expenses, attracting customers
and advertisers, and integrating resources from previously unaffiliated
entities;
o the potential disruption of iVillage's ongoing business;
o the inability of iVillage to successfully incorporate acquired or shared
technology or content and rights into its products and media properties;
o expenses associated with the transactions;
o additional expenses associated with amortization of acquired intangible
assets;
o the difficulty of maintaining uniform standards, controls, procedures and
policies;
o the impairment of relationships with employees and customers as a result
of any integration of new management personnel or reduction of personnel;
and
o the potential unknown liabilities associated with acquired businesses and
joint venture entities.
iVillage's failure to adequately address these issues could have a material
adverse effect on its business, results of operations and financial condition.
38
iVillage may not find sufficient acquisition candidates and/or joint venture
partners to implement its business strategy.
As part of its business strategy, iVillage expects to enter into additional
business combinations, acquisitions and joint ventures after its acquisition
of Women.com. iVillage competes for acquisition candidates and joint venture
partners with other entities, some of which have greater financial resources
than it has. Increased competition for acquisition candidates and joint
venture partners may make fewer acquisition and/or joint venture opportunities
available to iVillage and may cause iVillage to make acquisitions and enter
into joint ventures on less attractive terms, such as higher purchase prices.
Acquisition and joint venture costs may increase to levels that are beyond
iVillage's financial capability or that would adversely affect its results of
operations and financial condition. iVillage's ability to make acquisitions
will depend, in part, on the relative attractiveness of shares of iVillage
common stock as consideration for potential acquisition candidates. This
attractiveness may depend largely on the relative market price, iVillage's
ability to register common stock and capital appreciation prospects of
iVillage common stock compared to that of other bidders or potential partners.
Since the market price of iVillage common stock has declined materially over a
prolonged period of time, its acquisition program could be materially
adversely affected.
There is intense competition among Internet-based businesses and publishing
companies focused on women and this competition could result in price
reductions, reduced margins or loss of market share.
The number of Web sites competing for the attention and spending of members,
users and advertisers has increased and iVillage expects it to continue to
increase. iVillage's Web sites compete for members, users and advertisers with
the following types of companies:
o online services or Web sites targeted at women, such as Oxygen.com and
condenet.com;
o cable networks targeting women, such as Oxygen Media, Inc. and Lifetime
Television;
o Web search and retrieval and other online service companies, commonly
referred to as portals, such as America Online, Inc., Terra Networks,
S.A. and Yahoo! Inc.;
o e-commerce companies such as Amazon.com; and
o publishers and distributors of traditional media, such as television,
radio and print.
Increased competition could result in price reductions, reduced margins or
loss of market share, any of which could adversely affect iVillage's business,
results of operations and financial condition.
Lamaze Publishing's magazines directly compete with publishers of pre-and
post-natal publications such as Gruner and Jahr, Primedia and AOL Time Warner.
These publishers have substantially greater marketing, research and financial
resources than Lamaze Publishing. Increased competition may result in less
advertising in Lamaze Publishing's magazines and a decline in Lamaze
Publishing's advertising rates, which could adversely affect its business,
results of operations and financial condition.
iVillage's business would be harmed if its systems fail or experience a
slowdown.
Substantially all of iVillage's communications hardware and some of its
other computer hardware operations are located at Exodus Communications,
Inc.'s facilities in New Jersey and Verio, Inc.'s facilities in California.
Fire, floods, earthquakes, power loss (including as a result of rolling
blackouts), telecommunications failures, break-ins and similar events could
damage these systems. System failures may adversely affect the combined
company's user traffic, which could adversely affect its revenues and
operating results and harm its reputation with users, advertisers and commerce
partners. Computer viruses, electronic break-ins or other similar disruptive
problems, such as those historically experienced by several leading Web sites,
could also adversely affect iVillage's Web sites. California is in the midst
of an energy crisis that could disrupt the operation of iVillage's Web sites
and increase its expenses. iVillage's insurance policies may not adequately
compensate it for any losses that may occur due to any failures or
interruptions in its systems. iVillage does not presently have any secondary
"off-site" systems or a formal disaster recovery plan.
iVillage's Web sites must accommodate a high volume of traffic and deliver
frequently updated information. iVillage's Web sites have in the past
experienced slower response times or decreased traffic for a variety of
39
reasons. These occurrences have not had a material impact on iVillage's
business. These types of occurrences in the future could cause users to
perceive iVillage's Web sites as not functioning properly and therefore cause
them to use another Web site or other methods to obtain information.
In addition, iVillage's users depend on Internet service providers, online
service providers and other Web site operators for access to iVillage's Web
sites. Many of them have experienced significant outages in the past, and
could experience outages, delays and other difficulties due to system failures
unrelated to iVillage's systems.
iVillage may incur liability for information it publishes or products it has
sold.
iVillage has been and may be subject to claims for defamation, negligence,
copyright or trademark infringement, personal injury or other legal theories
relating to the information it publishes on its Web sites. These types of
claims have been brought, sometimes successfully, against providers of
Internet services in the past. In addition, iVillage could be subjected to
claims based upon content that is accessible from its Web sites through links
to other Web sites or through content and materials that may be posted by
members in chat rooms or bulletin boards.
In addition, through iVillage.com, Lamaze Publishing and iVillage Integrated
Properties, Inc., iVillage distributes publications and broadcasts over its
Web sites and the Newborn Channel information and advice regarding healthcare,
childbirth, infant care and financial and tax issues. iVillage may be exposed
to liability claims in connection with this information.
iVillage also offers e-mail services through a third party vendor, which may
subject it 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.
Consumers may also sue iVillage if any of the products that it sold before
its recent sale of assets related to its iBaby site, or before its divestiture
of its iMaternity and PlusBoutique sites, are found to be defective, fail to
perform properly or injure the user. iVillage may also face potential
liability in connection with the sale of products and services by its e-
commerce partners. To date, iVillage has had very limited experience in the
sale of products and the development of relationships with manufacturers or
suppliers.
iVillage's insurance, which covers commercial general liability, may not
adequately protect it against these claims. Liability claims could require
iVillage to spend significant time and money in litigation and to pay
significant damages. As a result, liability claims, whether or not successful,
could seriously damage iVillage's reputation and business. iVillage may also
be forced to implement expensive measures to alter the way its services are
provided to avoid potential liability.
Possible infringement by third parties of iVillage intellectual property
rights, or claims of intellectual property infringement asserted against
iVillage, could harm iVillage's business.
iVillage cannot be certain that the steps it has taken to protect its
intellectual property rights will be adequate or that third parties will not
infringe or misappropriate its proprietary rights. Enforcing iVillage's
intellectual property rights could entail significant expense and could prove
difficult or impossible. Any infringement or misappropriation by third parties
could have a material adverse effect on iVillage's future financial results.
Furthermore, iVillage has invested resources in acquiring domain names for
existing and potential future use. iVillage cannot guarantee that it will be
entitled to use these domain names under applicable trademark and similar laws
or that other desired domain names will be available.
Although iVillage currently believes that its technologies do not infringe
upon the intellectual property rights of others, in the future third parties
could assert claims of patent, trademark or copyright infringement or
misappropriation of creative ideas or formats against iVillage with respect to
its use of domain names, its content, Web page formats, Web business methods
or any third-party content it carries. iVillage expects that participants in
its markets increasingly will be subject to infringement claims as the number
of services and competitors in its industry segment grows. Any claims, with or
without merit, could be time consuming to defend, result in costly litigation,
divert management attention, require iVillage to enter into costly royalty or
licensing arrangements or prevent it from using important technologies, ideas
or formats, any of which could materially harm iVillage's business, financial
condition or results of operations.
40
iVillage may face potential liability for its privacy practices.
Growing public concern about privacy and the collection, distribution and
use of information about individuals may subject iVillage to increased
regulatory scrutiny and/or litigation. If iVillage is accused of violating the
stated terms of its privacy policy it may be forced to expend significant
amounts of monetary and human resources to defend against any of these
accusations. iVillage also may be required to make changes to its present and
planned products or services. These consequences, together with any resulting
liability for iVillage's privacy practices, could have a material adverse
effect on iVillage's business, financial condition and results of operations.
iVillage may be liable if third parties misappropriate its users' personal
information.
If third parties were able to penetrate iVillage's network security or
otherwise misappropriate its users' personal information or credit card
information, iVillage could be subject to liability arising from claims
related to, among other things, unauthorized purchases with credit card
information, impersonation or other similar fraud claims or other misuse of
personal information, such as for unauthorized marketing purposes. In
addition, the Federal Trade Commission and state agencies have been
investigating various Internet companies regarding their use of personal
information. iVillage could incur additional expenses if new regulations
regarding the use of personal information are introduced or if its privacy
practices are investigated.
Consumer protection privacy regulations could impair iVillage's ability to
obtain information about its users, resulting in decreased advertising
revenues.
iVillage's network requests and obtains personal data from users who
register to become members of the network. Registration as a member is
required in order for users to have full access to the services offered by the
network. Personal data gathered from members is used to tailor content to them
and is provided, on an aggregate basis, to advertisers to assist them in
targeting their advertising campaigns to particular demographic groups. The
attractiveness of the iVillage network to current or prospective advertisers
depends in part on iVillage's ability to provide user data to support this
tailoring capability. However, privacy concerns may cause users to resist
providing this personal data. Even the perception of security and privacy
concerns, whether or not valid, may indirectly inhibit market acceptance of
iVillage's use of personal data. 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 legislation or
regulations containing these notification requirements. If iVillage becomes
unable to collect this personal data from a sufficient number of the users of
its network, iVillage may lose significant advertising revenues.
iVillage's network also uses cookies to track user behavior and 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. Information gathered from
cookies are used by iVillage to tailor content to users of its network and may
also be provided to advertisers on an aggregate basis. In addition,
advertisers may themselves use cookies to track user behavior and preferences.
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 these laws are passed, it may become more difficult for iVillage
to tailor content to its users, making its network less attractive to users.
Similarly, the unavailability of cookies may restrict the use of tailored
advertising, making iVillage's network less attractive to advertisers and
causing iVillage to lose significant advertising revenues.
iVillage's operation of Lamaze Publishing and the Newborn Channel poses a
number of risks that could materially adversely affect its business strategy.
There are a number of risks in operating Lamaze Publishing and the Newborn
Channel, which are primarily non-Internet businesses, including:
o the competitiveness of the media and publishing industry;
o iVillage's limited experience in operating a multi-media publishing
company;
41
o iVillage's ability to identify and predict trends in a timely manner that
may impact consumer tastes in baby-related information in Lamaze
Publishing's publications and iVillage's Newborn Channel;
o iVillage's ability to continue to sell advertising and sponsorships on
iVillage's Web sites and in Lamaze Publishing's magazines, videos and Web
site, and iVillage's Newborn Channel;
o iVillage's ability to continue to commercialize and protect the Lamaze
mark;
o iVillage's ability to maintain and market the Lamaze.com Web site; and
iVillage's inability to perform the functions required for the operation of
Lamaze Publishing and the Newborn Channel in an efficient and timely manner
could result in a disruption of operations of Lamaze Publishing and the
Newborn Channel that could have a material adverse effect on iVillage's
business strategy.
Satellite transmissions over the Newborn Channel may be interrupted.
Through iVillage Integrated Properties, iVillage operates the Newborn
Channel, a satellite television network broadcast in over 1,000 hospitals in
the United States. There is a risk that the satellite from which the
transmission is sent may malfunction, interrupting the Newborn Channel's
broadcasts. In the event this occurs, there may be a period of time before the
Newborn Channel can transmit to and from another satellite. Any interruption
in iVillage's ability to transmit the Newborn Channel could have an adverse
impact on its business. In addition, extreme adverse weather could damage
receivers and transmitters on the ground and hinder transmissions.
If iVillage fails to attract and retain key personnel, its business would be
materially and adversely affected.
iVillage's future success depends to a significant extent on the continued
services of its senior management and other key personnel, particularly,
Douglas McCormick, its chief executive officer. The loss of the services of
Mr. McCormick or other key employees would likely harm iVillage's business.
iVillage currently does not maintain "key person" life insurance for any of
its personnel.
iVillage may be unable to retain its key employees or attract, assimilate or
retain other highly qualified employees in the future. iVillage has from time
to time experienced, and expects to continue to experience difficulty in
hiring and retaining highly skilled employees with appropriate qualifications
as a result of its rapid growth and expansion and its relatively low stock
price. As a result, iVillage incurred increased salaries, benefits and
recruiting expenses for the years ended December 31, 2000 and 1999. If
iVillage does not succeed in attracting new personnel or retaining and
motivating its current personnel, its business will be adversely affected.
Several members of senior management have only recently joined iVillage.
Several members of iVillage's senior management joined the company in 2000
and 2001 and have not previously worked together. As a result, iVillage's
senior managers are continuing to become integrated as a management team and
may not work together effectively as a team to successfully manage iVillage's
growth.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
None.
Item 8. Consolidated Financial Statements and Supplementary Data
The financial statements required by Item 8 are included in this Form 10-K
beginning on Page F-2.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
42
PART III
Item 10. Directors and Executive Officers of the Registrant
The following table sets forth the directors and executive officers of
iVillage, their ages and the positions held by them with iVillage as of April
1, 2001.
Name Age Position
- --------- ------------ -------------------------------------
Douglas W. McCormick(b) ......... 51 Chief Executive Officer and Director
Nancy Evans(c) .................. 50 Chairperson of the Board and Editor-in-Chief
Steven A. Elkes ................. 39 Executive Vice President, Operations and Business Affairs
Scott Levine .................... 36 Chief Financial Officer
Nancy R. Alpert ................. 47 Senior Vice President, Corporate Development
John M. Barbera ................. 57 President of Sales and Sales Marketing
John W. Glascott ................ 47 Senior Vice President, Sponsorship
Richard Caccappolo .............. 35 Chief Technology Officer and Senior Vice President of Product
Development
Jane Tollinger .................. 58 Senior Vice President, Operations and Business Affairs
John T. Healy(a) ................ 61 Director
Habib Kairouz(c) ................ 34 Director
Lennert J. Leader(a) ............ 45 Director
Daniel Schulman(b) .............. 43 Director
Martin Yudkovitz(c) ............. 47 Director
- ---------------
(a) Class I director
(b) Class II director
(c) Class III director
Douglas W. McCormick, age 51, has been a director of iVillage since February
1999. From April 2000 through July 2000, he served as President of iVillage
and has been iVillage's Chief Executive Officer since July 2000. From 1998 to
April 2000, Mr. McCormick was President of McCormick Media, a media consulting
firm. From 1993 to 1998, Mr. McCormick was President and Chief Executive
Officer of Lifetime Television, a joint venture of The Hearst Corporation and
The Walt Disney Company. Mr. McCormick held various positions at Lifetime from
1984 to 1994 in the sales, marketing and research areas. Mr. McCormick also
serves on the boards of directors of Streetmail.com, Zilo.com, and Myers
Consulting Group, and serves on Streetmail.com's Compensation Committee. Mr.
McCormick received an M.B.A. from the Columbia University School of Business
and a B.A. in speech/communications from the University of Dayton.
Nancy Evans, age 50, is a founder of iVillage, has been Editor-in-Chief
since June 1995, Co-Chairperson of the Board from December 1998 through March
2001, and Chairperson of the Board since April 2001. Prior to founding
iVillage, Ms. Evans created Family Life magazine in 1991, which she published
in partnership with Jann Wenner. From 1987 to 1991, Ms. Evans served as
President and Publisher of Doubleday. Prior to her employment at Doubleday,
Ms. Evans was Vice President and Editor-In-Chief of the Book-of-the-Month
Club, where she launched the Children's Book-of-the-Month Club. Ms. Evans
graduated from Skidmore College with a B.A. and is also a graduate fellow at
Columbia University.
Steven A. Elkes, age 39, has been Executive Vice President-Operations and
Business Affairs since July 2000 and Secretary since October 1999. From April
1999 to July 2000, Mr. Elkes was Senior Vice President, Business Affairs. From
August 1996 to April 1999, Mr. Elkes was Vice President, Business Affairs.
From August 1993 to August 1996, Mr. Elkes was Vice President Credit/
Structured Finance at CNA Insurance Company. From August 1991 to August 1993,
Mr. Elkes served as Assistant Vice President at CNA Insurance Company. Mr.
Elkes received his M.B.A. from Baruch College and his B.A. from Grinnell
College.
43
Scott Levine, age 36, has been Chief Financial Officer since January 2001.
From September 2000 until January 2001, Mr. Levine was Senior Vice President,
Finance and interim Chief Financial Officer. From February 1999 to September
2000, Mr. Levine was Vice President, Controller and Chief Accounting Officer.
From July 1998 to February 1999, Mr. Levine was Controller for FundTech Ltd.,
a financial software company. From April 1997 to July 1998, Mr. Levine was the
Controller of AmeriCash, Inc., an operator of a network of automated teller
and electronic commerce machines. From 1993 to 1997, Mr. Levine was employed
by Coopers & Lybrand L.L.P. Mr. Levine is a Certified Public Accountant and
received his M.B.A. from Baruch College and his B.A. from State University of
New York, Buffalo.
Nancy R. Alpert, age 47, has been Senior Vice President, Corporate
Development of iVillage since October 2000. From 1994 to 2000, Ms. Alpert
served as Senior Vice President, Business and Legal Affairs at Lifetime
Television, a joint venture of The Hearst Corporation and The Walt Disney
Company. From 1992 to 1994, Ms. Alpert was Deputy General Counsel at Liz
Claiborne, Inc., and from 1987 to 1992, Ms. Alpert served as Vice President
and Deputy General Counsel at Telemundo Group, Inc., a U.S. Spanish-language
broadcast television network. Ms. Alpert received her J.D. from the UCLA
School of Law and her B.A. from Brandeis University.
John M. Barbera, age 57, has been President of Sales and Sales Marketing
since February 2001. From 1999 to February 2001, Mr. Barbera served as Chief
Operating Officer for 24/7 Media Europe. From 1994 to 1999, Mr. Barbera ran
his own consulting firm, J.B. Communications. From 1990 to 1994 Mr. Barbera
was President of Turner Broadcasting Sales for Turner Broadcasting. Mr.
Barbera held various positions with Turner Broadcasting from 1978 to 1994. Mr.
Barbera received his B.A. from Allegheny College.
John W. Glascott, age 47, has been Senior Vice President, Sponsorship since
April 1998. From September 1996 to March 1998, Mr. Glascott was Senior Vice
President and Director of Corporate Marketing and Sales for Hearst Magazines.
From August 1994 to September 1996, Mr. Glascott was a publisher and partner
of SmartHealth at Meigher Communications L.P., a magazine publisher. Prior to
August 1994, Mr. Glascott held various sales management positions at Whittle
Communications L.P., a media company, from 1982 to 1994. Mr. Glascott received
an M.B.A. from New York University and a B.A. from Ohio Wesleyan University.
Richard Caccappolo, age 35, has been Chief Technology Officer and Senior
Vice President of Product Development since September 2000 and served as Chief
Technology Officer of iVillage from March 1999 to September 2000. From January
1998 to March 1999, Mr. Caccappolo served as the Chief Technology Officer of
Kodak Polychrome Graphics, a supplier of products and services to graphics
arts industries. From October 1994 to December 1997, Mr. Caccappolo served as
Sun Chemicals' Director, Information Systems - Europe.
