As filed with
the Securities and Exchange Commission on August 18,
2010
Registration
No. 333-164474
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
Amendment No. 5
to
Form S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
Everyday Health, Inc.
(Exact name of registrant as
specified in its charter)
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Delaware
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7389
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80-0036062
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(State or other jurisdiction
of
incorporation or organization)
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(Primary Standard Industrial
Classification Code Number)
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(I.R.S. Employer
Identification No.)
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345 Hudson Street, 16th
Floor
New York, NY 10014
(646) 728-9500
(Address, including
zip code, and telephone number, including area code, of
registrants principal executive offices)
Benjamin Wolin
Chief Executive Officer
345 Hudson Street, 16th Floor
New York, NY 10014
(646) 728-9500
(Name, address,
including zip code, and telephone number, including area code,
of agent for service)
Copies to:
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Babak Yaghmaie, Esq.
Stephane Levy, Esq.
Cooley LLP
1114 Avenue of the Americas
New York, NY
10036-7798
(212) 479-6000
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Alan Shapiro, Esq.
Executive Vice President
& General Counsel
Everyday Health, Inc.
345 Hudson Street, 16th Floor
New York, NY 10014
(646) 728-9500
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Kirk A. Davenport, Esq.
Latham & Watkins LLP
885 Third Avenue
New York, NY 10022-4834
(212) 906-1200
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Approximate date of commencement of proposed sale to the
public: As soon as practicable after this
Registration Statement becomes effective.
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to
Rule 415 under the Securities Act of 1933, check the
following
box. o
If this Form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act,
please check the following box and list the Securities Act
registration statement number of the earlier effective
registration statement for the same
offering. o
If this Form is a post-effective amendment filed pursuant to
Rule 462(c) under the Securities Act, check the following
box and list the Securities Act registration statement number of
the earlier effective registration statement for the same
offering. o
If this Form is a post-effective amendment filed pursuant to
Rule 462(d) under the Securities Act, check the following
box and list the Securities Act registration statement number of
the earlier effective registration statement for the same
offering. o
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
large accelerated filer, accelerated
filer and smaller reporting company in
Rule 12b-2
of the Exchange Act. (Check one):
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Large
accelerated
filer o
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Accelerated
filer o
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Non-accelerated
filer þ
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Smaller reporting
company o
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(Do not check if a smaller
reporting company)
The Registrant hereby amends this Registration Statement on
such date or dates as may be necessary to delay its effective
date until the Registrant shall file a further amendment which
specifically states that this Registration Statement shall
thereafter become effective in accordance with Section 8(a)
of the Securities Act of 1933 or until the Registration
Statement shall become effective on such date as the Commission,
acting pursuant to said Section 8(a), may determine.
The
information in this preliminary prospectus is not complete and
may be changed. We and the selling stockholders may not sell
these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This
preliminary prospectus is not an offer to sell these securities
and we are not soliciting any offer to buy these securities in
any jurisdiction where the offer or sale is not permitted.
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Subject to Completion. Dated
August 18, 2010.
Shares
Common Stock
This is an initial public offering of shares of common stock of
Everyday Health, Inc.
Everyday Health is
offering
of the shares to be sold in the offering. The selling
stockholders identified in this prospectus are
offering shares.
Everyday Health will not receive any of the proceeds from the
sale of the shares being sold by the selling stockholders.
Prior to this offering, there has been no public market for our
common stock. It is currently estimated that the initial public
offering price per share will be between
$ and
$ . We have applied to have our
common stock listed on The Nasdaq Global Market under the symbol
EVDY.
See Risk Factors on page 12 to read about
factors you should consider before buying shares of our common
stock.
Neither the Securities and Exchange Commission nor any other
regulatory body has approved or disapproved of these securities
or passed upon the accuracy or adequacy of this prospectus. Any
representation to the contrary is a criminal offense.
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Per Share
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Total
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Initial public offering price
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$
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$
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Underwriting discounts and commissions
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$
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$
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Proceeds, before expenses, to Everyday Health
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$
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$
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Proceeds, before expenses, to the selling stockholders
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$
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$
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To the extent that the underwriters sell more
than shares
of common stock, the underwriters have the option to purchase up
to an
additional shares
from Everyday Health at the initial public offering price less
underwriting discounts and commissions.
The underwriters expect to deliver the shares against payment in
New York, New York
on ,
2010.
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Goldman,
Sachs & Co. |
J.P. Morgan |
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Jefferies &
Company |
Needham & Company, LLC |
Prospectus
dated ,
2010.
Helping consumers:Research symptoms Find treatment options Connect with others Eat healthier Live better
Health is a journey. And Everyday Health is there to lead the way, providing consumers with the expert
guidance and advice they need to make better choices, actively manage their conditions and live healthier lives, every day.
www.EverydayHealth.com |
Because every day counts. Condition Management Prevention Caring Lifestage |
Everyday Health is a leading provider of online consumer health solutions. Our broad portfolio of
over 25 websites span the health spectrum from caregiving and condition management to fitness,
nutrition and personal care, we o er users the tools, community and expert advice they need to live
healthier, every day. Treatment Options Connecting Personal Care Fitness and Nutrition |
TABLE OF
CONTENTS
Prospectus
Through and
including ,
2010 (the 25th day after the date of this prospectus), all
dealers effecting transactions in these securities, whether or
not participating in this offering, may be required to deliver a
prospectus. This is in addition to a dealers obligation to
deliver a prospectus when acting as an underwriter and with
respect to an unsold allotment or subscription.
No dealer, salesperson or other person is authorized to give any
information or to represent anything not contained in this
prospectus. You must not rely on any unauthorized information or
representations. This prospectus is an offer to sell only the
shares offered hereby, but only under circumstances and in
jurisdictions where it is lawful to do so. The information
contained in this prospectus is current only as of its date.
All website references in this prospectus are intended to be
inactive textual references only. The content of such websites
is not incorporated by reference in this prospectus.
PROSPECTUS
SUMMARY
This summary highlights information contained elsewhere in
this prospectus. You should read the following summary together
with the more detailed information appearing in this prospectus,
including our consolidated financial statements and related
notes, and the risk factors beginning on page 12, before
deciding whether to purchase shares of our common stock.
Everyday Health,
Inc.
Overview
We are a leading provider of online consumer health solutions.
We provide our consumers, advertisers and partners with content
and advertising-based services across a broad portfolio of
websites that span the health spectrum from
lifestyle offerings in pregnancy, diet and fitness to in-depth
medical content for condition prevention and management. The
Everyday Health portfolio consists of over 25 consumer
health websites, including www.EverydayHealth.com,
www.RevolutionHealth.com, www.WhattoExpect.com,
www.JillianMichaels.com, www.SouthBeachDiet.com and
www.SparkPeople.com.
The fragmentation of the online consumer audience has resulted
in the growth in popularity of highly-specialized websites
focused on a specific content category, commonly referred to as
a vertical or a vertical category. This growth in popularity is
particularly pervasive in the consumer health vertical since
consumers have a wide variety of individual health interests and
needs. We have designed the Everyday Health portfolio,
which includes websites that we operate and with which we
partner, to take advantage of this fragmentation by providing
multiple sources of reliable and highly-personalized content to
satisfy the diverse needs of our consumers and advertising
customers.
The depth, breadth and quality of the content across the
Everyday Health portfolio, including our personalized
tools and community features, have enabled us to serve tens of
millions of consumers each month. During 2009, the Everyday
Health portfolio attracted an average of 25 million
unique visitors per month, according to comScore, Inc., a market
research firm. Since our inception, over 41 million
consumers have registered on our websites to obtain personalized
content and features, such as pregnancy calendars, calorie
tracking tools or
e-mail
newsletters on requested health topics, and over
1.9 million consumers have paid for a premium subscription
service. During 2009, we averaged over 16,000 registrations per
day and sent over 250 million opt-in, content-based
newsletters per month.
The composition of the Everyday Health portfolio,
together with our large consumer audience, database of
registered users and customized content offerings, has created
an attractive platform for national, regional and local
advertisers. We believe that our ability to provide advertisers
with targeted advertising solutions and results-focused
measurability allows us to compete favorably in the consumer
health vertical. Our advertisers consist primarily of
pharmaceutical and medical device companies, manufacturers and
retailers of
over-the-counter
products and consumer-packaged-goods and healthcare providers.
During 2009, we featured over 470 brands on the Everyday
Health portfolio and our customers included 24 of the top 25
global companies ranked by 2008 healthcare revenue as compiled
by MedAdNews and 43 of the top 100 Leading National
Advertisers in 2008 as compiled by Advertising Age.
We have an integrated approach to running our business. This
means that we share development, operations and marketing
resources across the entire Everyday Health portfolio
rather than allocating resources to individual websites in the
portfolio. This approach enables us to efficiently operate our
own websites, in addition to those of our partners that are
looking to expand their consumer audience and to grow their
revenues online. In addition, the Everyday Health
portfolio allows providers of consumer health content with
an existing online presence to leverage our advertising platform
to increase their revenues, while maintaining editorial and
operational control over their content.
1
We generate revenues primarily from the sale of advertising and
sponsorship services, as well as the sale and licensing of our
premium content, including subscriptions to certain websites in
the Everyday Health portfolio.
Industry
Background
The fragmentation of the online audience due to the growth in
search engines and the decreased consumer reliance on general
portals has resulted in consumers seeking multiple websites to
satisfy their diverse health-related needs. We believe that
consumers who interact with health content online visited
approximately 3.5 different health websites per month on average
during 2009. We also believe that consumers will continue to
rely on multiple websites that are dedicated specifically to
health-related content and which contain more in-depth and
personalized offerings in order to satisfy their diverse health
needs. As more consumers turn to the Internet as a preferred
medium for accessing information, advertisers are increasingly
migrating a greater portion of their spending online. The growth
of online spending in the health and wellness category, however,
has not developed as rapidly as the overall advertising market.
According to a February 2010 study prepared on our behalf by
Forrester Research, Inc., a market research firm, total online
advertising represented 8.5% and 9.6% of total advertising,
excluding direct mail, during 2008 and 2009, respectively.
However, according to Forrester Research, total online
advertising in the health and wellness category represented only
4.0% and 4.9% of total advertising in the health and wellness
category in 2008 and 2009, respectively. Furthermore, according
to Forrester Research, total online advertising in the health
and wellness category is projected to grow at a compounded
annual rate of approximately 17.8% from 2009 to 2015.
The Everyday
Health Solution
We believe our success in becoming a leading provider of online
consumer health solutions has been driven by our ability to
address the challenges faced by consumers, advertisers and
partners.
Benefits to
Consumers
Premier Portfolio of Trusted Websites and Engaging
Content. We have built a portfolio of websites
that enables consumers to readily access engaging content,
interactive tools and community features across numerous health
categories. For example, consumers can research symptoms and
create personalized tools such as pregnancy calendars, calorie
counters, meal plans and drug alerts. We utilize the information
that our registered users voluntarily submit to provide them
with targeted content, features and tools that are intended to
better meet their individual needs. We have also created a
community environment that empowers consumers to share
information and interact with each other.
Benefits to
Advertisers
Trusted Platform, Large Audience Scale and Targeted
Solutions. The Everyday Health portfolio
provides an effective platform for advertisers to reach a large
and desirable base of consumers in a targeted and
contextually-relevant manner. We believe that advertising in a
trusted environment is particularly important for large
pharmaceutical and medical device companies and manufacturers of
over-the-counter
and consumer-packaged-goods that are highly sensitive to
protecting their brand value. We also believe that the overall
size, scale and composition of the Everyday Health
portfolio, with discrete consumer health topics, provide
advertisers with significant flexibility to undertake multiple
advertising strategies through a single platform, whether
focused on a national, regional or local audience. Our focus on
customized solutions allows advertisers to effectively target
their desired audience through highly immersive and interactive
campaigns. Moreover, we provide our advertisers with detailed
post-campaign reporting that allows them to measure and evaluate
the effectiveness of their campaigns.
2
Benefits to
Partners
Online Expertise and Monetization
Opportunities. We have expertise in developing
content, integrating new websites and cross-promoting our
content offerings across the Everyday Health portfolio to
our consumers. We believe that such cross-promotion activities,
combined with our extensive user database and experience in
operating and promoting websites, make us well suited to promote
our partners content and expand their consumer audience
online. The Everyday Health portfolio also enables our
partners to benefit from our large and targeted advertising
platform, as well as our expertise in premium content offerings,
to create new revenue opportunities, which we refer to as
monetization opportunities.
Our
Strategy
Our goal is to offer the best content, tools and community
features across the health spectrum, while providing a
compelling platform for an increasing number of advertisers and
partners seeking to engage with our large and growing consumer
base. Key elements of our strategy include:
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developing new and improved offerings to enhance the consumer
experience;
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seeking to aggressively grow our advertiser and sponsorship base;
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continuing to build and enhance awareness of the Everyday
Health brand;
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acquiring complementary businesses; and
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expanding into international markets.
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Preferred Stock
Conversion and Reverse Stock Split
Prior to the consummation of this offering, all of the
outstanding shares of our redeemable convertible preferred stock
will automatically convert
into shares
of our common stock, which we refer to in this prospectus as the
automatic preferred stock conversion. As a result, after this
offering, we will only have common stock outstanding. Prior to
the consummation of this offering, we will also increase our
total authorized number of shares of capital stock, make certain
changes to our charter documents and effect
a
to
reverse stock split, which we refer to in this prospectus as the
reverse stock split.
Corporate History
and Information
We were incorporated in Delaware in January 2002 as Agora Media
Inc. We changed our name to Waterfront Media Inc. in January
2004. In January 2010, to better align our corporate identity
with the Everyday Health brand, we changed our name to
Everyday Health, Inc.
Our principal executive office is located at 345 Hudson
Street, 16th Floor, New York, NY 10014, and our telephone
number is (646) 728-9500. Our Internet website address is
www.EverydayHealth.com. The information on, or that can
be accessed through, any website in the Everyday Health
portfolio is not part of this prospectus, and you should not
consider any information on, or that can be accessed through,
any website in the Everyday Health portfolio as part of
this prospectus.
The names Everyday Health, Revolution Health, CarePages, Daily
Glow and our logos are trademarks, service marks or trade names
owned by us. All other trademarks, service marks or trade names
appearing in this prospectus are owned by their respective
holders.
3
The
Offering
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Common stock offered by Everyday Health |
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shares |
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Common stock offered by the selling stockholders |
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shares |
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Common stock to be outstanding immediately after this offering |
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shares |
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Use of proceeds |
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We estimate that we will receive net proceeds from this offering
of approximately $ million,
based on an assumed public offering price of
$ per share, the midpoint of the
price range set forth on the cover of this prospectus, after
deducting the estimated underwriting discounts and commissions
and offering expenses payable by us. We intend to use the net
proceeds from this offering for working capital and general
corporate purposes, which may include financing the development
of new content and advertising-based services, as well as
funding capital expenditures and operating losses. We may also
use a portion of the net proceeds to repay borrowings under our
credit facilities or acquire complementary businesses, products
or technologies. However, we do not have agreements or
commitments for any specific repayments or acquisitions at this
time. We will not receive any proceeds from the sale of shares
by the selling stockholders in this offering. See Use of
Proceeds. |
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Proposed NASDAQ Global Market symbol |
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EVDY |
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Risk Factors |
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You should read the Risk Factors section beginning
on page 12 and other information included in this
prospectus for a discussion of factors to consider carefully
before deciding to invest in shares of our common stock. |
The number of shares of common stock that will be outstanding
after this offering is based on 30,279,128 shares of common
stock outstanding as of June 30, 2010 after giving effect
to the assumptions in the following paragraph, and excludes:
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5,116,736 shares of common stock issuable upon exercise of
outstanding options with a weighted-average exercise price of
$4.51 per share;
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782,073 shares of common stock reserved for future issuance
under our 2003 Stock Option Plan; provided, however, that
following the completion of this offering, no additional grants
will be awarded under our 2003 Stock Option Plan and such shares
will become available for issuance under our 2010 Equity
Incentive Plan, which we plan to adopt prior to the consummation
of this offering;
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shares
of common stock reserved for future issuance under our 2010
Equity Incentive Plan, which we plan to adopt prior to the
consummation of this offering; and
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222,977 shares of common stock issuable upon the exercise
of outstanding warrants, which includes warrants to purchase our
redeemable convertible preferred stock that will become
exercisable for common stock after this offering, at a
weighted-average exercise price of $5.47 per share.
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Unless otherwise indicated, all information in this prospectus:
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gives effect to the completion of the reverse stock split;
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gives effect to the automatic preferred stock conversion;
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assumes no exercise by the underwriters of their option to
purchase up
to additional
shares, consisting of shares to be purchased from us; and
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gives effect to the adoption of our amended and restated
certificate of incorporation and our amended and restated bylaws
that will occur immediately prior to the consummation of this
offering.
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5
SUMMARY
CONSOLIDATED FINANCIAL DATA
The following tables summarize our consolidated financial data
for the periods presented. The consolidated statement of
operations data for the three years ended December 31, 2009
have been derived from our audited consolidated financial
statements for the three years ended December 31, 2009
included elsewhere in this prospectus. The consolidated
statement of operations data for the six months ended
June 30, 2009 and 2010 and the consolidated balance sheet
data as of June 30, 2010 have been derived from our
unaudited consolidated financial statements included elsewhere
in this prospectus. The consolidated statement of operations
data for the three months ended June 30, 2009 and 2010 have
been derived from our unaudited consolidated financial
statements, which are not included in this prospectus. Our
unaudited consolidated financial statements have been prepared
on the same basis as the audited consolidated financial
statements and notes thereto and, in the opinion of our
management, include all adjustments, consisting of normal
recurring adjustments and accruals, necessary for a fair
statement of the information for the interim periods. Our
historical results for any prior periods are not necessarily
indicative of results to be expected for a full year or for any
future period.
The pro forma balance sheet data as of June 30, 2010 give
effect to the automatic preferred stock conversion. The pro
forma as adjusted balance sheet data as of June 30, 2010
give further effect to our issuance and sale
of shares
of common stock in this offering at an assumed initial public
offering price of $ per share, the
midpoint of the estimated price range shown on the cover of this
prospectus, after deducting estimated underwriting discounts and
commissions and offering expenses payable by us and the
application of the net proceeds therefrom as described in
Use of Proceeds. The as adjusted information
presented is illustrative only and will change based on the
actual initial public offering price and other terms of this
offering determined at pricing.
On October 7, 2008, we acquired Revolution Health Group LLC and
its subsidiaries, which we collectively refer to as RHG.
Accordingly, the following tables include RHGs financial
data from the closing date of the acquisition. Our operating
expenses in the fourth quarter of 2008 and the first and second
quarters of 2009 included various transition-related expenses
that we incurred following the closing of the RHG acquisition.
We eliminated a majority of these redundant transition-related
expenses by the beginning of the third quarter of 2009. These
transition-related expenses consisted of:
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compensation for product development, sales and marketing, and
general and administrative personnel who were employed by us for
a short period of time following the RHG acquisition; and
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third-party product development expenses, such as content
licensing fees, data center costs and other technology-related
expenses.
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You should read this information together with our consolidated
financial statements and related notes included elsewhere in
this prospectus and the information under Selected
Consolidated Financial Data and Managements
Discussion and Analysis of Financial Condition and Results of
Operations.
6
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Six Months
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Three Months
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Ended
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Ended
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Year Ended December 31,
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June 30,
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June 30,
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2007
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2008
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2009
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2009
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2010
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2009
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2010
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(in thousands, except share and per share data)
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Consolidated Statement of Operations Data:
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Revenues
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$
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47,363
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$
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69,412
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$
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90,111
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$
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39,000
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$
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50,567
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$
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20,408
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$
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26,406
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Operating expenses:
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Cost of revenue
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30,111
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35,229
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39,453
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21,492
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23,652
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10,092
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11,608
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Sales and marketing
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7,425
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14,503
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20,816
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10,508
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10,694
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5,255
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5,323
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Product development
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10,753
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14,874
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20,192
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11,291
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9,511
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5,686
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5,076
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General and administrative
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6,859
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12,906
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16,239
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8,121
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8,736
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4,214
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4,587
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Depreciation and amortization
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2,030
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4,340
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9,787
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4,891
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4,983
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2,478
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2,548
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Total operating expenses
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57,178
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81,852
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106,487
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56,303
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57,576
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27,725
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29,142
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations
|
|
|
(9,815
|
)
|
|
|
(12,440
|
)
|
|
|
(16,376
|
)
|
|
|
(17,303
|
)
|
|
|
(7,009
|
)
|
|
|
(7,317
|
)
|
|
|
(2,736
|
)
|
Interest expense, net
|
|
|
(323
|
)
|
|
|
(455
|
)
|
|
|
(1,314
|
)
|
|
|
(374
|
)
|
|
|
(981
|
)
|
|
|
(185
|
)
|
|
|
(491
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before provision for income taxes
|
|
|
(10,138
|
)
|
|
|
(12,895
|
)
|
|
|
(17,690
|
)
|
|
|
(17,677
|
)
|
|
|
(7,990
|
)
|
|
|
(7,502
|
)
|
|
|
(3,227
|
)
|
Provision for income taxes
|
|
|
|
|
|
|
(293
|
)
|
|
|
(1,331
|
)
|
|
|
(556
|
)
|
|
|
(554
|
)
|
|
|
(278
|
)
|
|
|
(300
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(10,138
|
)
|
|
$
|
(13,188
|
)
|
|
$
|
(19,021
|
)
|
|
$
|
(18,233
|
)
|
|
$
|
(8,544
|
)
|
|
$
|
(7,780
|
)
|
|
$
|
(3,527
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(1.57
|
)
|
|
$
|
(2.01
|
)
|
|
$
|
(2.89
|
)
|
|
$
|
(2.78
|
)
|
|
$
|
(1.29
|
)
|
|
$
|
(1.19
|
)
|
|
$
|
(0.53
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
(1.57
|
)
|
|
$
|
(2.01
|
)
|
|
$
|
(2.89
|
)
|
|
$
|
(2.78
|
)
|
|
$
|
(1.29
|
)
|
|
$
|
(1.19
|
)
|
|
$
|
(0.53
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma basic (unaudited)(1)
|
|
|
|
|
|
|
|
|
|
$
|
(0.63
|
)
|
|
|
|
|
|
$
|
(0.28
|
)
|
|
|
|
|
|
$
|
(0.12
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma diluted (unaudited)(1)
|
|
|
|
|
|
|
|
|
|
$
|
(0.63
|
)
|
|
|
|
|
|
$
|
(0.28
|
)
|
|
|
|
|
|
$
|
(0.12
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average common shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
6,444,696
|
|
|
|
6,559,614
|
|
|
|
6,581,793
|
|
|
|
6,564,654
|
|
|
|
6,625,548
|
|
|
|
6,564,654
|
|
|
|
6,628,408
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
6,444,696
|
|
|
|
6,559,614
|
|
|
|
6,581,793
|
|
|
|
6,564,654
|
|
|
|
6,625,548
|
|
|
|
6,564,654
|
|
|
|
6,628,408
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma basic (unaudited)(1)
|
|
|
|
|
|
|
|
|
|
|
30,229,627
|
|
|
|
|
|
|
|
30,273,382
|
|
|
|
|
|
|
|
30,276,242
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma diluted (unaudited)(1)
|
|
|
|
|
|
|
|
|
|
|
30,229,627
|
|
|
|
|
|
|
|
30,273,382
|
|
|
|
|
|
|
|
30,276,242
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Pro forma weighted average shares
outstanding reflects the conversion of our redeemable
convertible preferred stock (using the if-converted method) into
common stock as though the conversion had occurred on the
original dates of issuance.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
Three Months Ended
|
|
|
|
Year Ended December 31,
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
|
(in thousands)
|
|
|
Other Financial Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA
|
|
$
|
(6,795
|
)
|
|
$
|
(5,104
|
)
|
|
$
|
(2,664
|
)
|
|
$
|
(9,933
|
)
|
|
$
|
(359
|
)
|
|
$
|
(3,203
|
)
|
|
$
|
696
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation expense included in:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and marketing
|
|
$
|
276
|
|
|
$
|
812
|
|
|
$
|
815
|
|
|
$
|
410
|
|
|
$
|
505
|
|
|
$
|
191
|
|
|
$
|
274
|
|
Product development
|
|
|
64
|
|
|
|
492
|
|
|
|
548
|
|
|
|
303
|
|
|
|
187
|
|
|
|
141
|
|
|
|
54
|
|
General and administrative
|
|
|
650
|
|
|
|
1,692
|
|
|
|
1,662
|
|
|
|
866
|
|
|
|
788
|
|
|
|
404
|
|
|
|
369
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stock-based compensation expense
|
|
$
|
990
|
|
|
$
|
2,996
|
|
|
$
|
3,025
|
|
|
$
|
1,579
|
|
|
$
|
1,480
|
|
|
$
|
736
|
|
|
$
|
697
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of June 30, 2010
|
|
|
|
|
|
|
|
|
|
Pro Forma
|
|
|
|
Actual
|
|
|
Pro Forma
|
|
|
As Adjusted
|
|
|
|
(in thousands)
|
|
|
Consolidated Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
12,841
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
|
128,607
|
|
|
|
|
|
|
|
|
|
Deferred revenue
|
|
|
9,287
|
|
|
|
|
|
|
|
|
|
Long-term debt (including current portion)
|
|
|
17,000
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
52,444
|
|
|
|
|
|
|
|
|
|
Redeemable convertible preferred stock
|
|
|
130,420
|
|
|
|
|
|
|
|
|
|
Total stockholders equity (deficit)
|
|
|
(54,257
|
)
|
|
|
|
|
|
|
|
|
Definition and
Discussion of Other Financial Data
Definition of
Adjusted EBITDA
We define Adjusted EBITDA as net loss plus net interest (income)
expense; income tax expense; non-cash charges including
depreciation, amortization and stock-based compensation expense;
and compensation expense related to acquisition earnout
arrangements.
Discussion of
Adjusted EBITDA
Adjusted EBITDA is a measure of operating performance that is
not calculated in accordance with generally accepted accounting
principles, or GAAP. The table below provides a reconciliation
of Adjusted EBITDA to net income (loss), the most directly
comparable financial measure calculated and presented in
accordance with GAAP. Adjusted EBITDA should not be considered
as an alternative to net income, income from operations or any
other measure of financial performance calculated and presented
in accordance with GAAP. Our Adjusted EBITDA may not be
comparable to similarly titled measures of other companies
because other companies may not calculate similarly titled
measures in the same manner as we do. We prepare Adjusted EBITDA
to eliminate the impact of items that we do not consider
indicative of our core operating performance. We encourage you
to evaluate these adjustments and the reasons we consider them
appropriate, as well as the material limitations of non-GAAP
measures and the manner in which we compensate for those
limitations.
Our management uses Adjusted EBITDA:
|
|
|
|
|
as a measure of operating performance;
|
|
|
|
to allocate resources to enhance the financial performance of
our business;
|
|
|
|
to evaluate the effectiveness of our business strategies;
|
|
|
|
in communications with our board of directors concerning our
financial performance;
|
|
|
|
for planning purposes, including the preparation of our annual
operating budget; and
|
|
|
|
as a factor when determining managements incentive
compensation.
|
Management also uses Adjusted EBITDA to evaluate compliance with
the debt covenants in one of our credit facilities, which
includes an EBITDA maintenance covenant. This credit
facilitys definition of EBITDA is substantially similar to
our definition of Adjusted EBITDA. See Managements
Discussion and Analysis of Financial Condition and Results of
Operations for a description of our credit facilities.
Management believes that the use of Adjusted EBITDA provides
consistency and comparability with our past financial
performance, facilitates period to period comparisons of
operations, and also facilitates comparisons with other peer
companies, many of which use similar non-GAAP financial
8
measures to supplement their GAAP results. Management believes
that it is useful to exclude non-cash charges such as
depreciation, amortization and stock-based compensation from
Adjusted EBITDA because:
|
|
|
|
|
the amount of such non-cash expenses in any specific period may
not directly correlate to the underlying performance of our
business operations; and
|
|
|
|
such expenses can vary significantly between periods as a result
of new acquisitions, or the timing of new stock-based awards, as
the case may be.
|
More specifically, we believe it is appropriate to exclude
stock-based compensation expense from Adjusted EBITDA because
non-cash equity grants made at a certain price and point in time
do not reflect how our business is performing at any particular
time. While we believe that stockholders should have information
about any dilutive effect of outstanding options and the cost of
that compensation, we also believe that stockholders should have
the ability to view the non-GAAP financial measure (which
excludes these costs) that management uses to evaluate our
business. The determination of stock-based compensation expense
is based on many subjective inputs, many of which are not
necessarily directly related to the performance of our business.
Therefore, excluding this cost gives us a clearer view of the
operating performance of our business. Because of varying
available valuation methodologies, subjective assumptions and
the variety of award types that companies may use under the
authoritative accounting guidance for stock-based compensation,
as well as the impact of non-operational factors such as our
share price, on the magnitude of this expense, management
believes that providing a non-GAAP financial measure that
excludes this stock-based compensation expense allows investors
and analysts to make meaningful comparisons between our
operating results and those of other companies. Stock-based
compensation has been a significant non-cash recurring expense
in our business and has been used as a key incentive offered to
our employees. We believe such compensation contributed to the
revenues earned during the periods presented and also believe it
will contribute to the generation of future period revenues.
Stock-based compensation expense will recur in future periods
for GAAP purposes. There are material limitations to our
exclusion of stock-based compensation from Adjusted EBITDA,
primarily that these expenses reduce our GAAP net income. See
below for a further discussion of these limitations on our use
of Adjusted EBITDA as an analytical tool, as well as the manner
in which management compensates for these limitations.
We believe it is appropriate to exclude depreciation and
amortization from Adjusted EBITDA because depreciation is a
function of our capital expenditures which are included in our
statements of cash flows, while amortization reflects other
asset acquisitions made at a point in time and their associated
costs. In analyzing the performance of our business currently,
management believes it is helpful also to consider the business
without taking into account costs or benefits accruing from
historical decisions on infrastructure and capacity. While these
matters do affect the overall financial health of our company,
they are separately evaluated and relate to historic decisions
that do not affect current operations of our business on a cash
flow basis. Further, depreciation and amortization do not result
in ongoing cash expenditures. Investors should note that the use
of assets being depreciated or amortized contributed to revenues
earned during the periods presented and will continue to
contribute to future period revenues. This depreciation and
amortization expense will recur in future periods for GAAP
purposes. There are material limitations to our exclusion of
depreciation and amortization from Adjusted EBITDA, primarily
that these expenses reduce our GAAP net income and the assets
being depreciated or amortized will often have to be replaced in
the future, resulting in future cash requirements. See below for
a further discussion of these limitations on our use of Adjusted
EBITDA as an analytical tool, as well as the manner in which
management compensates for these limitations.
Management believes it is appropriate to exclude compensation
expense associated with acquisition earnout arrangements because
this expense results from activities that are not part of our
normal operations. There are material limitations to our
exclusion from Adjusted EBITDA of earnout expenses associated
with acquisitions, primarily that these expenses reduce our GAAP
net income.
9
See below for a further discussion of these limitations on our
use of Adjusted EBITDA as an analytical tool, as well as the
manner in which management compensates for these limitations.
We believe Adjusted EBITDA is useful to investors in evaluating
our operating performance because securities analysts use
Adjusted EBITDA as a supplemental measure to evaluate the
overall operating performance of companies. We anticipate that
our investor and analyst presentations after we are public will
include Adjusted EBITDA.
Material
limitations of non-GAAP measures
Although measures similar to Adjusted EBITDA are frequently used
by investors and securities analysts in their evaluations of
companies, these measures, including Adjusted EBITDA, have
limitations as an analytical tool, and you should not consider
Adjusted EBITDA in isolation or as a substitute for analysis of
our results of operations as reported under GAAP.
Some of these limitations are:
|
|
|
|
|
Adjusted EBITDA does not reflect our future requirements for
contractual commitments or our cash expenditures or future
requirements for capital expenditures;
|
|
|
|
Adjusted EBITDA does not reflect changes in, or cash
requirements for, our working capital;
|
|
|
|
Adjusted EBITDA does not reflect interest income or interest
expense;
|
|
|
|
Adjusted EBITDA does not reflect cash requirements for income
taxes;
|
|
|
|
Adjusted EBITDA does not reflect the non-cash component of
employee compensation;
|
|
|
|
although depreciation and amortization are non-cash charges, the
assets being depreciated or amortized will often have to be
replaced in the future, and Adjusted EBITDA does not reflect any
cash requirements for these replacements; and
|
|
|
|
other companies in our industry may calculate similarly titled
measures differently than we do, limiting their usefulness as
comparative measures.
|
Management compensates for the inherent limitations associated
with using the Adjusted EBITDA measure through disclosure of
such limitations, presentation of our financial statements in
accordance with GAAP and reconciliation of Adjusted EBITDA to
the most directly comparable GAAP measure, net income (loss).
Further, management also reviews GAAP measures, and evaluates
individual measures that are not included in Adjusted EBITDA
such as our level of capital expenditures, equity issuance and
interest expense, among other measures.
10
The following table presents a reconciliation of Adjusted EBITDA
to net income (loss), the most comparable GAAP measure, for each
of the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Six Months Ended
|
|
|
Three Months Ended
|
|
|
|
December 31,
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
|
(in thousands)
|
|
|
Reconciliation of Adjusted EBITDA to Net Income (Loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(10,138
|
)
|
|
$
|
(13,188
|
)
|
|
$
|
(19,021
|
)
|
|
$
|
(18,233
|
)
|
|
$
|
(8,544
|
)
|
|
$
|
(7,780
|
)
|
|
$
|
(3,527
|
)
|
Interest expense, net
|
|
|
323
|
|
|
|
455
|
|
|
|
1,314
|
|
|
|
374
|
|
|
|
981
|
|
|
|
185
|
|
|
|
491
|
|
Income tax expense
|
|
|
|
|
|
|
293
|
|
|
|
1,331
|
|
|
|
556
|
|
|
|
554
|
|
|
|
278
|
|
|
|
300
|
|
Depreciation and amortization expense
|
|
|
2,030
|
|
|
|
4,340
|
|
|
|
9,787
|
|
|
|
4,891
|
|
|
|
4,983
|
|
|
|
2,478
|
|
|
|
2,548
|
|
Stock-based compensation
|
|
|
990
|
|
|
|
2,996
|
|
|
|
3,025
|
|
|
|
1,579
|
|
|
|
1,480
|
|
|
|
736
|
|
|
|
697
|
|
Compensation expense related to acquisition earnout
|
|
|
|
|
|
|
|
|
|
|
900
|
|
|
|
900
|
|
|
|
187
|
|
|
|
900
|
|
|
|
187
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA
|
|
$
|
(6,795
|
)
|
|
$
|
(5,104
|
)
|
|
$
|
(2,664
|
)
|
|
$
|
(9,933
|
)
|
|
$
|
(359
|
)
|
|
$
|
(3,203
|
)
|
|
$
|
696
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
11
RISK
FACTORS
Investing in our common stock involves a high degree of risk.
You should carefully consider the following risk factors, as
well as the other information in this prospectus, before
deciding whether to invest in our common stock. Our business,
prospects, financial condition or operating results could be
materially adversely affected by any of these risks, as well as
other risks not currently known to us or that we currently
consider immaterial. The trading price of our common stock could
decline as a result of any of these risks, and you could lose
part or all of your investment in our common stock. When
deciding whether to invest in our common stock, you should also
refer to the other information in this prospectus, including our
consolidated financial statements and related notes and the
Managements Discussion and Analysis of Financial
Condition and Results of Operations section of this
prospectus. You should read the section entitled Special
Note Regarding Forward-Looking Statements immediately
following these risk factors for a discussion of what types of
statements are forward-looking statements, as well as the
significance of such statements in the context of this
prospectus.
Risks Related to
Our Business
We have a
limited operating history.
Our company has been in existence since 2002. We have a limited
operating history and participate in new markets that are
changing rapidly. Our limited operating history may make it
difficult for you to evaluate our current business and our
future prospects. Moreover, our business has undergone
significant changes during its short history as a result of:
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changes in our content and
advertising-based
service offerings;
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changes in the revenue mix derived from such offerings;
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acquisitions;
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technological changes; and
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changes in the markets in which we compete.
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We expect our business to undergo further changes, making it
difficult to forecast our future financial performance. Many
companies seeking to provide consumer health products and
services through the Internet have failed to become profitable,
and some have ceased operations. We cannot assure you that our
current strategy will be successful or that our business and
revenues will continue to grow.
We have
incurred significant losses since our inception and expect to
incur losses in the future.
We have accumulated significant losses since our inception. We
generated revenues of $90.1 million and recorded net losses
of $19.0 million in the year ended December 31, 2009.
We generated revenues of $50.6 million and recorded net
losses of $8.5 million in the six months ended
June 30, 2010. As of June 30, 2010, our accumulated
deficit was $66.8 million. We expect to continue to incur
significant operating expenses and, as a result, we will need to
generate significant revenues to achieve or maintain
profitability. We may not be able to achieve or sustain
profitability on a quarterly or annual basis in the future.
Failure to
maintain and enhance our brands could have a material adverse
effect on our business.
We believe that our brand identity is critical to the success of
our business and in helping us achieve recognition as a trusted
source of consumer health solutions. We also believe that
maintaining and enhancing our brands are vital to expanding our
consumer base and growing our relationships with advertisers. We
believe that the importance of brand recognition and consumer
12
loyalty will only increase in light of increasing competition in
our markets. Some of our existing and potential competitors,
including search engines, media companies and other online
content providers, have well established brands with greater
recognition and market penetration. We have expended
considerable resources on establishing and enhancing the
Everyday Health brand and the other brands in the
Everyday Health portfolio. We have developed policies and
procedures that are intended to preserve and enhance these
brands, including editorial procedures designed to control the
quality of our content. We expect to continue to devote
significant additional resources and efforts to enhance our
brands. However, we may not be able to successfully maintain or
enhance awareness of our brands, and events outside of our
control may have a negative effect on our brands.
If we are
unable to deliver content that attracts and retains consumers to
websites in the Everyday Health portfolio, our ability to
attract advertisers will be adversely affected, which in turn
will negatively impact our business.
We generate a significant percentage of our revenues from
advertising fees. Our future success depends on our ability to
deliver timely, interesting, relevant and valuable content to
attract and retain consumers to websites in the Everyday
Health portfolio. Our ability to successfully develop,
produce and license highly-specialized consumer health content
is subject to numerous uncertainties, including our ability to:
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successfully anticipate and respond to rapidly changing
developments and preferences to ensure our content offerings
remain appealing to our consumers;
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attract and retain qualified editors, writers and technical
personnel;
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license quality content from third parties;
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fund new development projects to further broaden our content
offerings; and
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successfully expand our content offerings and advertising-based
services into new platforms and delivery mechanisms.
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If the content on the Everyday Health portfolio is not
perceived as sufficiently appealing or valuable to our
consumers, we will be unable to retain or grow our consumer
base. If we cannot maintain and grow our consumer base, or if we
experience a decline in traffic levels or the number of page
views by our consumers, our ability to retain and attract
advertisers will be adversely affected. This would in turn
negatively affect our business and revenues.
Our inability
to enter into new, or otherwise extend our existing, licensing
arrangements for proprietary content or the decline in the
popularity of a public figure that is associated with our
partners would adversely affect our ability to grow our business
and revenues.
We are highly dependent on the proprietary content that we
license from third parties to attract and retain consumers to
the Everyday Health portfolio. We believe that such
proprietary content is an important element of our business and
helps to differentiate us from our competitors. Moreover, we
have historically derived a portion of our revenues from
subscriptions to certain websites in the Everyday Health
portfolio that are based on licensed proprietary content. We
anticipate that a meaningful portion of our revenues in the
foreseeable future will continue to be derived from both
advertising and subscription arrangements associated with these
websites.
Our licensing arrangements have varying duration and renewal
terms. As these arrangements expire, renewals on favorable terms
may be sought; however, third parties may outbid us for the
rights to such content. In addition, owners of such content may
elect to create their own online presence in lieu of granting us
a license. Furthermore, renewal costs could substantially exceed
the original contract cost and reduce the profitability of these
agreements to us. Our inability to renew our existing licensing
arrangements, or to otherwise enter into new licensing
arrangements, in each case on commercially favorable terms,
could adversely affect the appeal of our content offerings to
our
13
consumers, which in turn would negatively impact the traffic and
page views of the Everyday Health portfolio and its
attractiveness to our consumers, advertisers and partners. The
loss of the licensing arrangements associated with
www.JillianMichaels.com or www.SouthBeachDiet.com,
each of which accounted for more than 10% of our consolidated
revenues for the year ended December 31, 2009, may have a
material adverse effect on our business and revenues. In
addition, the loss of the licensing arrangement associated with
www.WhattoExpect.com may also have a material adverse
effect on our business and revenues.
In addition, we rely on the popularity and credibility of public
figures that are associated with certain websites in the
Everyday Health portfolio. These individuals may not
retain their current appeal or may become subject to negative
publicity. The popularity and credibility of the websites
associated with these public figures or content providers also
depend on the quality and acceptance of competing content
released into the marketplace at or near the same time, the
availability of alternative sources for the information, general
economic conditions and other tangible and intangible factors,
all of which are difficult to predict. Consumer preferences
change frequently and it is a challenge to anticipate what
offerings will be successful at a certain point in time. Any
decline in the popularity of the content offerings, or any
negative publicity, whether individually or with respect to the
content offerings associated with the websites associated with
these public figures or content providers, may have an adverse
impact on our business and revenues.
Our failure to
attract and retain consumers in a cost-effective manner could
compromise our ability to grow our revenues and become
profitable.
Our continued success is highly dependent on our ability to
attract and retain consumers in a cost-effective manner. In
order to attract consumers to the Everyday Health
portfolio, we must expend considerable amounts of money and
resources for online and offline advertising and marketing. We
use a diverse mix of marketing and advertising programs to
promote the websites in our portfolio, and we have spent, and
expect to continue to spend, significant amounts of money on
these initiatives. Significant increases in the pricing of one
or more of these initiatives will result in higher marketing
costs. Our failure to attract and acquire new, and retain
existing, consumers in a cost-effective manner would make it
more difficult to maintain and grow our revenues and ultimately
to achieve profitability.
Our revenues
are subject to fluctuations due to the timing and amount of
expenditures by our advertising customers.
Advertising and sponsorship revenue comprises a significant and
growing component of our revenues. Our advertising and
sponsorship revenue accounted for approximately 64.5% and
63.7% of our total revenues for the year ended December 31,
2009 and the six months ended June 30, 2010, respectively.
Advertising spending in the markets in which we compete can
fluctuate significantly as a result of a variety of factors,
many of which are outside of our control. These factors include:
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variations in expenditures by advertisers due to budgetary
constraints;
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the cancellation, non-renewal or delay of campaigns;
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advertisers internal review process;
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the cyclical and discretionary nature of advertising spending;
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the timing of FDA approvals of prescription drugs and medical
devices;
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seasonal factors relating to the prevalence of specific health
conditions and other seasonal factors that affect the promotion
of specific products; and
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general economic conditions, including those specific to the
Internet and media industry.
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14
Our
advertising and sponsorship revenue is primarily derived from
short-term contracts that may not be renewed.
Many of our advertising and sponsorship contracts are short-term
commitments and are subject to termination by the customer at
any time. Despite the short-term nature of these commitments, we
typically must expend significant resources over a lengthy sales
cycle to obtain these contracts. As of June 30, 2010, one
advertising agency accounted for approximately 12% of our
accounts receivable and another advertising agency accounted for
approximately 11% of our accounts receivable. Our current
customers may not fulfill their obligations under their existing
contracts or continue to advertise with us beyond the terms of
their existing contracts. If a significant number of
advertisers, or a few large advertisers, decide to reduce their
expenditures with us or to discontinue advertising with us, we
could experience a material decline in our revenues.
Our quarterly
operating results are subject to significant fluctuations, and
these fluctuations may adversely affect the trading price of our
common stock.
We have experienced, and expect to continue to experience,
significant fluctuations in our quarterly revenues and operating
results. Our quarterly revenues and operating results may
fluctuate significantly due to a number of factors, many of
which are outside of our control. These factors include:
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traffic levels to the websites in our portfolio;
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our ability to introduce new and appealing content that will
drive the growth of our consumer base;
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the spending priorities and advertising budget cycles of
specific advertisers;
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the addition or loss of advertisers;
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the addition of new websites and services by us or our
competitors;
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changes in our pricing policies or those of our competitors;
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costs relating to our ongoing efforts to improve our content and
advertising-based service offerings; and
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seasonal fluctuations in advertising spending.
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In addition, seasonal factors, including those relating to the
prevalence of specific health conditions, can also affect our
operating results. For example, we have historically experienced
an increase in new subscriptions in the first calendar quarter.
This increase typically coincides with the general trend towards
making healthy lifestyle choices at the beginning of the new
year.
As a result of these seasonal and quarterly fluctuations, we
believe that comparisons of our quarterly results of operations
are not necessarily meaningful and that these comparisons are
not reliable as indicators of our future performance. In
addition, these fluctuations could result in volatility in our
operating results and may adversely affect our cash flows. As
our business grows, these seasonal fluctuations may become more
pronounced. Any seasonal or quarterly fluctuations that we
report in the future may differ from the expectations of
securities analysts and investors. This could cause the price of
our common stock to decline.
Our inability
to sustain or grow our advertising rates could adversely affect
our operating results.
The rates charged for advertising on the Internet, particularly
in the consumer health sector, have fluctuated over the past few
years due to a variety of factors, including the growth in use
of search engines, general economic conditions and competitive
offerings. We have committed significant resources to delivering
content and advertising-based services designed to appeal to
our
15
advertising customers by engaging consumers in a more
interactive and meaningful manner, therefore providing a higher
return on our advertisers expenditures. However, our
customers may not perceive our content offerings and
advertising-based services as sufficiently valuable to justify
the payment of our rates. If we are unable to maintain our
historical, or grow to anticipated, pricing levels for
advertising, we will experience difficulties in maintaining or
growing our revenues.
We face
significant competition in attracting both consumers and
advertising customers.
In order to attract consumers to websites in our portfolio, we
have to compete with a variety of sources that provide different
forms of consumer health information, including:
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websites that provide online health
and/or
medical information, such as www.webmd.com;
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websites that offer specific diet or fitness programs, such as
www.weightwatchers.com and www.rodale.com, or that
focus on a specific medical condition, such as
www.dlife.com for diabetes;
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broad-based public portals that offer health-related content,
such as www.aol.com and www.yahoo.com;
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non-profit and governmental websites that provide consumer
health information, such as www.fda.gov, www.cdc.gov
and www.health.nih.gov; and
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traditional offline media companies, such as magazine and book
publishers, as well as distributors of television and video
programming.
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We believe that the depth and breadth of our content offerings
and advertising-based services across the consumer health
spectrum differentiate us from our competitors. However, since
there are no meaningful barriers to entry into the markets in
which we participate, we anticipate that competition for
consumers will continue to intensify, particularly as our
competitors broaden their product offerings. As we continue to
diversify the breadth of our content offerings and
advertising-based services and expand internationally, we expect
our competitors to further expand as well. Our current and
future competitors may offer new categories of content, products
or services before we do, which may give them a competitive
advantage when trying to attract consumers or advertisers.
Moreover, both existing and potential consumers may perceive our
competitors offerings to be superior to ours.
Recently, our industry has experienced consolidation which
could increase competition in the future, particularly with
respect to content acquisition, exclusivity of content and
pricing. To compete effectively, we may need to expend
significant resources on content acquisition, technology or
marketing and advertising. We currently plan to distinguish
ourselves from our competitors on the basis of the depth and
breadth of our content offerings across the health spectrum, the
quality of our advertising-based services and technological
leadership. These efforts may be expensive and could reduce our
margins.
We also compete for advertisers with the information sources
mentioned above. Advertising customers seek to allocate
expenditures in a way that will enable them to reach the
broadest audience in the most targeted and cost-efficient
manner. Advertisers may choose to work with our competitors due
to a variety of factors, including:
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preference for our competitors online content and print
offerings;
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desire to utilize other forms of advertising offered by our
competitors that are not offered by us; and
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price and reach.
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Many of our current and potential competitors have longer
operating histories, larger customer bases, greater brand
recognition and significantly greater financial, marketing and
other resources
16
than we do. As a result, we could lose market share to our
competitors, and our revenues could decline.
The market for
Internet advertising is still developing, and if the Internet
fails to gain further acceptance as a medium for advertising, we
would experience slower revenue growth or a decrease in revenue,
and greater losses than expected.
Our future success depends, in part, on continued growth in the
use of the Internet as an advertising and marketing platform.
The Internet advertising market is still developing, and we
cannot compare this market with traditional advertising media to
gauge its effectiveness. As a result, demand for and market
acceptance of Internet advertising solutions remain uncertain.
Many of our current and potential customers have limited
experience with Internet advertising and have allocated only a
relatively small portion of their aggregate advertising and
marketing budgets to Internet activities. The adoption of
Internet advertising, particularly by entities that have
historically relied on traditional methods of advertising and
marketing, requires the acceptance of new advertising and
marketing methods. These customers may find Internet advertising
to be less effective for meeting their business needs than
traditional advertising and marketing methods. Furthermore,
there are software programs designed to limit or prevent
advertising from being delivered to a users computer.
Widespread adoption of this software by users would
significantly undermine the commercial viability of Internet
advertising.
We depend on
Internet search engines to attract a significant portion of the
traffic to the Everyday Health portfolio, and if we are listed
less prominently in search result listings, our business and
operating results would be harmed.
We derive a significant portion of our traffic from consumers
who search for consumer health information through Internet
search engines, such as those operated by Google, Microsoft and
Yahoo! A critical factor in attracting consumers to our
portfolio of websites is whether our websites are prominently
displayed in response to a relevant Internet search.
Search result listings are determined and displayed in
accordance with a set of formulas or algorithms developed by the
particular Internet search engine. The algorithms determine the
order of the results in response to the relevant Internet
search. From time to time, search engines revise these
algorithms. In some instances, these modifications may cause
websites within the Everyday Health portfolio to be
listed less prominently in unpaid search results, which would
result in decreased traffic from search engines to our websites.
One of the most cost-effective efforts we employ to attract and
acquire new, and retain existing, users is search engine
optimization, or SEO. SEO involves developing websites in a
manner that will enhance the likelihood that they will rank well
in search engine results. An effective SEO effort can
significantly reduce our marketing costs. Conversely, if our SEO
efforts are ineffective, we could experience a substantial
increase in our consumer acquisition costs and a decrease of
free traffic to the Everyday Health portfolio.
The websites in our portfolio may also become listed less
prominently in unpaid search results for other reasons, such as
search engine technical difficulties, search engine technical
changes and changes we make to our websites. In addition, search
engines have deemed the practices of some companies to be
inconsistent with search engine guidelines and have decided not
to list their websites in search result listings at all. If
listed less prominently or not at all in search result listings
for any reason, the traffic to the websites in our portfolio
would likely decline, which could harm our operating results. If
we decide to attempt to replace this traffic, we may be required
to increase our marketing expenditures, which could also harm
our operating results. Any decrease in traffic would be costly
to replace.
17
If we
experience a decline in renewals from our premium
subscription-based services, our revenues and business may
decline.
Our premium services consist primarily of subscriptions sold to
consumers who purchase access to one or more of the websites in
our portfolio or to a specific interactive service or
application, including licensing our CarePages social media
application to healthcare service providers. We must continually
add new subscribers and licensees, both to increase our
subscriber and licensee base and to replace subscribers and
licensees who choose not to renew their subscriptions or
licenses. Subscribers and licensees may choose not to renew
their subscriptions or licenses for many reasons at any time
prior to the renewal date, including:
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a desire to reduce discretionary spending;
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a perception that they do not use the service sufficiently;
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a belief that the service is a poor value or that competitive
services provide a better value or experience; or
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a feeling that subscriber service issues are not satisfactorily
resolved.
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Licensees may choose not to renew their licenses for many of the
same reasons. If we are unable to attract new subscribers or
licensees to our premium services to counterbalance our
non-renewal rates, our subscriber and licensee base will
decrease. If our subscriber and licensee non-renewal rate
increases, we may be required to increase the rate at which we
add new subscribers and licensees in order to maintain and grow
our revenues from our premium services and may have to incur
significantly higher marketing and advertising expenses than we
currently anticipate.
Developing and
implementing new and updated applications, features and services
may be more difficult than expected, may take longer and cost
more than expected and may not result in sufficient increases in
revenue to justify the costs.
Attracting and retaining consumers require us to continue to
improve the technology underlying our content offerings and
content-delivery platform. Accordingly, we must continue to
develop new and updated applications, features and services. If
we are unable to do so on a timely basis or if we are unable to
implement new applications, features and services that enhance
our consumers experience without disruption to our
existing ones, we may lose potential and existing consumers and
advertising customers. We rely on a combination of internal
development, strategic relationships, licensing and acquisitions
to develop our content offerings and advertising-based services.
These efforts may:
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cost more than expected;
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take longer than originally expected;
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require more testing than originally anticipated;
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require additional advertising and marketing costs; and
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require the acquisition of additional personnel and other
resources.
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The revenue opportunities generated from these efforts may fail
to justify the amounts spent.
Future
acquisitions could disrupt our business and harm our financial
condition and operating results.
We have acquired, and in the future may acquire or invest in,
complementary businesses, products or technologies. Most
recently, in October 2008, we acquired Revolution Health Group
LLC and its subsidiaries. Following the closing of this
offering, we expect that as a result of our access to
18
the public markets, we will have enhanced opportunities to
pursue acquisitions and investments in the future. Acquisitions
and investments involve numerous risks, including:
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potential negative impact on our financial results because they
may require us to incur charges and substantial debt or
liabilities, may require us to amortize, write down or record
impairment of amounts related to deferred compensation, goodwill
and other intangible assets, or may cause adverse tax
consequences, substantial depreciation or deferred compensation
charges;
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difficulty in assimilating the operations and personnel of
acquired businesses;
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potential disruption of our ongoing businesses and distraction
of our management and the management of acquired companies;
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difficulty in incorporating acquired technology and rights into
our content offerings and advertising-based services;
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difficulty entering geographic or business markets in which we
have little or no prior experience;
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unanticipated expenses related to technology and other
integration;
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potential failure to achieve additional sales and enhance our
customer base through cross-marketing of the combined
companys products and services to new and existing
customers;
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unanticipated expenses relating to implementing or improving
internal controls, procedures and policies appropriate for a
public company of a business that prior to the acquisition
lacked these controls, procedures and policies;
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potential litigation resulting from our business combinations or
acquisition activities; and
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potential unknown liabilities associated with the acquired
businesses.
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Our inability to integrate any acquired business successfully or
the failure to achieve any expected synergies could result in
increased expenses and a reduction in expected revenues or
revenue growth. In addition, we may not be able to identify or
consummate any future acquisition on favorable terms, or at all.
If we do pursue an acquisition, it is possible that we may not
realize the anticipated benefits from the acquisition or that
the financial markets or investors will negatively view the
acquisition. As a result, our stock price could fluctuate or
decline.
The costs
associated with potential acquisitions or strategic partnerships
could dilute your investment or adversely affect our results of
operations.
In order to finance acquisitions, investments or strategic
partnerships, we may use equity securities, debt, cash or a
combination of the foregoing. Any issuance of equity securities
or securities convertible into equity may result in substantial
dilution to our existing stockholders, reduce the market price
of our common stock or both. Any debt financing is likely to
increase our interest expense and include financial and other
covenants that could have an adverse impact on our business. In
addition, an acquisition may involve non-recurring charges,
including writedowns of significant amounts of intangible assets
or goodwill. The related increases in expenses could adversely
affect our results of operations. Any such acquisitions or
strategic alliances may require us to obtain additional equity
or debt financing, which may not be available on commercially
acceptable terms, if at all. We do not intend to seek security
holder approval for any such acquisition or security issuance
unless required by applicable law, regulation or the terms of
our existing securities.
19
There are a
number of risks associated with expansion of our business
internationally.
Expansion into international markets is one of the key elements
of our growth strategy. In addition to facing many of the same
challenges we face domestically, there are additional risks and
costs inherent in expanding our business in international
markets. These include:
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strong local competitors that are better attuned to the local
culture and preferences;
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the need to adapt our websites and advertising programs to meet
local needs and to comply with local legal and regulatory
requirements;
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varied, unfamiliar and unclear legal and regulatory
restrictions, as well as unforeseen changes in legal and
regulatory requirements;
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limitations on our activities in foreign countries;
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more restrictive data protection regulation, which may vary by
country;
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difficulties in staffing and managing multinational operations;
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difficulties in finding appropriate foreign licensees or joint
venture partners;
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distance, language and cultural differences;
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foreign political and economic uncertainty;
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less extensive adoption of the Internet as an information source
and increased restriction on the content of websites;
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different and conflicting intellectual property laws;
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currency exchange-rate fluctuations; and
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potential adverse tax requirements.
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We have limited experience in managing international operations.
As a result, we may face difficulties and unforeseen expenses in
expanding our business internationally, and even if we attempt
to do so, we may be unsuccessful.
Given the
tenure and experience of our Chief Executive Officer and
President, and their guiding roles in developing our business
and growth strategy since our inception, our growth may be
inhibited, or our operations may be impaired, if we were to lose
their services.
Our growth and success depends to a significant extent on our
ability to retain Benjamin Wolin, our Chief Executive Officer,
and Michael Keriakos, our President, both of whom founded our
company and have led the growth and operation of our business
since its inception. The loss of the services of either of these
key executives could result in our inability to manage our
operations effectively and to implement our business strategy.
This may cause our stock price to fluctuate or decline. Further,
we cannot assure you that we would be able to successfully
integrate newly-hired executives or senior managers with our
existing management team.
We may not be
able to attract, hire and retain qualified personnel in a
cost-effective manner, which could impact the quality of our
content offerings and advertising-based services and the
effectiveness and efficiency of our management, resulting in
increased costs and losses in revenues.
Our success depends on our ability to attract, hire and retain,
at commercially reasonable rates, qualified editorial and
writing, sales and marketing, customer support, technical,
financial and accounting, legal and other managerial personnel.
The competition for personnel in the industries in which we
operate is intense. Our personnel may terminate their employment
at any time for any reason. Loss of personnel may result in
increased costs for replacement hiring and training. If we fail
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to attract and hire new personnel, or retain and motivate our
current personnel, we may not be able to operate our businesses
effectively or efficiently, serve our consumers and customers
properly or maintain the quality of our content offerings and
advertising-based services.
In particular, our success depends in significant part on
maintaining and growing an effective sales force. This
dependence involves a number of challenges, including:
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the need to hire, integrate, motivate and retain additional
sales and sales support personnel;
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the need to train new sales personnel, many of whom lack sales
experience when they are hired; and
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competition from other companies in hiring and retaining sales
personnel.
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Our growth
could strain our personnel, technology and infrastructure
resources. If we are unable to implement appropriate controls
and procedures to manage our growth, we may not be able to
successfully implement our business plan.
Our growth in operations has placed a significant strain on our
management, administrative, technological, operational and
financial infrastructure. Anticipated future growth, including
growth related to the broadening of our content offerings and
advertising-based services and our expansion into new geographic
areas, will continue to place similar strains on our personnel,
technology and infrastructure. Our success will depend in part
upon our ability to manage our growth. To manage the expected
growth of our operations, we will need to continue to improve
our operational, financial, technological and management
controls and our reporting systems and procedures. The resulting
additional capital investments will increase our costs, which
will make it more difficult for us to offset any future revenue
shortfalls by offsetting cost reductions in the short term.
As a creator
and a distributor of content over the Internet, we face
potential liability for legal claims based on the nature and
content of the materials that we create or
distribute.
Consumers access health-related content through our portfolio of
websites, including information regarding particular medical
conditions, diagnosis and treatment and possible adverse
reactions or side effects from medications. If our content, or
content we obtain from third parties, contains inaccuracies, it
is possible that consumers who rely on that content or others
may sue us for various causes of action. Although the websites
in our portfolio contain terms and conditions, including
disclaimers of liability, that are intended to reduce or
eliminate our liability, the law governing the validity and
enforceability of online agreements is still evolving. Moreover,
many of these terms and conditions relate to websites that are
operated by our partners and are not under our control. We could
be subject to claims by third parties that these online
agreements are unenforceable. A finding by a court that these
agreements are invalid and that we are subject to liability
could harm our business and require us to make costly changes.
We have editorial procedures in place to control the quality of
our content offerings. However, our editorial and other quality
control procedures may not be sufficient to ensure that there
are no errors or omissions in our content offerings or to
prevent such errors and omissions in content that is controlled
by our partners. Even if potential claims do not result in
liability to us, investigating and defending against these
claims could be expensive and time consuming and could divert
managements attention away from our operations.
In addition, we could be exposed to liability in connection with
material posted to the websites in our portfolio by our
consumers. Many of these websites offer consumers an opportunity
to post comments and opinions. Some of this user-generated
content may infringe on third-party intellectual property rights
or privacy rights or may otherwise be subject to challenge under
copyright laws. Moreover, we could face claims for making such
user-generated content available on the websites in our
portfolio if consumers rely on such information to their
detriment, particularly if the information relates to medical
diagnosis and treatment. Such claims could divert
managements time and attention away from our business and
result in significant costs to us, regardless of the merit of
these claims.
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If we become subject to these types of claims and are not
successful in our defense, we may be forced to pay substantial
damages. Our insurance may not adequately protect us against
these claims. The filing of these claims may result in negative
publicity and also damage our reputation as a high quality and
trusted provider of consumer health content and services.
The effects of
the recent global economic crisis may impact our business,
operating results or financial condition.
The recent global economic crisis has caused disruptions and
extreme volatility in global financial markets and increased
rates of default and bankruptcy, and has impacted levels of
consumer spending. These macroeconomic developments have
negatively affected, and may continue to affect, our business,
operating results or financial condition in a number of ways.
For example, current or potential customers may delay or
decrease spending with us, may have difficulty paying us or may
delay paying us for previously purchased products and services.
This may also require us to increase our bad debt reserve and
may affect how we recognize accounts receivables. In addition,
if consumer spending continues to decrease, this may result in
lower click through rates on advertisements displayed on our
portfolio of websites. A slow or uneven pace of economic
recovery would negatively impact our business and operating
results.
Risks Related to
Our Intellectual Property and Technology Platform
If our
intellectual property and technologies are not adequately
protected to prevent use or misappropriation by our competitors,
the value of our brand and other intangible assets may be
diminished, and our business may be adversely
affected.
Our future success and competitive position depend in part on
our ability to protect our proprietary technologies and
intellectual property. We rely, and expect to continue to rely,
on a combination of confidentiality and licensing agreements
with our employees, consultants and third parties with whom we
have relationships, along with trademark, copyright, patent and
trade secret protection laws, to protect our proprietary
technologies and intellectual property. Many of our trademarks
contain words or terms having a common usage and, as a result,
may not be protectable under applicable law. Competitors may
adopt service marks or trademarks similar to ours or use
identical or similar terms as keywords in Internet search engine
advertising programs, thereby impeding our ability to build
brand identity and possibly leading to confusion by our
consumers and customers. We also possess intellectual property
rights in aspects of our content, search technology, software
products and other processes. However, we do not register our
copyrights in any of our content. Rather, this content is
primarily protected by user agreements that limit access to and
use of our content. Compliance with use restrictions is
difficult to monitor, and our proprietary rights may be more
difficult to enforce than other forms of intellectual property
rights.
Although we rely on copyright laws to protect the works of
authorship created by us, we do not register the copyrights in
any of our copyrightable works. Copyrights of U.S. origin
must be registered before the copyright owner may bring an
infringement suit in the U.S. Furthermore, if a copyright
of U.S. origin is not registered within three months of
publication of the underlying work, the copyright owner is
precluded from seeking statutory damages or attorneys fees in
any U.S. enforcement action, and is limited to seeking
actual damages and lost profits. Accordingly, if one of our
unregistered copyrights of U.S. origin is infringed by a
third party, we will need to register the copyright before we
can file an infringement suit in the U.S., and our remedies in
any such infringement suit may be limited.
We cannot assure you that the steps we take will be adequate to
protect our technologies and intellectual property, that our
patent and trademark applications will lead to issued patents
and registered trademarks, that others will not develop or
patent similar or superior technologies, products or services,
or that our patents, trademarks and other intellectual property
will not be challenged, invalidated or circumvented by others.
Furthermore, the intellectual property laws of other countries
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where our websites are directed or can be accessed may not
protect our products and intellectual property rights to the
same extent as the laws of the U.S. The legal standards
relating to the validity, enforceability and scope of protection
of intellectual property rights in Internet-related industries
are uncertain and still evolving, both in the U.S. and in
other countries. If the protection of our technologies and
intellectual property is inadequate to prevent use or
appropriation by third parties, the value of our brand and other
intangible assets may diminish.
In addition, third parties may knowingly or unknowingly infringe
our patents, trademarks and other intellectual property rights,
and litigation may be necessary to protect and enforce our
intellectual property rights. Any such litigation could be
costly and divert managements attention and resources away
from our business. We also expect that the more successful we
are, the more likely that competitors will claim that we
infringe on their intellectual property or proprietary rights.
Even if these claims do not result in liability to us, we could
incur significant costs in investigating and defending against
these claims. If we are unable to protect our proprietary rights
or if third parties independently develop or gain access to our
or similar technologies, our business, revenue, reputation and
competitive position could be harmed.
Confidentiality
agreements with employees and others may not adequately prevent
disclosure of trade secrets and other proprietary information.
Failure to protect our proprietary information could make it
easier for third parties to compete with our products and harm
our business.
In order to protect our proprietary rights, we rely in part on
security measures, as well as confidentiality agreements with
our employees, licensees, independent contractors and other
advisors. These measures and agreements may not effectively
prevent disclosure of confidential information, including trade
secrets, and may not provide an adequate remedy in the event of
unauthorized disclosure of confidential information. We could
potentially lose future trade secret protection if any
unauthorized disclosure of such information occurs. In addition,
others may independently discover our trade secrets and
proprietary information. In such cases we could not assert any
trade secret rights against such parties. Laws regarding trade
secret rights in certain markets in which we operate may afford
little or no protection to our trade secrets. The loss of trade
secret protection could make it easier for third parties to
compete with our products by copying functionality. In addition,
any changes in, or unexpected interpretations of, the trade
secret and other intellectual property laws in any country in
which we operate may compromise our ability to enforce our trade
secret and intellectual property rights. Costly and
time-consuming litigation could be necessary to enforce and
determine the scope of our proprietary rights. Failure to obtain
or maintain trade secret protection could adversely affect our
business, revenue, reputation and competitive position.
Intellectual
property claims against us could be costly and result in the
loss of significant rights related to, among other things, our
websites and advertising and marketing activities.
Trademark, copyright, patent and other intellectual property
rights are important to us and our business. Our intellectual
property rights extend to our technologies, applications and the
content on our websites. We rely on intellectual property
licensed from third parties. From time to time, third parties
may allege that we have violated their intellectual property
rights. If we are forced to defend ourselves against
intellectual property infringement claims, regardless of the
merit or ultimate result of such claims, we may face costly
litigation, diversion of technical and management personnel,
limitations on our ability to use our current websites or
inability to market or provide our content offerings or
advertising-based services. As a result of any such dispute, we
may have to:
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develop non-infringing technology;
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pay damages;
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enter into royalty or licensing agreements;
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cease providing certain content or advertising-based
services; or
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take other actions to resolve the claims.
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These actions, if required, may be costly or unavailable on
terms acceptable to us. In addition, many of our partnering
agreements require us to indemnify our partners for third-party
intellectual property infringement claims, which could increase
the cost to us of an adverse ruling in such an action.
In addition, we face potential liability for negligence,
copyright, patent or trademark infringement or other claims
based on the nature of our content. These claims could
potentially arise with respect to both company-acquired content
and user-generated content. Litigation to defend these claims
could be costly, and any other liabilities we incur in
connection with the claims could be significant.
Our possession
and use of personal information presents risks and expenses that
could harm our business. Unauthorized disclosure or manipulation
of such data, whether through breach of our network security or
otherwise, could expose us to costly litigation and damage our
reputation.
Maintaining our network security is of critical importance
because we use and store confidential registered user, employee
and other sensitive data, such as names, addresses, credit card
numbers and other personal information, including information
about a consumers health interests. In particular, a
substantial majority of our consumers who subscribe to a premium
service use credit and debit cards to pay for those
subscriptions. If we or our processing vendors were to have
problems with our billing software, our consumers could
encounter difficulties in accessing websites within our
portfolio or otherwise have a dissatisfying experience. In
addition, if our billing software fails to work properly and, as
a result, we do not automatically charge our consumers
credit cards on a timely basis or at all, our ability to
generate revenue would be compromised.
We and our vendors use commercially available encryption
technology to transmit personal information. We also use
security and business controls to limit access and use of
personal information. Third parties may be able to circumvent
these security and business measures by developing and deploying
viruses, worms and other malicious software programs that are
designed to attack or infiltrate our systems and networks. In
addition, employee error, malfeasance or other errors in the
storage, use or transmission of personal information could
result in a breach of registered user or employee privacy.
If third parties improperly obtain and use the personal
information of our registered users or employees, we may be
required to expend significant resources to resolve these
problems. A major breach of our network security and systems
could have serious negative consequences for our businesses,
including:
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possible fines, penalties and damages;
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reduced demand for our content offerings and advertising-based
services;
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an unwillingness of consumers to provide us with their credit
card or payment information;
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an unwillingness of registered users to provide us with personal
information;
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harm to our reputation and brand; and
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difficulty in processing subscriber credit card orders.
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Similarly, if a well-publicized breach of data security at any
other major consumer website were to occur, there could be a
general public loss of confidence in the use of the Internet for
commercial transactions.
Finally, privacy concerns in general may cause visitors to avoid
online websites that collect information and may indirectly
inhibit market acceptance of our products and services. In
addition, if our privacy practices are deemed unacceptable by
watchdog groups or privacy advocates, such groups may attempt to
block access to our websites or disparage our reputation and
business.
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We rely on
Internet bandwidth and data center providers and other third
parties for key aspects of the process of providing services to
our clients, and any failure or interruption in the services and
products provided by these third parties could harm our
business.
We rely on third-party vendors, including data center and
Internet bandwidth providers. Any disruption in the network
access or co-location services provided by these third-party
providers or any failure of these third-party providers to
handle current or higher volumes of use could significantly harm
our business. Any financial or other difficulties our providers
face may have negative effects on our business, the nature and
extent of which we cannot predict. We exercise little control
over these third-party vendors, which increases our
vulnerability to problems with the services they provide. We
license technology and related databases from third parties to
facilitate analysis, storage of data and delivery of offerings.
We have experienced interruptions and delays in service and
availability for data centers, bandwidth and other technologies
in the past. Any future errors, failures, interruptions or
delays experienced in connection with these third-party
technologies and services could adversely affect our business.
Interruption
or failure of our information technology and communications
systems could impair our ability to effectively deliver our
services, which could cause us to lose clients and harm our
operating results.
Our business depends on the continuing operation of our
technology infrastructure and systems. Any damage to or failure
of our systems could result in interruptions in our ability to
deliver offerings quickly and accurately
and/or
process visitors responses emanating from our various
websites. Interruptions in our service could reduce our revenue
and profits, and our reputation could be damaged if people
believe our systems are unreliable. Our systems and operations
are vulnerable to damage or interruption from earthquakes,
terrorist attacks, floods, fires, power loss, break-ins,
hardware or software failures, telecommunications failures,
computer viruses or other attempts to harm our systems and
similar events.
We lease or maintain server space in various locations around
the U.S. Our facilities are also subject to break-ins,
sabotage, intentional acts of vandalism and potential
disruptions if the operators of these facilities have financial
difficulties. The occurrence of a natural disaster, a decision
to close a facility we are using without adequate notice or
other unanticipated problems at our facilities could result in
lengthy interruptions in our service.
Any unscheduled interruption in our service would result in an
immediate loss of revenue. Frequent or persistent system
failures that result in the unavailability of any of the
websites in our portfolio or slower response times could reduce
the number of consumers accessing our websites, impair our
delivery of advertisements and harm the perception of our
portfolio of websites as reliable, trustworthy and consistent
sources of information. Our insurance policies provide only
limited coverage for service interruptions and may not
adequately compensate us for any losses that may occur due to
any failures or interruptions in our systems.
Any
constraints on the capacity of our technology infrastructure
could delay the effectiveness of our operations or result in
system failures, which would result in the loss of clients and
harm our business and results of operations.
Our future success depends in part on the efficient performance
of our software and technology infrastructure. As the number of
websites in our portfolio and users who access our portfolio of
websites increases, our technology infrastructure may not be
able to meet the increased demand. A sudden and unexpected
increase in the volume of consumer usage could strain the
capacity of our technology infrastructure. Any capacity
constraints we experience could lead to slower response times or
system failures and adversely affect the availability of
websites and the level of consumer usage, which could result in
the loss of clients or revenue or harm to our business and
results of operations.
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If we cannot
protect our domain names, our ability to successfully promote
our brands will be impaired.
We currently own various web domain names, including
www.EverydayHealth.com, www.RevolutionHealth.com,
www.DailyGlow.com and www.CarePages.com, that are critical
to the operation of our business. The acquisition and
maintenance of domain names, or Internet addresses, is generally
regulated by governmental agencies and their designees. The
regulation of domain names in the U.S. and in foreign
countries is subject to change. Governing bodies may establish
additional top-level domains, appoint additional domain name
registrars or modify the requirements for holding domain names.
As a result, we may be unable to acquire or maintain relevant
domain names in all countries in which we conduct business.
Furthermore, it is unclear whether laws protecting trademarks
and similar proprietary rights will be extended to protect
domain names. Therefore, we may be unable to prevent third
parties from acquiring domain names that are similar to,
infringe upon or otherwise decrease the value of our trademarks
and other proprietary rights. We may not be able to successfully
implement our business strategy of establishing a strong brand
for Everyday Health if we cannot prevent others from
using similar domain names or trademarks. This failure could
impair our ability to increase market share and revenues.
Risks Related to
Regulation of Our Industry
Laws and
standards relating to data collection and use practices and the
privacy of Internet users and other individuals could impair our
efforts to maintain and grow our consumer audience and thereby
decrease our advertising and sponsorship revenue.
We collect information from consumers who register to access
certain content on our websites. Subject to each consumers
permission or right to decline, which we refer to as an opt-out,
we may use this information to inform our consumers of content
that may be of interest to them. We may also share this
information with our advertising customers for registered users
who have elected to receive additional promotional materials and
have granted us permission to share their information with third
parties. Internet user privacy and the use of consumer
information to track online activities are issues that are
subject to rigorous discussions and analysis both in the
U.S. and abroad. We have privacy policies posted on our
websites that we believe comply with applicable laws requiring
notice to consumers about our information collection, use and
disclosure practices. The U.S. federal and various state
governments have adopted or proposed limitations on the
collection, distribution and use of personal information of
Internet users. Several foreign jurisdictions, including the
European Union and Canada, have adopted legislation, including
directives or regulations, that may limit our collection and use
of information from Internet users in these jurisdictions. In
addition, growing public concern about privacy, data security
and the collection, distribution and use of personal information
has led to self-regulation of these practices by the Internet
advertising and direct marketing industry, and to increased
federal and state regulation. Because many of the proposed laws
or regulations are in early stages, we cannot yet determine the
impact these regulations may have on our business over time. We
cannot assure you that the privacy policies and other statements
we provide to users of websites in our portfolio, or our
practices with respect to these matters, will be found
sufficient to protect us from liability or adverse publicity in
this area. A determination by a state or federal agency or court
that any of our practices do not meet applicable standards, or
the implementation of new standards or requirements, could
adversely affect our business. Furthermore, we cannot assure you
that our advertisers are currently in compliance, or will remain
in compliance, with their own privacy policies, regulations
governing consumer privacy or other applicable legal
requirements. We may be held liable if these parties advertise
on one of the websites in our portfolio or use the data we
collect on their behalf in a manner that is not in compliance
with applicable laws or regulations or posted privacy standards.
In addition, we may be subject to the Childrens Online
Privacy Protection Act, or COPPA, which applies to operators of
commercial websites and online services directed to
U.S. children under the age of 13 that collect personal
information from children, and to operators of general audience
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websites with actual knowledge that they are collecting
information from U.S. children under the age of 13. Our
websites are not directed at children under the age of 13, and
our registration process utilizes age screening in order to
prevent under-age registrations. We believe that we are in
compliance with COPPA. COPPA, however, is a relatively new law,
can be applied broadly and is subject to interpretation by
courts and other governmental authorities. The failure to
accurately anticipate the application, interpretation or
legislative expansion of this law could create liability for us,
result in adverse publicity and negatively affect our business.