Jane Tollinger, age 58, has been Senior Vice President, Operations and
Business Affairs since September 2000 and from June 2000 to September 2000
served as Vice President, Business Affairs. From June 1999 to June 2000, Ms.
Tollinger served on several advisory boards. From September 1993 through June
1999, Ms. Tollinger served as Executive Vice President of Lifetime Television
Network. Prior to September 1993, Ms. Tollinger held various management
positions at Lifetime Television Network. Prior to joining Lifetime Television
Network, Ms. Tollinger was an attorney with Columbia Pictures and previous to
that was an associate with the Coudert Brothers law firm. Ms. Tollinger
received a J.D. from Columbia Law School, an M.A. from Harvard University and
a B.A. from Beloit College.
John T. (Jack) Healy, age 61, has been a director of iVillage since November
2000. Since February 1996, Mr. Healy has been Principal of the H.A.M. Media
Group, LLC. Prior to joining The H.A.M. Media Group, LLC, from August 1970 to
July 1996, Mr. Healy held various positions and served most recently as
President, ABC International Operations and Executive Vice President, ABC
Cable & International at Capital Cities/ABC Inc. Mr. Healy serves as a
director of Newstar Inc. and StoryFirst Communications.
Habib Kairouz, age 34, has been a director of iVillage since March 1998.
Currently, Mr. Kairouz is Managing Director of Rho Management Company, Inc.,
an investment company, and has been with Rho since 1993. He also serves as a
director at Bellwether Exploration Company, Inc., an oil drilling company, and
a number of other private companies. Mr. Kairouz received a B.S. in
Engineering and a B.A. in Economics from Cornell University and an M.B.A. in
Finance from Columbia University.
Lennert J. Leader, age 45, has been a director of iVillage since July 1998.
Mr. Leader became President of the Venture Group of AOL Time Warner
Investments upon the merger of America Online, Inc. and Time Warner
44
Inc. in January 2001. Prior to the merger, Mr. Leader served as President of
AOL Investments, a division of America Online, Inc., beginning in February
1998. Mr. Leader served as Senior Vice President, Chief Financial Officer and
Treasurer of AOL from September 1989 until July 1998. Prior to joining AOL,
Mr. Leader was Vice President-Finance of LEGENT Corporation, a computer
software and services company, from March 1989 to September 1989, and Chief
Financial Officer of Morino, Inc., a computer software and services company,
from 1986 to March 1989 and Director of Finance from 1984 to 1986. Prior to
joining Morino, Inc. in 1984, he was an audit manager at Price Waterhouse. Mr.
Leader serves as a director of Multex.com, Inc. Mr. Leader graduated with a
B.S. in Accounting in 1977 from the University of Baltimore.
Daniel H. Schulman, age 43, has been a director of iVillage since February
1999. Since May 2000, Mr. Schulman has been Chief Executive Officer of
Priceline.com Inc. From June 1999 to May 2000, Mr. Schulman was President and
Chief Operating Officer of Priceline.com. From October 1998 to June 1999, Mr.
Schulman was an Executive Vice President at AT&T Corp. and was President of
AT&T WorldNet Services from January 1997 to October 1998. From January 1996 to
January 1997, Mr. Schulman was a Vice President of Business Services at AT&T
Corp. From December 1994 to January 1996, he served as a Marketing Vice
President at AT&T Corp. Mr. Schulman is currently a director of Net2Phone,
Inc., an internet telephone service provider and Symantec Corporation, a
provider of Internet security software for business and personal computing.
Mr. Schulman received an M.B.A. from New York University and a B.S. from
Middlebury College.
Martin Yudkovitz, age 47, has been a director of iVillage since February
1999. Since December 1995, Mr. Yudkovitz has been the President and Chief
Executive Officer of NBC Multimedia, Inc., a division of the National
Broadcasting Company, Inc. In January 1997, Mr. Yudkovitz also became the
Senior Vice President of Business Development, Broadcast Network Applications
for NBC. From 1994 to 1995, Mr. Yudkovitz was Senior Vice President of NBC
Multimedia. From 1992 to 1994, he served as Senior Vice President of Strategic
Development at NBC. His other positions at NBC have included Vice President of
Business Affairs for NBC's 1992 Olympics Unit; First General Counsel and Vice
President for Business Affairs at CNBC; and Senior Counsel to NBC's 1988 Seoul
Olympics Unit in NBC Sports. Mr. Yudkovitz joined NBC in January 1984 in the
law department. Mr. Yudkovitz received his J.D. from Columbia University and
his B.A. from Rutgers University.
Classified Board of Directors
iVillage's board of directors is divided into three classes, denominated
Class I, Class II and Class III, the terms of which expire successively over a
three-year period. Currently, the term of the Class III directors expires in
2001, the term of the Class I directors expires in 2002 and the term of the
Class II directors expires in 2003.
Compliance With Section 16(a) of the Securities Exchange Act of 1934
Pursuant to Section 16(a) of the Securities Exchange Act of 1934 and the
rules thereunder, iVillage's executive officers and directors and persons who
own more than 10% of a registered class of iVillage's equity securities are
required to file with the Securities and Exchange Commission and The Nasdaq
Stock Market, Inc. reports of their ownership of, and transactions in,
iVillage's common stock. Based solely on a review of copies of such reports
furnished to iVillage, or written representations that no reports were
required, iVillage believes that during the fiscal year ended December 31,
2000 its executive officers and directors complied with the Section 16(a)
requirements except that (i) Mr. Martin Yudkovitz failed to file a Form 4 or
Form 5 for fiscal year 1999 transactions that were subsequently reported on
Mr. Yudkovitz's Form 5 for fiscal year 2000; (ii) Ms. Candice Carpenter, a
former officer, failed to timely file a Form 4 for transactions in May 2000
that were subsequently reported in a Form 4 filed in July 2000 and (iii) Mr.
McCormick timely reported a transaction for August 2000 but inadvertently
under-reported the amount of securities beneficially owned by him at the end
of August by 3,000 shares, which omission was corrected in a subsequent Form 4
for November 2000. In addition at the date of this Form 10-K, iVillage had not
received either a Form 4 or Form 5 from Ms. Donna Introcasco, a former
officer, reflecting an option grant to purchase shares of iVillage common
stock granted to Ms. Introcasco in January 2000. At the date of this Form 10-
K, iVillage had not received a written statement that no Form 5 filing was
required from Ms. Carpenter and Mr. John Curran, a former officer, each of
whom did not file a Form 5.
45
Item 11. Executive Compensation
The following table sets forth the compensation earned for services rendered
to iVillage in all capacities for the fiscal years ended December 31, 1998,
1999 and 2000 by iVillage's Chief Executive Officer and its four next most
highly compensated executive officers who earned more than $100,000 during the
fiscal years ended December 31, 1998, 1999 and 2000 (collectively, the "Named
Executive Officers"). Candice Carpenter was iVillage's Chief Executive Officer
through July 2000 and Douglas W. McCormick has served in that capacity since
July 2000.
iVillage Summary Compensation Table
Long-Term
Compensation
Annual Compensation Awards
------------------------------------ Securities
Other Underlying
Annual Options/SARs
Name and Principal Position Year Salary($) Bonus($) Compensation (#)(1)
- --------------------------- ---- --------- -------- ------------ ------------
Douglas W. McCormick(2) ................ 2000 $252,780 $ -- -- 1,010,000
Chief Executive Officer 1999 -- -- -- 35,000
1998 -- -- -- --
Candice Carpenter(3) ................... 2000 400,079 90,000 -- 100,000
Former Chief Executive Officer 1999 225,000 90,000 -- 333,333
1998 225,000 -- -- 153,334
Nancy Evans ............................ 2000 325,144 84,000 -- 260,000
Editor-in-Chief 1999 208,750 134,000 -- 116,667
1998 195,000 -- -- 76,667
John W. Glascott(4) .................... 2000 231,015 209,580 -- 30,000
Senior Vice President, 1999 211,279 91,307 -- 30,000
Sponsorship 1998 155,906 50,000 -- 66,667
Steven A. Elkes ........................ 2000 242,578 168,790 -- 128,333
Executive Vice President, 1999 166,500 202,099 -- 6,667
Operations and Business Affairs 1998 158,968 12,150 -- 16,667
Scott Levine(5) ........................ 2000 171,404 156,693 -- 75,000
Chief Financial Officer 1999 127,500 -- -- 40,000
1998 -- -- -- --
- ---------------
(1) Options were granted under iVillage's 1995 Amended and Restated Employee
Stock Option Plan, Amended and Restated 1999 Employee Stock Option Plan or
Amended and Restated 1999 Non-Qualified Stock Option Plan (as amended by
Amendment No. 1) and generally vest 1/4 one year after the date of
employment and the remainder in equal quarterly installments, except for
(i) those options granted in 2000 to Mr. McCormick which vest as described
in "Employment Arrangements" below and (ii) 20,000 options granted in 2000
to Mr. Glascott which vest 1/2 on the second year anniversary of the date
of grant and thereafter in equal quarterly installments.
(2) Mr. McCormick joined iVillage in April 2000 as President and was appointed
Chief Executive Officer in July 2000.
(3) Ms. Carpenter served as iVillage's Chief Executive Officer through July
2000.
(4) Mr. Glascott joined iVillage in April 1998.
(5) Mr. Levine joined iVillage in February 1999 as Vice President, Controller
and Chief Accounting Officer.
Employment Arrangements
On October 5, 2000, iVillage and Ms. Carpenter entered into an agreement
pursuant to which Ms. Carpenter agreed to resign as Chief Executive Officer of
iVillage, effective August 1, 2000, and retain her position as Co-
46
Chairperson of the Board of Directors. Ms. Carpenter further agreed to
represent iVillage at certain speaking engagements and perform such other
duties as are requested by iVillage's Chief Executive Officer and board of
directors and shall receive compensation equal to $400,000 per year through
December 31, 2002. In addition to that compensation, Ms. Carpenter is entitled
to certain benefits and bonus compensation, if approved by the Compensation
Committee, on a pro rata basis reflecting Ms. Carpenter's tenure as Chief
Executive Officer for the seven (7) month period ended July 31, 2000. Ms
Carpenter is also entitled to the continued vesting of her existing stock
options through December 31, 2002 and an extension of the due date to December
31, 2002 on the promissory note issued by Ms. Carpenter to iVillage dated June
5, 1998. See "Item 13. Certain Relationships and Related Transactions." In
consideration for the payments to her and iVillage's obligations under the
agreement, Ms. Carpenter has entered into a non-compete agreement that
survives for six months after December 31, 2002 and has agreed to release and
discharge iVillage from any and all claims which exist, have existed or may
arise out of or in any way are related to her relationship with, including her
employment with, or departure from iVillage, or the execution of the
agreement.
As of April 1, 2001, iVillage and Ms. Carpenter amended their previous
agreement to provide that Ms. Carpenter would resign as a member of iVillage's
board of directors but would remain an iVillage employee available for special
projects at the request of iVillage's Chief Executive Officer and board of
directors through December 31, 2002. Ms. Carpenter received a one-time lump
sum cash payment of $1,327,900 (less an overdue interest payment of $27,900 on
her promissory note to iVillage) in lieu of the salary, bonus and other
payments set forth in the October agreement and will receive a monthly salary
of $3,433.33 (less set-offs for future interest payments on her promissory
note) through December 31, 2002. The amendment also provided that Ms.
Carpenter would surrender 333,334 iVillage stock options with an exercise
price of $24.00 and 75,000 iVillage stock options with an exercise price of
$17.17 to iVillage.
On November 29, 2000, iVillage entered into an employment agreement with
Douglas W. McCormick. Mr. McCormick's employment agreement provides for an
initial annual base salary of $500,000 and eligibility to receive a bonus
pursuant to iVillage's bonus plan of up to forty percent (40%) of his base
salary upon satisfaction of objectives determined by the board of directors or
the Compensation Committee. iVillage has also granted Mr. McCormick options to
purchase shares of its common stock which expire 7 years after the date of
grant. Specifically, Mr. McCormick was granted options to purchase: (a)
600,000 shares of iVillage's common stock at an exercise price equal to $1.25
per share (the fair market value of the common stock on the effective date of
the employment agreement); (b) 200,000 shares of common stock at an exercise
price of $3.50 per share; and (c) 200,000 shares of common stock at an
exercise price of $5.00 per share. Each grant of options described above shall
vest in equal quarterly installments commencing three (3) months from the
effective date of the employment agreement over a period of thirty (30)
months.
Mr. McCormick's employment agreement is effective as of November 29, 2000
for a period of thirty (30) months. Pursuant to the employment agreement, if
Mr. McCormick voluntarily terminates his employment without "good reason" (as
defined in the agreement) or is terminated for cause (as defined in the
agreement) prior to the expiration of the employment agreement, iVillage shall
pay him base compensation and benefits through the effective date of his
termination and iVillage will have no obligation to pay Mr. McCormick his base
salary, any bonus or other compensation (including options) for the remainder
of the term of the employment agreement. If Mr. McCormick is terminated
without cause or resigns for good reason prior to the expiration of the
initial term of the employment agreement, iVillage shall pay him his base
compensation and benefits through the effective date of termination and shall
pay him cash equal to his base salary for a twelve (12) month period, to be
paid monthly, and the normal vesting of any options issued to Mr. McCormick
shall continue over this twelve (12) month period.
Notwithstanding the foregoing, in the event Mr. McCormick's employment is
terminated for any reason: (i) prior to the six month anniversary of the
effective date of the employment agreement, Mr. McCormick shall immediately
vest in one third (1/3) of the options, as described above, granted to him at
an exercise price of $1.25 to the extent not otherwise vested; or (ii) on or
after the six month anniversary but prior to the one-year anniversary of the
effective date of the employment agreement, Mr. McCormick shall immediately
vest in two fifths (2/5) of the options.
47
Option Grants in Last Fiscal Year
The following table sets forth certain information with respect to stock
options granted to each of the Named Executive Officers during the fiscal year
ended December 31, 2000. iVillage has never granted any stock appreciation
rights. The exercise price per share of each option was at least equal to the
fair market value of the common stock on the date of grant as determined by
the iVillage board of directors. The potential realizable value is calculated
based on the term of the option at its time of grant (seven years). It is
calculated assuming that the fair market value of common stock on the date of
grant (or exercise price per share, if higher) appreciates at the indicated
annual rate compounded annually for the entire term of the option and that the
option is exercised and sold on the last day of its term for the appreciated
stock price. These numbers are calculated based on the requirements of the
Securities and Exchange Commission and do not reflect iVillage's estimate of
future stock price growth.
Percent of
Number of Total Potential Realizable
Securities Options Value at Assumed
Underlying Granted Exercise Annual Rates of Stock
Options To Employees Price Per Expiration Price Appreciation
Granted in Fiscal Year Share Date for Option Term
---------- -------------- --------- ---------- ---------------------
Name (#) (%) ($/Sh) 5%($) 10%($)
- ---------------------- ---------- -------------- --------- --------- ---------
Douglas W. McCormick............... 10,000 0 17.17 1/21/07 241,543 334,517
600,000 14 1.25 11/29/07 1,055,325 1,461,538
200,000 5 3.50 11/29/07 984,970 1,364,102
200,000 5 5.00 11/29/07 1,407,100 1,948,717
Candice Carpenter (1).............. 100,000 2 17.17 1/21/07 2,415,429 3,345,168
Nancy Evans........................ 60,000 1 17.17 1/21/07 1,449,257 2,007,101
200,000 5 7.50 6/8/07 2,110,651 2,923,076
John W. Glascott................... 30,000 1 17.17 1/21/07 724,629 1,003,550
Steven A. Elkes.................... 43,333 1 17.17 1/21/07 1,046,678 1,449,562
85,000 2 7.50 6/8/07 897,027 1,242,307
Scott Levine....................... 75,000 2 1.25 11/29/07 131,916 182,692
- ---------------
(1) Please see "Executive Compensation--Employment Arrangements" for a
discussion of certain options surrendered by Ms. Carpenter as of April 1,
2001.
48
Fiscal Year-End Option Values
The following table sets forth information with respect to the Named
Executive Officers concerning stock options held during the fiscal year ended
December 31, 2000 and exercisable and unexercisable options held as of
December 31, 2000. No options were exercised during fiscal 2000 by any of the
officers. The value of unexercised in-the-money options at fiscal year-end is
based on $1.0625 per share, the assumed fair market value of the common stock
at December 31, 2000, less the exercise price per share.
Number of Securities
Underlying Value of Unexercised In-
Unexercised Options at The-
Fiscal Money Options at Fiscal
Year-End (#) Year-End
--------------------------- ---------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
- --------------------------------- ----------- ------------- ----------- -------------
Douglas W. McCormick................................... 22,639 1,022,361 -- --
Candice Carpenter(1)................................... 216,111 463,891 -- --
Nancy Evans............................................ 98,960 354,374 -- --
John W. Glascott....................................... 49,167 77,500 -- --
Steven A. Elkes........................................ 41,977 143,024 -- --
Scott Levine........................................... 17,603 97,397 -- --
- ---------------
(1) Please see "Executive Compensation--Employment Arrangements" for a
discussion of certain options surrendered by Ms. Carpenter as of April 1,
2001.
Director Compensation
Directors do not currently receive any cash compensation from iVillage for
their service as members of the board of directors, although they are
reimbursed for certain expenses in connection with attendance at board and
Committee meetings. From time to time, certain directors of iVillage have
received grants of options to purchase shares of iVillage's common stock
pursuant to the 1995 Amended and Restated Employee Stock Option Plan and the
Amended and Restated 1999 Employee Stock Option Plan. Under iVillage's 1999
Director Option Plan, non-employee directors are eligible to receive non-
discretionary, automatic stock option grants.
On January 13, 2000, each non-employee director was granted an option to
purchase 10,000 shares of common stock at an exercise price of $17.625 under
the Amended and Restated 1999 Employee Stock Option Plan. On May 17, 2000,
each non-employee director of iVillage was also granted an option to purchase
1,666 shares of iVillage's common stock at an exercise price of $8.3125 per
share pursuant to the 1999 Director Option Plan.
49
Item 12. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth certain information regarding the beneficial
ownership of the common stock as of February 15, 2001 of:
o each person known by iVillage to beneficially own more than 5% of the
common stock;
o each director or director nominee of iVillage;
o each executive officer of iVillage for whom information is given in the
iVillage Summary Compensation Table in this Form 10-K; and
o all directors and executive officers of iVillage as a group.