Additional, more burdensome laws or regulations, including
consumer privacy and data security laws, could be enacted or
applied to us or our advertising customers. Such laws or
regulations could impair our ability to collect user information
that helps us to provide more targeted advertising to our
consumers, thereby impairing our ability to maintain and grow
our consumer audience and maximize advertising and sponsorship
revenue from our customers.
Our business
could be harmed if we are unable to correspond with existing and
potential consumers by
e-mail.
We use
e-mail as a
significant means of communicating with our existing and
potential consumers. The laws and regulations governing the use
of e-mail
for marketing purposes continue to evolve, and the growth and
development of the market for commerce over the Internet may
lead to the adoption of additional legislation or changes to
existing laws. If new laws or regulations are adopted, or
existing laws and regulations are interpreted, amended or
modified, to impose additional restrictions on our ability to
send e-mail
to our consumers or potential consumers, we may not be able to
communicate with them in a cost-effective manner.
Notably, the CAN-SPAM Act regulates commercial
e-mails,
provides a right on the part of the recipient to request the
sender to stop sending messages, and establishes penalties for
the sending of
e-mail
messages that are intended to deceive the recipient as to source
or content. An action alleging our failure to comply with
CAN-SPAM and the adverse publicity associated with any such
action could result in less consumer participation and lead to
reduced revenues from advertisers. If we were found to be in
violation of the CAN-SPAM Act, applicable state laws not
preempted by the CAN-SPAM Act, or foreign laws regulating the
distribution of
e-mail,
whether as a result of violations by our partners or if we were
deemed to be directly subject to and in violation of these
requirements, we could be exposed to damages or penalties. We
also may be required to change one or more aspects of the way we
operate our business, which could impair our ability to market
our goods and services or increase our operating costs.
In addition to legal restrictions on the use of
e-mail,
Internet service providers and others typically attempt to block
the transmission of unsolicited
e-mail,
commonly known as spam. If an Internet service provider or
software program identifies
e-mail from
us as spam, we could be placed on a restricted list that would
block our
e-mail to
consumers or potential consumers who maintain
e-mail
accounts with these Internet service providers or who use these
software programs.
If we are unable to communicate by
e-mail with
our consumers and potential consumers as a result of
legislation, blockage or otherwise, we might lose consumers, and
it would be more difficult to attract new consumers.
We face
potential liability related to the privacy and security of
health-related information we collect from or on behalf of our
consumers.
The privacy and security of information about the past, present,
or future physical or mental health or condition of an
individual is a major issue in the U.S., because of heightened
privacy concerns and the potential for significant consumer harm
from the misuse of such sensitive data. We have procedures and
technology in place intended to safeguard the information we
receive from users of our services from unauthorized access or
use.
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The Privacy Standards and Security Standards under the Health
Insurance Portability and Accountability Act of 1996, or HIPAA,
establish a set of basic national privacy and security standards
for the protection of individually identifiable health
information by health plans, healthcare clearinghouses and
healthcare providers, referred to as covered entities, and the
business associates with whom such covered entities contract for
services. Notably, whereas HIPAA previously directly regulated
only these covered entities, the Health Information for Economic
and Clinical Health Act of 2009, or HITECH, which was signed
into law as part of the stimulus package in February 2009, makes
certain of HIPAAs privacy and security standards also
directly applicable to covered entities business
associates. As a result, business associates are now subject to
significant civil and criminal penalties for failure to comply
with applicable privacy and security rule requirements.
Moreover, HITECH creates a new requirement to report certain
breaches of unsecured, individually identifiable health
information and imposes penalties on entities that fail to do
so. Additionally, certain states have adopted comparable privacy
and security laws and regulations, some of which may be more
stringent than HIPAA.
We have contractual arrangements with some HIPAA covered
entities to make our CarePages social support website service
available to patients and their friends and families. As part of
those arrangements, we do not receive, process, or store any
information from the covered entities about a patient. Instead,
we only receive and store information from our users.
Accordingly, we believe that we do not receive protected health
information on behalf of these covered entities, and are not
required to comply with HIPAA or HITECH. However, we have signed
business associate agreements with certain covered entities who
offer our CarePages service to their patients and their families
and friends. If, in spite of the lack of access to and
processing of individually identifiable health information on
behalf of covered entities, we are subject to the requirements
of HIPAA or HITECH and our data practices do not comply with
such requirements, we may be directly subject to liability under
HIPAA or HITECH. In addition, if our security practices do not
comply with our contractual obligations, we may be subject to
liability for breach of those obligations. Any liability from a
failure to comply with the requirements of HIPAA or HITECH, to
the extent such requirements are deemed to apply to our
operations, or contractual obligations, could adversely affect
our financial condition. The costs of complying with privacy and
security related legal and regulatory requirements are
burdensome and could have a material adverse effect on our
results of operations. In addition, we are unable to predict
what changes to the Privacy Standards and Security Standards
might be made in the future or how those changes could affect
our business. Any new legislation or regulation in the area of
privacy and security of personal information, including personal
health information, could also adversely affect our business
operations.
Developments
in the healthcare industry could adversely affect our
business.
A significant portion of our advertising and sponsorship revenue
is derived from the healthcare industry, including
pharmaceutical,
over-the-counter
and consumer-packaged-goods companies, and could be affected by
changes affecting healthcare spending. General reductions in
expenditures by healthcare industry participants could result
from, among other things:
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government regulation or private initiatives that affect the
manner in which healthcare industry participants interact with
consumers and the general public;
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consolidation of healthcare industry participants;
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reductions in governmental funding for healthcare; and
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adverse changes in business or economic conditions affecting
pharmaceutical companies or other healthcare industry
participants.
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Even if general expenditures by industry participants remain the
same or increase, developments in the healthcare industry may
result in reduced spending in some or all of the specific
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market segments that we serve now or in the future. For example,
use of our content offerings and advertising-based services
could be affected by:
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changes in the design and provision of health insurance plans,
including any new regulations that may stem from health reform
initiatives that are pending before Congress;
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a decrease in the number of new drugs or pharmaceutical products
coming to market; and
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decreases in marketing expenditures by pharmaceutical companies
as a result of governmental regulation or private initiatives
that discourage or prohibit advertising or sponsorship
activities by pharmaceutical companies.
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In addition, our advertising customers expectations
regarding pending or potential industry developments may also
affect their budgeting processes and spending plans with us.
The healthcare industry has changed significantly in recent
years, and we expect that significant changes will continue to
occur. However, the timing and impact of developments in the
healthcare industry are difficult to predict. We cannot assure
you that the demand for our offerings will continue to exist at
current levels or that we will have adequate technical,
financial and marketing resources to react to changes in the
healthcare industry.
Government
regulation of healthcare creates risks and challenges with
respect to our compliance efforts and our business
strategies.
The healthcare industry is highly regulated and subject to
changing political, legislative, regulatory and other
influences. Existing and future laws and regulations affecting
the healthcare industry could create unexpected liabilities for
us, cause us to incur additional costs and restrict our
operations. Many healthcare laws are complex, and their
application may not be clear. Our failure to accurately
anticipate the application of these laws and regulations, or
other failure to comply with such laws and regulations, could
create liability for us.
For example, there are federal and state laws that govern
patient referrals, physician financial relationships and
inducements to healthcare providers and patients. The federal
healthcare programs anti-kickback law prohibits any person
or entity from offering, paying, soliciting or receiving
anything of value, directly or indirectly, for the referral of
patients covered by Medicare, Medicaid and other federal
healthcare programs or the leasing, purchasing, ordering or
arranging for or recommending the lease, purchase or order of
any item, good, facility or service covered by these programs.
Many states also have similar anti-kickback laws that are not
necessarily limited to items or services for which payment is
made by a federal healthcare program. An advisory opinion issued
by the Department of Health and Human Services, Office of the
Inspector General, the agency with responsibility for
interpreting the federal anti-kickback law, concluded that the
sale of advertising and sponsorships to healthcare providers and
vendors by web-based information services implicates the federal
anti-kickback law. However, the advisory opinion suggests that
enforcement action will not result if the fees paid represent
fair market value for the advertising or sponsorship
arrangements, the fees do not vary based on the volume or value
of business generated by the advertising, and the advertising or
sponsorship relationships are clearly identified as such to
users. We review our practices to ensure that we comply with all
applicable laws. However, the laws in this area are broad and we
cannot determine precisely how the laws will be applied to our
business practices. Any determination by a state or federal
regulatory agency that any of our practices violate any of these
laws could subject us to liability and require us to change or
terminate some portions of our business.
Further, we derive revenues from the sale of advertising and
promotion of prescription and
over-the-counter
drugs. If the FDA or the FTC finds that any of the information
provided on our portfolio of websites violates FDA or FTC
regulations, they may take regulatory or judicial action against
us and/or
the advertiser of that information. State attorneys general may
also take similar action based on their states consumer
protection statutes. Any increase or change in regulation of
advertising and promotion in the healthcare industry could make
it more difficult for us to generate
29
and grow our advertising and sponsorship revenue. Members of
Congress, physician groups and others have criticized the
FDAs current policies and have called for more stringent
regulation of prescription drug advertising that is directed at
consumers and have urged the FDA to become more active in
enforcing its current policies. We cannot predict what actions
the FDA or industry participants may take in response to these
criticisms. It is also possible that new laws, regulations or
FDA policies could be promulgated that would impose additional
restrictions on such advertising. In November 2009, the FDA
convened a public meeting to seek guidance on the marketing of
prescription drugs on the Internet and in social media, and
subsequently solicited comments from the public on the issue. It
is not clear what steps, if any, the FDA will take in response
to the public meeting and the comments it subsequently received
from the public or whether it will seek specific regulation of
Internet advertising of prescription drugs. Our advertising and
sponsorship revenue could be materially reduced by additional
restrictions on the advertising of prescription drugs and
medical devices to consumers, whether imposed by law or
regulation or required under policies adopted by industry
members.
In addition, the practice of most healthcare professions
requires licensing under applicable state law and state laws may
further prohibit business entities from practicing medicine,
which is referred to as the prohibition against the corporate
practice of medicine. Similar state prohibitions may exist with
respect to other licensed professions. We believe that we do not
engage in the practice of medicine or any other licensed
healthcare profession, or provide, through our portfolio of
websites, professional medical advice, diagnosis, treatment or
other advice that is tailored in such a way as to implicate
state licensing or professional practice laws. However, a state
may determine that some portion of our business violates these
laws and may seek to have us discontinue those portions or
subject us to penalties or licensure requirements. Any
determination that we are a healthcare provider and acted
improperly as a healthcare provider may result in liability to
us.
Lastly, the Federal False Claims Act imposes liability on any
person or entity who, among other things, knowingly presents, or
causes to be presented, a false or fraudulent claim for payment
by a federal healthcare program. The whistleblower, or qui
tam, provisions of the False Claims Act allow a private
individual to bring actions on behalf of the federal government
alleging that the defendant has submitted a false claim to the
federal government and to share in any monetary recovery. After
the filing of such a suit, the federal government must determine
whether it will intervene and control the case and, if it does
not, the private individual may pursue the claim. In addition,
various states have enacted false claim laws analogous to the
Federal False Claims Act, and many of these state laws apply
where a claim is submitted to any third-party payor and not
merely a federal healthcare program. When an entity is
determined to have violated the False Claims Act, it may be
required to pay up to three times the actual damages sustained
by the government, plus civil penalties. It is not clear whether
there is a basis for the application of the False Claims Act to
the types of services that we provide, however we are aware of
allegations in a complaint filed against a similar online
consumer health information provider relating to the alleged
off-label promotion of prescription drugs by a pharmaceutical
manufacturer. To the extent that the court first finds liability
on the part of the pharmaceutical manufacturer and then extends
liability to the online provider for posting the pharmaceutical
companys allegedly off-label advertisement, this may
create a risk of liability under the False Claims Act in
connection with the advertising services we provide.
Changes in
regulations could hurt our business and financial results of
operations.
It is possible that new laws and regulations or new
interpretations of existing laws and regulations in the
U.S. and elsewhere will be adopted covering issues
affecting our business, including:
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privacy, data security and use of personally identifiable
information;
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copyrights, trademarks and domain names; and
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marketing practices, such as
e-mail or
direct marketing.
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Increased government regulation, or the application of existing
laws to online activities, could:
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decrease the growth rate of the Internet;
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negatively impact our ability to generate revenues;
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increase our operating expenses; or
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expose us to significant liabilities.
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For example, Internet user privacy and the use of consumer
information to track online activities are debated issues both
in the U.S. and abroad. In February 2009, the FTC published
Self-Regulatory Principles to govern the tracking of
consumers activities online in order to deliver
advertising targeted to the interests of individual consumers,
sometimes referred to as behavioral advertising. These
principles serve as industry guidelines. In addition, there is
the possibility of proposed legislation and enforcement relating
to behavioral advertising. We have privacy policies posted
throughout our portfolio of websites that we believe comply with
applicable laws requiring notice to consumers about our
information collection, use and disclosure practices. We also
notify consumers about our information collection, use and
disclosure practices relating to data we receive from our
consumers. We cannot assure you that the privacy policies and
other statements we provide to our consumers or our practices
will be sufficient to protect us from liability or adverse
publicity in this area. A determination by a state or federal
agency or court or foreign jurisdiction that any of our
practices do not meet applicable standards, or the
implementation of new standards or requirements, could adversely
affect our business.
Risks Related to
This Offering and Ownership of Our Common Stock
An active,
liquid and orderly trading market for our common stock may not
develop, our share price may be volatile, and you may be unable
to sell your shares at or above the offering
price.
Prior to this offering, there has not been a public market for
our common stock. We cannot predict the extent to which a
trading market will develop or how liquid that market might
become. The initial public offering price for our shares will be
determined by negotiations between us and representatives of the
underwriters and may not be indicative of prices that will
prevail in the trading market. The market price of shares of our
common stock may be subject to wide fluctuations in response to
the many risk factors listed in this section and other factors
beyond our control, including:
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actual or anticipated fluctuations in our key operating metrics,
financial condition and operating results;
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issuance of new or updated research or reports by securities
analysts;
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our announcement of actual results for a fiscal period that are
higher or lower than projected or expected results, or our
announcement of revenue or earnings guidance that is higher or
lower than expected;
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fluctuations in the valuation of companies perceived by
investors to be comparable to us;
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share price and volume fluctuations attributable to inconsistent
trading volume levels of our shares;
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sales or expected sales of additional common stock;
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announcements from, or operating results of, our
competitors; or
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general economic and market conditions.
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Furthermore, the stock markets have experienced extreme price
and volume fluctuations that have affected and continue to
affect the market prices of equity securities of many companies.
These fluctuations often have been unrelated or disproportionate
to the operating performance of those companies. These broad
market and industry fluctuations, as well as general economic,
political and
31
market conditions such as recessions, interest rate changes or
international currency fluctuations, may cause our common stock
price to decline. If our common stock price after this offering
does not exceed the initial public offering price, you will not
realize any return on your investment in our common stock and
may lose some or all of your investment. In the past, companies
that have experienced volatility in the market price of their
stock have been subject to securities class action litigation.
We may be the target of this type of litigation in the future.
Securities litigation against us could result in substantial
costs and divert our managements attention from other
business concerns.
We will be
subject to additional regulatory compliance matters, including
Section 404 of the Sarbanes-Oxley Act of 2002, as a result
of becoming a public company, and our management has no
experience managing a public company. Failure to comply with
these regulatory matters could harm our business.
We have never operated as a public company and will incur
significant legal, accounting and other expenses that we did not
incur as a private company. Our management team and other
personnel will need to devote a substantial amount of time and
company resources to new compliance initiatives and to meeting
the obligations that are associated with being a public company.
We may not successfully or efficiently manage this transition to
public company status. We expect rules and regulations such as
the Sarbanes-Oxley Act of 2002 to increase our legal and finance
compliance costs and to make some activities more
time-consuming. We may need to hire a number of additional
employees with public accounting and disclosure experience in
order to meet our ongoing obligations as a public company.
Furthermore, Section 404 of the Sarbanes-Oxley Act of 2002
requires that our management report on, and our independent
registered public accounting firm attest to, the effectiveness
of our internal control structure and procedures for financial
reporting in our annual report on
Form 10-K
for the fiscal year ending December 31, 2011.
Section 404 compliance may divert internal resources and
will take a significant amount of time and effort to complete.
We may not be able to successfully complete the procedures and
certification and attestation requirements of Section 404
by the required time. If we fail to do so, or if in the future
our chief executive officer, chief financial officer or
independent registered public accounting firm determines that
our internal controls over financial reporting are not effective
as defined under Section 404, we could be subject to
sanctions or investigations by the Nasdaq Stock Market, the SEC
or other regulatory authorities. Furthermore, investor
perceptions of our company may change, causing a decline in the
market price of our stock. Irrespective of compliance with
Section 404, any failure of our internal controls could
have a material adverse effect on our stated results of
operations and harm our reputation. If we are unable to
implement these changes effectively or efficiently, our
operations, financial reporting or financial results could be
harmed and could result in an adverse opinion on internal
controls from our independent registered public accounting firm.
Our reported
financial results may be adversely affected by changes in
accounting principles applicable to us.
Generally accepted accounting principles in the U.S. are
subject to interpretation by the Financial Accounting Standards
Board, or FASB, the American Institute of Certified Public
Accountants, the SEC and various bodies formed to promulgate and
interpret appropriate accounting principles. A change in these
principles or interpretations could have a significant effect on
our reported financial results, and could affect the reporting
of transactions completed before the announcement of a change.
In addition, the SEC has announced a multi-year plan that could
ultimately lead to the use of International Financial Reporting
Standards by U.S. issuers in their SEC filings. Any such
change could have a significant effect on our reported financial
results.
Our ability to
raise capital in the future may be limited.
Our business and operations may consume resources faster than we
anticipate. In the future, we may need to raise additional funds
through the issuance of new equity securities, debt or a
32
combination of both. Additional financing may not be available
on favorable terms, or at all. If adequate funds are not
available on acceptable terms, we may be unable to fund our
capital requirements. If we issue new debt securities, the debt
holders would have rights senior to common stockholders to make
claims on our assets, and the terms of any debt could restrict
our operations, including our ability to pay dividends on our
common stock. If we issue additional equity securities, existing
stockholders will experience dilution, and the new equity
securities could have rights senior to those of our common
stock. Because our decision to issue securities in any future
offering will depend on market conditions and other factors
beyond our control, we cannot predict or estimate the amount,
timing or nature of our future offerings. Thus, our stockholders
bear the risk of our future securities offerings reducing the
market price of our common stock and diluting their interest.
If securities
or industry analysts do not publish research or reports about
our business, or if they change their recommendations regarding
our stock adversely, our stock price and trading volume could
decline.
The trading market for our common stock will be influenced by
the research and reports that industry or securities analysts
publish about us or our business. We do not currently have any,
and may never obtain, research coverage by industry or financial
analysts. If no or few analysts commence coverage of us, the
trading price of our stock would likely decrease. Even if we do
obtain analyst coverage, if one or more of the analysts who
covers us downgrades our stock, our stock price would likely
decline. If one or more of these analysts ceases coverage of our
company or fails to regularly publish reports on us, we could
lose visibility in the financial markets, which in turn could
cause our stock price or trading volume to decline.
Provisions of
our certificate of incorporation, bylaws and Delaware law could
deter takeover attempts.
Various provisions in our certificate of incorporation and
bylaws, as they will be in effect following this offering, could
delay, prevent or make more difficult a merger, tender offer,
proxy contest or other attempt to acquire control of our
company. Our stockholders might view any transaction of this
type as being in their best interest since the transaction could
result in a higher stock price than the then-current market
price for our common stock. Among other things, our certificate
of incorporation and bylaws:
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authorize our board of directors to issue shares of preferred
stock and to determine the price and other terms of those
shares, including preferences and voting rights, without
stockholder approval, which could be used to significantly
dilute the ownership of a hostile acquiror;
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divide our board of directors into three classes so that only
approximately one-third of the total number of directors is
elected each year;
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permit directors to be removed only for cause and then only by a
two-thirds vote;
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prohibit stockholders from calling a special meeting of
stockholders;
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prohibit action by written consent of our stockholders; and
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specify advance notice requirements for stockholder proposals
and director nominations.
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In addition, following this offering, we will be subject to the
provisions of Section 203 of the Delaware General
Corporation Law regulating corporate takeovers and which has an
anti-takeover effect with respect to transactions not approved
in advance by our board of directors, including discouraging
takeover attempts that might result in a premium over the market
price for shares of our common stock. In general, those
provisions prohibit a Delaware corporation from engaging in any
business combination with any interested stockholder for a
period of three years following the date that the stockholder
became an interested stockholder, unless:
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the transaction is approved by the board of directors before the
date the interested stockholder attained that status;
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upon consummation of the transaction which resulted in the
stockholder becoming an interested stockholder, the interested
stockholder owned at least 85% of the voting stock of the
corporation outstanding at the time the transaction
commenced; or
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on or after the date the business combination is approved by the
board of directors and authorized at a meeting of stockholders,
and not by written consent by at least two-thirds of the
outstanding voting stock that is not owned by the interested
stockholder.
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In general, Section 203 defines a business combination to
include the following:
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any merger or consolidation involving the corporation and the
interested stockholder;
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any sale, transfer, pledge or other disposition of 10% or more
of the assets of the corporation involving the interested
stockholder;
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subject to certain exceptions, any transaction that results in
the issuance or transfer by the corporation of any stock of the
corporation to the interested stockholder;
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any transaction involving the corporation that has the effect of
increasing the proportionate share of the stock of any class or
series of the corporation beneficially owned by the interested
stockholder; or
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the receipt by the interested stockholder of the benefit of any
loans, advances, guarantees, pledges or other financial benefits
provided by or through the corporation.
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In general, Section 203 defines an interested stockholder
as any entity or person beneficially owning 15% or more of the
outstanding voting stock of the corporation and any entity or
person affiliated with or controlling or controlled by any such
entity or person.
A Delaware corporation may opt out of this provision by express
provision in its original certificate of incorporation or by
amendment to its certificate of incorporation or bylaws approved
by its stockholders. However, we have not opted out of, and do
not currently intend to opt out of, this provision.
Future sales
of shares of our common stock by existing stockholders could
depress the market price of our common stock.
If our existing stockholders sell, or indicate an intent to
sell, substantial amounts of our common stock in the public
market following this offering, the trading price of our common
stock could decline significantly, even below the initial public
offering price. Based on shares outstanding as
of ,
2010, upon completion of this offering, we will have outstanding
approximately shares
of common stock, assuming no exercise of the underwriters
option to purchase additional shares. Our officers, directors
and the holders of substantially all of our common stock have
entered into lock-up agreements with the underwriters
prohibiting them from selling any of their shares for a period
of 180-days
following the date of this prospectus, which period may be
extended for up to 17 days in some circumstances. Goldman,
Sachs & Co. and J.P. Morgan Securities Inc. may,
in their sole discretion, permit our officers, directors,
employees and current stockholders to sell shares prior to the
expiration of the
lock-up
agreements.
After the
lock-up
agreements expire, and based on shares outstanding as
of ,
an
additional shares
will be eligible for sale in the public
market, of
which are held by directors, executive officers and other
affiliates and will be subject to volume limitations under
Rule 144 under the Securities Act of 1933, as amended, or
the Securities Act, and various vesting agreements. In addition,
the shares subject to outstanding options under our 2003 Stock
Option Plan as
of ,
2010, the shares reserved for future issuance under our 2003
Stock Option Plan and 2010 Equity Incentive Plan and shares
issuable upon exercise of warrants will become eligible for sale
in the public market in the future, subject to certain legal and
contractual limitations. If these additional
34
shares are sold, or if it is perceived that they will be sold,
in the public market, the trading price of our common stock
could decline substantially.
A limited
number of stockholders will have the ability to influence the
outcome of director elections and other matters requiring
stockholder approval.
Immediately after this offering, our directors, executive
officers and their affiliated entities will beneficially
own % percent of our outstanding
common stock. These stockholders, if they act together, could
exert substantial influence over matters requiring approval by
our stockholders, including the election of directors, the
amendment of our certificate of incorporation and bylaws and the
approval of mergers or other business combination transactions.
This concentration of ownership may discourage, delay or prevent
a change in control of our company, which could deprive our
stockholders of an opportunity to receive a premium for their
stock as part of a sale of our company and may reduce our stock
price. These actions may be taken even if they are opposed by
other stockholders, including those who purchase shares in this
offering.
Our management
will have broad discretion over the use of the proceeds we
receive in this offering and may not apply the proceeds in ways
that increase the value of your investment.
Our management will have broad discretion to use the net
proceeds from this offering, and you will be relying on the
judgment of our management regarding the application of these
proceeds. Our management may not apply the net proceeds of this
offering in ways that increase the value of your investment. We
intend to use the net proceeds from this offering for working
capital and general corporate purposes, which may include
funding the development of new content and advertising-based
services, as well as funding capital expenditures and operating
losses. We may use a portion of the net proceeds from this
offering to repay borrowings under our credit facilities or
acquire complementary businesses. Until we use the net proceeds
from this offering, we plan to invest them, and these
investments may not yield a favorable rate of return. If we do
not invest or apply the net proceeds from this offering in ways
that enhance stockholder value, we may fail to achieve expected
financial results, which could cause our stock price to decline.
You will
experience immediate and substantial dilution.
The initial public offering price will be substantially higher
than the pro forma net tangible book value of each outstanding
share of common stock immediately after this offering. If you
purchase our common stock in this offering, you will suffer
immediate and substantial dilution. If previously granted
warrants or options are exercised, you will experience
additional dilution. As
of ,
warrants to
purchase shares
of our common stock at a weighted-average exercise price of
$ per share and options to
purchase shares
of common stock at a weighted-average exercise price of
$ were outstanding. For more
information refer to the section of this prospectus entitled
Dilution.
We do not
currently intend to pay dividends on our common stock and,
consequently, your ability to achieve a return on your
investment will depend solely on appreciation in the price of
our common stock.
We have never declared or paid any cash dividends on our common
stock and do not intend to do so for the foreseeable future. We
currently intend to invest our future earnings, if any, to fund
our growth. In addition, the provisions of our credit facilities
prohibit us from paying cash dividends, without first obtaining
the consent of our lender. Therefore, you are not likely to
receive any dividends on your common stock for the foreseeable
future, and the success of an investment in shares of our common
stock will depend upon any future appreciation in their value.
There is no guarantee that shares of our common stock will
appreciate in value or even maintain the price at which our
stockholders have purchased their shares.
35
SPECIAL
NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements that involve
substantial risks and uncertainties. All statements, other than
statements of historical facts, included in this prospectus
regarding our strategy, future operations, future financial
position, future revenue, projected costs, prospects, plans,
objectives of management and expected market growth are
forward-looking statements. The words anticipate,
believe, estimate, expect,
intend, may, plan,
predict, project, will,
would and similar expressions are intended to
identify forward-looking statements, although not all
forward-looking statements contain these identifying words.
These forward-looking statements are subject to all of the
risks, uncertainties and assumptions described under the section
titled Risk Factors and elsewhere in this
prospectus, including, among other things:
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our financial performance, including our revenues, cost of
revenues, operating expenses and ability to achieve and sustain
profitability;
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our rate of revenue growth and our ability to generate
additional revenues in a cost-effective manner;
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our ability to attract and maintain consumers, advertising
customers and partners in a cost-effective manner;
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our ability to produce and acquire content that attracts and
maintains consumers;
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our ability to maintain and enhance our brands;
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the volatile and competitive nature of the Internet and the
advertising industry;
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our success with respect to any future acquisitions;
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our ability to adequately protect our intellectual property;
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any disruptions in our services;
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the effect of government regulations on our business; and
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our ability to retain and hire necessary employees and
appropriately staff our operations.
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We may not actually achieve the plans, intentions or
expectations disclosed in our forward-looking statements, and
you should not place undue reliance on our forward-looking
statements. Actual results or events could differ materially
from the plans, intentions and expectations disclosed in the
forward-looking statements we make. We have included important
factors in the cautionary statements included in this
prospectus, particularly in the Risk Factors
section, that could cause actual results or events to differ
materially from the forward-looking statements that we make. Our
forward-looking statements do not reflect the potential impact
of any future acquisitions, mergers, dispositions, joint
ventures or investments we may make.
You should read this prospectus and the documents that we have
filed as exhibits to the registration statement, of which this
prospectus is a part, completely and with the understanding that
our actual future results may be materially different from what
we expect. We do not assume any obligation to update any
forward-looking statements, whether as a result of new
information, future events or otherwise, except as required by
law.
36
INDUSTRY AND
MARKET DATA
We obtained the industry and market data in this prospectus from
our own research as well as from industry and general
publications and surveys and studies conducted by third parties,
including a study prepared on our behalf by Forrester Research.
The Forrester Research study described herein represents data,
research, opinions or viewpoints prepared by Forrester Research
for us and are not representations of fact. We have been advised
by Forrester Research that its study speaks as of its original
date (and not as of the date of this prospectus) and any
opinions expressed in the study are subject to change without
notice. Industry and general publications, studies and surveys
generally state that the information contained therein has been
obtained from sources believed to be reliable, but there can be
no assurances as to the accuracy or completeness of such
information. With respect to the monthly unique visitor data
provided by comScore, you should note that, beginning in August
2009, comScore adopted a new methodology for calculating unique
visitors. Accordingly, the comScore unique visitor information
contained in this prospectus for periods subsequent to July 2009
reflects the inclusion of unique monthly visitor numbers that
are derived from the use of comScores new methodology.
While we believe that these publications, studies and surveys
are reliable, we have not independently verified the data
contained in them. In addition, while we believe that the
results and estimates from our internal research are reliable,
such results and estimates have not been verified by any
independent source. Moreover, these third parties may, in the
future, alter the manner in which they conduct surveys and
studies regarding the markets in which we operate our business.
As a result, you should carefully consider the inherent risks
and uncertainties associated with the industry and market data
contained in this prospectus, including those discussed under
the heading Risk Factors.
37
USE OF
PROCEEDS
We estimate that we will receive net proceeds from this offering
of approximately $ million,
or $ million if the
underwriters exercise their option to purchase additional shares
in full, based on an assumed initial public offering price of
$ per share, the midpoint of the
estimated price range shown on the cover of this prospectus, and
after deducting estimated underwriting discounts and commissions
and offering expenses payable by us. We will not receive any
proceeds from the sale of shares of common stock by the selling
stockholders.
A $1.00 increase or decrease in the assumed initial public
offering price of $ per share, the
midpoint of the estimated price range shown on the cover of this
prospectus, would increase or decrease the net proceeds to us
from this offering by
$ million, assuming the
number of shares offered by us, as set forth on the cover of
this prospectus, remains the same and after deducting estimated
underwriting discounts and commissions and offering expenses
payable by us.
We intend to use the net proceeds from this offering for working
capital and general corporate purposes, which may include
financing the development of new content and advertising-based
services, as well as funding capital expenditures and operating
losses. We may also use a portion of the net proceeds to repay
borrowings under our credit facilities or acquire complementary
businesses, products or technologies. However, we do not have
agreements or commitments for any specific repayments or
acquisitions at this time, and cannot assure you that we will
make any acquisitions in the future. See the section titled
Managements Discussion and Analysis of Financial
Condition and Results of Operations Long-Term
Debt for a description of our credit facilities which we
may choose to repay with the net proceeds of this offering.
In addition, the other principal purposes for this offering are
to:
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|
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|
|
increase our visibility in the markets we serve;
|
|
|
|
strengthen our balance sheet;
|
|
|
|
create a public market for our common stock;
|
|
|
|
facilitate our future access to the public capital markets;
|
|
|
|
provide liquidity for our existing stockholders;
|
|
|
|
improve the effectiveness of our equity compensation plans in
attracting and retaining key employees; and
|
|
|
|
enhance our ability to acquire complementary businesses or
technologies.
|
We have not yet determined with any certainty the manner in
which we will allocate our net proceeds. Our management will
retain broad discretion in the allocation and use of our net
proceeds of this offering. The amounts and timing of these
expenditures will vary depending on a number of factors,
including the amount of cash generated by our operations,
competitive and technological developments, and the rate of
growth, if any, of our business.
Pending specific utilization of the net proceeds as described
above, we intend to invest the net proceeds of the offering in
short-term investment grade and U.S. government securities.
38
DIVIDEND
POLICY
We have never declared or paid any cash dividends on our capital
stock, and we do not currently intend to pay any cash dividends
on our common stock in the foreseeable future. We expect to
retain future earnings, if any, to fund the development and
growth of our business. In addition, our credit facilities
prohibit us from paying dividends on our common stock, without
first obtaining the consent of our lenders.
39
CAPITALIZATION
The following table sets forth our cash and cash equivalents and
our capitalization as of June 30, 2010:
|
|
|
|
|
on an actual basis;
|
|
|
|
on a pro forma basis to reflect the automatic preferred stock
conversion; and
|
|
|
|
on a pro forma as adjusted basis to further reflect the filing
of our amended and restated certificate of incorporation prior
to the closing of this offering and our issuance and sale
of shares
of common stock in this offering at an assumed initial public
offering price of $ per share, the
midpoint of the estimated price range shown on the cover of this
prospectus, after deducting estimated underwriting discounts and
commissions and offering expenses payable by us and the
application of the net proceeds therefrom as described in
Use of Proceeds.
|
You should read this table together with our financial
statements and the related notes appearing at the end of this
prospectus and the Use of Proceeds and
Managements Discussion and Analysis of Financial
Condition and Results of Operations sections of this
prospectus.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of June 30, 2010
|
|
|
|
|
|
|
|
|
|
Pro Forma
|
|
|
|
Actual
|
|
|
Pro Forma
|
|
|
As Adjusted
|
|
|
|
(in thousands, except share
|
|
|
|
and per share data)
|
|
|
Cash and cash equivalents
|
|
$
|
12,841
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt, including current portion
|
|
$
|
17,000
|
|
|
$
|
|
|
|
|
|
|
Redeemable convertible preferred stock, $0.01 par value;
23,870,811 shares authorized, 23,647,834 shares issued
and outstanding actual; no shares authorized and no shares
issued and outstanding, pro forma; no shares authorized and no
shares issued and outstanding, pro forma as adjusted
|
|
|
130,420
|
|
|
|
|
|
|
|
|
|
Stockholders equity (deficit):
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock, $0.01 par value, no shares authorized and
no shares issued and outstanding, actual; no shares authorized
and no shares issued and outstanding, pro
forma; shares
authorized and no shares issued and outstanding, pro forma as
adjusted
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock, $0.01 par value; 37,000,000 shares
authorized, actual and pro forma; 6,631,294 shares issued
and outstanding, actual; shares
authorized and shares issued and
outstanding, pro forma; shares
authorized
and shares
issued and outstanding, pro forma as adjusted
|
|
|
66
|
|
|
|
|
|
|
|
|
|
Additional paid-in capital
|
|
|
12,458
|
|
|
|
|
|
|
|
|
|
Accumulated deficit
|
|
|
(66,781
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders (deficit) equity
|
|
|
(54,257
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total capitalization
|
|
$
|
93,163
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
40
A $1.00 increase or decrease in the assumed initial public
offering price of $ per share, the
midpoint of the estimated price range shown on the cover of this
prospectus, would increase or decrease pro forma as adjusted
additional paid-in capital and total stockholders equity
by $ million, assuming the
number of shares offered by us, as set forth on the cover of
this prospectus, remains the same and after deducting estimated
underwriting discounts and commissions and offering expenses
payable by us.
The information set forth in the table excludes:
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|
|
|
|
5,116,736 shares of common stock issuable upon exercise of
outstanding options with a weighted-average exercise price of
$4.51 per share;
|
|
|
|
|
|
782,073 shares of common stock reserved for future issuance
under our 2003 Stock Option Plan; provided, however, that
following the completion of this offering, no additional grants
will be awarded under our 2003 Stock Option Plan and such shares
will become available for issuance under our 2010 Equity
Incentive Plan, which we plan to adopt prior to the consummation
of this offering;
|
|
|
|
|
|
shares
of common stock reserved for future issuance under our 2010
Equity Incentive Plan, which we plan to adopt prior to the
consummation of this offering; and
|
|
|
|
222,977 shares of common stock issuable upon the exercise
of outstanding warrants, which includes warrants to purchase our
redeemable convertible preferred stock that will become
exercisable for common stock after this offering, at a
weighted-average exercise price of $5.47 per share.
|
41
DILUTION
If you invest in our common stock, your interest will be diluted
immediately to the extent of the difference between the initial
public offering price per share you will pay in this offering
and the pro forma as adjusted net tangible book value per share
of our common stock after this offering. Net tangible book value
per share represents our total tangible assets less total
liabilities and redeemable convertible preferred stock, divided
by the number of shares of our common stock outstanding.
As
of ,
2010, our net tangible book value was
$ million, or
$ per share of common
stock. On a pro forma basis, after giving effect to the
automatic preferred stock conversion, our tangible book value
would have been
$ million, or
$ per share of common
stock. After giving further effect to our issuance and sale
of shares
of common stock in this offering at an assumed initial public
offering price of $ per share, the
midpoint of the estimated price range shown on the cover of this
prospectus, after deducting estimated underwriting discounts and
commissions and offering expenses payable by us, the pro forma
as adjusted net tangible book value as of June 30, 2010
would have been $ million, or
$ per share. This represents an
immediate increase in pro forma net tangible book value to
existing stockholders of $ per
share. Accordingly, new investors who purchase shares of common
stock in this offering will suffer an immediate dilution of
their investment of $ per share.
The following table illustrates this per share dilution to the
new investors purchasing shares of common stock in this offering:
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|
|
|
|
|
|
|
Assumed initial public offering price per share
|
|
|
|
|
|
$
|
|
|
Net tangible book value per share
at ,
2010, before giving effect to this offering
|
|
$
|
|
|
|
|
|
|
Increase in pro forma net tangible book value per share
attributable to the automatic preferred stock conversion
|
|
|
|
|
|
|
|
|
Pro forma net tangible book value per share as
of ,
2010, before giving effect to this offering
|
|
|
|
|
|
|
|
|
Increase in net tangible book value per share attributable to
new investors purchasing shares in this offering
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma as adjusted net tangible book value per share after
giving effect to this offering
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
Dilution per share to new investors in this offering
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
A $1.00 increase or decrease in the assumed initial public
offering price of $ per share, the
midpoint of the estimated price range shown on the cover of this
prospectus, would increase or decrease the pro forma as adjusted
net tangible book value after this offering by
$ per share and the dilution in
net tangible book value per share to investors in this offering
by $ per share, assuming that the
number of shares offered by us, as set forth on the cover of
this prospectus, remains the same and after deducting estimated
underwriting discounts and commissions and offering expenses
payable by us.
If the underwriters exercise their option to purchase additional
shares in full, the pro forma as adjusted net tangible book
value will increase to $ per
share, representing an immediate increase in pro forma net
tangible book value to existing stockholders of
$ per share and an immediate
dilution in pro forma net tangible book value of
$ per share to new investors.
If all our outstanding stock options and outstanding warrants
are assumed to have been exercised as of June 30, 2010,
assuming the treasury stock method, the pro forma as adjusted
net tangible book value will increase to
$
per share, representing an immediate increase in pro forma net
tangible book value to existing stockholders of
$
per share and an immediate dilution in pro forma net tangible
book value of
$
per share to new investors.
42
The following table summarizes, on the pro forma basis described
above as of June 30, 2010, the differences between the
number of shares of common stock purchased from us, the total
consideration paid to us, and the average price per share paid
by existing stockholders and by new investors purchasing shares
of common stock in this offering. The calculation below is based
on an assumed initial public offering price of
$ per share, the midpoint of the
estimated price range shown on the cover of this prospectus,
before the deduction of estimated underwriting discounts and
commissions and offering expenses payable by us:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
Average
|
|
|
|
Shares Purchased
|
|
|
Consideration
|
|
|
Price
|
|
|
|
Number
|
|
|
Percent
|
|
|
Amount
|
|
|
Percent
|
|
|
per Share
|
|
|
Existing stockholders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
New investors
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The foregoing table and calculations are based on the number of
shares of our common stock outstanding as of June 30, 2010,
after giving effect to the automatic preferred stock conversion,
and excludes:
|
|
|
|
|
5,116,736 shares of common stock issuable upon exercise of
outstanding options with a weighted-average exercise price of
$4.51 per share;
|
|
|
|
|
|
782,073 shares of common stock reserved for future issuance
under our 2003 Stock Option Plan; provided, however, that
following the completion of this offering, no additional grants
will be awarded under our 2003 Stock Option Plan and such shares
will become available for issuance under our 2010 Equity
Incentive Plan, which we plan to adopt prior to the consummation
of this offering;
|
|
|
|
|
|
shares
of common stock reserved for future issuance under our 2010
Equity Incentive Plan, which we plan to adopt prior to the
consummation of this offering; and
|
|
|
|
222,977 shares of common stock issuable upon the exercise
of outstanding warrants, which includes warrants to purchase our
redeemable convertible preferred stock that will become
exercisable for common stock after this offering, at a
weighted-average exercise price of $5.47 per share.
|
The following table summarizes, on the pro forma basis described
above as of June 30, 2010, the differences between the
number of shares of common stock purchased from us, the total
consideration paid to us, and the average price per share paid
by existing stockholders and by new investors purchasing shares
of common stock in this offering. The calculation below is based
on an assumed initial public offering price of
$ per share, the midpoint of the
estimated price range shown on the cover of this prospectus,
before the deduction of estimated underwriting discounts and
commissions and offering expenses payable by us and assuming
that all our outstanding stock options and outstanding warrants
have been exercised as of June 30, 2010.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
Average
|
|
|
|
Shares Purchased
|
|
|
Consideration
|
|
|
Price
|
|
|
|
Number
|
|
|
Percent
|
|
|
Amount
|
|
|
Percent
|
|
|
per Share
|
|
|
Existing stockholders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
New investors
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The foregoing tables do not reflect proceeds to be realized by
existing stockholders in connection with sales made in this
offering. The sale
of shares
of common stock to be sold
43
by the selling stockholders in this offering will reduce the
number of shares held by existing stockholders
to ,
or % of the total shares
outstanding, or
to ,
or % of the total shares
outstanding assuming that all our outstanding stock options and
outstanding warrants had been exercised as of June 30,
2010, and will increase the number of shares held by new
investors
to ,
or % of the total shares
outstanding, or
to ,
or % of the total shares
outstanding assuming that all our outstanding stock options and
outstanding warrants had been exercised as of June 30,
2010. If the underwriters exercise their option to purchase
additional shares in full, the shares held by existing
stockholders will further decrease
to ,
or % of the total shares
outstanding, or
to ,
or % of the total shares
outstanding assuming that all our outstanding stock options and
outstanding warrants had been exercised as of June 30,
2010, and the number of shares held by new investors will
further increase
to ,
or % of the total shares
outstanding, or
to ,
or % of the total shares
outstanding assuming that all our outstanding stock options and
outstanding warrants had been exercised as of June 30, 2010.
44
SELECTED
CONSOLIDATED FINANCIAL DATA
The following tables summarize our consolidated financial data
for the periods presented. You should read the following
selected consolidated financial data in conjunction with our
consolidated financial statements and the related notes
appearing at the end of this prospectus and the
Managements Discussion and Analysis of Financial
Condition and Results of Operations section of this
prospectus.
We derived the consolidated statement of operations data for the
years ended December 31, 2007, 2008 and 2009 and the
consolidated balance sheet data as of December 31, 2008 and
2009 from our audited consolidated financial statements included
elsewhere in this prospectus. We derived the consolidated
statement of operations data for the years ended
December 31, 2005 and 2006 and the consolidated balance
sheet data as of December 31, 2006 and 2007 from our
audited consolidated financial statements, which are not
included in this prospectus. We derived the consolidated balance
sheet data as of December 31, 2005 from our unaudited
consolidated financial statements, which are not included in
this prospectus. We derived the consolidated statement of
operations data for the six months ended June 30, 2009 and
2010 and the consolidated balance sheet data as of June 30,
2010 from our unaudited consolidated financial statements
included elsewhere in this prospectus. We derived the
consolidated statement of operations data for the three months
ended June 30, 2009 and 2010 from our unaudited
consolidated financial statements, which are not included in
this prospectus. Our unaudited consolidated financial statements
have been prepared on the same basis as our audited financial
statements and, in the opinion of our management, include all
adjustments, consisting of normal recurring adjustments and
accruals, necessary for the fair statement of the financial
information set forth in those statements. Our historical
results for any prior periods are not necessarily indicative of
results to be expected for a full year or any future period.
On October 7, 2008, we acquired Revolution Health Group LLC
and its subsidiaries, which we collectively refer to as RHG.
Accordingly, the following tables include RHGs financial
data from the closing date of the acquisition. Our operating
expenses in the fourth quarter of 2008 and the first and second
quarters of 2009 included various transition-related expenses
that we incurred following the closing of the RHG acquisition.
We eliminated a majority of these redundant transition-related
expenses by the beginning of the third quarter of 2009. These
transition-related expenses consisted of:
|
|
|
|
|
compensation for product development, sales and marketing, and
general and administrative personnel who were employed by us for
a short period of time following the RHG acquisition; and
|
|
|
|
third-party product development expenses, such as content
licensing fees, data center costs and other technology-related
expenses.
|
45
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
Three Months Ended
|
|
|
|
Year Ended December 31,
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2005
|
|
|
2006
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
|
(in thousands, except share and per share data)
|
|
|
Consolidated Statement of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
29,687
|
|
|
$
|
33,421
|
|
|
$
|
47,363
|
|
|
$
|
69,412
|
|
|
$
|
90,111
|
|
|
$
|
39,000
|
|
|
$
|
50,567
|
|
|
$
|
20,408
|
|
|
$
|
26,406
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenue
|
|
|
18,714
|
|
|
|
21,830
|
|
|
|
30,111
|
|
|
|
35,229
|
|
|
|
39,453
|
|
|
|
21,492
|
|
|
|
23,652
|
|
|
|
10,092
|
|
|
|
11,608
|
|
Sales and marketing
|
|
|
2,814
|
|
|
|
4,108
|
|
|
|
7,425
|
|
|
|
14,503
|
|
|
|
20,816
|
|
|
|
10,508
|
|
|
|
10,694
|
|
|
|
5,255
|
|
|
|
5,323
|
|
Product development
|
|
|
5,679
|
|
|
|
8,534
|
|
|
|
10,753
|
|
|
|
14,874
|
|
|
|
20,192
|
|
|
|
11,291
|
|
|
|
9,511
|
|
|
|
5,686
|
|
|
|
5,076
|
|
General and administrative
|
|
|
3,617
|
|
|
|
4,318
|
|
|
|
6,859
|
|
|
|
12,906
|
|
|
|
16,239
|
|
|
|
8,121
|
|
|
|
8,736
|
|
|
|
4,214
|
|
|
|
4,587
|
|
Depreciation and amortization
|
|
|
668
|
|
|
|
1,029
|
|
|
|
2,030
|
|
|
|
4,340
|
|
|
|
9,787
|
|
|
|
4,891
|
|
|
|
4,983
|
|
|
|
2,478
|
|
|
|
2,548
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
31,492
|
|
|
|
39,819
|
|
|
|
57,178
|
|
|
|
81,852
|
|
|
|
106,487
|
|
|
|
56,303
|
|
|
|
57,576
|
|
|
|
27,725
|
|
|
|
29,142
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations
|
|
|
(1,805
|
)
|
|
|
(6,398
|
)
|
|
|
(9,815
|
)
|
|
|
(12,440
|
)
|
|
|
(16,376
|
)
|
|
|
(17,303
|
)
|
|
|
(7,009
|
)
|
|
|
(7,317
|
)
|
|
|
(2,736
|
)
|
Interest (expense) income, net
|
|
|
48
|
|
|
|
196
|
|
|
|
(323
|
)
|
|
|
(455
|
)
|
|
|
(1,314
|
)
|
|
|
(374
|
)
|
|
|
(981
|
)
|
|
|
(185
|
)
|
|
|
(491
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before provision for income taxes
|
|
|
(1,757
|
)
|
|
|
(6,202
|
)
|
|
|
(10,138
|
)
|
|
|
(12,895
|
)
|
|
|
(17,690
|
)
|
|
|
(17,677
|
)
|
|
|
(7,990
|
)
|
|
|
(7,502
|
)
|
|
|
(3,227
|
)
|
Provision for income taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(293
|
)
|
|
|
(1,331
|
)
|
|
|
(556
|
)
|
|
|
(554
|
)
|
|
|
(278
|
)
|
|
|
(300
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(1,757
|
)
|
|
$
|
(6,202
|
)
|
|
$
|
(10,138
|
)
|
|
$
|
(13,188
|
)
|
|
$
|
(19,021
|
)
|
|
$
|
(18,233
|
)
|
|
$
|
(8,544
|
)
|
|
$
|
(7,780
|
)
|
|
$
|
(3,527
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.28
|
)
|
|
$
|
(0.98
|
)
|
|
$
|
(1.57
|
)
|
|
$
|
(2.01
|
)
|
|
$
|
(2.89
|
)
|
|
$
|
(2.78
|
)
|
|
$
|
(1.29
|
)
|
|
$
|
(1.19
|
)
|
|
$
|
(0.53
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
(0.28
|
)
|
|
$
|
(0.98
|
)
|
|
$
|
(1.57
|
)
|
|
$
|
(2.01
|
)
|
|
$
|
(2.89
|
)
|
|
$
|
(2.78
|
)
|
|
$
|
(1.29
|
)
|
|
$
|
(1.19
|
)
|
|
$
|
(0.53
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma basic (unaudited)(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(0.63
|
)
|
|
|
|
|
|
$
|
(0.28
|
)
|
|
|
|
|
|
$
|
(0.12
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma diluted (unaudited)(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(0.63
|
)
|
|
|
|
|
|
$
|
(0.28
|
)
|
|
|
|
|
|
$
|
(0.12
|
)
|
Weighted-average common shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
6,309,013
|
|
|
|
6,347,745
|
|
|
|
6,444,696
|
|
|
|
6,559,614
|
|
|
|
6,581,793
|
|
|
|
6,564,654
|
|
|
|
6,625,548
|
|
|
|
6,564,654
|
|
|
|
6,628,408
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
6,309,013
|
|
|
|
6,347,745
|
|
|
|
6,444,696
|
|
|
|
6,559,614
|
|
|
|
6,581,793
|
|
|
|
6,564,654
|
|
|
|
6,625,548
|
|
|
|
6,564,654
|
|
|
|
6,628,408
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma basic (unaudited)(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30,229,627
|
|
|
|
|
|
|
|
30,273,382
|
|
|
|
|
|
|
|
30,276,242
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma diluted (unaudited)(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30,229,627
|
|
|
|
|
|
|
|
30,273,382
|
|
|
|
|
|
|
|
30,276,242
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Pro forma weighted average shares
outstanding reflects the conversion of our redeemable
convertible preferred stock (using the if-converted method) into
common stock as though the conversion had occurred on the
original dates of issuance.
|
46
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months
|
|
|
Three Months
|
|
|
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
Year Ended December 31,
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2005
|
|
|
2006
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
|
(in thousands)
|
|
|
Other Financial Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA
|
|
$
|
(855
|
)
|
|
$
|
(4,986
|
)
|
|
$
|
(6,795
|
)
|
|
$
|
(5,104
|
)
|
|
$
|
(2,664
|
)
|
|
$
|
(9,933
|
)
|
|
$
|
(359
|
)
|
|
$
|
(3,203
|
)
|
|
$
|
696
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation expense included in:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and marketing
|
|
$
|
57
|
|
|
$
|
197
|
|
|
$
|
276
|
|
|
$
|
812
|
|
|
$
|
815
|
|
|
$
|
410
|
|
|
$
|
505
|
|
|
$
|
191
|
|
|
$
|
274
|
|
Product development
|
|
|
152
|
|
|
|
57
|
|
|
|
64
|
|
|
|
492
|
|
|
|
548
|
|
|
|
303
|
|
|
|
187
|
|
|
|
141
|
|
|
|
54
|
|
General and administrative
|
|
|
73
|
|
|
|
129
|
|
|
|
650
|
|
|
|
1,692
|
|
|
|
1,662
|
|
|
|
866
|
|
|
|
788
|
|
|
|
404
|
|
|
|
369
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stock-based compensation expense
|
|
$
|
282
|
|
|
$
|
383
|
|
|
$
|
990
|
|
|
$
|
2,996
|
|
|
$
|
3,025
|
|
|
$
|
1,579
|
|
|
$
|
1,480
|
|
|
$
|
736
|
|
|
$
|
697
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
|
|
As of December 31,
|
|
|
June 30,
|
|
|
|
2005
|
|
|
2006
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
|
(in thousands)
|
|
|
Consolidated Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
2,096
|
|
|
$
|
2,573
|
|
|
$
|
14,249
|
|
|
$
|
25,050
|
|
|
$
|
16,360
|
|
|
$
|
12,841
|
|
Total assets
|
|
|
6,295
|
|
|
|
9,408
|
|
|
|
32,680
|
|
|
|
135,694
|
|
|
|
129,389
|
|
|
|
128,607
|
|
Deferred revenue
|
|
|
3,264
|
|
|
|
3,628
|
|
|
|
3,095
|
|
|
|
6,001
|
|
|
|
6,930
|
|
|
|
9,287
|
|
Long-term debt (including current portion)
|
|
|
|
|
|
|
|
|
|
|
5,941
|
|
|
|
7,597
|
|
|
|
17,000
|
|
|
|
17,000
|
|
Total liabilities
|
|
|
8,109
|
|
|
|
11,127
|
|
|
|
19,905
|
|
|
|
37,230
|
|
|
|
46,203
|
|
|
|
52,444
|
|
Redeemable convertible preferred stock
|
|
|
|
|
|
|
11,348
|
|
|
|
34,702
|
|
|
|
130,420
|
|
|
|
130,420
|
|
|
|
130,420
|
|
Total stockholders equity (deficit)
|
|
|
(1,814
|
)
|
|
|
(13,067
|
)
|
|
|
(21,927
|
)
|
|
|
(31,956
|
)
|
|
|
(47,234
|
)
|
|
|
(54,257
|
)
|
The following table presents a reconciliation of Adjusted EBITDA
to net income (loss), the most comparable GAAP measure, for each
of the periods identified. For additional information, please
see the Definition and Discussion of Adjusted EBITDA in
Prospectus Summary above.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months
|
|
|
Three Months
|
|
|
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
Year Ended December 31,
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2005
|
|
|
2006
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
|
(in thousands)
|
|
|
Reconciliation of Adjusted EBITDA to Net Income (Loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(1,757
|
)
|
|
$
|
(6,202
|
)
|
|
$
|
(10,138
|
)
|
|
$
|
(13,188
|
)
|
|
$
|
(19,021
|
)
|
|
$
|
(18,233
|
)
|
|
$
|
(8,544
|
)
|
|
$
|
(7,780
|
)
|
|
$
|
(3,527
|
)
|
Interest (income) expense, net
|
|
|
(48
|
)
|
|
|
(196
|
)
|
|
|
323
|
|
|
|
455
|
|
|
|
1,314
|
|
|
|
374
|
|
|
|
981
|
|
|
|
185
|
|
|
|
491
|
|
Income tax expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
293
|
|
|
|
1,331
|
|
|
|
556
|
|
|
|
554
|
|
|
|
278
|
|
|
|
300
|
|
Depreciation and amortization expense
|
|
|
668
|
|
|
|
1,029
|
|
|
|
2,030
|
|
|
|
4,340
|
|
|
|
9,787
|
|
|
|
4,891
|
|
|
|
4,983
|
|
|
|
2,478
|
|
|
|
2,548
|
|
Stock-based compensation
|
|
|
282
|
|
|
|
383
|
|
|
|
990
|
|
|
|
2,996
|
|
|
|
3,025
|
|
|
|
1,579
|
|
|
|
1,480
|
|
|
|
736
|
|
|
|
697
|
|
Compensation expense related to acquisition earnout
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
900
|
|
|
|
900
|
|
|
|
187
|
|
|
|
900
|
|
|
|
187
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA
|
|
$
|
(855
|
)
|
|
$
|
(4,986
|
)
|
|
$
|
(6,795
|
)
|
|
$
|
(5,104
|
)
|
|
$
|
(2,664
|
)
|
|
$
|
(9,933
|
)
|
|
$
|
(359
|
)
|
|
$
|
(3,203
|
)
|
|
$
|
696
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
47
MANAGEMENTS
DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion together with our
consolidated financial statements and the related notes included
elsewhere in this prospectus. This discussion contains
forward-looking statements about our business and operations.
Our actual results may differ materially from those we currently
anticipate as a result of many factors, including those we
describe under Risk Factors and elsewhere in the
prospectus. See Special Note Regarding Forward Looking
Statements.
Overview
We are a leading provider of online consumer health solutions.
We provide our consumers, advertisers and partners with content
and advertising-based services across a broad portfolio of over
25 websites that span the health spectrum from
lifestyle offerings in pregnancy, diet and fitness to in-depth
medical content for condition prevention and management. The
depth, breadth and quality of the content on the Everyday
Health portfolio, including our personalized tools and
community features, have enabled us to aggregate a large and
growing base of engaged consumers. Our portfolio of consumer
health websites and large consumer base, along with our
customized advertising-based services, provide advertisers with
a compelling platform to promote their products and services in
a highly-targeted and measurable manner. We have an integrated
approach to running our business. Rather than allocating
resources to individual websites in our portfolio, we share
development, operations and marketing resources across the
entire Everyday Health portfolio. As a result, we enable
our partners to cost-efficiently promote and monetize their
content online.
The Everyday Health portfolio currently consists of over
25 websites, which include websites that we operate and websites
that our partners operate. The websites that we operate include
websites that we own, such as www.EverydayHealth.com,
www.RevolutionHealth.com, www.DailyGlow.com and
www.CarePages.com, and websites that we operate with our
consumer health partners, such as www.JillianMichaels.com,
www.SouthBeachDiet.com and www.WhattoExpect.com.
Under these arrangements, we typically have the exclusive
rights, subject to limited exceptions, to use and market our
partners content online, as well as to determine the
precise methodology for monetizing the content online. In
exchange for these rights, our partners receive royalties based
on the revenue generated from our operation of these websites
and related services. The revenue we generate from the operation
of these websites consists of advertising and sponsorship
revenue, as well as premium services revenue. The royalty rates
we pay vary and, in some cases, we guarantee a minimum annual
royalty payment to our partners. These arrangements are
long-term contracts, most of which have initial five year terms.
Certain of these contracts have varying renewal provisions.
The Everyday Health portfolio also includes websites that
we do not operate but help monetize through advertising and
sponsorships. These websites include a variety of consumer
health websites, such as www.SparkPeople.com,
www.MayoClinic.com and www.MedHelp.org. These
arrangements provide advertisers with additional audience reach
and access to unique content assets. The revenues we generate
through these arrangements consist of advertising and
sponsorship revenue. The royalty rates we pay vary and, in some
cases, we guarantee a minimum annual royalty payment to our
partners. These contractual arrangements generally range from
one to three years in length and require our partner to operate
the website and maintain specific audience levels, in exchange
for a royalty based on the advertising revenue generated by us
on that website.
Our integrated approach to operating our portfolio of websites
allows us to manage our business in an efficient manner. Key
elements of our integrated approach are as follows:
|
|
|
|
|
A significant majority of our advertising and sponsorship
revenue is derived from sales based on the entire Everyday
Health portfolio, not based on one or a select group of
individual websites within the portfolio. This enables us to
provide advertisers with a more compelling platform to reach
their desired audience.
|
48
|
|
|
|
|
We have established marketing, editorial, product management,
customer service and technology resources that are deployed
across the entire Everyday Health portfolio, which allow
us to benefit from economies of scale.
|
|
|
|
We actively cross-promote our content offerings to our
consumers, which enables us to effectively drive consumers
across our portfolio of websites. As a result, we are able to
add new websites to the Everyday Health portfolio and
immediately direct a significant volume of traffic to these
websites in an expedited and cost-effective manner.
|
We allocate our resources based on our judgment on how to best
grow and monetize our consumer audience across the Everyday
Health portfolio.
Background
Information
Key Trends
Affecting Our Business
We believe that there are three key trends that drive our
ability to continue to grow our business:
|
|
|
|
|
Consumers have become increasingly reliant on the Internet for
health information and services, and the consumer health
vertical has become one of the largest and fastest growing
content categories online. We believe this trend will continue,
particularly as current legislative and regulatory initiatives
seek to place a greater degree of emphasis on wellness and
preventive care as a means of controlling and reducing
healthcare costs.
|
|
|
|
Advertisers and marketers in the health category, which include
pharmaceutical and medical device, manufacturers and retailers
of
over-the-counter
products and consumer-packaged-goods and healthcare providers,
are increasingly shifting a greater portion of their spending
online. We believe that the online percentage of the total
health-related consumer advertising market is still relatively
small, and that a significant opportunity exists to grow our
revenues as advertisers allocate more of their marketing
expenditures online.
|
|
|
|
The Internet has enabled consumers to access a wide variety of
premium health-related products and services on a paid
subscription basis. We believe consumer demand for personalized
and authoritative content and services from trusted brands will
continue to increase in the future.
|
Acquisitions
In May 2008, we acquired all of the outstanding equity of
Nurture Media LLC, or Nurture Media, an online search marketing
and consulting business, for a purchase price of
$1.7 million, including $0.1 million of acquisition
costs, which was fully allocated to goodwill. In addition to the
purchase price, the sellers of Nurture Media are eligible to
receive an additional amount of up to $3.8 million based on
our achievement of specified business milestones during the
period from June 2008 through May 2011. These contingent earnout
payments may be paid, at the election of the sellers, in cash or
an equivalent number of shares of our common stock calculated
based on the then current fair market value per share of our
common stock, as determined by our board of directors. Through
June 30, 2010, we have paid the sellers a total of
$1.1 million in cash earnout payments. Payments of the
remaining earnout amounts are also contingent upon the continued
employment of some of the sellers with us. One of these sellers
is no longer employed by us and, as of June 30, 2010, the
maximum future earnout payment is $1.2 million. We have
recorded the earnout payments, and expect to record any future
earnout payments, as compensation expense for the applicable
periods.
In October 2008, we acquired all of the outstanding equity of
RHG. RHG was comprised of a portfolio of websites, which
provided health-related content and services targeted at
consumers and healthcare providers, including
www.RevolutionHealth.com and www.CarePages.com.
The purchase price totaled $72.8 million, consisting of
8,930,966 shares of Series E redeemable convertible
preferred stock valued at $71.3 million, and
$1.5 million of acquisition-related expenses. We
49
accounted for the RHG acquisition as a purchase business
combination and, accordingly, we allocated the purchase price to
the tangible and intangible assets acquired and liabilities
assumed on the basis of their respective fair values. The
Series E redeemable convertible preferred stock will
automatically convert into shares of our common stock upon
consummation of this offering. The results of operations of RHG
have been included in our consolidated financial statements from
October 7, 2008, which was the closing date of the
acquisition.
The RHG acquisition enabled us to significantly increase our
consumer audience. According to comScore, Inc., or comScore, in
the third quarter of 2008, our average monthly unique visitors
totaled 14.68 million. In the fourth quarter of 2008, after
our acquisition of RHG, our average monthly unique visitors
totaled 25.95 million. In addition, we have integrated the
RHG websites, tools and applications into the broader
Everyday Health portfolio to further enhance our value
proposition to both consumers and customers. We believe that the
acquisition and integration of RHG have provided us with a
greater opportunity to market the Everyday Health
portfolio to a larger number of advertisers.
Key
Metrics
We use the following key operating metrics in evaluating our
business performance, allocating resources and making decisions
regarding operating strategies.
|
|
|
|
|
Monthly Unique Visitors. Monthly unique
visitors is the total number of unique consumers that access the
Everyday Health portfolio in a specific calendar month.
Average monthly unique visitors is the total number of unique
visitors for a specified period divided by the number of months
in the period. We use monthly unique visitor metrics to assess
the nature and scope of our content offerings, tools and
applications, the overall growth and composition of our
portfolio of websites and the effectiveness of our marketing
efforts.
|
|
|
|
Total Brands. Total brands is defined as the
approximate number of distinct brands that market their products
and services on our portfolio in a specified period. We use this
metric to evaluate our success in renewing existing brand
contracts and attracting new brands.
|
|
|
|
Advertising and Sponsorship Revenue per
Brand. Advertising and sponsorship revenue per
brand is our total advertising and sponsorship revenue from all
brands that marketed their products and services on the
Everyday Health portfolio during a specific period
divided by the total number of brands that marketed their
products and services on our portfolio in the period. We use
revenue per brand to assess our success in expanding our
advertising and sponsorship relationships and increasing our
market share of advertising dollars from each of our customers.
|
|
|
|
Average Paid Subscribers per Month. A paid
subscriber is a consumer who has paid for access to a premium
content offering on the Everyday Health portfolio.
Average paid subscribers for a specific period is calculated by
taking the average of the individual monthly averages of each
month for such period. An individual months average is
calculated by taking the average of the beginning and ending
number of subscribers in that month. We use this metric to
evaluate the revenue and marketing efforts associated with our
premium, subscription-based services.
|
|
|
|
Average Revenue per Paid Subscriber per
Month. Average revenue per paid subscriber per
month is the total revenue earned in a specific period from
subscriptions to one or more of the websites in the Everyday
Health portfolio divided by the average paid subscribers per
month, as defined above, during that period and further divided
by the number of months in the period. We use this metric in
conjunction with the average paid subscribers per month metric
to evaluate the total revenue generated by our premium,
subscription-based services.
|
50
The following represents our recent performance with respect to
these key metrics:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
Six Months Ended
|
|
|
December 31,
|
|
June 30,
|
|
|
2007
|
|
2008(2)
|
|
2009
|
|
2009
|
|
2010
|
|
Average monthly unique visitors (in thousands)(1)
|
|
|
8,852
|
|
|
|
17,466
|
|
|
|
25,277
|
|
|
|
22,723
|
|
|
|
26,664
|
|
Total brands
|
|
|
323
|
|
|
|
416
|
|
|
|
473
|
|
|
|
287
|
|
|
|
351
|
|
Advertising and sponsorship revenue per brand (in thousands)
|
|
$
|
61
|
|
|
$
|
92
|
|
|
$
|
123
|
|
|
$
|
81
|
|
|
$
|
92
|
|
Average paid subscribers per month (in thousands)
|
|
|
121
|
|
|
|
125
|
|
|
|
120
|
|
|
|
117
|
|
|
|
144
|
|
Average revenue per paid subscriber per month
|
|
$
|
19.11
|
|
|
$
|
19.95
|
|
|
$
|
18.99
|
|
|
$
|
19.36
|
|
|
$
|
18.63
|
|
|
|
|
(1) |
|
Average monthly unique visitors based on comScore data. |
|
(2) |
|
Reflects our acquisition of RHG in October 2008. |
Revenues
We generate revenue from advertising and sponsorship services
and premium services, including subscription fees and, to a much
lesser extent, licensing fees.
The advertisers and sponsors on the Everyday Health
portfolio consist primarily of pharmaceutical and medical
device companies, manufacturers and retailers of
over-the-counter
products and consumer-packaged-goods and healthcare providers,
such as hospitals, dentists and doctors. Our advertising and
sponsorship revenue consists primarily of revenues generated
from:
|
|
|
|
|
display advertisements on websites in the Everyday Health
portfolio and in our free
e-mail
newsletters, which are primarily sold based on a
cost-per-impression advertising model;
|
|
|
|
interactive brand sponsorships, which consist of our integrated
marketing programs and sponsorships that provide advertisers and
marketers the opportunity to integrate their brands and relevant
information into content and tools across the Everyday
Health portfolio, which are primarily sold based on a
cost-per-impression advertising model or a cost-per-visitor
advertising model, and which frequently include a production fee;
|
|
|
|
customer acquisition marketing programs, which are sold based on
the number of qualified leads that are provided to our
advertisers; and
|
|
|
|
stand-alone
e-mails that
are sent on behalf of our advertising customers to consumers who
have opted-in to receive them, which are primarily sold based on
a cost-per-impression advertising model.
|
Our premium services revenue consists primarily of revenues
generated from subscriptions sold to consumers who purchase
access for a defined period of time to one or more of the
websites in the Everyday Health portfolio, or a specific
interactive service or application. Our subscription services
are designed to provide the consumer with the ability to access
consumer health content from well-recognized sources, and to
personalize or customize a specific health or wellness program.
Our premium services also include the revenues generated from
licensing our CarePages social networking application to
healthcare service providers and, to a lesser extent, from the
sale of products and merchandise.
We maintain broad discretion regarding the monetization strategy
for the websites that we operate. In determining the optimal
monetization strategy, we consider a number of factors,
including the websites advertising market potential, the
existing premium service offerings and the competitive
51
landscape. As our portfolio has expanded and our consumer
audience has grown significantly, the mix of our total revenues
from advertising and sponsorship services and premium services
has changed. A significant portion of our revenues is currently
derived from advertising and sponsorship services. In the years
ended December 31, 2007, 2008 and 2009, our advertising and
sponsorship revenue accounted for 41.4%, 55.3% and 64.5% of
total revenues, respectively, and our premium services revenue
accounted for 58.6%, 44.7% and 35.5% of total revenues,
respectively. In the six months ended June 30, 2009 and
2010, our advertising and sponsorship revenue accounted for
59.7% and 63.7% of total revenues, respectively, and our premium
services revenue accounted for 40.3% and 36.3% of total
revenues, respectively. We anticipate that revenues derived from
our advertising and sponsorship services will continue to grow
in the future as a percentage of total revenues. Nonetheless, we
anticipate that revenues from our premium services will continue
to make a meaningful contribution to our total revenues.
Cost of
Revenues, Gross Profit and Gross Margin
Cost of revenues consists primarily of the expenses associated
with aggregating the total consumer audience across the
Everyday Health portfolio. These costs include:
|
|
|
|
|
media costs associated with generating consumer visits to the
websites that we operate, commonly referred to as audience
aggregation;
|
|
|
|
royalty payments to the Everyday Health portfolio
partners; and
|
|
|
|
to a lesser extent, merchant processing transaction costs
associated with subscription fees for our premium services,
merchandise inventory and fulfillment costs, ad serving and
other expenses.
|
Media costs consist primarily of fees paid to online publishers,
Internet search companies and other media channels for search
engine and database marketing and display and television
advertising. These media activities are directly attributable to
revenue-generating and audience aggregation events, designed to
increase the consumer audience to the websites we operate,
increase the number of consumers subscribing to our premium
services and grow our registered user base. Our partner
royalties are generally based on the amount of revenue generated
on the particular website. In some cases, we guarantee the
partner a minimum annual payment.
We carefully monitor our gross profit and gross margin because
they are key indicators of our performance in successfully
aggregating and monetizing our consumer audience across the
entire Everyday Health portfolio. Gross profit is defined
as total revenues minus cost of revenues. Gross margin is our
gross profit as a percentage of our total revenues.
Since our operating decisions are based on aggregating and
monetizing the Everyday Health portfolio as a single
consumer audience, we believe that our aggregate gross profit is
an important measure of our overall performance and do not
believe that the gross profit associated with any individual
website or category of websites is meaningful to an analysis of
our overall operating performance. The gross margin we realize
on revenues generated on our operated websites, however, is
generally higher than the gross margin generated from websites
within our portfolio that are operated by our partners because
we typically pay a higher royalty rate to partners that operate
their own websites, and such royalties are accounted for as a
cost of revenue. At the same time, some of the other costs to
operate the websites in the Everyday Health portfolio,
such as product development expenses, website hosting and
maintenance expenses, are not captured in our cost of revenue,
and, therefore, are not captured in our gross margin
calculation. As a result, we also believe that our Adjusted
EBITDA is an important metric for measuring our overall
financial performance (for a detailed description of Adjusted
EBITDA, please refer to Summary Consolidated Financial
Data Definition and Discussion of Other Financial
Data above).
52
Both our gross profit and gross margin have improved over the
past several years as shown in the table below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
Year Ended December 31,
|
|
June 30,
|
|
|
2007
|
|
2008
|
|
2009
|
|
2009
|
|
2010
|
|
|
(dollars in thousands)
|
|
Revenue
|
|
$
|
47,363
|
|
|
$
|
69,412
|
|
|
$
|
90,111
|
|
|
$
|
39,000
|
|
|
$
|
50,567
|
|
Revenue Growth
|
|
|
41.7%
|
|
|
|
46.5%
|
|
|
|
29.8%
|
|
|
|
28.4%
|
|
|
|
29.7%
|
|
Cost of Revenue
|
|
$
|
30,111
|
|
|
$
|
35,229
|
|
|
$
|
39,453
|
|
|
$
|
21,492
|
|
|
$
|
23,652
|
|
Gross Profit
|
|
$
|
17,252
|
|
|
$
|
34,183
|
|
|
$
|
50,658
|
|
|
$
|
17,508
|
|
|
$
|
26,915
|
|
Gross Margin
|
|
|
36.4%
|
|
|
|
49.3%
|
|
|
|
56.2%
|
|
|
|
44.9%
|
|
|
|
53.2%
|
|
We anticipate that our gross profit is likely to continue to
improve in the future as we continue to aggregate our consumer
audience more efficiently and enhance our monetization
capabilities for the entire Everyday Health portfolio.
While our cost of revenue has increased in recent years, and we
expect these amounts to continue to increase on an absolute
basis in the foreseeable future, we do not believe that any such
increases will negatively impact our gross profit or Adjusted
EBITDA since we anticipate that the growth in our total revenue
will continue to exceed the increase in our cost of revenue. As
further described in the section entitled
Seasonality and Fluctuations in Unaudited Quarterly Results of
Operations below, our gross margin is traditionally lowest
in the first quarter of the year compared to the remaining
quarters as our advertising and sponsorship revenue is lowest
and our marketing expenditures are highest in the first quarter
of the year. These seasonal factors typically contribute to
quarterly improvements in gross margin after the first quarter
of the year.
Operating
Expenses
Sales and Marketing. Sales and marketing
expenses consist primarily of personnel-related costs, including
commissions and non-cash stock compensation, for our account
management, research, marketing, sales analytics and creative
design personnel, as well as fees for third-party professional
marketing and analytical services. As part of our sales and
marketing departments, we have a reporting and analysis group
that analyzes traffic and subscription data to determine the
effectiveness of individual advertising and marketing campaigns.
We expect our sales and marketing expenses to increase in
absolute dollars as we increase the number of sales, sales
support and analytical professionals.
Product Development. Product development
expenses consist of costs related to the products and services
we provide to our consumers, including the costs associated with
the operation and maintenance of the websites in the Everyday
Health portfolio that we operate. These costs include
personnel-related expenses, including non-cash stock
compensation for our editorial, product management, technology
and customer service personnel, as well as fees paid to
editorial and technology consultants and other technology costs.
We expect our investment in product development to increase in
absolute dollars as we continue to increase our editorial,
product development and technology personnel, and as we enhance
our product offerings by creating and licensing content, tools
and applications, but expect product development expense to
decrease as a percentage of revenues.
General and Administrative. General and
administrative expenses consist primarily of personnel-related
expenses, including non-cash stock compensation for our
executive, finance, legal, human resources and other
administrative personnel, as well as accounting and legal
professional fees and other general corporate expenses,
including insurance and facilities expenses. We expect our
general and administrative expenses to increase when we become a
public company as our accounting, legal and personnel-related
expenses and directors and officers insurance costs
increase as we implement and monitor a more comprehensive
corporate governance and compliance program,
53
maintain and assess internal control over financial reporting in
accordance with Section 404 of the Sarbanes-Oxley Act and
prepare and distribute periodic reports.
Depreciation and Amortization. These expenses
consist of depreciation and amortization of property and
equipment and capitalized software and amortization of
intangible assets related to acquisitions.
Interest
(Expense) Income, Net
These amounts consist principally of interest expense with
partially offsetting interest income. Interest expense is
primarily related to our credit facilities. The outstanding
balance of our debt was $17.0 million as of June 30,
2010. We expect interest expense to decline in future periods if
we repay borrowings under our credit facilities with the net
proceeds of this offering. However, our borrowings could
subsequently increase in connection with future capital
requirements.
Income
Taxes
We are subject to tax at the federal, state and local level in
the U.S. and in one foreign jurisdiction. Earnings from our
limited
non-U.S. activities
are subject to local country income tax and may be subject to
U.S. income tax.