Number of Shares
Name of Beneficial Owner Beneficially Held(1) Percent of Class
- --------------------------------- -------------------- ----------------
Capital Group International, Inc. and Capital Guardian
Trust Company(2).......................................... 2,963,600 10.0%
11100 Santa Monica Boulevard
Los Angeles, California 94109
AOL Time Warner Inc.(3) .................................... 2,511,983 8.4
75 Rockefeller Plaza
New York, New York 10019
National Broadcasting Company, Inc.(4) ..................... 2,109,012 7.0
30 Rockefeller Plaza
New York, New York 10112
Rho Management Company, Inc.(5) ............................ 1,818,885 6.1
152 West 57th Street
New York, New York 10019
Candice Carpenter(6) ....................................... 717,640 2.4
Nancy Evans(7) ............................................. 433,609 1.5
Habib Kairouz(8) ........................................... 1,829,302 6.2
Lennert J. Leader(9) ....................................... 2,522,400 8.4
Douglas McCormick(10) ...................................... 181,750 *
Daniel Schulman(11) ........................................ 57,083 *
Martin Yudkovitz(12) ....................................... 2,123,429 7.1
Steven A. Elkes(13) ........................................ 76,125 *
John W. Glascott(14) ....................................... 68,874 *
John T. Healy .............................................. - *
Scott Levine(15) ........................................... 23,063 *
All directors and executive officers as a group (15
persons).................................................. 8,082,773 26.0
- ---------------
*Less than one percent of the outstanding common stock.
(1) Unless otherwise indicated, the address for each listed director or
officer is c/o iVillage Inc., 500-512 Seventh Avenue, New York, New York
10018. As used in this table, "beneficial ownership" means the sole or
shared power to vote or direct the voting or to dispose or direct the
disposition of any security. For purposes of this table, a person is
deemed to be the beneficial owner of securities that can be acquired
within 60 days from February 15, 2001 through the exercise of any option
or warrant. Shares of common stock subject to options or warrants that
are currently exercisable or exercisable within 60 days are deemed
outstanding for computing the ownership percentage of the person holding
such options or warrants, but are not deemed outstanding for computing
the ownership percentage of any other person. The amounts and percentages
are based upon 29,706,770 shares of common stock outstanding as of
February 15, 2001.
(2) According to a Schedule 13G, filed on December 12, 2000 and as amended on
February 12, 2001, Capital Group International, Inc. is the parent
holding company of a group of investment management companies that hold
investment power and, in some cases, voting power over the securities
reported in this section. The investment management companies, which
include a "bank" as defined in Section 3(a)6 of the Securities
50
Exchange Act of 1934, as amended, and several investment advisers
registered under Section 203 of the Investment Advisors Act of 1940,
provide investment advisory and management services for their respective
clients which include registered investment companies and institutional
accounts. Capital Group International, Inc. does not have investment
power or voting power over any of the securities shown herein; however,
Capital Group International, Inc. may be deemed to "beneficially own"
such securities by virtue of Rule 13d-3 under the Exchange Act. Capital
Guardian Trust Company, a bank as defined in Section 3(a)6 of the
Exchange Act is deemed to be the beneficial owner of the 2,963,600 shares
as a result of its serving as the investment manager of various
institutional accounts.
(3) AOL Time Warner Inc. and its wholly owned subsidiary, America Online,
Inc. ("AOL"), may be deemed to have shared power to vote and dispose of
the 2,511,983 shares of iVillage common stock (including 350,908 shares
of common stock issuable upon exercise of the warrants) registered in the
name of AOL and owned beneficially by AOL Time Warner Inc.
(4) According to an Amended Schedule 13D, filed November 5, 1999, the
National Broadcasting Company, Inc. has sole voting and dispositive power
over all shares. Includes 271,003 shares of common stock issuable upon
the exercise of a warrant.
(5) Rho Management Company, Inc., a New York corporation, may be deemed the
beneficial owner of the 1,818,885 shares according to an investment
advisory relationship by which Rho Management Company, Inc. exercises
voting and investment control over the shares of which 1,668,885 shares
are registered in the name of Rho Management Trust I. The remaining
150,000 shares are registered in the name of a controlling stockholder of
Rho Management Company, Inc.
(6) Includes options to purchase 330,138 shares of common stock that are
currently exercisable. As of April 1, 2001, Ms. Carpenter surrendered
options to purchase 118,055 shares of common stock that are reflected in
this table. Please see "Item 11. Executive Compensation--Employment
Arrangements".
(7) Includes (a) options to purchase 134,377 shares of common stock that are
currently exercisable and (b) 81,166 shares of common stock beneficially
owned by the Evans/Wishman 1998 Irrevocable Trust. Ms. Evans disclaims
beneficial ownership of the shares of common stock held by the Evans/
Wishman 1998 Irrevocable Trust.
(8) Mr. Kairouz is Managing Director of Rho Management Company, Inc. In such
capacity, Mr. Kairouz may be deemed to have beneficial ownership of the
1,818,885 shares beneficially owned by Rho Management Company, Inc. Mr.
Kairouz disclaims beneficial ownership of the shares reported by Rho
Management Company, Inc., other than an insignificant number of shares in
which Mr. Kairouz has a pecuniary interest. Includes options to purchase
10,417 shares of common stock that are currently exercisable.
(9) Consists of 2,511,983 shares of common stock beneficially owned by AOL
Time Warner Inc., including 350,908 shares of common stock issuable upon
the exercise of warrants. Mr. Leader is the President of the Venture
Group of AOL Time Warner Investments. As such, Mr. Leader may be deemed
to have voting power or investment power over the securities beneficially
owned by AOL Time Warner Inc. Mr. Leader disclaims beneficial ownership
of the shares of common stock beneficially owned by AOL Time Warner Inc.
Includes options to purchase 10,417 shares of common stock that are
currently exercisable. iVillage has been informed by AOL Time Warner Inc.
that Mr. Leader is obligated to transfer such options or the benefit of
such options to AOL or AOL Time Warner Inc.
(10) Includes (a) options to purchase 143,750 shares of common stock that are
currently exercisable and (b) 3,000 shares of common stock beneficially
owned by Mr. McCormick's wife. Mr. McCormick disclaims beneficial
ownership of the shares of common stock held by his wife.
(11) Consists of options to purchase 57,083 shares of common stock that are
currently exercisable.
(12) Consists of (a) 4,000 shares of common stock beneficially owned by Mr.
Yudkovitz, (b) 2,109,012 shares of common stock beneficially owned by the
National Broadcasting Company, Inc., including 271,003 shares of common
stock issuable upon the exercise of a warrant and (c) options to purchase
10,417 shares of common stock that are currently exercisable. Pursuant to
a nominee agreement with NBC, Mr. Yudkovitz holds any options that he
receives from iVillage in connection with his services as a director as a
nominee for NBC and has no discretionary duties with respect thereto. Mr.
Yudkovitz disclaims beneficial ownership of the option to purchase 10,417
shares of common stock. Mr. Yudkovitz is President and Chief Executive
Officer
51
of NBC Multimedia, Inc., a division of NBC. Mr. Yudkovitz does not have
voting or investment power with respect to the shares of common stock
owned by NBC. Mr. Yudkovitz disclaims beneficial ownership of the shares
of common stock beneficially owned by NBC.
(13) Includes options to purchase 73,025 shares of common stock that are
currently exercisable.
(14) Includes options to purchase 61,874 shares of common stock that are
currently exercisable.
(15) Includes options to purchase 20,103 shares of common stock that are
currently exercisable.
Item 13. Certain Relationships and Related Transactions
On June 5, 1998, Candice Carpenter executed a promissory note in favor of
iVillage for borrowings up to a maximum principal amount of $500,000, of which
$500,000 was outstanding at December 31, 2000. Subject to prepayment or
acceleration, any loans made to Ms. Carpenter under the note mature on
December 31, 2002. Borrowings made under the note bear interest at 5.58% per
annum and are payable on an annual basis on December 31 of each year
commencing on December 31, 1998. The note is collateralized by a pledge by Ms.
Carpenter of 20,000 shares of common stock. Pursuant to an agreement with
iVillage, Ms. Carpenter has resigned as Chief Executive Officer of iVillage as
of August 1, 2000 and from iVillage's Board of Directors as of April 1, 2001.
See "Item 11. Executive Compensation-Employment Arrangements".
During 1998, as amended in March 1999, iVillage entered into a stock
purchase agreement with NBC pursuant to which iVillage issued shares of series
E convertible preferred stock and warrants to purchase up to 970,874 shares of
series E convertible preferred stock and 813,003 shares of series E
convertible preferred stock in exchange for a promissory note of approximately
$15.5 million. The note, which bears interest at the rate of 5% per annum, is
payable in twelve installments of approximately $1.4 million, payable
quarterly, beginning April 1, 1999. In connection with iVillage's initial
public offering and the reverse stock split, the shares of series E
convertible preferred stock and warrants were converted into 1,629,676 shares
of common stock and warrants to purchase 323,625 shares of common stock at
$15.45 per share and 271,003 shares of common stock at $18.45 per share,
respectively. In addition, iVillage agreed to purchase, for cash, $13.5
million of advertising and promotional spots during 1999 and $8.5 million per
annum during 2000 and 2001, respectively. iVillage also agreed to pay $1.1
million during 1999 for prominent placement on the NBC.com Web site. In
February 2001, iVillage further amended its November 1998 agreement with NBC
to provide for an extension of time during which iVillage must purchase its
advertising or promotional spots on the NBC network. The revised terms require
iVillage to purchase approximately $11.6 million of advertising or promotional
spots between January 30, 2001 and December 31, 2002, with $3.0 million of
such spots being telecast during the year 2001 and the remaining approximately
$8.6 million during the year 2002. Martin Yudkovitz, an iVillage director, is
President and Chief Executive Officer of NBC Multimedia, Inc., a division of
NBC.
In July 1997, iVillage entered into an interactive services agreement with
AOL, whereby iVillage received anchor tenant distribution within the AOL
service. This agreement superseded any prior agreements between iVillage and
AOL. This agreement, which was due to expire on February 28, 1999, provided
both parties with the right to extend the agreement. In consideration for AOL
carrying certain channels of iVillage, iVillage receiving guaranteed
impressions and other services, iVillage was obligated to pay AOL monthly
payments of approximately $229,000 until September 1, 1998 and approximately
$201,000 thereafter until February 28, 1999, make certain additional payments
based on revenues and provide in-kind commitments to AOL which primarily
consisted of the mentioning of "AOL Keyword: iVillage" within iVillage
advertisements and other promotions.
In January 1998, iVillage entered into a shopping channel promotional
agreement with AOL, whereby AOL agreed to promote iVillage and its services on
the AOL shopping channel and provide access to iVillage's online sites. This
agreement provided for monthly installments of $10,417 paid to AOL through
December 31, 1998. The shopping channel promotional agreement was amended in
October 1998, at which time the monthly payment increased to approximately
$10,833 and the agreement was extended to October 1999.
On December 31, 1998, iVillage entered into an interactive services
agreement with AOL, which superseded the 1997 agreement with AOL. The 1998
agreement with AOL expired on December 31, 2000 and allowed both parties to
extend the term of the agreement for an additional year. The 1998 agreement
with AOL provided for iVillage to receive anchor tenant distribution on
certain AOL channels, guaranteed impressions, and other
52
services. In consideration for such services iVillage was obligated to pay AOL
minimum quarterly payments of approximately $921,000 until March 31, 1999,
approximately $611,000 from April 1, 1999 through December 31, 1999 and
approximately $807,000 from January 1, 2000 through December 31, 2000, and
provide up to $2 million of advertising to AOL. iVillage extended the 1998
agreement with AOL for periods after December 31, 2000 on a month-to-month
basis for a monthly fee of $268,908 and is currently in negotiations with AOL
to amend the 1998 agreement.
On February 20, 2000, iVillage executed an addendum to the 1998 agreement,
under which AOL will distribute through the AOL network a customized version
of iVillage's Astrology.Net Website and content, and provide guaranteed
impressions, and other services. In consideration for such services iVillage
is obligated to pay AOL monthly installments of $22,500 until June 6, 2000, an
upfront payment of $700,000 in June 2000, and six quarterly installments of
$350,000 commencing on September 6, 2000. The agreement expires on June 5,
2002. Lennert J. Leader, an iVillage director, is President of the Venture
Group of AOL Time Warner Investments.
iVillage has entered into indemnification agreements with its executive
officers and directors containing provisions which may require iVillage, among
other things, to indemnify such officers and directors against certain
liabilities that may arise by reason of their status or service as officers or
directors, other than liabilities arising from willful misconduct of a
culpable nature, and to advance their expenses incurred as a result of any
proceeding against them as to which they could be indemnified.
53
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) Documents filed as a part of this Report:
1. The following consolidated financial statements are included in Item 8 of
this Report:
Page Number in
this Report
--------------
Report of Independent Accountants ............................. F-2
Consolidated Balance Sheets as of December 31, 2000 and 1999 .. F-3
Consolidated Statements of Operations for the years ended
December 31, 2000, 1999 and 1998............................. F-4
Consolidated Statements of Stockholders' Equity for the years
ended December 31, 2000, 1999 and 1998....................... F-5
Consolidated Statements of Cash Flows for the years ended
December 31, 2000, 1999 and 1998............................. F-6
Notes to Consolidated Financial Statements .................... F-7 - F-28
2. Financial Statement Schedules (included on page S-1 of this Report):
Page Number in
this Report
--------------
Schedule I - Valuation and Qualifying Accounts ................ S-1
All other schedules to the consolidated financial statements for which
provision is made in the accounting regulations of the SEC are not required
under the related instructions or are inapplicable and therefore have been
omitted.
3. Exhibits:
Exhibit
Number Description
2.1 Agreement and Plan of Merger dated as of February 5, 2001 among
the Registrant, Stanhope Acquisition Sub, LLC and Women.com
Networks, Inc. (incorporated by reference from Exhibit 2.1 to
Registration Statement File No. 333-56150).
2.2 Amendment No. 1 to Agreement and Plan of Merger dated February
22, 2001, among the Registrant, Stanhope Acquisition Sub, LLC,
and Women.com Networks, Inc. (incorporated by reference from
Exhibit 2.2 to Registration Statement File No. 333-56150).
3.1 Amended and Restated Certificate of Incorporation of the
Registrant (incorporated by reference from Exhibit 3.1 to
Registration Statement File No. 333-85437).
3.2 By-Laws of the Registrant (incorporated by reference from Exhibit
3.2 to the Registrant's Form 10-Q Quarterly Report for the period
ended June 30, 2000, File No. 000-25469).
4.1 Form of Registrant's common stock certificate (incorporated by
reference from Exhibit 4.1 to Registration Statement File No.
333-68749).
4.2 Form of Subscription Agreement (incorporated by reference from
Exhibit 4.2 to Registration Statement File No. 333-56150).
4.3 Form of Warrant (incorporated by reference from Exhibit 4.3 to
Registration Statement File No. 333-56150).
4.4 Form of Stockholder Agreement (included in Exhibit 10.33).
10.1 Form of Indemnification Agreement between the Registrant and its
directors and executive officers (incorporated by reference from
Exhibit 10.1 to Registration Statement File No. 333-68749).
54
Exhibit
Number Description
10.2 1995 Amended and Restated Employee Stock Option Plan of the
Registrant (incorporated by reference from Exhibit 10.2 to
Registration Statement File No. 333-68749).
10.3 1997 Amended and Restated Acquisition Stock Option Plan of the
Registrant (incorporated by reference from Exhibit 10.3 to
Registration Statement File No. 333-68749).
10.4 Amended and Restated 1999 Employee Stock Option Plan of the
Registrant (incorporated by reference from Exhibit 99.1 to
Registration Statement File No. 333-31988).
10.5 1999 Director Option Plan of the Registrant (incorporated by
reference from Exhibit 10.5 to Registration Statement File No.
333-85437).
10.6 1999 Employee Stock Purchase Plan of the Registrant (incorporated
by reference from Exhibit 10.6 to Registration Statement File No.
333-85437).
10.7 1999 Acquisition Stock Option Plan of the Registrant
(incorporated by reference from Exhibit 10.7 to Registration
Statement File No. 333-85437).
10.8 Amended and Restated 1999 Non-Qualified Stock Option Plan, as
amended by Amendment Number 1 (incorporated by reference from
Exhibit 10.8 to Registration Statement File No. 333-56150).
10.9 Interactive Services Agreement dated December 31, 1998, between
the Registrant and America Online, Inc. ("AOL") (incorporated by
reference from Exhibit 10.8 to Registration Statement File No.
333-68749).
10.10 Amendment to Interactive Services Agreement dated August 27, 1999
between the Registrant and America Online, Inc. (incorporated by
reference from Exhibit 10.10 to Registration Statement File No.
333-56150).
10.10.1 Second Addendum to Interactive Services Agreement dated February
20, 2000 between the Registrant and America Online, Inc.
(incorporated by reference from Exhibit 10.10.1 to Registration
Statement File No. 333-56150).
10.11 Second Amendment to Interactive Services Agreement dated October
16, 2000 between the Registrant and America Online, Inc.
(incorporated by reference from Exhibit 10.11 to Registration
Statement File No. 333-56150).
10.12 Third Amendment to Interactive Services Agreement dated November
2000 between the Registrant and America Online, Inc.
(incorporated by reference from Exhibit 10.12 to Registration
Statement File No. 333-56150).
10.13 Fourth Amendment to Interactive Services Agreement dated
December 28, 2000 between the Registrant and America Online, Inc.
(incorporated by reference from Exhibit 10.13 to Registration
Statement File No. 333-56150).
10.14 Fifth Amendment to Interactive Services Agreement effective as of
March 31, 2001 between the Registrant and America Online, Inc.
(incorporated by reference from Exhibit 10.14 to Registration
Statement File No. 333-56150).
10.15 Sixth Amendment to Interactive Services Agreement, effective as
of February 28, 2001 between the Registrant and America Online,
Inc.
10.16 Exclusive Sponsorship Agreement dated February 28, 1998 between
Amazon.com, Inc. and the Registrant (incorporated by reference
from Exhibit 10.11 to Registration Statement File No. 333-
68749).+
10.17 Letter Agreement dated November 11, 1998 between the National
Broadcasting Company, Inc. and the Registrant (incorporated by
reference from Exhibit 10.14 to Registration Statement File No.
333-68749).
55
Exhibit
Number Description
10.18 Amended Letter Agreement dated as of March 9, 1999 between the
Registrant and the National Broadcasting Company, Inc.
(incorporated by reference from Exhibit 10.27 to Registration
Statement File No. 333-68749).
10.19 Amendment dated February 1, 2001 to Letter Agreement dated March
9, 1999 between the National Broadcasting Company, Inc. and the
Registrant (incorporated by reference from Exhibit 10.18 to
Registration Statement File No. 333-56150).
10.20 Form of Non-Competition, Non-Disclosure and Assignment of
Inventions Agreement dated September 9, 1995, and Amendment dated
May 6, 1996, between the Registrant and each of Candice Carpenter
and Nancy Evans (incorporated by reference from Exhibit 10.18 to
Registration Statement File No. 333-68749).
10.21 Note and Warrant Purchase Agreement dated as of February 27,
1997, as amended April 29, 1997, among the Registrant, AOL,
Tribune, KPCB VII and KPCB Zaibatsu II, including Form of Warrant
(incorporated by reference from Exhibit 10.22 to Registration
Statement File No. 333-68749).
10.22 Promissory Note dated June 5, 1998 in the amount of $500,000
between Candice Carpenter and the Registrant (incorporated by
reference from Exhibit 10.23 to Registration Statement File No.
333-68749).
10.22.1 Amendment No. 1 to Promissory Note, dated as of April 1, 2001,
between Candice Carpenter and the Registrant.
10.23 Fourth Amended and Restated Registration Rights Agreement dated
as of December 4, 1998, among the Registrant, the Founders and
each of the Investors identified therein, as amended as of July
26, 1999 (incorporated by reference from Exhibit 10.25 to
Registration Statement File No. 333-85437).
10.24 Amended and Restated Stock Purchase Agreement dated as of March
9, 1999 among the Registrant, GE Investments Subsidiary, Inc. and
the National Broadcasting Company, Inc. (incorporated by
reference from Exhibit 10.26 to Registration Statement File No.
333-68749).
10.25 Promissory Note dated March 9, 1999 in the amount of
$15,497,558.48 between the Registrant and GE Investments
Subsidiary, Inc (incorporated by reference from Exhibit 10.28 to
Registration Statement File No. 333-85437).
10.26 License Agreement entered into on September 3, 1999 by and
between PlanetRx.com, Inc. and the Registrant (incorporated by
reference from Exhibit 10.39 to Registration Statement File No.
333-85437).
10.27 Lease dated March 14, 2000, between 500-512 Seventh Avenue
Limited Partnership and the Registrant (incorporated by reference
from Exhibit 10.1 to the Registrant's Form 10-Q Quarterly Report
for the period ended March 31, 2000, File No. 000-25469).
10.28 First Amendment to Lease dated as of June 7, 2000 between the
Registrant and 500-512 Seventh Avenue Limited Partnership
(incorporated by reference from Exhibit 10.3 to the Registrant's
Form 10-Q Quarterly Report for the period ended September 30,
2000, File No. 000-25469).
10.29 Second Amendment to Lease dated January 10, 2001 between the
Registrant and 500-512 Seventh Avenue Limited Partnership.
(incorporated by reference from Exhibit 10.28 to Registration
Statement File No. 333-56150).
10.30 License Agreement dated as of September 8, 2000 among Lamaze
International, Inc., Lamaze Publishing Company and the Registrant
(incorporated by reference from Exhibit 10.2 to the Registrant's
Form 10-Q Quarterly Report for the period ended September 30,
2000, File No. 000-25469).
56
Exhibit
Number Description
10.31 Lease dated March 19, 1998, commencing March 15, 1998 between 149
Fifth Avenue Corporation and the Registrant, as supplemented on
June 30, 1998 (incorporated by reference from Exhibit 10.21 to
Registration Statement File No. 333-68749).
10.32 Employment Agreement dated November 29, 2000 between Douglas
McCormick and the Registrant (incorporated by reference from
Exhibit 10.31 to Registration Statement File No. 333-56150).
10.33 Amended and Restated Securities Purchase Agreement dated as of
February 22, 2001 between the Registrant and Hearst
Communications, Inc. (incorporated by reference from Exhibit
10.32 to Registration Statement File No. 333-56150).
10.34 Stockholder Voting Agreement, dated February 5, 2001 between the
Registrant and Hearst Communications, Inc. (incorporated by
reference from Exhibit 3 to Registrant's Statement on Schedule
13D filed February 15, 2001).
10.35 Letter Agreement dated as of October 5, 2000 between the
Registrant and Candice Carpenter (incorporated by reference from
Exhibit 10.34 to Registration Statement File No. 333-56150).
10.35.1 Amendment to Letter Agreement dated as of April 1, 2001 between
the Registrant and Candice Carpenter.
10.36 Form of Amendment Number 2 to Amended and Restated Magazine
Content License and Hosting Agreement (included in Exhibit 10.33)
10.37 Stockholder Voting Agreement, dated February 5, 2001 between the
Registrant and America Online, Inc. (incorporated by reference
from Exhibit 6 to Registrant's Amended Statement on Schedule 13D
filed March 6, 2001).
10.38 Stockholder Voting Agreement, dated February 5, 2001 between the
Registrant and National Broadcasting Company, Inc. and GE
Investments Subsidiary, Inc. (incorporated by reference from
Exhibit 7 to Registrant's Amended Statement on Schedule 13D filed
March 6, 2001).
10.39 Stockholder Voting Agreement, dated February 5, 2001 between the
Registrant and Rho Management Trust I (incorporated by reference
from Exhibit 8 to Registrant's Amended Statement on Schedule 13D
filed March 6, 2001).
21 Subsidiaries of the Registrant (incorporated by reference from
Exhibit 21 to Registration Statement File No. 333-56150).
23.1 Consent of PricewaterhouseCoopers LLP.
- ---------------
+ Confidential treatment has been granted for certain portions of these
exhibits. Omitted portions have been filed separately with the Securities
and Exchange Commission.
(b) Reports on Form 8-K
A Form 8-K Report was filed on October 26, 2000, reporting under Item 5.
57
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
iVILLAGE INC.
(Registrant)
Date: March 31, 2001 By: /s/ Douglas McCormick
-----------------------------------------
Douglas McCormick
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Signature Capacity Date
--------- -------- ----
/s/ Douglas McCormick Chief Executive Officer (Principal Executive March 31, 2001
--------------------------------------------------- Officer) and Director
Douglas McCormick
/s/ Scott Levine Chief Financial Officer (Principal Accounting March 31, 2001
--------------------------------------------------- and Financial Officer)
Scott Levine
/s/ Candice Carpenter Director March 31, 2001
---------------------------------------------------
Candice Carpenter
/s/ Nancy Evans Director March 31, 2001
---------------------------------------------------
Nancy Evans
/s/ John T. Healy Director March 31, 2001
---------------------------------------------------
John T. Healy
/s/ Habib Kairouz Director March 31, 2001
---------------------------------------------------
Habib Kairouz
/s/ Lennert J. Leader Director March 31, 2001
---------------------------------------------------
Lennert J. Leader
/s/ Daniel Schulman Director March 31, 2001
---------------------------------------------------
Daniel Schulman
Director , 2001
---------------------------------------------------
Martin Yudkovitz
58
iVILLAGE INC. AND SUBSIDIARIES
INDEX OF CONSOLIDATED FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE
The following consolidated financial statements of iVillage Inc. are
included in Item 8:
Report of Independent Accountants ........................................ F-2
Consolidated Balance Sheets as of December 31, 2000 and 1999 ............. F-3
Consolidated Statements of Operations for the years ended December 31,
2000, 1999 and 1998..................................................... F-4
Consolidated Statements of Stockholders' Equity for the years ended
December 31, 2000, 1999
and 1998................................................................ F-5
Consolidated Statements of Cash Flows for the years ended December 31,
2000, 1999 and 1998..................................................... F-6
Notes to Consolidated Financial Statements ............................... F-7
Schedule I - Valuation and Qualifying Accounts ........................... S-1
All other schedules to the consolidated financial statements for which
provision is made in the accounting regulations of the Securities and Exchange
Commission are not required under the related instructions or are inapplicable
and therefore have been omitted.
F-1
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
of iVillage Inc.:
In our opinion, the consolidated financial statements listed in the index
appearing under Item 14 on page 54 present fairly, in all material respects,
the financial position of iVillage Inc. and its subsidiaries at December 31,
2000 and December 31, 1999, and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 2000 in
conformity with accounting principles generally accepted in the United States
of America. In addition, in our opinion, the financial statement schedule
listed in the index appearing under Item 14 on page 54 presents fairly, in all
material respects, the information set forth therein when read in conjunction
with the related consolidated financial statements. These financial statements
and financial statement schedule are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements and financial statement schedule based on our audits. We conducted
our audits of these statements in accordance with auditing standards generally
accepted in the United States of America, which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
PricewaterhouseCoopers LLP
New York, New York
February 6, 2001
F-2
iVILLAGE INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
December 31,
---------------------
2000 1999
--------- ---------
ASSETS
Current assets:
Cash and cash equivalents............................ $ 48,963 $ 106,010
Restricted cash...................................... -- 1,495
Accounts receivable, less allowance for doubtful
accounts of $1,007 and
$700, respectively................................. 7,864 6,620
Inventory............................................ -- 2,332
Other current assets................................. 9,700 3,193
--------- ---------
Total current assets............................. 66,527 119,650
Restricted cash...................................... 9,250 --
Fixed assets, net.................................... 20,057 10,017
Goodwill and other intangible assets, net............ 36,432 175,143
Investments and other assets......................... 137 7,938
Non-current assets of discontinued operations........ 56 --
--------- ---------
Total assets..................................... $ 132,459 $ 312,748
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses................ $ 18,695 $ 16,216
Deferred revenue..................................... 6,337 12,682
Deferred rent........................................ 361 --
Net current liabilities of discontinued operations... 882 --
--------- ---------
Total current liabilities........................ 26,275 28,898
Deferred rent, net of current portion................ 4,818 --
--------- ---------
Total liabilities................................ 31,093 28,898
Commitments and contingencies
Stockholders' equity:
Preferred stock - par value $.01, 5,000,000 shares
authorized, no shares issued and outstanding at
December 31, 2000 and 1999, respectively............ -- --
Common stock - par value $.01, 65,000,000 shares
authorized, 29,706,770 and 29,591,778 issued and
outstanding at December 31, 2000 and 1999,
respectively........................................ 297 296
Additional paid-in capital........................... 495,758 494,899
Accumulated deficit.................................. (384,316) (192,888)
Stockholders' notes receivable....................... (7,148) (12,188)
Unearned compensation and deferred advertising....... (3,225) (6,269)
--------- ---------
Total stockholders' equity....................... 101,366 283,850
--------- ---------
Total liabilities and stockholders' equity....... $ 132,459 $ 312,748
========= =========
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
iVILLAGE INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
Year ended December 31,
---------------------------------
2000 1999 1998
--------- --------- --------
Revenue.................................. $ 76,352 $ 36,576 $ 12,451
--------- --------- --------
Operating expenses:
Editorial, product development and
technology............................... 35,327 20,652 11,742
Sales and marketing..................... 46,711 46,061 28,177
Sales and marketing - NBC expenses...... 7,387 17,465 --
General and administrative.............. 22,634 13,164 9,546
Depreciation and amortization........... 37,681 25,720 5,500
Impairment of goodwill.................. 98,056 -- --
--------- --------- --------
Total operating expenses............ 247,796 123,062 54,965
--------- --------- --------
Loss from operations..................... (171,444) (86,486) (42,514)
Interest income, net..................... 5,261 4,085 571
Other income (expense), net.............. 595 271 (504)
Minority interest........................ -- -- 587
Write-down of note receivable and
investments.............................. (13,496) -- --
Loss from affiliate...................... (422) -- --
--------- --------- --------
Net loss from continuing operations...... (179,506) (82,130) (41,860)
--------- --------- --------
Preferred stock deemed dividend.......... -- (23,612) --
--------- --------- --------
Net loss attributable to common
stockholders from
continuing operations................... (179,506) (105,742) (41,860)
--------- --------- --------
Discontinued operations:
Loss from operations of iBaby, Inc...... (4,863) (10,871) (1,794)
Loss on disposal of iBaby, Inc.
including
provision for losses during phase-out
period, $3,441 and loss on sale of
assets, $3,618......................... (7,059) -- --
--------- --------- --------
Loss from discontinued operations........ (11,922) (10,871) (1,794)
--------- --------- --------
Net loss attributable to common
stockholders............................. $(191,428) $(116,613) $(43,654)
========= ========= ========
Basic and diluted net loss per share from
continuing
operations attributable to common
stockholders............................. $ (6.05) $ (5.06) $ (20.24)
========= ========= ========
Basic and diluted net loss per share from
discontinued operations attributable to
common stockholders..................... $ (0.40) $ (0.52) $ (0.87)
========= ========= ========
Basic and diluted net loss per share
attributable to
common stockholders..................... $ (6.45) $ (5.58) $ (21.11)
========= ========= ========
Weighted average shares of common stock
outstanding used in computing basic and
diluted
net loss per share...................... 29,683 20,901 2,068
========= ========= ========
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
iVILLAGE INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Dollars in thousands)
Convertible Convertible Convertible
Preferred Stock Preferred Stock Preferred Stock
Series A Series B Series C
------------------- ------------------- --------------------
Shares Amount Shares Amount Shares Amount
------ ------ ------ ------ ------ ------
Balance at January 1, 1998 ............... 1,000,000 $ 1 4,777,746 $ 2 13,193,445 $ 7
Issuance of common stock for cash ........
Issuance of Series D convertible
preferred stock.........................
Issuance of Series E convertible
preferred stock.........................
Issuance of stock options to consultants
and directors...........................
Issuance of common stock in connection
with exercise of stock options..........
Issuance of stock options in connection
with business transactions..............
Officer loan receivable ..................
Issuance of options to NBC ...............
Net loss .................................
---------- --- ---------- --- ----------- ---
Balance at December 31, 1998 1,000,000 1 4,777,746 2 13,193,445 7
Conversion of preferred stock ............ (1,000,000) (1) (4,777,746) (2) (13,193,445) (7)
Issuance of common stock in connection
with initial public offering, net.......
Issuance of common stock in connection
with secondary public offering, net.....
Issuance of common stock in connection
with business acquisitions..............
Issuance of common stock and warrants
to NBC..................................
Issuance of common stock in connection
with the exercise of stock options
and warrants............................
Issuance of stock options to employees,
consultants and directors...............
Deemed dividend ..........................
Amortization of unearned compensation and
deferred advertising costs..............
Repayment of stockholder note receivable .
Net loss .................................
---------- --- ---------- --- ----------- ---
Balance at December 31, 1999 ............. -- -- -- -- -- --
Additional costs in connection with
secondary public offering...............
Issuance of common stock in connection
with the exercise of stock options......
Extension of stock option life ...........
Notes receivable due from stockholders in
connection with exercise of options.....
Amortization of unearned compensation and
deferred advertising costs..............
Repayment of stockholders' notes
receivable.............................
Net loss .................................
---------- --- ---------- --- ----------- ---
Balance at December 31, 2000 -- $-- -- $-- -- $--
========== === ========== === =========== ===
Convertible Convertible
Preferred Stock Preferred Stock
Series D Series E Common Stock
-------------------- -------------------- -------------------
Shares Amount Shares Amount Shares Amount
------ ------ ------ ------ ------ ------
Balance at January 1, 1998 ............... 1,819,735 $ 18
Issuance of common stock for cash ........ 284,317 3
Issuance of Series D convertible
preferred stock......................... 13,000,000 $ 6
Issuance of Series E convertible
preferred stock......................... 11,730,948 $ 6
Issuance of stock options to consultants
and directors...........................
Issuance of common stock in connection
with exercise of stock options.......... 9,333
Issuance of stock options in connection
with business transactions..............
Officer loan receivable ..................
Issuance of options to NBC ...............
Net loss .................................
----------- --- ----------- --- ---------- ----
Balance at December 31, 1998 13,000,000 6 11,730,948 6 2,113,385 21
Conversion of preferred stock ............ (13,000,000) (6) (11,730,948) (6) 14,785,205 148
Issuance of common stock in connection
with initial public offering, net....... 4,197,500 42
Issuance of common stock in connection
with secondary public offering, net..... 2,700,000 27
Issuance of common stock in connection
with business acquisitions.............. 3,883,649 39
Issuance of common stock and warrants
to NBC.................................. 1,629,677 16
Issuance of common stock in connection
with the exercise of stock options
and warrants............................ 282,362 3
Issuance of stock options to employees,
consultants and directors...............
Deemed dividend ..........................
Amortization of unearned compensation and
deferred advertising costs..............
Repayment of stockholder note receivable .
Net loss .................................
----------- --- ----------- --- ---------- ----
Balance at December 31, 1999 ............. -- -- -- -- 29,591,778 296
Additional costs in connection with
secondary public offering...............
Issuance of common stock in connection
with the exercise of stock options...... 114,992 1
Extension of stock option life ...........
Notes receivable due from stockholders in
connection with exercise of options.....
Amortization of unearned compensation and
deferred advertising costs..............
Repayment of stockholders' notes
receivable.............................
Net loss .................................
----------- --- ----------- --- ---------- ----
Balance at December 31, 2000 -- $-- -- $-- 29,706,770 $297
=========== === =========== === ========== ====
Unearned
Compensation
and
Additional Stockholders Deferred
Paid-In Notes Advertising Accumulated
Capital Receivable Cost Deficit Total
------- ---------- ---- ------- -----
Balance at January 1, 1998 ............... $ 43,181 $ (65) $ (32,621) $ 10,523
Issuance of common stock for cash ........ 1,664 1,667
Issuance of Series D convertible
preferred stock......................... 31,482 31,488
Issuance of Series E convertible
preferred stock......................... 32,089 32,095
Issuance of stock options to consultants
and directors........................... 147 $ (69) 78
Issuance of common stock in connection
with exercise of stock options.......... 47 47
Issuance of stock options in connection
with business transactions.............. 278 278
Officer loan receivable .................. (500) (500)
Issuance of options to NBC ............... 3,961 (3,961)
Net loss ................................. (43,654) (43,654)
-------- -------- ------- --------- ---------
Balance at December 31, 1998 112,849 (565) (4,030) (76,275) 32,022
Conversion of preferred stock ............ (126) --
Issuance of common stock in connection
with initial public offering, net....... 91,347 91,389
Issuance of common stock in connection
with secondary public offering, net..... 70,783 70,810
Issuance of common stock in connection
with business acquisitions.............. 172,886 172,925
Issuance of common stock and warrants
to NBC.................................. 19,965 (15,498) (4,483) --
Issuance of common stock in connection
with the exercise of stock options
and warrants............................ 965 968
Issuance of stock options to employees,
consultants and directors............... 2,618 (2,618) --
Deemed dividend .......................... 23,612 (23,612) --
Amortization of unearned compensation and
deferred advertising costs.............. 4,862 4,862
Repayment of stockholder note receivable . 3,875 3,875
Net loss ................................. (93,001) (93,001)
-------- -------- ------- --------- ---------
Balance at December 31, 1999 ............. 494,899 (12,188) (6,269) (192,888) 283,850
Additional costs in connection with
secondary public offering............... (451) (451)
Issuance of common stock in connection
with the exercise of stock options...... 897 898
Extension of stock option life ........... 413 413
Notes receivable due from stockholders in
connection with exercise of options..... (166) (166)
Amortization of unearned compensation and
deferred advertising costs.............. 3,044 3,044
Repayment of stockholders' notes
receivable............................. 5,206 5,206
Net loss ................................. (191,428) (191,428)
-------- -------- ------- --------- ---------
Balance at December 31, 2000 $495,758 $ (7,148) $(3,225) $(384,316) $ 101,366
======== ======== ======= ========= =========
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
iVILLAGE INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Year ended December 31,
--------------------------------
2000 1999 1998
--------- -------- --------
Cash flows from operating activities:
Net loss excluding preferred stock deemed dividend............................................ $(191,428) $(93,001) $(43,654)
Adjustments to reconcile net loss to net cash used in operating activities:
Loss from discontinued operations............................................................. 4,863 10,871 1,794
Loss on disposal of iBaby, Inc................................................................ 7,059 -- --
Expense recognized in connection with issuance of warrants and
stock options............................................................................... 3,457 4,862 256
Write-down of note receivable and investments................................................. 13,496 -- --
Impairment of goodwill........................................................................ 98,056 -- --
Depreciation and amortization................................................................. 37,681 25,720 5,500
Deferred rent................................................................................. (170) -- --
Bad debt expense.............................................................................. 277 500 855
Loss from affiliate........................................................................... 422 -- --
Loss on sale of Web site...................................................................... -- -- 504
Minority interest............................................................................. -- -- (587)
Changes in operating assets and liabilities:
Accounts receivable........................................................................... (1,521) (3,393) (1,833)
Restricted cash and other assets.............................................................. (9,633) (2,979) (310)
Accounts payable and accrued expenses......................................................... 4,396 (635) 4,758
Deferred revenue.............................................................................. (6,345) 9,583 1,906
Other liabilities............................................................................. -- (157) (170)
--------- -------- --------
Net cash used in operating activities of continuing operations................................. (39,390) (48,629) (30,981)
--------- -------- --------
Cash flows from investing activities:
Purchase of fixed assets...................................................................... (16,745) (3,922) (5,001)
Acquisitions of businesses and Web sites...................................................... -- (21,475) (1,040)
Investment in marketable and non-marketable securities........................................ (1,000) (7,500) --
Proceeds from sale of Web site................................................................ -- -- 600
--------- -------- --------
Net cash used in investing activities of continuing operations................................. (17,745) (32,897) (5,441)
--------- -------- --------
Cash flows from financing activities:
(Payments) proceeds from issuance of common stock, net........................................ (451) 162,199 227
Proceeds from issuance of convertible preferred stock, net.................................... -- -- 63,583
Proceeds from exercise of stock options....................................................... 730 968 --
Principal payments on capital leases.......................................................... -- (136) (250)
Principal payments on stockholders' note receivable........................................... 5,206 3,875 --
Issuance of stockholder note receivable....................................................... -- -- (500)
--------- -------- --------
Net cash provided by financing activities of continuing operations............................. 5,485 166,906 63,060
--------- -------- --------
Cash used in discontinued operations........................................................... (5,397) (10,195) (148)
Net (decrease) increase in cash for the period................................................. (57,047) 75,185 26,490
Cash and cash equivalents, beginning of period................................................. 106,010 30,825 4,335
--------- -------- --------
Cash and cash equivalents, end of period....................................................... $ 48,963 $106,010 $ 30,825
========= ======== ========
Cash paid during the period for interest....................................................... $ 78 $ 25 $ 37
========= ======== ========
Supplemental disclosure of non-cash investing and financing activities:
During 1998, iVillage recorded a liability of $1.0 million in connection
with a contingent payment to be provided to the prior owners of Health
ResponseAbility Systems, Inc.