As of December 31, 2009, we had approximately
$67.1 million of federal and state net operating loss, or
NOL, carryforwards available to offset future taxable income,
which expire from 2020 through 2029. The full utilization of
these NOL carryforwards in the future will be dependent upon our
ability to generate taxable income and could be limited due to
ownership changes, as defined under the provisions of
Section 382 of the Internal Revenue Code of 1986, as
amended, or the Code. Specifically, Section 382 contains
rules that limit the ability of a company that undergoes
ownership change, which is generally any change in ownership of
more than 50% of its stock over a three-year period, to use its
NOL carryforwards and specified built-in losses recognized in
years after the ownership change. We have completed an analysis
to determine the impact that past ownership changes may have on
our ability to use our NOL carryforwards and have determined
that all but approximately $0.5 million of the
$67.1 million in NOL carryforwards will be available to
offset future taxable income.
As of December 31, 2009, we had gross deferred tax assets
of approximately $32.9 million, related primarily to NOL
carryforwards, and deferred tax liabilities of $4.7 million
related primarily to basis differences in indefinite lived
intangible assets that cannot be offset by deferred tax assets.
We have provided a valuation allowance against the net deferred
tax assets to the extent we have determined that it is more
likely than not that such net deferred tax assets will not be
realizable. If we achieve profitability, the net deferred tax
assets may be available to offset future income tax liabilities.
On January 1, 2007, we adopted the authoritative accounting
guidance prescribing a threshold and measurement attribute for
the financial recognition and measurement of a tax position
taken or expected to be taken in a tax return. The guidance also
provides for de-recognition of tax benefits, classification on
the balance sheet, interest and penalties, accounting in interim
periods, disclosure and transition. The guidance utilizes a
two-step approach for evaluating uncertain tax positions. Step
one is recognition, which requires a company to determine if the
weight of available evidence indicates that a tax position is
more likely than not to be sustained upon audit, including
resolution of related appeals or litigation processes, if any.
If a tax position is not considered more likely than
not to be sustained then no benefits of the position are
to be recognized. Step two is measurement, which is based on the
largest amount of benefit, which is more likely than not to be
realized on ultimate settlement. The adoption of this guidance
did not have a material impact on our financial position,
results of operations or cash flows. Furthermore, as of
December 31, 2009, we did not have any material
unrecognized tax benefits, and we do not expect any significant
increase in unrecognized tax benefits within the next twelve
months.
54
Critical
Accounting Policies and Estimates
Our consolidated financial statements are prepared in accordance
with U.S. generally accepted accounting principles, or
GAAP. The preparation of these consolidated financial statements
requires us to make estimates and assumptions that affect the
reported amounts of assets, liabilities, revenues, costs and
expenses, and related disclosures. These estimates and
assumptions are often based on judgments that we believe to be
reasonable under the circumstances at the time made, but all
such estimates and assumptions are inherently uncertain and
unpredictable. Actual results may differ from those estimates
and assumptions and it is possible that other professionals,
applying their own judgment to the same facts and circumstances,
could develop and support alternative estimates and assumptions
that would result in material changes to our operating results
and financial condition. We evaluate our estimates and
assumptions on an ongoing basis. Our estimates are based on
historical experience and various other assumptions that we
believe to be reasonable under the circumstances.
We believe the following reflects our critical accounting
policies and our more significant judgments and estimates used
in the preparation of our consolidated financial statements.
Revenue
Recognition and Deferred Revenue
We recognize advertising revenue in the period in which the
advertisement is delivered. Our revenue from sponsorship
services is recognized over the period in which we substantially
satisfy our contractual obligations set forth in the relevant
sponsorship agreements. Advertising and sponsorship revenue
accounted for 55.3% and 64.5% of total revenue for the years
ended December 31, 2008 and 2009, respectively. Advertising
and sponsorship revenue accounted for 59.7% and 63.7% of total
revenue for the six months ended June 30, 2009 and 2010,
respectively.
We recognize subscription revenue ratably over the relevant
subscription periods, which are predominantly quarterly, after
deducting refunds and charge-backs. We typically charge each
subscribers credit card for the full price for their
subscription at the commencement of the subscription period and
at each subscription renewal date, unless the consumer cancels
the subscription prior to the renewal date. When consumers sign
up for free-trial subscriptions, we automatically charge their
credit card for a subscription at the end of the free-trial
period unless they cancel before the trial period ends. Once
billed, the revenue is recognized on a straight line basis,
ratably over the subscription period. No revenue is recognized
or allocated to the free-trial period.
We generally recognize licensing revenue ratably over the term
of the contract. We recognize revenue from the sale of products
and merchandise on the Everyday Health portfolio,
including charges for shipping, when products are shipped to
customers, which is when title is deemed to have transferred.
Deferred revenue consists of subscription fees that we have
collected from consumers but for which revenue has not been
recognized and revenue from advertising and sponsorship
services, as well as licensing fees, that we have billed in
advance of when the revenue is to be earned.
Capitalized
Software and Website Development Cost
We incur costs to develop software for internal use. In
accordance with authoritative accounting guidance, we capitalize
costs, consisting principally of payroll, third-party
consultants and related charges, incurred during the application
development stage of a project. Upon completion of a project,
the capitalized costs are amortized using the straight-line
method over their estimated useful lives, which is typically
three years.
We incur costs to develop our website applications. In
accordance with authoritative accounting guidance, we capitalize
costs, consisting principally of payroll and related benefits,
incurred in the application and infrastructure development
stages of website development, as well as the costs of
55
content deemed to be reference material in nature. Upon
completion, these costs are amortized using the straight-line
method over their estimated useful lives, which is typically
three years.
Software and website development costs that do not meet the
criteria for capitalization are expensed as incurred and are
included in product development expense in the consolidated
statements of operations.
Goodwill and
Other Indefinite Lived Intangible Assets
Goodwill and other indefinite lived intangible assets,
specifically trade names, have resulted from our 2008
acquisitions, principally our acquisition of RHG.
Goodwill represents the excess cost over fair value of the
identifiable net tangible and intangible assets acquired. The
amount assigned to trade names is a subjective analysis based on
our estimates of the future benefit of these intangible assets
using acceptable valuation techniques. The estimated fair value
assigned to trade names is computed based on discounted cash
flows using the Relief From Royalty Method, which applies
various assumptions developed by management, including projected
revenues, royalty rates and discount rates.
Goodwill and trade names are tested for impairment on an annual
basis as of October 1, commencing in 2009, and whenever
events or circumstances indicate that the carrying value of the
asset may not be recoverable. Application of the impairment test
requires judgment and results in impairment being recognized if
the carrying value of the asset exceeds its fair value.
The fair value of goodwill is estimated using a combination of
an income approach based on the present value of estimated
future cash flows and a market approach based on revenue and
earnings of comparable publicly-traded companies. Equal
weightings are given to each of the income and market approach
results. As we have one operating segment and one reporting
unit, the first step of the impairment test requires a
comparison of the fair value of our reporting unit, or business
enterprise value as a whole, to the carrying value of our
invested capital. If the carrying amount is higher than the fair
value, there is indication that an impairment may exist and a
second step must be performed. If the carrying amount is less
than the fair value, no indication of impairment exists and a
second step is not performed. The fair value of trade names is
estimated using an income approach based on the present value of
estimated future cash flows.
The evaluation of our goodwill and trade names as of
October 1, 2009 indicated that the carrying value of the
assets was less than the fair value and, accordingly, there was
no impairment loss recognized for the year ended
December 31, 2009. As of June 30, 2010, there were no
indicators of impairment of goodwill or trade names.
Other
Long-Lived Assets
Our long-lived assets, in addition to goodwill and trade names
discussed above, consist of property and equipment and
intangible assets with definite lives. These intangible assets
resulted from our 2008 acquisitions, principally our acquisition
of RHG, and consist of customer relationships and advertising
representation agreements with certain of our partners.
The amount assigned to our definite-lived intangible assets is a
subjective analysis based on our estimates of the future benefit
of these assets using acceptable valuation techniques. The
estimated fair values assigned to our definite-lived intangible
assets are computed based on discounted cash flows using the
Excess Earnings Method, which applies various assumptions
developed by management, including projected revenues, operating
margins, attrition rates and discount rates.
Our property and equipment and definite-lived intangible assets
are amortized over their estimated useful lives, which are
determined based on several factors, primarily the period of
time the asset is expected to remain in service and provide
benefit to us. We review these definite-lived assets for
impairment whenever events or changes in circumstances indicate
that the carrying value of the
56
asset may not be recoverable. There were no indicators of
impairment of these definite-lived assets through
December 31, 2009 or as of June 30, 2010.
Stock-Based
Compensation
Prior to January 1, 2006, we accounted for employee stock
options using the intrinsic value method and disclosure
provisions in accordance with the then current authoritative
accounting guidance. Under the intrinsic value method,
compensation expense is measured on the date of the grants as
the difference between the fair value of our common stock on the
grant date and the exercise price multiplied by the number of
stock options granted.
Effective January 1, 2006, we account for stock-based
compensation in accordance with the current authoritative
accounting guidance, under which stock-based awards, including
stock options, are recorded at fair value as of the grant date
and recognized as compensation expense over the requisite
service period (generally the vesting period), which we have
elected to amortize using the graded attribution method. We
adopted this guidance using the modified retrospective
transition method. Under that transition method, compensation
expense is recognized in the financial statements as if the
recognition of the authoritative accounting guidance had been
applied to all share-based payments granted subsequent to the
original effective date, effectively January 1, 1995. As
such, operating results for the periods prior to 2006 have been
retrospectively adjusted utilizing the stock option fair values
originally determined for the purpose of providing pro forma
disclosures in our prior financial statements.
The following table presents the weighted-average assumptions
used to estimate the fair value of options granted using the
Black-Scholes option pricing model, for the periods presented:
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
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|
Six Months Ended
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|
|
December 31,
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June 30,
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|
2008
|
|
2009
|
|
2009
|
|
2010
|
|
Volatility
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|
|
58.15
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%
|
|
|
52.79
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%
|
|
|
53.11
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%
|
|
|
52.26
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%
|
Expected life (years)
|
|
|
6.25
|
|
|
|
6.25
|
|
|
|
6.25
|
|
|
|
6.25
|
|
Risk-free interest rate
|
|
|
2.38
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%
|
|
|
2.87
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%
|
|
|
2.96
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%
|
|
|
2.71
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%
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Dividend yield
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|
|
0.00
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|
|
|
0.00
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|
|
|
0.00
|
|
|
|
0.00
|
|
As there has been no public market for our common stock prior to
this offering, and therefore a lack of company-specific
historical and implied volatility data, we have determined the
share price volatility for options granted based on an analysis
of reported data for a peer group of companies that granted
options with substantially similar terms. The expected
volatility of options granted has been determined using an
average of the historical realized volatility measures of this
peer group of companies for a period of time commensurate with
the expected term of the option. We intend to continue to
consistently apply this process using the same or similar
entities until a sufficient amount of historical information
regarding the volatility of our own share price becomes
available, or unless circumstances change such that the
identified entities are no longer similar to us. In this latter
case, more suitable entities whose share prices are publicly
available would be utilized in the calculation.
The expected life of options granted has been determined
utilizing the simplified method for determining the expected
life for options qualifying for treatment due to the limited
history we have with option exercise activity. The risk-free
interest rate is based on a U.S. Treasury yield curve rate for
periods equal to the expected term of the stock options. We have
not paid, and do not anticipate paying, cash dividends on our
shares of common stock, and the expected dividend yield is,
therefore, assumed to be zero.
In addition, forfeitures are estimated at the time of grant,
based on our historical forfeiture experience, and revised, if
necessary, in subsequent periods if actual forfeitures differ
from those estimates.
57
The assumptions used in calculating the fair value of
stock-based awards represent our best estimates. These estimates
involve inherent uncertainties and the application of management
judgment. The assumptions we used in the Black-Scholes pricing
model are based on subjective future expectations combined with
management judgment. If any of the assumptions used in this
pricing model change significantly, stock-based compensation for
future awards may differ materially from the awards granted
previously. Additionally, the pricing model fair value of the
awards is based upon the fair value of our underlying common
stock, determined as described below.
The following table summarizes our stock option grants to our
employees and non-employee members of our Board since
January 1, 2008:
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Number of
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|
Common Stock
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|
|
|
Shares Subject
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|
Fair Value per
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|
Intrinsic Value per
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to Options
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|
Exercise Price
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Share at Grant
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Share at Grant
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Grant Date
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Granted
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Per Share
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Date
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Date
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4/11/2008
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1,003,550
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$
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6.18
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$
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5.40
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$
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9/3/2008
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460,600
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6.18
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|
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|
5.64
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12/9/2008
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398,550
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|
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6.18
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|
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4.28
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|
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|
6/15/2009
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|
68,850
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|
|
|
3.55
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|
|
|
3.03
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|
|
|
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|
6/15/2009
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|
|
775,150
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|
|
|
3.33
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|
|
|
3.03
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|
|
|
|
|
6/15/2009
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|
|
250,000
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|
|
|
8.00
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|
|
|
3.03
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|
|
|
|
|
10/5/2009
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|
|
155,900
|
|
|
|
3.06
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|
|
|
4.11
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|
|
|
1.05
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|
10/8/2009
|
|
|
125,000
|
|
|
|
3.06
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|
|
|
4.11
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|
|
|
1.05
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|
12/23/2009
|
|
|
254,700
|
|
|
|
4.11
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|
|
|
4.11
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|
|
|
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|
2/23/2010
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|
|
248,750
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|
|
|
4.77
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|
|
|
4.77
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|
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5/12/2010
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|
160,250
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|
|
|
5.76
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|
|
|
5.76
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|
|
|
|
|
We have historically granted stock options at exercise prices
equal to or greater than the fair value as determined by our
board of directors or compensation committee on the date of
grant, with input from management. Since 2007, the board of
directors or compensation committee has performed a
contemporaneous valuation of our common stock in order to
determine the fair value of our common stock in connection with
stock option grants. In making this determination, the board of
directors or compensation committee considered a number of
factors, including:
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our financial performance;
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|
the price and other terms for our equity financings;
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|
our acquisitions and debt financings, as well as any material
transaction; and
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|
general economic and financial conditions, and the trends
specific to the Internet markets in which we operate.
|
In addition, the board of directors or compensation committee
considered the independent valuations completed by a third party
valuation consultant performed as of the end of each calendar
quarter. In performing these valuations, the independent
valuation consultant typically considered a variety of relevant
factors including, but not limited to, the following:
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|
the nature and history of our company;
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|
the financial and economic conditions affecting the general
economy, our company and our industry;
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our past results, current operations and our future prospects;
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our earnings capacity and dividend-paying capacity;
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the economic benefit to us of both our tangible and intangible
assets;
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58
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the market prices of actively traded interests in public
entities engaged in the same or similar lines of business to us,
as well as sales of ownership interests in entities similar to
us;
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the prices, terms and conditions of past sales of our ownership
interests; and
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the impact on the value of ownership interests in us resulting
from the existence of buy-sell and option agreements, investment
letter stock restrictions, restrictive shareholders agreements
or other such agreements.
|
The independent valuation consultant estimated our firm value
each quarter by utilizing the market
and/or
income approaches. Under the income approach, the discounted
cash flow method was used. When utilizing the market approach,
the independent valuation consultant employed the guideline
transaction and guideline company methods. The application of
the utilized approach was driven by the facts and circumstances
surrounding the relevant valuation date. Details regarding the
specific application of each approach are discussed in the
following paragraphs. While the application of different
methodologies, as further discussed below, may have affected the
ultimate determination of fair value as of each determination
date, we believe that the methodology utilized in each
particular instance was the most appropriate methodology for the
determination of fair value under the circumstances presented.
In each valuation, the independent valuation consultant
allocated the firm value across the capital structure using an
option pricing model, which recognizes the economic
characteristics of each security and assigns value to each class
based on those characteristics. A lack of marketability discount
has been applied to the common stock in each valuation in order
to recognize the inherent illiquidity in holding stock of a
privately held company.
In instances where there were recent transactions in our
preferred stock, the guideline transaction method, a variant of
the market approach, was used. This method was used as the
primary method for each valuation from the beginning of 2008
through and including the first quarter of 2009. Under this
method, the implied firm value from the most recent preferred
stock transaction was derived, and trended, where appropriate,
to the valuation date based on an analysis of company, industry,
and market conditions. The trending analysis reviewed, among
other factors: (1) company-specific milestones;
(2) our performance relative to managements
projections; (3) changes in pricing of broad market and
technology indices, specifically the S&P 500 and Nasdaq;
and (4) changes in equity pricing of a reasonably
comparable group of companies. The peer group consists of
publicly-traded Internet companies with advertising
and/or
subscription based revenue models. The peer group originally
consisted of five companies, but acquisitions reduced the
original sample size to four in 2008 and then three in 2009.
When the sample size reached three, a new company was added to
make the sample size more meaningful from a statistical
perspective. The addition of a new company to the peer group did
not have a material impact on the valuation of our common stock
for the applicable periods.
Beginning with the second quarter 2009 valuation, the
combination of the difficult economic environment and the time
that had lapsed between the most recent preferred stock
transaction and the valuation date precluded use of the trended
firm value implied from the latest transaction. As such, the
discounted cash flow method was utilized to estimate our firm
value for quarterly valuations, including, and subsequent to,
June 30, 2009. In conducting the discounted cash flow
analysis, the independent valuation consultant relied upon
income statement projections provided by management. Financial
statistics from peer companies were used to check the
reasonableness of the assumptions, as well as to provide
guidance in developing our appropriate discount rate.
In the third quarter of 2009, we notified the independent
valuation consultant that we were considering an initial public
offering, or IPO, with a potential target date of the second
quarter of 2010. As a result, beginning with the third quarter
2009 valuation, a potential IPO has been factored into the
valuation consultants analysis via the market approach,
whereby our firm value is estimated utilizing the guideline
company method by assigning valuation multiples to us based on
comparisons to the peer group. The market approach has been used
in conjunction with the discounted cash flow method since the
third quarter of 2009. In estimating the common stock value, the
independent consultant has
59
assigned a probability to each of the income and market-based
approaches based on an analysis of prevailing IPO market
conditions and input from management.
A brief narrative of estimated fair value as of the date of each
grant and the option exercise price are set forth below:
April 2008. On April 11, 2008, we granted
1,003,550 options at an exercise price of $6.18 per share. The
independent valuation consultant estimated the fair value of our
common stock as of March 31, 2008 to be $5.40 per share. In
estimating the fair value of our common stock as of
March 31, 2008, the independent valuation consultant noted
that our estimated revenue and Adjusted EBITDA for the first
quarter of 2008 was expected to exceed our budgeted figures for
the first quarter of 2008 and the fact that we had renewed a
major contract in the first quarter of 2008. In addition, the
independent valuation consultants analysis also reflected
the fact that four of the five companies in the set of peer
companies had experienced share declines, as well as the fact
that the S&P 500 index and the Nasdaq index had declined by
approximately 9.9% and 14.1%, respectively. The compensation
committee, based on its review of the factors cited above,
determined that the fair value of our common stock on
April 11, 2008 was $5.40 per share. The compensation
committee, however, elected to set the exercise price for the
options granted on April 11, 2008 at $6.18 per share
and above the fair value determination of our common stock so
that the option recipients were issued options with the same
exercise price as the individuals who received option grants at
the end of 2007. The exercise price of $6.18 per share used for
the grants at the end of 2007 was based on the price per share
paid for our common stock in an arms-length transaction
pursuant to which certain of our existing stockholders sold
common stock to a new investor at a negotiated purchase price of
$6.18 per share in the third quarter of 2007.
September 2008. On September 3, 2008, we
granted 460,600 options at an exercise price of $6.18 per share.
The independent valuation consultant estimated the fair value of
our common stock as of June 30, 2008 to be $5.64 per share.
The increase in fair value from $5.40 per share at
March 31, 2008 to $5.64 per share at June 30, 2008
reflected our acquisition of Nurture Media in May 2008, as well
as our positive revenue performance in the second quarter of
2008 relative to budget. This increase also reflected changes
in the stock prices for the peer set of companies and the
decrease of approximately 3.2% in the S&P 500 index
and the increase of approximately 0.6% in the Nasdaq index. The
compensation committee, based on its review of the factors cited
above, determined that the fair value of our common stock as of
September 3, 2008 was $5.64 per share. Since the fair value
determination of our common stock at June 30, 2008 was not
substantially higher than the fair value determination of our
common stock at the end of the prior March 31, 2008
quarter, namely $5.40 per share, and continued to be lower than
the $6.18 exercise price used for the April 2008 option grants,
the compensation committee elected to retain the $6.18 exercise
price for the September 2008 option grants and to grant these
options with an exercise price above the fair value
determination of our common stock in order to maintain parity
with respect to the exercise price of options granted in the
prior quarter.
December 2008. On December 9, 2008, we
granted 398,500 options at an exercise price of $6.18 per share.
The independent valuation consultant estimated the fair value of
our common stock as of September 30, 2008 to be $4.28 per
share. In October 2008, we acquired RHG. The consideration for
the RHG acquisition consisted of the issuance of our
Series E redeemable convertible preferred stock valued at a
price per share of $7.98. Subsequent to the RHG acquisition and
prior to December 9, 2008, we also sold shares of
Series F redeemable convertible preferred stock at a price
per share of $7.61. Given the proximity of our issuance of
Series E and Series F redeemable convertible preferred
stock to September 30, 2008, the independent valuation
consultant incorporated those transactions into its valuation of
our common stock as of September 30, 2008 and the price of
the Series F redeemable convertible preferred stock was used as
a benchmark in the corporate securities valuation model. Based
on this assessment, the independent valuation consultant
estimated a reduced common stock fair value of $4.28 per share
as of September 30, 2008 as compared to an estimated fair
value of $5.64 per share as of June 30, 2008. This
reduction in fair value was primarily due to the dilution and
additional liquidation preferences, totaling
60
approximately $38 million in the aggregate, associated with
the newly issued Series E and Series F redeemable
convertible preferred shares. Based on its review of the factors
cited above, the compensation committee determined that the fair
value of our common stock on December 9, 2008 was $4.28 per
share. Nonetheless, in light of the proximity to the sale of the
Series E and Series F redeemable convertible preferred
stock, and the desire to maintain a consistent exercise price to
the grants made two months earlier, the compensation committee
elected to retain the $6.18 exercise price for the
December 9, 2008 grants and to grant these options with an
exercise price above the fair value determination of our common
stock.
June 2009. On June 15, 2009, we granted
(i) 68,850 options at an exercise price of $3.55 per share;
(ii) 775,150 options at an exercise price of $3.33 per
share and (iii) 250,000 options at an exercise price of
$8.00 per share. The independent valuation consultant estimated
the fair value of our common stock to be $3.03 per share as of
March 31, 2009 and $3.23 per share as of December 31,
2008. The independent valuation consultants estimated
common stock fair value as of December 31, 2008 of $3.23
per share, as compared to $4.28 per share as of
September 30, 2008, reflected a variety of internal and
external factors. With respect to internal factors, the
independent valuation consultant noted that our revenues and
Adjusted EBITDA in the fourth quarter of 2008 were unfavorable
as compared to the budgeted figure, as well as the fact that the
Adjusted EBITDA for the full year 2008 was unfavorable as
compared to budget. In addition, the independent valuation
consultants analysis reflected the fact that three of the
four companies in the peer companies set had experienced
share declines and that in the fourth quarter of 2008 the
S&P 500 and Nasdaq indices had decreased approximately
22.5% and 24.6%, respectively. Likewise, the independent
valuation consultant noted the worsening market conditions,
characterized by the failure or distressed sale of major U.S.
banks, the passage of the Emergency Economic Stabilization Act
of 2008 and the U.S. government providing emergency capital to a
number of financial institutions. The independent valuation
consultants estimated common stock fair value as of
March 31, 2009 of $3.03 per share, as compared to $3.23 per
share as of December 31, 2008, reflected further negative
changes in the overall market condition and our financial
performance. Specifically, the independent valuation consultant
noted that our revenues for the first quarter of 2009 were
unfavorable as compared to budget, although our Adjusted EBITDA
was favorable as compared to budget. During the first quarter
of 2009, all of the companies in the peer companies set
had experienced share price declines, ranging from 1% to 34%,
and the S&P 500 and Nasdaq indices had experienced
further declines of approximately 11.7% and 3.1%, respectively.
In addition, during the first quarter of 2009, the independent
valuation consultant noted the prevailing recessionary economic
environment brought on by the collapse of the housing market and
a significant reduction in the availability of credit. The
compensation committee, based on its review of the factors cited
above, determined on June 15, 2009 that the fair value of
our common stock as of such date was $3.03 per share. Despite
this determination, the compensation committee elected to issue
options to certain of our executive officers at an exercise
price of $8.00 per share. The compensation committees
election to grant these options at a significantly higher
exercise price than the $3.03 fair value determination was based
on a desire to create significant incentives for these executive
officers to increase shareholder value. Similarly, the grants
above fair value with an exercise price of $3.33 per share
related to events, such as commencement of employment or
promotions, that had occurred in the first quarter of 2009, and
the grants above fair value with an exercise price of
$3.55 per share related to activity that occurred in the
fourth quarter of 2008. In both instances, the compensation
committee elected to grant these options at an exercise price
above the common stock fair value determination of
$3.03 per share on June 15, 2009. The exercise price
for the option grants that related to activity in the fourth
quarter of 2008 was equal to 110% of the fair value of
$3.23 per share as of December 31, 2008. Likewise, the
exercise price for the option grants that related to activity in
the first quarter of 2009 was equal to 110% of the fair value of
$3.03 per share as of March 31, 2009.
October 2009. On October 5, 2009, we
granted 155,900 options at an exercise price of $3.06 per share.
On October 8, 2009, we granted 125,000 options at an
exercise price of $3.06 per share. The independent valuation
consultant estimated the fair value of our common stock as of
June 30,
61
2009, which was the most recently-completed valuation, to be
$2.78 per share. The independent valuation consultants
decrease in the estimated common stock fair value from
$3.03 per share as of March 31, 2009 to $2.78 per
share as of June 30, 2009, reflected our financial
performance in the second quarter of 2009 and the price trends
for the peer set of companies and both the S&P 500 and
Nasdaq indices. Specifically, the independent valuation
consultant noted that, in the second quarter of 2009, our
revenues and Adjusted EBITDA were unfavorable as compared to the
budgeted figures. In addition, the independent valuation
consultant noted that all companies in the peer companies
set had experienced share price changes, ranging from a decline
of 4% to an increase of 34%. The S&P 500 and Nasdaq
indices, however, experienced increases of approximately
15.2% and 20.0%, respectively. Based on its review of the
factors cited above, the compensation committee determined on
October 5, 2009 that the fair value of our common stock was
$2.78 per share as of such date. Nonetheless, the
compensation committee once again elected to grant these options
at an exercise price equal to 110% of the fair value of $2.78
per share. However, subsequent to these option grants in early
October 2009, the independent valuation consultant
completed the valuation of our common stock as of
September 30, 2009. Upon completion, this report was
delivered to the compensation committee in December 2009. As
noted above, the independent valuation consultant utilized two
methods for estimating the fair value of our common stock as of
September 30, 2009. In connection with the
September 30, 2009 valuation, the independent valuation
consultant recognized the potential for our IPO in the valuation
by assigning it a 50% probability based on an analysis of market
conditions and input from management. The independent valuation
consultant estimated the fair value of our common stock as of
September 30, 2009 to be $4.11 per share. In addition to
the probability ratio related to an IPO being completed, the
independent valuation consultant also considered internal and
external factors in estimating the fair value of our common
stock as of September 30, 2009. Specifically, the
independent valuation consultant noted that our revenues were
unfavorable as compared to budget and that our Adjusted EBITDA
in the third quarter was positive although unfavorable as
compared to budget. Likewise, the independent valuation
consultant noted that the companies in the peer companies
set had experienced share price increases ranging from 11% to
84% in the third quarter of 2009, and in that same period the
S&P 500 and Nasdaq indices had experienced increases of
15.0% and 15.7%, respectively. As a result, and despite the
compensation committees determination on October 5,
2009 that the fair value of our common stock was $2.78 per
share, we have used the estimated fair value of $4.11 per share
to reflect these option grants in our financial results and to
recognize the appropriate compensation expense associated with
these grants.
December 2009. On December 23, 2009, we
granted 254,700 options at an exercise price of $4.11 per share.
As noted above, the probability of completing an IPO had been
reflected in the analysis prepared by the independent valuation
consultant as of September 30, 2009. The compensation
committee concluded that, based on our financial performance in
the fourth quarter of 2009, as well as its review of the factors
cited above and the fact that there remained significant
uncertainty in the financial markets and specifically the
potential for completing an IPO, the fair value of our common
stock as of December 23, 2009 should remain at $4.11 per
share despite the passage of time since September 30, 2009.
February 2010. On February 23, 2010, we
granted 248,750 options at an exercise price of $4.77 per
share. The independent valuation consultant estimated the fair
value of our common stock as of December 31, 2009 to be
$4.77 per share. In connection with the December 31, 2009
valuation, the independent valuation consultant again recognized
the potential for our IPO in the valuation by assigning it a 50%
probability. In addition to the probability ratio related to an
IPO being completed, the independent valuation consultant also
considered internal and external factors in estimating the fair
value of our common stock as of December 31, 2009.
Specifically, the independent valuation consultant noted that
during the fourth quarter of 2009 the peer companies set
had experienced share price changes ranging from a loss of
approximately 24% to a gain of approximately 16%. Likewise, the
independent valuation consultant noted that the S&P 500 and
Nasdaq indices had experienced increases of approximately 5.5%
and 6.9%, respectively, in the fourth quarter of 2009. In
addition, the independent valuation consultants analysis
reflected that our revenues and Adjusted
62
EBITDA in the fourth quarter of 2009 were favorable as compared
to budget. The board of directors and compensation committee
determined that, based on our financial performance and a review
of the factors cited above, as well as the fact that there
continued to be significant uncertainty in the financial markets
and specifically the potential for completing an IPO, the fair
value of our common stock as of February 23, 2010 should
remain at $4.77 per share despite the passage of time since
December 31, 2009.
May 2010. On May 12, 2010, we granted
160,250 options at an exercise price of $5.76 per share.
The independent valuation consultant estimated the fair value of
our common stock as of March 31, 2010 to be $5.76 per
share. In connection with the March 31, 2010 valuation, the
independent valuation consultant increased the probability of an
IPO being completed from 50% to 75% based on input from
management and an analysis of recent market conditions,
including recent IPO activity. In addition to increasing the IPO
probability ratio, the independent valuation consultant
considered internal and external factors in estimating the fair
value of our common stock as of March 31, 2010.
Specifically, the independent valuation consultant noted that,
during the first quarter of 2010, the peer companies set
had experienced share price changes ranging from a loss of
approximately 22% to a gain of approximately 54%. Likewise, the
independent valuation consultant noted that the S&P 500 and
Nasdaq indices had experienced increases of approximately 4.9%
and 5.7%, respectively, in the first quarter of 2010. In
addition, the independent valuation consultants analysis
reflected that our revenues and Adjusted EBITDA in the first
quarter of 2010 were favorable as compared to budget. The
compensation committee determined that, based on our financial
performance and a review of the factors cited above, as well as
the fact that there continued to be significant uncertainty in
the financial markets and specifically the potential for
completing an IPO, the fair value of our common stock as of
May 12, 2010 should remain at $5.76 per share despite the
passage of time since March 31, 2010.
Results of
Operations
The following table sets forth our consolidated statement of
operations data for the periods presented. In the table below
and throughout this discussion and analysis, consolidated
statements of operations data for the years ended
December 31, 2007, 2008 and 2009 have been derived from our
audited consolidated financial statements. The consolidated
statement of operations data for the six months ended
June 30, 2009 and 2010 have been derived from our unaudited
consolidated financial statements included elsewhere in this
prospectus. Our unaudited consolidated financial statements have
been prepared on the same basis as our audited financial
statements and, in the opinion of our management, include all
adjustments, consisting of normal recurring adjustments and
accruals, necessary for the fair statement of the financial
information set forth in those statements. The information
contained in the table below should be read in conjunction with
our consolidated financial statements and related notes
contained elsewhere in this prospectus.
On October 7, 2008, we acquired RHG. Accordingly, the
following table includes RHGs financial data from the
closing date of the acquisition. Our operating expenses in the
fourth quarter of 2008 and the first and second quarters of 2009
included various transition-related expenses that we incurred
following the closing of the RHG acquisition. We eliminated a
majority of these redundant transition-related expenses by the
beginning of the third quarter of 2009. These transition-related
expenses consisted of:
|
|
|
|
|
compensation for product development, sales and marketing, and
general and administrative personnel who were employed by us for
a short period of time following the RHG acquisition; and
|
|
|
|
third-party product development expenses, such as content
licensing fees, data center costs and other technology-related
expenses.
|
63
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
|
Year Ended December 31,
|
|
|
June 30,
|
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
2009
|
|
|
2010
|
|
|
|
(in thousands, except share and per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated Statement of
Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
47,363
|
|
|
$
|
69,412
|
|
|
$
|
90,111
|
|
|
$
|
39,000
|
|
|
$
|
50,567
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenue
|
|
|
30,111
|
|
|
|
35,229
|
|
|
|
39,453
|
|
|
|
21,492
|
|
|
|
23,652
|
|
Sales and marketing
|
|
|
7,425
|
|
|
|
14,503
|
|
|
|
20,816
|
|
|
|
10,508
|
|
|
|
10,694
|
|
Product development
|
|
|
10,753
|
|
|
|
14,874
|
|
|
|
20,192
|
|
|
|
11,291
|
|
|
|
9,511
|
|
General and administrative
|
|
|
6,859
|
|
|
|
12,906
|
|
|
|
16,239
|
|
|
|
8,121
|
|
|
|
8,736
|
|
Depreciation and amortization
|
|
|
2,030
|
|
|
|
4,340
|
|
|
|
9,787
|
|
|
|
4,891
|
|
|
|
4,983
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
57,178
|
|
|
|
81,852
|
|
|
|
106,487
|
|
|
|
56,303
|
|
|
|
57,576
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(9,815
|
)
|
|
|
(12,440
|
)
|
|
|
(16,376
|
)
|
|
|
(17,303
|
)
|
|
|
(7,009
|
)
|
Interest expense, net
|
|
|
(323
|
)
|
|
|
(455
|
)
|
|
|
(1,314
|
)
|
|
|
(374
|
)
|
|
|
(981
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before provision for income taxes
|
|
|
(10,138
|
)
|
|
|
(12,895
|
)
|
|
|
(17,690
|
)
|
|
|
(17,677
|
)
|
|
|
(7,990
|
)
|
Provision for income taxes
|
|
|
|
|
|
|
(293
|
)
|
|
|
(1,331
|
)
|
|
|
(556
|
)
|
|
|
(554
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(10,138
|
)
|
|
$
|
(13,188
|
)
|
|
$
|
(19,021
|
)
|
|
$
|
(18,233
|
)
|
|
$
|
(8,544
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(1.57
|
)
|
|
$
|
(2.01
|
)
|
|
$
|
(2.89
|
)
|
|
$
|
(2.78
|
)
|
|
$
|
(1.29
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
(1.57
|
)
|
|
$
|
(2.01
|
)
|
|
$
|
(2.89
|
)
|
|
$
|
(2.78
|
)
|
|
$
|
(1.29
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma basic (unaudited)(1)
|
|
|
|
|
|
|
|
|
|
$
|
(0.63
|
)
|
|
|
|
|
|
$
|
(0.28
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma diluted (unaudited)(1)
|
|
|
|
|
|
|
|
|
|
$
|
(0.63
|
)
|
|
|
|
|
|
$
|
(0.28
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average common shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
6,444,696
|
|
|
|
6,559,614
|
|
|
|
6,581,793
|
|
|
|
6,564,654
|
|
|
|
6,625,548
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
6,444,696
|
|
|
|
6,559,614
|
|
|
|
6,581,793
|
|
|
|
6,564,654
|
|
|
|
6,625,548
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma basic (unaudited)(1)
|
|
|
|
|
|
|
|
|
|
|
30,229,627
|
|
|
|
|
|
|
|
30,273,382
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma diluted (unaudited)(1)
|
|
|
|
|
|
|
|
|
|
|
30,229,627
|
|
|
|
|
|
|
|
30,273,382
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Pro forma weighted average shares outstanding reflects the
conversion of our redeemable convertible preferred stock (using
the if-converted method) into common stock as though the
conversion had occurred on the original dates of issuance. |
Comparison of Six
Months Ended June 30, 2010 and 2009
Revenue
Our total revenues increased 29.7% to $50.6 million during
the six months ended June 30, 2010 from $39.0 million
during the same period in 2009. The increase in advertising and
sponsorship revenue accounted for $8.9 million, or 77.2%,
of our $11.6 million overall revenue increase.
Advertising and sponsorship revenue increased 38.3% to
$32.2 million during the six months ended June 30,
2010 from $23.3 million during the same period in 2009. The
increase in advertising and sponsorship revenue was primarily
attributable to an increase in the number of brands that
advertised on the Everyday Health portfolio, when
compared to the six months ended June 30, 2009.
64
The total number of brands that marketed their products and
services on our portfolio during the six months ended
June 30, 2010 was approximately 351, or 22.3% more than the
approximately 287 total number of brands that marketed their
products and services on our portfolio during the same period in
2009. The advertising and sponsorship revenue per brand
increased from approximately $81,000 for the six months ended
June 30, 2009 to approximately $92,000 for the six months
ended June 30, 2010, an increase of 13.6%. For the six
months ended June 30, 2010, one advertiser accounted for
10% or more of total advertising and sponsorship revenue.
Premium services revenue increased 16.8% to $18.3 million
during the six months ended June 30, 2010 from
$15.7 million during the same period in 2009. The increase
was primarily attributable to a $2.5 million increase in
subscription fee revenue from $13.6 million during the six
months ended June 30, 2009 to $16.1 million during the
same period in 2010. The increase in subscription fee revenue
was primarily due to an increase in our average paid subscribers
per month to approximately 144,000 during the six months ended
June 30, 2010, compared to approximately 117,000 in the
same period in 2009. This increase was partially offset by lower
average revenue per paid subscriber per month, which was $19.36
during the six months ended June 30, 2009, compared to
$18.63 during the same period in 2010. The lower average revenue
per paid subscriber per month during the six months ended
June 30, 2010 resulted from a larger portion of our
subscriptions generated from billing plans with a slightly lower
subscription fee.
Costs and
Expenses
Cost of Revenues. Cost of revenues increased
10.1% to $23.7 million during the first six months of 2010
from $21.5 million during the same period in 2009. The
$2.2 million increase in cost of revenues was primarily
attributable to an increase in media expense of
$3.2 million from increased marketing activities during the
first six months of 2010 compared to the same period in 2009,
partially offset by a decrease of $1.2 million in royalties
to our partners. Cost of revenues as a percentage of revenue
improved to 46.8% during the first six months of 2010, compared
to 55.1% during the same period in 2009.
Sales and Marketing. Sales and marketing
expense increased 1.8% to $10.7 million during the first
six months of 2010 from $10.5 million during the same
period in 2009. This increase was due to higher levels of
compensation expenses associated with increased advertising and
sponsorship revenue during the first six months of 2010 compared
to the same period in 2009, which were partially offset by a
reduction in expenses for transition-related costs incurred in
the first six months of 2009 resulting from our acquisition of
RHG in October 2008.
Product Development. Product development
expense decreased 15.8% to $9.5 million during the first
six months of 2010 from $11.3 million during the same
period in 2009. The $1.8 million decrease in product
development expense was primarily due to the elimination of
certain transition-related product development expenses incurred
in the first six months of 2009 resulting from our acquisition
of RHG and, to a lesser extent, a decrease in third-party
licensed content expenses for our portfolio of websites.
General and Administrative. General and
administrative expense increased 7.6% to $8.7 million
during the first six months of 2010 from $8.1 million
during the same period in 2009. This $0.6 million increase
was primarily due to increases in personnel and related
compensation expenses, facilities, and legal and professional
expenses, partially offset by the elimination of certain
transition-related general and administrative expenses incurred
in the first six months of 2009 resulting from our acquisition
of RHG.
Depreciation and Amortization. Depreciation
and amortization expense increased 1.9% to $5.0 million
during the first six months of 2010 from $4.9 million
during the same period in 2009. This
65
expense consists primarily of depreciation and amortization
expense of property and equipment, as well as $1.2 million
of amortization expense of intangible assets.
Interest Expense. Interest expense, net,
increased 162.3% to $1.0 million during the first six
months of 2010, compared to $0.4 million during the same
period in 2009. The $0.6 million increase in interest
expense was primarily due to an increase in outstanding
borrowings under our credit facility. Additionally, there was a
nominal amount of interest income generated in the six months
ended June 30, 2010 and 2009.
Income Tax Provision. The provision for income
taxes was approximately $0.6 million during the first six
months of 2010 and 2009. The provision pertains primarily to
deferred income taxes related to basis differences in indefinite
lived intangible assets that could not be offset by current year
deferred tax assets.
Comparison of
Years Ended December 31, 2009 and 2008
Revenue
Our total revenues increased 29.8% to $90.1 million in 2009
from $69.4 million in 2008. The increase in advertising and
sponsorship revenue accounted for $19.7 million, or 95.3%,
of our $20.7 million overall revenue increase.
Advertising and sponsorship revenue increased 51.4% to
$58.1 million in 2009 from $38.4 million in 2008. The
increase in advertising and sponsorship revenue was primarily
attributable to an increase in the number of brands that
advertised on the Everyday Health portfolio, as well as
an increase in the advertising and sponsorship revenue per
brand, when compared to the year ended December 31, 2008.
The total number of brands that marketed their products and
services on our portfolio in 2009 was approximately 473, or
13.7% more than the approximately 416 total number of brands
that marketed their products and services on our portfolio in
2008. The advertising and sponsorship revenue per brand
increased from approximately $92,000 in 2008 to approximately
$123,000 in 2009, an increase of 33.7%. For the year ended
December 31, 2009, no advertiser accounted for 10% or more
of total advertising and sponsorship revenue. For the year ended
December 31, 2008, one advertiser accounted for 10% or more
of total advertising and sponsorship revenue.
Premium services revenue increased 3.2% to $32.0 million in
2009 from $31.0 million in 2008. This $1.0 million
increase was primarily attributable to a $3.6 million
increase in license fee revenue in connection with the
RHG acquisition in October 2008, as we did not generate
license fee revenue prior to such acquisition, partially offset
by a $2.6 million decrease in subscription fee revenue from
$29.9 million in 2008 to $27.3 million in 2009. The
decrease in subscription fee revenue was primarily due to a
decrease in our average paid subscribers per month to
approximately 120,000 in 2009, compared to approximately 125,000
in 2008, and a lower average revenue per paid subscriber per
month of $18.99 in 2009, compared to $19.95 in 2008. The
decrease in our average paid subscribers per month during 2009
resulted from a reduction in subscription renewals as a result
of the economic recession. The lower average revenue per paid
subscriber per month during 2009 resulted from a larger portion
of our subscriptions generated from billing plans with a
slightly lower subscription fee.
Costs and
Expenses
Cost of Revenues. Cost of revenues increased
12.0% to $39.5 million in 2009 from $35.2 million in
2008. The $4.2 million increase in cost of revenues was
primarily attributable to increased royalties to our partners of
$7.0 million, due mainly to increased advertising and
sponsorship revenue, partially offset by a decrease in media
expense of $2.9 million from reduced marketing activities
in 2009. Cost of revenues as a percentage of total revenues
improved to 43.8% in 2009, compared to 50.7% in 2008.
Sales and Marketing. Sales and marketing
expense increased 43.5% to $20.8 million in 2009 from
$14.5 million in 2008. The $6.3 million increase in
sales and marketing expense was primarily
66
attributable to our investment in a larger sales team to deliver
advertising and sponsorship revenue growth across our portfolio
of websites, including the addition of sales personnel from the
RHG acquisition in October 2008, as well as increased
commissions and other compensation to our sales force in
connection with the increase in advertising and sponsorship
revenue.
Product Development. Product development
expense increased 35.8% to $20.2 million in 2009 from
$14.9 million in 2008. The $5.3 million increase in
product development expense was primarily due to staffing
increases in our editorial, product management and technology
departments and increased third-party licensed content expenses
for our portfolio of websites. In addition, hosting and other
computer expenses increased in 2009 as we upgraded and expanded
our computer operations, and we recognized $0.9 million of
product development compensation expense in 2009 relating to the
contingent earnout from the Nurture Media acquisition in May
2008.
General and Administrative. General and
administrative expense increased 25.8% to $16.2 million in
2009 from $12.9 million in 2008. This $3.3 million
increase was primarily due to increases in personnel and related
compensation expenses and facilities, legal and professional
expenses, resulting primarily from the RHG acquisition in
October 2008.
Depreciation and Amortization. Depreciation
and amortization expense increased 125.5% to $9.8 million
in 2009 from $4.3 million in 2008. The $5.4 million
increase in depreciation and amortization expense consisted of
$1.8 million of amortization expense of intangible assets
related to the RHG acquisition, $1.5 million of
depreciation and amortization expense of property and equipment
related to the RHG acquisition, and $2.1 million from other
property and equipment additions, including capitalized product
development.
Interest Expense. Interest expense, net,
increased 188.8% to $1.3 million in 2009, compared to
$0.5 million in 2008. The $0.9 million increase in net
interest expense was due to a $0.8 million increase in
interest expense, primarily due to increased borrowings in 2009,
and a $0.1 million increase in amortization and write-offs
of deferred financing costs relating to our credit facility
borrowings.
Income Tax Provision. Income tax provision in
2009 totaled $1.3 million, compared to $0.3 in 2008. The
$1.0 million increase in the income tax provision was
primarily due to a $0.9 million increase in the deferred
federal, state and local provision for income taxes related to
basis differences in indefinite lived intangible assets,
recorded in connection with the RHG acquisition in October 2008,
that could not be offset by current year deferred tax assets.
Comparison of
Years Ended December 31, 2008 and 2007
Revenue
Our total revenues increased 46.6% to $69.4 million in 2008
from $47.4 million in 2007. The increase in advertising and
sponsorship revenue accounted for $18.8 million, or 85.1%,
of our $22.0 million overall revenue increase.
Advertising and sponsorship revenue increased 95.7% to
$38.4 million in 2008 from $19.6 million in 2007. The
increase in advertising and sponsorship revenue was primarily
attributable to an increase in the number of brands that
advertised on the Everyday Health portfolio, as well as
an increase in the advertising and sponsorship revenue per brand
when compared to the year ended December 31, 2007. The
total number of brands that marketed their products and services
on our portfolio in 2008 was approximately 416, or 28.8% more
than the approximately 323 total number of brands that marketed
their products and services on our portfolio in 2007. The
advertising and sponsorship revenue per brand increased from
approximately $61,000 in 2007 to approximately $92,000 in 2008.
For the years ended December 31, 2008 and 2007, one
advertiser accounted for 10% or more of total advertising and
sponsorship revenue.
67
Premium services revenue increased 11.5% to $31.0 million
in 2008 from $27.8 million in 2007. This $3.2 million
increase was attributable to a $2.1 million increase in
subscription fee revenue and a $1.1 million increase in
license fee revenue in connection with the RHG acquisition in
October 2008, as we did not generate license fee revenue prior
to such acquisition. The increase in subscription fee revenue
from $27.8 million in 2007 to $29.9 million in 2008
was primarily due to an increase in our average paid subscribers
per month to approximately 125,000 in 2008, compared to
approximately 121,000 in 2007, and an increase in average
revenue per paid subscriber per month to $19.95 in 2008,
compared to $19.11 in 2007.
Costs and
Expenses
Cost of Revenues. Cost of revenues increased
17.0% to $35.2 million in 2008 from $30.1 million in
2007. The $5.1 million increase in cost of revenues was
primarily attributable to increased royalties to our partners of
$5.9 million and an increase in ad serving and other costs,
due mainly to increased advertising and sponsorship revenue,
partially offset by a decrease in media expense of
$1.3 million from reduced marketing activities in 2008.
Cost of revenues as a percentage of revenue improved to 50.8% in
2008, compared to 63.6% in 2007.
Sales and Marketing. Sales and marketing
expense increased 95.3% to $14.5 million in 2008 from
$7.4 million in 2007. The $7.1 million increase in
sales and marketing expense was primarily attributable to our
investment in a larger sales team to deliver advertising and
sponsorship revenue growth across our portfolio of websites,
including the addition of sales personnel from the RHG
acquisition in October 2008, increased commissions and other
compensation to our sales force in connection with the increase
in advertising and sponsorship revenue noted above, and
increased stock-based compensation expense of $0.5 million.
Product Development. Product development
expense increased 38.3% to $14.9 million in 2008 from
$10.8 million in 2007. The $4.1 million increase in
product development expense was primarily due to staffing
increases in our editorial and product management personnel,
increased third-party licensed content expenses for our
portfolio of websites and increased stock-based compensation
expense of $0.4 million.
General and Administrative. General and
administrative expense increased 88.2% to $12.9 million in
2008 from $6.9 million in 2007. This $6.0 million
increase was primarily due to increases in personnel and related
compensation expenses, including a $1.0 million increase in
stock-based compensation expense.
Depreciation and Amortization. Depreciation
and amortization expense increased 113.8% to $4.3 million
in 2008 from $2.0 million in 2007. The $2.3 million
increase in depreciation and amortization expense consisted of
$1.0 million of increased depreciation and amortization
expense of property and equipment and intangible assets related
to the RHG acquisition in October 2008, and $1.3 million
from other property and equipment additions, including
capitalized product development.
Interest Expense. Interest expense, net,
increased 40.9% to $0.5 million in 2008, compared to
$0.3 million in 2007. The $0.1 million increase in net
interest expense was primarily attributable to an increase in
interest expense relating to our credit facility borrowings.
Income Tax Provision. Income tax provision in
2008 totaled $0.3 million, compared to $0 in 2007. The
$0.3 million deferred federal, state and local provision
for income taxes related to basis differences in indefinite
lived intangible assets that cannot be offset by current year
deferred tax assets. There was no deferred tax provision in
2007, as the indefinite lived intangible assets giving rise to
the provision were recorded in connection with the RHG
acquisition in October 2008.
68
Seasonality and
Fluctuations in Unaudited Quarterly Results of
Operations
The following table presents our unaudited quarterly
consolidated results of operations for the ten quarters ended
June 30, 2010. This unaudited quarterly consolidated
information has been prepared on the same basis as our audited
consolidated financial statements and, in the opinion of
management, the consolidated statements of operations data
includes all adjustments, consisting of normal recurring
adjustments, necessary for the fair presentation of the results
of operations for these periods. You should read this table in
conjunction with our financial statements and the related notes
located elsewhere in this prospectus. The results of operations
for any quarter are not necessarily indicative of the results of
operations for any future periods.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended,
|
|
|
|
March 31,
|
|
|
June 30,
|
|
|
September 30,
|
|
|
December 31,
|
|
|
March 31,
|
|
|
June 30,
|
|
|
September 30,
|
|
|
December 31,
|
|
|
March 31,
|
|
|
June 30,
|
|
|
|
2008
|
|
|
2008
|
|
|
2008
|
|
|
2008
|
|
|
2009
|
|
|
2009
|
|
|
2009
|
|
|
2009
|
|
|
2010
|
|
|
2010
|
|
|
|
(in thousands, except share and per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated Statement of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
14,450
|
|
|
$
|
15,917
|
|
|
$
|
16,373
|
|
|
$
|
22,672
|
|
|
$
|
18,592
|
|
|
$
|
20,408
|
|
|
$
|
22,493
|
|
|
$
|
28,618
|
|
|
$
|
24,161
|
|
|
$
|
26,406
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenue
|
|
|
10,121
|
|
|
|
8,910
|
|
|
|
7,756
|
|
|
|
8,442
|
|
|
|
11,400
|
|
|
|
10,092
|
|
|
|
9,265
|
|
|
|
8,696
|
|
|
|
12,044
|
|
|
|
11,608
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and marketing
|
|
|
2,174
|
|
|
|
2,829
|
|
|
|
3,441
|
|
|
|
6,059
|
|
|
|
5,253
|
|
|
|
5,255
|
|
|
|
4,372
|
|
|
|
5,936
|
|
|
|
5,371
|
|
|
|
5,323
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product development
|
|
|
2,911
|
|
|
|
3,025
|
|
|
|
3,372
|
|
|
|
5,566
|
|
|
|
5,605
|
|
|
|
5,686
|
|
|
|
4,266
|
|
|
|
4,635
|
|
|
|
4,435
|
|
|
|
5,076
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative
|
|
|
2,208
|
|
|
|
2,594
|
|
|
|
2,616
|
|
|
|
5,488
|
|
|
|
3,907
|
|
|
|
4,214
|
|
|
|
3,644
|
|
|
|
4,474
|
|
|
|
4,148
|
|
|
|
4,587
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
660
|
|
|
|
825
|
|
|
|
875
|
|
|
|
1,980
|
|
|
|
2,413
|
|
|
|
2,478
|
|
|
|
2,442
|
|
|
|
2,454
|
|
|
|
2,436
|
|
|
|
2,548
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
18,074
|
|
|
|
18,183
|
|
|
|
18,060
|
|
|
|
27,535
|
|
|
|
28,578
|
|
|
|
27,725
|
|
|
|
23,989
|
|
|
|
26,195
|
|
|
|
28,434
|
|
|
|
29,142
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations
|
|
|
(3,624
|
)
|
|
|
(2,266
|
)
|
|
|
(1,687
|
)
|
|
|
(4,863
|
)
|
|
|
(9,986
|
)
|
|
|
(7,317
|
)
|
|
|
(1,496
|
)
|
|
|
2,423
|
|
|
|
(4,273
|
)
|
|
|
(2,736
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest (expense) income, net
|
|
|
1
|
|
|
|
(110
|
)
|
|
|
(138
|
)
|
|
|
(208
|
)
|
|
|
(189
|
)
|
|
|
(185
|
)
|
|
|
(449
|
)
|
|
|
(491
|
)
|
|
|
(490
|
)
|
|
|
(491
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before provision for income taxes
|
|
|
(3,623
|
)
|
|
|
(2,376
|
)
|
|
|
(1,825
|
)
|
|
|
(5,071
|
)
|
|
|
(10,175
|
)
|
|
|
(7,502
|
)
|
|
|
(1,945
|
)
|
|
|
1,932
|
|
|
|
(4,763
|
)
|
|
|
(3,227
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(293
|
)
|
|
|
(278
|
)
|
|
|
(278
|
)
|
|
|
(278
|
)
|
|
|
(497
|
)
|
|
|
(254
|
)
|
|
|
(300
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(3,623
|
)
|
|
$
|
(2,376
|
)
|
|
$
|
(1,825
|
)
|
|
$
|
(5,364
|
)
|
|
$
|
(10,453
|
)
|
|
$
|
(7,780
|
)
|
|
$
|
(2,223
|
)
|
|
$
|
1,435
|
|
|
$
|
(5,017
|
)
|
|
$
|
(3,527
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.55
|
)
|
|
$
|
(0.36
|
)
|
|
$
|
(0.28
|
)
|
|
$
|
(0.82
|
)
|
|
$
|
(1.59
|
)
|
|
$
|
(1.19
|
)
|
|
$
|
(0.34
|
)
|
|
$
|
0.22
|
|
|
$
|
(0.76
|
)
|
|
$
|
(0.53
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
(0.55
|
)
|
|
$
|
(0.36
|
)
|
|
$
|
(0.28
|
)
|
|
$
|
(0.82
|
)
|
|
$
|
(1.59
|
)
|
|
$
|
(1.19
|
)
|
|
$
|
(0.34
|
)
|
|
$
|
0.20
|
|
|
$
|
(0.76
|
)
|
|
$
|
(0.53
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average common shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
6,550,604
|
|
|
|
6,558,900
|
|
|
|
6,564,246
|
|
|
|
6,564,654
|
|
|
|
6,564,654
|
|
|
|
6,564,654
|
|
|
|
6,580,644
|
|
|
|
6,617,235
|
|
|
|
6,622,655
|
|
|
|
6,628,408
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
6,550,604
|
|
|
|
6,558,900
|
|
|
|
6,564,246
|
|
|
|
6,564,654
|
|
|
|
6,564,654
|
|
|
|
6,564,654
|
|
|
|
6,580,644
|
|
|
|
7,321,932
|
|
|
|
6,622,655
|
|
|
|
6,628,408
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table presents certain unaudited other financial
data for each of the periods indicated. For additional
information, please see the discussion of Adjusted EBITDA in the
Prospectus Summary.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended,
|
|
|
|
March 31,
|
|
|
June 30,
|
|
|
September 30,
|
|
|
December 31,
|
|
|
March 31,
|
|
|
June 30,
|
|
|
September 30,
|
|
|
December 31,
|
|
|
March 31,
|
|
|
June 30,
|
|
|
|
2008
|
|
|
2008
|
|
|
2008
|
|
|
2008
|
|
|
2009
|
|
|
2009
|
|
|
2009
|
|
|
2009
|
|
|
2010
|
|
|
2010
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Financial Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA
|
|
$
|
(2,463
|
)
|
|
$
|
(705
|
)
|
|
$
|
(78
|
)
|
|
$
|
(1,858
|
)
|
|
$
|
(6,730
|
)
|
|
$
|
(3,203
|
)
|
|
$
|
1,671
|
|
|
$
|
5,598
|
|
|
$
|
(1,054
|
)
|
|
$
|
696
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation expense included in:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and marketing
|
|
$
|
136
|
|
|
$
|
199
|
|
|
$
|
199
|
|
|
$
|
278
|
|
|
$
|
219
|
|
|
$
|
191
|
|
|
$
|
188
|
|
|
$
|
217
|
|
|
$
|
231
|
|
|
$
|
274
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product development
|
|
|
82
|
|
|
|
121
|
|
|
|
121
|
|
|
|
168
|
|
|
|
162
|
|
|
|
141
|
|
|
|
139
|
|
|
|
106
|
|
|
|
133
|
|
|
|
54
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative
|
|
|
283
|
|
|
|
416
|
|
|
|
414
|
|
|
|
579
|
|
|
|
462
|
|
|
|
404
|
|
|
|
398
|
|
|
|
398
|
|
|
|
419
|
|
|
|
369
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stock-based compensation expense
|
|
$
|
501
|
|
|
$
|
736
|
|
|
$
|
734
|
|
|
$
|
1,025
|
|
|
$
|
843
|
|
|
$
|
736
|
|
|
$
|
725
|
|
|
$
|
721
|
|
|
$
|
783
|
|
|
$
|
697
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table presents a reconciliation of Adjusted EBITDA
to net income (loss), the most comparable GAAP measure, for each
of the periods indicated. For additional information, please see
the discussion of Adjusted EBITDA in the Prospectus
Summary.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended,
|
|
|
|
March 31,
|
|
|
June 30,
|
|
|
September 30,
|
|
|
December 31,
|
|
|
March 31,
|
|
|
June 30,
|
|
|
September 30,
|
|
|
December 31,
|
|
|
March 31,
|
|
|
June 30,
|
|
|
|
2008
|
|
|
2008
|
|
|
2008
|
|
|
2008
|
|
|
2009
|
|
|
2009
|
|
|
2009
|
|
|
2009
|
|
|
2010
|
|
|
2010
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation of Adjusted EBITDA to Net Income (Loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(3,623
|
)
|
|
$
|
(2,376
|
)
|
|
$
|
(1,825
|
)
|
|
$
|
(5,364
|
)
|
|
$
|
(10,453
|
)
|
|
$
|
(7,780
|
)
|
|
$
|
(2,223
|
)
|
|
$
|
1,435
|
|
|
$
|
(5,017
|
)
|
|
$
|
(3,527
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest (income) expense, net
|
|
|
(1
|
)
|
|
|
110
|
|
|
|
138
|
|
|
|
208
|
|
|
|
189
|
|
|
|
185
|
|
|
|
449
|
|
|
|
491
|
|
|
|
490
|
|
|
|
491
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
293
|
|
|
|
278
|
|
|
|
278
|
|
|
|
278
|
|
|
|
497
|
|
|
|
254
|
|
|
|
300
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization expense
|
|
|
660
|
|
|
|
825
|
|
|
|
875
|
|
|
|
1,980
|
|
|
|
2,413
|
|
|
|
2,478
|
|
|
|
2,442
|
|
|
|
2,454
|
|
|
|
2,436
|
|
|
|
2,548
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation
|
|
|
501
|
|
|
|
736
|
|
|
|
734
|
|
|
|
1,025
|
|
|
|
843
|
|
|
|
736
|
|
|
|
725
|
|
|
|
721
|
|
|
|
783
|
|
|
|
697
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation expense related to acquisition earnout
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
900
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
187
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA
|
|
$
|
(2,463
|
)
|
|
$
|
(705
|
)
|
|
$
|
(78
|
)
|
|
$
|
(1,858
|
)
|
|
$
|
(6,730
|
)
|
|
$
|
(3,203
|
)
|
|
$
|
1,671
|
|
|
$
|
5,598
|
|
|
$
|
(1,054
|
)
|
|
$
|
696
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The timing of our revenues is affected by certain seasonal
factors. Our advertising and sponsorship revenue is
traditionally the lowest in the first quarter of the year, due
primarily to the seasonal spend patterns of our advertising
customers, and typically increases each consecutive quarter
thereafter. Conversely, due to high consumer demand for diet and
fitness programs at the start of each year associated with
annual resolutions to live healthier lifestyles, we
traditionally increase our media expenditures in the first
calendar quarter to promote websites in the Everyday
Health portfolio that focus on diet and fitness. As a result
of these trends, our gross margin tends to be lowest in the
first quarter of each calendar year, typically increasing with
each consecutive quarter. We anticipate that our gross margin
will be higher at the end of this fiscal year as compared to the
beginning of this fiscal year. We also anticipate that, as our
revenues increase, our gross profit will continue to increase
while our period-over-period gross margin may not increase
commensurately.
On October 7, 2008, we acquired RHG. Accordingly, the tables
above include RHGs financial data from the closing date of
the acquisition. Our operating expenses in the fourth quarter of
2008 and the first and second quarters of 2009 included various
transition-related expenses that we incurred following the
closing of the RHG acquisition. We eliminated a majority of
these redundant
70
transition-related expenses by the beginning of the third
quarter of 2009. These transition-related expenses consisted of:
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compensation for product development, sales and marketing, and
general and administrative personnel who were employed by us for
a short period of time following the RHG acquisition; and
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third-party product development expenses, such as content
licensing fees, data center costs and other technology-related
expenses.
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The fourth quarter of 2008 is the first calendar quarter which
reflects the RHG acquisition in our financial results.
Accordingly, the fourth quarter of 2009 is the first calendar
quarter which can be used to compare our quarterly financial
performance to reflect the RHG acquisition on a year-over-year
basis.
Liquidity and
Capital Resources
At June 30, 2010, our principal sources of liquidity
consisted of cash and cash equivalents of $12.8 million and
accounts receivable of $18.9 million. We currently expect
that our existing cash and cash equivalents, together with
anticipated cash flow from operations and the proceeds from this
offering, will be sufficient to fund our currently anticipated
cash needs for at least the next twelve months. Our liquidity
could be negatively affected by a decrease in demand for our
content offerings and advertising-based services, including the
impact of changes in customer buying patterns or advertiser
spending behavior and by other factors outside of our control,
including general economic conditions, as well as the other
risks to our business discussed under the caption Risk
Factors.
Our primary sources of cash historically have been advertising
and sponsorship revenue, payments for our premium services,
proceeds from the issuance of convertible redeemable preferred
stock and borrowings under our credit facilities. Since the
beginning of 2003, we have issued convertible redeemable
preferred stock for aggregate net proceeds of
$57.2 million. As of June 30, 2010, we had
$17.0 million of borrowings outstanding under our credit
facilities.
Our principal uses of cash historically have been to fund
operating losses and to finance capital expenditures relating to
purchases of property and equipment primarily to support our
infrastructure and capitalized product development.
Our future capital requirements will be a function of the extent
of our future operating losses and capital expenditures, which
will depend on many factors, including:
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the cost of developing new content and advertising-based
services;
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the timing and extent of market acceptance of our content
offerings and advertising-based services;
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the level of advertising and promotion required to retain and
acquire our consumer audience;
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the expansion of our sales and marketing organizations;
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the establishment of additional offices in the U.S. and
worldwide and the building of infrastructure necessary to
support our growth; and
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our relationships with our vendors and customers.
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In addition, future acquisitions and licensing arrangements may
increase our need for capital.
Our cash requirements going forward may require us to raise
additional funds through borrowing or the issuance of additional
equity or equity-linked securities. Any increase in the amount
of our borrowings will result in an increase in our interest
expense. Future issuance of equity or equity-linked securities
will result in dilution to the holders of our common stock. In
addition, if the banking system or the financial markets
continue to remain volatile, our ability to raise additional
debt or equity capital could be adversely affected. Additional
financing may not be available on commercially reasonable terms
or at all.
71
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|
|
|
|
|
Six Months Ended
|
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|
|
Year Ended December 31,
|
|
|
June 30,
|
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
2009
|
|
|
2010
|
|
|
|
(in thousands)
|
|
|
Net cash (used in) provided by operating activities
|
|
$
|
(10,522
|
)
|
|
$
|
(20,834
|
)
|
|
$
|
(10,218
|
)
|
|
$
|
(10,252
|
)
|
|
$
|
4,778
|
|
Net cash (used in) provided by investing activities
|
|
|
(6,875
|
)
|
|
|
7,541
|
|
|
|
(7,850
|
)
|
|
|
(3,369
|
)
|
|
|
(8,338
|
)
|
Net cash (used in) provided by financing activities
|
|
|
29,073
|
|
|
|
24,094
|
|
|
|
9,378
|
|
|
|
1,253
|
|
|
|
41
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
$
|
11,676
|
|
|
$
|
10,801
|
|
|
$
|
(8,690
|
)
|
|
$
|
(12,368
|
)
|
|
$
|
(3,519
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
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Cash and cash equivalents decreased by $3.5 million to
$12.8 million in the six months ended June 30, 2010,
compared to a decrease of $12.4 million in the six months
ended June 30, 2009.
Cash and cash equivalents decreased by $8.7 million to
$16.4 million in the year ended December 31, 2009,
compared to an increase of $10.8 million in the year ended
December 31, 2008.
Cash and cash equivalents increased by $10.8 million to
$25.1 million for the year ended December 31, 2008,
compared to an increase of $11.7 million for the year ended
December 31, 2007.
Operating
Activities
For the six months ended June 30, 2010, net cash from
operating activities was $4.8 million. Net cash from
operating activities consisted of an operating loss of
$8.5 million adjusted for non-cash expenses of
$7.1 million, including depreciation and amortization and
non-cash stock compensation expense. Additionally, changes in
operating assets and liabilities provided $6.2 million of
cash, which were primarily due to increases in accounts
receivable collections related to higher advertising revenues,
an increase in deferred revenue related to certain advertising
and sponsorship and premium services billed in advance of the
services being provided, and an increase in accounts payable and
accrued expenses related to the timing of vendor invoice
payments. Net cash from operating activities was
$15.0 million higher in the six months ended June 30,
2010, compared to the six months ended June 30, 2009,
resulting primarily from the $9.7 million reduction in the
operating loss for the six months ended June 30, 2010,
compared to the same period in 2009, and from the
$7.0 million increase in cash from the timing of vendor
invoice payments in the six months ended June 30, 2010
compared to the same period in 2009.
For the six months ended June 30, 2009, net cash used in
operating activities was $10.3 million. Net cash used in
operating activities consisted of an operating loss of
$18.2 million adjusted for non-cash expenses of
$7.4 million, including depreciation and amortization and
non-cash stock compensation expense. Additionally, changes in
operating assets and liabilities provided $0.5 million of
cash, which were primarily due to increases in accounts
receivable collections and deferred revenue partially offset by
decreases in accounts payable and accrued expenses in connection
with the payments of liabilities relating to operations and the
RHG acquisition.
For the year ended December 31, 2009, net cash used in
operating activities was $10.2 million. Net cash used in
operating activities consisted of an operating loss of
$19.0 million adjusted for non-cash expenses of
$14.6 million, including depreciation and amortization,
non-cash stock compensation expense and provision for deferred
income taxes. Additionally, changes in operating assets and
liabilities resulted in a use of $5.8 million of cash,
which was primarily the result of declines in accounts payable
and accrued expenses and increases in accounts receivable
related to higher advertising revenues, offset by increases in
deferred revenue primarily related to premium services billed in
advance of the services being provided. Net cash used in
operating activities was $10.6 million lower in the year
ended December 31, 2009, compared to the year ended
December 31, 2008, resulting primarily from the
72
paying down of a significant portion of the liabilities acquired
in connection with the RHG acquisition in the fourth quarter of
2008, partially offset by our higher net operating loss in 2009
compared to 2008.
For the year ended December 31, 2008, net cash used in
operating activities was $20.8 million. Net cash used in
operating activities consisted of an operating loss of
$13.2 million adjusted for non-cash expenses of
$10.7 million, including depreciation and amortization,
non-cash stock compensation expense and non-cash royalty
expense. Additionally, changes in operating assets and
liabilities resulted in a use of cash of $18.3 million,
which was primarily the result of declines in accounts payable
and accrued expenses that were acquired as part of the
acquisition of RHG and increases in accounts receivable
resulting from higher advertising revenues. Net cash used in
operating activities was $10.3 million higher in the year
ended December 31, 2008, compared to the year ended
December 31, 2007. The increase in cash used was primarily
attributable to a higher net loss and the paying down of a
significant portion of the accounts payable and accrued expenses
that were acquired as part of the acquisition of RHG.
For the year ended December 31, 2007, net cash used in
operating activities was $10.5 million. Net cash used in
operating activities consisted of an operating loss of
$10.1 million adjusted for non-cash expenses of
$4.0 million, including depreciation and amortization and
non-cash stock compensation expense. Additionally, changes in
operating assets and liabilities resulted in a use of cash of
$4.4 million, which was primarily the result of an increase
in accounts payable and accrued expenses offset by increases in
accounts receivable resulting from higher advertising revenues.
Investing
Activities
Our primary investing activities consisted of additions to
property and equipment, including computer hardware and
software, leasehold improvements and capitalized product
development costs. Additionally, our investing activities
included payments made to acquire businesses offset by the cash
we received in the acquisition of businesses that we purchased
for stock and increases in security deposits.
We used $8.3 million of net cash in investing activities
during the six months ended June 30, 2010, primarily for
purchases of property and equipment, including approximately
$3.6 million in leasehold improvements and furniture and
fixtures, and $1.5 million in computer equipment, related
to our move to a new corporate office location. Net cash used in
investing activities was $5.0 million higher in the six
months ended June 30, 2010 than in the same period in 2009.
We used $3.4 million of cash in investing activities during
the six months ended June 30, 2009, primarily for purchases
of property and equipment and, to a lesser extent, payments for
security deposits and other assets.
We used $7.9 million of net cash in investing activities
during the year ended December 31, 2009, primarily for
purchases of property and equipment and increases to security
deposits. Net cash used in investing activities was
$15.4 million higher than in the year ended
December 31, 2008.
Cash provided by investing activities was $7.5 million for
the year ended December 31, 2008, which was primarily due
to the cash we acquired in the October 2008 acquisition of RHG
offset by investments in property and equipment and the cash
paid for the acquisition of Nurture Media. Net cash provided by
investing activities was $14.4 million higher than the year
ending December 31, 2007.
We used $6.9 million of net cash in investing activities
for the year ended December 31, 2007, which was primarily
for purchases of property and equipment and increases in
restricted cash being held by our merchant processing bank.
Financing
Activities
We generated less than $0.1 million of net cash from
financing activities during the six months ended June 30,
2010, from proceeds of stock option exercises. We did not repay
or borrow any
73
additional amounts under our credit facilities during the six
months ended June 30, 2010. Net cash from financing
activities was $1.2 million lower in the six months ended
June 30, 2010 than in the same period in 2009.
We generated $1.3 million of cash from financing activities
during the six months ended June 30, 2009, primarily from
borrowings under our credit facility partially offset by
repayments of principal under the same credit facility.
We generated $9.4 million of net cash from financing
activities during the year ended December 31, 2009,
primarily as a result of increased borrowings under our credit
facilities secured in September and October of 2009, net of
repayments, including the full payoff of our former credit
facility.
We generated $24.1 million of net cash from financing
activities during 2008. Substantially all of this cash resulted
from the issuance and sale of $22.5 million, net of
issuance costs, of redeemable convertible preferred stock.
We generated $29.1 million of net cash from financing
activities during 2007. This cash resulted primarily from the
issuance and sale of $23.2 million, net of issuance costs,
of redeemable convertible preferred stock and borrowings under
our credit facility.
Long-Term
Debt
Square 1
Credit Facility
In September 2009, we entered into a $12.0 million credit
facility with Square 1 Bank, which we refer to as the Square 1
credit facility. The Square 1 credit facility consists of:
(i) a
24-month
revolving credit facility, which has a borrowing base that is
determined by a percentage of eligible accounts receivable, as
defined in the Square 1 credit facility, which we refer to as
the Square 1 revolver, and (ii) a
12-month
committed line, which we refer to as the Square 1 committed
line. As of June 30, 2010, we had $12.0 million
outstanding under the Square 1 revolver.
The maximum amount that can be outstanding under the Square 1
revolver is $12.0 million minus the balance outstanding
under the Square 1 committed line. The maximum amount that can
be outstanding under the Square 1 committed line is
$4.0 million, and such amount decreases to zero over the
term of the Square 1 committed line. For the period from the
closing date of the Square 1 credit facility through
December 31, 2009, the interest rate for the Square 1
revolver was equal to the greater of 8.0% or the prime rate then
in effect plus 4.75%, from January 1, 2010 through
June 30, 2010, the greater of 7.5% or the prime rate then
in effect plus 4.25% and, subsequent to June 30, 2010, the
greater of 6.0% or the prime rate then in effect plus 2.75%. For
the period from the closing date of the Square 1 credit facility
through December 31, 2009, the interest rate for the Square
1 committed line was equal to the greater of 9.0% or the prime
rate then in effect plus 5.75%, from January 1, 2010
through June 30, 2010, the greater of 8.5% or the prime
rate then in effect plus 5.25% and, subsequent to June 30,
2010, the greater of 7.0% or the prime rate then in effect plus
3.75%. In addition to paying interest on the Square 1
credit facility, we pay a commitment fee of 0.75% per annum for
the unutilized commitment.
The Square 1 credit facility contains financial and operational
covenants with which we must comply, whether or not there are
any borrowings outstanding. These financial covenants include
EBITDA, liquidity and cash requirements, each as defined in the
Square 1 credit facility. These operational covenants include
restrictions on dispositions, mergers and acquisitions,
indebtedness, investments, liens and our ability to pay
dividends and make other distributions. We were in compliance
with the financial and operational covenants of the Square 1
credit facility as of June 30, 2010. Both the Square 1
revolver and the Square 1 committed line are secured by a first
priority security interest in substantially all of our existing
and future assets.
74
Horizon Credit
Facility
In October 2009, we entered into a $5.0 million credit
facility with Compass Horizon Funding Company LLC, which we
refer to as the Horizon credit facility. The Horizon credit
facility consists of a $5.0 million commitment amount,
which we refer to as the Horizon committed line. We received the
full amount of the Horizon committed line upon the closing of
the Horizon credit facility. All indebtedness incurred pursuant
to the Horizon credit facility is subordinate to any
indebtedness outstanding under the Square 1 credit facility. As
of June 30, 2010, we had $5.0 million outstanding
under the Horizon credit facility, with monthly principal
repayments beginning December 2010 and a maturity date of
May 1, 2013.
The interest rate for the Horizon committed line is equal to
13.0% plus the amount by which the
one-month
LIBOR rate as of the date five days prior to the funding date of
the loan as reported by the Wall Street Journal
exceeds 2.76%.
The Horizon credit facility contains operational covenants with
which we must comply, whether or not there are any borrowings
outstanding. The operational covenants include restrictions on
dispositions, mergers and acquisitions, indebtedness,
investments, liens and our ability to pay dividends and make
other distributions. We were in compliance with the operational
covenants of the Horizon credit facility as of June 30,
2010. The Horizon committed line is secured by a subordinated
security interest in substantially all of our existing and
future assets.
Contractual
Obligations and Commitments
The following table summarizes our principal contractual
obligations as of December 31, 2009:
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Period
|
|
|
|
|
|
|
Less Than
|
|
|
|
|
|
|
|
|
More Than
|
|
|
|
Total
|
|
|
1 Year
|
|
|
1-3 Years
|
|
|
3-5 Years
|
|
|
5 Years
|
|
|
|
(in thousands)
|
|
|
Long-term debt obligations(1)
|
|
$
|
17,000
|
|
|
$
|
142
|
|
|
$
|
16,858
|
|
|
|
|
|
|
|
|
|
Operating lease obligations(2)
|
|
|
14,648
|
|
|
|
2,649
|
|
|
|
5,108
|
|
|
$
|
4,086
|
|
|
$
|
2,805
|
|
Minimum guarantees under royalty agreements(3)
|
|
|
22,560
|
|
|
|
12,135
|
|
|
|
9,492
|
|
|
|
933
|
|
|
|
|
|
Purchase obligations(4)
|
|
|
10,559
|
|
|
|
4,331
|
|
|
|
6,228
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
64,767
|
|
|
$
|
19,257
|
|
|
$
|
37,686
|
|
|
$
|
5,019
|
|
|
$
|
2,805
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
(1) |
|
For a description of our long-term debt obligations, see
Long-Term Debt above. |
|
(2) |
|
Operating lease obligations totaling $14.6 million do not
reflect aggregate sublease rentals of $1.2 million. |
|
(3) |
|
Some of the minimum guaranteed payments are subject to
reductions if specified performance metrics are not maintained
by our partners. |
|
(4) |
|
Purchase obligations pertain primarily to fees for
third-party
content, technology and other services. |
Off-Balance Sheet
Arrangements
We do not engage in transactions that generate relationships
with unconsolidated entities or financial partnerships, such as
entities often referred to as structured finance or special
purpose entities, as part of our ongoing business. Accordingly,
our operating results, financial condition and cash flows are
not subject to off-balance sheet risks.
75
Quantitative and
Qualitative Disclosures About Market Risk
Interest Rate Risk. Our interest income is
primarily generated from interest earned on operating cash
accounts. Our exposure to market risks related to interest
expense is limited to borrowings under our credit facilities.
Based on the $17.0 million of borrowings outstanding under
the Square 1 revolver and the Horizon credit facility as of
June 30, 2010, and the interest rates in effect on each at
that date, our annual interest expense would amount to
$1.4 million. A hypothetical interest rate increase of 1%
on our Square 1 revolver and our Horizon credit facility would
increase annual interest expense by $0.2 million. We do not
enter into interest rate swaps, caps or collars or other hedging
instruments.
Foreign Currency Risk. Substantially all of
our revenues and expenses are denominated in U.S. dollars
and, therefore, our exposure to market risks related to
fluctuations in foreign currency exchange rates is not material.
Recent Accounting
Pronouncements
In October 2009, the Financial Accounting Standards Board, or
the FASB, issued a new accounting standard that changes the
accounting for revenue recognition for multiple-element
arrangements, which is effective for annual periods ending after
June 15, 2010. However, early adoption of this standard is
permitted. In arrangements with multiple deliverables, the
standard permits entities to use managements best estimate
of selling price to value individual deliverables when those
deliverables have never been sold separately or when third-party
evidence is not available. In addition, any discounts provided
in multiple-element arrangements will be allocated on the basis
of the relative selling price of each deliverable. We are
currently evaluating the impact of adopting the provisions of
this standard.
In June 2009, the FASB issued a new accounting standard that
provides for a codification of accounting standards to be the
authoritative source of generally accepted accounting principles
in the U.S. Rules and interpretive releases of the SEC
under federal securities laws are also sources of authoritative
GAAP for SEC registrants. We have adopted this disclosure
guidance and, accordingly, we no longer use references to
U.S. GAAP accounting standards in our disclosures
accompanying the consolidated financial statements. The
codification does not affect our consolidated financial
position, results of operations or cash flows.
In May 2009, the FASB issued a new standard, amended February
2010, which sets forth general standards of accounting for and
the disclosure of events that occur after the balance sheet date
but before financial statements are issued or are available to
be issued. We have applied the requirements of this standard, as
amended, to the consolidated financial statements and related
notes included elsewhere in this prospectus, which did not have
a material impact on our consolidated financial position,
results of operations or cash flows.
In December 2007, the FASB issued a new standard that changes
the accounting for all business combinations and is effective
for fiscal years beginning on or after December 15, 2008.
The standard provides that, upon initially obtaining control, an
acquirer shall recognize 100% of the fair values of acquired
assets, including goodwill and assumed liabilities, with only
limited exceptions, even if the acquirer has not acquired 100%
of the target. As a consequence, the current step acquisition
model will be eliminated. Additionally, the standard changes
current practice, in part, as follows: (i) contingent
consideration arrangements will be fair valued at the
acquisition date and included on that basis in the purchase
price consideration; (ii) transaction costs will be
expensed as incurred, rather than capitalized as part of the
purchase price; (iii) pre-acquisition contingencies, such
as those relating to legal matters, will generally have to be
accounted for in purchase accounting at fair value; and
(iv) in order to accrue for a restructuring plan in
purchase accounting certain requirements would have to be met on
the acquisition date. While the adoption of this standard did
not have a material impact on our consolidated financial
statements, it is likely to have a material impact on how we
account for any future business combinations into which we may
enter.
76
BUSINESS
Overview
We are a leading provider of online consumer health solutions.
We provide our consumers, advertisers and partners with content
and advertising-based services across a broad portfolio of
websites that span the health spectrum from
lifestyle offerings in pregnancy, diet and fitness to in-depth
medical content for condition prevention and management. The
depth, breadth and quality of the content across the Everyday
Health portfolio, including our personalized tools and
community features, have enabled us to aggregate a large and
growing base of engaged consumers. Our portfolio of consumer
health websites and large consumer base, along with our
customized solutions, provides advertisers with a compelling
platform to promote their products and services in a
highly-targeted and measurable manner. We also enable leading
online and offline providers of consumer health content to
efficiently promote their content online and to better monetize
their content offering by attracting more consumers and
advertisers to their websites.
We have designed the Everyday Health portfolio to provide
multiple sources of reliable and highly-personalized content to
satisfy the diverse needs of our consumers and
advertising customers. The Everyday Health portfolio
currently consists of over 25 consumer health websites, which
includes websites that we operate and websites that our partners
operate. The websites that we operate include websites that we
own, such as www.EverydayHealth.com,
www.RevolutionHealth.com, www.DailyGlow.com and
www.CarePages.com, and websites that we operate with our
partners, such as www.JillianMichaels.com,
www.SouthBeachDiet.com and www.WhattoExpect.com.
Under these partnering arrangements, we typically have the
exclusive rights, subject to limited exceptions, to use and
market our partners content online and to determine the
precise methodology for monetizing the content online. We pay
royalties based on the revenue generated from our operation of
these websites and related services. The Everyday Health
portfolio also includes websites that we do not own or
operate, but that we help monetize by selling advertisements and
sponsorships. These websites include a variety of consumer
health websites, such as www.SparkPeople.com,
www.MayoClinic.com and www.MedHelp.org.
The composition of the Everyday Health portfolio,
together with our large consumer audience and customized
offerings, provides national, regional and local advertisers
with a platform to reach our consumer audience through a diverse
set of highly-targeted solutions. These solutions include
display advertising, interactive brand sponsorships, custom
e-mail
campaigns and lead generation products. Moreover, our extensive
database of registered users and the information voluntarily
provided to us by our consumers allow us to better target the
audience that our advertisers are seeking to reach. We also
gather a variety of data to generate detailed post-campaign
reports that enable advertisers to better assess the
effectiveness of their marketing expenditures. We believe this
combination of targeted advertising and results-focused
measurability will allow us to compete favorably in the consumer
health vertical. Our advertisers consist primarily of
pharmaceutical and medical device companies, manufacturers and
retailers of
over-the-counter
products and consumer-packaged-goods and healthcare providers.
We featured over 470 brands on the Everyday Health
portfolio during 2009. In addition, our customers included
24 of the top 25 global companies ranked by 2008 healthcare
revenue as compiled by MedAdNews and 43 of the top 100
Leading National Advertisers in 2008 as compiled by
Advertising Age.
We have developed an operational approach that utilizes our
editorial, sales and marketing, and technology resources across
the entire Everyday Health portfolio. We believe that our
expertise in developing content and interactive programs,
combined with this integrated operational approach, enables us
to promote our partners content and expand their consumer
audience online. In addition, we allow content partners that
have an existing online presence to leverage our advertising
platform and increase their revenues by attracting more
advertisers to their websites, while maintaining editorial and
operational control over their products and services. We also
provide a variety of
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e-commerce
opportunities to our partners, including directly offering their
offline products and services to the Everyday Health
consumer audience online.
Industry
Background
General. The widespread adoption of the
Internet as a preferred source for consumer information has
resulted in the availability of a vast quantity of content
across a disparate array of websites. Historically, consumers
accessed such information through general portals, which
typically have served as a gateway to the Internet and, more
recently, search engines that allow consumers to search for
information around topics of interest. As a result, we believe
that consumers are increasingly seeking websites that are
dedicated to a specific vertical content category and that can
provide deeper and more tailored content offerings.
Consumer Health. Prior to the widespread
adoption of the Internet, quality consumer health information
was not readily available, and consumers were forced to rely on
their physicians, friends and family, and
hard-to-access
resources, such as medical journals, to address their health
questions and concerns. The Internet has fundamentally altered
the consumer health market, as more consumers use it as a
convenient resource for critical information and
decision-support tools. According to Manhattan Research, LLC, a
healthcare marketing services firm, the number of
U.S. adults looking for health information online has
increased from 63.3 million in 2002 to 157.5 million
by the third quarter of 2009. Manhattan Research also found that
in the twelve month period prior to the third quarter of 2009,
68% of all adults in the U.S. used the Internet to obtain health
information, compared to 64% of adults seeking such information
from a doctor and 43% of adults seeking such information from
friends or family members. As a result, the consumer health
vertical, which spans lifestyle offerings in pregnancy, diet and
fitness, personal care, wellness, medical content and condition
management, has rapidly evolved as one of the largest and
fastest growing vertical content categories on the Internet.
According to comScore, as of July 2009, there were approximately
11,200 health-related websites. Furthermore, we believe that
consumers who interact with health content online visited
approximately 3.5 different health websites per month on average
during 2009. We also believe that consumers will continue to
rely on multiple websites that are dedicated specifically to
health-related content and which contain more in-depth and
personalized offerings in order to satisfy their diverse
consumer health needs.
We believe that the growth of the consumer health vertical will
further accelerate due to current legislative and regulatory
trends underway in the U.S. that seek to place a greater
degree of emphasis on wellness and preventive care as a means of
controlling and reducing healthcare costs.
Online Advertising. Advertisers are
increasingly migrating a greater portion of their spending
online as more consumers turn to the Internet as a preferred
medium for accessing information and purchasing products and
services. The growth of online spending in the health and
wellness category, however, has not developed as rapidly as the
overall advertising market. According to a February 2010
analysis prepared on our behalf by Forrester Research, Inc., a
market research firm, total online advertising represented 8.5%
and 9.6% of total advertising, excluding direct mail, during
2008 and 2009, respectively. However, according to Forrester
Research, total online advertising in the health and wellness
category represented only 4.0% and 4.9% of total advertising in
the health and wellness category in 2008 and 2009, respectively.
The health and wellness category includes health products,
services and insurance, prescription drugs and nutritional
supplements, personal care and fitness and sports equipment.
Furthermore, according to Forrester Research, total online
advertising in the health and wellness category is projected to
grow at a compounded annual rate of approximately 17.8% from
2009 to 2015. We believe that this projected growth, combined
with our strategy of offering a portfolio of health-related
websites, represents a significant opportunity for us to
increase our advertising and sponsorship revenues.
Subscription-Based Premium Services. In
addition to providing consumers with free access to a variety of
health information, the Internet also provides consumers with a
broad range of
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subscription-based, premium health-related information and
services. We believe that consumer demand for authoritative and
differentiated content from trusted sources has contributed to,
and will continue to drive, the growth of the
subscription-based, premium information and services market.
According to an August 2009 report by Veronis Suhler Stevenson,
a private equity firm, total spending on general, paid Internet
content is expected to grow from $1.6 billion in 2009 to
$2.3 billion in 2013. We believe that the market for
subscription-based premium consumer health information will
benefit from this overall growth. In addition to paid content,
the Internet has enabled the sale and delivery of a broad array
of other products and services through electronic commerce, or
e-commerce.
Market
Opportunity
Consumers. The content offerings in the
consumer health vertical remain largely fragmented across a
variety of different websites. We believe that the sheer volume
of information available from disparate sources has diminished
the value of such information to consumers. As a result,
consumers are increasingly seeking:
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a trusted source from which to obtain relevant and actionable
information;
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a greater variety of thorough and insightful content across the
consumer health spectrum;
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expert opinions from leading authorities;
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access to a community of similarly situated consumers; and
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personalized content that enables a more engaging and
interactive experience.
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Advertisers. The consumer health category
provides a compelling opportunity for advertisers focused on
health and wellness to reach a large and growing audience of
consumers. Online advertising enables these advertisers to
selectively tailor their campaigns to national, regional or
local markets, and to target either a broad-based or discrete
demographic audience interested in specific health conditions or
lifestyle issues.
We believe that the ongoing shift by advertisers of a larger
portion of their expenditures online will be driven by a number
of key factors, including:
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a desire to advertise in a trusted environment that will be
consistent with the advertisers brand value and perception;
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the ability to leverage the unique, interactive nature of the
Internet to create a more personalized and engaging interaction
with the audience;
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the availability of tools that will enable advertisers to reach
a desired demographic audience at a point when the consumer is
more likely to be immersed in contextually-relevant content, and
therefore, more receptive to a targeted advertisement; and
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the utilization of innovative methods for assessing and
benchmarking the effectiveness of marketing dollars spent and a
more precise analysis of a campaigns return on investment.
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Partners. As more consumers and advertisers
continue to migrate online, many online and offline content
providers are seeking to establish or grow an online presence to
create additional monetization opportunities for their core
offline assets. These content providers, however, face numerous
challenges in building a viable online presence, including:
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lack of technical expertise to develop and operate an online
presence;
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significant upfront and ongoing capital expenditures and other
costs associated with providing a comprehensive and
up-to-date
online offering;
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difficulties and costs associated with aggregating a
sufficiently large consumer audience;
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maintaining a high service quality that will enhance the
users experience and promote brand value; and
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attracting advertisers.
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In addition, content providers that may have the resources and
ability to establish an online presence are continually seeking
to further expand their audience in order to better monetize
their online content and attract additional advertisers to their
website.
The Everyday
Health Solution
We believe our success in becoming a leading provider of online
consumer health solutions has been driven by our ability to
address the challenges faced by consumers, advertisers and
partners. Our portfolio of over 25 websites is designed to
enable:
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consumers to readily access a variety of valuable content,
interactive tools and community features across numerous health
categories and empower them to better manage their health
concerns;
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advertisers to reach a desirable base of consumers in a targeted
and contextually-relevant manner; and
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partners to more effectively promote and monetize their content
online.
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Our key competitive advantages that we believe allow us to
better address the differing needs of these three constituencies
include:
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our collection of many well-recognized content providers in the
consumer health market;
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our large and engaged audience, both across the Everyday
Health portfolio and within each of our specific consumer
health categories;
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our proprietary database of information voluntarily provided to
us by over 41 million consumers;
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our ability to cross-promote the content and features of the
Everyday Health portfolio; and
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our integrated operational approach that creates significant
efficiencies and economies of scale.
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Benefits to
Consumers
We believe that the depth, breadth and quality of the content on
the Everyday Health portfolio, including our personalized
tools and community features, empower consumers to better manage
their everyday health concerns.
Premier Portfolio of Trusted Websites. We have
built a portfolio of websites that provide consumers with
reliable and engaging content. We have enhanced the value of our
content offerings by featuring expert opinions from leading
authorities on specific health and wellness topics. We own and
operate several health and wellness websites, including our
flagship website, www.EverydayHealth.com, which features
numerous leading medical and health experts. We also partner
with many well-recognized consumer health content providers. For
example, we are the exclusive online partner with the author of
the What to Expect When Youre Expecting series of
books, the best-selling pregnancy books ever published, to
develop, operate and monetize www.WhattoExpect.com. We
have also partnered with recognized leaders in the health, diet
and fitness categories, including the author and publisher of
The South Beach Diet (www.SouthBeachDiet.com), one
of the best-selling diet books of all time, and Jillian Michaels
(www.JillianMichaels.com), from the NBC television
show, The Biggest Loser.
Engaging Content, Extensive Personalization Tools and
Community Features. Our engaging content,
personalization tools and community features are critical
components of our value proposition
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to consumers. We have dedicated significant resources to build a
robust and interactive portfolio of websites that allows
consumers to readily access the health and wellness content they
are seeking to manage their daily lives and address specific
issues and concerns. We strive to deliver our content offerings
in a manner that is relevant and engaging to our consumers by:
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providing a variety of interactive tools that enable consumers
to proactively manage their health and lifestyle needs in a
highly-personalized manner, including for example, enabling
consumers to research symptoms or create personalized tools such
as pregnancy calendars, calorie counters, meal plans and drug
alerts;
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utilizing the information that our registered users voluntarily
submit to provide them with targeted content, features and tools
that are intended to better meet their needs; and
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creating a community environment that empowers consumers to
share information and interact with each other.
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Benefits to
Advertisers
We believe that the Everyday Health portfolio provides a
compelling platform for advertisers to promote their products
and services.
High Quality and Trusted Platform. We believe
that advertisers, particularly large pharmaceutical and medical
device companies and manufacturers of
over-the-counter
and consumer-packaged-goods, are highly sensitive to promoting
their products and services in an environment that will not
diminish the value of their brand. The Everyday Health
portfolio, which features many well-recognized providers of
consumer health content, provides advertisers with a trusted
platform in which to promote their offerings.
Large Audience Scale. The Everyday Health
portfolio attracts a large number of unique visitors, making
it attractive to advertisers in light of the highly-fragmented
nature of the online consumer health market. We believe that the
overall size, scale and composition of the Everyday Health
portfolio, as well as the discrete categories within the
portfolio that engage the audience around specific consumer
health topics, provide advertisers with significant flexibility
to undertake multiple advertising strategies through a single
platform, whether focused on a national, regional or local
audience.
Targeted and Innovative Solutions. We believe
that the Everyday Health portfolio provides advertisers
with a compelling opportunity to reach consumers in a
contextually-relevant environment. Our focus on customized
offerings, in addition to our engaged consumer base, allows
advertisers to effectively target their desired audience through
highly immersive and interactive campaigns. Our extensive
database of information provided by millions of registered users
can facilitate marketing campaigns that are directed at specific
geographic areas, demographic groups, interests, issues or user
communities. Our database also allows us to offer a
highly-valuable suite of marketing solutions, including targeted
display advertising, interactive brand sponsorships, custom
e-mail
campaigns, lead generation or customer acquisition initiatives,
and social networking and community features. Moreover, we
provide our advertisers with detailed post-campaign reporting
that allows them to measure and evaluate the effectiveness of
their campaigns.
Benefits to
Partners
Partnering with Everyday Health enables leading online
and offline providers of consumer health content to efficiently
promote and monetize their content online.
Online Expertise and Portfolio Integration. A
premier consumer health website requires timely and updated
content, interactive tools and applications and robust community
features. We have expertise in developing content, integrating
new websites and cross-promoting our content offerings across
our portfolio of websites, including any new website that we add
to the Everyday Health portfolio. We believe that such
cross-promotion activities, combined with our extensive user
database
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and experience in operating and promoting websites, make us well
suited to promote our partners content and expand their
consumer audience online.
Monetization Opportunities. As consumers
become more sophisticated in their use of the Internet and the
use of search engines continues to fragment the online audience,
the Everyday Health portfolio provides an attractive
method for our partners to promote their content and create new
revenue opportunities. The Everyday Health portfolio
enables our partners to benefit from the large and targeted
advertising platform that we have created to increase their
exposure to major advertisers, thereby increasing their
revenues, without relinquishing editorial and operational
control over their content offerings.
Our
Strategy
Our goal is to offer the best content, tools and community
features across the health spectrum, while providing a
compelling platform for an increasing number of advertisers and
partners seeking to engage with our large and growing consumer
base. Key elements of our strategy include:
Developing New and Improved Offerings to Enhance the Consumer
Experience. We intend to continue to add new
content, tools and applications to the Everyday Health
portfolio that will enhance the consumer experience, attract
new consumers and encourage our existing consumers to visit our
websites more frequently and for longer periods. We intend to do
so by:
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adding new websites to the Everyday Health portfolio to
increase the breadth of our content offerings, such as the
recent launch of Daily Glow (www.DailyGlow.com), a
website focused on the intersection of health and beauty;
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developing new and innovative services that capitalize on the
interactive aspects of the Internet;
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adding a variety of tools and applications across our portfolio
of websites to improve the personalization and community
features;
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developing new mobile applications, such as our recently
launched pregnancy tracker for mobile access which quickly
became the most popular iPhone application in the pregnancy
category; and
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focusing on search engine optimization so that consumers can
more easily access our content offerings.
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Seeking to Aggressively Grow Our Advertiser and Sponsorship
Base. We intend to continue to devote significant
resources to further expanding our base of advertisers and
sponsors. We plan to attract new brands and strengthen our
existing relationships to obtain a larger percentage of our
advertising customers total marketing spend. During 2009,
a total of approximately 473 distinct brands were featured on
the Everyday Health portfolio. We expect this number to
significantly increase over the next several years. We intend to
grow our advertising and sponsorship revenue by leveraging our
new and improved offerings, hiring additional sales and
marketing professionals and continuing to enhance our ability to
target specific audiences and more accurately measure the
effectiveness of advertising expenditures. In addition, we
intend to capitalize on the opportunities presented by the
growing market for local health-related advertising and
sponsorships.
Continuing to Build and Enhance Awareness of the Everyday
Health Brand. We believe that promoting and
creating greater awareness of the Everyday Health brand
as a trusted source for timely, reliable and actionable consumer
health solutions is critical to our future growth. We intend to
continue to make significant investments in our brand through
online and offline initiatives, including syndicating our
content offerings, cross-promoting our brand through offline and
online partnerships and employing a variety of public relations
initiatives. Furthermore, we intend to promote our premier
roster of diet, fitness and medical experts and partners through
offline media channels such as
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television and print. We believe that promoting our brands
through traditional media will enhance market awareness and
brand recognition.
Acquiring Complementary Businesses. We intend
to actively seek acquisition opportunities that will enhance our
ability to serve the evolving needs of our consumers and
customers. We intend to focus on adding content, tools and
applications that provide a richer and more personalized
experience for our growing consumer base. We will also seek
opportunities that will enable us to strengthen our existing
brand relationships or enable us to attract new customers.
Expanding into International Markets. We
intend to expand our business into markets outside the
U.S. We believe that the trends which characterize the
U.S. consumer health market, including increased reliance
on the Internet for health-related information and the
fragmentation of content as users utilize search engines to
navigate the Internet, are pervasive in a number of key
international markets. In addition, many of the websites we
operate are affiliated with premier offline brands that are
popular abroad. For example, the What to Expect When
Youre Expecting series of books are best-sellers in
dozens of countries around the world. We believe that such
markets provide a natural extension of our existing business
model and will be an important element of our future growth.
Our Portfolio and
Content
In designing and building the Everyday Health portfolio,
which includes both websites we operate and those we do not, our
primary objective has been to provide consumers with access to
the most relevant and trusted content spanning the healthcare
spectrum from lifestyle offerings in pregnancy, diet
and fitness to in-depth medical content and solutions for
condition prevention and management.
The Everyday
Health Portfolio
The following table lists the websites we own.
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Website
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Description
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www.EverydayHealth.com
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Everyday Health is our flagship website. It is a health
information website aimed at a consumer audience and offers
content created by experienced medical writers and reviewed by
board certified physicians. The content and tools are intended
to provide consumers with a daily focus on their health and
well-being.
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www.RevolutionHealth.com
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A health-related website with community and social networking
tools for creating social groups with shared health goals,
community forums, blogs and personal profile pages.
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www.CarePages.com
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A social support website for families experiencing critical care
events. The website is an important tool for hospitals that
want to provide additional emotional support for patients and
their families. The website enables friends and families to get
frequent status updates on the patient and to provide words of
encouragement.
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www.DailyGlow.com
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A website at the intersection of health and beauty focused on
healthy skin and related personal care areas, such as hair care,
makeup and cosmetic dentistry. This website also features
content from experts in dermatology, makeup and dentistry.
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The following table lists websites we operate in partnership
with leading providers of consumer health content. In addition
to the websites listed below, in February 2010, we signed an
agreement with Suzanne Somers to develop and monetize a website
based on health and wellness content created by Ms. Somers.
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Website
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Description
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www.WhattoExpect.com
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Based on the best-selling pregnancy book, What to Expect When
Youre Expecting, by author Heidi Murkoff, this website
contains content written by Ms. Murkoff on conception planning
and pregnancy, as well as information on newborns and toddlers.
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www.JillianMichaels.com
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Jillian Michaels is a trainer on the popular NBC show, The
Biggest Loser. Subscribers to this website get access to Ms.
Michaels program for healthy weight loss, which includes a
fitness program, menus and meal plans, videos and interactive
tools.
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www.SouthBeachDiet.com
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Based on the best-selling diet book written by South Beach
preventive cardiologist, Arthur Agatston, the South Beach
Diet website contains multiple tools for managing diet and
measuring weight loss.
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www.PDRHealth.com
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As the consumer web portal of the PDR Network, which includes
the Physicians Desk Reference (PDR), this
website offers consumer-friendly explanations of disease states
and conditions, as well as the safe and effective use of
prescription drugs, non-prescription drugs and herbal medicines.
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www.DeniseAustin.com
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The Denise Austin website provides customized meal and
fitness plans that are targeted to help individuals meet their
personal fitness goals.
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www.JoyBauer.com
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Based on the work of nutritional authority Joy Bauer, this
website provides a variety of weight loss content and tools,
including a customized meal planner and shopping list creator,
customized food plan, food log, calorie and activity calculator
and recipe database.
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www.DukeDiet.com
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The Duke Diet website, based on the work completed at the
Duke Diet and Fitness Center, provides content and tools focused
on weight loss, including diet, fitness, behavioral strategies
and medical expertise.
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www.SonomaDiet.com
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Based on the best-selling diet book, The Sonoma Diet, by
author Dr. Connie Guttersen, this website provides content
and tools related to dieting and overall health.
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Website
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Description
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www.MyOptimumHealthPlan.com
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Based on the work of health advisor Dr. Andrew Weil, this
website includes content and tools focused on wellness,
including a health and lifestyle center, healthy aging
strategies and a vitamin advisor.
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www.DrLauraBerman.com
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Based on the work of Dr. Laura Berman, an expert in sex
education and therapy, this website contains content and tools
designed to improve sex and intimacy for adults of all ages.
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www.HealthyLivingWithEllie.com
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From dietitian, author and television host Ellie Krieger, the
Healthy Living with Ellie website provides content and
tools designed to promote a healthier lifestyle, including diet
and nutrition, fitness and wellness tips.
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The Everyday Health portfolio also includes websites that
we do not own or operate, but rather with whom we partner. These
websites provide our consumers with a broader array of in-depth
consumer health solutions and broaden the consumer audience
which our advertising customers can target. The following table
sets forth the principal websites with whom we have such
partnering relationships:
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Website
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Description
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www.MayoClinic.com
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Produced by a team of Mayo Clinic experts, the Mayo Clinic
website gives users access to the expertise and knowledge of the
more than 3,300 Mayo Clinic physicians and scientists and offers
health information to help users assess symptoms, understand
their diagnosis and manage their health.
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www.SparkPeople.com
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This website offers free nutrition, health and fitness tools,
support and resources designed to promote the transition to a
permanent healthy lifestyle.
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www.MedHelp.org
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This website connects people with medical experts and others who
have had similar health-related experiences. Members can also
research drugs and health topics and share their knowledge with
others in need.
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www.Drugstore.com
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This website is a leading e-commerce provider of health, beauty,
vision and pharmacy products.
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www.PsychCentral.com
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This website was created by physicians and licensed
psychologists and offers information on more than 100 mental
health topics and has more than 150 support groups.
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Website
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Description
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www.LocateADoc.com
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This website provides a database of physicians and health
content that gives prospective patients information and research
tools to choose the right doctor or specialist.
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www.SpineUniverse.com
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This website provides information and resources for consumers
and professionals interested in back and neck pain. Content is
reviewed by a board of spine specialists to ensure reliability.
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www.EndocrineWeb.com
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This website provides patients with information about endocrine
diseases, treatments and prevention.
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www.FPNotebook.com
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This website is intended to aid primary care and family practice
providers in their pursuit of optimal care, well-informed
patients and healthy families. The website contains content on
more than 4,000 medical topics.
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www.WebVet.com
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This website provides pet owners with medical information,
original lifestyle and human interest stories, and breaking news
and general wellness information regarding animal care.
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www.DietsInReview.com
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This website is intended to provide constructive information and
education by health professionals to inspire users to implement
healthy changes, support weight loss efforts and generally live
a healthier life.
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Our
Content
The Everyday Health portfolio incorporates high-quality
content, which includes innovative tools, as well as
applications and community features. Since many of our content
offerings are designed to be customized and personalized to
specific individuals, consumers are encouraged to register for
many of our websites in order to take full advantage of their
combined capabilities. Likewise, many of our websites offer
consumers the opportunity to subscribe to various premium
services, such as diet and fitness programs and online coaching.
We believe that our focus on personalization has been critical
in fostering a highly-engaged consumer base.
Our editorial staff and product and technology specialists are
responsible for creating original content or licensing
third-party
content to support the offerings (other than user-generated
content), including tools, applications and community features,
that are available on the websites that we operate. Our
proprietary content is created by writers, editors, designers
and product specialists who create original articles, Q&As
with physicians, expert columns and other relevant offerings.
All medical content we create is reviewed by board-certified
physicians and references the reviewing physician and the date
the article was authored or updated. Our original content is
supplemented by content that we license from high-quality health
and medical information publishers, including Harvard Health
Publications, Healthwise, HealthDay and The American
Cancer Society.
We continuously seek to supplement our existing content with
innovative tools and applications that take advantage of the
interactive capabilities of the Internet. These tools and
applications include interactive slideshows, quizzes, health
trackers, pregnancy calendars, meal planners, original videos
and audio webcasts, a doctor and hospital directory, a video
symptom checker and a variety of calorie
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tracking tools. We also offer numerous
e-commerce
opportunities, from online stores offering an extensive
selection of health and beauty products to discrete offerings
such as workout videos and equipment, books and vitamins.
Lastly, we strive to integrate the latest technologies and
trends into the manner in which we provide our content
offerings. For example, our What To Expect iPhone
application, launched in October 2009, quickly became the most
popular pregnancy mobile application.
Community engagement is an increasingly popular method for
people to manage their health interests and goals, as well as
for advertisers to communicate with specific audiences. As a
result, we offer numerous opportunities for consumers to connect
through message boards, blogs, photo galleries and widgets.
The following table outlines many of our popular content
offerings:
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Content Offering
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Description
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Everyday Living Content
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Original, medically reviewed content providing daily guidance
for better living, including advice on living a healthier life
or providing assistance in coping with a chronic condition. The
content is sourced to peer-reviewed medical journals and
includes interviews with experts.
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Health Encyclopedia
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Health condition definitions, drug information and other
encyclopedic information provided by healthcare authorities like
Harvard Health, Healthwise, and Multum.
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Expert Q&As
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Consumers questions are answered by approximately 50
specialists. Questions range from fitness and weight loss to
more serious chronic conditions like multiple sclerosis.
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Interactive and Video Based Diagnostics
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Series of algorithmic based intake exams designed to help a
consumer to learn what illness or health issue might be causing
a particular symptom or to generate an evaluation of a
consumers health status.
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Health Trackers
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A health tool that allows consumers to input health data and
then generates a graphical record of the consumers results
over time. For example, diabetics can use a glucose tracker, and
consumers interested in weight loss can track pounds lost over
time.
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Interactive Slideshows
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Health content created by our editors that is presented in a
sequenced, visual format where the consumer clicks to advance
each panel to learn more.
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Groups and Goals
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Tool that allows consumers to form virtual communities based on
shared health goals.
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Content Offering
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Description
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Pregnancy Calendar
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Tool that provides week-by-week information on fetal development
and changes to the womans body as the pregnancy
progresses. This tool provides content related to each week of a
pregnancy.
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My Everyday Health
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Personalized health profile that allows the consumer to create a
customized news feed, easily track calorie intake and calorie
burn, and send messages privately to family, friends and other
Everyday Health members.
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Original Video
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Health videos that focus on patients who are coping with and
overcoming the limitations of chronic conditions.
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Original Audio Webcasts
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Recorded audio programs containing interviews with leading
medical researchers who specialize in chronic conditions and
answer questions from consumers.
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Doctor and Hospital Directory
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Directory that contains names, addresses and practice
information for more than 700,000 physicians and allied health
professionals and more than 6,000 hospitals. The directory also
contains information on quality measures, such as board
certification status of physicians and mortality data for
hospitals.
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Video Symptom Checker
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Interactive symptom triage tool featuring a board certified
emergency room physician who, through a series of recorded video
segments, questions consumers about medical history and
presentation of symptoms. The tool provides care
recommendations and action plans.
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My Calorie Counter
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Suite of calorie and nutrition tools that provide consumers with
the ability to easily track food and nutrient intake and calorie
burn based on a database of over 35,000 commonly consumed foods.
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Meal Planner
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Tool that provides a weeks worth of healthy menus for
breakfast, lunch and dinner. Tool provides nutrient and calorie
information and can be adjusted to accommodate special diets,
dietary restrictions and favorite foods.
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Content Offering
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Description
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Healthy Recipes
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Thousands of recipes across a variety of categories, including
low fat, diabetes friendly, low carb, low calorie, low sodium,
and gluten free. Recipes are provided by well known publishers
such as Eating Well and Diabetic Living magazines.
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Ask A Pharmacist
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Interactive tool in which licensed pharmacists answer individual
questions submitted by users regarding prescription and
over-the-counter medications.
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Advertising and
Sponsorship Sales
Our advertising customers consist primarily of pharmaceutical
and medical device companies, manufacturers and retailers of
over-the-counter
products and consumer-packaged-goods and healthcare providers,
such as hospitals, dentists and doctors. Our 2009 customers
included 24 of the top 25 global companies ranked by 2008
healthcare revenue as compiled by MedAdNews. In addition, our
2009 customers included 43 of the top 100 Leading National
Advertisers in 2008 as compiled by Advertising Age. Many
of our advertising customers promote a variety of different
brands and products on the Everyday Health portfolio.
We sell our advertising-based services primarily through our
direct sales force, which comprises approximately
70 people, including direct sales representatives and sales
operations personnel and research specialists. Our sales
personnel, which are located in New York City and other major
U.S. cities, maintain direct relationships with our
customers and their advertising agencies to develop timely and
innovative ways to market their products and services to
targeted groups of consumers. Our extensive database of
registered consumers also enables us to provide detailed
research and post-campaign reporting to measure the
effectiveness of our customers marketing efforts.
We offer our advertisers innovative marketing solutions, using
the extensive database of information provided by our millions
of registered consumers, including:
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targeted banner display advertisements on the Everyday Health
portfolio and in our newsletters;
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interactive brand sponsorships, which consist of custom-created
marketing programs featuring content, tools and other programs;
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sponsorship of targeted stand-alone
e-mails to
consumers who have opted to receive such
e-mails,
which we refer to as opt-in consumers;
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customer acquisition, or lead generation, campaigns designed to
deliver qualified consumers through the registration
process; and
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opportunities for connecting advertisers to consumers through
interactive social networking communities.
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We expect that our ability to provide our advertising customers
with targeted solutions across a large and contextually immersed
audience, together with result-focused tools that can measure a
customers return on investment, will enable us to grow and
strengthen our customer relationships, while competing favorably
against online and offline publishers in the health category.
As of June 30, 2010, one advertising agency accounted for
approximately 12% of our accounts receivable and another
advertising agency accounted for approximately 11% of our
accounts receivable.
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Marketing
Our marketing efforts are focused on the following objectives:
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increasing traffic to the websites we operate in the Everyday
Health portfolio; and
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recruiting consumers to register with or subscribe to our
websites and subscription-based premium services.
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We utilize a variety of marketing programs across different
media channels to achieve these objectives. Our marketing
programs include:
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online display advertising;
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paid search advertising;
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e-mail
advertising; and
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television, print and radio advertising.
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Our in-house marketing and design teams create our marketing
campaigns and programs, which are then implemented by our
technical and operations personnel and by third-party service
providers. We actively and continuously manage our media mix to
maximize the efficiency of our marketing investment. Our
marketing personnel also focus directly on improving search
engine optimization for the websites we operate. Search engine
optimization is the process of improving the volume or quality
of traffic to a specific website from search engines through
unpaid search results, which is otherwise commonly referred to
as natural or organic search traffic. Improving the natural
search traffic to the websites we operate will allow us to be
more efficient with the marketing dollars we deploy to increase
traffic across the Everyday Health portfolio.
We operate a dedicated customer service center in North Adams,
Massachusetts to support the sale of the premium services we
offer to consumers. Our customer service personnel closely
monitor offer mix and durations, payment processing,
cancellation reasons and overall customer satisfaction. Our
customer service department provides us with timely insights on
health-related consumer trends, and we use this information to
launch new websites, content and service offerings.
Competition
We face competition for consumers and advertising customers from
a variety of online and offline companies, government agencies
and other organizations that provide content, tools and
applications to consumers interested in health-related
information. Our ability to compete successfully against these
entities depends on many factors, including:
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the quality, timeliness and reliability of our content offerings;
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the effectiveness of our sales and marketing efforts;
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our ability to keep pace with technological advances and
trends; and
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the brand recognition of Everyday Health and the websites
in our portfolio.
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There are many online entities that provide health, diet,
fitness and wellness content directed at consumers. Our
Internet-based competition includes:
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websites that provide online health or medical information, such
as www.webmd.com;
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websites that offer specific diet or fitness programs, such as
www.weightwatchers.com, or that focus on a specific
medical condition, such as www.dlife.com for diabetes;
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broad-based public portals that offer health-related content,
such as www.aol.com and www.yahoo.com; and
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non-profit and governmental websites that provide health and
wellness information, such as www.fda.gov, www.cdc.gov
and www.health.nih.gov.
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In addition, we face competition from advertising networks that
aggregate traffic from multiple online websites or target
advertisements to health-related consumers, such as
www.advertising.com or www.valueclick.com.
We also face competition from a number of companies that provide
consumer health content through traditional offline media. These
competitors include magazine and book publishers, such as Time
Warner Inc. and Rodale Inc., and distributors of television and
video programming, such as Discovery.
Some of our competitors have significantly greater market
presence, longer operating histories, stronger brand
recognition, larger customer bases and greater financial,
technical, editorial, sales and marketing resources than we
have. Our current or future competitors may develop products and
services comparable or superior to those developed by us or
adapt more quickly to new technologies or evolving industry
trends. In addition, if any of our competitors were to merge or
partner with each other, the change in the competitive landscape
could adversely affect our customer relationships and
competitive position. Since there are no substantial barriers to
entry into the markets in which we participate, we expect
competition to increase in the future.
Technology
Our technology infrastructure provides for continuous
availability of our content offerings and advertising-based
services. Currently, our websites are hosted on infrastructure
located in four third-party data centers: one data center in
each of Carlstadt, New Jersey and Ashburn, Virginia and two data
centers in New York, New York. We expect to consolidate our
entire operation to the data centers located in New Jersey and
Virginia during 2011. Our operations are dependent in part on
our ability, and that of our hosting providers, to maintain our
computer and telecommunications systems in effective working
order and to protect our systems against damage from fire,
theft, natural disaster, power loss, telecommunications failure,
hacker attacks, computer viruses and other events beyond our
control. We back up our data using a combination of electronic
vaulting and tape storage to offsite storage facilities on a
daily basis, operate intrusion detection systems and perform
regular log reviews for malicious activity.
Our systems are designed to have no single point of failure,
other than the data centers themselves, and have redundancy at
the network, power, firewall, load balancer, application server,
database and storage levels. We maintain operational
flexibility, which allows us to allocate resources to or from
applications based on demand. We continually add and refine
functionality for our portfolio of websites, ensuring that each
modification is carefully tested and deployed before being moved
into production by following a strict change management process.
We have access to bandwidth on demand and additional physical
capacity in all of our data centers to react to increased volume
on our websites. We monitor systems continuously using automated
tools and services. Emergency response teams provide full time
coverage to respond to any issues affecting user functionality
or performance.
We employ several layers of security, including encryption,
secure transmission protocols and strict access controls, to
ensure privacy, integrity and availability of our data. We
utilize additional levels of security for
e-commerce
transactions, specifically when credit-card processing is
required, including background checks of relevant employees and
regular third-party security scans. We have contracted with an
outside party to independently monitor our websites, focusing on
the
e-commerce
sections and ensuring that our websites are in compliance with
appropriate industry security requirements for
e-commerce
data.
The key components of our software have primarily been designed,
developed and deployed by our internal technology group.
However, we also license database management software, outsource
video delivery for our websites and otherwise use external
sources for technological purposes when appropriate. We select
external technology partners according to stability, reputation,
performance and proven service levels.
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Intellectual
Property
Our success depends upon our ability to protect our core
technology and intellectual property. To accomplish this, we
rely on a combination of intellectual property rights, including
trade secrets, trademarks, copyrights and patents, as well as
contractual restrictions. We enter into confidentiality and
proprietary rights agreements with our employees, consultants
and business partners, and we control access to and distribution
of our proprietary information. In addition, we have registered
various domain names, including www.EverydayHealth.com,
www.RevolutionHealth.com, www.CarePages.com and
www.DailyGlow.com, which are critical to the operation of
our business and the websites in the Everyday Health
portfolio. However, not all of our intellectual property is
protected by registered copyrights or other registered
intellectual property or statutory rights. For example, certain
of our content is protected by user agreements that limit access
to and use of such content. Compliance with use restrictions is
difficult to monitor, and our proprietary rights in our content
offerings may be more difficult to enforce than other forms of
intellectual property rights. We cannot be certain that the
steps we have taken to protect our technology and intellectual
property will be adequate.
In addition to the technology and intellectual property that we
own, we also license key health-related content and tools from
third parties that we distribute on the websites that we
operate. For example, we license health-related content from
Harvard Health Publications, Healthwise, HealthDay and
The American Cancer Society, among others. We also
license software and technology products that are important to
our ability to manage and deliver content and market and sell
our products and services. We cannot be certain that we will
continue to have access to our third-party licenses on
commercially reasonable terms. Furthermore, because we license a
significant amount of content from third parties, we may be
exposed to copyright or other intellectual property infringement
actions regarding the origin and ownership of that content as a
result of the actions of third parties that are not under our
control.
Our ability to operate some of our websites is governed by
licensing agreements with the owners of the offline brands and
associated content, including Heidi Murkoff, author of the
best-selling book What to Expect When Youre
Expecting, Jillian Michaels, Joy Bauer, Denise Austin and
Arthur Agatston, author of the best-selling book The South
Beach Diet, among others. These licensing agreements provide
us with the exclusive rights, subject to limited exceptions, to
use and market the brand and associated content online, as well
as to determine the precise methods for monetizing the content
online. In exchange for these rights, our partners receive
specified royalties based on the revenue generated from our
operation of the applicable website and related services, such
as e-mail
newsletters and product sales. These licensing agreements are
structured as long-term contracts, most of which have initial
five year terms. Certain of these contracts have varying renewal
provisions.
Letter
Agreement with Empowered Media, LLC
On November 7, 2005, we entered into a letter agreement
with J.M. Athletics, LLC (subsequently assigned by J.M.
Athletics, LLC to Empowered Media, LLC) in connection with
our license of certain proprietary content, including content
from Jillian Michaels book Winning By Losing. Under
the agreement, we were granted, subject to certain limitations,
a worldwide license to use, distribute, display, publicly
perform, reproduce, develop, modify, adapt, prepare derivative
works, translate, market and sell the applicable content as part
of the website www.JillianMichaels.com and related
newsletter. In turn, we agreed to develop, produce, publish,
market, and exploit the applicable content and host, operate and
maintain the website at our sole expense and to pay certain
royalties on revenue generated from advertising, sales,
subscription fees and product sales generated from the website
and related newsletter. This letter agreement terminates in May
2016. Revenues generated pursuant to this letter agreement
represented more than 10% of our total revenues for the year
ended December 31, 2009 and the six months ended
June 30, 2010.
Letter
Agreement with SBD/Waterfront Media Limited Partnership and
Rodale Inc.
On February 12, 2008, we entered into a letter agreement
with SBD/Waterfront Media Limited Partnership and Rodale Inc. in
connection with our license of certain proprietary content,
including
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content from Dr. Arthur Agatstons The South Beach
Diet. Under the agreement, we were granted, subject to
certain limitations, a worldwide license to reproduce, develop,
distribute, publicly perform, publicly display, translate into
all languages, modify and adapt the applicable content on the
Internet. In turn, we agreed to develop, market, distribute and
exploit the applicable content on the website
www.SouthBeachDiet.com at our sole expense and to pay
royalties on revenue generated from advertising, sales and
subscription fees generated from the website and related
newsletter. This letter agreement terminates in May 2013.
Revenues generated pursuant to this letter agreement represented
more than 10% and 9% of our total revenues for the year ended
December 31, 2009 and the six months ended June 30,
2010, respectively.
Industry
Standards and Government Regulation
This section describes the key laws, regulations and industry
standards that affect our business. Some of the aspects
described below, such as those surrounding consumer protection,
affect us directly. Other aspects do not apply to us directly,
but may have a significant effect on the way our partners and
customers can operate. The regulatory landscapes in which we
operate, particularly in the areas of privacy, advertising and
healthcare, are often complex and relatively new. As such, they
are subject to varying interpretations by courts and
governmental authorities and often require subjective
interpretation. We cannot be certain that our efforts to comply
with these laws and regulations will be deemed sufficient by the
relevant governmental authorities. In addition, the use of
consumer information, online behavioral advertising and
healthcare are areas on which the public, legislators and
regulators are currently focused. It is possible that the laws,
regulations and industry standards that affect our business will
change in the future. We are not able to predict the effect that
future changes will have on our business.
Consumer
Protection
Our business is subject to federal and state consumer protection
laws that regulate unfair and deceptive practices. The laws that
most directly affect our business are those related to the use
and protection of consumer information and those related to
advertising and marketing.
Privacy. Our collection, storage and sharing
of information regarding consumers, including visitors to our
websites, is governed by various U.S. federal and state
laws, regulations and standards. Enforcement by regulators
requires us to provide consumers with notice, choice, security
and access with respect to such information. The standards are
subject to interpretation by courts and other governmental
authorities. We believe that we are in compliance with the
consumer protection standards that apply to our websites.
However, because our services are accessible worldwide, and we
facilitate sales of goods to users worldwide, foreign
jurisdictions may claim that we are required to comply with
their laws. A determination by a governmental agency, court or
other governmental authority that any of our practices do not
meet local standards could result in liability and adversely
affect our business. These actions may include those related to
U.S. federal and state legislation or European Union or
other foreign directives limiting the ability of companies like
ours to collect, receive, share and use information regarding
Internet users.
Online Behavioral Advertising. Legislators and
the press are currently scrutinizing online behavioral
advertising. Online behavioral advertising is the practice of
delivering and targeting advertisements to a consumer based upon
his or her online behaviors. In the last year, members of
Congress have suggested introducing legislation to restrict
aspects of behavioral advertising. In February 2009, the Federal
Trade Commission, or FTC, published Self Regulatory Principles
for Online Behavioral Advertising. In July 2009, a
cross-industry group, which includes trade associations for
online publishers, advertisers and advertising agencies, created
a set of self-regulatory principles for online behavioral
advertising. We intend to comply with both sets of guidelines.
Data Protection Regulation. Recent data
breaches resulting in improper dissemination of consumer
information have prompted many states to pass laws regulating
the actions that a business must take if it experiences a data
breach. Compromised companies must promptly disclose breaches
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to customers, however, these laws are limited to electronic data
and make exemptions for smaller breaches or data that is
protected pursuant to specified security standards like
encryption. Congress has also contemplated similar federal
legislation relating to data breaches. In the past, the FTC has
prosecuted some data breach cases as unfair and deceptive acts
or practices under the FTC Act. We intend to continue to
comprehensively protect all consumer data and to comply with all
applicable laws regarding the protection of this data. In
addition, to the extent foreign users elect to use our services
or voluntarily provide us with information about themselves,
foreign regulators or data protection authorities may seek to
limit our ability to collect, receive, share and use information
regarding Internet users residing in their jurisdictions.
Inquiries or proceedings involving foreign data protection
authorities may be expensive or time consuming, and their
outcome is uncertain.
CAN-SPAM Act. The CAN-SPAM Act regulates
commercial
e-mails,
provides a right on the part of the recipient to request the
sender to stop sending messages, and establishes penalties for
the sending of
e-mail
messages that are intended to deceive the recipient as to source
or content. Under the CAN-SPAM Act, senders of commercial
e-mails and
other persons who initiate such
e-mails are
required to ensure that those
e-mails do
not contain false or misleading transmission information.
Recipients must be furnished with an electronic method of
informing the sender of the recipients decision to not
receive further commercial
e-mails. In
addition, the
e-mail must
include a postal address of the sender and notice that the
e-mail is an
advertisement. We are applying the CAN-SPAM requirements to our
e-mail
communications, and believe that our practices comply with the
requirements of the CAN-SPAM Act. An action alleging our failure
to comply with CAN-SPAM and the adverse publicity associated
with any such action could result in less consumer participation
and lead to reduced revenues from advertisers.
COPPA. The Childrens Online Privacy
Protection Act, or COPPA, applies to operators of commercial
websites and online services directed to U.S. children
under the age of 13 that collect personal information from
children, and to operators of general audience websites with
actual knowledge that they are collecting information from
U.S. children under the age of 13. Our websites are not
directed at children under the age of 13, and our registration
process utilizes age screening in order to prevent the under-age
registrations. We believe that we are in compliance with COPPA.
COPPA, however, is a relatively new law, can be applied broadly
and is subject to interpretation by courts and other
governmental authorities. The failure to accurately anticipate
the application, interpretation, or legislative expansion of
this law could create liability for us, result in adverse
publicity and negatively affect our business.
Marketing. Our marketing efforts include,
among other things, the use of promotional
e-mail to
our existing consumers, and search and display advertising on
numerous third-party websites and television. These marketing
efforts are subject to federal and state consumer protection
laws that regulate unfair and deceptive practices. Any changes
in the laws, regulations and industry standards associated with
the advertising of health, diet and fitness information may
reduce our revenues or increase our costs. In October 2009, the
FTC published Guides Concerning the Use of Endorsements and
Testimonials in Advertising, or the Guides. Under the Guides,
advertisements that feature a consumer and convey his or her
experience with a product or service as typical when that is not
the case will be required to clearly disclose the results that
consumers can generally expect to receive from the advertised
product or service. Accordingly, advertisers will no longer be
able to rely upon general typicality language, such as,
results may vary. While we do not believe the Guides
will negatively affect our business, we cannot predict how the
FTC will interpret or enforce the Guides.
Regulation of Contests and Sweepstakes. In
order to promote our websites or features, we conduct contests
and sweepstakes from time to time. Some state prize, gift or
sweepstakes statutes may apply to these promotions. We believe
that we are in compliance with all applicable laws and
regulations when we run these promotions.
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Healthcare-Related
Regulation
Regulation of Drug and Medical Device Advertising and
Promotion. The FDA and the FTC regulate the form,
content and dissemination of labeling, advertising and
promotional materials prepared by, or for, pharmaceutical or
medical device companies, including
direct-to-consumer,
or DTC, prescription drug and medical device advertising. The
FTC regulates
over-the-counter
drug advertising and, in some cases, medical device advertising.
Regulated companies must limit advertising and promotional
materials to discussions of FDA-approved uses and claims, with
limited exceptions. For instance, regulated companies may
disseminate non-promotional journal articles containing
scientific information that discusses product uses or claims not
yet approved by the FDA, provided that such disseminations are
made in accordance with criteria established by the FDA.
Information on our websites that promotes the use of
pharmaceutical products or medical devices is subject to FDA and
FTC requirements, and information regarding other products and
services is subject to FTC requirements. If the FDA or the FTC
finds that any information on our websites are in violation,
they may take regulatory or judicial action against us, the
advertiser or sponsor of that information. State attorneys
general may also take similar action based on their states
consumer protection statutes. Areas of our websites that could
be the primary focus of regulators include pages and programs
that discuss use of an FDA-regulated product or that the
regulators believe may lack editorial independence from the
influence of sponsoring pharmaceutical or medical device
companies. The FDA and the FTC place the principal burden of
compliance with advertising and promotional regulations on
advertisers and sponsors to make truthful, substantiated claims.
The Federal Food, Drug, and Cosmetic Act, or FDC Act, requires
that prescription drugs, including biological products, be
approved by the FDA prior to marketing. It is a violation of the
FDC Act and of FDA regulations to market, advertise or otherwise
commercialize such products prior to approval. The FDA allows
for preapproval exchange of scientific information, provided it
is non-promotional in nature and does not draw explicit or
implied conclusions regarding the ultimate safety or
effectiveness of the unapproved drug. Upon approval, the
FDAs regulatory authority extends to the labeling and
advertising of prescription drugs offered in interstate
commerce. Such products may be promoted and advertised only for
uses reviewed and approved by the FDA. In addition, the labeling
and advertising can be neither false nor misleading, and must
present all material information, including potential risks, in
a clear, conspicuous and neutral manner. There are also
requirements for specified information to be part of labeling
and advertising. Labeling and advertising that violate these
legal standards are subject to FDA enforcement action.
The FDA also regulates the safety, effectiveness, and labeling
of
over-the-counter,
or OTC, drugs under the FDC Act either through specific product
approvals or through regulations that define approved claims for
specific categories of such products. The FTC regulates the
advertising of OTC drugs under the section of the Federal Trade
Commission Act that prohibits unfair or deceptive trade
practices. The FDA and FTC regulatory framework requires that
OTC drugs be formulated and labeled in accordance with FDA
approvals or regulations and promoted in a manner that is
truthful, adequately substantiated, and consistent with the
labeled uses. OTC drugs that do not meet these requirements are
subject to FDA or FTC enforcement action depending on the nature
of the violation. In addition, state attorneys general may bring
enforcement actions for alleged unfair or deceptive advertising.
There are several administrative, civil and criminal sanctions
available to the FDA for violations of the FDC Act or FDA
regulations as they relate to labeling and advertising.
Administrative sanctions may include a written request that
certain advertising or promotion cease
and/or that
corrective action be taken, such as requiring a company to
provide to healthcare providers
and/or
consumers information to correct misinformation previously
conveyed. In addition, the FDA may use publicity, such as press
releases, to warn the public about false and misleading
information concerning a drug or medical device product. More
serious civil sanctions include seizures, injunctions, fines and
consent decrees. Such measures could prevent a company from
introducing or maintaining its product
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in the marketplace. Criminal penalties for severe violations can
result in a prison term
and/or
substantial fines. State attorneys general have similar
investigative tools and sanctions available to them.
Any increase in FDA regulation of the Internet or other media
used for the Internet advertisements of prescription drugs could
make it more difficult for us to obtain advertising and
sponsorship revenue. Companies may now advertise prescription
drugs to consumers in any medium, provided that they satisfy FDA
requirements. However, legislators, physician groups and others
have criticized the FDAs current policies, and have called
for restrictions on advertising of prescription drugs to
consumers and increased FDA enforcement. These critics point
both to public health concerns and to the laws of many other
countries that make DTC advertising of prescription drugs a
criminal offense. Congress and the FDA have shown interest in
these issues, as well, and there is a possibility that Congress,
the FDA or the FTC may alter present policies on DTC advertising
of prescription drugs or medical devices in a material way.
To date, the FDA has not promulgated any discrete guidance or
guidelines for DTC advertising of prescription drugs or medical
devices. However, in November 2009, the FDA convened a
two-day
public meeting to solicit feedback on the Promotion of
FDA-Regulated Medical Products Using the Internet and Social
Media Tools. In addition, the FDA asked for further public
comment on this subject, and the public docket closed on
February 28, 2010. It is not clear what, if any, steps the
FDA will take in response to the public meeting or the
submission of public comments.
Industry trade groups, such as the Pharmaceuticals Research and
Manufacturers of America, or PhRMA, have implemented voluntary
guidelines for DTC advertising in response to public concerns.
The PhRMA Guiding Principles for Direct to Consumer
Advertisement of Prescription Medicines, referred to as the
PhRMA Guidelines, which originally went into effect in January
2006, have recently been revised with an effective date of
March 2, 2009. The PhRMA Guidelines address various aspects
of DTC advertising, including: balancing presentation of
benefits and risks; the timing of DTC campaigns, including
allowing for a period for education of healthcare professionals
prior to launching a branded DTC campaign; use of healthcare
professionals and celebrities in DTC advertisements; and timing
and placement of advertisements with adult-oriented content.
HIPAA Privacy Standards and Security
Standards. The privacy and security of
information about the past, present, or future physical or
mental health or condition of an individual is a major issue in
the U.S., because of heightened privacy concerns and the
potential for significant consumer harm from the misuse of such
sensitive data. We have procedures and technology in place
intended to safeguard the information we receive from users of
our services from unauthorized access or use.
The Privacy Standards and Security Standards under the Health
Insurance Portability and Accountability Act of 1996, or HIPAA,
establish a set of basic national privacy and security standards
for the protection of individually identifiable health
information by health plans, healthcare clearinghouses and
healthcare providers, referred to as covered entities, and the
business associates with whom such covered entities contract for
services. Notably, whereas HIPAA previously directly regulated
only these covered entities, the Health Information for Economic
and Clinical Health Act of 2009, or HITECH, which was signed
into law as part of the stimulus package in February 2009, makes
certain of HIPAAs privacy and security standards also
directly applicable to covered entities business
associates. As a result, business associates are now subject to
significant civil and criminal penalties for failure to comply
with applicable privacy and security rule requirements.
Moreover, HITECH creates a new requirement to report certain
breaches of unsecured, individually identifiable health
information and imposes penalties on entities that fail to do
so. Additionally, certain states have adopted comparable privacy
and security laws and regulations, some of which may be more
stringent than HIPAA.
We have contractual arrangements with some HIPAA covered
entities to make our CarePages social support website service
available to patients and their friends and families. As part of
those arrangements, we do not receive, process, or store any
information from the covered entities about a
96
patient. Instead, we only receive and store information from our
users. Accordingly, we believe that we do not receive protected
health information on behalf of these covered entities, and are
not required to comply with HIPAA or HITECH. However, we have
signed business associate agreements with certain covered
entities who offer our CarePages service to their patients and
their families and friends. If, in spite of the lack of access
to and processing of individually identifiable health
information on behalf of covered entities, we are subject to the
requirements of HIPAA or HITECH and our data practices do not
comply with such requirements, we may be directly subject to
liability under HIPAA or HITECH. In addition, if our security
practices do not comply with our contractual obligations, we may
be subject to liability for breach of those obligations. Any
liability from a failure to comply with the requirements of
HIPAA or HITECH, to the extent such requirements are deemed to
apply to our operations, or contractual obligations, could
adversely affect our financial condition. The costs of complying
with privacy and security related legal and regulatory
requirements are burdensome and could have a material adverse
effect on our results of operations. In addition, we are unable
to predict what changes to the Privacy Standards and Security
Standards might be made in the future or how those changes could
affect our business. Any new legislation or regulation in the
area of privacy and security of personal information, including
personal health information, could also adversely affect our
business operations.
Licensed Professional Regulation. The practice
of most healthcare professions requires licensing under
applicable state law. In addition, the laws in some states
prohibit business entities from practicing medicine, which is
referred to as the prohibition against the corporate practice of
medicine. Similar state prohibitions may exist with respect to
other licensed professions. We do not believe that we engage in
the practice of medicine or any other licensed healthcare
profession, and we have attempted to structure our websites,
tools, partner relationships and other operations to avoid
violating these state licensing and professional practice laws.
We do not believe that we provide professional medical advice,
diagnosis, treatment, or other advice that is tailored in such a
way as to implicate state licensing or professional practice
laws. We employ and contract with physicians, nutritionists and
fitness instructors who provide only medical, nutrition and
fitness information to consumers, and we have no intention to
provide medical care or advice or otherwise engage in the
practice of a licensed profession. A state, however, may
determine that some portion of our business violates these laws
and may seek to have us discontinue those portions or subject us
to penalties or licensure requirements. Any determination that
we are a healthcare provider and have acted improperly as a
healthcare provider may result in liability to us.
Anti-Kickback Laws. There are federal and
state laws that govern patient referrals, physician financial
relationships and inducements to healthcare providers and
patients. The federal healthcare programs anti-kickback
law prohibits any person or entity from offering, paying,
soliciting or receiving anything of value, directly or
indirectly, for the referral of patients covered by Medicare,
Medicaid and other federal healthcare programs or the leasing,
purchasing, ordering or arranging for or recommending the lease,
purchase or order of any item, good, facility or service covered
by these programs. Many states also have similar anti-kickback
laws that are not necessarily limited to items or services for
which payment is made by a federal healthcare program. In 2002,
the Office of the Inspector General of the U.S. Department
of Health and Human Services, the federal government agency
responsible for interpreting the federal anti-kickback law,
issued an advisory opinion that concluded that the sale of
advertising and sponsorships to healthcare providers and vendors
by web-based information services implicates the federal
anti-kickback law. However, the advisory opinion suggests that
enforcement action will not result if the fees paid represent
fair market value for the advertising or sponsorship
arrangements, the fees do not vary based on the volume or value
of business generated by the advertising, and the advertising
and sponsorship relationships are clearly identified as such to
users. We carefully review our practices to ensure that we
comply with all applicable laws. However, the laws in this area
are broad and we may not be able to determine how the laws will
be applied to our business practices. Any determination by a
state or federal regulatory agency that any of our practices
violate any of these laws could subject us to liability and
require us to change or terminate some portions of our business.
97
Employees
As of June 30, 2010, we had approximately
370 employees. None of our employees is represented by a
labor union or is subject to a collective bargaining agreement.
We have not experienced an employment-related work stoppage and
consider relations with our employees to be good.
Facilities
Our corporate headquarters are currently located in a facility
encompassing approximately 41,800 square feet of office
space in a building at 345 Hudson Street in New York, NY. The
lease consists of (i) a sublease for approximately
36,000 square feet, which extends through October 2013, at
which time a direct lease with the building owner commences and
extends through October 2018; and (ii) a direct lease with
the building owner for additional office space of approximately
5,400 square feet, which extends through October 2018.
We also lease office space in North Adams, Massachusetts,
Washington, DC, and Mumbai, India.
We believe that our current facilities are generally in good
operating condition and are sufficient to meet our needs for the
foreseeable future.
Legal
Proceedings
We are not currently subject to any material litigation or other
legal proceeding.
98
MANAGEMENT
Executive
Officers and Directors
Our executive officers and directors, and their ages as of
June 30, 2010, are set forth below:
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Name
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Age
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Position(s)
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Benjamin Wolin
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35
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Chief Executive Officer and Director
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Michael Keriakos
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34
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President and Director
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Brian Cooper
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45
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Executive Vice President and Chief Financial Officer
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Gregory Jackson
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41
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Executive Vice President, Marketing & Sales Operations
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Alan Shapiro
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41
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Executive Vice President and General Counsel
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Golnar Sheikholeslami
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42
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Chief Product Officer
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Scott Wolf
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55
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Executive Vice President, Sales
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Douglas McCormick
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60
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Chairman of the Board
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D. Jarrett Collins
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|
48
|
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Director
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Donn Davis
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47
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Director
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Dana L. Evan
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50
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Director
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David Golden
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52
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Director
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Habib Kairouz
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43
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Director
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William Bo S. Peabody
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|
39
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Director
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Sharon Wienbar
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48
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Director
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Benjamin Wolin is our co-founder and has served as our
Chief Executive Officer and a member of our board of directors
since our inception in January 2002. From September 1999 until
December 2001, Mr. Wolin served as Vice President of
Production and Technology for Beliefnet, Inc., an online
provider of religious and spiritual information. Previously,
Mr. Wolin served as Web Producer for Tribune Interactive,
Inc., a multimedia corporation, and held several consulting
positions with interactive companies. Mr. Wolin serves on
the board of directors of a number of privately-held companies.
Mr. Wolin received a B.A. in History from Bowdoin College.
As a co-founder of our company and our Chief Executive Officer,
Mr. Wolin brings expertise and knowledge regarding our
business and operations to our board of directors.
Mr. Wolin also brings to our board of directors his prior
experience in operations and technology in the interactive media
industry.
Michael Keriakos is our co-founder and has served as a
member of our board of directors since our inception in January
2002. Since October 2006, Mr. Keriakos has served as our
President. From January 2002 until October 2006, he served as
our Executive Vice President of Sales, Marketing and Business
Development. From January 2001 until January 2002,
Mr. Keriakos served as the Director of Sponsorships at
Beliefnet, Inc. From October 1999 until December 2000,
Mr. Keriakos served as Director of Sponsorships at iVillage
Inc., a media company focused on female-oriented online and
offline content. Mr. Keriakos served as the Director of
Business Development and Membership Acquisition for FamilyPoint,
Inc., an online meeting center tailored for individual families
and friend groups, from May 1999 until October 1999, when it was
acquired by iVillage Inc. From January 1999 until May 1999,
Mr. Keriakos served as Customer Business Development
Manager for The Procter & Gamble Company, a consumer
goods manufacturer. Mr. Keriakos received a Bachelors
degree in Business Administration from Wilfrid Laurier
University in Canada. As a co-founder of our company and our
President, Mr. Keriakos brings expertise and knowledge
regarding our business and operations to our board of directors.
Mr. Keriakos also brings to our board of directors his
prior experience in online advertising sales and business
development.
Brian Cooper has served as our Executive Vice President
and Chief Financial Officer since April 2008. From September
2003 until April 2008, Mr. Cooper served as our Senior Vice
President and Chief Financial Officer. From June 2000 until
August 2003, Mr. Cooper was Chief Financial Officer of
AdOne LLC, a joint venture of leading media companies. From
April 1999 until June 2000, Mr. Cooper served as an Audit
Partner in the Information, Communications and Entertainment
practice of KPMG
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LLP, an independent registered public accounting firm. From
September 1996 until April 1999, Mr. Cooper served as a
Senior Manager in the Media and Entertainment practice of
Ernst & Young LLP, an independent registered public
accounting firm. From August 1988 until September 1996,
Mr. Cooper served as Vice President of Finance of
Interfilm, Inc., a producer and distributer of live action video
games. From July 1986 until August 1988, Mr. Cooper served
as a member of the Entrepreneurial Services Group of
Ernst & Young LLP. Mr. Cooper is a Certified
Public Accountant, received a B.S. in Business Administration
from American University and graduated from the Executive
Development Program at the Wharton School of the University of
Pennsylvania.
Gregory Jackson has served as our Executive Vice
President of Marketing and Sales Operations since November 2008.
From July 2006 until October 2008, Mr. Jackson served as
our Senior Vice President of Marketing. From May 2006 until July
2006, Mr. Jackson served as President of Direct Response
Consulting of Direct Results, LLC, a marketing consulting firm.
From October 2005 until May 2006, Mr. Jackson served as
President and Chief Marketing Officer of Fathead, Inc., a
marketer of licensed sports merchandise. From March 2003 until
October 2005, Mr. Jackson worked at GoodTimes
Entertainment, Ltd., a media and home video company, where he
most recently served as Executive Vice President of Online
Marketing and Operations. From April 1994 until March 2003,
Mr. Jackson worked at The Columbia House Company, a direct
seller of music and movie products, where he most recently
served as Vice President and General Manager. Mr. Jackson
received a B.S. in Information Systems from Boston University
and an M.B.A. in Marketing from Rutgers University.
Alan Shapiro has served as our Executive Vice President
and General Counsel since November 2009. From November 2007
until November 2009, Mr. Shapiro served as our Senior Vice
President and General Counsel. From September 2002 until October
2007, Mr. Shapiro served as General Counsel of NetRatings,
Inc., a global Internet media and market research firm. From
April 2000 until July 2002, Mr. Shapiro served as General
Counsel of Jupiter Communications, Inc. and its successor
company, Jupiter Media Metrix, Inc., a provider of Internet
media and market research services. Mr. Shapiro worked as a
corporate attorney at Brobeck, Phleger & Harrison LLP
from August 1998 until April 2000 and Dechert LLP from March
1997 until August 1998. Mr. Shapiro received a B.A. from
Columbia University and a J.D. from the UCLA School of Law.
Golnar Sheikholeslami has served as our Chief Product
Officer since July 2010. From November 2002 until June 2010,
Ms. Sheikholeslami worked at The Washington Post Company,
an education and media company, where she most recently served
as Vice President and General Manager, Washington Post Digital.
From February 1997 until May 2002, Ms. Sheikholeslami
worked at CondeNet, Inc. and its parent company, Conde Nast
Publications Inc., a media company, where she most recently
served as Senior Vice President and Managing Director. From June
1994 until February 1997, Ms. Sheikholeslami served as
Manager, Planning and Finance of the Digital Marketing Group of
Time Warner Inc., a media company. Ms. Sheikholeslami
received a B.S. in International Economics from Georgetown
University and an M.B.A. from the University of Virginia.
Scott Wolf has served as our Executive Vice President of
Sales since November 2008. From June 2005 until October 2008,
Mr. Wolf served as our Senior Vice President of Sales. From
March 2004 until April 2005, Mr. Wolf served as Senior Vice
President of Sales for Muzak Holdings LLC, a music distributor.
From June 2002 until January 2004, Mr. Wolf served as
Senior Vice President of Sales for the Music Internet Division
of Vivendi SA, an international media conglomerate. From
November 1999 until February 2001, Mr. Wolf served as
Senior Vice President of Sales and Business Development at
NetCreations, Inc., an opt-in
e-mail
services company. From March 1981 until May 1999, Mr. Wolf
served in a variety of positions at CMP Media Inc., a technology
publisher, including most recently as Vice President/Group
Publisher of the paid circulation division. Mr. Wolf
received a B.A. in Psychology from the University of
Pennsylvania and an M.B.A. in Marketing from the New York
University Stern School of Business.
Douglas McCormick has served as a member of our board of
directors since March 2003 and the chairman of our board of
directors since March 2008. Mr. McCormick has served as a
Venture
100
Partner at Rho Capital Partners, Inc., an investment and venture
capital management company, since November 2006. From July 2000
until May 2006, Mr. McCormick served as Chief Executive
Officer of iVillage Inc. and, from April 2000 until July 2000,
he served as its President. From December 1998 until April 2000,
Mr. McCormick served as President of McCormick Media, a
media consulting firm. From February 1993 until December 1998,
Mr. McCormick served as President and Chief Executive
Officer of Lifetime Television Network, a joint venture of The
Hearst Corporation and The Walt Disney Company. Previously, he
held various other positions at Lifetime Television Network in
the sales, marketing and research departments.
Mr. McCormick also serves on the board of directors of
LIN TV Corp., a publicly-held owner and operator of
television stations, and a number of privately-held companies.
During the past five years, Mr. McCormick formerly served
on the board of directors of iVillage Inc. Mr. McCormick
received a B.A. from the University of Dayton and an M.B.A. from
Columbia University. Mr. McCormick brings to our board of
directors his extensive experience in operating, managing and
advising online and offline media companies. He also has
expertise in public company corporate governance.
D. Jarrett Collins has served as a member of our
board of directors since February 2006. Mr. Collins is the
co-founder and has served as a Managing Director of NeoCarta
Ventures, Inc., a venture capital firm, since its inception in
November 1999. From September 1995 until October 1999,
Mr. Collins founded and served as Director of TTC Ventures,
the venture capital subsidiary of The Thomson Corporation. From
October 1991 until July 1993, Mr. Collins worked at
Mulberry Child Care Centers, a provider of child care services,
where he most recently served as Chief Executive Officer. From
July 1989 until September 1995, Mr. Collins served as a
principal in Copley Venture Partners, a venture capital firm.
Mr. Collins received a B.S. in Engineering from Tufts
University and an M.B.A. from the University of Southern
California. Mr. Collins brings to our board of directors
broad experience in advising and managing Internet and
technology companies on strategic, operational and financial
matters.
Donn Davis has served as a member of our board of
directors since October 2009. Mr. Davis co-founded
Revolution LLC, a principal investing and business building
firm, in January 2005 and he currently serves as its President.
He served as President of Revolution LLC from January 2006 to
December 2008, and as its Strategic Advisor from January 2009 to
December 2009. Mr. Davis served as CEO of Exclusive Resorts
LLC, a luxury destination club in the hospitality, travel, and
real estate industries, from July 2004 to August 2007, and as
its Executive Chairman from August 2007 to November 2009. From
March 1998 to June 2003, Mr. Davis served as a senior
executive in various roles at America Online, Inc., an
interactive services company, and its successor company AOL Time
Warner, a media company. Mr. Davis worked at Tribune
Company, a media company, where he was the founder and President
of Tribune Ventures from January 1995 to March 1998. Previously,
Mr. Davis served as Senior Counsel at Tribune Company,
Chief Counsel to the Chicago Cubs Baseball Team, and a corporate
associate at Sidley & Austin LLP. Mr. Davis
received a B.S. in Finance from Miami University (Ohio) in 1985
and a J.D. from University of Michigan Law School in 1988.
Mr. Davis brings to our board of directors his extensive
experience in operating, managing and advising both Internet and
various consumer-oriented companies. Mr. Davis also brings
to our board of directors his background as a lawyer.
Dana L. Evan has served as a member of our board of
directors since October 2009. Since July 2007, Ms. Evan has
invested in, and served on the boards of directors of, companies
in the Internet, technology and media sectors. From May 1996
until July 2007, Ms. Evan served as Chief Financial Officer
of VeriSign, Inc., a provider of intelligent infrastructure
services for the Internet and telecommunications networks.
Previously, Ms. Evan worked as a financial consultant in
the capacity of Chief Financial Officer, Vice President of
Finance or Corporate Controller over an eight-year period for
various public and private companies and partnerships, including
VeriSign, Delphi Bioventures, a venture capital firm, and
Identix Incorporated, a multi-biometric technology company.
Prior to serving as a financial consultant, Ms. Evan worked
in a variety of positions at KPMG LLP, most recently serving as
a Senior Manager. Ms. Evan also serves on the board of
directors of a number of privately-
101
held companies. During the past five years, Ms. Evan
formerly served on the board of directors of Omniture, Inc., a
marketing and web analytics company. Ms. Evan is a
Certified Public Accountant and received a B.S. in Commerce with
a concentration in Accounting and Finance from Santa Clara
University. Ms. Evan brings to our board of directors broad
expertise in operations, strategy, accounting, financial
management and investor relations at both public and
privately-held technology and Internet companies, including her
experience as the chair of the audit committee of Omniture, Inc.
from 2006 until its acquisition by Adobe Systems Inc. in October
2009.
David Golden has served as a member of our board of
directors since February 2009. Mr. Golden has served as an
Executive Vice President of Revolution LLC since March 2006.
Previously, Mr. Golden served in various positions over an
18-year
period at JPMorgan Chase & Co., a financial services
firm, and a predecessor company, Hambrecht & Quist
LLC, most recently serving as Vice Chairman and Director of the
global investment banking practice for technology, media and
telecommunications from January 2001 until February 2006. From
November 1984 until December 1987, Mr. Golden worked as a
corporate attorney at Davis Polk & Wardwell LLP.
Mr. Golden serves on the board of directors of a number of
privately-held companies, and also serves as a member of the
advisory boards of Granite Ventures, LLC and Partners for
Growth, L.P. During the past five years, Mr. Golden
formerly served on the board of directors of Gaiam, Inc., a
lifestyle media company. Mr. Golden received an A.B. from
Harvard University and a J.D. from Harvard Law School, where he
was an editor of the Harvard Law Review. Mr. Golden brings
to our board of directors extensive experience in investment
banking, including expertise in advising executives and boards
of directors of media and technology companies in the areas of
capital raising, mergers and acquisitions, strategy and
operations. Mr. Golden also brings to our board of
directors his background as a lawyer.
Habib Kairouz has served as a member of our board of
directors since March 2003. Mr. Kairouz is a Managing
Partner of Rho Capital Partners, Inc., an investment and venture
capital management company, where he has worked since 1993.
Prior to joining Rho, Mr. Kairouz worked for five years in
investment banking and leverage buyouts with Reich &
Co. and Jesup & Lamont. Mr. Kairouz also serves
on the board of directors of Bluefly, Inc., a publicly-held
online retailer, and a number of privately-held companies.