During 1999, iVillage issued Series E convertible preferred stock in
exchange for a note (see Note 5).
During 1999, in connection with the Company's IPO, all preferred stock
was converted into common stock (see Notes 1 and 10).
During 1999, iVillage acquired several companies and a Web site domain
name through the issuance of stock (see Note 6).
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
iVILLAGE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 -- Organization and Basis of Presentation
iVillage Inc. was incorporated in the State of Delaware on June 8, 1995 and
commenced operations on July 1, 1995. iVillage is a media company, that
operates iVillage.com, Lamaze Publishing and the Newborn Channel. iVillage.com
is a leading women's online destination providing practical solutions and
everyday support for women 18 and over. Lamaze Publishing produces advertising
supported educational materials for expectant and new parents. The Newborn
Channel is a satellite television network in over 1,000 hospitals nationwide.
In March 1999, the Company completed an initial public offering ("IPO") of
4,197,500 shares of the Company's common stock resulting in net proceeds of
approximately $91.4 million. Upon closing of the IPO, all classes of
outstanding convertible preferred stock converted into common stock on a one
for one ratio.
In November 1999, the Company completed a secondary public offering of
2,700,000 shares of the Company's common stock resulting in net proceeds of
approximately $70.8 million.
The Company has sustained net losses and negative cash flows from operations
since its inception. The Company's ability to meet its obligations in the
ordinary course of business is dependent upon its ability to achieve
profitable operations and/or raise additional financing through public or
private equity financings, collaborative or other arrangements with corporate
sources, or other sources of financing to fund operations. However, there is
no assurance that the Company will achieve profitable operations or that it
will be able to raise adequate financing from other sources. Management
believes that its current funds will be sufficient to enable the Company to
meet its planned expenditures through at least December 31, 2001. If
anticipated operating results are not achieved, management has the intent and
believes it has the ability to delay or reduce expenditures so as not to
require additional financial resources, if such resources were not available
on terms acceptable to the Company.
The Company has a limited operating history and its prospects are subject to
the risks, expenses and uncertainties frequently encountered by companies in
the new and rapidly evolving markets for Internet products and services. These
risks include the failure to develop and extend the Company's online service
brands, the rejection of the Company's services by Web consumers, vendors,
sponsors and/or advertisers and the inability of the Company to maintain and
increase the levels of traffic on its online services, as well as other risks
and uncertainties. In the event the Company does not successfully implement
its business plan, certain assets may not be recoverable.
Note 2 -- Significant Accounting Policies and Procedures
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its subsidiaries. Intercompany balances and transactions have been
eliminated.
Revenue Recognition
To date, the Company's revenues have been derived primarily from the sale of
sponsorship and advertising contracts.
Sponsorship revenues are derived principally from contracts ranging from one
to three years. Sponsorships are designed to support the customer's broad
marketing objectives, including brand promotion, awareness, product
introductions and online research. Sponsorship agreements typically include
the delivery of impressions on iVillage's Web sites and occasionally the
design and development of customized sites that enhance the promotional
objectives of the sponsor. An impression is the viewing of promotional
material on a Web page, which may include banner advertisements, links,
buttons, or other text or images. As part of certain sponsorship agreements,
sponsors who also sell products may provide the Company with a commission on
sales of their products generated through iVillage's Web site. To date, these
amounts have not been significant.
F-7
iVILLAGE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Note 2 -- Significant Accounting Policies and Procedures--(Continued)
Advertising revenues are derived principally from short-term advertising
contracts in which the Company typically guarantees a minimum number of
impressions or pages to be delivered to users over a specified period of time
for a fixed fee.
Sponsorship and advertising revenues are recognized ratably over the period
in which the advertisement is displayed, provided that the Company has no
continuing obligations and collection of the receivable is reasonably assured,
at the lesser of the ratio of impressions delivered over total guaranteed
impressions or the straight-line basis over the term of the contract. To the
extent that minimum guaranteed impressions are not met, iVillage defers
recognition of the corresponding revenues until the guaranteed impressions are
achieved. Sponsorship and advertising revenues were approximately 92%, 95% and
100% of total revenues for the years ended December 31, 2000, 1999 and 1998,
respectively.
Included in sponsorship and advertising revenues are revenues from
advertising placements in Lamaze Publishing's publications, videos, websites
and satellite broadcasts on the Newborn Channel. In addition, revenues are
generated through a sampling and coupon program which offers advertisers the
ability to distribute samples, coupons and promotional literature to new and
expectant mothers.
Sponsorship and advertising revenues also include barter revenues, which
represent exchanges by the Company of advertising space on the Company's Web
sites for reciprocal advertising space or traffic on other Web sites. Revenues
and expenses from these barter transactions are recorded based upon the fair
value of the advertisements delivered. Fair value of advertisements delivered
is based upon the Company's recent historical practice of receiving cash for
similar advertisements. Barter revenues are recognized when the advertisements
are displayed on iVillage.com and its affiliated properties. Barter expenses
are recognized at the value of advertisements received when the Company's
advertisements are displayed on the reciprocal Web sites or properties, which
is typically in the same period as when advertisements are displayed on
iVillage.com and its affiliated properties, and are included as part of sales
and marketing expenses. Revenues from barter transactions were approximately
$3.6 million, $3.3 million, and $3.0 million for the years ended December 31,
2000, 1999 and 1998, respectively.
Other revenue primarily includes licensing revenue. The Company receives
revenue from the licensing of portions of the Company's content, and such fees
are recognized on a straight-line basis over the term of the contract.
In 2000, 1999, and 1998, respectively, revenues from the Company's five
largest advertisers accounted for approximately 23%, 20%, and 20% of total
revenues, however, no one advertiser accounted for greater than 10% of total
revenues. At December 31, 2000 and 1998, one customer accounted for
approximately 11% of the net accounts receivable. At December 31, 1999, no
customer accounted for greater than 10% of the net accounts receivable.
Cash and Cash Equivalents
Cash and cash equivalents include money market accounts. The Company
maintains its cash and cash equivalents in highly rated financial
institutions.
Restricted Cash
At December 31, 1999, restricted cash includes money held in an escrow
account for advertising expenses. This money was used in 2000. At December
31, 2000, restricted cash includes money held for a letter of credit securing
a real estate lease for the Company's office space.
F-8
iVILLAGE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Note 2 -- Significant Accounting Policies and Procedures--(Continued)
Fair Value of Financial Instruments
The carrying amounts of the Company's financial instruments, including cash
and cash equivalents, restricted cash, accounts receivable, accounts payable
and accrued liabilities, approximate fair value because of their short
maturities.
Inventory
Inventory was stated at the lower of cost (first-in, first-out method) or
market. Inventory consisted of finished goods for sale through the iBaby
website.
Fixed Assets
Depreciation of equipment, furniture and fixtures, and computer software is
provided for by the straight-line method over their estimated useful lives
ranging from three to five years. Amortization of leasehold improvements is
provided for over the lesser of the term of the related lease or the estimated
useful life of the improvement. The cost of additions, and expenditures which
extend the useful lives of existing assets are capitalized, and repairs and
maintenance costs are charged to operations as incurred. The Company
continually evaluates whether current events or circumstances warrant
adjustments to the carrying value or estimated useful lives of fixed assets
and intangible assets in accordance with the provisions of Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets."
Goodwill and Intangible Assets
Goodwill and intangible assets consist primarily of an advertiser list and
the excess of the purchase price paid over the identified intangible and
tangible net assets of acquired companies. Goodwill and intangible assets are
amortized using the straight-line method over the period of expected benefit
ranging from three to ten years. The Company assesses the recoverability of
its goodwill and intangible assets by determining whether the unamortized
balance over its remaining life can be recovered through forecasted cash
flows. If undiscounted forecasted cash flows indicate that the unamortized
amounts will not be recovered, an adjustment will be made to reduce the net
amounts to an amount consistent with forecasted future cash flows discounted
at a rate commensurate with the risk associated when estimating future
discounted cash flows. Future cash flows are based on trends of historical
performance and management's estimate of future performance, giving
consideration to existing and anticipated competitive and economic conditions.
Investments
The Company entered into certain equity investments for the promotion of
business and strategic purposes. Management determined the appropriate
classification of its investments in marketable securities at the time of
purchase and evaluates such investments at each balance sheet date. These
investments are included in other assets in the consolidated balance sheet.
The Company's marketable investments are classified as available-for-sale as
of the balance sheet date and are carried at fair value, with the unrealized
gains and losses, net of tax, reported as a separate component of
stockholders' equity until realized. Non-marketable investments are recorded
at the lower of cost or fair value. For all investment securities, unrealized
losses that are determined to be other than temporary are recognized in
calculating net income or loss.
Included in the caption write-down of note receivable and investments in the
consolidated statements of operations are approximately $8.4 million of losses
recognized for the write down of the Company's marketable and non-marketable
investments whose decline in value was determined to be other than temporary.
(See PlanetRx below.)
F-9
iVILLAGE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Note 2 -- Significant Accounting Policies and Procedures--(Continued)
PlanetRx
In September 1999, iVillage paid approximately $7.5 million to PlanetRx.com
for 371,103 shares of series D preferred stock of PlanetRx.com, which was
converted into the same number of shares of PlanetRx.com common stock upon the
closing of PlanetRx.com's initial public offering in October 1999. At June 30,
2000, the investment in PlanetRx.com was written down approximately $7.1
million, and at December 31, 2000 the investment was further written down
approximately $0.3 million, to its estimated fair market value due to a
decline in value deemed to be other than temporary.
Additionally, in September 1999 iVillage entered into a content license
agreement with PlanetRx.com for $7.5 million and a multi-year sponsorship
agreement for $15.0 million. In June 2000, the Company's Sponsorship Agreement
with PlanetRx.com was amended to reduce the aggregate value of the agreement
to approximately $9.3 million, as well as reduce iVillage's obligations
thereunder. In September 2000, the Company's Sponsorship Agreement with
PlanetRx.com was further amended to reduce the aggregate value of the
agreement to approximately $4.0 million and further reduce iVillage's
obligations thereunder, and terminate the agreement as of December 31, 2000.
Advertising Costs
Advertising costs are expensed as incurred and are included in the sales and
marketing lines in the accompanying consolidated statements of operations.
Advertising costs included in sales and marketing were approximately $19.1
million, $40.4 million, and $3.5 million for the years ended December 31,
2000, 1999, and 1998, respectively. At December 31, 2000 and 1999
approximately $0.3 million and $0.5 million of advertising costs were prepaid,
respectively.
Web Site Development Costs
During 2000, the Company adopted the consensus in the Financial Accounting
Standards Board Emerging Issues Task Force (EITF) Issue No. 00-2, Accounting
for Web Site Development Costs, which requires that certain costs to develop
Web sites be capitalized or expensed, depending on the nature of the costs.
During 2000, no development expenses were capitalized.
Income Taxes
The Company recognizes deferred taxes by the asset and liability method of
accounting for income taxes. Under the asset and liability method, deferred
income taxes are recognized for differences between the financial statement
and tax bases of assets and liabilities at enacted statutory tax rates in
effect for the years in which the differences are expected to reverse. The
effect on deferred taxes of a change in tax rates is recognized in income in
the period that includes the enactment date. In addition, valuation allowances
are established when necessary to reduce deferred tax assets to the amounts
expected to be realized.
Reclassifications
Within the consolidated statements of operations, the Company has made
certain reclassifications to the prior year's expense amounts to conform to
the presentation in 2000. None of the reclassifications impacted the Company's
net loss or net loss per share attributable to common stockholders in any
period. The reclassifications include the allocation of facility expenses from
general and administrative expense to cost of revenues, product development
and technology, and sales and marketing, and to present the operating results
of iBaby, Inc. as a discontinued operation.
F-10
iVILLAGE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Note 2 -- Significant Accounting Policies and Procedures--(Continued)
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amount of assets and liabilities,
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from these estimates.
Significant estimates made by the Company include the write-down of marketable
and non-marketable investments, the useful lives of fixed assets and the
recoverability of fixed assets, goodwill, intangibles and deferred tax assets.
Net Loss Per Share
Basic earnings per share is computed using the weighted-average number of
common shares outstanding during the period. Diluted earnings per share is
computed using the weighted-average number of common and common stock
equivalent shares outstanding during the period. Common stock equivalent
shares are excluded from the computation if their effect is antidilutive.
Stock options and warrants in the amount of 7,365,760, 5,901,637 and
2,690,263 shares for the years ended December 31, 2000, 1999 and 1998,
respectively, were not included in the computation of diluted earnings per
share as they are anti-dilutive as a result of net losses during the periods
presented.
Comprehensive Income
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income"
("SFAS No. 130"). This statement requires companies to classify items of other
comprehensive income by their nature in the financial statements and display
the accumulated balance of other comprehensive income separately from retained
earnings and additional paid-in capital in the equity section of a statement
of financial position. The Company has had no other comprehensive income items
to report.
Recent Accounting Pronouncements
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivatives and
Hedging Activities" ("SFAS No. 133"), which establishes accounting and
reporting standards for derivative instruments and hedging activities. The
effective date of this standard was deferred to all fiscal quarters of fiscal
years beginning after June 15, 2000 by SFAS No. 137, "Accounting for
Derivative Instruments and Hedging Activities - Deferral of the Effective Date
of FASB Statement No. 133," which was issued on June 30, 1999. The Company
does not expect the adoption of this statement to have a significant impact on
the Company's results of operations, financial position or cash flows.
In December 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial
Statements" ("SAB 101"). SAB 101 summarizes certain of the SEC's views in
applying generally accepted accounting principles to revenue recognition in
financial statements. SAB 101 is not a rule or interpretation of the SEC,
however, it represents interpretations and practices followed by the Division
of Corporation Finance and the Office of the Chief Accountant in administering
the disclosure requirements of the Federal securities laws. SAB 101 did not
have an impact on the Company's revenue recognition policies.
In March 2000, the Financial Accounting Standards Board issued FASB
Interpretation No. 44 ("FIN 44"), "Accounting for Certain Transactions
Involving Stock Compensation an Interpretation of APB 25." FIN 44 became
effective July 1, 2000, but certain conclusions cover specific events that
occur after either December 15, 1998 or January 12, 2000. The adoption of FIN
44 did not have a material effect on the Company's financial position or
results of operations.
F-11
iVILLAGE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Note 3 -- Fixed Assets
Fixed assets consist of the following:
December 31,
------------------
2000 1999
-------- -------
(in thousands)
Computer equipment ....................................... $ 13,367 $10,770
Capitalized software ..................................... 3,707 3,354
Hospital video equipment ................................. 2,678 2,089
Leasehold improvements ................................... 11,598 1,800
Furniture and fixtures ................................... 3,506 1,559
-------- -------
34,856 19,572
Less, accumulated depreciation and amortization .......... (14,799) (9,555)
-------- -------
$ 20,057 $10,017
======== =======
Depreciation and amortization of fixed assets from continuing operations was
approximately $5.5 million, $4.7 million and $2.6 million for the years ended
December 31, 2000, 1999 and 1998, respectively.
Note 4 -- Goodwill and Intangible Assets
Goodwill and intangible assets at December 31, 2000 and 1999, consist of the
following:
Lives 2000 1999
-------- -------- --------
(in thousands)
Advertiser list........................... 10 years $ 14,700 $ 14,700
Licensing agreement....................... 10 years 2,900 2,900
Workforce................................. 5 years 800 800
Content................................... 3 years 600 600
Goodwill.................................. 3 years 53,145 100,824
Goodwill.................................. 10 years 21,736 83,751
-------- --------
93,881 203,575
Less accumulated amortization............. (57,449) (28,432)
-------- --------
$ 36,432 $175,143
======== ========
The decrease in goodwill assets during 2000 was due primarily to the
discontinuation of iBaby, Inc. operations (See note 6), and a charge of
approximately $98.1 million, for the impairment of goodwill relating to
certain 1999 acquisitions. The approximately $98.1 million charge consists of
the following: OnLine Psychological Services, Inc. and Code Stone
Technologies, Inc. - $17.7 million, Lamaze Publishing - $62.0 million, and
Family Point Inc. - $18.4 million. The remaining goodwill from the
acquisitions of Astrology.Net and Lamaze Publishing will be fully amortized in
February 2002 and August 2009, respectively.
This non-cash charge represents the difference between the historical book
value of the goodwill and the discounted estimated future cash flows expected
from the related operations. The discounted future cash flows were determined
using the best available estimates. iVillage estimated future cash flows based
upon historical results, current projections and internal earnings targets, as
well as business trends, prospects and market and economic conditions. The
projected future cash flows were then discounted at a rate of 20%
corresponding to iVillage's estimated cost of capital. Considerable
management judgment is necessary to estimate discounted future cash flows.