During the past five years, Mr. Kairouz formerly served on the
board of directors of iVillage Inc. Mr. Kairouz received a
B.S. in Engineering from Cornell University and an M.B.A. in
Finance from Columbia University. Mr. Kairouz brings to our
board of directors broad expertise in advising and managing
Internet and technology companies on strategic, operational and
financial matters, including companies in the online advertising
field, as well as his experience in investment banking.
William Bo S. Peabody has served as a member of our board
of directors since March 2003 and served as our chairman from
March 2003 until March 2008. Mr. Peabody is the co-founder
and has served as a Managing General Partner of Village
Ventures, Inc., an early-stage venture firm, since its inception
in January 2000. From January 1998 until January 2000,
Mr. Peabody served as Vice President of Network Strategy
for Lycos, Inc., a network of social media websites. From
September 1992 until December 1998, Mr. Peabody founded and
served as Chief Executive Officer of Tripod, Inc., an online
social network, which was sold to Lycos. Mr. Peabody has
co-founded a number of companies, including Streetmail, Inc.,
which merged with us in March 2003; VoodooVox, Inc., an in-call
media advertising network; Health Guru Media, Inc., a producer
of heath video content; and uPlayMe, Inc., a music and video
sharing service. Mr. Peabody is also the co-owner of Mezze,
Inc., a hospitality group consisting of two restaurants and a
catering operation. Mr. Peabody also serves on the board of
directors of a number of privately-held companies.
Mr. Peabody received a B.A. from Williams College.
Mr. Peabody brings to our board of directors extensive
experience in starting and managing Internet and technology
companies, as well as his experience as a venture capitalist in
advising companies on strategic and operational matters.
Sharon Wienbar has served as a member of our board of
directors since August 2007. Since May 2001, Ms. Wienbar
has served first as a Director and later as a Managing Director
at Scale Venture Partners (previously called BA Venture
Partners), a technology and healthcare venture capital
102
firm. From June 1999 until September 2000, she served as Vice
President, Marketing at Amplitude Software Corp., a provider of
Internet resource scheduling solutions, and then at Critical
Path, Inc., a software-as-a-service company that acquired
Amplitude. Previously, she worked in product marketing at Adobe
Systems Incorporated, a software and technology company, and as
a strategic consultant at Bain & Company, a consulting
firm. Ms. Wienbar serves on the board of directors of a
number of privately-held companies, and also serves on Microsoft
Inc.s venture advisory committee. During the past five
years, Ms. Wienbar formerly served on the board of
directors of Glu Mobile Inc., a publisher of mobile games.
Ms. Wienbar received an A.B. and A.M. in Engineering from
Harvard University and an M.B.A. from Stanford University.
Ms. Wienbar brings to our board of directors extensive
operational experience in the Internet and technology sectors,
as well expertise in advising and managing companies in the
Internet, technology and healthcare sectors on strategic,
operational and financial matters.
Voting
Arrangements
Pursuant to our amended and restated stockholders voting
agreement that we entered into with certain holders of our
common stock and certain holders of our redeemable convertible
preferred stock:
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Village Ventures Partners Fund, L.P. has the right to designate
one director to be elected by the holders of our Series A
redeemable convertible preferred stock, voting as a separate
class;
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NeoCarta Ventures, L.P. has the right to designate one director
to be elected by the holders of our Series C redeemable
convertible preferred stock, voting as a separate class;
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Scale Venture Partners II, LP has the right to designate one
director to be elected by the holders of our Series D
redeemable convertible preferred stock, voting as a separate
class;
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WF Holding Company, LLC has the right to designate two directors
to be elected by the holders of our Series E redeemable
convertible preferred stock, voting as a separate class;
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Rho Ventures VI, L.P. has the right to designate one director to
be elected by the holders of our Series F redeemable
convertible preferred stock, voting as a separate class;
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Benjamin Wolin and Michael Keriakos have the right to designate
two directors to our board of directors to be elected by the
holders of a majority of our common stock; and
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the majority of the then-serving members of our board of
directors have the right to designate the two directors to be
elected by the holders of our common stock and redeemable
convertible preferred stock, voting as a single class.
|
The holders of our common stock and redeemable convertible
preferred stock who are parties to the stockholders voting
agreement are obligated to vote for the directors designated in
accordance with the stockholders voting agreement. The
provisions of this stockholders voting agreement will
terminate upon the completion of this offering and there will be
no further contractual obligations regarding the election of our
directors. Our directors hold office until their successors have
been elected and qualified or appointed, or the earlier of their
death, resignation or removal.
Structure of the
Board of Directors
Our board of directors currently consists of ten members.
Mr. McCormick serves as the chairman. Our board of
directors has determined that all of our directors other than
Messrs. Wolin and Keriakos are independent within the
meaning of applicable Nasdaq listing standards. Mr. Peabody
will resign from our board of directors at the time our
registration statement, of which this prospectus forms a part,
is declared effective.
Our board of directors does not have a policy on whether the
role of the chairman and chief executive officer should be
separate and, if it is to be separate, whether the chairman
should be selected from the non-employee directors or be an
employee and, if it is to be combined, whether a lead
independent director should be selected. However, our board of
directors is committed to strong corporate governance practices
and values independent board oversight as an essential component
103
of managing corporate performance. Currently, we separate the
roles of chief executive officer and chairman in recognition of
the differences between the two roles. Separating these
positions allows the chief executive officer to focus on our
day-to-day business and the strategic direction of our company,
while allowing the chairman to lead the board of directors in
its fundamental role of providing advice to and independent
oversight of management. Our board of directors recognizes the
time, effort and energy that the chief executive officer is
required to devote to the position, as well as the commitment
required to serve as chairman, particularly as the board of
directors oversight responsibilities continue to grow. Our
board of directors also believes that separating the roles of
chief executive officer and chairman ensures a greater role for
independent directors in the oversight of our company and in
establishing priorities and procedures for the work of our board
of directors. Consequently, our board of directors believes that
the current board leadership structure is best for our company
and our stockholders at this time.
In accordance with the amended and restated certificate of
incorporation and the amended and restated bylaws that will
become effective upon consummation of the offering, our board of
directors will be divided into three classes with staggered
three-year
terms. will
be the Class I directors and their terms will expire at our
first annual meeting of stockholders following the completion of
this
offering. will
be the Class II directors and their terms will expire at
our second annual meeting of stockholders following the
completion of this
offering. will
be the Class III directors and their terms will expire at
our third annual meeting of stockholders following the
completion of this offering.
At each annual meeting of stockholders to be held after the
initial classification, the successors to directors whose terms
then expire will be elected to serve from the time of election
and qualification until the third annual meeting following their
election and until their successors are duly elected and
qualified. The authorized number of directors may be changed
only by resolution of the board of directors. Any additional
directorships resulting from an increase in the number of
directors will be distributed among the three classes so that,
as nearly as possible, each class will consist of one-third of
the directors. Vacancies on the board of directors can be filled
by resolution of the board of directors.
The division of our board of directors into three classes with
staggered three-year terms may delay or prevent a change of our
management or a change of control. Under the certificate of
incorporation to be in effect upon the closing of this offering,
our directors may be removed only for cause by the affirmative
vote of the holders of two-thirds of our outstanding voting
stock.
Overview of Risk
Management
Management is responsible for the day-to-day management of the
risks we face, while our board of directors, as a whole and
through its committees, has responsibility for the oversight of
risk management. This oversight is conducted primarily through
committees of the board of directors, as disclosed in the
descriptions of each of the committees below and in the charters
of each of the committees. The audit committee is responsible
for overseeing the management of our risks relating to
accounting matters, financial reporting and legal and regulatory
compliance. The compensation committee is responsible for
overseeing the management of risks relating to our executive
compensation programs and arrangements. The nominating and
corporate governance committee is responsible for overseeing the
management of our risks associated with the independence of our
board of directors and potential conflicts of interest. While
each committee is responsible for evaluating certain risks and
overseeing the management of such risks, our entire board of
directors is regularly informed through committee reports about
such risks.
Board
Committees
We have established an audit committee, a compensation committee
and a nominating and corporate governance committee of our board
of directors. We believe that the composition of these
committees will meet the criteria for independence under, and
the functioning of these committees
104
comply with the requirements of, the Sarbanes-Oxley Act of 2002,
the rules of the Nasdaq Stock Market and SEC rules and
regulations that will become applicable to us upon consummation
of the offering. Upon the completion of this offering, each of
these committees will have adopted a written charter that will
be available on our corporate website. Each committee has the
composition and responsibilities described below.
Audit Committee. The audit committee provides
assistance to the board of directors in fulfilling its oversight
responsibilities regarding the integrity of financial
statements, our compliance with applicable legal and regulatory
requirements, the integrity of our financial reporting processes
including our systems of internal accounting and financial
controls, the performance of our internal audit function and
independent registered public accounting firm and our financial
policy matters. The committee determines and pre-approves the
engagement of our independent registered public accounting firm
to perform audit services and any permissible non-audit
services. The committee also reviews and discusses with
management and our registered independent public accounting firm
the results of the annual audit and their reports regarding our
accounting practices and systems of internal accounting
controls, including significant issues that arise regarding
accounting principles and financial statement presentation. The
audit committee also evaluates the performance of our
independent registered public accounting firm, determines
whether to retain or terminate their services and takes those
actions as it deems necessary to satisfy itself that such
accountants are independent of management. The committee is also
responsible for establishing procedures for the receipt,
retention and treatment of any complaints we receive regarding
accounting, internal control or auditing matters.
The members of our audit committee are Dana L. Evan, Habib
Kairouz and Sharon Wienbar, with Ms. Evan serving as the
chairperson of the committee. We believe that Ms. Evan and
Ms. Wienbar are independent directors, as defined under the
listing standards of the Nasdaq Stock Market and
Rule 10A-3
of the Exchange Act. We believe that each member of our audit
committee meets the requirements for financial literacy. Our
board of directors has determined that Ms. Evan qualifies
as an audit committee financial expert, as defined under
applicable SEC rules. Effective upon consummation of the
offering, the audit committee will operate under a written
charter that satisfies the applicable standards of the SEC and
the Nasdaq Stock Market.
Compensation Committee. The compensation
committee oversees our overall compensation structure, policies
and programs, and assesses whether our compensation structure
establishes appropriate incentives for officers and employees.
The compensation committee reviews and approves corporate goals
and objectives relevant to compensation of our Chief Executive
Officer and other executive officers, evaluates the performance
of these officers in light of those goals and objectives and
sets the compensation of these officers based on such
evaluations. In addition, the compensation committee reviews and
recommends to the board of directors any employment-related
agreements, any proposed severance arrangements or change of
control or similar agreements with these officers. The
compensation committee also administers the issuance of stock
options and other awards under our stock plans. The compensation
committee will review and evaluate, at least annually, the
performance of the compensation committee and its members and
the adequacy of the charter of the compensation committee. The
compensation committee will also prepare a report on executive
compensation, as required by the SEC rules, to be included in
our annual report and annual proxy statement.
The members of our compensation committee are Douglas McCormick,
William Bo S. Peabody, Donn Davis and Sharon Wienbar, with
Mr. McCormick serving as the chairperson of the committee.
Mr. Peabody will resign from this committee upon the
effectiveness of our registration statement, of which this
prospectus is a part. We believe that each of
Mr. McCormick, Mr. Davis and Ms. Wienbar is an
independent director under applicable Nasdaq listing standards,
is a non-employee director as defined in
Rule 16b-3
under the Exchange Act and is an outside director as that term
is defined in Section 162(m) of the Code. Effective upon
the consummation of the offering, the compensation committee
will operate under a written charter that satisfies applicable
Nasdaq listing standards.
105
Nominating and Corporate Governance
Committee. The nominating and corporate
governance committee is responsible for developing and
recommending to the board of directors criteria for identifying
and evaluating candidates for directorships and making
recommendations to the board of directors regarding candidates
for election or reelection to the board of directors at each
annual stockholders meeting. Our nominating and corporate
governance committee, in recommending candidates for election to
our board of directors, and our board of directors, in approving
(and, in the case of vacancies, appointing) such candidates,
will take into account many factors, including: diversity of
personal background, perspective and experience; personal and
professional integrity; experience in corporate management,
operations or finance; experience in our industry; and
experience as a board member of another publicly-held company.
Our board of directors evaluates each individual in the context
of our board of directors as a whole, with the objective of
assembling a group that can best perpetuate the success of the
business and represent stockholder interests through the
exercise of sound judgment using its diversity of experience in
these various areas. In addition, the nominating and corporate
governance committee is responsible for overseeing our corporate
governance guidelines and reporting and making recommendations
to the board of directors concerning corporate governance
matters. The nominating and corporate governance committee will
be also responsible for making recommendations to the board of
directors concerning the structure, composition and function of
the board of directors and its committees.
The members of our nominating and corporate governance committee
are Benjamin Wolin, D. Jarrett Collins, Donn Davis, Habib
Kairouz and Dana L. Evan, with Mr. Kairouz serving as
chairperson of the committee. Mr. Wolin will resign from
this committee upon the consummation of this offering. We
believe that each of Mr. Collins, Mr. Davis,
Mr. Kairouz and Ms. Evan is independent under
applicable Nasdaq listing standards. Effective upon the
consummation of the offering, the nominating and corporate
governance committee will operate under a written charter that
satisfies the applicable standards of the Nasdaq Stock Market.
Risk Assessment
and Compensation Practices
Our management assessed and discussed with our compensation
committee our compensation policies and practices for our
employees as they relate to our risk management and, based upon
this assessment, we believe that any risks arising from such
policies and practices are not reasonably likely to have a
material adverse effect on us in the future.
Our employees base salaries are fixed in amount and thus
we do not believe that they encourage excessive risk-taking.
While performance-based cash incentive compensation and sales
commissions focus on achievement of short-term or annual goals,
which may encourage the taking of short-term risks at the
expense of long-term results, we believe that our internal
controls help mitigate this risk. We also believe that our
performance-based cash incentive compensation and sales
commissions appropriately balance risk and the desire to focus
our employees on specific short-term goals important to our
success, and do not encourage unnecessary or excessive
risk-taking.
A significant portion of the compensation provided to our
employees is in the form of long-term equity-based incentive
awards that are important to help further align our
employees interests with those of our stockholders. We do
not believe that these equity-based incentive awards encourage
unnecessary or excessive risk taking because their ultimate
value is tied to our stock price.
The statements regarding the risks arising from our compensation
policies and practices contain forward-looking statements that
involve substantial risks and uncertainties. We have based these
forward-looking statements largely on our current expectations
and projections about future events and financial trends that we
believe may affect our financial condition, results of
operations, business strategy and financial needs.
106
Corporate
Governance
We expect that our board of directors will fully implement our
corporate governance initiatives at or prior to the closing of
this offering. We believe these initiatives will comply with the
Sarbanes-Oxley Act of 2002 and the rules and regulations of the
SEC adopted thereunder. In addition, our corporate governance
initiatives are intended to comply with the applicable listing
standards of the Nasdaq Stock Market. After this offering, our
board of directors will continue to evaluate the adequacy and
appropriateness of our corporate governance principles and
policies.
We will adopt a code of business conduct and ethics that applies
to all of our employees, officers and directors, including those
officers responsible for financial reporting. The code of
business conduct and ethics will be available on our website at
www.EverydayHealth.com. We expect that any amendments to
the code, or any waivers of its requirements, will be disclosed
on our website.
Compensation of
Directors
Historically, we have not paid cash compensation to any director
for his or her service as a director. The following table sets
forth the compensation amounts paid to each non-employee
director for their service in the year ended December 31,
2009. Our directors who are also employees did not receive
separate compensation for their service on our board of
directors.
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Option
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Total
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Awards
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Compensation
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Name
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($)(1)
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($)
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Douglas McCormick(2)(3)
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D. Jarrett Collins
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Donn Davis
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Dana L. Evan(2)
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$307,900
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$307,900
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David Golden
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Habib Kairouz
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William Bo S. Peabody
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Sharon Wienbar
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(1)
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This amount represents the
compensation expense in respect of an option to purchase
125,000 shares of our common stock awarded to Dana L. Evan
and recognized by us for the 2009 fiscal year under the
authoritative accounting guidance, rather than amounts paid to
or realized by Ms. Evan. There can be no assurance that
this option will be exercised (in which case no value will be
realized by Ms. Evan) or that the value on exercise will
approximate the compensation expense we recognized. This option
has an exercise price per share of $3.06 and vests as to 62,500
of the shares on the first anniversary of the grant, and vests
as to 62,500 of the shares on the second anniversary of the
grant. The grant date fair value per share of this option was
$4.11.
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(2)
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The table below sets forth the
aggregate number of option awards held by our non-employee
directors as of December 31, 2009.
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Option
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Name
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Awards
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Douglas McCormick
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249,423
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Dana L. Evan
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125,000
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(3)
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Mr. McCormick was granted an
option to purchase 50,000 shares of our common stock in
February 2010. This option has an exercise price per share of
$4.77 and vests as to 25,000 of the shares on the first
anniversary of the grant, and vests as to 25,000 of the shares
on the second anniversary of the grant. The grant date fair
value per share of this option was $4.77.
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In connection with this offering, our compensation committee
recommended, and our board of directors approved, a non-employee
director compensation policy. This policy is intended to fairly
compensate our non-employee directors for the time and effort
necessary to serve as a member of our board of directors.
Non-employee directors will receive a combination of cash and
equity-based compensation as part of this policy. A non-employee
director may decline all or any portion of his or her
compensation upon prior notice to the company.
107
The cash component of the non-employee director compensation
policy is as follows:
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$7,500 annual retainer for each member of the audit committee
and $20,000 annual retainer for the chairman of the audit
committee;
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$5,000 annual retainer for each member of the compensation
committee and $10,000 annual retainer for the chairman of the
compensation committee; and
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$5,000 annual retainer for each member of the nominating and
corporate governance committee and $10,000 annual retainer for
the chairman of the nominating and corporate governance
committee.
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The equity component of the non-employee director compensation
policy will be implemented as part of the 2010 Equity Incentive
Plan, which will become effective immediately upon the signing
of the underwriting agreement for this offering. Upon completion
of this offering, each of our non-employee directors will
automatically be granted a nonstatutory option to purchase an
aggregate number of shares of our common stock having an
estimated fair value on the date of grant of $112,000 (plus an
additional $56,000 in the case of the chairman of the board of
directors, if then a non-employee director), with the fair value
determined using the Black-Scholes option pricing model on the
same basis as used for financial accounting purposes.
Each individual elected or appointed to our board of directors
as a non-employee director for the first time after this
offering but prior to the first annual stockholders
meeting following this offering will automatically be granted a
nonstatutory option to purchase an aggregate number of shares of
our common stock having an estimated fair value on the date of
grant of $75,000, with the fair value determined using the
Black-Scholes option pricing model on the same basis as used for
financial accounting purposes. Each individual elected or
appointed to our board of directors as a non-employee director
for the first time after the first annual stockholders
meeting following this offering will automatically be granted
(i) a nonstatutory option to purchase an aggregate number
of shares of our common stock having an estimated fair value on
the date of grant of $37,500, with the fair value determined
using the Black-Scholes option pricing model on the same basis
as used for financial accounting purposes; and (ii) a
restricted stock unit award as to an aggregate number of shares
of our common stock equal to $37,500 divided by the fair value
per share of our common stock on the date of grant, with the
fair value determined using the Black-Scholes option pricing
model on the same basis as used for financial accounting
purposes.
At the close of business on the date of each of our annual
stockholders meetings following the completion of this
offering, each non-employee director will automatically be
granted (i) a nonstatutory option to purchase an aggregate
number of shares of our common stock having an estimated fair
value on the date of grant of $37,500 (plus an additional
$18,500 in the case of the chairman of the board of directors,
if then a non-employee director), with the fair value determined
using the Black-Scholes option pricing model on the same basis
as used for financial accounting purposes; and (ii) a
restricted stock unit award as to an aggregate number of shares
of our common stock equal to $37,500 (plus an additional $18,500
in the case of the chairman of the board of directors, if then a
non-employee director) divided by the fair value per share of
our common stock on the date of grant, with the fair value
determined using the Black-Scholes option pricing model on the
same basis as used for financial accounting purposes.
All stock options granted under the non-employee director
compensation policy will have a term of ten years from the date
of grant and will have an exercise price per share equal to 100%
of the fair market value of the underlying common stock of the
company on the date of grant. All stock options granted under
this policy will vest in a series of 24 successive equal monthly
installments over the two-year period measured from the date of
grant. All restricted stock unit awards granted under this
policy will vest in two equal annual installments on the first
and second anniversaries of the date of grant. Notwithstanding
these vesting schedules, the shares subject to then-outstanding
stock options
108
and restricted stock units granted under our non-employee
director compensation policy will become fully vested
immediately prior to the effectiveness of a change in control
transaction.
We also reimburse our directors for reasonable out-of-pocket and
travel expenses in connection with attendance at board and
committee meetings.
For a description of our compensation arrangements with
Messrs. Wolin and Keriakos as well as the 2010 Equity
Incentive Plan, see Executive Compensation.
Compensation
Committee Interlocks and Insider Participation
Our compensation committee currently consists of Benjamin Wolin,
Douglas McCormick, William Bo S. Peabody, Donn Davis and Sharon
Wienbar. Except for Mr. Wolin, none of the members of our
compensation committee is an executive officer or employee of
our company. None of our executive officers currently serves, or
in the past year has served, as a member of the board of
directors or compensation committee of any entity that has one
or more executive officers serving on our board of directors or
compensation committee.
109
EXECUTIVE
COMPENSATION
Compensation
Discussion and Analysis
This section discusses how our executive compensation programs
are designed and operate with respect to our named executive
officers listed in the Summary Compensation Table below.
Process for
Determining Executive Compensation
The compensation committee has overseen our executive
compensation program for the past few years and, in this role,
has reviewed all compensation decisions relating to our named
executive officers. Our Chief Executive Officer, Benjamin Wolin,
has historically reviewed the performance of each named
executive officer other than himself, and, based on these
reviews, provide recommendations to the compensation committee
with respect to each named executive officers total
compensation package. The compensation committee meets with
Mr. Wolin annually to discuss and review his
recommendations regarding executive compensation for our named
executive officers, excluding himself. The compensation
committee makes the decisions with respect to the total
compensation package for Mr. Wolin and he is not present
for committee discussions regarding his compensation.
The compensation committee has not historically benchmarked our
executive compensation against peer companies or external market
compensation data. In connection with this offering, we have
engaged an independent compensation consulting firm to review
the compensation program for our named executive officers going
forward. The compensation consulting firm has provided
preliminary recommendations to the compensation committee with
respect to benchmarking compensation to peer companies and
external market compensation data, which will be relied on by
the compensation committee going forward in determining the mix
between fixed and variable compensation, cash and equity
incentive awards and long-term and short-term compensation. The
compensation committee, however, will retain the ultimate
decision-making power regarding executive compensation decisions
and issues.
Elements of
Compensation
Our executive compensation program provides for the following
elements:
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base salaries, which are designed to allow us to attract and
retain qualified candidates;
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incentive compensation and bonuses, which provide additional
cash compensation and are designed to support our
pay-for-performance
philosophy and align compensation with business and financial
objectives;
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equity compensation, historically in the form of stock options,
which are granted to incent executive behavior that results in
increased stockholder value; and
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a benefits package that is generally available to all of our
employees.
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Base Salaries. In general, base salaries for
our named executive officers were initially established through
arms-length negotiations at the time the individual was
hired, taking into account the individuals knowledge,
experience and responsibilities. The base salaries for our Chief
Executive Officer, Benjamin Wolin, and our President, Michael
Keriakos, were reviewed by our compensation committee following
our inception taking into account similar considerations. Base
salaries of our named executive officers are reviewed and
approved annually by our compensation committee during the first
quarter of each year. Adjustments to base salary levels are
based on a number of relevant factors, including:
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the executives skills and experience;
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the executives individual performance;
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110
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the importance of the executives position to us;
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the executives growth in his position; and
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market levels.
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The compensation committee, however, does not assign a specific
weight to any single factor in making decisions regarding base
salary adjustments. In the first quarter of 2009, based on the
above factors, the compensation committee decided to increase
the base salary levels for Scott Wolf and Gregory Jackson by
$35,000 and $25,000, respectively. In February 2010, the
compensation committee decided to increase the base salary
levels for each of Benjamin Wolin and Michael Keriakos, our
Chief Executive Officer and President, respectively, from
$300,000 to $375,000 and to increase the base salary level for
Brian Cooper, our Chief Financial Officer, from $250,000 to
$275,000.
Cash Incentive Compensation/Bonuses. The named
executive officers are eligible to receive cash incentive
compensation or bonuses based upon performance objectives
approved by our compensation committee. With respect to the
named executive officers other than Mr. Wolf, the cash
incentive compensation opportunity in recent years has been
based primarily on our achievement of specified financial
objectives. Mr. Wolf, our Executive Vice President, Sales,
is eligible to receive bonus payments in the form of commissions
based on our advertising and sponsorship revenue.
Each of our named executive officers, with the exception of
Mr. Wolf, has an assigned target for an annual incentive
compensation award, which is expressed as a percentage of base
salary. As with the base salaries, the target annual incentive
compensation target was generally established through
arms-length negotiations at the time the individual was
hired, taking into account the individuals knowledge,
experience and responsibilities. Along with base salaries, the
annual incentive compensation targets are reviewed and approved
annually by our compensation committee during the first quarter
of the year. Adjustments to the annual incentive compensation
targets are based on the same factors noted above with respect
to base salary adjustments, and the compensation committee does
not assign a specific weight to any single factor in making
decisions regarding adjustments to annual incentive compensation
targets.
For 2009, the annual incentive compensation targets for our
named executive officers (other than Mr. Wolf) were as
follows:
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Incentive Compensation
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Named Executive
Officer
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Target (% of Base
Salary)
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Benjamin Wolin
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100
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%
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Michael Keriakos
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100
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%
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Brian Cooper
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100
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%
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Gregory Jackson
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40
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%
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In February 2010, the compensation committee increased the
incentive compensation target for Mr. Jackson from 40% to
50%.
In the first quarter of each fiscal year, the compensation
committee determines the financial metrics to be used in setting
the annual incentive compensation opportunity for that year and
the relative weight to be accorded each metric. For the past
several years, the annual incentive compensation opportunity for
the named executive officers (other than Mr. Wolf) has been
based on our revenue and Adjusted EBITDA performance. In setting
the revenue and Adjusted EBITDA performance targets used in
determining the annual incentive compensation payments, the
compensation committee relies on the operating budget previously
approved by our board of directors. After the end of each year,
the compensation committee reviews our revenue and Adjusted
EBITDA performance for the preceding year in relation to the
previously approved operating budget to determine the actual
annual incentive compensation awards. The financial performance
review conducted by the compensation committee also takes into
account developments that arose in the
111
course of the year which may warrant an adjustment of the annual
incentive compensation awards based on the revenue and Adjusted
EBITDA targets in the original operating budget. For example, in
2008, the compensation committee factored in the impact of the
acquisition of RHG in measuring our financial performance. The
compensation committee uses our unaudited financial results to
conduct the financial performance review, and those results may
be adjusted in connection with the preparation of our audited
consolidated financial statements.
Prior to 2009, the annual incentive compensation opportunity was
designed to be weighted equally based on our total revenue and
Adjusted EBITDA performance. In setting the financial metrics to
be used in determining the 2009 annual incentive compensation,
however, the compensation committee decided to accord more
weight to our achievement of our Adjusted EBITDA objectives. As
a result, 75% of the annual incentive compensation opportunity
for 2009 was based on our Adjusted EBITDA performance and 25% of
the annual incentive compensation opportunity for 2009 was based
on our total revenue performance. If we do not achieve a minimum
total revenue or Adjusted EBITDA target, the compensation
committee has the discretion to not attribute any incentive
compensation award to either the revenue or Adjusted EBITDA
component. In the event that we exceed the total revenue and
Adjusted EBITDA targets, the compensation committee may, in its
discretion, award the named executive officers an annual
incentive compensation award that exceeds the incentive
compensation target set forth in the above table.
The compensation committee set the total revenue and Adjusted
EBITDA targets to be used for calculating the 2009 annual
incentive compensation opportunity at amounts substantially
higher than our actual total revenue and Adjusted EBITDA
performance in 2008. While the total revenue and Adjusted EBITDA
targets were believed to be very aggressive in light of the
uncertain economic and business climate at the time these
targets were established, these targets were chosen to support
our objective of achieving significant growth during 2009. In
early 2009, however, the global economic downturn appeared to be
accelerating, the equity markets continued to decline
substantially and the markets in which we operate, including
particularly the advertising market, were experiencing the
impact of the recessionary environment. As a result, the
compensation committee determined that such performance targets
were no longer appropriate for calculating the incentive
compensation opportunity for 2009. Instead, the compensation
committee took into consideration our actual financial
performance in 2009, including our financial performance
relative to a revised operating budget developed in the middle
of 2009, and our other achievements during the year. The
compensation committee noted that our total revenue and Adjusted
EBITDA increased substantially in 2009 over 2008 notwithstanding
the difficult economic environment during a large part of 2009.
Likewise, our total revenue for 2009 exceeded the revised
operating budget by approximately $2.6 million and our
Adjusted EBITDA for 2009 exceeded the revised operating budget
by approximately $800,000. The compensation committee also noted
that we had effectively integrated the RHG acquisition in the
first half of 2009 and had also made significant strides in the
second half of 2009 in preparing for our planned IPO. Lastly,
the compensation committee determined that the actual incentive
compensation paid to the named executive officers with respect
to fiscal year 2009 was also consistent with our compensation
philosophy of aligning the interests of our named executive
officers with those of our stockholders.
Based on the compensation committees review of our actual
financial and operational performance, the compensation
committee concluded that the named executive officers (other
than Mr. Wolf) should be awarded 70% of their target
incentive compensation amount. In addition, Mr. Jackson was
awarded $13,000 from a pool set aside by the compensation
committee to be
112
allocated by the Chief Executive Officer to executives.
Accordingly, the actual annual incentive compensation amounts
paid to these individuals were as follows:
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Named Executive
Officer
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2009 Incentive
Compensation
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Benjamin Wolin
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$
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210,000
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Michael Keriakos
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$
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210,000
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Brian Cooper
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$
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175,000
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Gregory Jackson
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$
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90,000
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In March 2010, the compensation committee determined that the
annual incentive compensation opportunity for 2010 should
provide equal weight to growth in our total revenues and
Adjusted EBITDA. In addition, based on our Adjusted EBITDA
performance, additional amounts may be allocated by the
compensation committee or the Chief Executive Officer to reward
the named executive officers for their individual performance in
2010. The revenue and Adjusted EBITDA targets set by our
compensation committee for fiscal year 2010 can only be achieved
if we continue to substantially improve on our past levels of
performance. As a result, the compensation committee believes
the plan will be difficult to reach but will be attainable with
significant effort by the management team.
Mr. Wolf is eligible to receive a commission based on our
overall advertising and sponsorship revenue. In the first
quarter of the year, the compensation committee determines the
commission plan for Mr. Wolf for that year, which has
typically been structured as a percentage of total advertising
and sponsorship revenue. In addition, Mr. Wolfs
commission structure has been designed to incentivize him to
exceed the advertising and sponsorship revenue goal which has
been designated for the year. Accordingly, Mr. Wolf is
eligible for a commission percentage for all advertising and
sponsorship revenue up to the annual advertising and sponsorship
revenue goal and a significantly higher percentage for all
advertising and sponsorship revenue in excess of the annual
goal. Over the past few years, the actual percentages for each
of the two metrics have declined as our advertising and
sponsorship revenue has increased. For 2009, Mr. Wolf
received a commission of 0.374% for advertising and sponsorship
revenue up to $57.5 million, a commission of 1.5% for
advertising and sponsorship revenue above $57.5 million and
a commission based on overall advertising and sponsorship
revenue in the fourth quarter of 2009. Historically,
Mr. Wolfs commissions have been paid on a quarterly
basis following managements calculation of the advertising
and sponsorship revenue for the preceding calendar quarter.
Managements calculation of our advertising and sponsorship
revenue for the purpose of determining Mr. Wolfs
actual quarterly commission payment is based on our unaudited
financial results, and those results may be adjusted in
connection with the preparation of our audited consolidated
financial statements.
In addition to the annual incentive compensation awards
described above, the compensation committee has the discretion
to award additional cash bonus payments to our named executive
officers if they conclude that it is warranted. For example, in
recognition of the efforts to complete the acquisition of RHG in
October 2008, the compensation committee awarded cash bonuses to
each named executive officer (other than Mr. Wolf) in the
amount of $50,000.
Equity Incentive Awards. Our named executive
officers are eligible to receive long-term equity-based
incentive awards, which are intended to align the interests of
our named executive officers with the interests of our
stockholders. Historically, equity incentive awards to our named
executive officers have been made solely in the form of stock
options subject to vesting based on continued employment. While
we do not have any specific equity ownership requirements for
our named executive officers, we believe that equity incentive
awards:
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provide our executives with a strong link to our long-term
performance, including by enhancing their accountability for
long-term decision making;
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help balance the short-term orientation of our annual cash
incentive compensation program;
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113
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create an ownership culture by aligning the interests of our
executives with the creation of value for our
stockholders; and
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further our goal of executive retention.
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All stock option awards made to the named executive officers in
the past several years were approved by the compensation
committee. Previously, our board of directors approved stock
option awards to the named executive officers. Each named
executive officer, excluding Messrs. Wolin and Keriakos,
received an initial grant of stock options in connection with
the commencement of his employment. The size of this initial
grant of stock options was determined through arms-length
negotiations at the time the individual was hired, taking into
account the individuals knowledge, experience and
responsibilities. The named executive officers are also eligible
to receive additional grants from time to time at the discretion
of the compensation committee. The compensation committee has
not established specific guidelines for the awarding of
additional grants and retains the discretion to make stock
option awards to the named executive officers at any time. In
the first quarter of 2009, the compensation committee awarded
stock options to each of the named executive officers as set
forth below in Grants of Plan-Based Awards in
2009.
The exercise price of each stock option grant is generally equal
to or greater than the estimated fair market value of our common
stock on the grant date. Historically, the determination of the
appropriate estimated fair market value was made by the
compensation committee based on its consideration of various
factors, particularly arms-length sales of our common
stock in privately-negotiated transactions and the valuation of
our common stock by an independent valuation consultant. For
more information, see Grants of Plan-Based
Awards in 2009 below.
Stock option awards to our named executive officers typically
vest over a four-year period as follows: 25% of the shares
underlying the option vest on the first anniversary of the
employment start date or date of the grant, and the remainder of
the shares vest in equal monthly installments over the
36 months thereafter. We believe that this vesting schedule
appropriately encourages long-term employment with us, while
allowing our named executive officers to realize compensation in
line with the value they have created for our stockholders.
Other Employee Benefits. Our named executive
officers are eligible for the same benefits available to our
employees generally. These include participation in a
tax-qualified 401(k) plan and group life, health, dental and
disability insurance plans. The type and extent of benefits
offered are intended to be competitive within our industry.
Other
Compensation Practices and Policies
Severance and Change in Control
Arrangements. We have entered into an employment
agreement with Mr. Cooper and offer letters with
Mr. Wolf and Mr. Jackson. We do not currently have
written employment arrangements with Mr. Wolin and
Mr. Keriakos. Messrs. Wolin and Keriakos are each
entitled to 100% vesting acceleration of their respective then
outstanding stock options upon a change of control transaction.
Pursuant to our employment agreement with Mr. Cooper, he is
eligible for severance benefits consisting of six months of base
salary and any accrued but unpaid salary or bonus if he is
terminated without cause following a specified change of control
transaction. In the event Mr. Coopers employment is
terminated for cause, whether simultaneous with a change of
control transaction or not, he will not be eligible to receive
the severance package described above. Upon a change of control
transaction in which we or our stockholders receive
consideration in excess of $50 million, Mr. Cooper
will be entitled to a bonus of $50,000 as well as an additional
$1,000 for each $1.0 million received by us or our
stockholders in excess of $50 million. Mr. Cooper is
entitled to 100% vesting acceleration of his then outstanding
stock options upon a change of control transaction.
Mr. Jackson is eligible for severance benefits consisting
of six months base salary following a change of control
transaction in which his reporting structure or role is reduced
as a result. Mr. Wolf is
114
eligible for severance benefits consisting of nine months base
salary if he is terminated without cause. The offer letters with
Mr. Jackson and Mr. Wolf also provide for accelerated
vesting of a portion of their respective then outstanding stock
options upon a change of control transaction. Mr. Jackson
is entitled to 50% vesting acceleration upon a change of control
transaction, while Mr. Wolf is entitled to 100% vesting
acceleration upon a change of control transaction.
Please refer to the sections below entitled
Employment Arrangements and
Potential Payments upon Termination or Change of
Control for a more detailed discussion of our severance
and change of control arrangements.
Stock Ownership Guidelines. There are
currently no equity ownership requirements or guidelines that
any of our named executive officers or other employees must meet
or maintain.
Tax Considerations. Section 162(m) of the
Code, which will become applicable to us upon the closing of
this offering, generally disallows a tax deduction for
compensation in excess of $1.0 million paid to our Chief
Executive Officer and our three other most highly paid executive
officers (other than our Chief Financial Officer). Qualifying
performance-based compensation is not subject to the deduction
limitation if specified requirements are met. We expect that,
following this offering, our compensation committee will, where
reasonably practicable, seek to structure our compensation to
satisfy the requirements of Section 162(m). However, our
compensation committee may, in its judgment, authorize
compensation payments that do not comply with the exemptions in
Section 162(m) when it believes that such payments are
appropriate to attract and retain executive talent.
Summary
Compensation Table
The following table sets forth information regarding the
compensation earned by our principal executive officer,
principal financial officer and each of the next three most
highly compensated executive officers during the year ended
December 31, 2009. We refer to these individuals as our
named executive officers.
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Non-Equity
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Option
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Incentive Plan
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Salary
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Bonus
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Awards
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Compensation
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Total
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Name and Principal
Position
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($)
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($)(1)
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($)(2)
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($)(3)
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($)
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Benjamin Wolin
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$
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300,000
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$
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247,040
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$210,000
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$
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757,040
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Chief Executive Officer
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Brian Cooper
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250,000
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123,520
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175,000
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548,520
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Executive Vice President and Chief Financial Officer
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Michael Keriakos
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300,000
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247,040
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210,000
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757,040
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President
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Gregory Jackson
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275,000
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117,285
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90,000
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482,285
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Executive Vice President, Marketing & Sales
Operations
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Scott Wolf
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285,000
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$
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278,316
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117,285
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680,601
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Executive Vice President, Sales
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(1) |
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The 2009 bonus for Mr. Wolf reflects commission payments
related to amounts earned for sales activity in 2009. |
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(2) |
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The amounts under Option Awards represent the grant
date fair value for stock options granted in 2009, calculated in
accordance with FASB ASC Topic 718 and exclude the impact
of estimated forfeitures related to service-based vesting
conditions. The valuation assumptions used in determining such
amounts are described in Note 11 to our consolidated
financial statements included elsewhere in this prospectus. |
115
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(3) |
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The amounts included in the Non-Equity Incentive Plan
Compensation column reflect amounts paid pursuant to our
cash incentive compensation program for 2009, as described in
Elements of Compensation Cash
Incentive Compensation/Bonuses above. For more
information, see Grants of Plan-Based Awards
in 2009 below. |
Grants of
Plan-Based Awards in 2009
The following table sets forth information for the year ended
December 31, 2009 regarding grants of compensation in the
form of plan-based awards made during 2009 to our named
executive officers.
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Estimated
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Future
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Payouts
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All Other
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Under
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Option
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Grant
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Non-Equity
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Awards:
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Exercise
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Date
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Incentive
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Number of
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Price of
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Fair
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Plan
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Securities
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Option
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Value of
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Awards
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Underlying
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Awards
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Awards
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Name
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Grant Date
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Target ($)(1)
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Options(2)
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($/share)(3)
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($)(4)
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Benjamin Wolin
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$
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300,000
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6/15/2009
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100,000
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$
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3.33
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$
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156,380
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6/15/2009
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100,000
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8.00
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90,660
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Brian Cooper
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250,000
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6/15/2009
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50,000
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3.33
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78,190
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6/15/2009
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50,000
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8.00
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45,330
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Michael Keriakos
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300,000
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6/15/2009
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100,000
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3.33
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156,380
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6/15/2009
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100,000
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8.00
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90,660
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Gregory Jackson
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110,000
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6/15/2009
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75,000
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3.33
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117,285
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Scott Wolf
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6/15/2009
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75,000
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3.33
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117,285
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(1) |
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Amounts represent the potential 2009 cash incentive compensation
payments to the named executive officers assuming our revenue
and Adjusted EBITDA equal the specific targets designated by our
compensation committee. The compensation committee has the
discretion to award less or more than the target amounts set
forth above. See Elements of
Compensation Cash Incentive
Compensation/Bonuses above. The actual amounts earned for
2009 are set forth in the column entitled Non-Equity
Incentive Plan Compensation in the Summary Compensation
Table above. |
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(2) |
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Reflects shares of common stock underlying option awards granted
in 2009 under the 2003 Stock Option Plan. These options vest
over a four-year period as follows: 25% of the shares underlying
the option vest on the first anniversary of the date of the
grant, and the remainder of the shares underlying the option
vest in equal monthly installments over the 36 months
thereafter. |
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(3) |
|
For the methodology we used to determine the exercise price of
option awards made on June 15, 2009, refer to
Managements Discussion and Analysis of Financial
Condition and Results of Operations Stock-Based
Compensation. |
|
(4) |
|
Represents FASB ASC 718 grant date fair value. The valuation
assumptions used in determining such amounts are described in
Note 11 to our consolidated financial statements included
elsewhere in this prospectus. These amounts do not correspond to
the actual value that will be recognized by the named executive
officers. |
116
Outstanding
Equity Awards at Year End
The following table sets forth information regarding outstanding
stock options held by our named executive officers as of
December 31, 2009.
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Number of
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Number of
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Securities
|
|
Securities
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Underlying
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Underlying
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Unexercised
|
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Unexercised
|
|
Option
|
|
Option
|
|
|
Options
|
|
Options
|
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Exercise
|
|
Expiration
|
Name
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Exercisable(#)
|
|
Unexercisable(#)(1)
|
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Price ($)
|
|
Date
|
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Benjamin Wolin
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130,084
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65,052
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$
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3.84
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4/1/2017
|
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79,166
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120,834
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6.18
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4/11/2018
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100,000
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3.33
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6/15/2019
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100,000
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8.00
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6/15/2019
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Brian Cooper
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11,250
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(2)
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0.50
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9/9/2013
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43,023
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(2)
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1.18
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9/15/2014
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100,000
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(2)
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1.50
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|
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9/1/2015
|
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52,033
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26,021
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3.84
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4/1/2017
|
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39,583
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|
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60,417
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|
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6.18
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4/11/2018
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50,000
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|
|
|
3.33
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|
6/15/2019
|
|
|
|
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|
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|
50,000
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|
|
|
8.00
|
|
|
|
6/15/2019
|
|
Michael Keriakos
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|
130,084
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|
|
|
65,052
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|
|
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3.84
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|
|
4/1/2017
|
|
|
|
|
79,166
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|
|
|
120,834
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|
|
|
6.18
|
|
|
|
4/11/2018
|
|
|
|
|
|
|
|
|
100,000
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|
|
|
3.33
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|
|
|
6/15/2019
|
|
|
|
|
|
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100,000
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|
|
|
8.00
|
|
|
|
6/15/2019
|
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Gregory Jackson
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|
83,324
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|
|
|
16,676
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|
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2.45
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|
|
|
7/5/2016
|
|
|
|
|
19,791
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|
|
|
30,209
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|
|
|
6.18
|
|
|
|
4/11/2018
|
|
|
|
|
|
|
|
|
75,000
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|
|
|
3.33
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|
|
|
6/15/2019
|
|
Scott Wolf
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|
|
100,000
|
(2)
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|
|
|
|
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|
1.50
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|
|
|
6/6/2015
|
|
|
|
|
19,195
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|
|
|
5,805
|
|
|
|
3.84
|
|
|
|
1/1/2017
|
|
|
|
|
35,156
|
|
|
|
14,844
|
|
|
|
3.84
|
|
|
|
6/7/2017
|
|
|
|
|
33,723
|
|
|
|
16,277
|
|
|
|
6.18
|
|
|
|
12/31/2017
|
|
|
|
|
19,791
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|
|
|
30,209
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|
|
|
6.18
|
|
|
|
4/11/2018
|
|
|
|
|
|
|
|
|
75,000
|
|
|
|
3.33
|
|
|
|
6/15/2019
|
|
|
|
|
(1) |
|
The stock options were granted ten years prior to the expiration
date and become vested over a four-year period as follows: 25%
of the shares underlying the option vest on the first
anniversary of the employment commencement date or date of the
grant, and the remainder of the shares underlying the option
vest in equal monthly installments over the 36 months
thereafter. |
|
(2) |
|
These stock options were all fully vested as of
December 31, 2009. |
117
Potential
Payments upon Termination or Change in Control
The information below describes the compensation that would have
become payable under existing contractual arrangements assuming
a change of control transaction and termination of employment
had occurred on December 31, 2009. Because various factors
determine the specific amount of any potential payments, the
actual payments to the named executive officers in the event of
a change of control transaction and termination of employment
may be different.
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|
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|
|
Severance
|
|
|
Option
|
|
|
Total
|
|
Name
|
|
Payments
|
|
|
Acceleration
|
|
|
Benefits
|
|
|
Benjamin Wolin
|
|
|
|
|
|
$
|
204,498(1
|
)
|
|
$
|
204,498(1
|
)
|
Brian Cooper
|
|
$
|
125,000
|
(2)
|
|
|
96,200(3
|
)
|
|
|
221,200(2
|
)(3)
|
Michael Keriakos
|
|
|
|
|
|
|
204,498(1
|
)
|
|
|
204,498(1
|
)
|
Gregory Jackson
|
|
|
137,500
|
(4)
|
|
|
73,344(5
|
)
|
|
|
210,844(4
|
)(5)
|
Scott Wolf
|
|
|
213,750
|
(4)
|
|
|
127,204(6
|
)
|
|
|
340,954(4
|
)(6)
|
|
|
|
(1) |
|
Messrs. Wolin and Keriakos are each entitled to 100%
vesting acceleration of their respective then outstanding stock
options upon a change of control transaction. The amount in the
table is based on the accelerated vesting of 100% of the
unvested portion of each award using the difference between the
estimated fair value of our common stock on December 31,
2009 of $4.77 per share and the exercise price of the award. The
unvested options for each of Messrs. Wolin and Keriakos
consist of the following: (i) 65,052 options
exercisable at $3.84 per share; (ii) 120,834 options
exercisable at $6.18 per share; (iii) 100,000 options
exercisable at $3.33 per share; and (iv) 100,000 options
exercisable at $8.00 per share. |
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(2) |
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Represents amounts payable for termination without cause
following a specified change of control pursuant to
Mr. Coopers employment agreement (as described above
in Employment Arrangements). Upon a specified
change of control transaction in which we or our stockholders
receive consideration in excess of $50 million,
Mr. Cooper will be entitled to an additional payment of
$50,000 as well as an additional $1,000 for each $1 million
received by us or our stockholders above $50 million. |
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Mr. Cooper is entitled to 100% vesting acceleration of his
then outstanding stock options upon a specified change of
control transaction. The amount in the table is based on the
accelerated vesting of 100% of the unvested portion of each
award using the difference between the estimated fair value of
our common stock on December 31, 2009 of $4.77 per share
and the exercise price of the award. Mr. Coopers
unvested options consist of the following:
(i) 26,021 options exercisable at $3.84 per share;
(ii) 60,417 options exercisable at $6.18 per share;
(iii) 50,000 options exercisable at $3.33 per share;
and (iv) 50,000 options exercisable at $8.00 per share. |
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Represents amounts payable to Mr. Wolf upon his termination
without cause and amounts payable to Mr. Jackson upon a change
of control transaction in which his reporting structure or role
is reduced as a result. |
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Mr. Jackson is entitled to a 50% vesting acceleration of
his then outstanding stock options upon a change of control
transaction. The amount in the table is based on the accelerated
vesting of 50% of the unvested portion of each award using the
difference between the estimated fair value of our common stock
on December 31, 2009 of $4.77 per share and the exercise
price of the award. Mr. Jacksons unvested options
consist of the following: (i) 8,338 options exercisable at
$2.45 per share; (ii) 15,104 options exercisable at $6.18
per share; and (iii) 37,500 options exercisable at $3.33
per share. |
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(6) |
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Mr. Wolf is entitled to 100% vesting acceleration of his
then outstanding stock options upon a change of control
transaction. The amount in the table is based on the accelerated
vesting of 100% of the unvested portion of each award using the
difference between the estimated fair value of our common stock
on December 31, 2009 of $4.77 per share and the exercise
price of the |
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award. Mr. Wolfs unvested options consist of the
following: (i) 5,805 options exercisable at $3.84 per
share; (ii) 14,844 options exercisable at $3.84 per share;
(iii) 16,277 options exercisable at $6.18 per share;
(iv) 30,209 options exercisable at $6.18 per share; and
(v) 75,000 options exercisable at $3.33 per share. |
Employment
Arrangements
We do not currently have formal employment agreements with
Mr. Wolin and Mr. Keriakos. We have entered into an
employment agreement with Mr. Cooper and offer letters with
Mr. Wolf and Mr. Jackson.
Brian Cooper. We entered into an at-will
employment agreement with Brian Cooper, dated September 9,
2003. Pursuant to the agreement, Mr. Cooper was initially
entitled to an annual base salary of $125,000, subject to
adjustment by the compensation committee as well as the
achievement of certain corporate financial targets, specifically
our gross income. Mr. Coopers annual base salary is
currently $275,000. Mr. Cooper is also eligible to receive
annual cash incentive compensation and equity incentive awards
as determined by the compensation committee.
Mr. Cooper is eligible for severance benefits consisting of
six months of base salary and any accrued but unpaid salary or
bonus if he is terminated without cause following a specified
change of control transaction. In the event
Mr. Coopers employment is terminated for cause,
whether simultaneous with a change of control transaction or
not, he will not be eligible to receive the severance package
described above. Upon a change of control transaction in which
we or our stockholders receive consideration in excess of
$50 million, Mr. Cooper will be entitled to an
additional payment of $50,000, as well as an additional $1,000
for each $1 million received by us or our stockholders
above $50 million. Mr. Cooper is entitled to 100%
vesting acceleration of his then outstanding stock options upon
a specified change of control transaction.
As a condition to his employment, Mr. Cooper has also
agreed not to disclose any of our confidential or proprietary
information or trade secrets during or after his employment with
us, engage in a competing line of business, interfere with the
business relationships maintained by us, and solicit any of our
employees. The non-interference and non-solicitation provisions
remain in effect for a period of one year following the later of
(a) his date of termination and (b) the date of the
sale of all of his stock in the company.
Gregory Jackson. We entered into an at-will
employment letter with Gregory Jackson, dated June 19,
2006. Pursuant to the letter, Mr. Jackson was initially
entitled to an annual base salary of $225,000, subject to
adjustment by the compensation committee.
Mr. Jacksons annual base salary is currently
$275,000. Mr. Jackson is also eligible to receive annual
cash incentive compensation and equity incentive awards as
determined by the compensation committee.
Mr. Jackson is eligible for severance benefits consisting
of six months base salary following a change of control if his
reporting structure or role is reduced as a result.
Mr. Jackson is entitled to a 50% vesting acceleration of
his then outstanding stock options upon a change of control
transaction. As a condition to his employment, Mr. Jackson
was required to execute our standard assignment of inventions,
confidentiality, non-competition and non-solicitation agreement.
Scott Wolf. We entered into an at-will
employment letter with Scott Wolf, dated May 9, 2005.
Pursuant to the letter, Mr. Wolf was initially entitled to
an annual base salary of $225,000, subject to adjustment by the
compensation committee. Mr. Wolfs annual base salary
is currently $285,000. Mr. Wolf is eligible to receive cash
bonuses in the form of commission payments based upon our
advertising and sponsorship revenue. Mr. Wolf is also
eligible to receive equity incentive awards as determined by the
compensation committee.
Mr. Wolf is eligible for severance benefits consisting of
nine months base salary following his termination without cause.
Mr. Wolf is entitled to 100% vesting acceleration of his
then outstanding stock options upon a change of control
transaction. As a condition to his employment, Mr. Wolf was
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required to execute our standard assignment of inventions,
confidentiality, non-competition and non-solicitation agreement.
For additional disclosure regarding payments to be made to the
named executive officers upon terminations or changes of
control, see Potential Payments upon
Termination or Change in Control above.
Option
Exercises
None of our named executive officers exercised any options in
2009.
Pension
Benefits
We do not maintain any defined benefit pension plans.
Nonqualified
Deferred Compensation
We do not maintain any nonqualified deferred compensation plans.
Equity Incentive
Plans
2010 Equity
Incentive Plan
Our board of directors adopted, and our stockholders
subsequently approved, our 2010 Equity Incentive Plan in 2010.
The 2010 Equity Incentive Plan will become effective immediately
upon the signing of the underwriting agreement for this
offering. The 2010 Equity Incentive Plan will terminate
on ,
2020, unless sooner terminated by our board of directors. Our
board of directors may amend or suspend the 2010 Equity
Incentive Plan at any time, although no such action may impair
the rights under any then-outstanding award without the
holders consent. We will obtain stockholder approval for
any amendments to the 2010 Equity Incentive Plan as required by
law.
Types of Awards. The 2010 Equity Incentive
Plan provides for the grant of incentive stock options,
nonstatutory stock options, restricted stock awards, restricted
stock unit awards, stock appreciation rights, performance stock
awards and other forms of equity compensation, or collectively,
stock awards. Additionally, the 2010 Equity Incentive Plan
provides for the grant of performance cash awards. Incentive
stock options may be granted only to employees. All other awards
may be granted to employees, including officers, non-employee
directors, and consultants.
Share Reserve. The aggregate number of shares
of our common stock that may be issued pursuant to stock awards
under the 2010 Equity Incentive Plan
is shares.
The maximum number of shares that may be issued pursuant to the
exercise of incentive stock options under the 2010 Equity
Incentive Plan
is shares.
Section 162(m) Limits. No person may be
granted awards covering more than one million shares of our
common stock under the 2010 Equity Incentive Plan during any
calendar year pursuant to an appreciation-only stock award. An
appreciation-only stock award is a stock award whose value is
determined by reference to an increase over an exercise or
strike price of at least 100% of the fair market value of our
common stock on the date of grant. A stock option with an
exercise price equal to the value of the stock on the date of
grant is an example of an appreciation-only award. Additionally,
no person may be granted in a calendar year a performance stock
award covering more than one million shares or a performance
cash award having a maximum value in excess of $5 million.
Such limitations are designed to help assure that any deductions
to which we would otherwise be entitled with respect to such
awards will not be subject to the $1 million limitation on
the income tax deductibility of compensation paid per covered
executive officer imposed by Section 162(m) of the Code.
Reversion of Shares. If a stock award granted
under the 2010 Equity Incentive Plan expires or otherwise
terminates without being exercised in full, or is settled in
cash, the shares of our common
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stock not acquired pursuant to the stock award will again become
available for subsequent issuance under the 2010 Equity
Incentive Plan. In addition, the following types of shares under
the 2010 Equity Incentive Plan will become available for the
grant of new stock awards under the 2010 Equity Incentive Plan:
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shares that are forfeited to or repurchased by us prior to
becoming fully vested;
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shares withheld to satisfy income and employment withholding
taxes; and
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shares tendered to us to pay the exercise price of an option.
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Shares issued under the 2010 Equity Incentive Plan may be
previously unissued shares or reacquired shares bought on the
open market. No awards have been granted and no shares of our
common stock have been issued under the 2010 Equity Incentive
Plan.
Administration. Our board of directors may
delegate its authority to administer the 2010 Equity Incentive
Plan to our compensation committee. Subject to the terms of the
2010 Equity Incentive Plan, our board of directors or the
compensation committee, referred to as the plan administrator,
determines recipients, dates of grant, the numbers and types of
stock awards to be granted, and the terms and conditions of the
stock awards, including the period of their exercisability and
vesting. Subject to the limitations set forth below, the plan
administrator will also determine the exercise price of options
granted, the consideration to be paid for restricted stock
awards, and the strike price of stock appreciation rights.
The plan administrator has the authority, with the consent of
any adversely affected participant, to:
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reduce the exercise price of any outstanding option or the
strike price of any outstanding stock appreciation right;
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cancel any outstanding option or stock appreciation right and to
grant in exchange one or more of the following:
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a new option or stock appreciation right covering the same or a
different number of shares of common stock,
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a new stock award,
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cash, and/or
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other valuable consideration; or
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engage in any action that is treated as a repricing under
U.S. GAAP.
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Stock Options. Incentive and nonstatutory
stock options are granted pursuant to stock option agreements
adopted by the plan administrator. The plan administrator
determines the exercise price for a stock option, within the
terms and conditions of the 2010 Equity Incentive Plan, provided
that the exercise price of an incentive stock option and
nonstatutory stock option generally cannot be less than 100% of
the fair market value of our common stock on the date of grant.
Options granted under the 2010 Equity Incentive Plan vest at the
rate specified by the plan administrator.
The plan administrator determines the term of stock options
granted under the 2010 Equity Incentive Plan, up to a maximum of
ten years. Unless the terms of an optionees stock option
agreement provide otherwise, if an optionees service
relationship with us, or any of our affiliates, ceases for any
reason other than a termination for cause or a termination
because of disability or death, the optionee may exercise the
vested portion of any options for a period of three months
following the cessation of service. If an optionees
service relationship with us, or any of our affiliates, ceases
due to disability or death or an optionee dies within a
specified period following cessation of service, the optionee or
a beneficiary may exercise the vested portion of any options for
a period of 12 months in the event of disability and 18
months in the event of death. In the event of a termination
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of an optionees service for cause, the option will
terminate upon the occurrence of the event giving rise to the
termination for cause and the optionee may not exercise the
option following such termination. The option term may be
further extended in the event that exercise of the option
following termination of service is prohibited by applicable
securities laws, or the sale of any common stock received upon
exercise of the option would violate our insider trading policy.
In no event, however, may an option be exercised beyond the
expiration of its term.
Acceptable consideration for the purchase of common stock issued
upon the exercise of a stock option will be determined by the
plan administrator and may include cash or check, a
broker-assisted cashless exercise, the tender of common stock
previously owned by the optionee, a net exercise of the option
if it is a nonstatutory stock option, and other legal
consideration approved by the plan administrator.
Unless the plan administrator provides otherwise, options
generally are not transferable except by will, the laws of
descent and distribution, or pursuant to a domestic relations
order. An optionee may designate a beneficiary, however, who may
exercise the option following the optionees death.
Tax Limitations on Incentive Stock
Options. Incentive stock options may be granted
only to our employees. The aggregate fair market value,
determined at the time of grant, of shares of our common stock
with respect to which incentive stock options that are
exercisable for the first time by an optionee during any
calendar year under all of our stock plans may not exceed
$100,000. No incentive stock option may be granted to any person
who, at the time of the grant, owns or is deemed to own stock
possessing more than 10% of our total combined voting power or
that of any of our affiliates unless the option exercise price
is at least 110% of the fair market value of the stock subject
to the option on the date of grant, and the term of the
incentive stock option does not exceed five years from the date
of grant.
Restricted Stock Awards. Restricted stock
awards are granted pursuant to restricted stock award agreements
adopted by the plan administrator. Restricted stock awards may
be granted in consideration for cash or check, past or future
services rendered to us or our affiliates, or any other form of
legal consideration. Shares of common stock acquired under a
restricted stock award may, but need not, be subject to a share
repurchase option in our favor in accordance with a vesting
schedule to be determined by the plan administrator. Rights to
acquire shares under a restricted stock award may be transferred
only upon such terms and conditions as set by the plan
administrator.
Restricted Stock Unit Awards. A restricted
stock unit is a promise by us to issue shares of our common
stock, or to pay cash equal to the value of shares of our common
stock, equivalent to the number of units covered by the award at
the time of vesting of the units or thereafter. Restricted stock
unit awards are granted pursuant to restricted stock unit award
agreements adopted by the plan administrator. Restricted stock
unit awards may be granted in consideration for any form of
legal consideration. A restricted stock unit award may be
settled by cash, delivery of stock, a combination of cash and
stock as deemed appropriate by the plan administrator, or in any
other form of consideration set forth in the restricted stock
unit award agreement. Additionally, dividend equivalents may be
credited in respect to shares covered by a restricted stock unit
award. Except as otherwise provided in the applicable award
agreement, restricted stock units that have not vested will be
forfeited upon the participants cessation of continuous
service for any reason.
Stock Appreciation Rights. A stock
appreciation right entitles the participant to a payment equal
in value to the appreciation in the value of the underlying
shares of our common stock for a predetermined number of shares
over a specified period. Stock appreciation rights are granted
pursuant to stock appreciation right agreements adopted by the
plan administrator. The plan administrator determines the strike
price for a stock appreciation right which cannot be less than
100% of the fair market value of our common stock on the date of
grant. Upon the exercise of a stock appreciation right, we will
pay the participant an amount equal to the product of
(a) the excess of the per share fair market value of our
common stock on the date of exercise over the strike price,
multiplied by (b) the number of shares of common stock with
respect to which the stock appreciation
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right is exercised. A stock appreciation right granted under the
2010 Equity Incentive Plan vests at the rate specified in the
stock appreciation right agreement as determined by the plan
administrator.
The plan administrator determines the term of stock appreciation
rights granted under the 2010 Equity Incentive Plan, up to a
maximum of ten years. Unless the terms of a participants
stock appreciation right agreement provides otherwise, if a
participants service relationship with us, or any of our
affiliates, ceases for any reason other than a termination for
cause or a termination because of disability or death, the
participant may exercise the vested portion of any stock
appreciation right for a period of three months following the
cessation of service. If a participants service
relationship with us, or any of our affiliates, ceases due to
disability or death or the participant dies within a specified
period following cessation of service, the participant or a
beneficiary may exercise the vested portion of any stock
appreciation right for a period of 12 months in the event
of disability and 18 months in the event of death. In the
event of a termination of participants service for cause,
the stock appreciation right will terminate upon the occurrence
of the event giving rise to the termination for cause and the
participant may not exercise the stock appreciation right
following such termination. The term of the stock appreciation
right may be further extended in the event that exercise of the
stock appreciation right following termination of service is
prohibited by applicable securities laws, or the sale of any
common stock received upon exercise of the stock appreciation
right would violate our insider trading policy. In no event,
however, may a stock appreciation right be exercised beyond the
expiration of its term.
Performance Awards. The 2010 Equity Incentive
Plan permits the grant of performance-based stock and cash
awards that may qualify as performance-based compensation that
is not subject to the $1 million limitation on the income
tax deductibility of compensation paid per covered executive
officer imposed by Section 162(m) of the Code. To assure
that the compensation attributable to performance-based awards
will so qualify, our compensation committee can structure such
awards so that the stock or cash will be issued or paid pursuant
to such award only following the achievement of certain
pre-established performance goals during a designated
performance period.
The criteria that the compensation committee may select to
establish the performance goals include one or more of the
following: (1) earnings (including earnings per share and
net earnings); (2) earnings before interest, taxes and
depreciation; (3) earnings before interest, taxes,
depreciation and amortization; (4) total stockholder
return; (5) return on equity or average stockholders
equity; (6) return on assets, investment or capital
employed; (7) stock price; (8) margin (including gross
margin); (9) income (before or after taxes);
(10) operating income; (11) operating income after
taxes; (12) pre-tax profit; (13) operating cash flow;
(14) sales or revenue targets; (15) increases in
revenue or product revenue; (16) expenses and cost
reduction goals; (17) improvement in or attainment of
working capital levels; (18) economic value added (or an
equivalent metric); (19) market share; (20) cash flow;
(21) cash flow per share; (22) share price
performance; (23) debt reduction; (24) implementation
or completion of projects or processes; (25) customer
satisfaction; (26) stockholders equity;
(27) capital expenditures; (28) debt levels;
(29) operating profit or net operating profit;
(30) workforce diversity; (31) growth of net income or
operating income; and (32) to the extent that an award is
not intended to comply with Section 162(m) of the Code,
other measures of performance selected by our board of directors
or our compensation committee.
The compensation committee may establish performance goals on a
company-wide basis, with respect to one or more business units,
divisions, affiliates or business segments, and in either
absolute terms or relative to the performance of one or more
comparable companies or the performance of one or more relevant
indices. Unless specified otherwise (i) in the award
agreement at the time the award is granted or (ii) in such
other document setting forth the performance goals at the time
the goals are established, the compensation committee will
appropriately make adjustments in the method of calculating the
attainment of the performance goals as follows: (1) to
exclude restructuring
and/or other
nonrecurring charges; (2) to exclude exchange rate effects,
as applicable, for
non-U.S. dollar
denominated goals; (3) to exclude the effects of changes to
U.S. GAAP; (4) to exclude the effects of any statutory
adjustments to corporate tax rates; (5) to exclude the
effects of
123
any extraordinary items as determined under
U.S. GAAP; (6) to exclude the dilutive effects of
acquisitions or joint ventures; (7) to assume that any
business divested by our company achieved performance objectives
at targeted levels during the balance of a performance period
following such divestiture; (8) to exclude the effect of
any change in the outstanding shares of our common stock by
reason of any stock dividend or split, stock repurchase,
reorganization, recapitalization, merger, consolidation,
spin-off, combination or exchange of shares or other similar
corporate change, or any distributions to common shareholders
other than regular cash dividends; (9) to exclude the
effects of stock based compensation
and/or the
award of bonuses under our bonus plans; and (10) to exclude
the effect of any other unusual, non-recurring gain or loss or
other extraordinary item. The performance goals may differ from
participant to participant and from award to award.
Other Stock Awards. The plan administrator may
grant other awards based in whole or in part by reference to our
common stock. The plan administrator will set the number of
shares under the award and all other terms and conditions of
such awards.
Adjustment Provisions. In the event that there
is a specified type of change in our capital structure, such as
a stock split or recapitalization, the plan administrator will
make appropriate adjustments to the class and maximum number of
shares of our common stock subject to the 2010 Equity Incentive
Plan, the class and maximum number of shares of our common stock
that may be issued upon the exercise of incentive stock options,
the class and maximum number of shares of our common stock
subject to stock awards that can be granted in a calendar year
(as established under the 2010 Equity Incentive Plan pursuant to
Section 162(m) of the Code), and the class, number of
shares and price per share of common stock subject to
outstanding stock awards.
Corporate Transactions. In the event of
certain specified significant corporate transactions, the plan
administrator may take any one or more of the following actions
as to outstanding awards, or as to a portion of any outstanding
award under the 2010 Equity Incentive Plan:
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arrange for the assumption, continuation or substitution of a
stock award by a surviving or acquiring entity or parent company;
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arrange for the assignment of any reacquisition or repurchase
rights held by us to the surviving or acquiring entity or parent
company;
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accelerate the vesting of the stock award and provide for its
termination prior to the effective time of the corporate
transaction;
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cancel or arrange for the cancellation of the stock award in
exchange for such cash consideration, if any, as our plan
administrator may deem appropriate; or
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make a payment equal to the excess, if any, of the value of the
property the participant would have received upon exercise of
the stock award over the exercise price otherwise payable by the
participant in connection with the exercise.
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Changes in Control. The plan administrator may
provide, in an individual award agreement, that the stock award
will be subject to additional acceleration of vesting and
exercisability in the event of a certain specified change in
control. However, in the absence of such a provision, no such
acceleration of the stock award will occur.
2003 Stock
Option Plan
Our board of directors adopted, and our stockholders
subsequently approved, our 2003 Stock Option Plan in April 2003.
An aggregate of 6.2 million shares of common stock may be
issued pursuant to awards granted under the 2003 Stock Option
Plan, as amended. Upon effectiveness of the 2010 Stock Option
Plan, we will not issue any further awards under the 2003 Stock
Option Plan.
The 2003 Stock Option Plan provides for the grant to our
officers, directors, employees, consultants and advisors of
incentive and nonqualified stock options to purchase our common
stock. As of June 30, 2010, options to purchase
5,116,736 shares of common stock were outstanding under
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the 2003 Stock Option Plan with a weighted average exercise
price per share of $4.51, and 782,073 shares remained
available for future issuance pursuant to options to be granted
under the 2003 Stock Option Plan.
The 2003 Stock Option Plan may be administered either by our
board of directors or a committee thereof that has been
specifically designated by our board of directors to administer
the 2003 Stock Option Plan. The 2003 Stock Option Plan is
administered by our compensation committee.
Options granted under the 2003 Stock Option Plan are evidenced
by stock option agreements, containing such provisions as our
board of directors deems advisable. All options granted under
the 2003 Stock Option Plan expire not more than ten years after
the date of the grant and have an exercise price that is
determined by our board of directors. Options under the 2003
Stock Option Plan typically vest over a four-year period as
follows: 25% of the shares underlying the option vest on the
first anniversary of the date of the grant, and the remainder of
the shares underlying the option vest in equal monthly
installments over the 36 months thereafter.
Options granted under the 2003 Stock Option Plan may not be
assigned or transferred other than by will or the laws of
descent or distribution. Unless otherwise provided in an
optionees stock option agreement, in the case of an
optionee who is our employee on the date of grant of the
options: (i) options granted under the 2003 Stock Option
Plan will terminate immediately upon an optionees
termination of employment for cause; (ii) in the event of
an optionees termination of employment by reason of death
or disability, the unvested portion of the option will terminate
immediately and the vested portion of the option will terminate
one year following such termination of employment (but will not
continue to vest during such one-year period); and (iii) in
the event of an optionees termination of employment for
any other reason, the unvested portion of the option will
terminate immediately and the vested portion of the option will
terminate three months after such termination of employment.
If we are sold, or if the division, subsidiary or affiliate for
which an optionee performs services is sold, our board of
directors may take any one or more of the following actions with
respect to outstanding stock options:
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provide for the assumption, or substitution of a substantially
equivalent stock option, by the acquiring or succeeding entity;
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provide, after the provision of notice to the optionee, that the
option shall terminate upon the consummation of the transaction
unless exercised before that time;
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if our stockholders are receiving a payment for their surrender
of our stock is connection with the transaction, provide for a
cash payment to the optionee (with respect to any then
exercisable portion of the option) equal to the difference
between the per share sales price received by our stockholders
for their common stock in the transaction and the exercise price
of the option; or
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provide for other equitable adjustments as determine by our
board of directors.
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Our board of directors may amend or terminate the 2003 Stock
Option Plan at any time, subject to certain restrictions.
However, no such amendment may materially adversely affect the
rights of a participant in any option previously granted without
the optionees written consent.
2010 Employee
Stock Purchase Plan
Our board of directors approved the 2010 Employee Stock Purchase
Plan, or ESPP, in May 2010. Subject to stockholder
approval, the ESPP will become effective immediately upon the
signing of the underwriting agreement for this offering.
Share Reserve. The ESPP initially authorizes
the issuance of 720,000 shares of our common stock pursuant
to purchase rights to be granted to our employees or to
employees of any of our designated affiliates. The ESPP is
intended to qualify as an employee stock purchase
plan within the
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meaning of Section 423 of the Code. As of the date hereof,
no rights have been granted and no shares of our common stock
have been purchased under our ESPP.
Administration. Our board of directors, or a
duly authorized committee thereof, has the authority to
administer the ESPP. Our board of directors may delegate
concurrent authority to administer the ESPP to our compensation
committee.
Purchase Rights. The ESPP is implemented
through a series of offerings of purchase rights to eligible
employees. Purchase rights are generally not transferable. Under
the ESPP, we may specify offerings with a duration of not more
than 27 months, and may specify one or more shorter
purchase periods within each offering. Each offering will have
one or more purchase dates on which shares of our common stock
will be purchased for the employees who are participating in the
offering. An offering may be terminated early under certain
circumstances such as a material change in control of our
company.
Payroll Deductions. Generally, all regular
employees, including executive officers, employed by us or by
any of our designated affiliates, may participate in the ESPP
and may contribute, normally through payroll deductions, up to
15% of their earnings toward the purchase of our common stock
under the ESPP. Unless otherwise determined by our board of
directors, common stock will be purchased for participating
employees at a price per share equal to the lower of
(a) 85% of the fair market value of a share of our common
stock on the first date of an offering, or (b) 85% of the
fair market value of a share of our common stock on the date of
purchase.
Limitations. Employees may have to satisfy one
or more of the following service requirements before
participating in the ESPP, as determined by our board of
directors: (a) customarily employed for more than
20 hours per week, (b) customarily employed for more
than five months per calendar year, or (c) continuous
employment with us or one of our affiliates for a period of time
not to exceed two years. No employee may purchase shares under
the ESPP at a rate in excess of $25,000 worth of our common
stock, based on the fair market value per share of our common
stock at the beginning of an offering, for each calendar year in
which such purchase right is outstanding. Finally, no employee
will be eligible for the grant of any purchase rights under the
ESPP if, immediately after such rights are granted, such
employee owns our stock possessing five percent or more of the
total combined voting power or value of all classes of our
outstanding capital stock.
Changes to Capital Structure. In the event
that there is a specified type of change in our capital
structure, such as a stock split or recapitalization,
appropriate adjustments will be made to (a) the class and
maximum number of shares reserved under the ESPP, (b) the
class, number of shares and purchase price of all outstanding
purchase rights, and (c) any limits on the class and number
of shares that may be purchased in an offering or purchase
period (if applicable).
Corporate Transactions. In the event of
certain significant corporate transactions, such as an
acquisition of our company that results in a material change in
the ownership of our company, any then outstanding purchase
rights under the ESPP may be assumed, continued or substituted
for by any surviving or acquiring entity or its parent company,
provided that the rights of any participant under any such
assumption, continuation or substitution will not be impaired.
If the surviving or acquiring entity or its parent company
elects not to assume, continue or substitute for such purchase
rights, then the participants accumulated contributions
will be used to purchase shares of our common stock within ten
business days prior to such corporate transaction, and such
purchase rights will terminate immediately thereafter.
Plan Amendments. Our board of directors has
the authority to amend, suspend or terminate the ESPP, provided
any such action will not be taken without the consent of an
adversely affected participant. We will obtain stockholder
approval of any amendment to our ESPP as required by applicable
law.
126
Rule 10b5-1
Sales Plans
Our directors and executive officers may adopt written plans,
known as
Rule 10b5-1
plans, in which they will contract with a broker to buy or sell
shares of our common stock on a periodic basis. Under a
Rule 10b5-1
plan, a broker executes trades pursuant to parameters
established by the director or officer when entering into the
plan, without further direction from them. The director or
officer may amend or terminate the plan in some circumstances.
Our directors and executive officers may also buy or sell
additional shares outside of a
Rule 10b5-1
plan when they are not in possession of material, nonpublic
information.
127
RELATED PERSON
TRANSACTIONS
Since January 1, 2007, we have engaged in the following
transactions, other than compensation arrangements, with our
directors, executive officers and holders of more than 5% of our
voting securities, and certain affiliates of our directors,
executive officers and 5% stockholders.
Sales of
Redeemable Convertible Preferred Stock
The following table summarizes our sales of redeemable
convertible preferred stock to our officers, directors and
security holders who beneficially own more than 5% of any class
of our voting securities since January 1, 2007. The
purchase price, in each case, was the fair market value as
determined by arms-length negotiations between sophisticated
investors and our management and board of directors, based on
factors such as our stage of development and valuations of
similarly situated private companies.
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|
|
|
|
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|
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|
|
|
|
|
|
Type of
|
|
|
|
|
|
|
|
|
Redeemable
|
|
|
|
|
|
|
|
|
Convertible
|
|
Number of
|
|
Aggregate
|
|
|
|
|
Preferred
|
|
Preferred
|
|
Purchase
|
|
Date of
|
Name
|
|
Stock
|
|
Shares
|
|
Price
|
|
Purchase
|
|
5% Stockholders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
WF Holding Company, LLC(1)
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|
|
Series E
|
|
|
|
8,930,966
|
|
|
|
(1
|
)
|
|
|
10/7/2008
|
|
Entities affiliated with Rho Ventures(2)
|
|
|
Series D
|
|
|
|
393,060
|
|
|
$
|
2,699,772
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|
|
|
08/30/2007
|
|
|
|
|
Series F
|
|
|
|
1,970,210
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|
|
|
14,999,997
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|
|
|
10/15/2008
|
|
Scale Venture Partners II, L.P.(3)
|
|
|
Series D
|
|
|
|
2,038,261
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|
|
|
14,000,000
|
|
|
|
08/30/2007
|
|
|
|
|
Series F
|
|
|
|
234,974
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|
|
|
1,788,951
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|
|
|
10/15/2008
|
|
Entities affiliated with NeoCarta Ventures(4)
|
|
|
Series D
|
|
|
|
113,860
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|
|
|
782,059
|
|
|
|
08/30/2007
|
|
|
|
|
Series F
|
|
|
|
154,049
|
|
|
|
1,172,837
|
|
|
|
10/15/2008
|
|
|
|
|
Series F
|
|
|
|
318,203
|
|
|
|
2,422,607
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|
|
|
10/26/2008
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|
Entities affiliated with Foundation Capital(5)
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|
|
Series D
|
|
|
|
727,950
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|
|
|
4,999,997
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|
|
|
09/24/2007
|
|
|
|
|
Series F
|
|
|
|
190,411
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|
|
|
1,449,675
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|
|
|
10/15/2008
|
|
Entities affiliated with Star Ventures(6)
|
|
|
Series D
|
|
|
|
77,719
|
|
|
|
533,821
|
|
|
|
08/30/2007
|
|
Time Warner Inc.
|
|
|
Series D
|
|
|
|
72,795
|
|
|
|
500,000
|
|
|
|
08/30/2007
|
|
|
|
|
(1)
|
|
David Golden and Donn Davis,
members of our board of directors, are two of eleven members of
the board of directors of WF Holding Company, LLC. The shares of
Series E redeemable convertible preferred stock held by
WF Holding Company, LLC were issued in consideration for
our purchase of all outstanding units of RHG.
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|
(2)
|
|
Includes 393,060 shares of
Series D redeemable convertible preferred stock held by Rho
Management Trust I and 1,970,210 shares of
Series F redeemable convertible preferred stock held by Rho
Ventures VI, L.P. The investment advisor to Rho Management
Trust I is Rho Capital Partners, Inc., a New York
corporation. Habib Kairouz, a member of our board of directors,
is a Managing Partner and one of the controlling stockholders of
Rho Capital Partners, Inc., and in his capacity as such may be
deemed to exercise voting and investment power over the shares
held by Rho Management Trust I. The general partner of Rho
Ventures VI, L.P. is RMV VI, L.L.C., a Delaware limited
liability company, and the managing member of RMV VI, L.L.C. is
Rho Capital Partners LLC, a Delaware limited liability company.
As a managing member of Rho Capital Partners LLC, Habib Kairouz
may be deemed to exercise voting and investment power over the
shares held by Rho Ventures VI, L.P. Douglas McCormick, a member
of our board of directors, is a venture partner at Rho Capital
Partners, Inc. but does not have voting or investment power over
the shares held by Rho Management Trust I and Rho Ventures
VI, L.P. Each of Messrs. Kairouz and McCormick disclaims
beneficial ownership of the shares held by Rho Management
Trust I and Rho Ventures VI, L.P.
|
128
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|
|
(3)
|
|
Sharon Wienbar, a member of our
board of directors, is one of the five managing members of Scale
Venture Management II, LLC, the ultimate general partner of
Scale Venture Partners II, LP.
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|
(4)
|
|
Includes 102,474 shares of
Series D redeemable convertible preferred stock and
425,026 shares of Series F redeemable convertible
preferred stock held by NeoCarta Ventures, L.P. and
11,386 shares of Series D redeemable convertible
preferred stock and 47,226 shares of Series F
redeemable convertible preferred stock held by NeoCarta Scout
Fund, L.L.C. D. Jarrett Collins, a member of our board of
directors, is a managing director of NeoCarta Associates, LLC,
which is the general partner of NeoCarta Ventures, L.P. and the
manager of NeoCarta Scout Fund, L.L.C.
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|
(5)
|
|
Includes 712,481 shares of
Series D redeemable convertible preferred stock and
186,365 shares of Series F redeemable convertible
preferred stock held by Foundation Capital V L.P. and
15,469 shares of Series D redeemable convertible
preferred stock and 4,046 shares of Series F
redeemable convertible preferred stock held by Foundation
Capital V Principals Fund LLC.
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|
(6)
|
|
Includes 1,981 shares of
Series D redeemable convertible preferred stock held by SVM
Star Ventures Managementgesellschaft MBH NR. 3 and
75,738 shares of Series D redeemable convertible
preferred stock held by SVE Star Ventures Enterprises
No. VII, a German Civil Law Partnership.
|
Shares Sold
by Insiders
In September 2007, we were a party to a stock purchase agreement
pursuant to which some of the holders of our capital stock
purchased shares of our capital stock from certain of our
directors, executive officers and other stockholders, including
Benjamin Wolin, Michael Keriakos and Brian Cooper, each of whom
are our executive officers, as well as Robert Nylen, a former
member of our board of directors, William Bo S. Peabody, a
member of our board of directors, and Village Venture Partners
Fund, L.P. and Village Ventures Partners Fund A, L.P., funds
affiliated with William Bo S. Peabody. The sales were at prices
per share equal to $6.1817 per share of our common stock and
$6.8686 per share of our redeemable convertible preferred stock,
for an aggregate purchase price of $4,445,706. Our participation
in these transactions was limited to the approval by the
disinterested members of our board of directors of these
third-party transfers, the waiver of our right of first refusal
with respect to the shares being sold, as well as performing
various administrative functions associated with these transfers.
Bridge
Financing
In March 2007, we issued convertible subordinated promissory
notes in an aggregate amount of $2,598,401 to an entity
affiliated with Rho Ventures, $623,508 to entities affiliated
with NeoCarta Ventures and $455,459 to entities affiliated with
Star Ventures, each with a maturity date of December 5,
2007 and bearing interest at a rate of 8% per annum. The
convertible subordinated promissory notes were converted into
our Series D redeemable convertible preferred stock in
August 2007 in accordance with the terms of the notes.
Agreement with
our Stockholders
We have entered into a fifth amended and restated stockholder
rights agreement, or stockholder agreement, with certain of the
holders of our common stock and redeemable convertible preferred
stock, including Benjamin Wolin and Michael Keriakos, each of
whom are our executive officers, Douglas McCormick and William
Bo S. Peabody, each of whom are members of our board of
directors, and each of the 5% stockholders identified under the
Principal and Selling Stockholder section of this
prospectus. The stockholder agreement provides for, among other
things, information and inspection rights as well as the right
of first offer with respect to future sales of our equity
securities by us. The right of first offer provision of the
stockholder agreement does not apply to and will terminate upon
the closing of this offering. The stockholder agreement also
provides that holders of our redeemable convertible preferred
stock and holders of our common stock have the right to demand
that we file a registration statement or request that their
shares be covered by a registration statement that we are
otherwise filing. See the Description of Capital
Stock Registration Rights section of this
prospectus for a further discussion of these registration rights.
129
Indemnification
Agreements
In connection with this offering, we will enter into
indemnification agreements with each of our directors and
executive officers. These agreements will provide that we will
indemnify each of our directors and executive officers against
any and all expenses incurred by that director or executive
officer because of his or her status as one of our directors or
executive officers to the fullest extent permitted by Delaware
law, our amended and restated certificate of incorporation and
our amended and restated bylaws, except in a proceeding
initiated by such director or executive officer without board of
director approval. In addition, the agreement will generally
provide that, to the fullest extent permitted by Delaware law,
we will advance all expenses incurred by our directors and
executive officers in connection with a legal proceeding.
Agreement with
SparkPeople Inc.
In November 2007, prior to our acquisition of RHG, RHG entered
into an approximately three-year commercial agreement with
SparkPeople Inc., or SparkPeople. Prior to the RHG acquisition,
the agreement was amended in February 2008 to provide for
an adjustment to the minimum payments for a specified period and
in September 2008 to modify termination provisions in
connection with a change of control of RHG involving a
competitor of SparkPeople. Following the RHG acquisition, the
agreement was amended in September 2009 to, among other
things, revise the scope of the agreement and adjust the minimum
payments for a specified period. The agreement, and each
amendment, was the result of arms length negotiations.
Revolution Spark LLC owns 20% of SparkPeople on a fully diluted
basis. Revolution Spark LLC is 100% owned, directly or
indirectly, by Stephen Case, who was a member of our board of
directors until October 2009. Mr. Case was not a director
of our company at the time that RHG entered into the agreement
with SparkPeople. In addition, Mr. Case is the beneficial
owner of a controlling interest in WF Holding Company, LLC, our
largest stockholder. Pursuant to the agreement, we monetize the
website www.SparkPeople.com through advertising and
sponsorship and pay a royalty to SparkPeople based on the
advertising and sponsorship revenue generated from the website,
subject to a minimum annual royalty.
In connection with the agreement, we incurred approximately
$4.0 million in total royalties to SparkPeople in 2009. In
the first half of 2010, we incurred approximately
$2.1 million in total royalties to SparkPeople.
Agreement with
Makeover Solutions Inc.
In January 2010, we entered into a three-year license and
services agreement with Makeover Solutions Inc., or Makeover
Solutions. Two of our directors, Douglas McCormick and William
Bo S. Peabody, currently serve on the board of directors of
Makeover Solutions. Michael Keriakos, our President and one of
our directors, served on the board of directors of Makeover
Solutions until December 2009 and owns an equity position in the
company. Funds affiliated with our directors, Messrs. Kairouz,
McCormick and Peabody, own equity positions in the company.
Pursuant to the agreement, we license certain software and
purchase services used to operate an interactive, web-based,
virtual makeover tool from Makeover Solutions that may be
accessed by users of our websites. We paid to Makeover Solutions
one-time implementation fees and will pay recurring usage fees
based on, among other things, the number of page views to the
makeover tool, subject to a minimum monthly fee.
In connection with the agreement, we paid approximately $56,000
in fees to Makeover Solutions in the first half of 2010.
130
Policies and
Procedures for Related Party Transactions
Our board of directors intends to adopt a written related person
transaction policy to set forth the policies and procedures for
the review and approval or ratification of related person
transactions. This policy will cover any transaction,
arrangement or relationship, or any series of similar
transactions, arrangements or relationships in which we were or
are to be a participant, the amount involved exceeds $100,000
and a related person had or will have a direct or indirect
material interest, including, without limitation, purchases of
goods or services by or from the related person or entities in
which the related person has a material interest, indebtedness,
guarantees of indebtedness or employment by us of a related
person.
131
PRINCIPAL AND
SELLING STOCKHOLDERS
The following table sets forth information as of June 30,
2010 about the number of shares of common stock and the
percentage of common stock beneficially owned before and after
the completion of this offering by:
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|
|
|
|
each of our directors and each of the executive officers named
in the Summary Compensation Table under Executive
Compensation;
|
|
|
|
each of the selling stockholders;
|
|
|
|
each person who is a beneficial owner of more than 5% of any
class or series of our capital stock; and
|
|
|
|
all of our directors and executive officers as a group.
|
Ownership information is based upon information furnished by the
respective individuals or entities, as the case may be.
We have determined beneficial ownership in accordance with the
rules of the SEC. Except as indicated by the footnotes below, we
believe, based on the information furnished to us, that the
persons and entities named in the table below have sole voting
and investment power with respect to all shares of common stock
that they beneficially own, subject to applicable community
property laws.
Applicable percentage ownership is based on
30,279,128 shares of common stock outstanding on
June 30, 2010 after giving effect to the automatic
preferred stock conversion and assuming no exercise of the
underwriters option to purchase additional shares. In
computing the number of shares of common stock beneficially
owned by a person and the percentage ownership of that person,
we have deemed outstanding shares of common stock to be subject
to options held by that person that are currently exercisable or
exercisable within 60 days after June 30, 2010. We
have not deemed these shares outstanding, however, for the
purpose of computing the percentage ownership of any other
person.
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares of Common Stock
|
|
Number of
|
|
Shares of Common Stock
|
|
|
Beneficially Owned Before
|
|
Shares Being
|
|
Beneficially Owned After
|
|
|
This Offering
|
|
Offered
|
|
This Offering
|
Name and Address of Beneficial Owners and
|
|
Number
|
|
Percentage
|
|
|
|
Number
|
|
Percentage
|
Selling Stockholders(1)
|
|
of Shares
|
|
of Class
|
|
|
|
of Shares
|
|
of Class
|
|
5% Stockholders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
WF Holding Company, LLC(2)
1717 Rhode Island, Ave., NW, Suite 1000
Washington, DC 20036
|
|
|
8,930,966
|
|
|
|
29.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
Entities affiliated with Rho Ventures(3)
c/o Rho
Capital Partners, Inc.
152 West 57th Street,
23rd
Floor
New York, NY 10019
|
|
|
7,457,577
|
|
|
|
24.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Entities affiliated with Scale Venture Partners(4)
950 Tower Lane, Suite 700
Foster City, CA 94404
|
|
|
2,273,235
|
|
|
|
7.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Entities affiliated with Foundation Capital(5)
250 Middlefield Rd
Menlo Park, CA 94025
|
|
|
1,842,117
|
|
|
|
6.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Entities affiliated with NeoCarta Ventures(6)
396 Washington Street, Suite 278
Wellesley Hills, MA 02481
|
|
|
1,808,534
|
|
|
|
6.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Directors and Executive Officers
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benjamin Wolin(7)(8)
|
|
|
1,377,620
|
|
|
|
4.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Michael Keriakos(7)(9)
|
|
|
1,357,432
|
|
|
|
4.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Brian Cooper(10)
|
|
|
310,979
|
|
|
|
1.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gregory Jackson(11)
|
|
|
154,166
|
|
|
|
0.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
132
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares of Common Stock
|
|
Number of
|
|
Shares of Common Stock
|
|
|
Beneficially Owned Before
|
|
Shares Being
|
|
Beneficially Owned After
|
|
|
This Offering
|
|
Offered
|
|
This Offering
|
Name and Address of Beneficial Owners and
|
|
Number
|
|
Percentage
|
|
|
|
Number
|
|
Percentage
|
Selling Stockholders(1)
|
|
of Shares
|
|
of Class
|
|
|
|
of Shares
|
|
of Class
|
|
Scott Wolf(12)
|
|
|
258,050
|
|
|
|
0.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
D. Jarrett Collins(6)
|
|
|
1,808,534
|
|
|
|
6.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Donn Davis(2)
|
|
|
|
|
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
|
|
Dana L. Evan
|
|
|
|
|
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
|
|
David Golden(2)
|
|
|
|
|
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
|
|
Habib Kairouz(3)
|
|
|
7,457,577
|
|
|
|
24.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Douglas McCormick(3)(13)
|
|
|
377,105
|
|
|
|
1.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
William Bo S. Peabody(14)
|
|
|
1,620,214
|
|
|
|
5.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sharon Wienbar(4)
|
|
|
2,273,235
|
|
|
|
7.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All current directors and executive officers
as a group (15 persons)
|
|
|
17,094,905
|
|
|
|
53.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Selling Stockholders
|
|
|
|
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*
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Indicates ownership of less than 1%.
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(1)
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Unless otherwise indicated, the
address for each beneficial owner is
c/o Everyday
Health, Inc., 345 Hudson Street, 16th Floor, New York, NY 10014.
Shares shown in the table above include shares held in the
beneficial owners name or jointly with others, or in the
name of a bank, nominee or trustee for the beneficial
owners account.
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(2)
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David Golden and Donn Davis,
members of our board of directors, are two of eleven members of
the board of directors of WF Holding Company, LLC. No single
member of the board of directors of WF Holding Company, LLC has
sole voting or investment power over the shares of our common
stock held by WF Holding Company, LLC. Revolution
WF Holdings LLC holds a controlling interest in
WF Holding Company, LLC. Revolution WF Holdings LLC is
indirectly controlled by Stephen M. Case.
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(3)
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Includes 5,222,329 shares held
by Rho Management Trust I and 1,970,210 shares held by
Rho Ventures VI, L.P. Also includes 265,038 shares held by
Rho Management Trust I which are transferable to Benjamin
Wolin and Michael Keriakos upon exercise of a performance
warrant agreement by them. The investment advisor to Rho
Management Trust I is Rho Capital Partners, Inc., a New
York corporation. Habib Kairouz, a member of our board of
directors, Mark Leschly and Joshua Ruch are the Managing
Partners and the controlling stockholders of Rho Capital
Partners, Inc., and in their capacity as such may be deemed to
share voting and investment power over the shares held by Rho
Management Trust I. Each of Messrs. Kairouz, Leschly and
Ruch disclaims beneficial ownership of the shares held by Rho
Management Trust I, except to the extent of his pecuniary
interest therein. The general partner of Rho Ventures VI, L.P.
is RMV VI, L.L.C., a Delaware limited liability company, and the
managing member of RMV VI, L.L.C. is Rho Capital Partners LLC, a
Delaware limited liability company. As the managing members of
Rho Capital Partners LLC, Messrs. Kairouz, Leschly and Ruch
may be deemed to share voting and investment power over the
shares held by Rho Ventures VI, L.P. Each of
Messrs. Kairouz, Leschly and Ruch disclaims beneficial
ownership of the shares held by Rho Ventures VI, L.P., except to
the extent of his pecuniary interest therein. Douglas McCormick,
a member of our board of directors, is a venture partner at Rho
Capital Partners, Inc. but does not have voting or investment
power over the shares held by Rho Management Trust I and
Rho Ventures VI, L.P.
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(4)
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Voting and/or disposition of the
shares held by Scale Venture Partners II, LP is determined by a
majority in interest of the five managing members of Scale
Venture Management II, LLC, the ultimate general partner of
Scale Venture Partners II, LP. The five managing members of
Scale Venture Management II, LLC are Kate Mitchell, Rory
ODriscoll, Louis Bock, Mark Brooks and Sharon Wienbar, a
member of our board of directors. Each of Mses. Mitchell
and Wienbar and Messrs. ODriscoll, Bock and Brooks
disclaims beneficial ownership of the shares held by Scale
Venture Partners II, LP, except to the extent of his or her
pecuniary interest therein.
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(5)
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Includes 1,802,973 shares held
by Foundation Capital V, L.P. and 39,144 shares held
by Foundation Capital V Principals Fund, LLC. Foundation Capital
Management Co. V, LLC, or FC5M, is the sole General Partner
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of Foundation Capital V, L.P., or
FC5, and Foundation Capital V Principals Fund, LLC, or FC5P.
FC5M exercises sole voting and investment power over the shares
held by FC5 and FC5P. William B. Elmore,
Adam Grosser, Paul R. Holland, Paul G. Koontz,
Charles P. Moldow, Richard A. Redelfs, Michael N. Schuh, and
Warren M. Weiss are Managing Members of FC5M. As Managing
Members of FC5M, Messrs. Elmore, Grosser, Holland, Koontz,
Moldow, Redelfs, Schuh and Weiss may be deemed to share voting
and investment control over the shares held by FC5 and FC5P.
Each of the Managing Members of FC5M disclaims beneficial
ownership of the securities held by FC5 and FC5P, except to the
extent of his pecuniary interest therein.
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(6)
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Includes 1,627,680 shares held
by NeoCarta Ventures, L.P. and 180,854 shares held by
NeoCarta Scout Fund, L.L.C. D. Jarrett Collins, a member of our
board of directors, Anthony L. Pantuso and Thomas W. Naughton
are the managing directors of NeoCarta Associates, LLC, which is
the general partner of NeoCarta Ventures, L.P. and the manager
of NeoCarta Scout Fund, L.L.C. Mr. Collins,
Mr. Pantuso and Mr. Naughton may be deemed to share
dispositive and voting power over the shares, which are, or may
be, deemed to be beneficially owned by NeoCarta Ventures, L.P.
and NeoCarta Scout Fund, L.L.C. Each of Messrs. Collins,
Pantuso and Naughton disclaims beneficial ownership of the
shares held by NeoCarta Ventures, L.P. and NeoCarta Scout Fund,
L.L.C., except to the extent of his pecuniary interest therein.
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(7)
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Excludes 350,000 shares that
each of Benjamin Wolin and Michael Keriakos may acquire from
certain of our other stockholders upon exercise of a performance
warrant agreement by Messrs. Wolin and Keriakos.
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(8)
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Includes 345,936 shares
subject to options that are exercisable within 60 days of
June 30, 2010.
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(9)
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Includes 345,936 shares
subject to options that are exercisable within 60 days of
June 30, 2010.
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(10)
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Includes 310,979 shares
subject to options that are exercisable within 60 days of
June 30, 2010.
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(11)
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Includes 154,166 shares
subject to options that are exercisable within 60 days of
June 30, 2010.
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(12)
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Includes 258,050 shares
subject to options that are exercisable within 60 days of
June 30, 2010.
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(13)
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Includes 139,600 shares held
individually and 2,597 shares which are transferable to
Benjamin Wolin and Michael Keriakos upon exercise of a
performance warrant agreement by them. Also includes
234,908 shares subject to options that are exercisable
within 60 days of June 30, 2010.
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(14)
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Includes 599,377 shares held
by Village Ventures Partners Fund, L.P., 45,379 shares held
by Village Ventures Partners Fund A, L.P.,
10,189 shares held by VVN, LLC and 701,211 shares held
individually by William Bo S. Peabody. Also includes
182,855 shares held individually by Mr. Peabody,
75,489 shares held by Village Ventures Partners Fund, L.P.
and 5,714 shares held by Village Ventures Partners Fund A,
L.P. which are transferable to Benjamin Wolin and Michael
Keriakos upon exercise of a performance warrant agreement by
them. Mr. Peabody, a member of our board of directors, is a
managing general partner of Village Ventures, Inc. which is the
manager of Village Ventures Capital Partners I, LLC, the
general partner of Village Ventures Partners Fund, L.P. and
Village Ventures Partners Fund A, L.P. Mr. Peabody may
be deemed to share dispositive and voting power over these
shares, which are, or may be, deemed to be beneficially owned by
Village Ventures Partners Fund, L.P. and Village Ventures
Partners Fund A, L.P. Mr. Peabody disclaims beneficial
ownership of the shares held by Village Ventures Partners Fund,
L.P. and Village Ventures Partners Fund A, L.P. except to
the extent of his pecuniary interest therein.
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134
DESCRIPTION OF
CAPITAL STOCK
General
The following description of our capital stock and provisions of
our certificate of incorporation and bylaws provides only a
summary of their respective terms and are qualified by reference
to the amended and restated certificate of incorporation and
amended and restated bylaws to be in effect upon the completion
of this offering. You should refer to the copies of these
documents that have been or will be filed with the SEC as
exhibits to our registration statement, of which this prospectus
forms a part, and to the provisions of Delaware law. Upon the
completion of this offering and the filing of the amended and
restated certificate of incorporation, our authorized capital
stock will consist
of shares
of common stock, par value $0.01 per share,
and shares
of undesignated preferred stock, par value $0.01 per share.
Common
Stock
As of June 30, 2010, there were 30,279,128 shares of
common stock outstanding held by approximately
90 stockholders of record, after giving effect to the
automatic preferred stock conversion.
Each holder of common stock is entitled to one vote for each
share of common stock held on all matters submitted to a vote of
stockholders, including the election of directors. Common
stockholders will not be entitled to cumulative voting in the
election of directors by our amended and restated certificate of
incorporation. As a result, the holders of a majority of the
voting shares will be able to elect all of the directors then
standing for election, if they should so choose. Subject to
preferences that may apply to shares of our preferred stock
outstanding at the time, the holders of outstanding shares of
our common stock will be entitled to receive dividends out of
assets legally available at the times and in the amounts that
our board of directors may determine from time to time. Upon our
liquidation, dissolution or
winding-up,
the holders of common stock would be entitled to share ratably
in all assets remaining after payment of all debts and other
liabilities and the satisfaction of any liquidation preferences
granted to the holders of outstanding shares of preferred stock.
Holders of common stock have no preemptive or conversion rights
or other subscription rights. There will be no redemption or
sinking fund provisions applicable to the common stock. The
rights, preferences and privileges of the holders of common
stock are subject to and may be adversely affected by, the
rights of the holders of shares of any series of preferred stock
that we may designate in the future.
Preferred
Stock
Upon the closing of this offering, all outstanding shares of our
redeemable convertible preferred stock will have been
automatically converted into shares of common stock. Following
this offering, our certificate of incorporation will be amended
and restated to delete all references to such shares of
preferred stock.
Under the amended and restated certificate of incorporation, our
board of directors will be authorized, subject to limitations
imposed by Delaware law, to issue from time to time up
to shares
of preferred stock in one or more series, without stockholder
approval. Our board of directors will have the authority to
establish from time to time the number of shares to be included
in each series, and to fix the rights, preferences and
privileges of the shares of each wholly unissued series and any
of its qualifications, limitations or restrictions. Our board of
directors will also be able to increase or decrease the number
of shares of any series, but not below the number of shares of
that series then outstanding, without any further vote or action
by the stockholders.
The board of directors may authorize the issuance of preferred
stock with voting or conversion rights that could adversely
affect the voting power or other rights of the holders of the
common stock, or that could decrease the amount of earnings and
assets available for distribution to the holders of common
stock. The issuance of preferred stock, while providing
flexibility in connection with possible
135
acquisitions and other corporate purposes, could, among other
things, have the effect of delaying, deferring or preventing a
change in control of our company and might adversely affect the
market price of our common stock and the voting and other rights
of the holders of common stock. We have no current plans to
issue any shares of preferred stock.
Warrants
As of June 30, 2010, three warrants for the purchase of an
aggregate of 222,977 shares of our common stock were
outstanding, after giving effect to the automatic preferred
stock conversion. The first warrant, which we issued in
connection with entering into a loan and security agreement on
March 22, 2007, is exercisable into 110,018 shares of
our Series C redeemable convertible preferred stock at an
exercise price of $3.272192 per share. After giving effect to
the automatic preferred stock conversion, the warrant will be
exercisable for 110,018 shares of our common stock at an
exercise price of $3.272192 per share. The warrant terminates on
the later of March 22, 2014 or three years after the
closing of this offering. The second warrant, which we issued in
connection with entering into a loan and security agreement on
September 18, 2009, is exercisable into 47,285 shares
of our Series F redeemable convertible preferred stock at
an exercise price of $7.6134 per share. After giving effect to
the automatic preferred stock conversion, the warrant will be
exercisable for 47,285 shares of our common stock at an
exercise price of $7.6134 per share. The warrant terminates on
September 18, 2016. The third warrant, which we issued in
connection with entering into a loan and security agreement on
October 8, 2009, is exercisable into 65,674 shares of
our Series F redeemable convertible preferred stock at an
exercise price of $7.6134 per share. After giving effect to the
automatic preferred stock conversion, the warrant will be
exercisable for 47,285 shares of our common stock at an
exercise price of $7.6134 per share. The warrant terminates on
the later of October 8, 2019 or five years after the
closing of this offering.
Registration
Rights
Commencing 180 days after the closing of this offering, the
holders
of shares
of our common stock, which we refer to as registrable
securities, may require us to prepare and file a registration
statement under the Securities Act, at our expense, provided
that such registration statement covers at least a number of
registrable securities with an aggregate anticipated offering
price, net of selling expenses, of $40,000,000 or equal to 20%
of the registrable securities held by the holders entitled to
registration rights. Under these demand registration rights, we
are required to use commercially reasonable efforts to cause the
shares requested to be included in the registration statement,
subject to customary conditions and limitations. We are not
obligated to effect more than two of these demand registrations.
In addition, these and certain of our other stockholders,
including some of our directors and officers, who in the
aggregate will
hold shares
of our common stock after giving effect to the automatic
preferred stock conversion, have piggyback
registration rights. If we propose to register any of our equity
securities under the Securities Act other than specified
excluded registrations, these holders are entitled to written
notice of the registration and may require us to include all or
a portion of their registrable securities in the registration
and in any related underwriting. However, the managing
underwriter has the right, subject to specified conditions, to
limit the number of registrable securities such holders may
include. If we become eligible to file a registration statement
on
Form S-3,
the holders of at least 10% of the registrable securities then
outstanding, which for such purpose only includes certain
directors and officers, may require us to register these shares
on
Form S-3,
if such registration will generate anticipated aggregate net
proceeds of at least $1,000,000. The holder of warrants to
purchase shares
of our common stock also have the same piggyback registration
rights. The registration rights terminate no later than five
years after this offering. Registration of these shares under
the Securities Act would result in these shares, other than
shares purchased by our affiliates, becoming freely tradable
without restriction under the Securities Act.
136
We are generally obligated to bear the expenses, other than
underwriting discounts and sales commissions, of these
registrations.
Anti-Takeover
Effects of Delaware Law and Our Certificate of Incorporation and
Bylaws
The provisions of Delaware law, our amended and restated
certificate of incorporation and our amended and restated bylaws
described below may have the effect of delaying, deferring or
discouraging another party from acquiring control of us.
Delaware
Law
We will be subject to the provisions of Section 203 of the
Delaware General Corporation Law regulating corporate takeovers.
In general, those provisions prohibit a public Delaware
corporation from engaging in any business combination with any
interested stockholder for a period of three years following the
date that the stockholder became an interested stockholder,
unless:
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the transaction is approved by the board of directors before the
date the interested stockholder attained that status;
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upon consummation of the transaction which resulted in the
stockholder becoming an interested stockholder, the interested
stockholder owned at least 85% of the voting stock of the
corporation outstanding at the time the transaction
commenced; or
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on or after the date the business combination is approved by the
board of directors and authorized at a meeting of stockholders,
and not by written consent, by at least two-thirds of the
outstanding voting stock that is not owned by the interested
stockholder.
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In general, Section 203 defines a business combination to
include the following:
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any merger or consolidation involving the corporation and the
interested stockholder;
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any sale, transfer, pledge or other disposition of 10% or more
of the assets of the corporation involving the interested
stockholder;
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subject to certain exceptions, any transaction that results in
the issuance or transfer by the corporation of any stock of the
corporation to the interested stockholder;
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any transaction involving the corporation that has the effect of
increasing the proportionate share of the stock of any class or
series of the corporation beneficially owned by the interested
stockholder; or
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the receipt by the interested stockholder of the benefit of any
loans, advances, guarantees, pledges or other financial benefits
provided by or through the corporation.
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In general, Section 203 defines an interested stockholder
as any entity or person beneficially owning 15% or more of the
outstanding voting stock of the corporation and any entity or
person affiliated with or controlling or controlled by any such
entity or person.
A Delaware corporation may opt out of this provision by express
provision in its original certificate of incorporation or by
amendment to its certificate of incorporation or bylaws approved
by its stockholders. However, we have not opted out of, and do
not currently intend to opt out of, this provision. The statute
could prohibit or delay mergers or other takeover or change in
control attempts and, accordingly, may discourage attempts to
acquire us.
Charter and
Bylaws
Provisions of our amended and restated certificate of
incorporation and amended and restated bylaws, which will become
effective upon the closing of this offering, may delay or
discourage transactions involving an actual or potential change
in our control or change in our management, including
transactions in which stockholders might otherwise receive a
premium for their shares, or
137
transactions that our stockholders might otherwise deem to be in
their best interests. Therefore, these provisions could
adversely affect the price of our common stock. Among other
things, our amended and restated certificate of incorporation
and amended and restated bylaws will provide that:
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no action can be taken by stockholders except at an annual or
special meeting of the stockholders called in accordance with
our bylaws, and stockholders may not act by written consent;
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the approval of holders of two-thirds of the shares entitled to
vote at an election of directors will be required to adopt,
amend or repeal our bylaws or amend or repeal the provisions of
our certificate of incorporation regarding the election and
removal of directors and the ability of stockholders to take
action by written consent or call a special meeting;
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our board of directors will be expressly authorized to make,
alter or repeal our bylaws;
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stockholders may not call special meetings of the stockholders
or fill vacancies on the board of directors;
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stockholders must timely provide advance notice, with specific
requirements as to form and content, of nominations of directors
or the proposal of business to be voted on at an annual meeting;
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our board of directors will be authorized to issue preferred
stock without stockholder approval, as described above;
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our board of directors will be divided into three classes with
each director elected for a staggered three-year term;
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the authorized number of directors may be changed only be
resolution of the board of directors;
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all vacancies, including newly created directorships, may,
except as otherwise required by law, be filled by the
affirmative vote of a majority of directors then in office, even
if less than a quorum;
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directors may only be removed for cause and then only by a vote
of holders of two-thirds of the shares entitled to vote at an
election of directors; and
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we will indemnify our directors, and may indemnify officers,
employees and other agents, against losses that they may incur
in investigations and legal proceedings resulting from their
services to us, which may include services in connection with
takeover defense measures.
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The amendment of any of these provisions would generally require
approval by the holders of at least
two-thirds
of our then outstanding common stock, voting as a single class.
Limitation of
Liability and Indemnification Matters
We will adopt provisions in our certificate of incorporation
that limit the liability of our directors for monetary damages
for breach of their fiduciary duty as directors, except for
liability that cannot be eliminated under the Delaware General
Corporation Law. Accordingly, our directors will not be
personally liable for monetary damages for breach of their
fiduciary duty as directors, except for liabilities:
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for any breach of the directors duty of loyalty to us or
our stockholders;
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for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law;
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for unlawful payments of dividends or unlawful stock repurchases
or redemptions, as provided under Section 174 of the
Delaware General Corporation Law; or
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for any transaction from which the director derived an improper
personal benefit.
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138
Any amendment or repeal of these provisions will require the
approval of the holders of shares representing at least
two-thirds of the shares entitled to vote in the election of
directors, voting as one class.
Our certificate of incorporation and bylaws will also provide
that we will indemnify our directors and officers to the fullest
extent permitted by Delaware law. Our certificate of
incorporation and bylaws will also permit us to purchase
insurance on behalf of any officer, director, employee or other
agent for any liability arising out of his actions as our
officer, director, employee or agent, regardless of whether
Delaware law would permit indemnification. As described above,
we intend to enter into separate indemnification agreements with
our directors and executive officers that require us, among
other things, to indemnify them against certain liabilities that
may arise by reason of their status or service as directors and
to advance their expenses incurred as a result of any proceeding
against them as to which they could be indemnified. We believe
that the limitation of liability provision in our certificate of
incorporation and the indemnification agreements will facilitate
our ability to continue to attract and retain qualified
individuals to serve as directors and officers.
The Nasdaq Global
Market Listing Symbol
We have applied to list our common stock on The Nasdaq Global
Market under the symbol EVDY.
Transfer Agent
and Registrar
The transfer agent and registrar for our common stock is
American Stock Transfer & Trust Company, 40 Wall
Street, New York, New York 10005.
139
SHARES AVAILABLE
FOR FUTURE SALE
Prior to this offering, there has been no public market for our
common stock, and a liquid public trading market for our common
stock may not develop or be sustained after this offering.
Future sales of significant amounts of our common stock,
including shares issued upon exercise of outstanding options or
warrants or in the public market after this offering, or the
anticipation of any such sales, could adversely affect the
public market prices for our common stock prevailing from time
to time and could impair our ability to raise capital through
sales of our equity securities. We have applied to have our
common stock listed on The Nasdaq Global Market under the symbol
EVDY.
Upon the closing of this offering, we will have outstanding an
aggregate
of shares
of common stock, assuming no exercise by the underwriters of
their option to purchase additional shares and no exercise of
outstanding options or warrants. Of these shares, all shares
sold in this offering will be freely tradable without
restriction or further registration under the Securities Act,
except for any shares purchased by our affiliates,
as that term is defined in Rule 144 under the Securities
Act, whose sales would be subject to the Rule 144 resale
restrictions described below, other than the holding period
requirement.
The
remaining shares
of common stock will be restricted securities, as that term is
defined in Rule 144 under the Securities Act. These
restricted securities are eligible for public sale only if they
are registered under the Securities Act or if they qualify for
an exemption from registration under Rules 144 or 701 under
the Securities Act, which are summarized below.
Subject to the
lock-up
agreements described below and the provisions of Rules 144
and 701 under the Securities Act, these restricted securities
will be available for sale in the public market as follows:
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Date Available for
Sale
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Shares Eligible for
Sale
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Comment
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Date of prospectus
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Shares sold in the offering and shares saleable under Rule 144
that are not subject to a lock-up
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90 days after date of prospectus
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Shares saleable under Rules 144 and 701 that are not subject to
a lock-up
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180 days after date of prospectus
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Lock-up released; shares saleable under Rules 144 and 701
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In addition, of
the shares
of our common stock that were subject to stock options
outstanding as of June 30,
2010, shares
would be vested if purchased upon exercise of these options and
would be eligible for sale subject to the
lock-up
agreements and securities laws described below. Of
the shares
of our common stock that were issuable upon the exercise of
warrants outstanding as of June 30, 2010, assuming a
cashless
exercise,
will be eligible for sale subject to the
lock-up
agreements and securities laws described below.
Rule 144
The availability of Rule 144 will vary depending on whether
restricted shares are held by an affiliate or a non-affiliate.
Under Rule 144 as in effect on the date of this prospectus,
once we have been a reporting company subject to the reporting
requirements of Section 13 or Section 15(d) of the
Exchange Act for 90 days, an affiliate who has beneficially
owned restricted shares of our common stock for at least six
months would be entitled to sell within any three-month period a
number of shares that does not exceed the greater of either of
the following:
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1% of the number of shares of common stock then outstanding,
which will
equal shares
immediately after this offering; and
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the average weekly trading volume of our common stock during the
four calendar weeks preceding the filing of a notice on
Form 144 with respect to the sale.
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However, the six-month holding period increases to one year in
the event we have not been a reporting company for at least
90 days. In addition, any sales by affiliates under
Rule 144 are also limited by manner of sale provisions and
notice requirements and the availability of current public
information about us.
The volume limitation, manner of sale and notice provisions
described above will not apply to sales by non-affiliates. For
purposes of Rule 144, a non-affiliate is any person or
entity who is not our affiliate at the time of sale and has not
been our affiliate during the preceding three months. Once we
have been a reporting company for 90 days, a non-affiliate
who has beneficially owned restricted shares of our common stock
for six months may rely on Rule 144 provided that certain
public information regarding us is available. The six-month
holding period increases to one year in the event we have not
been a reporting company for at least 90 days. However, a
non-affiliate who has beneficially owned the restricted shares
proposed to be sold for at least one year will not be subject to
any restrictions under Rule 144 regardless of how long we
have been a reporting company.
Lock-up
Agreements
Our officers and directors and the holders of substantially all
of our outstanding shares of common stock have agreed with the
underwriters, subject to specified exceptions, not to offer,
sell, contract to sell, pledge, grant any option to purchase,
make any short sale, enter into any swap or other arrangement
that transfers, in whole or in part, any of the economic
consequences of ownership of the common stock or any other
securities or otherwise dispose of any shares of common stock,
options or warrants to purchase shares of common stock or
securities convertible into, exchangeable for or that represent
the right to receive shares of common stock, whether now owned
or hereafter acquired whether any such transaction described
above is settled by delivery of shares of common stock or such
other securities, in cash or otherwise, make any demand for, or
exercise any right with respect to, the registration of any
shares of common stock or any securities convertible into or
exercisable or exchangeable for shares of common stock during
the period from the date of this prospectus continuing through
the date 180 days after the date of this prospectus, except
with the prior written consent of Goldman, Sachs & Co.
and J.P. Morgan Securities Inc., on behalf of the
underwriters.
The 180-day
restricted period will be automatically extended under the
following circumstances:
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if, during the last 17 days of the
180-day
restricted period, we issue an earnings release or announce
material news or a material event, the restrictions described in
the preceding paragraph will continue to apply until the
expiration of the
18-day
period beginning on the issuance of the earnings release or the
announcement of the material news or material event; or
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if, prior to the expiration of the
180-day
restricted period, we announce that we will release earnings
results during the
15-day
period beginning on the last day of the
180-day
period, the restrictions described in the preceding paragraph
will continue to apply until the expiration of the
18-day
period beginning on the issuance of the earnings release.
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Goldman, Sachs & Co. and J.P. Morgan Securities
Inc. currently do not anticipate shortening or waiving any of
the lock-up
agreements and do not have any pre-established conditions for
such modifications or waivers. Goldman, Sachs & Co.
and J.P. Morgan Securities Inc. may, however, with the
approval of our board of directors, release for sale in the
public market all or any portion of the shares subject to the
lock-up
agreement.
141
Rule 701
Under Rule 701, common stock acquired upon the exercise of
currently outstanding options or pursuant to other rights
granted under our stock plans prior to this offering may be
resold, to the extent not subject to
lock-up
agreements, (1) by persons other than affiliates, beginning
90 days after the effective date of this offering, subject
only to the
manner-of-sale
provisions of Rule 144, and (2) by affiliates, subject
to the
manner-of-sale,
current public information and filing requirements of
Rule 144, in each case, without compliance with the
one-year holding period requirement of Rule 144. All
Rule 701 shares are, however, subject to
lock-up
agreements and will only become eligible for sale upon the
expiration of the contractual
lock-up
agreements. Goldman, Sachs & Co. and J.P. Morgan
Securities Inc. may release all or any portion of the securities
subject to
lock-up
agreements.
Registration
Rights
Our stockholder agreement grants registration rights to some of
our stockholders. Under specified circumstances some of these
stockholders can require us to file registrations statements
that permit them to resell their shares. For more information,
see Description of Capital Stock Registration
Rights.
Options and
Equity Awards
We intend to file a registration statement on
Form S-8
under the Securities Act to
register shares
of common stock reserved for issuance under our 2003 Stock
Option Plan and our 2010 Equity Incentive Plan. As of
June 30, 2010, there were options outstanding under our
equity incentive plans to purchase a total of
5,116,736 shares of our common stock, of which options to
purchase 2,738,139 shares were exercisable immediately. As
of ,
holders of vested options to
purchase shares of common
stock were subject to the
180-day
underwriter
lock-up
period and holders of options to
purchase shares of common
stock were not subject to any
lock-up
agreements. Shares issued upon the exercise of stock options
after the effective date of the registration statement will be
eligible for resale in the public market without restriction,
subject to Rule 144 limitations applicable to affiliates.
142
MATERIAL U.S.
FEDERAL INCOME TAX CONSEQUENCES TO
NON-U.S.
HOLDERS
The following is a general discussion of material
U.S. federal income tax consequences of the purchase,
ownership and disposition of our common stock. This discussion
applies only to a
non-U.S. holder
(as defined below) of our common stock. This discussion is based
upon the provisions of the Internal Revenue Code of 1986, as
amended, or the Code, the Treasury regulations promulgated
thereunder and administrative and judicial interpretations
thereof, all as of the date hereof, all of which are subject to
change, possibly with retroactive effect. This discussion is
limited to investors that hold our common stock as capital
assets for U.S. federal income tax purposes. Furthermore,
this discussion does not address all aspects of
U.S. federal income taxation that may be applicable to
investors in light of their particular circumstances, or to
investors subject to special treatment under U.S. federal
income tax law, such as financial institutions, insurance
companies, tax-exempt organizations, entities that are treated
as partnerships for U.S. federal tax purposes, dealers in
securities or currencies, expatriates, persons deemed to sell
our common stock under the constructive sale provisions of the
Code and persons that hold our common stock as part of a
straddle, hedge, conversion transaction or other integrated
investment. In addition, this discussion does not address any
U.S. federal gift or estate tax consequences or any state,
local or foreign tax consequences. Prospective investors should
consult their tax advisors regarding the U.S. federal,
state, local alternative minimum and foreign income, estate and
other tax consequences of the purchase, ownership and
disposition of our common stock.
For purposes of this summary, the term
non-U.S. holder
means a beneficial owner of our common stock that is not, for
U.S. federal income tax purposes:
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a citizen or resident of the U.S.;
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a corporation or other entity subject to tax as a corporation
for such purposes that is created or organized under the laws of
the U.S. or any political subdivision thereof (including
the District of Columbia);
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a partnership (including any entity or arrangement treated as a
partnership for such purposes);
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an estate the income of which is subject to U.S. federal
income taxation regardless of its source; or
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a trust (1) if a court within the U.S. is able to
exercise primary supervision over its administration and one or
more U.S. persons have the authority to control all of its
substantial decisions or (2) that has made a valid election
to be treated as a U.S. person for such purposes.
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If a partnership (including any entity or arrangement treated as
a partnership for such purposes) owns our common stock, the tax
treatment of a partner in the partnership will depend upon the
status of the partner and the activities of the partnership.
Partners in a partnership that owns our common stock should
consult their tax advisors as to the particular
U.S. federal income tax consequences applicable to them.
Dividends
Distributions, if any, made to a
non-U.S.
holder out of our current or accumulated earnings and profits
generally will constitute dividends for U.S. tax purposes.
Distributions in excess of earnings and profits will be treated
as a non-taxable return of capital to the extent of the
non-U.S.
holders adjusted tax basis in the common stock and
thereafter as gain subject to the treatment described below
under Gain on Disposition of Common
Stock.
Dividends paid to a
non-U.S. holder
generally will be subject to withholding of U.S. federal
income tax at a 30% rate or such lower rate as may be specified
by an applicable income tax treaty.
Non-U.S. holders
should consult their tax advisors regarding their entitlement to
benefits under an applicable income tax treaty and the manner of
claiming the benefits of such treaty. A
non-U.S. holder
that is eligible for a reduced rate of withholding tax under an
income tax treaty may obtain a refund or
143
credit of any excess amounts withheld by filing an appropriate
claim for refund with the Internal Revenue Service.
Dividends that are effectively connected with a
non-U.S. holders
conduct of a trade or business in the U.S. and, if certain
income tax treaties apply, that are attributable to a
non-U.S. holders
permanent establishment in the U.S. are not subject to the
withholding tax described above but instead are subject to
U.S. federal income tax on a net income basis at applicable
graduated U.S. federal income tax rates. A
non-U.S. holder
must satisfy certain certification requirements for its
effectively connected dividends to be exempt from the
withholding tax described above. Dividends received by a foreign
corporation that are effectively connected with its conduct of a
trade or business in the U.S. may be subject to an
additional branch profits tax at a 30% rate or such lower rate
as may be specified by an applicable income tax treaty.
Gain on
Disposition of Common Stock
A
non-U.S. holder
generally will not be taxed on gain recognized on a disposition
of our common stock unless:
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the
non-U.S. holder
is an individual who holds our common stock as a capital asset,
is present in the U.S. for 183 days or more during the
taxable year of the disposition and meets certain other
conditions;
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the gain is effectively connected with the
non-U.S. holders
conduct of a trade or business in the U.S. and, if certain
income tax treaties apply, is attributable to a
non-U.S. Holders
permanent establishment in the U.S.; or
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we are or have been a United States real property holding
corporation for U.S. federal income tax purposes at
any time within the shorter of the five-year period ending on
the date of disposition or the period that the
non-U.S. holder
held our common stock.
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We do not believe that we have been, currently are, or will
become, a United States real property holding corporation. If we
were or were to become a United States real property holding
corporation at any time during the applicable period, however,
any gain recognized on a disposition of our common stock by a
non-U.S. holder
that did not own (directly, indirectly or constructively) more
than 5% of our common stock during the applicable period would
not be subject to U.S. federal income tax, provided that
our common stock is regularly traded on an established
securities market (within the meaning of
Section 897(c)(3) of the Code).
Individual
non-U.S. holders
described in the first bullet point above will be taxed on their
gains (including gains from the sale of our common stock and net
of applicable U.S. losses from sales or exchanges of other
capital assets recognized during the year) at a flat rate of 30%
or such lower rate as may be specified by an applicable income
tax treaty.
Non-U.S. holders
described in the second bullet point above will generally be
subject to U.S. federal income tax with respect to gain
recognized on the disposition of our common stock on a net
income basis at applicable graduated U.S. federal income
tax rates and, in the case of foreign corporations, the branch
profits tax discussed above also may apply.
Information
Reporting and Backup Withholding
In general, backup withholding will apply to dividends on our
common stock paid to a
non-U.S. holder,
unless the holder has provided the required certification that
it is a
non-U.S. holder
and the payor does not have actual knowledge (or reason to know)
that the holder is a U.S. person. Generally, information
will be reported to the Internal Revenue Service regarding the
amount of dividends paid, the name and address of the recipient,
and the amount, if any, of tax withheld. These information
reporting requirements apply even if no tax was required to be
withheld. A similar report is sent to the recipient of the
dividend and may also be made available to the tax authorities
in the country in which the
non-U.S. holder
resides under the provisions of an applicable income tax treaty.
144
In general, backup withholding and information reporting will
apply to the payment of proceeds from the disposition of our
common stock by a
non-U.S. holder
through a U.S. office of a broker or through the
non-U.S. office
of a broker that is a U.S. person or has certain enumerated
connections with the U.S., unless the holder has provided the
required certification that it is a
non-U.S. holder
and the payor does not have actual knowledge (or reason to know)
that the holder is a U.S. person.
Backup withholding is not an additional tax. Any amounts that
are withheld under the backup withholding rules from a payment
to a
non-U.S. holder
will be refunded or credited against the holders
U.S. federal income tax liability, if any, provided that
certain required information is timely furnished to the Internal
Revenue Service.
Prospective investors should consult their tax advisors
regarding the application of the information reporting and
backup withholding rules to them.
New Legislation
Relating to Foreign Accounts
Newly enacted legislation may impose withholding taxes on
certain types of payments made to foreign financial
institutions and certain other
non-U.S. entities.
Under this legislation, the failure to comply with additional
certification, information reporting and other specified
requirements could result in withholding tax being imposed on
payments of dividends and sales proceeds to foreign
intermediaries and certain
non-U.S. holders.
The legislation imposes a 30% withholding tax on dividends on,
or gross proceeds from the sale or other disposition of, our
common stock paid to a foreign financial institution or to a
foreign non-financial entity, unless (i) the foreign
financial institution undertakes certain diligence and reporting
obligations or (ii) the foreign non-financial entity either
certifies it does not have any substantial United States owners
or furnishes identifying information regarding each substantial
United States owner. If the payee is a foreign financial
institution, it must enter into an agreement with the United
States Treasury requiring, among other things, that it undertake
to identify accounts held by certain United States persons or
United States-owned foreign entities, annually report certain
information about such accounts, and withhold 30% on payments to
account holders whose actions prevent it from complying with
these reporting and other requirements. Prospective investors
should consult their own tax advisers regarding this legislation.
145
UNDERWRITING
Everyday Health, the selling stockholders and the underwriters
named below have entered into an underwriting agreement with
respect to the shares being offered. Subject to certain
conditions, each underwriter has severally agreed to purchase
the number of shares indicated in the following table. Goldman,
Sachs & Co. and J.P. Morgan Securities Inc. are
the joint book-running managers and representatives of the
underwriters.
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Underwriters
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Number of Shares
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Goldman, Sachs & Co.
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J.P. Morgan Securities Inc.
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Jefferies & Company, Inc.
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Needham & Company, LLC
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Total
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The underwriters are committed to take and pay for all of the
shares being offered, if any are taken, other than the shares
covered by the option described below unless and until this
option is exercised.
If the underwriters sell more shares than the total number set
forth in the table above, the underwriters have an option to buy
up to an
additional shares
from Everyday Health. They may exercise that option for
30 days. If any shares are purchased pursuant to this
option, the underwriters will severally purchase shares in
approximately the same proportion as set forth in the table
above.
The following tables show the per share and total underwriting
discounts and commissions to be paid to the underwriters by
Everyday Health and the selling stockholders. Such amounts are
shown assuming both no exercise and full exercise of the
underwriters option to
purchase additional
shares.
Paid by Everyday
Health
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No Exercise
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Full Exercise
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Per Share
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$
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$
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Total
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$
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$
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Paid by the
Selling Stockholders
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No Exercise
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Full Exercise
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Per Share
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$
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$
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Total
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$
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$
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Shares sold by the underwriters to the public will initially be
offered at the initial public offering price set forth on the
cover of this prospectus. Any shares sold by the underwriters to
securities dealers may be sold at a discount of up to
$ per share from the initial
public offering price. If all the shares are not sold at the
initial public offering price, the representatives may change
the offering price and the other selling terms. The offering of
the shares by the underwriters is subject to receipt and
acceptance and subject to the underwriters right to reject
any order in whole or in part.
Everyday Health, its officers and directors, and holders of
substantially all of its common stock, including the selling
stockholders, have agreed with the underwriters, subject to
certain exceptions, not to dispose of, pledge, enter into any
swap arrangement or hedge any of their common stock or
securities convertible into or exchangeable for shares of common
stock, during the period from the date of this prospectus
continuing through the date 180 days after the date of this
prospectus, except with the prior written consent of Goldman,
Sachs & Co. and J.P. Morgan Securities Inc., as
146
representatives on behalf of the underwriters. This agreement
does not apply to any existing employee benefit plans. See
Shares Eligible for Future Sale for a
discussion of certain transfer restrictions.
The 180-day
restricted period described in the preceding paragraph will be
automatically extended if: (1) during the last 17 days
of the
180-day
restricted period Everyday Health issues an earnings release or
announces material news or a material event; or (2) prior
to the expiration of the
180-day
restricted period, Everyday Health announces that it will
release earnings results during the
15-day
period following the last day of the
180-day
period, in which case the restrictions described in the
preceding paragraph will continue to apply until the expiration
of the
18-day
period beginning on the issuance of the earnings release or the
announcement of the material news or material event.
Prior to the offering, there has been no public market for the
shares. The initial public offering price will be negotiated
among Everyday Health and the representatives. Among the factors
to be considered in determining the initial public offering
price of the shares, in addition to prevailing market
conditions, will be Everyday Healths historical
performance, estimates of the business potential and earnings
prospects of Everyday Health, an assessment of Everyday
Healths management and the consideration of the above
factors in relation to market valuation of companies in related
businesses.
We have applied to have our common stock listed on The Nasdaq
Global Market under the symbol EVDY.
In connection with the offering, the underwriters may purchase
and sell shares of common stock in the open market. These
transactions may include short sales, stabilizing transactions
and purchases to cover positions created by short sales. Short
sales involve the sale by the underwriters of a greater number
of shares than they are required to purchase in the offering.
Covered short sales are sales made in an amount not
greater than the underwriters option to purchase
additional shares from Everyday Health in the offering. The
underwriters may close out any covered short position by either
exercising their option to purchase additional shares or
purchasing shares in the open market. In determining the source
of shares to close out the covered short position, the
underwriters will consider, among other things, the price of
shares available for purchase in the open market as compared to
the price at which they may purchase additional shares pursuant
to the option granted to them. Naked short sales are
any sales in excess of such option. The underwriters must close
out any naked short position by purchasing shares in the open
market. A naked short position is more likely to be created if
the underwriters are concerned that there may be downward
pressure on the price of the common stock in the open market
after pricing that could adversely affect investors who purchase
in the offering. Stabilizing transactions consist of various
bids for or purchases of common stock made by the underwriters
in the open market prior to the completion of the offering.
The underwriters may also impose a penalty bid. This occurs when
a particular underwriter repays to the underwriters a portion of
the underwriting discount received by it because the
representatives have repurchased shares sold by or for the
account of such underwriter in stabilizing or short covering
transactions.
Purchases to cover a short position and stabilizing
transactions, as well as other purchases by the underwriters for
their own accounts, may have the effect of preventing or
retarding a decline in the market price of Everyday
Healths stock, and together with the imposition of the
penalty bid, may stabilize, maintain or otherwise affect the
market price of the common stock. As a result, the price of the
common stock may be higher than the price that otherwise might
exist in the open market. If these activities are commenced,
they may be discontinued at any time. These transactions may be
effected on The Nasdaq Global Market, in the
over-the-counter
market or otherwise.
In relation to each Member State of the European Economic Area
which has implemented the Prospectus Directive, each of which is
referred to as a Relevant Member State, each underwriter has
represented and agreed that with effect from and including the
date on which the Prospectus Directive is implemented in that
Relevant Member State, referred to as the Relevant
Implementation Date, it has not made and will not make an offer
of shares to the public in that Relevant Member State prior
147
to the publication of a prospectus in relation to the shares
which has been approved by the competent authority in that
Relevant Member State or, where appropriate, approved in another
Relevant Member State and notified to the competent authority in
that Relevant Member State, all in accordance with the
Prospectus Directive, except that it may, with effect from and
including the Relevant Implementation Date, make an offer of
shares to the public in that Relevant Member State at any time:
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to legal entities which are authorised or regulated to operate
in the financial markets or, if not so authorized or regulated,
whose corporate purpose is solely to invest in securities;
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to any legal entity which has two or more of (1) an average
of at least 250 employees during the last financial year;
(2) a total balance sheet of more than 43,000,000;
and (3) an annual net turnover of more than
50,000,000, as shown in its last annual or consolidated
accounts;
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to fewer than 100 natural or legal persons (other than qualified
investors as defined in the Prospectus Directive) subject to
obtaining the prior consent of the representatives for any such
offer; or
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in any other circumstances which do not require the publication
by the Issuer of a prospectus pursuant to Article 3 of the
Prospectus Directive.
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For the purposes of this provision, the expression an
offer of shares to the public in relation to any
shares in any Relevant Member State means the communication in
any form and by any means of sufficient information on the terms
of the offer and the shares to be offered so as to enable an
investor to decide to purchase or subscribe the shares, as the
same may be varied in that Relevant Member State by any measure
implementing the Prospectus Directive in that Relevant Member
State and the expression Prospectus Directive means Directive
2003/71/EC and includes any relevant implementing measure in
each Relevant Member State.
Each underwriter has represented and agreed that:
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it has only communicated or caused to be communicated and will
only communicate or cause to be communicated an invitation or
inducement to engage in investment activity (within the meaning
of Section 21 of the FSMA) received by it in connection
with the issue or sale of the shares in circumstances in which
Section 21(1) of the FSMA does not apply to the
Issuer; and
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it has complied and will comply with all applicable provisions
of the FSMA with respect to anything done by it in relation to
the shares in, from or otherwise involving the United Kingdom.
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The shares may not be offered or sold by means of any document
other than (1) in circumstances which do not constitute an
offer to the public within the meaning of the Companies
Ordinance (Cap.32, Laws of Hong Kong), or (2) to
professional investors within the meaning of the
Securities and Futures Ordinance (Cap.571, Laws of Hong Kong)
and any rules made thereunder, or (3) in other
circumstances which do not result in the document being a
prospectus within the meaning of the Companies
Ordinance (Cap.32, Laws of Hong Kong), and no advertisement,
invitation or document relating to the shares may be issued or
may be in the possession of any person for the purpose of issue
(in each case whether in Hong Kong or elsewhere), which is
directed at, or the contents of which are likely to be accessed
or read by, the public in Hong Kong (except if permitted to do
so under the laws of Hong Kong) other than with respect to
shares which are or are intended to be disposed of only to
persons outside Hong Kong or only to professional
investors within the meaning of the Securities and Futures
Ordinance (Cap. 571, Laws of Hong Kong) and any rules made
thereunder.
This prospectus has not been registered as a prospectus with the
Monetary Authority of Singapore. Accordingly, this prospectus
and any other document or material in connection with the offer
or sale, or invitation for subscription or purchase, of the
shares may not be circulated or distributed, nor may the shares
be offered or sold, or be made the subject of an invitation for
subscription or purchase, whether directly or indirectly, to
persons in Singapore other than (1) to an institutional
investor under
148
Section 274 of the Securities and Futures Act,
Chapter 289 of Singapore, (2) to a relevant person, or
any person pursuant to Section 275(1A), and in accordance
with the conditions, specified in Section 275 of the
Securities and Futures Act or (3) otherwise pursuant to,
and in accordance with the conditions of, any other applicable
provision of the Securities and Futures Act.
Where the shares are subscribed or purchased under
Section 275 by a relevant person which is: (a) a
corporation (which is not an accredited investor) the sole
business of which is to hold investments and the entire share
capital of which is owned by one or more individuals, each of
whom is an accredited investor; or (b) a trust (where the
trustee is not an accredited investor) whose sole purpose is to
hold investments and each beneficiary is an accredited investor,
shares, debentures and units of shares and debentures of that
corporation or the beneficiaries rights and interest in
that trust shall not be transferable for six months after that
corporation or that trust has acquired the shares under
Section 275 except: (1) to an institutional investor
under Section 274 of the Securities and Futures Act or to a
relevant person, or any person pursuant to Section 275(1A),
and in accordance with the conditions, specified in
Section 275 of the Securities and Futures Act;
(2) where no consideration is given for the transfer; or
(3) by operation of law.
The securities have not been and will not be registered under
the Securities and Exchange Law of Japan (the Securities and
Exchange Law) and each underwriter has agreed that it will not
offer or sell any securities, directly or indirectly, in Japan
or to, or for the benefit of, any resident of Japan (which term
as used herein means any person resident in Japan, including any
corporation or other entity organized under the laws of Japan),
or to others for re-offering or resale, directly or indirectly,
in Japan or to a resident of Japan, except pursuant to an
exemption from the registration requirements of, and otherwise
in compliance with, the Securities and Exchange Law and any
other applicable laws, regulations and ministerial guidelines of
Japan.
The underwriters do not expect sales to discretionary accounts
to exceed five percent of the total number of shares offered.
Everyday Health and the selling stockholders estimate that their
share of the total expenses of the offering, excluding
underwriting discounts and commissions, will be approximately
$ .
We and the selling stockholders have agreed to indemnify the
several underwriters against certain liabilities under the
Securities Act, including liabilities arising out of or based
upon certain material misstatements or omissions. We and the
selling stockholders, as applicable, have also agreed to
contribute to payments the underwriters may be required to make
in respect of such liabilities.
The underwriters and their respective affiliates are full
service financial institutions engaged in various activities,
which may include securities trading, commercial and investment
banking, financial advisory, investment management, investment
research, principal investing, hedging, financing and brokerage
activities. Certain of the underwriters and their respective
affiliates may in the future perform various financial advisory
and investment banking services for the company, for which they
received or will receive customary fees and expenses.
In the ordinary course of their various business activities, the
underwriters and their respective affiliates may make or hold a
broad array of investments and actively trade debt and equity
securities (or related derivative securities) and financial
instruments (including bank loans) for their own account and for
the accounts of their customers and such investment and
securities activities may involve securities and/or instruments
of the issuer. The underwriters and their respective affiliates
may also make investment recommendations and/or publish or
express independent research views in respect of such securities
or instruments and may at any time hold, or recommend to clients
that they acquire, long and/or short positions in such
securities and instruments.
149
LEGAL
MATTERS
The validity of the common stock being offered in this offering
will be passed upon for us by Cooley LLP, New York, New York.
The underwriters in this offering are represented by
Latham & Watkins LLP, New York, New York in connection
with this offering.
EXPERTS
Our consolidated financial statements as of December 31,
2007, 2008 and 2009, and for each of the three years in the
period ended December 31, 2009, appearing in this
prospectus and Amendment No. 5 to the registration
statement have been audited by Ernst & Young LLP, an
independent registered public accounting firm, as set forth in
their report appearing herein, and have been so included in
reliance upon the report of such firm given on their authority
as experts in accounting and auditing.
The consolidated financial statements of Revolution Health Group
LLC as of December 31, 2006 and 2007, and for the years
ended December 31, 2006 and 2007, appearing in this
prospectus and Amendment No. 5 to the registration
statement have been audited by Ernst & Young LLP,
independent auditors, as set forth in their report appearing
herein which, as to the year 2006, are based in part on the
reports of UHY LLP and Stout, Causey and Horning P.A.,
independent auditors. The financial statements referred to above
are included in reliance upon the reports of such firms given on
their authority as experts in accounting and auditing.
WHERE YOU CAN
FIND ADDITIONAL INFORMATION
We have filed with the SEC a registration statement on
Form S-1
(File Number
333-164474)
under the Securities Act with respect to the shares of common
stock we are offering by this prospectus. This prospectus, which
constitutes part of the registration statement, does not contain
all of the information included in the registration statement
and its exhibits and schedules. For further information
pertaining to us and our common stock, you should refer to the
registration statement and to its exhibits and schedules.
Whenever we make reference in this prospectus to any of our
contracts, agreements or other documents, the references are not
necessarily complete, and you should refer to the exhibits
attached to the registration statement for copies of the actual
contract, agreement or other document.
Upon the closing of the offering, we will be subject to the
informational requirements of the Exchange Act and we intend to
file annual, quarterly and current reports, proxy statements and
other information with the SEC. You can read our SEC filings,
including the registration statement, through the Internet at
the SECs website at www.sec.gov. You may also read
and copy any document we file with the SEC at its public
reference facility at 100 F Street, N.E.,
Washington, D.C. 20549.
You may also obtain copies of the documents at prescribed rates
by writing to the Public Reference Section of the SEC at
100 F Street, N.E., Washington, D.C. 20549.
Please call the SEC at
1-800-SEC-0330
for further information on the operation of the public reference
facility.
150
EVERYDAY HEALTH,
INC.
|
|
|
|
|
Everyday Health, Inc. Unaudited Consolidated Financial
Statements:
|
|
|
|
|
|
|
|
F-2
|
|
|
|
|
F-3
|
|
|
|
|
F-4
|
|
|
|
|
F-5
|
|
|
|
|
F-6
|
|
|
|
|
|
|
Everyday Health, Inc. Audited Consolidated Financial
Statements:
|
|
|
|
|
|
|
|
F-13
|
|
|
|
|
F-14
|
|
|
|
|
F-15
|
|
|
|
|
F-16
|
|
|
|
|
F-17
|
|
|
|
|
F-18
|
|
|
|
|
|
|
Everyday Health, Inc. Unaudited Pro Forma Financial
Statements:
|
|
|
|
|
|
|
|
F-39
|
|
|
|
|
F-41
|
|
|
|
|
|
|
Revolution Health Group LLC Consolidated Financial
Statements:
|
|
|
|
|
|
|
|
F-42
|
|
|
|
|
F-43
|
|
|
|
|
F-44
|
|
|
|
|
F-45
|
|
|
|
|
F-46
|
|
|
|
|
F-47
|
|
F-1
EVERYDAY HEALTH,
INC.
Consolidated
Balance Sheets
(in thousands, except share and per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro Forma
|
|
|
|
|
|
|
|
|
|
Stockholders
|
|
|
|
|
|
|
|
|
|
Equity
|
|
|
|
December 31,
|
|
|
June 30,
|
|
|
at June 30,
|
|
|
|
2009
|
|
|
2010
|
|
|
2010
|
|
|
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
16,360
|
|
|
$
|
12,841
|
|
|
|
|
|
Restricted cash
|
|
|
2,100
|
|
|
|
1,600
|
|
|
|
|
|
Accounts receivable, net of allowance for doubtful accounts of
$1,303 and $1,147 as of December 31, 2009 and June 30,
2010, respectively
|
|
|
22,194
|
|
|
|
18,884
|
|
|
|
|
|
Inventory
|
|
|
393
|
|
|
|
313
|
|
|
|
|
|
Prepaid expenses and other current assets
|
|
|
2,817
|
|
|
|
5,728
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
43,864
|
|
|
|
39,366
|
|
|
|
|
|
Property and equipment, net
|
|
|
13,201
|
|
|
|
18,178
|
|
|
|
|
|
Goodwill
|
|
|
54,870
|
|
|
|
54,870
|
|
|
|
|
|
Intangible assets, net
|
|
|
15,354
|
|
|
|
14,135
|
|
|
|
|
|
Other assets
|
|
|
2,100
|
|
|
|
2,058
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
129,389
|
|
|
$
|
128,607
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities, redeemable convertible preferred stock and
stockholders deficit (equity)
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
7,841
|
|
|
$
|
9,737
|
|
|
|
|
|
Accrued expenses
|
|
|
12,485
|
|
|
|
12,381
|
|
|
|
|
|
Deferred revenue
|
|
|
6,930
|
|
|
|
9,287
|
|
|
|
|
|
Current portion of long-term debt
|
|
|
142
|
|
|
|
1,026
|
|
|
|
|
|
Other current liabilities
|
|
|
134
|
|
|
|
43
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
27,532
|
|
|
|
32,474
|
|
|
|
|
|
Long-term debt
|
|
|
16,858
|
|
|
|
15,974
|
|
|
|
|
|
Deferred taxes
|
|
|
1,813
|
|
|
|
2,306
|
|
|
|
|
|
Other long-term liabilities
|
|
|
|
|
|
|
1,690
|
|
|
|
|
|
Redeemable Convertible Preferred Stock
(Series A-F),
net of expenses, $0.01 par value: 23,870,811 shares
authorized at December 31, 2009 and June 30, 2010,
23,647,834 shares issued and outstanding at
December 31, 2009 and June 30, 2010 (aggregate
liquidation value of $77,509 at December 31, 2009 and
June 30, 2010); no shares issued and outstanding pro forma
|
|
|
130,420
|
|
|
|
130,420
|
|
|
$
|
|
|
Stockholders (deficit) equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock, $0.01 par value: 37,000,000 shares
authorized; 6,618,444 and 6,631,294 shares issued and
outstanding at December 31, 2009 and June 30, 2010,
respectively; 30,279,128 shares issued and outstanding pro
forma
|
|
|
66
|
|
|
|
66
|
|
|
|
302
|
|
Additional paid-in capital
|
|
|
10,937
|
|
|
|
12,458
|
|
|
|
142,642
|
|
Accumulated deficit
|
|
|
(58,237
|
)
|
|
|
(66,781
|
)
|
|
|
(66,781
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders (deficit) equity
|
|
|
(47,234
|
)
|
|
|
(54,257
|
)
|
|
$
|
76,163
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities, redeemable convertible preferred stock and
stockholders (deficit) equity
|
|
$
|
129,389
|
|
|
$
|
128,607
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
F-2
EVERYDAY HEALTH,
INC.
Consolidated
Statements of Operations
(in thousands, except share and per share data,
unaudited)
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
|
2009
|
|
|
2010
|
|
|
Revenues
|
|
$
|
39,000
|
|
|
$
|
50,567
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
Cost of revenue
|
|
|
21,492
|
|
|
|
23,652
|
|
Sales and marketing
|
|
|
10,508
|
|
|
|
10,694
|
|
Product development
|
|
|
11,291
|
|
|
|
9,511
|
|
General and administrative
|
|
|
8,121
|
|
|
|
8,736
|
|
Depreciation and amortization
|
|
|
4,891
|
|
|
|
4,983
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
56,303
|
|
|
|
57,576
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(17,303
|
)
|
|
|
(7,009
|
)
|
Interest expense, net
|
|
|
(374
|
)
|
|
|
(981
|
)
|
|
|
|
|
|
|
|
|
|
Loss before provision for income taxes
|
|
|
(17,677
|
)
|
|
|
(7,990
|
)
|
Provision for income taxes
|
|
|
(556
|
)
|
|
|
(554
|
)
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(18,233
|
)
|
|
$
|
(8,544
|
)
|
|
|
|
|
|
|
|
|
|
Net loss per common share basic and diluted
|
|
$
|
(2.78
|
)
|
|
$
|
(1.29
|
)
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding basic and
diluted
|
|
|
6,564,654
|
|
|
|
6,625,548
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
F-3
EVERYDAY HEALTH,
INC.
Consolidated
Statements of Redeemable Convertible Preferred Stock
and Stockholders Deficit
(in thousands, except share data, unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Redeemable Convertible
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
Total
|
|
|
|
Preferred Stock
|
|
|
|
Common Stock
|
|
|
Paid-in
|
|
|
Accumulated
|
|
|
Stockholders
|
|
|
|
Shares
|
|
|
Amount
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Deficit
|
|
|
Deficit
|
|
Balance at December 31, 2009
|
|
|
23,647,834
|
|
|
$
|
130,420
|
|
|
|
|
6,618,444
|
|
|
$
|
66
|
|
|
$
|
10,937
|
|
|
$
|
(58,237
|
)
|
|
$
|
(47,234
|
)
|
Exercise of stock options
|
|
|
|
|
|
|
|
|
|
|
|
12,850
|
|
|
|
|
|
|
|
41
|
|
|
|
|
|
|
|
41
|
|
Stock-based compensation expense related to employee stock
options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,480
|
|
|
|
|
|
|
|
1,480
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8,544
|
)
|
|
|
(8,544
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at June 30, 2010
|
|
|
23,647,834
|
|
|
$
|
130,420
|
|
|
|
|
6,631,294
|
|
|
$
|
66
|
|
|
$
|
12,458
|
|
|
$
|
(66,781
|
)
|
|
$
|
(54,257
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
F-4
EVERYDAY HEALTH,
INC.
Consolidated
Statements of Cash Flows
(in thousands, unaudited)
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
|
2009
|
|
|
2010
|
|
|
Cash flows from operating activities
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(18,233
|
)
|
|
$
|
(8,544
|
)
|
Adjustments to reconcile net loss to net cash used in operating
activities:
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
4,891
|
|
|
|
4,983
|
|
Provision for doubtful accounts
|
|
|
360
|
|
|
|
|
|
Stock-based compensation
|
|
|
1,579
|
|
|
|
1,480
|
|
Amortization and write-off of deferred financing costs
|
|
|
53
|
|
|
|
141
|
|
Provision for deferred income taxes
|
|
|
556
|
|
|
|
493
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
4,415
|
|
|
|
3,310
|
|
Prepaid expenses and other current assets
|
|
|
(529
|
)
|
|
|
(2,911
|
)
|
Inventory
|
|
|
(98
|
)
|
|
|
80
|
|
Other assets
|
|
|
(45
|
)
|
|
|
(2
|
)
|
Accounts payable and accrued expenses
|
|
|
(5,227
|
)
|
|
|
1,792
|
|
Deferred revenue
|
|
|
1,830
|
|
|
|
2,357
|
|
Other current liabilities
|
|
|
196
|
|
|
|
(91
|
)
|
Other long-term liabilities
|
|
|
|
|
|
|
1,690
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by operating activities
|
|
|
(10,252
|
)
|
|
|
4,778
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities
|
|
|
|
|
|
|
|
|
Additions to property and equipment, net
|
|
|
(2,973
|
)
|
|
|
(8,741
|
)
|
Additional payments in connection with acquisition
|
|
|
(203
|
)
|
|
|
|
|
Net decrease in restricted cash
|
|
|
46
|
|
|
|
500
|
|
Payment of security deposits and other assets
|
|
|
(239
|
)
|
|
|
(97
|
)
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(3,369
|
)
|
|
|
(8,338
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities
|
|
|
|
|
|
|
|
|
Borrowings under credit facility
|
|
|
2,000
|
|
|
|
|
|
Proceeds from the exercise of stock options
|
|
|
|
|
|
|
41
|
|
Repayment of principal under credit facility
|
|
|
(746
|
)
|
|
|
|
|
Payments of credit facility financing costs
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
1,253
|
|
|
|
41
|
|
|
|
|
|
|
|
|
|
|
Net decrease in cash and cash equivalents
|
|
|
(12,368
|
)
|
|
|
(3,519
|
)
|
Cash and cash equivalents, beginning of period
|
|
|
25,050
|
|
|
|
16,360
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period
|
|
$
|
12,682
|
|
|
$
|
12,841
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
F-5
|
|
1.
|
Description of
Business and Basis of Presentation
|
Everyday Health, Inc. (the Company) operates a
portfolio of over 25 websites that provides consumers,
advertisers and partners with content and advertising-based
services that span the health spectrum. The Company was
incorporated in the State of Delaware in January 2002 as Agora
Media Inc., and changed its name to Waterfront Media Inc. in
January 2004. In January 2010, the Company changed its name to
Everyday Health, Inc. to better align its corporate identity
with the Everyday Health brand.
Interim
Financial Statements
The accompanying interim unaudited consolidated financial
statements have been prepared in accordance with
U.S. generally accepted accounting principles
(GAAP) on the same basis as the audited consolidated
financial statements for the year ended December 31, 2009
included elsewhere in this prospectus and, in the opinion of
management, include all adjustments of a normal recurring nature
considered necessary to present fairly the Companys
financial position, results of its operations and cash flows for
the six month periods ended June 30, 2009 and 2010. The
results of operations for the six months ended June 30,
2010 are not necessarily indicative of the results that may be
expected for the year ending December 31, 2010 or any other
future periods, due to seasonality and other business factors.
Certain information and note disclosures normally included in
financial statements prepared in accordance with U.S. GAAP
have been condensed or omitted under the Securities and Exchange
Commissions rules and regulations. These unaudited interim
consolidated financial statements should be read in conjunction
with the audited consolidated financial statements and
accompanying notes for the year ended December 31, 2009.
The Company has performed a review of all subsequent events up
to and including August 18, 2010, the date these
consolidated financial statements were available to be issued.
Use of
Estimates
The preparation of the consolidated financial statements in
conformity with U.S. GAAP requires management to make
estimates and assumptions that affect the reported amounts of
assets and liabilities and the reported amounts of revenues and
expenses during the reporting period. The Company bases its
estimates on historical experience, current business factors and
other available information. Actual results could differ from
those estimates. On an ongoing basis, the Company evaluates its
estimates and assumptions, including those related to revenue
recognition and deferred revenue, allowance for doubtful
accounts, internal software development costs and website
development costs, valuation of long-lived assets, goodwill and
other intangible assets, income taxes and stock-based
compensation.