Accordingly, actual results could vary from such estimates. Yearly
amortization of the impaired goodwill was approximately $26.6 million.
F-12
iVILLAGE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Note 4 -- Goodwill and Intangible Assets--(Continued)
Amortization expense for goodwill and intangible assets from continuing
operations for the years ended December 31, 2000, 1999 and 1998 was
approximately $32.2 million, $21.0 million and $2.9 million, respectively.
Note 5 -- Related-Party Transactions
AOL
In July 1997, iVillage entered into an interactive services agreement with
AOL whereby the Company received anchor tenant distribution within the AOL
service. This agreement superseded any prior agreements between the Company
and AOL. The AOL Agreement, which was due to expire on February 28, 1999,
provided both parties with the right to extend the agreement. In consideration
for AOL carrying certain channels of the Company, the Company receiving
guaranteed impressions and other services, the Company was obligated to pay
AOL monthly payments of approximately $229,000 until September 1, 1998 and
approximately $201,000 thereafter until February 28, 1999, make certain
additional payments based on revenues and provide in-kind commitments to AOL
which primarily consisted of the mentioning of "AOL Keyword: iVillage" within
iVillage advertisements and other promotions. These in-kind commitments were
not valued as part of the obligation to AOL as no incremental costs were
incurred and fair value could not be reasonably determined.
In January 1998, iVillage entered into a shopping channel promotional
agreement with AOL (the "Shopping Channel Agreement"), whereby AOL agreed to
promote iVillage and its services on the AOL shopping channel and provide
access to iVillage's online sites. The Shopping Channel Agreement provided for
monthly installments of $10,417 paid to AOL through December 31, 1998. The
Shopping Channel Agreement was amended in October 1998, at which time the
monthly payment increased to approximately $10,833 and the agreement was
extended to October 1999.
On December 31, 1998, the Company entered into an interactive services
agreement with AOL (the "1998 AOL Agreement"), which superseded the 1997 AOL
Agreement. The 1998 AOL Agreement expired on December 31, 2000 and allowed
both parties to extend the term of the agreement for an additional year. The
1998 AOL Agreement provided for the Company to receive anchor tenant
distribution on certain AOL channels, guaranteed impressions, and other
services. In consideration for such services the Company was obligated to (i)
pay AOL minimum quarterly payments of approximately $921,000 until March 31,
1999, approximately $611,000 from April 1, 1999 through December 31, 1999 and
approximately $807,000 from January 1, 2000 through December 31, 2000, and
(ii) provide up to $2 million of advertising to AOL, as defined in the 1998
AOL Agreement. At December 31, 2000 and 1999 no amounts were owed to AOL in
connection with the 1998 AOL Agreement. Subsequent to December 31, 2000, the
Company has extended the 1998 AOL Agreement on a month-to-month basis for a
monthly fee of $268,908 and is currently in negotiations with AOL to amend the
1998 AOL Agreement.
On February 20, 2000, the Company executed an addendum to the 1998 AOL
Agreement (the "Astrology AOL Agreement"), under which AOL will distribute
through the AOL network a customized version of the Company's Astrology.Net
Website and content, and provide guaranteed impressions, and other services.
In consideration for such services the Company is obligated to (i) pay AOL
monthly installments of $22,500 until June 6, 2000, an upfront payment of
$700,000 in June 2000, and (6) six quarterly installments of $350,000
commencing on September 6, 2000. The Astrology AOL Agreement expires on June
5, 2002. At December 31, 2000, no amounts were owed to AOL in connection with
the Astrology AOL Agreement, however, the Company recorded a prepaid expense
of approximately $583,000 as a result of advance payments.
The Company estimates that a significant portion of its traffic is derived
from AOL and if the financial condition and operations of AOL were to
deteriorate significantly, or if the traffic to the Company's site
F-13
iVILLAGE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Note 5 -- Related-Party Transactions--(Continued)
generated by AOL were to substantially decrease, the Company's advertising
revenues could be adversely affected.
NBC
During 1998, as amended in March 1999, the Company entered into a stock
purchase agreement with NBC pursuant to which iVillage issued shares of Series
E Convertible Preferred Stock ("Series E") and warrants to purchase 970,874
shares of Series E and 813,003 shares of Series E during 2000 and 2001,
respectively, in exchange for a promissory note of approximately $15.5
million. The note, which bears interest at the rate of 5% per annum, is
payable in twelve installments of approximately $1.4 million, payable
quarterly, beginning April 1, 1999. In connection with the IPO and the reverse
stock split, the shares of Series E and Series E warrants were converted into
1,629,676 shares of common stock and warrants to purchase 323,625 shares of
common stock at $15.45 per share and 271,003 shares of common stock at $18.45
per share, respectively.
In addition, iVillage agreed to purchase, for cash, $13.5 million of
advertising and promotional spots during 1999 and $8.5 million per annum
during 2000 and 2001, respectively. iVillage also agreed to pay $1.1 million
during 1999 for prominent placement on the NBC.com Web site. During 2000 and
1999, approximately $4.8 million and $13.9 million was paid to NBC,
respectively. (See Note 13)
Under the revised agreement and in accordance with EITF D-60, "Accounting
for the Issuance of Convertible Preferred Stock and Debt Securities with a
Non-detachable Conversion Feature," the $23.6 million difference between the
purchase price of the Series E and the fair market value on the date of
issuance has been accounted for as a deemed dividend and amortized using the
effective interest method from the date of issuance through the date the
Company completed its IPO (the date of conversion into common stock). In
addition, the fair value of the warrants of approximately $8.4 million, was
recorded in stockholders' equity as deferred advertising costs and is being
amortized over the three-year advertising agreement. The fair value of the
warrants was determined using the Black-Scholes option pricing model.
Other Related Parties
In July 1997, iVillage entered into a one-year agreement with Tenet
Healthcare Corporation ("Tenet"), a stockholder, whereby Tenet was a sponsor
of one of iVillage's channels and developed content for use on the channel in
exchange for a fee paid in quarterly installments. For the year ended December
31, 1998, this agreement generated revenues of approximately $247,000.
During 1999 and 1998, the Company had sponsorship and advertising agreements
with Intel Corp., a stockholder, which generated revenues of approximately
$268,000 and $130,000, respectively. As of December 31, 1999, the Company was
owed approximately $38,000 from this stockholder.
In November 1998, iVillage entered into a one-year content distribution
agreement with Cox Interactive Media ("Cox"), a stockholder, whereby iVillage
agreed to provide content for Cox's Web sites in return for displaying the
iVillage logo on the Cox Web sites and establishing links on the Cox Web sites
to iVillage's network.
Officer Loan Receivable
In June 1998, the Company accepted a non-recourse promissory note in the
principal amount of $500,000 (the "Note") from its then chief executive
officer ("CEO"). The Note is collateralized by 20,000 shares of the Company's
common stock which is held by the Company. Interest is payable annually on
December 31 of each year, commencing December 31, 1998, at the rate of 5.58%.
During 2000, the maturity date of the outstanding principal balance on the
Note was extended to December 31, 2002, from the initial maturity date of June
5, 2001. As of December 31, 2000 and 1999, the former CEO has borrowed
$500,000
F-14
iVILLAGE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Note 5 -- Related-Party Transactions--(Continued)
under the note, which is recorded as a stockholder note receivable and
classified as a reduction of equity. Payments received in 1999 for interest
totaled $12,400. Subsequent to December 31, 2000, the Company received an
interest payment for $27,900.
Note 6 -- Business Acquisitions and Dispositions
StudentCenter
In September 1997, the Company acquired substantially all of the assets of
StudentCenter LLC ("StudentCenter"), an Internet content provider, for
approximately $208,000. In May 1998, the Company sold the assets of
StudentCenter as part of the sale of About Work.
About Work
In May 1998, the Company sold About Work, one of the Company's channels, as
well as the assets of StudentCenter, to TMP Worldwide Inc. ("TMP") in exchange
for net proceeds of $600,000. In connection with the sale of About Work, the
Company paid the former owners of StudentCenter $520,000 and issued options to
purchase 33,333 shares at $5.10 per share as settlement of certain revenue-
based and other bonus payments. The options were valued at approximately
$100,000. In addition, the Company accrued a cost of $340,000 in connection
with AOL carriage fees to be paid on behalf of TMP for About Work. The Company
recorded a loss of approximately $504,000 on this sale. An additional $575,000
was received in exchange for production, sponsorship and consulting services
provided to TMP during 1998.
iBaby
In April 1998, the Company entered into a joint venture agreement (the
"iBaby Agreement") with Ourbaby, LLC, a California limited liability company,
to form iBaby, Inc., a Delaware corporation ("iBaby"). The Company purchased
1,000,000 shares of iBaby for approximately $1.35 million and for the delivery
of certain promotional rights, including impressions on the iVillage web site.
In connection with the acquisition, the Company recorded approximately
$500,000 of goodwill to be amortized over a period of three years.
In March 1999, the Company purchased the remaining outstanding shares of
iBaby pursuant to a Rights Agreement dated as of April 8, 1998 and as
subsequently amended on February 10, 1999. The aggregate purchase price of
$10.8 million consisted of (i) $8 million in cash, of which $1.5 million was
paid on February 12, 1999 and $6.5 million was paid on March 25, 1999 and (ii)
125,448 shares of the Company's common stock. The difference between the
purchase price and the fair value of the acquired minority interest in iBaby
was recorded as goodwill and was being amortized over the period of expected
benefit, which was estimated at three years.
The cost of this acquisition was allocated to the assets acquired and
liabilities assumed based upon their estimated fair values as follows (in
thousands):
Working capital ............................................... $ (453)
Fixed assets .................................................. 399
Goodwill ...................................................... 11,064
-------
$11,010
=======
In June 2000, the Company decided to discontinue the operations of iBaby,
Inc. The company recorded a loss on disposal of approximately $7.1 million,
which includes a loss on sale of assets of approximately $3.6 million and an
estimated loss from operations during the phase - out period of approximately
$3.4 million. Results of these operations have been classified as discontinued
operations and all prior period results have been reclassified.
F-15
iVILLAGE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Note 6 -- Business Acquisitions and Dispositions--(Continued)
In July 2000, the Company sold certain assets of iBaby, Inc. to
Babygear.com, Inc. Under the Asset Purchase Agreement dated July 6, 2000, the
Company received a convertible promissory note of approximately $9.7 million.
Pursuant to the terms of the Asset Purchase Agreement, in October 2000 the
note was converted into 890,198 shares of Babygear.com Series C Convertible
Preferred Stock. Subsequent to the conversion of the note, Babygear.com filed
for bankruptcy.
In calculating the loss on sale of assets, the Company valued the note at
$5.1 million as of June 30, 2000, due to uncertainties surrounding the
recoverability of the convertible note. At September 30, 2000, the convertible
note was fully reserved due to uncertainties surrounding Babygear.com's
ability to sustain their operations, and is included in the caption write-down
of note receivable and investments in the consolidated statements of
operations.
The loss on sale of assets was calculated as follows (in thousands):
Estimated value of convertible promissory note....................... $ 5,100
Inventory............................................................ (1,707)
Fixed assets, net.................................................... (780)
Goodwill, net........................................................ (6,231)
-------
Loss on sale of iBaby, Inc. assets................................... $(3,618)
=======
Net revenue and loss from discontinued operations are as follows (in
thousands):
2000 1999 1998
-------- -------- -------
Net revenue ................................... $ 4,891 $ 7,986 $ 2,561
-------- -------- -------
Loss from discontinued operations, including
loss on disposal ............................. $(11,922) $(10,871) $(1,794)
======== ======== =======
Net current liabilities of discontinued operations as of December 31, 2000
are as follows (in thousands):
Other current assets................................................... $ 6
Accounts payable and accrued expenses.................................. (888)
-----
Net current liabilities of discontinued operations..................... $(882)
=====
Non-current assets of discontinued operations as of December 31, 2000 are as
follows (in thousands):
Other assets............................................................ $ 56
----
Non-current assets of discontinued operations........................... $ 56
====
The net assets of iBaby, Inc. as of December 31, 1999 are as follows (in
thousands):
Inventory............................................................ $ 2,332
Other current assets................................................. 657
Fixed assets, net.................................................... 1,313
Goodwill, net........................................................ 8,118
Other assets......................................................... 56
Accounts payable and accrued expenses................................ (1,662)
-------
Net assets of iBaby, Inc............................................. $10,814
=======
F-16
iVILLAGE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Note 6 -- Business Acquisitions and Dispositions--(Continued)
Astrology.Net
On February 18, 1999, iVillage acquired all of the outstanding stock of
KnowledgeWeb, Inc. d/b/a Astrology.Net, an Internet content provider, in
exchange for 802,125 shares of iVillage common stock and approximately $1.2
million in cash. The acquisition was accounted for using the purchase method
of accounting, with a purchase price of approximately $21.0 million based on
the $24.00 initial public offering price of iVillage's common stock and an
estimate for the value of Astrology.Net options assumed by iVillage. The
difference between the purchase price and the fair value of the acquired net
assets of Astrology.Net was recorded as goodwill and is being amortized over
the period of expected benefit, which is estimated to be three years.
Of the 802,125 shares of common stock, (i) 326,331 shares were issued at the
closing, (ii) 75,000 shares were issued into escrow for 18 months to cover
possible indemnification claims, and (iii) the remaining 400,794 shares were
issued subject to earnout restrictions over five years.
The first 75,000 shares to be released under the earnout will be placed into
the indemnification escrow. The earnout shares will be released as
Astrology.Net meets certain revenue targets during the three years following
closing. Any earnout shares not released during the first three years will be
released five years from closing. Through December 31, 2000 and 1999, 400,794
earnout shares and 150,592 earnout shares have been released, respectively. In
addition, all outstanding options to purchase Astrology.Net common stock were
converted into options to purchase 31,208 shares of iVillage common stock. The
Agreement provides for employment, non-compete and stock option agreements for
the founding stockholders of Astrology.Net.
iVillage also issued to the founding stockholders of Astrology.Net options
to purchase 150,000 shares of iVillage common stock at an exercise price equal
to $24.00 per share. These options are contingent on continued employment with
Astrology.Net and vest over a period of seven years, with accelerated vesting
dependent on Astrology.Net meeting certain revenue targets.
The cost of the acquisition was allocated to the assets acquired and
liabilities assumed based upon their estimated fair values as follows (in
thousands):
Working capital ...................................................... $ (158)
Fixed assets ......................................................... 145
Goodwill ............................................................. 21,042
-------
$21,029
=======
OnLine Psych and Code Stone
On June 30, 1999, iVillage acquired OnLine Psychological Services, Inc.
("OnLine Psych") and Code Stone Technologies, Inc. OnLine Psych operates a Web
site focusing on mental health issues while Code Stone provides much of the
interactive technology used on OnLine Psych's Web site.
The aggregate purchase price was approximately $30.0 million, consisting of
$1.5 million cash and approximately 577,000 shares of iVillage common stock,
valued under the purchase method of accounting. The cost of the acquisition
was allocated primarily to goodwill and is being amortized over the period of
expected benefit, which is estimated to be three years. (See Note 4)
iVillage also issued options to purchase shares of iVillage common stock to
certain employees of OnLine Psych. The options, which are contingent upon
continued employment with OnLine Psych, vest over a period of seven years,
with accelerated vesting dependent on OnLine Psych meeting certain revenue and
other performance targets.
F-17
iVILLAGE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Note 6 -- Business Acquisitions and Dispositions--(Continued)
Lamaze Publishing
On August 20, 1999, iVillage acquired all the outstanding stock of Lamaze
Publishing, a multimedia provider of education information to expectant and
new mothers. The aggregate purchase price consisted of approximately 1,750,000
shares of the Company's common stock, subject to certain adjustments, and
approximately $5.0 million to repay outstanding debt. The difference between
the aggregate purchase price of approximately $102.3 million and the fair
value of the acquired net assets of Lamaze Publishing has been recorded as
intangible assets and goodwill and is being amortized over the period of
expected benefit, which is estimated to be ten years. (See Note 4)
The cost of the acquisition was allocated to the assets acquired and
liabilities assumed based upon their estimated fair values as follows (in
thousands):
Working capital ..................................................... $ (2,377)
Fixed assets ........................................................ 1,975
Advertiser list ..................................................... 14,700
Licensing agreement ................................................. 2,900
Workforce ........................................................... 800
Content ............................................................. 600
Goodwill ............................................................ 83,751
--------
$102,349
========
Family Point Inc.
On August 31, 1999, iVillage acquired all of the outstanding stock of Family
Point Inc., the operator of a leading online meeting place for families,
friends and groups. The aggregate purchase price paid was approximately $24.4
million and consisted of $3.75 million cash and approximately 511,000 shares
of the Company's common stock. The difference between the purchase price and
the fair value of the acquired net assets of Family Point Inc. has been
recorded as goodwill and is being amortized over the period of expected
benefit, which is estimated to be three years. (See Note 4)
In October 1999, iVillage paid $4.5 million, consisting of approximately
$750,000 cash and approximately 101,000 shares of iVillage common stock, to
the former stockholders of Family Point as a purchase price adjustment
pursuant to the acquisition agreement based on Family Point's satisfaction of
certain performance thresholds.
The cost of the acquisition was allocated to the assets acquired and
liabilities assumed based upon their estimated fair values as follows (in
thousands):
Working capital ...................................................... $ (470)
Fixed assets ......................................................... 485
Goodwill ............................................................. 28,894
-------
$28,909
=======
The accompanying unaudited pro forma summary presents consolidated results
of operations for all of the acquisitions of the Company during 1999 discussed
above as if they had occurred on January 1, 1999. The pro forma information
does not necessarily reflect the actual results that would have been achieved,
nor is it necessarily indicative of future consolidated results of the
Company.
F-18
iVILLAGE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Note 6 -- Business Acquisitions and Dispositions--(Continued)
1999
-------------------------
(in thousands, except per
share data)
Revenues ........................................... $ 53,409
=========
Net loss ........................................... $(137,685)
=========
Net loss per share ................................. $ (5.72)
=========
Note 7 -- Detail of Certain Balance Sheet Accounts
2000 1999
------- -------
(in thousands)
Other current assets:
Prepaid expenses........................................ $ 3,179 $ 2,487
Reimbursement of certain construction costs............. 5,349 --
Prepaid advertising..................................... 250 514
Due from affiliate...................................... 565 --
Other................................................... 357 192
------- -------
$ 9,700 $ 3,193
======= =======
Accounts payable and accrued expenses:
Accounts payable........................................ $ 4,754 $ 5,231
Sales commissions, payroll and related benefits......... 7,305 6,142
Advertising expenses.................................... 1,362 861
Professional fees....................................... 1,144 655
Due to affiliates....................................... 899 --
Other................................................... 3,231 3,327
------- -------
$18,695 $16,216
======= =======
Note 8 -- Stock Option Plans
1995 Amended And Restated Employee Stock Option Plan
In 1995, iVillage's Board of Directors and stockholders adopted the
Company's 1995 Amended and Restated Employee Stock Option Plan (the "ESOP"),
which was amended in May 1997. The ESOP provides for the granting, at the
discretion of the Stock Option Committee of the board of directors (the
"SOC"), of: (i) options that are intended to qualify as incentive stock
options, within the meaning of Section 422 of the Internal Revenue Code of
1986 (the "Code"), as amended, to employees and (ii) options not intended to
so qualify to employees, officers, consultants and directors. The total number
of shares of common stock for which options may be granted under the ESOP is
1,802,549.