Pro Forma
Stockholders Equity
Upon the consummation of a qualifying initial public offering,
all of the outstanding shares of redeemable convertible
preferred stock automatically convert into common shares. The
June 30, 2010 pro forma balance sheet data has been
prepared assuming the conversion of the redeemable convertible
preferred stock outstanding into 23,647,834 common shares. The
June 30, 2010 statement of operations has not been
adjusted to reflect the pro forma net loss per common share
assuming the conversion of the redeemable convertible preferred
stock.
F-6
EVERYDAY HEALTH,
INC.
Notes to
Consolidated Financial Statements
(in thousands,
except share and per share data,
unaudited) (Continued)
Significant
Accounting Policies
The Companys significant accounting policies are disclosed
in the audited consolidated financial statements for the year
ended December 31, 2009 included elsewhere in this
prospectus. Since the date of those financial statements there
have been no material changes to the Companys significant
accounting policies.
Segment
Information
The Company and its subsidiaries are organized in a single
operating segment, providing online consumer health solutions,
and the Company also has one reportable segment. Substantially
all of the Companys revenues are derived from
U.S. sources.
Fair Value of
Financial Instruments
Due to their short-term maturities, the carrying amounts of the
Companys financial instruments, including cash and cash
equivalents, accounts receivable, accounts payable and accrued
expenses, approximate fair value because of the relatively
short-term nature of these accounts. Cash and cash equivalents
consist primarily of U.S. Treasury securities and other
money market funds as of December 31, 2009 and
June 30, 2010. The fair value of these investment funds are
based on quoted market prices, which are Level 1 inputs,
pursuant to the fair value accounting standard which establishes
a framework for measuring fair value and requires disclosures
about fair value measurements by establishing a hierarchy that
prioritizes the inputs to valuation techniques used to measure
fair value. The fair value of the Companys debt
approximates the recorded amounts as the interest rates on the
credit facilities are based on market rate interest.
Cost of
Revenue
Cost of revenue consists principally of the expenses associated
with aggregating the total consumer audience across the
Companys portfolio of websites, including royalty expense
for licensing content for certain websites within the portfolio
and for the portion of advertising revenue the Company pays to
the owners of certain other websites within the portfolio, as
well as media costs associated with audience aggregation
activities. Royalty expense amounted to $9,684 and $8,497 for
the six months ended June 30, 2009 and 2010, respectively.
Media costs totaled $10,065 and $13,303 for the six months ended
June 30, 2009 and 2010, respectively.
Net Loss per
Share
Basic net loss per share is computed by dividing net loss by the
weighted-average number of outstanding shares of common stock
during the period. Diluted net loss per share is computed using
the weighted-average number of outstanding shares of common
stock and, when dilutive, potential common shares outstanding
during the period. Potential common shares consist primarily of
incremental shares issuable upon the assumed exercise of stock
options and warrants using the treasury stock method. For the
six months ended June 30, 2009 and 2010, the Company had
outstanding options, warrants and preferred stock as disclosed
in Notes 3, 4 and 5, which were convertible into or
exercisable for common shares that were not included in the
calculation of diluted loss per common share because the effect
would have been anti-dilutive.
F-7
EVERYDAY HEALTH,
INC.
Notes to
Consolidated Financial Statements
(in thousands,
except share and per share data,
unaudited) (Continued)
Recent
Accounting Standards
In October 2009, the Financial Accounting Standards Board issued
a new accounting standard that changes the accounting for
revenue recognition for multiple-element arrangements which is
effective for annual periods ending after June 15, 2010;
however, early adoption is permitted. In arrangements with
multiple deliverables, the standard permits entities to use
managements best estimate of selling price to value
individual deliverables when those deliverables have never been
sold separately or when third-party evidence is not available.
In addition, any discounts provided in multiple element
arrangements will be allocated on the basis of the relative
selling price of each deliverable. The Company is currently
evaluating the impact of adopting the provisions of this
standard.
|
|
2.
|
Goodwill and
Other Intangible Assets
|
The carrying value of the Companys goodwill was $54,870 at
June 30, 2010. Other intangible assets consist of
indefinite-lived trade names with a carrying value of $5,100 at
June 30, 2010 and certain definite-lived intangible assets
with a net carrying value of $9,035 at June 30, 2010.
Goodwill and trade names are tested for impairment on an annual
basis and whenever events or circumstances indicate that the
carrying value of the assets may not be recoverable. No
indicators of impairment were noted during or since the
Companys last evaluation of goodwill and trade names at
October 1, 2009.
The definite-lived intangible assets are comprised of $9,400
relating to customer relationships with estimated useful lives
of five years and $3,900 relating to agreements with certain of
the Companys website partners with estimated useful lives
of seven years. At June 30, 2010, customer relationships
had $3,290 of accumulated amortization and a net carrying value
of $6,110 which will be amortized over a remaining useful life
of 39 months, and agreements with certain website partners
had $975 of accumulated amortization and a net carrying value of
$2,925 which will be amortized over a remaining useful life of
63 months. Amortization expense relating to the
definite-lived intangible assets was approximately $1,219 during
each of the six month periods ended June 30, 2009 and 2010.
Future amortization expense of the intangible assets is
estimated to be as follows:
|
|
|
|
|
|
|
|
|
Year ending December 31:
|
|
|
|
|
|
|
|
|
2010 (July 1st to December 31st)
|
|
$
|
1,219
|
|
|
|
|
|
2011
|
|
|
2,437
|
|
|
|
|
|
2012
|
|
|
2,437
|
|
|
|
|
|
2013
|
|
|
1,967
|
|
|
|
|
|
2014
|
|
|
557
|
|
|
|
|
|
Thereafter
|
|
|
418
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
9,035
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In September 2009, the Company entered into a loan and security
agreement with an unrelated third party in the amount of $12,000
(the Credit Facility). The Credit Facility consists
of the following: (i) a
24-month
revolving credit facility, which has a borrowing base that is
determined by a percentage
F-8
EVERYDAY HEALTH,
INC.
Notes to
Consolidated Financial Statements
(in thousands,
except share and per share data,
unaudited) (Continued)
of eligible accounts receivable, as defined in the Credit
Facility (the Revolver), and (ii) a
12-month
committed line (the Committed Line).
The maximum amount that can be outstanding under the Revolver is
$12,000 minus the balance outstanding under the Committed Line.
The maximum amount that can be outstanding under the Committed
Line is $4,000, and this amount decreases to zero over the term
of the Committed Line. The repayment terms provide for monthly
payments of accrued interest, with principal being due in
September 2011 for outstanding borrowings under the Revolver and
in September 2010 for outstanding borrowings under the Committed
Line. In addition to paying interest on the Credit Facility, the
Company pays a commitment fee of 0.75% per annum for the
unutilized commitment. For the period from the closing date of
the Credit Facility through December 31, 2009, the interest
rate for the Revolver was the greater of (i) the prime rate
then in effect plus 475 basis points or (ii) 8.0% and,
from January 1, 2010 through June 30, 2010, the
greater of (i) the prime rate then in effect plus
425 basis points or (ii) 7.5%. For the period from the
closing date of the Credit Facility through December 31,
2009, the interest rate for the Committed Line was the greater
of (i) the prime rate then in effect plus 575 basis
points or (ii) 9.0% and, from January 1, 2010 through
June 30, 2010, the greater of (i) the prime rate then
in effect plus 525 basis points or (ii) 8.5%. At
June 30, 2010, outstanding borrowings under the Revolver
amounted to $12,000. Pursuant to an amendment to the Credit
Facility in July 2010, effective July 1, 2010, the interest
rate for the Revolver is the greater of (i) the prime rate
then in effect plus 275 basis points or (ii) 6.0%, and
the interest rate for the Committed Line is the greater of
(i) the prime rate then in effect plus 375 basis
points or (ii) 7.0%.
In October 2009, the Company entered into a $5,000 credit
facility with an unrelated third party (Subordinated
Facility). The Company received the full $5,000 commitment
amount upon the closing of the Subordinated Facility. All
indebtedness incurred pursuant to the Subordinated Facility is
subordinate to any indebtedness outstanding under the Credit
Facility.
The interest rate for the Subordinated Facility is equal to the
greater of (i) 13.0% or (ii) 13.0% plus the difference
between (a) the one month LIBOR Rate as of the date five
days prior to the funding date of the loan as reported by the
Wall Street Journal and (b) 2.76%. At June 30, 2010,
outstanding borrowings under the Subordinated Facility amounted
to $5,000, with monthly principal repayments beginning December
2010 and a maturity date of May 1, 2013.
The Credit Facility and Subordinated Facility contain certain
financial and operational covenants with which the Company must
comply, whether or not there are any borrowings outstanding.
Such covenants include restrictions on certain types of
dispositions, mergers and acquisitions, indebtedness,
investments, liens and capital expenditures, issuance of capital
stock and the ability of the Company to pay dividends and make
other distributions. The Company was in compliance with the
financial and operational covenants of the Credit Facility and
Subordinated Facility as of December 31, 2009 and
June 30, 2010. The Revolver and the Committed Line are
secured by a first priority security interest in substantially
all of the existing and future assets of the Company. The
Subordinated Facility is secured by a subordinated security
interest in substantially all of the Companys existing and
future assets.
In connection with the Credit Facility, the Company issued to
the lender a warrant to purchase 47,285 shares of
Series F redeemable convertible preferred stock at $7.6134
per share and, in connection with the Subordinated Facility, the
Company issued to the lender a warrant to purchase
65,674 shares of Series F redeemable convertible
preferred stock at $7.6134 per share (collectively the
Warrants). The Warrants were immediately exercisable.
F-9
EVERYDAY HEALTH,
INC.
Notes to
Consolidated Financial Statements
(in thousands,
except share and per share data,
unaudited) (Continued)
As part of the closing of the Credit Facility, in September
2009, the Company repaid all outstanding borrowings under the
Companys pre-existing credit facility (the Former
Credit Facility) and such credit facility was terminated.
In connection with the Former Credit Facility, the Company
issued to the lender a warrant to purchase 110,018 shares
of Series C redeemable convertible preferred stock (the
Former Credit Facility Warrant) at $3.27 per share.
The Former Credit Facility Warrant was immediately exercisable
and remains outstanding as of June 30, 2010.
|
|
4.
|
Redeemable
Convertible Preferred Stock
|
Redeemable Convertible Preferred Stock consisted of the
following at December 31, 2009 and June 30, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
|
|
|
|
|
|
|
|
|
|
|
Issued and
|
|
|
Stated Value,
|
|
|
Liquidation
|
|
|
|
Authorized
|
|
|
Outstanding
|
|
|
Net of Expenses
|
|
|
Preference
|
|
|
Redeemable convertible preferred stock:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series A
|
|
|
3,450,000
|
|
|
|
3,450,000
|
|
|
$
|
1,053
|
|
|
$
|
1,725
|
|
Series B
|
|
|
2,547,252
|
|
|
|
2,547,252
|
|
|
|
4,413
|
|
|
|
4,500
|
|
Series C
|
|
|
1,943,651
|
|
|
|
1,833,633
|
|
|
|
5,882
|
|
|
|
6,000
|
|
Series D
|
|
|
3,934,855
|
|
|
|
3,934,855
|
|
|
|
25,354
|
|
|
|
27,027
|
|
Series E
|
|
|
8,930,966
|
|
|
|
8,930,966
|
|
|
|
71,250
|
|
|
|
15,789
|
|
Series F
|
|
|
3,064,087
|
|
|
|
2,951,128
|
|
|
|
22,468
|
|
|
|
22,468
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total redeemable convertible preferred stock
|
|
|
23,870,811
|
|
|
|
23,647,834
|
|
|
$
|
130,420
|
|
|
$
|
77,509
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company has adopted the 2003 Stock Option Plan (the
2003 Plan) that authorizes the Board of Directors to
grant incentive stock options and non-statutory stock options to
employees, directors and consultants of the Company and its
affiliates. As of June 30, 2010, under the terms of the
2003 Plan, as amended, the Board of Directors authorized and
reserved 6,200,000 shares of the Companys common
stock for issuance. Options are granted at prices not less than
the estimated fair market value of the Companys common
stock on the date of grant. The options generally vest and
become exercisable over four years from the date of grant and
expire after ten years. As of June 30, 2010,
782,073 shares remained available for future awards under
the 2003 Plan.
F-10
EVERYDAY HEALTH,
INC.
Notes to
Consolidated Financial Statements
(in thousands,
except share and per share data,
unaudited) (Continued)
The following table summarizes stock option activity for the six
months ended June 30, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
Weighted-
|
|
|
Average
|
|
|
|
|
|
|
Average
|
|
|
Remaining
|
|
|
|
Number of
|
|
|
Exercise
|
|
|
Contractual
|
|
|
|
Options
|
|
|
Price
|
|
|
Life (Years)
|
|
|
Outstanding at December 31, 2009
|
|
|
4,751,879
|
|
|
$
|
4.52
|
|
|
|
8.11
|
|
Granted
|
|
|
409,000
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
12,850
|
|
|
|
|
|
|
|
|
|
Cancelled
|
|
|
31,293
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at June 30, 2010
|
|
|
5,116,736
|
|
|
$
|
4.51
|
|
|
|
7.55
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at June 30, 2010
|
|
|
2,738,139
|
|
|
$
|
4.19
|
|
|
|
6.52
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from the exercise of options and the total intrinsic
value of the options exercised were $41 and $20, respectively,
for the six months ended June 30, 2010. There were no
options exercised during the six months ended June 30, 2009.
The weighted average fair value per share at date of grant for
options granted during the six months ended June 30, 2009
and June 30, 2010, was $1.41 and $2.73, respectively. The
fair value of options granted is estimated on the date of grant
using the Black-Scholes option pricing model and recognized in
expense over the vesting period of the options using the graded
attribution method.
The weighted-average assumptions used to estimate the fair value
of options granted in the six months ended June 30, 2009
and 2010 consisted of:
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2010
|
|
|
Volatility
|
|
|
53.11
|
%
|
|
|
52.26
|
%
|
Expected life (years)
|
|
|
6.25
|
|
|
|
6.25
|
|
Risk-free interest rate
|
|
|
2.96
|
%
|
|
|
2.71
|
%
|
Dividend yield
|
|
|
0.00
|
|
|
|
0.00
|
|
As the Companys common stock is not publicly traded, the
expected stock price volatilities are estimated based on
historical realized volatilities of comparable publicly traded
company stock prices over a period of time commensurate with the
expected term of the option award. The expected life represents
the period of time for which the options granted are expected to
be outstanding. The Company used the simplified method for
determining expected life for options qualifying for treatment
due to the limited history the Company currently has with option
exercise activity. The risk-free interest rate is based on the
U.S. Treasury yield curve for periods equal to the expected
term of the options on the grant date.
Total stock-based compensation expense was $1,579 and $1,480 for
the six months ended June 30, 2009 and 2010, respectively.
At June 30, 2010, there was approximately $2,990 of
unrecognized compensation expense related to unvested stock
options, which is expected to be recognized over a weighted
average period of 1.32 years. The total fair value of stock
options vested during the six months ended June 30, 2009
and 2010 was $1,655 and $1,724, respectively.
F-11
EVERYDAY HEALTH,
INC.
Notes to
Consolidated Financial Statements
(in thousands,
except share and per share data,
unaudited) (Continued)
The deferred provision for income tax expense for the six months
ended June 30, 2009 and 2010 relates to basis differences
in indefinite lived intangible assets that cannot be offset by
current year deferred tax assets. The current income tax
provision for the six months ended June 30, 2010 consisted
of current state minimum taxes. The difference between the tax
provision computed at the statutory rate and the tax provision
recorded by the Company primarily relates to state and local
income taxes and losses incurred for financial statement
purposes for which no tax benefit has been recorded.
|
|
7.
|
Related Party
Transactions
|
At the time of the acquisition of Revolution Health Group LLC
(RHG), RHG was a party to an agreement with a third
party. One of the Companys former directors (until October
2009), through an entity wholly-owned by such director, owns
equity in such third party. For the six months ended
June 30, 2009, the Company generated advertising and
sponsorship revenue totaling $3,253 and incurred royalty expense
of $1,973 relating to the agreement with this company.
F-12
Report of
Independent Registered Public Accounting Firm
The Board of Directors and Shareholders of
Everyday Health, Inc.
We have audited the accompanying consolidated balance sheets of
Everyday Health, Inc. (the Company, formerly
Waterfront Media Inc.) as of December 31, 2009 and 2008,
and the related consolidated statements of operations,
redeemable convertible preferred stock and stockholders
deficit, and cash flows for each of the three years in the
period ended December 31, 2009. These financial statements
are the responsibility of the Companys management. Our
responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. We were not engaged to perform an
audit of the Companys internal control over financial
reporting. Our audits included consideration of internal control
over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not
for the purpose of expressing an opinion on the effectiveness of
the Companys internal control over financial reporting.
Accordingly, we express no such opinion. An audit also 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.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated
financial position of the Company at December 31, 2009 and
2008, and the consolidated results of its operations and its
cash flows for each of the three years in the period ended
December 31, 2009, in conformity with U.S. generally
accepted accounting principles.
New York, New York
March 26, 2010
F-13
EVERYDAY HEALTH,
INC.
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2009
|
|
|
|
(in thousands, except share and per share data)
|
|
|
Assets
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
25,050
|
|
|
$
|
16,360
|
|
Restricted cash
|
|
|
2,166
|
|
|
|
2,100
|
|
Accounts receivable, net of allowance for doubtful accounts of
$1,309 and $1,303 as of December 31, 2008 and 2009,
respectively
|
|
|
18,339
|
|
|
|
22,194
|
|
Inventory
|
|
|
335
|
|
|
|
393
|
|
Prepaid expenses and other current assets
|
|
|
3,249
|
|
|
|
2,817
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
49,139
|
|
|
|
43,864
|
|
Property and equipment, net
|
|
|
14,016
|
|
|
|
13,201
|
|
Goodwill
|
|
|
54,126
|
|
|
|
54,870
|
|
Intangible assets, net
|
|
|
17,791
|
|
|
|
15,354
|
|
Other assets
|
|
|
622
|
|
|
|
2,100
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
135,694
|
|
|
$
|
129,389
|
|
|
|
|
|
|
|
|
|
|
Liabilities, redeemable convertible preferred stock and
stockholders deficit
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
5,525
|
|
|
$
|
7,841
|
|
Accrued expenses
|
|
|
17,516
|
|
|
|
12,485
|
|
Deferred revenue
|
|
|
6,001
|
|
|
|
6,930
|
|
Current portion of long-term debt
|
|
|
6,632
|
|
|
|
142
|
|
Other current liabilities
|
|
|
298
|
|
|
|
134
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
35,972
|
|
|
|
27,532
|
|
Long-term debt
|
|
|
965
|
|
|
|
16,858
|
|
Deferred taxes
|
|
|
293
|
|
|
|
1,813
|
|
Commitments (Note 13)
|
|
|
|
|
|
|
|
|
Redeemable Convertible Preferred Stock
(Series A-F),
net of expenses, $0.01 par value: 23,762,039 and
23,870,811 shares authorized at December 31, 2008 and
2009, respectively, 23,647,834 shares issued and
outstanding at December 31, 2008 and 2009 (aggregate
liquidation value of $77,509 at December 31, 2009)
|
|
|
130,420
|
|
|
|
130,420
|
|
Stockholders deficit:
|
|
|
|
|
|
|
|
|
Common stock, $0.01 par value: 37,000,000 shares
authorized; 6,564,654 and 6,618,444 shares issued and
outstanding at December 31, 2008 and 2009, respectively
|
|
|
65
|
|
|
|
66
|
|
Additional paid-in capital
|
|
|
7,195
|
|
|
|
10,937
|
|
Accumulated deficit
|
|
|
(39,216
|
)
|
|
|
(58,237
|
)
|
|
|
|
|
|
|
|
|
|
Total stockholders deficit
|
|
|
(31,956
|
)
|
|
|
(47,234
|
)
|
|
|
|
|
|
|
|
|
|
Total liabilities, redeemable convertible preferred stock and
stockholders deficit
|
|
$
|
135,694
|
|
|
$
|
129,389
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
F-14
EVERYDAY HEALTH,
INC.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
|
(in thousands, except share
|
|
|
|
and per share data)
|
|
|
Revenues
|
|
$
|
47,363
|
|
|
$
|
69,412
|
|
|
$
|
90,111
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenue
|
|
|
30,111
|
|
|
|
35,229
|
|
|
|
39,453
|
|
Sales and marketing
|
|
|
7,425
|
|
|
|
14,503
|
|
|
|
20,816
|
|
Product development
|
|
|
10,753
|
|
|
|
14,874
|
|
|
|
20,192
|
|
General and administrative
|
|
|
6,859
|
|
|
|
12,906
|
|
|
|
16,239
|
|
Depreciation and amortization
|
|
|
2,030
|
|
|
|
4,340
|
|
|
|
9,787
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
57,178
|
|
|
|
81,852
|
|
|
|
106,487
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(9,815
|
)
|
|
|
(12,440
|
)
|
|
|
(16,376
|
)
|
Interest expense, net
|
|
|
(323
|
)
|
|
|
(455
|
)
|
|
|
(1,314
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before provision for income taxes
|
|
|
(10,138
|
)
|
|
|
(12,895
|
)
|
|
|
(17,690
|
)
|
Provision for income taxes
|
|
|
|
|
|
|
(293
|
)
|
|
|
(1,331
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(10,138
|
)
|
|
$
|
(13,188
|
)
|
|
$
|
(19,021
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per common share basic and diluted
|
|
$
|
(1.57
|
)
|
|
$
|
(2.01
|
)
|
|
$
|
(2.89
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding basic and
diluted
|
|
|
6,444,696
|
|
|
|
6,559,614
|
|
|
|
6,581,793
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
F-15
EVERYDAY HEALTH,
INC.
and Stockholders Deficit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Redeemable Convertible
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
Total
|
|
|
|
Preferred Stock
|
|
|
|
Common Stock
|
|
|
Paid-in
|
|
|
Accumulated
|
|
|
Stockholders
|
|
|
|
Shares
|
|
|
Amount
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Deficit
|
|
|
Deficit
|
|
|
|
(in thousands, except share data)
|
|
Balance at December 31, 2006
|
|
|
7,830,885
|
|
|
|
11,348
|
|
|
|
|
6,396,861
|
|
|
|
64
|
|
|
|
2,759
|
|
|
|
(15,890
|
)
|
|
|
(13,067
|
)
|
Exercise of stock options
|
|
|
|
|
|
|
|
|
|
|
|
139,861
|
|
|
|
1
|
|
|
|
85
|
|
|
|
|
|
|
|
86
|
|
Warrants issued in connection with Former Credit Facility
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
202
|
|
|
|
|
|
|
|
202
|
|
Stock-based compensation expense related to employee stock
options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
990
|
|
|
|
|
|
|
|
990
|
|
Issuance of Series D Redeemable Convertible Preferred
Stock, net of expenses
|
|
|
3,643,675
|
|
|
|
23,354
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(10,138
|
)
|
|
|
(10,138
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2007
|
|
|
11,474,560
|
|
|
|
34,702
|
|
|
|
|
6,536,722
|
|
|
|
65
|
|
|
|
4,036
|
|
|
|
(26,028
|
)
|
|
|
(21,927
|
)
|
Exercise of stock options
|
|
|
|
|
|
|
|
|
|
|
|
27,932
|
|
|
|
|
|
|
|
38
|
|
|
|
|
|
|
|
38
|
|
Stock-based compensation expense related to employee stock
options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,121
|
|
|
|
|
|
|
|
3,121
|
|
Issuance of Series D Convertible Preferred Stock
|
|
|
291,180
|
|
|
|
2,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of Series E Convertible Preferred Stock
|
|
|
8,930,966
|
|
|
|
71,250
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of Series F Convertible Preferred Stock
|
|
|
2,951,128
|
|
|
|
22,468
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(13,188
|
)
|
|
|
(13,188
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2008
|
|
|
23,647,834
|
|
|
|
130,420
|
|
|
|
|
6,564,654
|
|
|
|
65
|
|
|
|
7,195
|
|
|
|
(39,216
|
)
|
|
|
(31,956
|
)
|
Exercise of stock options
|
|
|
|
|
|
|
|
|
|
|
|
53,790
|
|
|
|
1
|
|
|
|
203
|
|
|
|
|
|
|
|
204
|
|
Warrants issued in connection with credit facilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
514
|
|
|
|
|
|
|
|
514
|
|
Stock-based compensation expense related to employee stock
options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,025
|
|
|
|
|
|
|
|
3,025
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(19,021
|
)
|
|
|
(19,021
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2009
|
|
|
23,647,834
|
|
|
$
|
130,420
|
|
|
|
|
6,618,444
|
|
|
$
|
66
|
|
|
$
|
10,937
|
|
|
$
|
(58,237
|
)
|
|
$
|
(47,234
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
F-16
EVERYDAY HEALTH,
INC.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
|
(in thousands)
|
|
|
Cash flows from operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(10,138
|
)
|
|
$
|
(13,188
|
)
|
|
$
|
(19,021
|
)
|
Adjustments to reconcile net loss to net cash used in operating
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
2,030
|
|
|
|
4,340
|
|
|
|
9,787
|
|
Provision for doubtful accounts
|
|
|
710
|
|
|
|
889
|
|
|
|
360
|
|
Stock-based compensation
|
|
|
990
|
|
|
|
2,996
|
|
|
|
3,025
|
|
Non-cash interest expense
|
|
|
156
|
|
|
|
|
|
|
|
|
|
Amortization and write-off of deferred financing costs
|
|
|
86
|
|
|
|
135
|
|
|
|
278
|
|
Non-cash royalty expense
|
|
|
|
|
|
|
2,000
|
|
|
|
|
|
Provision for deferred income taxes
|
|
|
|
|
|
|
293
|
|
|
|
1,144
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(7,302
|
)
|
|
|
(3,395
|
)
|
|
|
(4,215
|
)
|
Prepaid expenses and other current assets
|
|
|
(131
|
)
|
|
|
(40
|
)
|
|
|
432
|
|
Inventory
|
|
|
104
|
|
|
|
(113
|
)
|
|
|
(58
|
)
|
Other assets
|
|
|
136
|
|
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses
|
|
|
3,370
|
|
|
|
(15,186
|
)
|
|
|
(2,715
|
)
|
Deferred revenue
|
|
|
(533
|
)
|
|
|
465
|
|
|
|
929
|
|
Other current liabilities
|
|
|
|
|
|
|
(30
|
)
|
|
|
(164
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in operating activities
|
|
|
(10,522
|
)
|
|
|
(20,834
|
)
|
|
|
(10,218
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Additions to property and equipment, net
|
|
|
(4,612
|
)
|
|
|
(6,104
|
)
|
|
|
(6,535
|
)
|
Payment for business purchased
|
|
|
|
|
|
|
(1,665
|
)
|
|
|
|
|
Cash of acquired business purchased for stock, net
|
|
|
|
|
|
|
15,302
|
|
|
|
|
|
Additional payments in connection with acquisition
|
|
|
|
|
|
|
|
|
|
|
(368
|
)
|
Net decrease (increase) in restricted cash
|
|
|
(2,263
|
)
|
|
|
252
|
|
|
|
66
|
|
Payment of security deposits and other assets
|
|
|
|
|
|
|
(244
|
)
|
|
|
(1,013
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities
|
|
|
(6,875
|
)
|
|
|
7,541
|
|
|
|
(7,850
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from Investor Bridge
|
|
|
4,000
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance of convertible preferred stock, net of
expenses
|
|
|
19,198
|
|
|
|
22,468
|
|
|
|
|
|
Proceeds from the exercise of stock options
|
|
|
86
|
|
|
|
38
|
|
|
|
204
|
|
Borrowings under credit facility
|
|
|
6,000
|
|
|
|
3,000
|
|
|
|
19,000
|
|
Repayment of principal under credit facility
|
|
|
(59
|
)
|
|
|
(1,344
|
)
|
|
|
(9,597
|
)
|
Payments of credit facility financing costs
|
|
|
(152
|
)
|
|
|
(68
|
)
|
|
|
(229
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
29,073
|
|
|
|
24,094
|
|
|
|
9,378
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
11,676
|
|
|
|
10,801
|
|
|
|
(8,690
|
)
|
Cash and cash equivalents, beginning of year
|
|
|
2,573
|
|
|
|
14,249
|
|
|
|
25,050
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of year
|
|
$
|
14,249
|
|
|
$
|
25,050
|
|
|
$
|
16,360
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest paid
|
|
$
|
340
|
|
|
$
|
567
|
|
|
$
|
954
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes paid
|
|
$
|
26
|
|
|
$
|
84
|
|
|
$
|
53
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of non-cash financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of convertible preferred stock in lieu of cash royalties
|
|
$
|
|
|
|
$
|
2,000
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of convertible preferred stock for acquired business
|
|
$
|
|
|
|
$
|
71,250
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants issued in connection with credit facilities
|
|
$
|
202
|
|
|
$
|
|
|
|
$
|
514
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion of Investor Bridge to Series D Preferred Stock
|
|
$
|
4,156
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
F-17
EVERYDAY HEALTH,
INC.
(in thousands, except share and per share data)
Everyday Health, Inc. (the Company) operates a
portfolio of over 25 websites that provides consumers,
advertisers and partners with content and advertising-based
services that span the health spectrum. The Company was
incorporated in the State of Delaware in January 2002 as Agora
Media Inc., and changed its name to Waterfront Media Inc. in
January 2004. In January 2010, the Company changed its name to
Everyday Health, Inc. to better align its corporate identity
with the Everyday Health brand.
|
|
2.
|
Significant
Accounting Policies
|
Principles of
Consolidation
The accompanying consolidated financial statements include the
accounts of the Company and its subsidiaries. The results of
operations for companies acquired are included in the
consolidated financial statements from the effective date of the
acquisition. All significant intercompany accounts and
transactions have been eliminated in consolidation.
Use of
Estimates
The preparation of the consolidated financial statements in
conformity with U.S. GAAP requires management to make
estimates and assumptions that affect the reported amounts in
the consolidated financial statements and the accompanying
notes. Actual results could differ from those estimates.
Cash and Cash
Equivalents
The Company considers all highly liquid investments with
original maturities of three months or less when purchased to be
cash equivalents. Cash equivalents principally consist of the
Companys investment in Treasury securities and other money
market funds. The fair value of these investment funds are based
on quoted market prices, which are Level 1 inputs, pursuant
to the fair value accounting standard which establishes a
framework for measuring fair value and requires disclosures
about fair value measurements by establishing a hierarchy that
prioritizes the inputs to valuation techniques used to measure
fair value.
Restricted
Cash
The Company classifies all cash whose use is limited by
contractual provision as restricted cash. Restricted cash as of
December 31, 2008 and 2009 was comprised of cash balances
held by the Companys credit card payment processor to fund
certain reserve accounts.
Property and
Equipment
Property and equipment are stated at cost. Depreciation is
computed using the straight-line method over the estimated
useful lives of the assets, ranging from three to five years.
Amortization of leasehold improvements is computed using the
straight-line method over the shorter of the lease term or the
estimated useful life of the improvement.
Internal
Software Development Costs
The Company incurs costs to develop software for internal use.
The Company expenses all costs that relate to the planning and
post-implementation phases of development as product development
expense. Costs incurred in the application development phase,
consisting principally of payroll
F-18
EVERYDAY HEALTH,
INC.
Notes to Consolidated Financial
Statements (Continued)
(in thousands, except share and per share data)
and related benefits, are capitalized. Upon completion, the
capitalized costs are amortized using the straight-line method
over their estimated useful lives, which is generally three
years.
Website
Development Costs
The Company incurs costs to develop its website applications.
The Company expenses all costs that relate to the planning and
post-implementation phases of website development as product
development expense. Costs incurred in the application
development phase, consisting principally of third-party
consultants and related charges, and the costs of content deemed
to be reference material in nature, are capitalized. Upon
completion, the capitalized costs are amortized using the
straight-line method over their estimated useful lives, which is
generally three years.
Goodwill and
Other Indefinite Lived Intangible Assets
Goodwill represents the excess cost over fair value of the
identifiable net assets of acquired businesses. Other indefinite
lived intangible assets consist of trade names.
Goodwill and trade names, recorded during 2008 in connection
with acquisitions completed that year, are tested for impairment
on an annual basis as of October 1, commencing in 2009, and
whenever events or circumstances indicate that the carrying
value of the asset may not be recoverable. Application of the
impairment test requires judgment and results in impairment
being recognized if the carrying value of the asset exceeds its
fair value.
The fair value of goodwill is estimated using a combination of
an income approach based on the present value of estimated
future cash flows and a market approach based on revenue and
earnings of comparable publicly-traded companies. Equal
weightings are given to each of the income and market approach
results. As the Company has one operating segment and one
reporting unit, the first step of the impairment test requires a
comparison of the fair value of our reporting unit, or business
enterprise value as a whole, to the carrying value of the
Companys invested capital. If the carrying amount is
higher than the fair value, there is indication that an
impairment may exist and a second step must be performed. If the
carrying amount is less than the fair value, no indication of
impairment exists and a second step is not performed. The fair
value of trade names is estimated using an income approach based
on the present value of estimated future cash flows.
The evaluation of the Companys goodwill and trade names as
of October 1, 2009 indicated that the carrying value of the
assets was less than the fair value and, accordingly, there was
no impairment loss recognized for the year ended
December 31, 2009.
Long-Lived
Assets
The Company reviews long-lived assets, including property and
equipment and intangible assets with definite lives, for
impairment whenever events or changes in circumstances indicate
that the carrying value of the asset may not be recoverable. The
intangible assets with definite lives consist of customer
relationships and agreements with certain of the Companys
website partners and were recorded during 2008 in connection
with acquisitions. There have been no indicators of impairment
of the Companys long-lived assets during the years ended
December 31, 2007, 2008 and 2009.
Revenue
Recognition and Deferred Revenue
The Company generates its revenue primarily through advertising
and sponsorships, and premium services, including subscriptions
and, to a lesser extent, licensing fees and merchandise sales.
F-19
EVERYDAY HEALTH,
INC.
Notes to Consolidated Financial
Statements (Continued)
(in thousands, except share and per share data)
Advertising revenue is recognized in the period in which the
advertisement is delivered. Revenue from sponsorships is
recognized over the period the Company substantially satisfies
its contractual obligations as required under the respective
sponsorship agreements.
Subscriptions are generally billed in advance on a monthly,
quarterly or annual basis. Subscription revenue, after deducting
refunds and charge-backs, is recognized on a straight-line basis
ratably over the subscription periods. Licensing revenue is
generally recognized over the life of the contract. Revenue from
merchandise sales, including charges for shipping, is recognized
when products are shipped to customers, which is when title is
deemed to have passed to the customer.
Deferred revenue relates to: (i) subscription fees for
which amounts have been collected but for which revenue has not
been recognized and (ii) advertising and sponsorship
revenue and licensing fees billed in advance of when the revenue
is to be earned.
The Company has established an allowance for doubtful accounts
pertaining to its accounts receivable from customers. The
following table summarizes the activity of the allowance for
doubtful accounts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
Balance at beginning of year
|
|
$
|
263
|
|
|
$
|
860
|
|
|
$
|
1,309
|
|
Bad debt provision
|
|
|
710
|
|
|
|
889
|
|
|
|
360
|
|
Write-offs
|
|
|
(113
|
)
|
|
|
(440
|
)
|
|
|
(366
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of year
|
|
$
|
860
|
|
|
$
|
1,309
|
|
|
$
|
1,303
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inventory
Inventory consists of finished goods, primarily books, compact
discs, DVDs and fitness equipment, and is valued at the lower of
cost or net realizable value. Cost is determined using the
first-in,
first-out method.
Cost of
Revenue
Cost of revenue consists principally of the expenses associated
with aggregating the total consumer audience across the
Companys portfolio of websites, including royalty expense
for licensing content for certain websites within the portfolio
and for the portion of advertising revenue the Company pays to
the owners of certain other websites within the portfolio, as
well as media costs associated with audience aggregation
activities. Cost of revenue also includes credit card fees and
service charges associated with subscription fees for the
Companys premium services, and merchandise inventory and
fulfillment costs, including the cost of outbound shipping
charges.
Royalty expense amounted to $6,390, $12,267 and $19,273 for the
years ended December 31, 2007, 2008 and 2009, respectively.
Media costs consist primarily of fees paid to online publishers,
Internet search companies and other media channels for search
engine and database marketing, display and television
advertising. These media activities are directly attributable to
revenue-generating and audience aggregation events, designed to
increase the consumer audience to the websites the Company
operates, increase the number of consumers subscribing to
premium services and grow the Companys registered user
base. The media costs are included in cost of revenues in the
accompanying consolidated statements
F-20
EVERYDAY HEALTH,
INC.
Notes to Consolidated Financial
Statements (Continued)
(in thousands, except share and per share data)
of operations and totaled $20,938, $19,637 and $16,698 for the
years ended December 31, 2007, 2008 and 2009, respectively.
Income
Taxes
The Company accounts for taxes under the asset and liability
method. Under this method, deferred tax assets and liabilities
are recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of
assets and liabilities and their tax bases.
Deferred tax assets and liabilities are measured using enacted
tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered
or settled. Based on estimates, the Company has provided a
valuation allowance on net deferred tax assets as it is more
likely than not that such assets will not be realized.
On January 1, 2007, the Company adopted the authoritative
accounting guidance prescribing a threshold and measurement
attribute for the financial recognition and measurement of a tax
position taken or expected to be taken in a tax return. The
guidance also provides for de-recognition of tax benefits,
classification on the balance sheet, interest and penalties,
accounting in interim periods, disclosure and transition. The
guidance utilizes a two-step approach for evaluating uncertain
tax positions. Step one is recognition, which requires a company
to determine if the weight of available evidence indicates that
a tax position is more likely than not to be sustained upon
audit, including resolution of related appeals or litigation
processes, if any. If a tax position is not considered
more likely than not to be sustained then no
benefits of the position are to be recognized. Step two is
measurement, which is based on the largest amount of benefit,
which is more likely than not to be realized on ultimate
settlement.
Fair Value of
Financial Instruments
Due to their short-term maturities, the carrying amounts of the
Companys financial instruments, including cash and cash
equivalents, accounts receivable, accounts payable and accrued
expenses, approximate fair value because of the relatively
short-term nature of these accounts. The fair value of the
Companys debt approximates the recorded amounts as the
interest rates on the credit facilities are based on market rate
interest.
Stock-based
Compensation
The Company accounts for all share-based payments, including
grants of employee stock options, based on the fair value of the
award measured at the grant date. The Company uses the
Black-Scholes option pricing model to estimate the fair value of
the stock options awards. The stock-based compensation expense
is recognized over the period during which the recipient
provides services, generally the vesting period.
See Note 11 for further information regarding stock-based
compensation.
Business
Concentrations and Credit Risk
Financial instruments which potentially subject the Company to
concentration of credit risk consist principally of cash and
cash equivalents and accounts receivable.
Cash and cash equivalents consist primarily of
U.S. Treasury securities and other money market funds as of
December 31, 2008 and 2009.
F-21
EVERYDAY HEALTH,
INC.
Notes to Consolidated Financial
Statements (Continued)
(in thousands, except share and per share data)
Concentration of credit risk with respect to accounts receivable
is limited due to the large number of customers comprising the
Companys customer base and the ongoing credit evaluation
of its customers. An allowance for doubtful accounts is
established with respect to those amounts that the Company has
determined to be doubtful of collection, based upon factors
surrounding the credit risk of customers and other information.
To date, such losses have been within managements
expectations.
For the years ended December 31, 2007, 2008 and 2009, no
advertiser accounted for greater than 10% of total revenues;
however, as of December 31, 2007, one advertising agency
accounted for 21% and another agency accounted for 14% of
accounts receivable. As of December 31, 2008, one agency
accounted for 16% and another agency accounted for 10% of
accounts receivable. As of December 31, 2009, one agency
accounted for 13% of accounts receivable.
Segment
Information
The Company and its subsidiaries are organized in a single
operating segment, providing online consumer health solutions,
and the Company also has one reportable segment. Substantially
all of the Companys revenues are derived from
U.S. sources.
Net Loss per
Share
Basic net loss per share is computed by dividing net loss by the
weighted-average number of outstanding shares of common stock
during the period. Diluted net loss per share is computed using
the weighted-average number of outstanding shares of common
stock and, when dilutive, potential common shares outstanding
during the period. Potential common shares consist primarily of
incremental shares issuable upon the assumed exercise of stock
options and warrants using the treasury stock method. For the
years ended December 31, 2007, 2008 and 2009, the Company
had outstanding options, warrants and preferred stock as
disclosed in Notes 8, 9 and 11, which were convertible into
or exercisable for common shares that were not included in the
calculation of diluted loss per common share because the effect
would have been anti-dilutive.
Recent
Accounting Standards
In October 2009, the Financial Accounting Standards Board
(FASB) issued a new accounting standard that changes
the accounting for revenue recognition for multiple-element
arrangements which is effective for annual periods ending after
June 15, 2010; however, early adoption is permitted. In
arrangements with multiple deliverables, the standard permits
entities to use managements best estimate of selling price
to value individual deliverables when those deliverables have
never been sold separately or when third-party evidence is not
available. In addition, any discounts provided in multiple
element arrangements will be allocated on the basis of the
relative selling price of each deliverable. The Company is
currently evaluating the impact of adopting the provisions of
this standard.
In June 2009, the FASB issued a new accounting standard that
provides for a codification of accounting standards (the
Codification) which was effective for the Company in
the third quarter ended September 30, 2009. The
Codification became the single authoritative source for
U.S. GAAP. The Company has adopted this disclosure guidance
and, accordingly, previous references to U.S. GAAP
accounting standards are no longer used by the Company in its
disclosures accompanying the consolidated financial statements.
The Codification does not affect the Companys consolidated
financial position, results of operations or cash flows.
In May 2009, the FASB issued a new standard which sets forth
general standards of accounting for and the disclosure of events
that occur after the balance sheet date but before financial
statements
F-22
EVERYDAY HEALTH,
INC.
Notes to Consolidated Financial
Statements (Continued)
(in thousands, except share and per share data)
are issued or are available to be issued. The Company has
applied the requirements of this standard, as amended in
February 2010, which did not have a material impact on the
Companys consolidated financial position, results of
operations or cash flows. In accordance with this standard, the
Company evaluated subsequent events through March 26, 2010,
the date these consolidated financial statements were available
to be issued.
In December 2007, the FASB issued a new standard that changes
the accounting for all business combinations and is effective
for fiscal years beginning on or after December 15, 2008.
The standard provides that, upon initially obtaining control, an
acquirer shall recognize 100% of the fair values of acquired
assets, including goodwill, and assumed liabilities, with only
limited exceptions, even if the acquirer has not acquired 100%
of the target. As a consequence, the current step acquisition
model will be eliminated. Additionally, the standard changes
current practice, in part, as follows: (i) contingent
consideration arrangements will be fair valued at the
acquisition date and included on that basis in the purchase
price consideration; (ii) transaction costs will be
expensed as incurred, rather than capitalized as part of the
purchase price; (iii) pre-acquisition contingencies, such
as those relating to legal matters, will generally have to be
accounted for in purchase accounting at fair value; and
(iv) in order to accrue for a restructuring plan in
purchase accounting certain requirements would have to be met on
the acquisition date. While the adoption of this standard did
not have a material impact on the Companys consolidated
financial statements, it is likely to have a material impact on
how the Company accounts for any future business combinations
into which the Company may enter.
In October 2008, the Company acquired all of the outstanding
equity of Revolution Health Group LLC, a Delaware limited
liability company, and its subsidiaries (RHG), which
operated certain health-related websites targeted to both
consumers and healthcare providers. The RHG acquisition enabled
the Company to significantly increase its consumer audience and
to incorporate a variety of websites, tools and applications
into the Companys portfolio. The increased audience and
expanded set of websites and features were designed to increase
the Companys advertising customer base and enhance the
Companys offerings to both consumers and advertisers. The
purchase price was valued at $72,793, consisting of
8,930,966 shares of Series E redeemable convertible
preferred stock valued at $71,250, and $1,543 of acquisition
costs. The acquisition was accounted for as a purchase business
combination and, accordingly, the purchase price was allocated
to the tangible and intangible assets acquired and liabilities
assumed on the basis of their respective fair values. The
results of operations of RHG have been included in the
consolidated financial statements of the Company from
October 7, 2008, which was the closing date of the
acquisition.
F-23
EVERYDAY HEALTH,
INC.
Notes to Consolidated Financial
Statements (Continued)
(in thousands, except share and per share data)
The following table summarizes the tangible and intangible
assets acquired, the liabilities assumed and the consideration
paid:
|
|
|
|
|
Cash
|
|
$
|
15,302
|
|
Accounts receivable
|
|
|
7,085
|
|
Prepaid expenses and other current assets
|
|
|
1,857
|
|
Property and equipment
|
|
|
6,395
|
|
Goodwill
|
|
|
52,461
|
|
Intangible assets
|
|
|
18,400
|
|
Accounts payable
|
|
|
(5,901
|
)
|
Accrued expenses
|
|
|
(20,037
|
)
|
Deferred revenue
|
|
|
(2,441
|
)
|
Other current liabilities
|
|
|
(328
|
)
|
|
|
|
|
|
Total consideration paid
|
|
$
|
72,793
|
|
|
|
|
|
|
The following unaudited pro forma financial information reflects
the Companys results of operations as if RHG had been
acquired at the beginning of 2007:
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2007
|
|
2008
|
|
Revenue
|
|
$
|
52,726
|
|
|
$
|
87,872
|
|
Net loss
|
|
|
(91,237
|
)
|
|
|
(59,927
|
)
|
The above pro forma information excludes the operating results
of businesses disposed of by RHG prior to the Companys
acquisition of RHG in October 2008.
In May 2008, the Company acquired all of the outstanding equity
of Nurture Media LLC (Nurture Media), an online
search marketing and consulting business. The purchase price was
$1,665, comprised of cash and $65 of acquisition costs, which
was fully allocated to goodwill. In addition to the purchase
price, the sellers of Nurture Media are eligible to receive an
additional amount of up to $3,750 based on the Companys
achievement of certain business milestones during the period
from June 2008 through May 2011. These contingent earnout
payments, which may be paid in cash or an equivalent number of
shares of the Companys common stock at the election of the
sellers calculated based on the then current fair market value
per share of the Companys common stock as determined by
the Companys Board of Directors, are also contingent upon
the continued employment with the Company of certain of the
sellers. The Company records any such earnout payments as
compensation expense for the applicable periods. For the year
ended December 31, 2009, the Company incurred $900 of such
expense, which is included in product development expense in the
accompanying consolidated statements of operations. Pro forma
results of operations giving effect to this acquisition would
not vary materially from historical results.
In March 2007, the Company acquired substantially all of the
assets of mydietjournal.com, LLC (MDJ), which
consisted primarily of a website that allowed customers to
calculate and monitor their caloric intake through a
comprehensive food and nutrient database. The total purchase
price was $927, including $27 of acquisition costs. The total
purchase price has been allocated to the acquired technology
supporting MDJ and is being amortized using the straight-line
method over a three-year
F-24
EVERYDAY HEALTH,
INC.
Notes to Consolidated Financial
Statements (Continued)
(in thousands, except share and per share data)
period. The acquired technology is classified as property and
equipment within the accompanying consolidated balance sheets.
|
|
4.
|
Prepaid Expenses
and Other Current Assets
|
Prepaid expenses and other current assets consist of the
following:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2009
|
|
|
Prepaid royalties
|
|
$
|
1,264
|
|
|
$
|
1,225
|
|
Prepaid licensed content
|
|
|
286
|
|
|
|
61
|
|
Prepaid insurance
|
|
|
178
|
|
|
|
157
|
|
Prepaid media advertising
|
|
|
69
|
|
|
|
32
|
|
Other
|
|
|
1,452
|
|
|
|
1,342
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
3,249
|
|
|
$
|
2,817
|
|
|
|
|
|
|
|
|
|
|
|
|
5.
|
Property and
Equipment
|
Property and equipment consist of the following:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2009
|
|
|
Computer equipment and purchased software
|
|
$
|
6,613
|
|
|
$
|
6,575
|
|
Internally developed software
|
|
|
6,066
|
|
|
|
7,164
|
|
Acquired technology
|
|
|
927
|
|
|
|
927
|
|
Furniture, fixtures and office equipment
|
|
|
1,363
|
|
|
|
1,224
|
|
Leasehold improvements
|
|
|
1,770
|
|
|
|
1,921
|
|
Website development costs
|
|
|
4,993
|
|
|
|
6,177
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21,732
|
|
|
|
23,988
|
|
Less accumulated depreciation and amortization
|
|
|
(7,716
|
)
|
|
|
(10,787
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
14,016
|
|
|
$
|
13,201
|
|
|
|
|
|
|
|
|
|
|
During the years ended December 31, 2007, 2008 and 2009,
the Company capitalized $394, $2,723, and $2,847, respectively,
of internally developed software costs and $2,237, $1,575, and
$2,526, respectively, of website development costs. Unamortized
internally developed software, including $1,100 at
December 31, 2008 and $700 at December 31, 2009 from
the RHG acquisition (see Note 3), was $821, $3,823, and
$4,678 as of December 31, 2007, 2008 and 2009,
respectively. Amortization expense of internally developed
software was $556, $921 and $2,077 for the years ended
December 31, 2007, 2008 and 2009, respectively.
Unamortized acquired technology was $696, $387 and $78 as of
December 31, 2007, 2008 and 2009, respectively.
Amortization expense for acquired technology was approximately
$231, $309 and $309 for the years ended December 31, 2007,
2008 and 2009, respectively.
Total depreciation and amortization expense related to property
and equipment was approximately $2,030, $3,731 and $7,350 for
the years ended December 31, 2007, 2008 and 2009,
respectively.
F-25
EVERYDAY HEALTH,
INC.
Notes to Consolidated Financial
Statements (Continued)
(in thousands, except share and per share data)
|
|
6.
|
Goodwill and
Other Intangible Assets
|
During the year ended December 31, 2008, goodwill of
$54,126, trade names of $5,100 and definite-lived intangible
assets of $18,400 were recorded in connection with the RHG and
Nurture Media acquisitions (see Note 3). For the year ended
December 31, 2009, goodwill increased by $744 related to
additional payments and purchase price adjustments related to
the RHG acquisition. The definite-lived intangible assets are
comprised of $9,400 relating to customer relationships with
estimated useful lives of five years and $3,900 relating to
agreements with certain of the Companys website partners
with estimated useful lives of seven years. Amortization expense
relating to the definite-lived intangible assets totaled $609
during the year ended December 31, 2008 and $2,437 for the
year ended December 31, 2009. Future amortization expense
of the intangible assets is estimated to be as follows:
|
|
|
|
|
Year ending December 31:
|
|
|
|
|
2010
|
|
$
|
2,437
|
|
2011
|
|
|
2,437
|
|
2012
|
|
|
2,437
|
|
2013
|
|
|
1,967
|
|
2014
|
|
|
557
|
|
Thereafter
|
|
|
419
|
|
|
|
|
|
|
Total
|
|
$
|
10,254
|
|
|
|
|
|
|
Accrued expenses consist of the following:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2009
|
|
|
Compensation
|
|
$
|
6,540
|
|
|
$
|
4,058
|
|
Royalties
|
|
|
3,477
|
|
|
|
5,229
|
|
Accrued lease termination costs
|
|
|
2,051
|
|
|
|
914
|
|
Media and licensed content
|
|
|
1,964
|
|
|
|
349
|
|
Professional fees
|
|
|
1,059
|
|
|
|
946
|
|
Due to seller of RHG
|
|
|
901
|
|
|
|
|
|
Other
|
|
|
1,524
|
|
|
|
989
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
17,516
|
|
|
$
|
12,485
|
|
|
|
|
|
|
|
|
|
|
In September 2009, the Company entered into a loan and security
agreement with an unrelated third party in the amount of $12,000
(the Credit Facility). The Credit Facility consists
of the following: (i) a
24-month
revolving credit facility, which has a borrowing base that is
determined by a percentage of eligible accounts receivable, as
defined in the Credit Facility (the Revolver), and
(ii) a
12-month
committed line (the Committed Line).
The maximum amount that can be outstanding under the Revolver is
$12,000 minus the balance outstanding under the Committed Line.
The maximum amount that can be outstanding under the Committed
Line is $4,000, and this amount decreases to zero over the term
of the Committed Line. The repayment terms provide for monthly
payments of accrued interest, with principal being due in
F-26
EVERYDAY HEALTH,
INC.
Notes to Consolidated Financial
Statements (Continued)
(in thousands, except share and per share data)
September 2011 for outstanding borrowings under the Revolver and
in September 2010 for outstanding borrowings under the Committed
Line. In addition to paying interest on the Credit Facility, the
Company pays a commitment fee of 0.75% per annum for the
unutilized commitment. For the period from the closing date of
the Credit Facility through December 31, 2009, the interest
rate for the Revolver is the greater of (i) the prime rate
then in effect plus 475 basis points or (ii) 8% and,
subsequent to December 31, 2009, the greater of
(i) the prime rate then in effect plus 425 basis
points or (ii) 7.5%. For the period from the closing date
of the Credit Facility through December 31, 2009, the
interest rate for the Committed Line is the greater of
(i) the prime rate then in effect plus 575 basis
points or (ii) 9% and, subsequent to December 31,
2009, the greater of (i) the prime rate then in effect plus
525 basis points or (ii) 8.5%. At December 31,
2009, outstanding borrowings under the Revolver amounted to
$12,000.
In October 2009, the Company entered into a $5,000 credit
facility with an unrelated third party (Subordinated
Facility). The Subordinated Facility consists of a $5,000
commitment amount which has a maturity date of May 1, 2013.
The Company received the full commitment amount upon the closing
of the Subordinated Facility. All indebtedness incurred pursuant
to the Subordinated Facility is subordinate to any indebtedness
outstanding under the Credit Facility.
The interest rate for the Subordinated Facility is equal to the
greater of (i) 13.0% and (ii) 13.0% plus the
difference between (a) the one month LIBOR Rate as of the
date five days prior to the funding date of the loan as reported
by the Wall Street Journal and (b) 2.76%. At
December 31, 2009, outstanding borrowings under the
Subordinated Facility amounted to $5,000.
Maturities of debt at December 31, 2009 are as follows:
|
|
|
|
|
2010
|
|
$
|
142
|
|
2011
|
|
|
13,828
|
|
2012
|
|
|
2,080
|
|
2013
|
|
|
950
|
|
|
|
|
|
|
|
|
$
|
17,000
|
|
|
|
|
|
|
The Credit Facility and Subordinated Facility contain certain
financial and operational covenants with which the Company must
comply, whether or not there are any borrowings outstanding.
Such covenants include restrictions on certain types of
dispositions, mergers and acquisitions, indebtedness,
investments, liens and capital expenditures, issuance of capital
stock and the ability of the Company to pay dividends and make
other distributions. The Company was in compliance with the
financial and operational covenants of the Credit Facility and
Subordinated Facility as of December 31, 2009. The Revolver
and the Committed Line are secured by a first priority security
interest in substantially all of the existing and future assets
of the Company. The Subordinated Facility is secured by a
subordinated security interest in substantially all of the
Companys existing and future assets.
In connection with the Credit Facility, the Company issued to
the lender a warrant to purchase 47,285 shares of
Series F redeemable convertible preferred stock at $7.6134
per share and, in connection with the Subordinated Facility, the
Company issued to the lender a warrant to purchase 65,674 shares
of Series F redeemable convertible preferred stock at
$7.6134 per share (collectively the Warrants). The
Warrants were immediately exercisable. Accordingly, the Company
calculated the fair value of the Warrants using the
Black-Scholes option pricing model and recorded deferred
financing costs during the year ended December 31, 2009 of
$514. Additionally, the Company incurred financing costs of $229
in cash during the year ended December 31, 2009, which,
along with the fair value of the Warrants, have been deferred
and amortized using the effective interest rate method
F-27
EVERYDAY HEALTH,
INC.
Notes to Consolidated Financial
Statements (Continued)
(in thousands, except share and per share data)
through the final maturities of the Credit Facility and the
Subordinated Facility. Deferred financing costs are recorded in
other assets in the accompanying consolidated balance sheets.
Amortization expense relating to the Credit Facility and the
Subordinated Facility deferred financing costs was $75 for the
year ended December 31, 2009 and is included in interest
expense in the accompanying consolidated statements of
operations.
As part of the closing of the Credit Facility, the Company
repaid all outstanding borrowings under the Companys
pre-existing credit facility (the Former Credit
Facility) and such credit facility was terminated. The
Former Credit Facility, as amended, consisted of the following:
|
|
|
|
|
$8,000 revolving credit facility, which had a borrowing base
that was determined by a percentage of eligible accounts
receivable, as defined (the Former Revolver), of
which $2,000 and $5,000 was outstanding at December 31,
2007 and 2008, respectively;
|
|
|
|
$4,000 delayed-draw term loan (the Term Loan) of
which and $3,941 and $2,597 was outstanding at December 31,
2007 and 2008, respectively.
|
The interest rate for the Former Revolver was the greater of the
prime rate plus 375 basis points or 10.5%. The interest
rate for the Term Loan was 300 basis points above the prime
rate at the time of the advance request.
In addition, the Former Credit Facility contained certain
reporting compliance and operational covenants that the Company
was required to comply with, whether or not there were any
borrowings outstanding. Such covenants included restrictions on
certain types of indebtedness, investments, liens and capital
expenditures and the ability of the Company to pay dividends and
make other distributions. For the year ended December 31,
2008, the Company received a waiver with respect to its covenant
requiring the Company to deliver audited financial statements to
the lender within 180 days of its fiscal year-end. The
Former Revolver and Term Loan were secured by a first priority
security interest in substantially all of the existing and
future assets of the Company.
There was no required amortization of amounts outstanding under
the Former Revolver, which were due in full on October 31,
2009. Funds available under the Former Revolver may have been
drawn, repaid and redrawn. Principal payments under the Term
Loan were payable in varying amounts over a
30-month
period commencing on the first day of the seventh month
subsequent to draw under the Term Loan with all outstanding
balances due on December 31, 2010. The Company also may
have been required to make principal payments upon a change in
control, certain asset dispositions, or should the Company have
completed an initial public offering of its common stock. Any
amounts repaid under the Term Loan reduced the future borrowing
capacity available to the extent of the amounts repaid.
In connection with the Former Credit Facility, the Company
issued to the lender a warrant to purchase 110,018 shares
of Series C redeemable convertible preferred stock (the
Former Credit Facility Warrant) at $3.27 per share.
The Former Credit Facility Warrant was immediately exercisable.
Accordingly, the Company calculated the fair value of the Former
Credit Facility Warrant using the Black-Scholes option pricing
model and recorded deferred financing costs during 2007 of $202.
Additionally, the Company incurred financing costs of $152 and
$68 in cash during 2007 and 2008, respectively, which along with
the fair value of the Former Credit Facility Warrant, have been
deferred and amortized using the effective interest rate method
through final maturity of the Term Loan. Deferred financing
costs are recorded in other assets in the accompanying
consolidated balance sheets. Amortization of deferred financing
costs was $86, $135 and $203 for the years ended
December 31, 2007, 2008 and 2009, respectively, which
includes the write off in 2009 of deferred
F-28
EVERYDAY HEALTH,
INC.
Notes to Consolidated Financial
Statements (Continued)
(in thousands, except share and per share data)
financing costs related to the termination of the Former Credit
Facility, and is included in interest expense in the
accompanying consolidated statements of operations.
In March 2007, the Company issued $4,000 of convertible
promissory notes to certain holders of the Companys
redeemable convertible preferred stock (the Investor
Bridge) with an interest rate of 8% per annum. In
connection with the issuance of Series D redeemable
convertible preferred stock in August 2007, the Investor Bridge,
plus accrued interest of $156, was converted into shares of the
Companys Series D redeemable convertible preferred
stock using a conversion rate of $6.87 per share, which equated
to the initial conversion rate of the Companys
Series D redeemable convertible preferred stock.
|
|
9.
|
Redeemable
Convertible Preferred Stock
|
In March 2003, the Company issued 3,450,000 shares of
Series A redeemable convertible preferred stock
(Series A) for aggregate net proceeds of $1,053.
In November 2003 and July 2004, the Company issued 2,012,612 and
534,640 shares, respectively, of Series B redeemable
convertible preferred stock (Series B) for
aggregate proceeds of $4,500 before related expenses of $87. In
February 2006, the Company issued 1,833,633 shares of
Series C redeemable convertible preferred stock
(Series C) for aggregate proceeds of $6,000
before related expenses of $118.
In August and September 2007, the Company issued 2,915,725 and
727,950 shares, respectively, of its Series D
redeemable convertible preferred stock
(Series D) for aggregate proceeds of $25,027
before related expenses of $1,673.
Pursuant to the terms of an agreement with one of the
Companys partners, in February 2008, the partner elected
to receive the first $2,000 of its royalty in Series D in
lieu of cash. Accordingly, the Company issued
291,180 shares of its Series D to such partner.
In October 2008, in connection with the acquisition of RHG (see
Note 3), the Company issued 8,930,966 shares of its
Series E redeemable convertible preferred stock
(Series E) in exchange for all of the
outstanding equity of RHG. The Series E shares were valued
at $7.98 per share, resulting in an aggregate valuation of the
consideration exchanged of $71,250.
In October and November 2008, the Company issued an aggregate of
2,951,128 shares of Series F redeemable convertible
preferred stock (Series F) for aggregate
proceeds of approximately $22,468.
The redeemable convertible preferred stock,
Series A-F
(collectively, the Preferred Stock) have the
following characteristics:
Conversion
Each share of Preferred Stock is convertible at the option of
the holder, at any time, into such number of fully paid shares
of the Companys common stock equal to the applicable
original issue price for such share of Preferred Stock divided
by the applicable conversion price for such share of Preferred
Stock then in effect. As of December 31, 2009, the original
issue prices and the conversion prices for each series of
Preferred Stock are as follows: $0.50 for Series A, $1.77
for Series B, $3.27 for Series C, $6.87 for
Series D, $7.98 for Series E and $7.61 for
Series F, reflecting a
one-for-one
conversion for each such series. The conversion prices for each
series of Preferred Stock are subject to adjustment upon the
occurrence of certain events, including stock dividends, stock
splits, combinations or other similar recapitalizations, and
issuance of capital stock at a price below the conversion
F-29
EVERYDAY HEALTH,
INC.
Notes to Consolidated Financial
Statements (Continued)
(in thousands, except share and per share data)
price in effect for such series of Preferred Stock (subject to
certain exceptions). The Preferred Stock is subject to automatic
conversion into common stock upon (i) the occurrence of a
qualified public offering of the Companys common stock, as
defined, or (ii) a specified vote by holders of Preferred
Stock.
Dividends
The holders of Preferred Stock are entitled to receive, when and
as declared by the Board of Directors and out of funds legally
available, non-cumulative dividends at a rate determined by the
Board of Directors, payable in preference and priority to the
payment of any dividends on common stock. Through
December 31, 2009, no dividends were declared or paid by
the Company.
Liquidation
Preference
In the event of any liquidation, dissolution or winding up of
the Company, whether voluntary or involuntary, the holders of
the then outstanding Preferred Stock shall receive, in
preference to any payments to the holders of common stock, an
amount equal to the original issue price (except that the
holders of Series E shall receive $1.78 per share in lieu
of the original issue price) plus all declared but unpaid
dividends (Preferential Payments).
After all Preferential Payments, the remaining assets of the
Company shall be distributed among the holders of the shares of
Series A, Series C, Series D, and common stock,
pro rata, based on the number of shares held on an as-if
converted basis (except that the holders of shares of
Series C and Series D shall not receive more than an
aggregate of $6.54 and $10.30, respectively, including
Preferential Payments).
Voting
Each holder of Preferred Stock is entitled to the number of
votes equal to the number of shares of common stock into which
such holders shares of Preferred Stock are convertible at
the time of such vote and shall vote together with the holders
of common stock on any matters presented to the stockholders for
their consideration. In addition, the holders of Preferred Stock
are entitled to vote separately from the common stock to elect
six members of the Board of Directors and to approve certain
specified matters. On all matters in which the holders of
Preferred Stock vote separately, the holders of Series E
may not cast more than 28.5% of the votes (the
Series E Reduced Voting).
Common Stock
Reserved for Future Issuance
As of December 31, 2009, the Company has reserved up to
23,870,811 shares of common stock for issuance upon
conversion of the Companys Preferred Stock and exercise of
the Credit Facility, Subordinated Facility and Former Credit
Facility Warrants.
Redemption
Redemption rights issued in connection with the Series C
were extended to the holders of the Series A and
Series B in February 2006, with the right to require
redemption commencing 60 days after receipt by the Company
of a notice by the holders of Preferred Stock on or after
February 2011. Redemption rights were also issued to the holders
of the Series D, with the right to require redemption
commencing 60 days after receipt by the Company of a notice
by the holders of Preferred Stock on or after August 2012.
Concurrent with the issuance of the Series D, the holders
of the Series A, Series B and Series C agreed to
modify their redemption rights so that the right to require
redemption
F-30
EVERYDAY HEALTH,
INC.
Notes to Consolidated Financial
Statements (Continued)
(in thousands, except share and per share data)
commenced 60 days after receipt by the Company of a notice
by the holders of Preferred Stock on or after August 2012.
Concurrent with the issuance of the Series F, the holders
of Series A, Series B, Series C, Series D
and Series E agreed to modify their redemption rights so
that the right to require redemption requires approval of at
least 56% of the outstanding Preferred Stock (subject to the
Series E Reduced Voting), commencing 60 days after
receipt by the Company of a notice by the holders of Preferred
Stock on or after October 15, 2013. Accordingly, at the
option of a 56% of the holders of the Preferred Stock (subject
to the Series E Reduced Voting), each share of Preferred
Stock becomes redeemable at a price equal to the applicable
original issue price per share, plus all declared but unpaid
dividends thereon, in three annual installments commencing
60 days after receipt by the Company of a notice by the
holders of Preferred Stock on or after October 2013.
The Company has recorded its Preferred Stock outside of
permanent equity because the redemption feature is not solely
within the control of the Company.
Redeemable Convertible Preferred Stock consisted of the
following at December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
|
|
|
|
|
|
|
|
|
|
|
Issued and
|
|
|
Stated Value,
|
|
|
Liquidation
|
|
|
|
Authorized
|
|
|
Outstanding
|
|
|
Net of Expenses
|
|
|
Preference
|
|
|
Redeemable convertible preferred stock:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series A
|
|
|
3,450,000
|
|
|
|
3,450,000
|
|
|
$
|
1,053
|
|
|
$
|
1,725
|
|
Series B
|
|
|
2,547,252
|
|
|
|
2,547,252
|
|
|
|
4,413
|
|
|
|
4,500
|
|
Series C
|
|
|
1,943,651
|
|
|
|
1,833,633
|
|
|
|
5,882
|
|
|
|
6,000
|
|
Series D
|
|
|
3,934,855
|
|
|
|
3,934,855
|
|
|
|
25,354
|
|
|
|
27,027
|
|
Series E
|
|
|
8,930,966
|
|
|
|
8,930,966
|
|
|
|
71,250
|
|
|
|
15,789
|
|
Series F
|
|
|
3,064,087
|
|
|
|
2,951,128
|
|
|
|
22,468
|
|
|
|
22,468
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total redeemable convertible preferred stock
|
|
|
23,870,811
|
|
|
|
23,647,834
|
|
|
$
|
130,420
|
|
|
$
|
77,509
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Authorized
Capital
As of December 31, 2009, the Company was authorized to
issue 37,000,000 shares of its common stock. As of
December 31, 2009, the Company has reserved
23,870,811 shares of common stock for issuance in
connection with its Preferred Stock, Credit Facility,
Subordinated Facility and Former Credit Facility Warrants, and
5,700,000 shares for issuance under its 2003 Stock Option
Plan.
The Company has adopted the 2003 Stock Option Plan (the
2003 Plan) that authorizes the Board of Directors to
grant incentive stock options and non-statutory stock options to
employees, directors and consultants of the Company and its
affiliates. As of December 31, 2009, under the terms of the
2003 Plan, as amended, the Board of Directors authorized and
reserved 5,700,000 shares of the Companys common
stock for issuance. Options are granted at prices not less than
the estimated fair market value of the Companys common
stock on the date of grant. The options generally vest and
become exercisable over four years from the date of grant and
expire after ten years. As of December 31, 2009,
659,780 shares remained available for future awards under
the 2003 Plan.
F-31
EVERYDAY HEALTH,
INC.
Notes to Consolidated Financial
Statements (Continued)
(in thousands, except share and per share data)
The following table summarizes stock option activity for the
years ended December 31, 2007, 2008 and 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Remaining
|
|
|
Aggregate
|
|
|
|
Number of
|
|
|
Exercise
|
|
|
Contractual
|
|
|
Intrinsic
|
|
|
|
Options
|
|
|
Price
|
|
|
Life (Years)
|
|
|
Value
|
|
|
Outstanding at January 1, 2007
|
|
|
1,210,532
|
|
|
$
|
1.41
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
1,157,439
|
|
|
$
|
4.64
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(139,486
|
)
|
|
$
|
0.62
|
|
|
|
|
|
|
|
|
|
Cancelled
|
|
|
(221,833
|
)
|
|
$
|
1.96
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2007
|
|
|
2,006,652
|
|
|
$
|
3.27
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
1,862,700
|
|
|
$
|
6.18
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(27,932
|
)
|
|
$
|
1.38
|
|
|
|
|
|
|
|
|
|
Cancelled
|
|
|
(182,551
|
)
|
|
$
|
2.87
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2008
|
|
|
3,658,869
|
|
|
$
|
4.78
|
|
|
|
8.50
|
|
|
$
|
1,271
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at December 31, 2008
|
|
|
1,087,686
|
|
|
$
|
2.76
|
|
|
|
7.06
|
|
|
$
|
1,152
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2008
|
|
|
3,658,869
|
|
|
$
|
4.78
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
1,629,600
|
|
|
$
|
4.13
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(53,790
|
)
|
|
$
|
3.78
|
|
|
|
|
|
|
|
|
|
Cancelled
|
|
|
(482,800
|
)
|
|
$
|
5.24
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2009
|
|
|
4,751,879
|
|
|
$
|
4.52
|
|
|
|
8.11
|
|
|
$
|
4,631
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at December 31, 2009
|
|
|
1,904,703
|
|
|
$
|
3.98
|
|
|
|
6.86
|
|
|
$
|
2,654
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The total intrinsic value of the options exercised during the
years ended December 31, 2007, 2008 and 2009 was $695, $27
and $4, respectively.
Proceeds from the exercise of options were $86, $38 and $204 for
the years ended December 31, 2007, 2008 and 2009,
respectively.
The weighted average fair value per share at date of grant for
options granted during the years ended December 31, 2007,
2008 and 2009 was $2.99, $2.77 and $1.71, respectively. The fair
value of options granted is estimated on the date of grant using
the Black-Scholes option pricing model and recognized in expense
over the vesting period of the options using the graded
attribution method.
The following table presents the weighted-average assumptions
used to estimate the fair value of options granted in the years
ended December 31, 2007, 2008 and 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
2008
|
|
2009
|
|
Volatility
|
|
|
66.12
|
%
|
|
|
58.15
|
%
|
|
|
52.79
|
%
|
Expected life (years)
|
|
|
6.25
|
|
|
|
6.25
|
|
|
|
6.25
|
|
Risk-free interest rate
|
|
|
4.94
|
%
|
|
|
2.38
|
%
|
|
|
2.87
|
%
|
Dividend yield
|
|
|
0.00
|
|
|
|
0.00
|
|
|
|
0.00
|
|
As the Companys common stock is not publicly traded, the
expected stock price volatilities are estimated based on
historical realized volatilities of comparable publicly traded
company stock prices over a period of time commensurate with the
expected term of the option award. The expected life
F-32
EVERYDAY HEALTH,
INC.
Notes to Consolidated Financial
Statements (Continued)
(in thousands, except share and per share data)
represents the period of time for which the options granted are
expected to be outstanding. The Company used the simplified
method for determining expected life for options qualifying for
treatment due to the limited history the Company currently has
with option exercise activity. The risk-free interest rate is
based on the U.S. Treasury yield curve for periods equal to
the expected term of the options on the grant date.
Total employee stock-based compensation expense was $990, $2,996
and $3,025 for the years ended December 31, 2007, 2008 and
2009, respectively.
At December 31, 2009, there was approximately $3,578 of
unrecognized compensation expense related to unvested stock
options, which is expected to be recognized over a weighted
average period of 1.11 years. The total fair value of stock
options vested during the years ended December 31, 2007,
2008 and 2009 was $439, $1,374 and $2,765, respectively.
The provision for income taxes consists of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
Federal
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
State
|
|
|
|
|
|
|
|
|
|
|
187
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Current
|
|
|
|
|
|
|
|
|
|
|
187
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
|
|
|
|
228
|
|
|
|
865
|
|
State
|
|
|
|
|
|
|
65
|
|
|
|
279
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Deferred
|
|
|
|
|
|
|
293
|
|
|
|
1,144
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Tax Expense
|
|
$
|
|
|
|
$
|
293
|
|
|
$
|
1,331
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The current income tax provision for the year ended
December 31, 2009 consisted of current state minimum taxes.
The deferred provision for income tax expense for the years
ended December 31, 2008 and 2009 relates to basis
differences in indefinite lived intangible assets that cannot be
offset by current year deferred tax assets.
F-33
EVERYDAY HEALTH,
INC.
Notes to Consolidated Financial
Statements (Continued)
(in thousands, except share and per share data)
As of December 31, 2008 and 2009, the Company had gross
deferred tax assets of $22,668 and $32,881, respectively,
related primarily to net operating loss (NOL)
carryforwards. Significant components of the Companys
deferred tax assets (liabilities) were as follows:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2009
|
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Net operating loss carryforwards
|
|
$
|
19,604
|
|
|
$
|
27,438
|
|
Allowance for doubtful accounts
|
|
|
436
|
|
|
|
533
|
|
Depreciation
|
|
|
213
|
|
|
|
|
|
Intangible assets
|
|
|
78
|
|
|
|
390
|
|
Deferred revenue
|
|
|
387
|
|
|
|
846
|
|
Stock-based compensation
|
|
|
1,950
|
|
|
|
3,225
|
|
Accrued expenses and other
|
|
|
|
|
|
|
449
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax assets
|
|
|
22,668
|
|
|
|
32,881
|
|
Valuation allowance
|
|
|
(20,228
|
)
|
|
|
(29,970
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets
|
|
|
2,440
|
|
|
|
2,911
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
|
|
|
|
(955
|
)
|
Goodwill
|
|
|
(265
|
)
|
|
|
(1,263
|
)
|
Intangible assets
|
|
|
(2,468
|
)
|
|
|
(2,476
|
)
|
Other
|
|
|
|
|
|
|
(30
|
)
|
|
|
|
|
|
|
|
|
|
Total deferred tax liabilities
|
|
|
(2,733
|
)
|
|
|
(4,724
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax liabilities
|
|
$
|
(293
|
)
|
|
$
|
(1,813
|
)
|
|
|
|
|
|
|
|
|
|
The Company has provided a valuation allowance against the net
deferred tax assets to the extent it has been determined that it
is more likely than not that such net deferred tax assets will
not be realizable. If the Company achieves profitability, the
net deferred tax assets may be available to offset future income
tax liabilities. The deferred tax liability relates to basis
differences in indefinite lived intangible assets that cannot be
offset by deferred tax assets.
At December 31, 2009, the Company had approximately $67,086
of federal and state NOL carryforwards available to offset
future taxable income, which expire from 2020 through 2029.
The full utilization of these losses in the future is dependent
upon the Companys ability to generate taxable income and
could be limited due to ownership changes, as defined under the
provisions of Section 382 of the Internal Revenue Code. The
Company has not yet completed a detailed analysis to determine
whether such an ownership change has occurred.
The difference between the tax provision computed at the
statutory rate and the tax provision recorded by the Company
primarily relates to state and local income taxes and losses
incurred for financial statement purposes for which no tax
benefit has been recorded. A reconciliation between the
F-34
EVERYDAY HEALTH,
INC.
Notes to Consolidated Financial
Statements (Continued)
(in thousands, except share and per share data)
statutory rate and the effective tax rate for the years ended
December 31, 2007, 2008 and 2009 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
Tax at statutory rate
|
|
$
|
(3,548
|
)
|
|
$
|
(4,513
|
)
|
|
$
|
(6,192
|
)
|
Permanent items
|
|
|
51
|
|
|
|
137
|
|
|
|
152
|
|
State taxes
|
|
|
|
|
|
|
42
|
|
|
|
302
|
|
Changes in valuation allowance
|
|
|
3,497
|
|
|
|
4,627
|
|
|
|
7,069
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total provision
|
|
$
|
|
|
|
$
|
293
|
|
|
$
|
1,331
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective January 1, 2007, the Company adopted the
accounting guidance on uncertainties in income taxes. The
adoption of this guidance did not have a material impact on the
Companys financial position, results of operations or cash
flows.