The exercise price of all stock options granted under the ESOP is determined
by the SOC at the time of grant. The maximum term of each option granted under
the ESOP is 10 years from the date of grant. Options shall become exercisable
at such times and in such installments as the SOC shall provide in the terms
of each individual option.
The exercise price of all of the options under the ESOP ranges from $2.48-
$72.92, and is determined based upon the fair market value of iVillage's
common stock on the date of grant. Generally, the options vest 25% after one
year, and then 0.0625% quarterly thereafter, unless the employee has over one
year of continuing service with iVillage, in which case, the options will vest
0.0625% every three months, and expire 5-10 years from the date of grant.
F-19
iVILLAGE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Note 8 -- Stock Option Plans--(Continued)
As of December 31, 2000, there were 558,193 shares available for future
grants under the ESOP.
1997 Amended and Restated Acquisition Stock Option Plan
In May 1997, the Company's Board of Directors and stockholders adopted the
Company's 1997 Amended and Restated Acquisition Stock Option Plan (the
"ASOP"). The ASOP provides for the granting, at the discretion of the SOC, of:
(i) options that are intended to qualify as incentive stock options, within
the meaning of Section 422 of the Code, as amended, to directors who are
employees of the Company or any of its subsidiaries, or as part of one or more
of such acquisitions and (ii) options not intended to so qualify to employees,
officers, consultants and directors of the Company, or as part of one or more
of such acquisitions. The total number of shares of common stock for which
options may be granted under the ASOP is 360,726.
The exercise price of all stock options granted under the ASOP is determined
by the SOC at the time of grant. The maximum term of each option granted under
the ASOP is 10 years from the date of grant. Options shall become exercisable
at such times and in such installments as the SOC shall provide in the terms
of each individual option.
Generally, the options vest 25% after one year, and then 0.0625% quarterly
thereafter, unless the employee has over one year of continuing service with
iVillage, in which case, the options will vest 0.0625% every three months, and
expire 7-10 years from the date of grant. The exercise price of all of the
options under the ASOP ranges from $1.76 to $6.00, and is determined based
upon the fair market value of the Company's common stock on the date of grant.
As of December 31, 2000, no shares were available for future grants under
the ASOP.
1999 Employee Stock Option Plan
In 1999, iVillage's Board of Directors and stockholders adopted the
Company's Amended and Restated 1999 Employee Stock Option Plan (the "1999
ESOP"). The 1999 ESOP provides for the granting, at the discretion of the SOC,
of: (i) options that are intended to qualify as incentive stock options,
within the meaning of Section 422 of the Code, as amended, to employees and
(ii) options not intended to so qualify to employees, officers, consultants,
and directors. The total number of shares of common stock for which options
may be granted under the 1999 ESOP is 2,840,163.
The exercise price of all stock options granted under the 1999 ESOP is
determined by the SOC at the time of grant. The maximum term of each option
granted under the 1999 ESOP is 10 years from the date of grant. Options shall
become exercisable at such times and in such installments as the SOC shall
provide in the terms of each individual option.
The exercise price of all of the options under the 1999 ESOP ranges from
$3.94-$113.75, and is determined based upon the fair market value of
iVillage's common stock on the date of grant. Generally, the options vest 25%
after one year, and then 0.0625% quarterly thereafter, unless the employee has
over one year of continuing service with iVillage, in which case, the options
will vest 0.0625% every three months, and expire 5-10 years from the date of
grant.
As of December 31, 2000, there were 1,211,517 shares available for future
grants under the 1999 ESOP.
1999 Acquisition Stock Option Plan
In 1999, the Company's Board of Directors and stockholders adopted the
Company's 1999 Acquisition Stock Option Plan (the "1999 ASOP"). The 1999 ASOP
provides for the granting, at the discretion of the SOC, of: (i) options that
are intended to qualify as incentive stock options, within the meaning of
Section 422 of the Code, as amended, to employees of the Company or any of its
subsidiaries, or as part of one or more of such acquisitions and (ii) options
not intended to so qualify to employees, officers, consultants, and
F-20
iVILLAGE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Note 8 -- Stock Option Plans--(Continued)
directors of the Company, or as part of one or more of such acquisitions. The
total number of shares of common stock for which options may be granted under
the 1999 ASOP is 333,333.
The exercise price of all stock options granted under the 1999 ASOP is
determined by the SOC at the time of grant. The maximum term of each option
granted under the 1999 ASOP is 10 years from the date of grant. Options shall
become exercisable at such times and in such installments as the SOC shall
provide in the terms of each individual option.
Generally, the options vest 25% after one year, and then 0.0625% quarterly
thereafter, unless the employee has over one year of continuing service with
iVillage, in which case, the options will vest 0.0625% every three months, and
expire 7-10 years from the date of grant The exercise price of all of the
options under the 1999 ASOP ranges from $5.10-$50.25, and is determined based
upon the fair market value of iVillage's common stock on the date of grant.
As of December 31, 2000, there were 79,592 shares available for future
grants under the 1999 ASOP.
1999 Non-Qualified Stock Option Plan
In 1999, iVillage's Board of Directors adopted the Company's 1999 Non-
Qualified Stock Option Plan (the "NQSOP"). The NQSOP provides for the
granting, at the discretion of the SOC, of options to employees. The total
number of shares of common stock for which options may be granted under the
NQSOP is 4,182,000.
The exercise price of all stock options granted under the NQSOP is
determined by the SOC at the time of grant. The maximum term of each option
granted under the NQSOP is 10 years from the date of grant. Options shall
become exercisable at such times and in such installments as the SOC shall
provide in the terms of each individual option.
The exercise price of all of the options under the NQSOP ranges from $1.25-
$25.38, and is determined based upon the fair market value of iVillage's
common stock on the date of grant. The options vest 25% after one year, and
then 0.0625% quarterly thereafter, unless the employee has over one year of
continuing service with iVillage, in which case, the options will vest 0.0625%
every three months, and expire 10 years from the date of grant.
As of December 31, 2000, there were 972,029 shares available for future
grants under the NQSOP.
Director Option Plan
In 1999, the Company's Board of Directors and stockholders adopted the
Company's 1999 Director Option Plan ("DOP"). The DOP provides for the
automatic grant of 1,666 non-qualified stock options to non-employee members
of the Company's Board of Directors on the date of each annual stockholders'
meeting. The total number of shares of common stock for which options may be
granted under the DOP is 133,333.
The exercise price of all stock options granted under the DOP is the fair
market value at the time of grant. The maximum term of each option under the
DOP is 10 years from the date of grant.
The exercise price of all of the options under the DOP ranges from $7.50 to
$25.38, and is determined based upon the fair market value of the Company's
common stock on the date of grant. Generally, the options vest 25% on each
anniversary of the grant date.
As of December 31, 2000, 48,339 shares were available for future grants
under the DOP.
F-21
iVILLAGE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Note 8 -- Stock Option Plans--(Continued)
A summary of the status and activity of all of the Company's stock option
plans is as follows:
Weighted
Average Exercise
Options Price Per Share
---------- ----------------
Outstanding, January 1, 1998 .................. 889,190 $ 4.97
Granted ....................................... 1,608,997 $ 6.35
Exercised ..................................... (1,249) $ 5.10
Expired/Canceled .............................. (232,673) $ 4.99
---------- ------
Outstanding, December 31, 1998 ................ 2,264,265 $ 5.95
Granted ....................................... 3,229,605 $27.38
Exercised ..................................... (235,703) $ 5.37
Expired/Canceled .............................. (346,964) $17.28
---------- ------
Outstanding, December 31, 1999 ................ 4,911,203 $19.27
Granted ....................................... 4,199,112 $ 7.90
Exercised ..................................... (114,992) $ 5.18
Canceled ...................................... (2,575,099) $18.07
---------- ------
Outstanding, December 31, 2000 ................ 6,420,224 $12.53
========== ======
Options exercisable at December 31, 2000 ...... 1,851,947 $14.76
========== ======
Options exercisable at December 31, 1999 ...... 1,400,967 $10.57
========== ======
Options exercisable at December 31, 1998 ...... 592,283 $ 5.19
========== ======
Information about stock options outstanding as of December 31, 2000 is as
follows:
Options Outstanding Options Exercisable
------------------------------------------ ----------------------
Number Weighted Weighted Number Weighted
Outstanding Average Average Exercisable Average
at Remaining Exercise at Exercise
Actual Range of Exercise Prices 12/31/00 Contractual Life Price 12/31/00 Price
--------------------------------------------- ----------- ---------------- -------- ----------- --------
$ 1.25 - $ 1.76 ............................ 1,349,901 8.4 $ 1.26 24,849 $ 1.66
$ 2.48 - $ 3.50 ............................ 257,515 9.1 $ 3.33 53,957 $ 2.76
$ 3.94 - $ 5.10 ............................ 803,306 6.0 $ 5.07 570,403 $ 5.10
$ 6.00 - $ 8.96 ............................ 1,462,892 5.5 $ 6.96 391,841 $ 6.44
$ 9.45 - $ 13.56 ............................ 202,752 6.4 $ 11.88 49,187 $ 9.45
$ 15.25 - $ 22.19 ............................ 453,055 6.1 $ 17.58 6,045 $ 15.41
$ 23.44 - $ 34.13 ............................ 1,571,305 6.4 $ 24.89 644,980 $ 25.12
$ 35.94 - $ 50.25 ............................ 307,840 5.5 $ 43.24 105,982 $ 43.34
$ 55.25 - $ 72.94 ............................ 8,459 5.1 $ 64.71 3,427 $ 66.01
$ 94.94 - $113.75 ............................ 3,199 5.0 $102.06 1,276 $101.84
--------- --- ------- --------- -------
6,420,224 6.6 $ 12.53 1,851,947 $ 14.76
========= === ======= ========= =======
F-22
iVILLAGE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Note 8 -- Stock Option Plans--(Continued)
Stock-Based Compensation
The Company applies Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees" and related interpretations in accounting for
its stock option issuances. The Company has adopted the disclosure-only
provisions of SFAS No. 123. Had compensation cost for the Company's stock
options been determined based on the fair value of the stock options at the
grant date for awards in 2000, 1999 and 1998 consistent with the provisions of
SFAS No. 123, the Company's net loss would have been adjusted to the pro forma
amounts indicated below:
December 31,
---------------------------------
2000 1999 1998
--------- --------- --------
($ in thousands, except per share
data)
Net loss - as reported .................................................................. $(191,428) $(116,613) $(43,654)
========= ========= ========
Net loss - pro forma .................................................................... $(199,140) $(123,771) $(44,213)
========= ========= ========
Net loss attributable to common stockholders per share - as reported .................... $ (6.45) $ (5.58) $ (21.11)
========= ========= ========
Net loss attributable to common stockholders per share - pro forma ...................... $ (6.71) $ (5.92) $ (21.38)
========= ========= ========
Because options vest over several years and additional option grants are
expected to be made in future years, the above pro forma results are not
representative of the pro forma results for future years.
Prior to the Company's initial public offering the fair value of each option
grant was estimated using the minimum value method of the Black-Scholes option
pricing model which assumes no volatility. The weighted average assumptions
used for grants made in 2000, 1999 and 1998 are as follows:
Options granted during the
year ended December 31,
---------------------------------------
2000 1999 1999 1998
------- -------- ------- -------
Post-IPO Pre-IPO
-------- -------
Risk-free interest rate........................................................... 6.04% 5.87% 4.86% 5.44%
Expected option life.............................................................. 4 years 4 years 5 years 5 years
Dividend yield.................................................................... 0.00% 0.00% 0.00% 0.00%
Volatility........................................................................ 110.00% 100.00% 0.00% 0.00%
iBaby, Inc. 1998 Stock Option Plan
In 1998, the Board of Directors and stockholders of iBaby adopted the iBaby,
Inc. 1998 Stock Option Plan ("iBaby SOP"). The iBaby SOP provided for the
granting, at the discretion of the iBaby Stock Option Committee ("iBaby SOC")
of: (i) options that are intended to qualify as incentive stock options,
within the meaning of the Code, to employees and (ii) options not intended to
so qualify to employees, officers, consultants and directors.
The exercise price of all stock options granted under the iBaby SOP was
determined by the iBaby SOC at the time of grant. The maximum term of each
option granted under the iBaby SOP was seven years from the date of grant.
Options became exercisable at such time and in such installments as the iBaby
SOC provided in the terms of each individual option.
Under the iBaby SOP, options to purchase 110,059 shares of iBaby common
stock were granted during the year ended December 31, 1998, with a weighted
average exercise price per share of $2.68 and a weighted average remaining
contractual life of 6.4 years. As of December 31, 1998, 184,059 shares
remained available for future grants. In March 1999, in conjunction with the
acquisition of the minority interest of iBaby (See
F-23
iVILLAGE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Note 8 -- Stock Option Plans--(Continued)
Note 6), all outstanding options to purchase iBaby common stock were converted
into options to purchase shares of iVillage common stock.
Family Point Inc. Stock Option Plan
In 1998, the Board of Directors and stockholders of Family Point Inc.
adopted the Family Point Inc. Stock Option Plan ("Family Point SOP"). The
Family Point SOP provided for the granting, at the discretion of the Family
Point Stock Option Committee ("Family Point SOC") of: (i) options that are
intended to qualify as incentive stock options, within the meaning of the
Code, to employees and (ii) options not intended to so qualify to employees,
officers, consultants and directors.
The exercise price of all stock options granted under the Family Point SOP
was determined by the Family Point SOC at the time of grant. The maximum term
of each option granted under the Family Point SOP was ten years from the date
of grant. Options became exercisable at such time and in such installments as
the Family Point SOC provided in the terms of each individual option.
Under the Family Point SOP, options to purchase 91,402 shares of Family
Point common stock were granted from adoption through August 31, 1999, and as
of August 31, 1999, 58,598 shares remained available for future grants. In
August 1999, in conjunction with the acquisition of Family Point Inc. (See
Note 6), all outstanding options to purchase Family Point common stock were
converted into options to purchase shares of iVillage common stock.
Note 9 -- Commitments and Contingencies
Leases
The Company leases office and warehouse space, and equipment, under non-
cancelable operating leases expiring at various dates through April 2015. The
following is a schedule of future minimum lease payments under non-cancelable
operating leases as of December 31, 2000:
Year ending December 31: (in thousands)
------------------------- --------------
2001.......................................................... $ 5,964
2002.......................................................... 5,127
2003.......................................................... 4,956
2004.......................................................... 4,961
2005.......................................................... 4,812
Thereafter.................................................... 43,470
-------
$69,290
=======
In March 2000, iVillage entered into a fifteen-year lease for approximately
105,000 square feet at 500-512 Seventh Avenue in which the Company has
consolidated its New York City operations. Pursuant to the terms of the lease,
iVillage anticipates receiving approximately $5.3 million for reimbursement of
certain construction expenses. The benefit of the reimbursement has been
deferred and will be recognized ratably over the life of the lease.
Subsequently, in January 2001, iVillage received a partial reimbursement of
construction costs of approximately $3.8 million.
Rent expense from continuing operations was approximately $4.4 million, $1.3
million, and $.7 million for the years ended December 31, 2000, 1999 and 1998,
respectively.
Joint Ventures
On February 15, 2000, iVillage and a subsidiary of Unilever United States,
Inc. ("Unilever") announced the formation of an independently managed company,
Cooperative Beauty Ventures, LLC, to provide women
F-24
iVILLAGE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Note 9 -- Commitments and Contingencies--(Continued)
with a focused community, an array of interactive, customized online services,
beauty and personal care products and personalized product recommendations.
Unilever and iVillage plan to provide cash, intellectual property, marketing and
other resources. Unilever will provide capital as well as sponsorship and
promotional initiatives. iVillage will provide its Beauty channel, capital,
intellectual property, services and promotion. iVillage's funding obligations
shall not exceed in the aggregate $1.5 million in calendar year 2000 and $2.0
million in calendar year 2001, however any unused funding for calendar year 2000
or 2001 may be carried over and used in calendar year 2001 or 2002,
respectively. As of December 31, 2000, iVillage had not contributed any capital
to the joint venture. During the year ended 2000, the Company recognized losses
from the joint venture of approximately $0.4 million.
Additionally, in February 2000 the Company entered into a multi-year
advertising agreement with Unilever for $12.0 million.
On July 19, 2000, iVillage, Tesco PLC, and Tesco.com announced the formation
of an international joint venture, iVillage UK Limited, to serve the women's
online market in the United Kingdom and the Republic of Ireland. iVillage UK
Limited functions as an independently managed entity and provides women in the
UK and the Republic of Ireland with a focused community and an array of
interactive, customized online solutions and services including content
channels, tools, planners, quizzes, message boards, chats and newsletters. Tesco
provides capital of $18.0 million in cash over three years and promotional
initiatives, and iVillage provides its brand, intellectual property, content and
consulting services.
In December 2000, the Company entered into an exclusive licensing and
technology agreement with Hindustan Lever Limited to create a Web site
targeting women in India. As part of the licensing agreement, Hindustan Lever
Limited will pay an initial set-up fee for certain services and domain
knowledge and iVillage will receive an annual royalty on any revenue
generated. The agreement is subject to necessary regulatory approvals in
India.
Litigation
The Company has been involved in litigation relating to claims arising out
of its operation in the normal course of business, including a complaint filed
by a real estate broker alleging breach of contract. The Company does not
believe that an adverse outcome of any of these legal proceedings will have a
material adverse effect on the Company's results of operations.
Note 10 -- Capital Stock
Convertible Preferred Stock
In February 1998, the Company issued 13,000,000 shares of Series D
Convertible Preferred Stock ("Series D") in exchange for net proceeds of
approximately $31.5 million.
In December 1998, the Company issued 11,730,948 shares of Series E
Convertible Preferred Stock ("Series E") through a private placement in
exchange for net proceeds of approximately $32.1 million.
The holders of convertible preferred stock were entitled to receive
noncumulative dividends when and if declared by the Board. These dividends
were in preference to any declaration or payment of any dividend on the common
stock of the Company.
All classes of convertible preferred stock were convertible into common
stock at prices and at times, subject to the provisions set forth in the
Company's restated Certificate of Incorporation, on a one for one basis. In
the event of a public offering of the Company's shares with gross proceeds and
an offering price as defined, the convertible preferred stock are
automatically converted into common stock on a one for one basis (on a pre-
split basis). The holders of Series B and B-1 shares received an additional
217,825 shares of common stock as a result of the anti-dilution provisions
contained in the Series B and Series B-1 agreements.
F-25
iVILLAGE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Note 10 -- Capital Stock--(Continued)
As discussed in Note 1, in March 1999, upon the closing of the IPO, all
classes of outstanding convertible preferred stock converted into common stock
on a one for one ratio.
As discussed in Notes 5 and above, as of December 31, 2000 and 1999, the
Company has 945,536 and 990,434 warrants outstanding with a weighted average
exercise price of $13.24 and $12.49 per share, respectively. On January 1,
2001, 323,625 warrants with an exercise price of $15.45 expired.
Reverse Stock Split
On March 11, 1999, the Board of Directors effected a one-for-three reverse
common stock split. The Board also approved the adjustment of the common stock
par value to $.01 per share. The share and per share information in the
accompanying consolidated financial statements reflect the effect of this
reverse stock split for all periods presented.
Note 11 -- Income Taxes
The components of the net deferred tax asset as of December 31, 2000 and
1999 consist of the following:
2000 1999
-------- --------
(In thousands)
Operating loss carryforward ............................. $ 80,380 $ 60,860
Depreciation and amortization ........................... 2,734 2,685
Bad debt allowance and reserves ......................... 413 313
-------- --------
Net deferred tax asset .................................. 83,527 63,858
Less, valuation allowance ............................... (83,527) (63,858)
-------- --------
Deferred tax asset ...................................... $ -- $ --
======== ========
The difference between the Company's U.S. federal statutory rate of 35%, as
well as its state and local rate, net of a federal benefit, of 10%, when
compared to the effective rate is principally comprised of the valuation
allowance.
As of December 31, 2000, the Company has a net operating loss carryforward
for federal income tax purposes of approximately $196.0 million, which begin
to expire in 2010. The net deferred tax asset has been fully reserved due to
the uncertainty of the Company's ability to realize this asset in the future.
F-26
iVILLAGE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Note 12 -- Quarterly Results of Operations (unaudited)
In June 2000, the Company decided to discontinue the operations of its
iBaby, Inc. subsidiary. Results of these operations have been classified as
discontinued operations and all prior period results have been restated. The
following is a summary of the quarterly results of operations for the years
ended December 31, 2000 and 1999:
March 31 June 30 September 30 December 31
-------- -------- ------------ -----------
(in thousands, except per share data)
2000
Net revenues..................................... $ 18,104 $ 19,392 $ 20,191 $ 18,665
======== ======== ========= ========
Net loss from continuing operations.............. $(22,282) $(28,007) $(119,371) $ (9,845)
======== ======== ========= ========
Net (loss) income from discontinued operations... $ (2,885) $ (9,251) $ 409 $ (195)
======== ======== ========= ========
Net loss......................................... $(25,167) $(37,258) $(118,962) $(10,040)
======== ======== ========= ========
Basic and diluted net loss per share from
continuing operations.......................... $ (0.75) $ (0.94) $ (4.02) $ (0.33)
======== ======== ========= ========
Basic and diluted net (loss) income per share
from discontinued operations................... $ (0.10) $ (0.31) $ 0.02 $ (0.01)
======== ======== ========= ========
Basic and diluted net loss per share............. $ (0.85) $ (1.25) $ (4.00) $ (0.34)
======== ======== ========= ========
1999
Net revenues..................................... $ 4,793 $ 6,416 $ 8,655 $ 16,712
======== ======== ========= ========
Net loss from continuing operations.............. $(39,805) $(14,958) $ (24,935) $(26,044)
======== ======== ========= ========
Net loss from discontinued operations............ $ (1,367) $ (2,145) $ (3,471) $ (3,888)
======== ======== ========= ========
Net loss......................................... $(41,172) $(17,103) $ (28,406) $(29,932)
======== ======== ========= ========
Basic and diluted net loss per share from
continuing operations.......................... $ (2.18) $ (0.63) $ (0.98) $ (0.91)
======== ======== ========= ========
Basic and diluted net loss per share from
discontinued operations........................ $ (0.07) $ (0.09) $ (0.14) $ (0.13)
======== ======== ========= ========
Basic and diluted net loss per share............. $ (2.25) $ (0.72) $ (1.12) $ (1.04)
======== ======== ========= ========
Note 13 -- Subsequent Events
Women.com
On February 5, 2001, the Company signed a definitive agreement to acquire
all outstanding shares of Women.com Networks, Inc. The overall transaction has
an approximate aggregate value of $29.5 million. Under terms of the merger
agreement, iVillage will issue 0.322 shares (subject to adjustment) of
iVillage common stock for each share of Women.com common stock on the closing
date of the acquisition, plus an aggregate amount of cash currently
anticipated to be approximately $250,000.
The acquisition is subject to the approval of iVillage's stockholders and
Women.com's stockholders and other customary closing conditions.
In addition, The Hearst Corporation and Women.com's other public
stockholders will have the opportunity to invest an aggregate of $20 million
in iVillage in exchange for approximately 9.3 million shares, and warrants to
purchase an additional approximately 2.1 million shares, of iVillage common
stock. The warrants are exercisable until December 31, 2004 at an exercise
price of $.01, but only if the average
F-27
iVILLAGE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Note 13 -- Subsequent Events--(Continued)
closing market price of iVillage common stock, on any 15 consecutive trading
days, has been above $3.75 per share. To the extent any of Women.com's other
stockholders do not purchase their pro rata percentage of iVillage shares and
warrants in this rights offering, The Hearst Corporation has agreed to
purchase any such shortfall.
The Hearst Corporation has also committed to purchase from iVillage between
$15.0 and $21.0 million, of production and advertising services, over a three-
year period.
NBC
In February 2001, the Company further amended its November 1998 agreement
with NBC to provide for an extension of time during which iVillage must
purchase its advertising or promotional spots on the NBC network. The revised
terms require iVillage to purchase approximately $11.6 million of advertising
promotional spots between January 30, 2001 and December 31, 2002, with $3.0
million of such spots being telecast during the year 2001 and approximately
$8.6 million during the year 2002.
Cooperative Beauty Ventures, LLC (Unaudited)
In March 2001, iVillage purchased 30.1% of Cooperative Beauty Ventures, LLC
(the "venture") from Unilever for $1.5 million increasing its ownership to
80.1%. The agreement provides that iVillage will fund the ongoing business
and operations of the venture, but not to exceed $7.0 million, and terminates
Unilever's funding obligation (see Note 9). Under certain circumstances,
Unilever can exercise a "put" option to require iVillage to purchase
Unilever's remaining ownership interest for fair value in the venture and
iVillage, under certain circumstances, can exercise a "call" option to require
Unilever to sell its remaining interest in the venture to iVillage for fair
value. Also, under certain circumstances, Unilever can exercise a "call"
option to purchase a portion of iVillage's membership interest in the venture
for fair value, up to a limit of 50% of the ownership of the venture. As a
result of the purchase transaction described above, iVillage gained
operational control of the venture and the venture will be consolidated within
iVillage's financial statements.
In addition, iVillage amended its February 2000 advertising agreement with
Unilever (see Note 9). The amendment increased Unilever's advertising
purchase commitment to $14.5 million.
Related-Party Transaction (Unaudited)
As of April 1, 2001, iVillage and its former CEO amended their previous
agreement to provide that the former CEO would resign as a member of
iVillage's board of directors but would remain an iVillage employee available
for special projects at the request of iVillage's Chief Executive Officer and
board of directors through December 31, 2002. The former CEO received a one-
time lump sum cash payment of $1,327,900 (less an overdue interest payment of
$27,900 on her promissory note to iVillage) in lieu of the salary, bonus and
other payments set forth in the October agreement and will receive a monthly
salary of $3,433.33 (less set-offs for future interest payments on her
promissory note) through December 31, 2002. The amendment also provided that
the former CEO would surrender 333,334 iVillage stock options with an exercise
price of $24.00 and 75,000 iVillage stock options with an exercise price of
$17.17 to iVillage.
F-28
SCHEDULE I
iVILLAGE INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
Column A Column B Column C Column D Column E
---------- ---------- -------- ---------- ----------
Additions
Balance at Charged to Charged Balance at
Beginning Costs and to Other End
of Period Expenses Accounts Deductions of Period
---------- ---------- -------- ---------- ----------
(in thousands)
For the year ended December 31, 1998:
Provision for doubtful accounts................... $280 $855 $125(1) $514(2) $ 746
==== ==== ==== ==== ======
For the year ended December 31, 1999:
Provision for doubtful accounts................... $746 $500 $ -- $546(2) $ 700
==== ==== ==== ==== ======
For the year ended December 31, 2000:
Provision for doubtful accounts................... $700 $277 $ 73(1) $ 43(2) $1,007
==== ==== ==== ==== ======
- ---------------
(1) Doubtful accounts written off against revenue
(2) Doubtful accounts written off, net of cash received
All other schedules have been omitted because they are not applicable or not
required or because the information is included elsewhere in the financial
statements or the notes thereto.
S-1
EXHIBIT INDEX
Exhibit
Number Description
2.1 Agreement and Plan of Merger dated as of February 5, 2001 among
the Registrant, Stanhope Acquisition Sub, LLC and Women.com
Networks, Inc. (incorporated by reference from Exhibit 2.1 to
Registration Statement File No. 333-56150).
2.2 Amendment No. 1 to Agreement and Plan of Merger dated February
22, 2001, among the Registrant, Stanhope Acquisition Sub, LLC,
and Women.com Networks, Inc. (incorporated by reference from
Exhibit 2.2 to Registration Statement File No. 333-56150).
3.1 Amended and Restated Certificate of Incorporation of the
Registrant (incorporated by reference from Exhibit 3.1 to
Registration Statement File No. 333-85437).
3.2 By-Laws of the Registrant (incorporated by reference from Exhibit
3.2 to the Registrant's Form 10-Q Quarterly Report for the period
ended June 30, 2000, File No. 000-25469).
4.1 Form of Registrant's common stock certificate (incorporated by
reference from Exhibit 4.1 to Registration Statement File No.
333-68749).
4.2 Form of Subscription Agreement (incorporated by reference from
Exhibit 4.2 to Registration Statement File No. 333-56150).
4.3 Form of Warrant (incorporated by reference from Exhibit 4.3 to
Registration Statement File No. 333-56150).
4.4 Form of Stockholder Agreement (included in Exhibit 10.33).
10.1 Form of Indemnification Agreement between the Registrant and
its directors and executive officers (incorporated by reference
from Exhibit 10.1 to Registration Statement File No. 333-68749).
10.2 1995 Amended and Restated Employee Stock Option Plan of the
Registrant (incorporated by reference from Exhibit 10.2 to
Registration Statement File No. 333-68749).
10.3 1997 Amended and Restated Acquisition Stock Option Plan of the
Registrant (incorporated by reference from Exhibit 10.3 to
Registration Statement File No. 333-68749).
10.4 Amended and Restated 1999 Employee Stock Option Plan of the
Registrant (incorporated by reference from Exhibit 99.1 to
Registration Statement File No. 333-31988).
10.5 1999 Director Option Plan of the Registrant (incorporated by
reference from Exhibit 10.5 to Registration Statement File No.
333-85437).
10.6 1999 Employee Stock Purchase Plan of the Registrant (incorporated
by reference from Exhibit 10.6 to Registration Statement File No.
333-85437).
10.7 1999 Acquisition Stock Option Plan of the Registrant
(incorporated by reference from Exhibit 10.7 to Registration
Statement File No. 333-85437).
10.8 Amended and Restated 1999 Non-Qualified Stock Option Plan, as
amended by Amendment Number 1 (incorporated by reference from
Exhibit 10.8 to Registration Statement File No. 333-56150).
Exhibit
Number Description
10.9 Interactive Services Agreement dated December 31, 1998, between
the Registrant and America Online, Inc. ("AOL") (incorporated by
reference from Exhibit 10.8 to Registration Statement File No.
333-68749).
10.10 Amendment to Interactive Services Agreement dated August 27, 1999
between the Registrant and America Online, Inc. (incorporated by
reference from Exhibit 10.10 to Registration Statement File No.
333-56150).
10.10.1 Second Addendum to Interactive Services Agreement dated February
20, 2000 between the Registrant and America Online, Inc.
(incorporated by reference from Exhibit 10.10.1 to Registration
Statement File No. 333-56150).
10.11 Second Amendment to Interactive Services Agreement dated October
16, 2000 between the Registrant and America Online, Inc.
(incorporated by reference from Exhibit 10.11 to Registration
Statement File No. 333-56150).
10.12 Third Amendment to Interactive Services Agreement dated November
2000 between the Registrant and America Online, Inc.
(incorporated by reference from Exhibit 10.12 to Registration
Statement File No. 333-56150).
10.13 Fourth Amendment to Interactive Services Agreement dated
December 28, 2000 between the Registrant and America Online, Inc.
(incorporated by reference from Exhibit 10.13 to Registration
Statement File No. 333-56150).
10.14 Fifth Amendment to Interactive Services Agreement effective as of
March 31, 2001 between the Registrant and America Online, Inc.
(incorporated by reference from Exhibit 10.14 to Registration
Statement File No. 333-56150).
10.15 Sixth Amendment to Interactive Services Agreement, effective as
of February 28, 2001 between the Registrant and America Online,
Inc.
10.16 Exclusive Sponsorship Agreement dated February 28, 1998 between
Amazon.com, Inc. and the Registrant (incorporated by reference
from Exhibit 10.11 to Registration Statement File No. 333-
68749).+
10.17 Letter Agreement dated November 11, 1998 between the National
Broadcasting Company, Inc. and the Registrant (incorporated by
reference from Exhibit 10.14 to Registration Statement File No.
333-68749).
10.18 Amended Letter Agreement dated as of March 9, 1999 between the
Registrant and the National Broadcasting Company, Inc.
(incorporated by reference from Exhibit 10.27 to Registration
Statement File No. 333-68749).
10.19 Amendment dated February 1, 2001 to Letter Agreement dated
March 9, 1999 between the National Broadcasting Company, Inc.
and the Registrant (incorporated by reference from Exhibit 10.18
to Registration Statement File No. 333-56150).
10.20 Form of Non-Competition, Non-Disclosure and Assignment of
Inventions Agreement dated September 9, 1995, and Amendment dated
May 6, 1996, between the Registrant and each of Candice Carpenter
and Nancy Evans (incorporated by reference from Exhibit 10.18 to
Registration Statement File No. 333-68749).
10.21 Note and Warrant Purchase Agreement dated as of February 27,
1997, as amended April 29, 1997, among the Registrant, AOL,
Tribune, KPCB VII and KPCB Zaibatsu II, including Form of Warrant
(incorporated by reference from Exhibit 10.22 to Registration
Statement File No. 333-68749).
10.22 Promissory Note dated June 5, 1998 in the amount of $500,000
between Candice Carpenter and the Registrant (incorporated by
reference from Exhibit 10.23 to Registration Statement File No.
333-68749).
10.22.1 Amendment No. 1 to Promissory Note, dated as of April 1, 2001,
between Candice Carpenter and the Registrant.
10.23 Fourth Amended and Restated Registration Rights Agreement dated
as of December 4, 1998, among the Registrant, the Founders and
each of the Investors identified therein, as amended as of July
26, 1999 (incorporated by reference from Exhibit 10.25 to
Registration Statement File No. 333-85437).
Exhibit
Number Description
10.24 Amended and Restated Stock Purchase Agreement dated as of March
9, 1999 among the Registrant, GE Investments Subsidiary, Inc. and
the National Broadcasting Company, Inc. (incorporated by
reference from Exhibit 10.26 to Registration Statement File No.
333-68749).
10.25 Promissory Note dated March 9, 1999 in the amount of
$15,497,558.48 between the Registrant and GE Investments
Subsidiary, Inc (incorporated by reference from Exhibit 10.28 to
Registration Statement File No. 333-85437).
10.26 License Agreement entered into on September 3, 1999 by and
between PlanetRx.com, Inc. and the Registrant (incorporated by
reference from Exhibit 10.39 to Registration Statement File No.
333-85437).
10.27 Lease dated March 14, 2000, between 500-512 Seventh Avenue
Limited Partnership and the Registrant (incorporated by reference
from Exhibit 10.1 to the Registrant's Form 10-Q Quarterly Report
for the period ended March 31, 2000, File No. 000-25469).
10.28 First Amendment to Lease dated as of June 7, 2000 between the
Registrant and 500-512 Seventh Avenue Limited Partnership
(incorporated by reference from Exhibit 10.3 to the Registrant's
Form 10-Q Quarterly Report for the period ended September 30,
2000, File No. 000-25469).
10.29 Second Amendment to Lease dated January 10, 2001 between the
Registrant and 500-512 Seventh Avenue Limited Partnership.
(incorporated by reference from Exhibit 10.28 to Registration
Statement File No. 333-56150).
10.30 License Agreement dated as of September 8, 2000 among Lamaze
International, Inc., Lamaze Publishing Company and the Registrant
(incorporated by reference from Exhibit 10.2 to the Registrant's
Form 10-Q Quarterly Report for the period ended September 30,
2000, File No. 000-25469).
10.31 Lease dated March 19, 1998, commencing March 15, 1998 between 149
Fifth Avenue Corporation and the Registrant, as supplemented on
June 30, 1998 (incorporated by reference from Exhibit 10.21 to
Registration Statement File No. 333-68749).
10.32 Employment Agreement dated November 29, 2000 between Douglas
McCormick and the Registrant (incorporated by reference from
Exhibit 10.31 to Registration Statement File No. 333-56150).
10.33 Amended and Restated Securities Purchase Agreement dated as of
February 22, 2001 between the Registrant and Hearst
Communications, Inc. (incorporated by reference from Exhibit
10.32 to Registration Statement File No. 333-56150).
10.34 Stockholder Voting Agreement, dated February 5, 2001 between the
Registrant and Hearst Communications, Inc. (incorporated by
reference from Exhibit 3 to Registrant's Statement on Schedule
13D filed February 15, 2001).
10.35 Letter Agreement dated as of October 5, 2000 between the
Registrant and Candice Carpenter (incorporated by reference from
Exhibit 10.34 to Registration Statement File No. 333-56150).
10.35.1 Amendment to Letter Agreement dated as of April 1, 2001 between
the Registrant and Candice Carpenter.
10.36 Form of Amendment Number 2 to Amended and Restated Magazine
Content License and Hosting Agreement (included in Exhibit 10.33)
10.37 Stockholder Voting Agreement, dated February 5, 2001 between the
Registrant and America Online, Inc. (incorporated by reference
from Exhibit 6 to Registrant's Amended Statement on Schedule 13D
filed March 6, 2001).
10.38 Stockholder Voting Agreement, dated February 5, 2001 between the
Registrant and National Broadcasting Company, Inc. and GE
Investments Subsidiary, Inc. (incorporated by reference from
Exhibit 7 to Registrant's Amended Statement on Schedule 13D filed
March 6, 2001).
Exhibit
Number Description
10.39 Stockholder Voting Agreement, dated February 5, 2001 between the
Registrant and Rho Management Trust I (incorporated by reference
from Exhibit 8 to Registrant's Amended Statement on Schedule 13D
filed March 6, 2001).
21 Subsidiaries of the Registrant (incorporated by reference from
Exhibit 21 to Registration Statement File No. 333-56150).
23.1 Consent of PricewaterhouseCoopers LLP.
- ---------------
+ Confidential treatment has been granted for certain portions of these
exhibits. Omitted portions have been filed separately with the Securities
and Exchange Commission.