As of December 31, 2008 and 2009, the Company had
unrecognized tax benefits of $0 and $31, respectively.
Unrecognized tax benefits increased as of December 31, 2009
as a result of tax positions taken with respect to
December 31, 2008. The Companys policy is to include
interest and penalties related to unrecognized tax benefits
within the Companys provision for income taxes. There were
no interest or penalties related to unrecognized tax benefits
accrued at December 31, 2007, 2008 or 2009. The Company
does not expect any significant increase in unrecognized tax
benefits within the next twelve months.
The Company files income tax returns in the U.S. federal
jurisdiction, and various state and foreign jurisdictions. With
few exceptions, the Company is no longer subject to
U.S. federal, state or
non-U.S. income
tax examinations by tax authorities for years prior to 2006.
However, to the extent U.S. federal and state NOL
carryforwards are utilized, the use of the NOLs could be subject
to examination by the tax authorities. The Company believes that
it has appropriate support for the income tax positions taken
and to be taken on its tax returns and that its accruals for tax
liabilities are adequate for all open years based on an
assessment of many factors including past experience and
interpretations of tax law.
Operating Leases: The Company is a
party to certain non-cancelable operating leases for office
space. The future minimum lease commitments for these leases,
which expire on various dates through 2018, net of related
aggregate sublease rentals, are as follows as of
December 31, 2009:
|
|
|
|
|
2010
|
|
$
|
2,649
|
|
2011
|
|
|
2,426
|
|
2012
|
|
|
1,507
|
|
2013
|
|
|
1,175
|
|
2014
|
|
|
1,281
|
|
Thereafter
|
|
|
5,610
|
|
|
|
|
|
|
Sublease rentals
|
|
|
(1,205
|
)
|
|
|
|
|
|
Net lease commitments
|
|
$
|
13,443
|
|
|
|
|
|
|
Rent expense, net of sublease income, was approximately $481,
$765 and $1,669 for the years ended December 31, 2007, 2008
and 2009, respectively.
F-35
EVERYDAY HEALTH,
INC.
Notes to Consolidated Financial
Statements (Continued)
(in thousands, except share and per share data)
Minimum Guaranteed Payments: The
Company has entered into certain agreements with website
partners, pursuant to which the Company is required to pay
minimum guaranteed payments over the term of the agreement,
regardless of revenue generated by the Company. Future minimum
guaranteed payments as of December 31, 2009 are as follows:
|
|
|
|
|
2010
|
|
$
|
12,135
|
|
2011
|
|
|
5,026
|
|
2012
|
|
|
3,142
|
|
2013
|
|
|
1,324
|
|
2014
|
|
|
700
|
|
Thereafter
|
|
|
233
|
|
|
|
|
|
|
Total
|
|
$
|
22,560
|
|
|
|
|
|
|
Certain minimum guaranteed payments with respect to these
agreements are subject to reductions if specified performance
metrics are not maintained by the other party.
The Company sponsors a defined contribution 401(k) plan covering
all eligible employees, which is subject to the provisions of
the Employee Retirement Income Security Act of 1974.
Participants of the plan may make annual contributions up to the
applicable IRS limit. The Company generally does not make
contributions to the plan; however, prior to the merger of the
former RHG 401(k) plan with the Companys plan, employer
contributions totaling $69 were made by the Company to the RHG
401(k) plan during the year ended December 31, 2008.
|
|
15.
|
Related Party
Transactions
|
The Company licenses the rights to certain digital content from
a third-party company, in exchange for certain royalty payments.
The Company also purchases online advertising from this third
party to market certain of its products and services. A former
member of the Companys Board of Directors was a member of
this third partys board of directors through 2007. For the
years ended December 31, 2006 and 2007, the Company
recognized royalty expense of $19 and $17 and media advertising
expenses of $115 and $198, respectively, related to this third
party.
At the time of the RHG acquisition (see Note 3), RHG was a
party to an agreement with a third party. One of the
Companys directors (until October 2009), through an entity
wholly-owned by such director, owns equity in such third party.
For the years ended December 31, 2008 and 2009, the Company
generated advertising and sponsorship revenue totaling $516 and
$6,612 and incurred royalty expense of $449 and $4,048,
respectively, relating to the agreement with this company.
In January 2010, the Company entered into a three-year license
and services agreement with a third party company for an
application to be offered on one or more of the Companys
websites. Two of the Companys directors currently serve on
the board of directors of this company. The President of the
Company served on the board of directors of this company until
December 2009 and owns an equity position in it. Funds
affiliated with certain of the Companys directors own
equity positions in this company.
F-36
EVERYDAY HEALTH,
INC.
Notes to Consolidated Financial
Statements (Continued)
(in thousands, except share and per share data)
|
|
17.
|
Quarterly
Financial Data (unaudited)
|
The following tables summarize the quarterly financial data for
the years ended December 31, 2008 and 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
|
First Quarter
|
|
|
Second Quarter
|
|
|
Third Quarter
|
|
|
Fourth Quarter
|
|
|
Revenues
|
|
$
|
14,450
|
|
|
$
|
15,917
|
|
|
$
|
16,373
|
|
|
$
|
22,672
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenue
|
|
|
10,121
|
|
|
|
8,910
|
|
|
|
7,756
|
|
|
|
8,442
|
|
Sales and marketing
|
|
|
2,174
|
|
|
|
2,829
|
|
|
|
3,441
|
|
|
|
6,059
|
|
Product development
|
|
|
2,911
|
|
|
|
3,025
|
|
|
|
3,372
|
|
|
|
5,566
|
|
General and administrative
|
|
|
2,208
|
|
|
|
2,594
|
|
|
|
2,616
|
|
|
|
5,488
|
|
Depreciation and amortization
|
|
|
660
|
|
|
|
825
|
|
|
|
875
|
|
|
|
1,980
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
18,074
|
|
|
|
18,183
|
|
|
|
18,060
|
|
|
|
27,535
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(3,624
|
)
|
|
|
(2,266
|
)
|
|
|
(1,687
|
)
|
|
|
(4,863
|
)
|
Interest (expense) income, net
|
|
|
1
|
|
|
|
(110
|
)
|
|
|
(138
|
)
|
|
|
(208
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before provision for income taxes
|
|
|
(3,623
|
)
|
|
|
(2,376
|
)
|
|
|
(1,825
|
)
|
|
|
(5,071
|
)
|
Provision for income taxes
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
(293
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(3,623
|
)
|
|
$
|
(2,376
|
)
|
|
$
|
(1,825
|
)
|
|
$
|
(5,364
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per common share basic and diluted
|
|
$
|
(0.55
|
)
|
|
$
|
(0.36
|
)
|
|
$
|
(0.28
|
)
|
|
$
|
(0.82
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding basic and
diluted
|
|
|
6,550,604
|
|
|
|
6,558,900
|
|
|
|
6,564,246
|
|
|
|
6,564,654
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-37
EVERYDAY HEALTH,
INC.
Notes to Consolidated Financial
Statements (Continued)
(in thousands, except share and per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
|
First Quarter
|
|
|
Second Quarter
|
|
|
Third Quarter
|
|
|
Fourth Quarter
|
|
|
Revenues
|
|
$
|
18,592
|
|
|
$
|
20,408
|
|
|
$
|
22,493
|
|
|
$
|
28,618
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenue
|
|
|
11,400
|
|
|
|
10,092
|
|
|
|
9,265
|
|
|
|
8,696
|
|
Sales and marketing
|
|
|
5,253
|
|
|
|
5,255
|
|
|
|
4,372
|
|
|
|
5,936
|
|
Product development
|
|
|
5,605
|
|
|
|
5,686
|
|
|
|
4,266
|
|
|
|
4,635
|
|
General and administrative
|
|
|
3,907
|
|
|
|
4,214
|
|
|
|
3,644
|
|
|
|
4,474
|
|
Depreciation and amortization
|
|
|
2,413
|
|
|
|
2,478
|
|
|
|
2,442
|
|
|
|
2,454
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
28,578
|
|
|
|
27,725
|
|
|
|
23,989
|
|
|
|
26,195
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations
|
|
|
(9,986
|
)
|
|
|
(7,317
|
)
|
|
|
(1,496
|
)
|
|
|
2,423
|
|
Interest expense, net
|
|
|
(189
|
)
|
|
|
(185
|
)
|
|
|
(449
|
)
|
|
|
(491
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before provision for income taxes
|
|
|
(10,175
|
)
|
|
|
(7,502
|
)
|
|
|
(1,945
|
)
|
|
|
1,932
|
|
Provision for income taxes
|
|
|
(278
|
)
|
|
|
(278
|
)
|
|
|
(278
|
)
|
|
|
(497
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(10,453
|
)
|
|
$
|
(7,780
|
)
|
|
$
|
(2,223
|
)
|
|
$
|
1,435
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(1.59
|
)
|
|
$
|
(1.19
|
)
|
|
$
|
(0.34
|
)
|
|
$
|
0.22
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
(1.59
|
)
|
|
$
|
(1.19
|
)
|
|
$
|
(0.34
|
)
|
|
$
|
0.20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
6,564,654
|
|
|
|
6,564,654
|
|
|
|
6,580,644
|
|
|
|
6,617,235
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
6,564,654
|
|
|
|
6,564,654
|
|
|
|
6,580,644
|
|
|
|
7,321,932
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-38
Everyday Health,
Inc.
The following unaudited pro forma consolidated statement of
operations is based on the historical consolidated financial
statements of Everyday Health, Inc. (the Company)
and Revolution Health Group LLC (RHG) and is
presented to give effect to the October 7, 2008 acquisition
of RHG as if the acquisition occurred on January 1, 2008.
The historical consolidated financial information has been
adjusted on a pro forma basis to give effect to events that are
(i) directly attributable to the acquisition,
(ii) factually supportable and (iii) expected to have
a continuing impact on the consolidated results.
The unaudited pro forma adjustments are based on currently
available information and assumptions that we believe to be
reasonable under the circumstances. The unaudited pro forma
consolidated financial statements are for informational purposes
only and are not necessarily indicative of the operating results
that would have occurred if the acquisition had been completed
at the date indicated, and such data does not purport to project
the results of operations for any future period. The unaudited
pro forma consolidated statement of operations does not reflect
the benefits that may result from synergies that may be derived
from any integration activities.
The unaudited pro forma consolidated statement of operations
should be read in conjunction with the Companys
consolidated financial statements and notes to the consolidated
financial statements and other information in Use of
Proceeds, Capitalization, Selected
Consolidated Financial Data, and Managements
Discussion and Analysis of Financial Condition and Results of
Operations contained elsewhere in this prospectus.
Unaudited Pro
Forma Consolidated Statement of Operations
For the Year Ended December 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Historical
|
|
|
|
|
|
|
|
|
|
|
|
|
Everyday
|
|
|
Historical
|
|
|
|
|
|
|
|
|
|
Health, Inc.(1)
|
|
|
RHG(2)
|
|
|
Adjustments
|
|
|
Pro Forma
|
|
|
|
(in thousands, except share and per share data)
|
|
|
Revenues
|
|
$
|
69,412
|
|
|
$
|
17,669
|
|
|
$
|
(931
|
)(4)
|
|
$
|
86,150
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenue
|
|
|
35,229
|
|
|
|
|
|
|
|
10,660
|
(6)
|
|
|
45,889
|
|
Sales and marketing
|
|
|
14,503
|
|
|
|
22,668
|
|
|
|
(10,660
|
)(6)
|
|
|
26,511
|
|
Product development
|
|
|
14,874
|
|
|
|
16,929
|
|
|
|
202
|
(6)
|
|
|
32,005
|
|
General and administrative
|
|
|
12,906
|
|
|
|
20,698
|
|
|
|
10
|
(6)
|
|
|
33,614
|
|
Restructuring expenses
|
|
|
|
|
|
|
2,805
|
|
|
|
(2,805
|
)(6)
|
|
|
|
|
Loss on investment in affiliated company
|
|
|
|
|
|
|
416
|
|
|
|
|
|
|
|
416
|
|
Depreciation and amortization
|
|
|
4,340
|
|
|
|
4,685
|
|
|
|
(1,381
|
)(3)
|
|
|
7,644
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
81,852
|
|
|
|
68,201
|
|
|
|
(3,974
|
)
|
|
|
146,079
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(12,440
|
)
|
|
|
(50,532
|
)
|
|
|
3,043
|
|
|
|
(59,929
|
)
|
Interest expense, net
|
|
|
(455
|
)
|
|
|
(172
|
)
|
|
|
|
|
|
|
(627
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before provision for income taxes
|
|
|
(12,895
|
)
|
|
|
(50,704
|
)
|
|
|
3,043
|
|
|
|
(60,556
|
)
|
Provision for income taxes
|
|
|
(293
|
)
|
|
|
|
|
|
|
(800
|
)(5)
|
|
|
(1,093
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(13,188
|
)
|
|
$
|
(50,704
|
)
|
|
$
|
2,243
|
|
|
$
|
(61,649
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per common share basic and diluted
|
|
$
|
(2.01
|
)
|
|
|
|
|
|
|
|
|
|
$
|
(9.40
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average common shares outstanding
|
|
|
6,559,614
|
|
|
|
|
|
|
|
|
|
|
|
6,559,614
|
|
F-39
|
|
|
(1) |
|
Includes financial data for RHG from the October 7, 2008
acquisition date through December 31, 2008. |
|
(2) |
|
Represents the period from January 1, 2008 to
October 6, 2008. |
|
(3) |
|
Represents the elimination of RHG historical depreciation and
amortization of $4,685 for the period from January 1, 2008
to September 30, 2008, offset by RHG depreciation expense
of $1,476 for the same period as a result of recording the
acquired property and equipment at a fair value of $6,395 with
an estimated average remaining useful life of 39 months and
amortization expense of $1,828 for the same period as a result
of recording intangible assets at fair value. Identifiable
long-lived intangible assets with definite lives are amortized
on a straight line basis over the expected life of
five years for customer relationships and seven years
for agreements with certain of the Companys website
partners. |
|
(4) |
|
Represents a decrease in revenue of $931 for the period from
January 1, 2008 to September 30, 2008, from the
adjustment recorded as of October 7, 2008 to reduce the
deferred revenue balance on billed but unearned license fees to
fair value. |
|
(5) |
|
Represents the deferred tax liability related to a basis
differences in indefinite lived intangible assets acquired in
the acquisition that cannot be offset by deferred tax assets. |
|
(6) |
|
Represents the aggregate impact of (i) the reclassification
of $10,660 of costs from sales and marketing to cost of revenue
to conform to the Companys presentation, (ii) the
reclassification of $202 and $10 of costs from restructuring
expense to product development and general and administrative,
respectively, to conform to the Companys presentation, and
(iii) the elimination of $2,593 of severance costs from
restructuring expenses incurred by RHG prior to the
Companys October 2008 acquisition; assuming a
January 1, 2008 pro forma acquisition date, these
employees would have been involuntarily terminated by the
Company upon acquisition pursuant to an exit plan, thus
eliminating this expense and increasing the cost of the acquired
entity. |
F-40
Notes to
Unaudited Pro Forma Consolidated Financial Statements
(in thousands, except share and per share data)
|
|
Note 1.
|
Basis of
Presentation
|
In October 2008, the Company acquired all of the outstanding
equity of RHG, which operated certain health-related websites
targeted to both consumers and healthcare providers. The
purchase price was valued at $72,793, consisting of
8,930,966 shares of Series E redeemable convertible
preferred stock valued at $71,250, and $1,543 of acquisition
costs. The acquisition was accounted for as a purchase business
combination and, accordingly, the purchase price was allocated
to the tangible and intangible assets acquired and liabilities
assumed on the basis of their respective fair values. The
results of operations of RHG have been included in the
consolidated financial statements of the Company from
October 7, 2008, which was the closing date of the
acquisition.
The accompanying unaudited pro forma consolidated financial
statements present the pro forma results of operations of the
consolidated company based upon the historical financial
statements of the Company and RHG, after giving effect to the
acquisition and adjustments described in this footnote, to
reflect the pro forma results of operations as if the
acquisition occurred on January 1, 2008.
The accompanying unaudited pro forma consolidated financial
statements are presented for illustrative purposes only and do
not give effect to any cost savings, revenue synergies or
restructuring expenses which may result from the integration of
the operations of the Company and RHG.
The following table summarizes the tangible and intangible
assets acquired, the liabilities assumed and the consideration
paid:
|
|
|
|
|
Cash
|
|
$
|
15,302
|
|
Accounts receivable
|
|
|
7,085
|
|
Prepaid expenses and other current assets
|
|
|
1,857
|
|
Property and equipment
|
|
|
6,395
|
|
Goodwill
|
|
|
52,461
|
|
Intangible assets
|
|
|
18,400
|
|
Accounts payable
|
|
|
(5,901
|
)
|
Accrued expenses
|
|
|
(20,037
|
)
|
Deferred revenue
|
|
|
(2,441
|
)
|
Other current liabilities
|
|
|
(328
|
)
|
|
|
|
|
|
Total consideration paid
|
|
$
|
72,793
|
|
|
|
|
|
|
During the year ended December 31, 2008, goodwill of
$52,461 and other intangible assets of $18,400 were recorded in
connection with the RHG acquisition. The intangible assets are
comprised of $9,400 relating to customer relationships with
estimated useful lives of five years, $3,900 relating to
agreements with certain of the Companys website partners
with estimated useful lives of seven years, and $5,100 relating
to trade names with an indefinite useful life.
F-41
Report of
Independent Auditors
Board of Directors
Revolution Health Group LLC
We have audited the consolidated balance sheets of Revolution
Health Group LLC (the Company) as of December 31, 2007 and
2006, and the related consolidated statements of operations,
changes in members equity and cash flows for each of the
years ended December 31, 2007 and 2006. These financial
statements are the responsibility of the Companys
management. Our responsibility is to express an opinion on these
financial statements based on our audits. We did not audit the
financial statements as of and for the year ended
December 31, 2006 of ConnectYourCare Company LLC, a
majority-owned subsidiary, which represents 3% of total
consolidated assets as of December 31, 2006 and 9% of the
consolidated net loss for the year ended December 31, 2006.
We also did not audit the financial statements as of and for the
year ended December 31, 2006 of RediClinic LLC, a
majority-owned subsidiary, which represents 13% of total
consolidated assets as of December 31, 2006 and 4% of the
consolidated net loss for the year ended December 31, 2006.
Those statements were audited by other auditors whose reports
have been furnished to us, and our opinion, insofar as it
relates to the amounts included for ConnectYourCare Company LLC
and RediClinic LLC, as of and for the year ended
December 31, 2006 is based solely on the reports of the
other auditors.
We conducted our audits in accordance with the standards
generally accepted in the United States. Those standards require
that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of
material misstatement. We were not engaged to perform an audit
of the Companys internal control over financial reporting.
Our audits included consideration of internal control over
financial reporting as a basis for designing audit procedures
that are appropriate in the circumstances, but not for the
purpose of expressing an opinion on the effectiveness of the
Companys internal control over financial reporting.
Accordingly, we express no such opinion. An audit also 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 and the report of other
auditors provide a reasonable basis for our opinion.
In our opinion, based on our audits and the reports of other
auditors, the financial statements referred to above present
fairly, in all material respects, the consolidated financial
position of Revolution Health Group LLC as of December 31,
2007 and 2006, and the consolidated results of their operations
and their cash flows for each of the years ended
December 31, 2007 and 2006, in conformity with accounting
principles generally accepted in the United States.
The accompanying financial statements have been prepared
assuming that Revolution Health Group LLC will continue as a
going concern. As more fully described in Note 2, the
Company has incurred recurring operating losses since inception.
These conditions raise substantial doubt about the
Companys ability to continue as a going concern.
Managements plans in regard to these matters also are
described in Note 2. The 2007 financial statements do not
include any adjustments to reflect the possible future effects
on the recoverability and classification of assets or the
amounts and classification of liabilities that may result from
the outcome of this uncertainty.
McLean, VA
September 19, 2008
except for Note 17, as to which the date is
January 22, 2010
F-42
Revolution Health
Group LLC
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
September 30,
|
|
|
2006
|
|
2007
|
|
2008
|
|
|
|
|
|
|
(unaudited)
|
|
|
(in thousands)
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
11,032
|
|
|
$
|
5,209
|
|
|
$
|
16,845
|
|
Restricted cash
|
|
|
|
|
|
|
2,767
|
|
|
|
|
|
Accounts receivable, net
|
|
|
1,231
|
|
|
|
3,105
|
|
|
|
7,085
|
|
Prepaid expenses and other current assets
|
|
|
2,359
|
|
|
|
1,815
|
|
|
|
1,857
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
14,622
|
|
|
|
12,896
|
|
|
|
25,787
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
|
11,568
|
|
|
|
6,562
|
|
|
|
4,568
|
|
Goodwill
|
|
|
32,716
|
|
|
|
41,566
|
|
|
|
41,768
|
|
Intangible assets, net
|
|
|
1,664
|
|
|
|
22,496
|
|
|
|
19,992
|
|
Investment in affiliated company
|
|
|
|
|
|
|
14,732
|
|
|
|
|
|
Other assets
|
|
|
358
|
|
|
|
1,048
|
|
|
|
750
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
60,928
|
|
|
$
|
99,300
|
|
|
$
|
92,865
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and members equity
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
5,509
|
|
|
$
|
2,843
|
|
|
$
|
5,901
|
|
Accrued expenses
|
|
|
6,774
|
|
|
|
5,265
|
|
|
|
10,612
|
|
Due to seller
|
|
|
741
|
|
|
|
24,052
|
|
|
|
1,000
|
|
Related-party note payable
|
|
|
|
|
|
|
5,012
|
|
|
|
162
|
|
Deferred revenue
|
|
|
|
|
|
|
1,776
|
|
|
|
4,203
|
|
Accrued restructuring expenses
|
|
|
|
|
|
|
1,571
|
|
|
|
632
|
|
Other current liabilities
|
|
|
578
|
|
|
|
525
|
|
|
|
165
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
13,602
|
|
|
|
41,044
|
|
|
|
22,675
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based liability
|
|
|
3,395
|
|
|
|
5,124
|
|
|
|
|
|
Other liabilities
|
|
|
479
|
|
|
|
148
|
|
|
|
175
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total long-term liabilities
|
|
|
3,874
|
|
|
|
5,272
|
|
|
|
175
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
17,476
|
|
|
|
46,316
|
|
|
|
22,850
|
|
Minority interest
|
|
|
6,212
|
|
|
|
99
|
|
|
|
|
|
Members equity
|
|
|
37,240
|
|
|
|
52,885
|
|
|
|
70,015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and members equity
|
|
$
|
60,928
|
|
|
$
|
99,300
|
|
|
$
|
92,865
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes.
F-43
Revolution Health
Group LLC
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months
|
|
|
|
|
|
|
Ended
|
|
|
|
Year Ended December 31,
|
|
|
September 30,
|
|
|
|
2006
|
|
|
2007
|
|
|
2007
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
(unaudited)
|
|
|
|
(in thousands)
|
|
|
Revenue
|
|
$
|
314
|
|
|
$
|
6,650
|
|
|
$
|
3,568
|
|
|
$
|
17,669
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and marketing
|
|
|
7,379
|
|
|
|
24,517
|
|
|
|
16,224
|
|
|
|
22,668
|
|
Technology, operations and product development
|
|
|
30,312
|
|
|
|
41,208
|
|
|
|
34,542
|
|
|
|
16,929
|
|
General and administrative
|
|
|
17,255
|
|
|
|
22,590
|
|
|
|
14,751
|
|
|
|
20,698
|
|
Restructuring expenses
|
|
|
|
|
|
|
3,202
|
|
|
|
|
|
|
|
2,805
|
|
Loss on investment in affiliated company
|
|
|
4,632
|
|
|
|
268
|
|
|
|
|
|
|
|
416
|
|
Depreciation and amortization
|
|
|
1,412
|
|
|
|
4,504
|
|
|
|
2,972
|
|
|
|
4,685
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
60,990
|
|
|
|
96,289
|
|
|
|
68,489
|
|
|
|
68,201
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(60,676
|
)
|
|
|
(89,639
|
)
|
|
|
(64,921
|
)
|
|
|
(50,532
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense), net:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income (expense), net
|
|
|
403
|
|
|
|
948
|
|
|
|
672
|
|
|
|
(172
|
)
|
Other (expense) income, net
|
|
|
127
|
|
|
|
(367
|
)
|
|
|
77
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income (expense), net
|
|
|
530
|
|
|
|
581
|
|
|
|
749
|
|
|
|
(172
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss from continuing operations
|
|
|
(60,146
|
)
|
|
|
(89,058
|
)
|
|
|
(64,172
|
)
|
|
|
(50,704
|
)
|
Minority interest in loss
|
|
|
107
|
|
|
|
89
|
|
|
|
59
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before discontinued operations
|
|
|
(60,039
|
)
|
|
|
(88,969
|
)
|
|
|
(64,113
|
)
|
|
|
(50,704
|
)
|
Discontinued operations
|
|
|
(13,669
|
)
|
|
|
(8,923
|
)
|
|
|
(14,852
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(73,708
|
)
|
|
$
|
(97,892
|
)
|
|
$
|
(78,965
|
)
|
|
$
|
(50,704
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes.
F-44
Revolution Health
Group LLC
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital Units
|
|
|
|
|
|
Total
|
|
|
|
Class A
|
|
|
Class B
|
|
|
Class C
|
|
|
Class E
|
|
|
Class F
|
|
|
Class G
|
|
|
Class H
|
|
|
Class I
|
|
|
Accumulated
|
|
|
Members
|
|
|
|
Units
|
|
|
Units
|
|
|
Units
|
|
|
Units
|
|
|
Units
|
|
|
Units
|
|
|
Units
|
|
|
Units
|
|
|
Deficit
|
|
|
Equity
|
|
|
|
(in thousands)
|
|
|
Balance at December 31, 2005
|
|
$
|
40,000
|
|
|
$
|
10,000
|
|
|
$
|
1,100
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(13,625
|
)
|
|
$
|
37,475
|
|
Member contributions
|
|
|
40,000
|
|
|
|
10,000
|
|
|
|
|
|
|
|
25,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
75,000
|
|
Stock compensation expense related to restricted Class C
units
|
|
|
|
|
|
|
|
|
|
|
888
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
888
|
|
Loan to unit holder
|
|
|
|
|
|
|
(220
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(220
|
)
|
Stock compensation expense related to long-term incentive plans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
287
|
|
|
|
287
|
|
Adjustment due to change in long-term incentive plan
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(480
|
)
|
|
|
(480
|
)
|
Adjustment to redemption value for certain minority interest
stockholders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,902
|
)
|
|
|
(1,902
|
)
|
Subsidiary dividend payment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(100
|
)
|
|
|
(100
|
)
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(73,708
|
)
|
|
|
(73,708
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2006
|
|
|
80,000
|
|
|
|
19,780
|
|
|
|
1,988
|
|
|
|
25,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(89,528
|
)
|
|
|
37,240
|
|
Member contributions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25,000
|
|
|
|
25,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
50,000
|
|
Stock compensation expense related to restricted Class C
units
|
|
|
|
|
|
|
|
|
|
|
450
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
450
|
|
Gain on sale of RediClinic
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15,300
|
|
|
|
15,300
|
|
Gain on sale of Extend Health
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18,452
|
|
|
|
18,452
|
|
Issuance of Class G units
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17,061
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17,061
|
|
Issuance of Class H units
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,500
|
|
|
|
|
|
|
|
|
|
|
|
7,500
|
|
Reversal of adjustment to redemption value for minority
interests due to sale of subsidiary
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,774
|
|
|
|
4,774
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(97,892
|
)
|
|
|
(97,892
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2007
|
|
|
80,000
|
|
|
|
19,780
|
|
|
|
2,438
|
|
|
|
50,000
|
|
|
|
25,000
|
|
|
|
17,061
|
|
|
|
7,500
|
|
|
|
|
|
|
|
(148,894
|
)
|
|
|
52,885
|
|
Member contributions (unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
35,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22,700
|
|
|
|
|
|
|
|
57,700
|
|
Stock compensation expense related to restricted Class C
units (unaudited)
|
|
|
|
|
|
|
|
|
|
|
792
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
792
|
|
Gain on sale of investment in affiliate (unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
734
|
|
|
|
734
|
|
Issuance of Class G units (unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,608
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,608
|
|
Net loss (unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(50,704
|
)
|
|
|
(50,704
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at September 30, 2008 (unaudited)
|
|
$
|
80,000
|
|
|
$
|
19,780
|
|
|
$
|
3,230
|
|
|
$
|
85,000
|
|
|
$
|
25,000
|
|
|
$
|
25,669
|
|
|
$
|
7,500
|
|
|
$
|
22,700
|
|
|
$
|
(198,864
|
)
|
|
$
|
70,015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes.
F-45
Revolution Health
Group LLC
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months
|
|
|
|
Year Ended
|
|
|
Ended
|
|
|
|
December 31,
|
|
|
September 30,
|
|
|
|
2006
|
|
|
2007
|
|
|
2007
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
(unaudited)
|
|
|
|
(in thousands)
|
|
Cash flows from operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(73,708
|
)
|
|
|
$(97,892
|
)
|
|
$
|
(78,965
|
)
|
|
$
|
(50,704
|
)
|
Adjustments to reconcile net loss to net cash used in operating
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
2,885
|
|
|
|
5,809
|
|
|
|
3,639
|
|
|
|
4,685
|
|
Stock compensation expense related to long-term incentive plans
|
|
|
3,202
|
|
|
|
1,729
|
|
|
|
1,638
|
|
|
|
800
|
|
Stock compensation expense for restricted Class C units
|
|
|
888
|
|
|
|
450
|
|
|
|
338
|
|
|
|
792
|
|
Stock compensation gain on termination of long-term incentive
plans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,924
|
)
|
Loss in affiliated company
|
|
|
4,632
|
|
|
|
268
|
|
|
|
|
|
|
|
416
|
|
Loss attributable to minority interest
|
|
|
(4,281
|
)
|
|
|
(2,148
|
)
|
|
|
(1,203
|
)
|
|
|
|
|
Gain on sale of investment in affiliated company
|
|
|
|
|
|
|
(8,219
|
)
|
|
|
|
|
|
|
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(629
|
)
|
|
|
524
|
|
|
|
(808
|
)
|
|
|
(3,980
|
)
|
Prepaid expenses and other assets
|
|
|
(2,374
|
)
|
|
|
(744
|
)
|
|
|
(803
|
)
|
|
|
256
|
|
Deferred revenue
|
|
|
|
|
|
|
(772
|
)
|
|
|
872
|
|
|
|
2,225
|
|
Accounts payable and accrued expenses
|
|
|
(290
|
)
|
|
|
(1,421
|
)
|
|
|
520
|
|
|
|
7,382
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in operating activities
|
|
|
(69,675
|
)
|
|
|
(102,416
|
)
|
|
|
(74,772
|
)
|
|
|
(44,052
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of property and equipment, net
|
|
|
(9,326
|
)
|
|
|
(127
|
)
|
|
|
(87
|
)
|
|
|
47
|
|
Purchases of businesses, net of cash acquired
|
|
|
(4,044
|
)
|
|
|
(7,809
|
)
|
|
|
(6,588
|
)
|
|
|
|
|
Acquisition of intangible assets, net
|
|
|
(63
|
)
|
|
|
(446
|
)
|
|
|
(171
|
)
|
|
|
|
|
Sale of businesses, net of cash disposal
|
|
|
|
|
|
|
34,212
|
|
|
|
13,796
|
|
|
|
|
|
Investment in affiliate
|
|
|
|
|
|
|
(7,500
|
)
|
|
|
|
|
|
|
|
|
Proceeds from sale of investment in affiliate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15,050
|
|
Change in restricted cash
|
|
|
|
|
|
|
(2,617
|
)
|
|
|
(3,960
|
)
|
|
|
2,767
|
|
Payment due to seller of businesses
|
|
|
|
|
|
|
(400
|
)
|
|
|
(741
|
)
|
|
|
(14,543
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by investing activities
|
|
|
(13,433
|
)
|
|
|
15,313
|
|
|
|
2,249
|
|
|
|
3,321
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments on capital leases/deferred rent
|
|
|
(127
|
)
|
|
|
(259
|
)
|
|
|
(174
|
)
|
|
|
(333
|
)
|
Capital contributions
|
|
|
75,000
|
|
|
|
50,000
|
|
|
|
50,000
|
|
|
|
17,700
|
|
Issuance of related-party note
|
|
|
|
|
|
|
5,012
|
|
|
|
|
|
|
|
35,000
|
|
Proceeds from minority interest holders
|
|
|
|
|
|
|
26,527
|
|
|
|
26,527
|
|
|
|
|
|
Payment of dividend
|
|
|
(100
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan to unit holder
|
|
|
(220
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
74,553
|
|
|
|
81,280
|
|
|
|
76,353
|
|
|
|
52,367
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (decrease) increase in cash and cash equivalents
|
|
|
(8,555
|
)
|
|
|
(5,823
|
)
|
|
|
3,830
|
|
|
|
11,636
|
|
Cash and cash equivalents, beginning of period
|
|
|
19,587
|
|
|
|
11,032
|
|
|
|
11,032
|
|
|
|
5,209
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period
|
|
$
|
11,032
|
|
|
$
|
5,209
|
|
|
$
|
14,862
|
|
|
$
|
16,845
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures of cash flow information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares issued as forgiveness of related party note
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
40,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustment to redemption value of minority interest
|
|
$
|
1,902
|
|
|
$
|
(4,774
|
)
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares issued for purchases of businesses
|
|
$
|
|
|
|
$
|
24,561
|
|
|
$
|
17,061
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts due to sellers
|
|
$
|
741
|
|
|
$
|
23,668
|
|
|
$
|
5,545
|
|
|
$
|
8,608
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition of capital leases
|
|
$
|
544
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes.
F-46
Revolution Health
Group LLC
(in
thousands, except unit and per unit data)
|
|
1.
|
Organization and
Description of Business
|
Revolution Health Group LLC (the Company or
RHG) is a Delaware limited liability company
(LLC) formed on March 28, 2005. The
Company is a leading consumer-centric health company founded to
transform how people approach their overall health and wellness
by putting them at the center of their own healthcare. The
cornerstone of the Company is the Revolution Health Network,
with its flagship www.RevolutionHealth.com, a consumer health
and medical information website that marries expert content and
tools with the power of social networking and websites
www.CarePages.com, and www.HealthTalk.com. The Company also
offers to employers premium services that provide health
information, customized tools and rewards to their employees; an
online health information network for the chronically ill; and a
leading online service that enables communication among family
and friends when someone is receiving care.
As of December 31, 2007, the Company was 68% owned by
Revolution Management Company, LLC (RMC), with the
remaining 32% owned by other individuals and entities.
The Company shall continue in existence until unanimous consent
of the members to dissolve or through judicial dissolution. In
commencing operations, the Company received cash capital
contributions from its members (see Note 10). The terms and
conditions of such, together with the rights and obligations of
the members, were contained in the Companys LLC Agreement
dated March 28, 2005, which has subsequently been amended.
As an LLC, no member shall be obligated personally for any debt,
obligation or liability of the Company; all such debt,
obligations and liabilities are the sole responsibility of the
Company. No member of the Company shall have the right to
withdraw capital or demand or receive distributions or other
returns of any amount in its capital account except as outlined
within the operating agreement.
See Note 17 for discussion on changes to the Companys
organizational structure, including the October 2008 acquisition
of the Company by Waterfront Media Inc.
The accompanying financial statements have been prepared on a
going-concern basis, which contemplates the realization of
assets and satisfaction of liabilities in the normal course of
business. Since inception, the Company has incurred, and
continues to incur, significant losses from operations. In
addition, the Company needs to raise additional capital to
continue its business operations and fund deficits in operating
cash flow. The Company plans to merge with Waterfront Media
Inc., as described in Note 17, which will provide the
additional capital to finance the development of its business
operations, although this capital raise cannot be assured.
The Companys ability to continue as a going concern is
dependent on either the completion of the merger with Waterfront
Media Inc. or its success at raising additional capital
sufficient to meet its obligations on a timely basis, and to
ultimately attain profitability. Management is confident of its
ability to complete the merger or raise the necessary funds for
the Companys growth and development activities. However,
there is no assurance that the Company will raise capital
sufficient to enable the Company to continue its operations for
the next 12 months.
In the event the Company is unable to successfully raise
additional capital, it is unlikely that the Company will have
sufficient cash flows and liquidity to finance its business
operations as currently contemplated. Accordingly, in the event
new financing is not obtained, the Company will likely reduce
product development, technology, marketing and general and
administrative expenses until it is able to obtain sufficient
financing to do so.
F-47
Revolution Health
Group LLC
Notes to
Consolidated Financial
Statements (Continued)
(in thousands,
except unit and per unit data)
These factors could significantly limit the Companys
ability to continue as a going concern. The consolidated balance
sheets do not include any adjustments relating to recoverability
and classification of recorded asset amounts or the amounts and
classification of liabilities that might be necessary should the
Company be unable to continue in existence.
See Note 17 for discussion on changes to the Companys
organizational structure, including the October 2008 acquisition
of the Company by Waterfront Media Inc.
|
|
3.
|
Summary of
Significant Accounting Policies
|
Basis of
Presentation
The consolidated financial statements comprise the accounts of
the Company and its wholly and majority owned subsidiaries. In
consolidation, all significant intercompany profits, transaction
and balances have been eliminated. The Company consolidates all
entities in which it has a controlling financial interest.
Cash and Cash
Equivalents and Restricted Cash
The Company considers all highly liquid investments with a
maturity of 90 days or less from date of purchase to be
cash equivalents. The Company maintains its cash balances in
highly rated financial institutions. At times, such cash
balances exceed the Federal Deposit Insurance Corporation limit.
At December 31, 2007, restricted cash represents amounts
placed in escrow in connection with a 2007 acquisition, as more
fully described in Note 4. The fair value of these
investments are based on quoted market prices, which are
Level 1 inputs, pursuant to the fair value accounting
standard which establishes a framework for measuring fair value
and requires disclosures about fair value measurements by
establishing a hierarchy that prioritizes the inputs to
valuation techniques used to measure fair value.
Property and
Equipment
Property and equipment are stated at cost less accumulated
depreciation and amortization. Certain equipment held under
capital leases is classified as property and equipment and is
amortized using the straight-line method over the term of the
lease. The Company depreciates its property and equipment using
the straight-line basis over the estimated useful lives of the
assets. The Company incurs costs to develop its website
applications. The Company capitalizes its costs to develop
software for its website and other internal uses when
preliminary development efforts are successfully completed,
management has authorized and committed the project funding and
it is probable that the project will be completed and the
software will be used as intended. Costs incurred prior to
meeting these criteria, together with costs incurred for
training and maintenance, are expensed. Costs incurred for
upgrades and enhancements that are probable to result in
additional functionality are capitalized. Estimated useful lives
are as follows:
|
|
|
Computer hardware and software
|
|
3 5 years
|
Furniture and fixtures
|
|
5 years
|
Website development costs
|
|
2 3 years
|
Leasehold improvements
|
|
Shorter of useful life or lease term
|
Investments in
Equity Securities
Investments in equity securities include the Companys
ownership interests in affiliated companies that it does not
control, which are accounted for under the equity method of
accounting. Under
F-48
Revolution Health
Group LLC
Notes to
Consolidated Financial
Statements (Continued)
(in thousands,
except unit and per unit data)
this method of accounting, the Companys share of the net
earnings or losses of the affiliated companies is included in
loss on investment in affiliated company.
For the period commencing on the date of the Companys
first ownership in RediClinic LLC (RediClinic) on
September 8, 2005 through the closing of the Companys
acquisition of Class E shares in RediClinic on
October 25, 2006, the Company used the equity method of
accounting to account for its minority interest in RediClinic
(see Note 4). After the Companys purchase of a
majority stake in RediClinic on October 25, 2006, the
Company consolidated RediClinic for the remainder of 2006 and
until the disposition of its interest in May 2007 (see
Note 5).
Goodwill and
Other Intangible Assets
Management evaluates the recoverability of the carrying amount
of goodwill at the reporting unit level annually, or whenever
events or changes in circumstances indicate that the carrying
amount may not be recoverable. Current and estimated future
profitability and the reporting units valuation are the
primary indicators used to assess the recoverability of
goodwill. The Company evaluates its goodwill and trade names for
impairment annually on October 31, and when events and
circumstances warrant such review. As of September 30, 2008
(unaudited), there have been no indicators of impairment of
goodwill or trade names. In making this determination,
management considered that the Company was contemplating a
merger with Waterfront Media Inc. which was expected to close in
October 2008, as described in Note 17.
Other intangible assets, primarily purchased technology and
customer relationships, have been recorded at fair value
determined at the time of acquisition and are being amortized on
a straight-line basis over estimated useful lives of two to
three years.
Long-Lived
Assets (Excluding Goodwill)
Long-lived assets are reviewed for impairment whenever events or
circumstances indicate that the carrying amount of an asset may
not be fully recoverable. An impairment loss is recognized if
the sum of the expected long-term undiscounted cash flows is
less than the carrying amount of the long-lived assets being
evaluated. Any write-downs are treated as permanent reductions
in the carrying amounts of the assets. The Company believes the
carrying values of its assets as of December 31, 2006 and
2007 and September 30, 2008 (unaudited) are fully
realizable.
Operations that have been disposed of are classified as
discontinued operations in the accompanying consolidated
statements of operations.
Revenue
Recognition
The Companys revenues are primarily derived from amounts
charged to customers for the purchase of products and services,
including advertising, commissions, fees for clinic services and
administration fees. Revenue is recognized after the following
conditions are met: 1) persuasive evidence of an
arrangement exists, 2) delivery has occurred or services
have been rendered, 3) the sellers price to the buyer
is fixed or determinable and 4) collectibility is
reasonably assured.
Stock-Based
Compensation
Stock options and other share-based payments made to employees
are accounted for as compensation expense and recorded at fair
value. The Company uses the Black-Scholes option pricing model
to estimate the fair value of stock options.
F-49
Revolution Health
Group LLC
Notes to
Consolidated Financial
Statements (Continued)
(in thousands,
except unit and per unit data)
Income
Taxes
The Company is a limited liability company and as such, taxable
income is passed through to the members. A subsidiary,
CarePages, Inc., is a C-Corporation for tax purposes.
Accordingly, income taxes for this subsidiary are accounted for
using the asset and liability method whereby deferred tax assets
are recognized for deductible temporary differences and
operating loss carryforwards and deferred tax liabilities are
recognized for taxable temporary differences. A valuation
allowance has been established for all deferred tax assets as it
is more likely than not that the deferred tax assets will not be
realized.
Leases
The Company recognizes lease expense on a straight-line basis,
including predetermined fixed escalations, over the initial
lease term, including reasonably assured renewal periods.
Concentration
of Credit Risk
One customer made up 15% of the Companys revenue and no
individual customer accounted for more than 10% of the
Companys accounts receivable in 2006. In 2007, none of the
Companys customers individually accounted for more than
10% of the Companys revenue or accounts receivable. The
Companys revenue is principally generated in the U.S. An
adverse change in economic conditions in the U.S. could
negatively affect the Companys revenue and results of
operations.
Unaudited
Interim Financial Information
The accompanying interim consolidated balance sheet as of
September 30, 2008, the consolidated statements of
operations and cash flows for the nine month periods ended
September 30, 2007 and 2008, and the consolidated
statements of changes in members equity for the nine
months ended September 30, 2008 are unaudited. These
unaudited interim consolidated financial statements have been
prepared in accordance with U.S. generally accepted
accounting principles (GAAP) on the same basis as
the audited consolidated financial statements and, in the
opinion of management, include all adjustments of a normal
recurring nature considered necessary to present fairly the
Companys financial position, results of its operations and
cash flows for the nine month periods ended September 30,
2007 and 2008. The results of operations for the nine months
ended September 30, 2008 are not necessarily indicative of
the results that may be expected for the year ending
December 31, 2008 or any other future periods. These
unaudited interim consolidated financial statements should be
read in conjunction with the audited consolidated financial
statements and accompanying notes for the years ended
December 31, 2006 and 2007.
Use of
Estimates
The preparation of financial statements in conformity with
accounting principles generally accepted in the U.S. requires
management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial
statements and reported amounts of revenues and expenses during
the reporting period. Actual results could differ from
managements estimates.
Fair Value of
Financial Instruments
The fair value of the Companys cash, accounts receivable
and accounts payable approximated their carrying amounts due to
the relatively short maturity of these items.
F-50
Revolution Health
Group LLC
Notes to
Consolidated Financial
Statements (Continued)
(in thousands,
except unit and per unit data)
Risks and
Uncertainties
The Companys operations are subject to certain risks and
uncertainties inherent in an early-stage business in the
technology industry. The risks include rapid technology changes,
effectiveness of the Companys product marketing
strategies, constrained management resources, the need to manage
growth, the need to retain key personnel and protect
intellectual property and the availability of additional capital
financing on terms acceptable to the Company.
Recent
Accounting Standards
In June 2009, the Financial Accounting Standards Board
(FASB) issued a new accounting standard that
provides for a codification of accounting standards (the
Codification) which was effective for the Company in
the third quarter ended September 30, 2009. The
Codification became the single authoritative source for
U.S. GAAP. The Company has adopted this disclosure guidance
and, accordingly, previous references to U.S. GAAP
accounting standards are no longer used by the Company in its
disclosures accompanying the consolidated financial statements.
The Codification does not affect the Companys consolidated
financial position, results of operations or cash flows.
In May 2009, the FASB issued a new standard which sets forth
general standards of accounting for and the disclosure of events
that occur after the balance sheet date but before financial
statements are issued or are available to be issued. The Company
has applied the requirements of this standard effective
September 30, 2009 which did not have a material impact on
the Companys consolidated financial position, results of
operations or cash flows. In accordance with this standard, the
Company evaluated subsequent events through January 22,
2010, the date these consolidated financial statements are
available to be filed with the Securities and Exchange
Commission.
In December 2007, the FASB issued a new standard that
establishes principles and requirements for how an acquirer
recognizes and measures in its financial statements the
identifiable assets acquired, the liabilities assumed, any
noncontrolling interest in the acquired entity and the goodwill
acquired. The standard also establishes disclosure requirements
that will enable users of the financial statements to evaluate
the nature and financial effects of the business combination.
The standard is effective for the Company on January 1,
2009. The adoption of this standard did not have a material
impact on the Companys consolidated financial statements,
and is not expected to have a material impact on the Company in
2009, as discussed in Note 17.
In February 2007, the FASB issued a new standard that expands
the use of fair value accounting but does not affect existing
standards that require assets or liabilities to be carried at
fair value. A company may elect to use fair value to measure its
financial assets and liabilities. If the use of fair value is
elected, any up-front costs and fees related to the item must be
recognized in earnings and cannot be deferred. The fair value
election is irrevocable and generally made on an
instrument-by-instrument
basis, even if a company has similar instruments that it elects
not to measure based on fair value. At the adoption date,
unrealized gains and losses on existing items for which fair
value has been elected are reported as a cumulative adjustment
to retained earnings. Subsequent to the adoption changes in fair
value are recognized in earnings. The standard is effective for
the Company beginning January 1, 2008. The adoption of this
standard did not have a material effect on the Companys
consolidated financial statements.
In September 2006, the FASB issued a standard that defines fair
value, establishes a framework for measuring fair value in
generally accepted accounting principles and requires enhanced
disclosures about fair value measurements. The standard does not
require any new fair value
F-51
Revolution Health
Group LLC
Notes to
Consolidated Financial
Statements (Continued)
(in thousands,
except unit and per unit data)
measurements. The standard is effective for the Company
beginning January 1, 2008. The adoption of this standard
did not have a material effect on the Companys
consolidated financial statements.
|
|
4.
|
Business
combinations and Investment in Affiliated Company
|
Overview
Since its inception in March 2005 through 2007, the Company made
numerous acquisitions. The purpose of each of these acquisitions
was to enhance the Companys offering of health information
products, tools and services. The fair values of each
acquisition, plus costs associated with the transactions, were
allocated to assets acquired and liabilities assumed based on
their respective fair values. The fair values assigned to the
intangible assets were based on their replacement costs or on
discounted future cash flows. In determining the valuation of
the intangible asset, various factors were considered, including
the number of years each acquired company had been in existence
and the stage of the company lifecycle that each acquired
company was in prior to the acquisition.
Minority interests were recorded based upon the book value of
each acquired company immediately following the transaction
closing. Minority interest as of December 31, 2006 was
adjusted for two components: the Companys share of net
losses of the affiliated companies and the adjustment to
redemption value for certain minority interest stockholders. All
other assets and liabilities were recorded at their net book
values, which approximated their fair values on the date of the
transaction closing.
The results of operations for each of these acquisitions have
been included in the consolidated financial results of the
Company from the date of acquisition through December 31,
2006 and 2007. In the cases of ConnectYourCare Company LLC
(ConnectYourCare), Extend Health, Inc. (Extend
Health) and RediClinic, which were each disposed of in
2007, their results have been recorded as discontinued
operations for 2006 and 2007.
2007
Acquisitions
CarePages
On May 4, 2007, the Company completed a merger and
reorganization with TLContact, Inc. (CarePages), a
Delaware corporation that offers a web-based tool to hospitals
and consumers that allows patients to communicate with friends
and family. The acquisition was accomplished through the
issuance of stock valued at $17,061 and cash of $7,598 paid upon
the transaction closing, with an additional $2,847 in stock and
$3,960 in cash placed in escrow, plus transaction costs of $306.
In connection with the acquisition, the Company agreed to
additional contingent consideration of $5,685 in stock and
$4,315 in cash to be paid out in 2008, upon CarePages
achievement of certain 2007 revenue and audience targets. At
December 31, 2007, CarePages had met the revenue and
audience targets and an accrual for $10,000 has been reflected
in the accompanying consolidated balance sheets, as Due to
seller. Additionally, the escrow amounts discussed above
are reflected in the consolidated balance sheets under the
caption Due to seller. The Company settled the
outstanding balance as of September 30, 2008 (unaudited).
F-52
Revolution Health
Group LLC
Notes to
Consolidated Financial
Statements (Continued)
(in thousands,
except unit and per unit data)
The purchase price allocation was as follows:
|
|
|
|
|
Net assets
|
|
$
|
134
|
|
Intangible assets non-compete
|
|
|
232
|
|
Intangible assets customer relationships
|
|
|
13,456
|
|
Intangible assets trade name
|
|
|
4,508
|
|
Goodwill
|
|
|
24,678
|
|
|
|
|
|
|
Total allocation of acquisition costs
|
|
$
|
43,008
|
|
|
|
|
|
|
HealthTalk
On December 5, 2007, the Company entered into an asset
purchase agreement with Informed Medical Communications, Inc.
(IMC) pursuant to which RHG acquired from IMC
all of the assets of HealthTalk, Inc. and certain assets of RX
Dialogue, Inc. (collectively HealthTalk), a business
providing patient and caregiver education and providing
promotional advertising and marketing services to patients for
an aggregate purchase price of $11,000.
The Company paid $4,000 of the purchase price to IMC on the
closing of the asset purchase and agreed to pay IMC $7,000 in
four consecutive quarterly payments beginning March 30,
2008. The Company imputed interest on this note using a 5.13%
interest rate and recorded a discount of approximately $205. The
discount is being amortized to interest expense over the life of
the note. This amount is reflected in the accompanying
December 31, 2007 balance sheet in the caption Due to
seller. At September 30, 2008 (unaudited), the
outstanding balance was $1,000.
The purchase price allocation was as follows:
|
|
|
|
|
Net tangible assets
|
|
$
|
756
|
|
Intangible assets trade name
|
|
|
5,739
|
|
Goodwill
|
|
|
4,675
|
|
|
|
|
|
|
Net assets acquired
|
|
$
|
11,170
|
|
|
|
|
|
|
2007
Investment in Affiliated Company
SparkPeople,
Inc.
On December 3, 2007, RHG purchased 15,000,000 shares
of Series A preferred stock of SparkPeople, Inc.
(SparkPeople) in exchange for $15,000 in cash.
Concurrently, SparkPeople purchased 3,000,000 of the
Companys Class H units for $7,500 in cash.
SparkPeople provides a goal-setting website focused on nutrition
and fitness. The purchase of the Series A preferred stock
provided RHG with a 21% ownership interest in SparkPeople, which
is accounted for under the equity method of accounting for
non-controlling investments.
In August 20, 2008, the Company sold its interest in Spark
People to Revolution Spark, LLC. The purchase price was $15,050
for equity ownership of 15,000,000 shares of Series A
preferred stock. As Revolution Spark, LLC is a wholly owned
subsidiary of the majority owner of the Company, no gain related
to this sale was recorded in the consolidated statements of
operations. A gain of $734 was recorded through the consolidated
statements of changes in members equity.
F-53
Revolution Health
Group LLC
Notes to
Consolidated Financial
Statements (Continued)
(in thousands,
except unit and per unit data)
2006
Acquisitions
RemedyFind,
Inc.
On July 10, 2006, the Company entered into an asset
purchase agreement with RemedyFind, Inc.
(RemedyFind) pursuant to which RHG acquired from
RemedyFind certain assets for an aggregate purchase price of
$3,000. The Company paid $2,200 of the purchase price to
RemedyFind on the closing of the asset purchase and agreed to
pay RemedyFind $400 on each of the first and second
anniversaries of the closing. The Company imputed interest on
this note using a 7% interest rate and recorded a discount of
approximately $81. The discount is being amortized to interest
expense over the life of the note. The Company also incurred
transaction costs of $57.
The purchase price allocation was as follows:
|
|
|
|
|
Net tangible assets
|
|
$
|
300
|
|
Goodwill
|
|
|
2,675
|
|
|
|
|
|
|
Net assets acquired
|
|
$
|
2,975
|
|
|
|
|
|
|
RediClinic
On September 8, 2005, the Company purchased
2,880,000 shares of Class C units of RediClinic in
exchange for $4,306 in cash plus $201 of transaction costs.
RediClinic is the owner and operator of retail health clinics.
The purchase of these Class C units provided the Company
with a 14% interest in RediClinic.
The Company also received rights to purchase additional units at
agreed-upon
terms at various dates. The Company allocated $1,014 of the
$4,507 purchase price to a separately identified asset titled
options in affiliated company to account for these
purchase rights. The amount allocated was determined based upon
the relative fair values of the Class C units and the
options to purchase additional units. The fair value of the
options was calculated using a Black-Scholes option pricing
model with the following assumptions: volatility of 50%,
dividend yield of 0%, risk-free interest rates ranging from
3.73% to 3.88%, and expected terms ranging from seven months to
31 months.
On April 25, 2006, the Company acquired 12,900,000
Class D units of RediClinic for an aggregate purchase price
of $18,060 with $5,515 paid upon closing (which occurred on
April 25, 2006); $3,515 paid on June 30, 2006; and
$4,515 to be paid on September 30, 2006 and
December 31, 2006. These Class D units increased the
Companys ownership percentage in RediClinic to 49% and
amended the Companys rights to purchase additional units
in RediClinic.
In recording this transaction, the Company remeasured the fair
value of its rights and adjusted the recorded value of
options in affiliated company from $1,014 to $913.
The fair value of the options was calculated using a
Black-Scholes option pricing model with the following
assumptions: volatility of 50%, dividend yield of 0%, risk-free
interest rate of 4.99% and expected terms ranging from
eight months to 23 months.
On October 23, 2006, the Company entered into a second
amended and restated transaction agreement with RediClinic,
pursuant to which the parties agreed to: (1) cancel the
obligation of the Company to fund the remaining $9,030 to have
been paid in equal parts by September 30, 2006 and
December 31, 2006 in connection with its purchase of
12,900,000 Class D units of RediClinic; (2) issue
7,976,691 Class E units of RediClinic to the Company for
$5,400, which increased the Companys ownership percentage
in RediClinic to 59%; (3) offer 7,600,000 Class F
units to existing stockholders of RediClinic, including the
Company, on a pro rata basis for $1.00 per share and
(4) cancel the
F-54
Revolution Health
Group LLC
Notes to
Consolidated Financial
Statements (Continued)
(in thousands,
except unit and per unit data)
options. Effective with the closing of this transaction, the
Company obtained majority control of RediClinic, and the Company
commenced consolidating the operations of RediClinic.
On December 1, 2006, RediClinic issued 7,569,700
Class F units, of which 3,805,000 units were purchased
by the Company for $1.00 per unit. The Companys ownership
percentage was decreased to 58%.
The Companys total cash investment in RediClinic was
$22,961, which was reduced by equity method losses of $5,451.
Upon obtaining majority control of RediClinic, the remaining
investment of $17,510 was allocated as follows:
|
|
|
|
|
Net assets
|
|
$
|
7,927
|
|
Goodwill
|
|
|
12,944
|
|
Minority interests
|
|
|
(3,361
|
)
|
|
|
|
|
|
Total allocation of purchased interest
|
|
$
|
17,510
|
|
|
|
|
|
|
The Company sold its ownership in RediClinic in 2007 (see
Note 5).
|
|
5.
|
Discontinued
Operations
|
Sale of
RediClinic Interest to Revolution Clinics LLC
On May 4, 2007, RHG and Revolution Clinics LLC
(RevoClinics) entered into a share purchase
agreement pursuant to which RHG sold RevoClinics its ownership
in RediClinic for aggregate cash consideration of $23,000. As
RevoClinics is a wholly owned subsidiary of the majority owner
of the Company, no gain related to this sale was recorded in the
consolidated statements of operations. A gain of $15,300 was
recorded through the consolidated statements of changes in
members equity. Goodwill of $12,944 was eliminated as part
of the disposal.
Sale of
ConnectYourCare Interest to Express Scripts, Inc.
On October 10, 2007, the Company sold its ownership
interest in ConnectYourCare to Express Scripts, Inc.
(ESI) for $11,068 in cash. A gain on the sale of
investment of $8,219 has been recorded in the accompanying
consolidated financial statements as of December 31, 2007.
Goodwill of $3,213 was eliminated as part of the disposal. The
Company and ESI established an escrow account containing a
portion of the purchase price in connection with this
transaction, for the purpose of securing indemnifiable claims
under the purchase agreement. The portion of the escrow account
that is potentially payable to the Company is $750.
Sale of Extend
Health to Revolution Management Company, LLC
On December 14, 2007, the Company sold its ownership
interest in Extend Health to RMC and other private investors for
aggregate cash consideration of $19,500. As RMC is the majority
owner of the Company, no gain related to this sale was recorded
in the consolidated statements of operations. A gain of $18,485
was recorded through the consolidated statements of changes in
members equity. Goodwill of $4,344 was eliminated as part
of the disposal.
The operating results for the three dispositions described
above, at December 31, 2006 and 2007 and September 30,
2007 (unaudited), are reflected in the consolidated statements
of operations as discontinued operations for the periods
presented. There were no discontinued operations for the nine
months ended September 30, 2008 (unaudited). The results of
discontinued operations for the
F-55
Revolution Health
Group LLC
Notes to
Consolidated Financial
Statements (Continued)
(in thousands,
except unit and per unit data)
years ended December 31, 2006 and 2007 and the nine months
ended September 30, 2007 (unaudited), are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months
|
|
|
|
Year Ended
|
|
|
Ended
|
|
|
|
December 31,
|
|
|
September 30,
|
|
|
|
2006
|
|
|
2007
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
(unaudited)
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
3,896
|
|
|
$
|
6,497
|
|
|
$
|
6,071
|
|
Interest and other income
|
|
|
560
|
|
|
|
143
|
|
|
|
83
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
4,456
|
|
|
|
6,640
|
|
|
|
6,154
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and marketing
|
|
|
7,298
|
|
|
|
6,945
|
|
|
|
6,515
|
|
Technology, operations and product development
|
|
|
5,207
|
|
|
|
806
|
|
|
|
556
|
|
General and administrative
|
|
|
8,015
|
|
|
|
16,785
|
|
|
|
14,412
|
|
Depreciation and amortization
|
|
|
1,473
|
|
|
|
1,305
|
|
|
|
667
|
|
Other expenses
|
|
|
306
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
22,299
|
|
|
|
25,841
|
|
|
|
22,150
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from discontinued operations before minority interest
|
|
|
(17,843
|
)
|
|
|
(19,201
|
)
|
|
|
(15,996
|
)
|
Minority interest
|
|
|
4,174
|
|
|
|
2,059
|
|
|
|
1,144
|
|
Gain on sale
|
|
|
|
|
|
|
8,219
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from discontinued operations
|
|
$
|
(13,669
|
)
|
|
$
|
(8,923
|
)
|
|
$
|
(14,852
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6.
|
Property and
Equipment
|
Property and equipment consisted of the following as of
December 31, 2006 and 2007 and September 30, 2008
(unaudited):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2007
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
(unaudited)
|
|
|
Computer hardware and software
|
|
$
|
9,398
|
|
|
$
|
7,416
|
|
|
$
|
6,931
|
|
Furniture and fixtures and leasehold improvements
|
|
|
2,857
|
|
|
|
2,196
|
|
|
|
2,157
|
|
Website development costs
|
|
|
895
|
|
|
|
245
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total property and equipment
|
|
|
13,150
|
|
|
|
9,857
|
|
|
|
9,088
|
|
Less accumulated depreciation and amortization
|
|
|
(1,582
|
)
|
|
|
(3,295
|
)
|
|
|
(4,520
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
$
|
11,568
|
|
|
$
|
6,562
|
|
|
$
|
4,568
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Computer hardware and software above includes $639, $651 and
$651 of equipment under capital leases as of December 31,
2006 and 2007 and September 30, 2008 (unaudited),
respectively.
Depreciation and amortization expense, which includes
amortization of assets held under capital lease, related to
property and equipment was $725, $2,132, $1,181 and
$1,947 net of $822, $835, $563 and $0 related to
discontinued operations for the years ended December 31,
2006 and 2007 and the nine months ended September 30, 2007
and 2008 (unaudited), respectively.
F-56
Revolution Health
Group LLC
Notes to
Consolidated Financial
Statements (Continued)
(in thousands,
except unit and per unit data)
|
|
7.
|
Goodwill and
Intangible Assets
|
Goodwill and intangible assets consisted of the following as of
December 31, 2006 and 2007 and September 30, 2008
(unaudited):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
2007
|
|
2008
|
|
|
|
|
|
|
(unaudited)
|
|
Goodwill
|
|
$
|
32,716
|
|
|
$
|
41,566
|
|
|
$
|
41,768
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade names
|
|
$
|
|
|
|
$
|
10,247
|
|
|
$
|
10,247
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domain names
|
|
|
79
|
|
|
|
225
|
|
|
|
209
|
|
Less accumulated amortization
|
|
|
(27
|
)
|
|
|
(74
|
)
|
|
|
(103
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
52
|
|
|
|
151
|
|
|
|
106
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Patents and trademarks
|
|
|
81
|
|
|
|
86
|
|
|
|
|
|
Less accumulated amortization
|
|
|
(12
|
)
|
|
|
(59
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
69
|
|
|
|
27
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer relationships
|
|
|
|
|
|
|
13,456
|
|
|
|
13,456
|
|
Less accumulated amortization
|
|
|
|
|
|
|
(1,794
|
)
|
|
|
(4,052
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,662
|
|
|
|
9,404
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Technology and other intangibles
|
|
|
3,349
|
|
|
|
1,157
|
|
|
|
520
|
|
Less accumulated amortization
|
|
|
(1,806
|
)
|
|
|
(748
|
)
|
|
|
(285
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,543
|
|
|
|
409
|
|
|
|
235
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangible assets, net
|
|
$
|
1,664
|
|
|
$
|
22,496
|
|
|
$
|
19,992
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average amortization period for intangible assets is
three years. Amortization expense of intangible assets was $686,
$2,372, $1,791 and $2,738 net of $651, $470, $104 and $0
related to discontinued operations for the years ended
December 31, 2006 and 2007 and the nine months ended
September 30, 2007 and 2008 (unaudited), respectively.
Amortization expense for the above intangible assets is expected
to be $3,421 for 2008, $3,097 for 2009, $3,096 for 2010 and
$3,095 for 2011, net of discontinued operations.
The changes in the carrying amount of goodwill consisted of the
following:
|
|
|
|
|
Goodwill, balance at December 31, 2005
|
|
$
|
17,097
|
|
Additions
|
|
|
15,619
|
|
Disposals
|
|
|
|
|
|
|
|
|
|
Goodwill, balance at December 31, 2006
|
|
|
32,716
|
|
Additions
|
|
|
29,353
|
|
Disposals
|
|
|
(20,503
|
)
|
|
|
|
|
|
Goodwill, balance at December 31, 2007
|
|
$
|
41,566
|
|
Additions
|
|
|
202
|
|
|
|
|
|
|
Goodwill, balance at September 30, 2008 (unaudited)
|
|
$
|
41,768
|
|
|
|
|
|
|
|
|
8.
|
Restructuring
Activities
|
During 2007, the Company implemented various actions designed to
streamline operations primarily through workforce reductions. As
a result of the implementation of these actions, the Company
recognized a restructuring charge of $3,202, consisting
primarily of $2,500 in severance benefits from the termination
of approximately 60 employees. The remaining accrual
related to this
F-57
Revolution Health
Group LLC
Notes to
Consolidated Financial
Statements (Continued)
(in thousands,
except unit and per unit data)
charge was $1,571 and $16 as of December 31, 2007 and
September 30, 2008 (unaudited), respectively, and is
reflected in accrued expenses in the accompanying consolidated
balance sheets.
In 2008, as part of a plan to continue to realign the
Companys workforce, approximately 65 employees were
terminated. In connection with the termination, the Company
incurred a restructuring charge of approximately $2,805 related
primarily to severance related costs. The remaining accrual
related to this charge was $616 as of September 30, 2008
(unaudited), and is reflected in accrued expenses in the
accompanying consolidated balance sheet.
|
|
9.
|
Commitments and
Contingencies
|
The Company from time to time is subject to litigation relating
to matters in the ordinary course of business. The Company
believes that any ultimate liability resulting from these
contingencies will not have a material adverse effect on the
Companys consolidated results of operations, financial
position or cash flows.
Capital
Leases
The Company leases property and equipment, consisting primarily
of computer equipment, under various capital lease agreements
expiring through 2010.
Total future minimum lease payments as of December 31,
2007, under noncancelable capital lease agreements were as
follows:
|
|
|
|
|
2008
|
|
$
|
220
|
|
2009
|
|
|
45
|
|
2010
|
|
|
14
|
|
2011
|
|
|
9
|
|
2012 and thereafter
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
288
|
|
Less: amounts representing interest
|
|
|
(15
|
)
|
|
|
|
|
|
Present value of net minimum obligations
|
|
|
273
|
|
Less: current obligations under capital leases
|
|
|
(210
|
)
|
|
|
|
|
|
Noncurrent obligations under capital leases
|
|
$
|
63
|
|
|
|
|
|
|
Operating
Leases
The Company leases office facilities in: Washington, D.C.;
Chicago, Illinois; Seattle, Washington; Hunt Valley, Maryland;
Burlingame, California; Houston, Texas and Salt Lake City, Utah
under various operating lease agreements expiring through 2011.
Total future minimum lease payments as of December 31,
2007, under noncancelable operating lease agreements were as
follows:
|
|
|
|
|
2008
|
|
$
|
2,170
|
|
2009
|
|
|
1,471
|
|
2010
|
|
|
1,428
|
|
2011
|
|
|
1,229
|
|
2012 and thereafter
|
|
|
151
|
|
|
|
|
|
|
Total
|
|
$
|
6,449
|
|
|
|
|
|
|
F-58
Revolution Health
Group LLC
Notes to
Consolidated Financial
Statements (Continued)
(in thousands,
except unit and per unit data)
Rent expense for the years ended December 31, 2006 and 2007
and the nine months ended September 30, 2007 and 2008
(unaudited), was $2,409, $2,774, $2,060 and $1,274, respectively.
As of December 31, 2007, the total number of units of all
classes that the Company has the authority to issue is
168,300,000, of which 80,000,000 are for Class A units,
20,000,000 are for Class B units, 20,000,000 are for
Class C units, 5,000,000 are for Class D units
reserved for issuance, 20,000,000 are for Class E units,
10,000,000 are for Class F Units, 10,300,000 are for
Class G units and 3,000,000 are for Class H units. The
Class C units may be issued by the Companys Board of
Directors (the Board) pursuant to restricted unit
purchase agreements, unit option agreements or other incentive
arrangements. The Class D units may be issued by the Board
pursuant to agreements or arrangements in connection with
acquisitions
and/or
strategic transactions.
Class A and Class B unit holders will have ten votes
for each unit held. Class C, Class D, Class E,
Class F, Class G and Class H unit holders will
have one vote for each unit held.
In October 2006, the Company received capital commitments for
$50,000 from certain current investors and senior management.
All of this commitment was funded during 2006 and 2007.
In February 2007, a subscription agreement was executed with one
new member to acquire 10,000,000 Class F units for $25,000.
This purchase was fully funded at that time.
In September 2008, RMC loaned the Company $5,000 and
subsequently entered into a subscription agreement to acquire
50,444,444 Class I units for $22,700. This purchase was
fully funded during that month through payment by RMC of $17,700
and its forgiveness of the $5,000 note.
In the event of an operating distribution (other than a
distribution for tax liabilities), each unit holder is to be
allocated a portion of the distribution in accordance with such
unit holders unit holdings. Additionally, to the extent
cash is available, the Board may elect to make distributions to
unit holders to assist in paying income taxes related to the
unit holders share of income in a given year.
Profits and losses are allocated among the members to cause
their adjusted capital accounts, to the greatest extent
possible, to be equal to the respective amounts, which would be
distributed to them pursuant to a liquidation of the Company.
In the event of dissolution of the Company, a sale of all or
substantially all of the assets of the Company or other
liquidation event, after payment of liabilities, the holders of
Class I units have a senior distribution preference and are
entitled to receive the original purchase price for each
Class I unit, prior to a distribution to any unit holders
for any of the Class A, B, C, D, E, F, G and H. The holders
of Class E and Class F units are then entitled to
receive the original purchase price for each Class E unit
or Class F unit, respectively, prior to a distribution to
any unit holders for any of the Class A, B, C, D, G and H
units. The holders of the Class G and Class H units
are then entitled to receive the original purchase price for
each Class G or Class H unit, respectively, prior to a
distribution to any unit holders for any of the Class A, B,
C and D.
See Note 17 for discussion of the October 2008 acquisition
of the Company by Waterfront Media Inc.
|
|
11.
|
Minority Interest
and Put and Call Rights
|
The Company, as part of employment agreements entered into
between the Company and management members of ConnectYourCare
and as part of the Second Restated and Amended
F-59
Revolution Health
Group LLC
Notes to
Consolidated Financial
Statements (Continued)
(in thousands,
except unit and per unit data)
Limited Liability Company Agreement of Extend Health, issued the
right to put their minority interests to the Company. Management
members of ConnectYourCare had the right to put their units in
ConnectYourCare to the Company at a price equal to the fair
market value of the units (or at an established floor price per
unit should certain events occur).
The holders of the minority interests in Extend Health had the
right to put their units in Extend Health to the Company, at a
price per unit equal to the fair market value of the units at
the time of the put, if the Company has not consummated an
initial public offering, sale or consolidation prior to
July 30, 2009.
Accordingly, the minority interest amount reflected in the
consolidated financial statements of the Company has been
adjusted to reflect the greater of the actual calculation of
minority interest from operations and the redemption value of
the units subject to being put to the Company. As of
December 31, 2006, the redemption value of the put options
was $3,500 for Extend Health and $1,468 for ConnectYourCare.
As long as the Company held a majority interest, the holders of
the minority interest in RediClinic had the right to put their
units in RediClinic to the Company, at a price equal to the fair
market value of the units at the time of the put, on
March 31, 2009, 2010 and 2011. The Company then had the
right to accept or reject the put. Because the Company
controlled whether or not the put could be exercised and, at
December 31, 2006 it was not probable that the put would be
exercised, the minority interest amount in the consolidated
financial statements related to RediClinic remained at book
value as of December 31, 2006.
Upon the sale of ConnectYourCare and Extend Health in 2007, the
amounts previously recorded related to the redemption feature
were reversed.
|
|
12.
|
Related Party
Transactions
|
In 2006, the Company subleased office space in
Washington, D.C. from RMC at amounts that were comparable
to market rents for similar office space. The arrangement was
terminated at the end of 2006. During 2006, the Company paid
$465 for rent under the sublease.
In December 2007, the Company entered into an unsecured
promissory note agreement with RMC for the principal amount of
$5,000. The unsecured note bears interest at 8% and is payable
on or before June 30, 2008. During 2008, the note with RMC
was amended and the Company borrowed an additional $30,000 under
the same terms. In September 2008, the outstanding principal
amount of $35,000 was converted into Class E units at $2.50
per unit and all accrued interest was forgiven.
|
|
13.
|
401(k) Retirement
Plan
|
The Company and its employees participate in a 401(k) retirement
plan (the Plan). Under the Plan, the Company matches
100% of employee contributions to the Plan up to a maximum of 3%
of each employees annual compensation and 50% of employee
contributions to the Plan for the next 2% of each
employees annual compensation, as defined by the Plan
agreement. The Company incurred $451, $932, $633 and $639 in the
form of matching contributions to the Plan during the years
ended December 31, 2006 and 2007 and the nine months ended
September 30, 2007 and 2008 (unaudited), respectively.
F-60
Revolution Health
Group LLC
Notes to
Consolidated Financial
Statements (Continued)
(in thousands,
except unit and per unit data)
|
|
14.
|
Long-Term
Incentive Plans
|
RHG Incentive
Plan
On July 15, 2005, the Company adopted the 2005 Equity
Incentive Plan (the Original Incentive Plan) under
which options to acquire Class C units of the Company are
granted to Company employees. The exercise price per unit for
the options granted equals the fair market value of Class C
units of the Company on the date of grant. The options vest in
equal installments of 20% per year over a period of five years
from the date of commencement of employment and have a maximum
contractual term of eight years. Under the Original Incentive
Plan, a maximum of 15,000,000 Class C units were reserved
for issuance. The Original Incentive Plan also contains certain
repurchase features that allow the Company to repurchase
Class C units issued upon exercise of options granted under
the Original Incentive Plan at fair market value.
On September 19, 2006, the Board approved the
Companys Amended and Restated 2005 Equity Incentive Plan
(the RHG Plan). The RHG Plan contains certain
modifications, including clarifications to the Original
Incentive Plan and the increase of the Class C unit reserve
to 20,000,000 units.
The Company is accounting for the RHG Plan using liability
accounting, as the RHG Plan allows for each employee to put back
50% of the options to the Company and the Companys
repurchase of shares acquired by the exercise of options, which
has been exercised by the Company. The fair value of the awards
is measured on the grant date and remeasured at each reporting
date. The related compensation expense is recognized on a
straight-line basis over the service and vesting term of five
years and is adjusted on each reporting date for the change in
fair value.
The Company uses the Black-Scholes option pricing model to
determine the fair value of options granted. The following
assumptions were used in 2006: dividend yield of 0%, risk-free
interest rate of 5.11%, volatility of 80% and expected term of
between 5.5 and 5.0 years. The following assumptions were
used in 2007: dividend yield of 0%, risk-free interest rate of
3.45%, volatility of 65% and expected term of between 5.5 and
3.6 years.
Following is a summary of the units granted under the RHG Plan:
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-Average
|
|
|
|
|
Exercise Price
|
|
|
Units
|
|
Per Unit ($)
|
|
Outstanding at December 31, 2005
|
|
|
9,027,940
|
|
|
$
|
1.00
|
|
Units granted
|
|
|
6,893,800
|
|
|
$
|
1.08
|
|
Units forfeited
|
|
|
(1,904,500
|
)
|
|
$
|
1.00
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2006
|
|
|
14,017,240
|
|
|
$
|
1.04
|
|
Units granted
|
|
|
3,478,667
|
|
|
$
|
1.50
|
|
Units forfeited
|
|
|
(4,008,492
|
)
|
|
$
|
1.06
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2007
|
|
|
13,487,415
|
|
|
$
|
1.15
|
|
|
|
|
|
|
|
|
|
|
Vested at December 31, 2007
|
|
|
6,231,563
|
|
|
$
|
1.04
|
|
|
|
|
|
|
|
|
|
|
The weighted-average grant date fair value of awards was $1.12
per unit granted in 2006 and $0.89 per unit in 2007. The Company
expects 4,895,563 options to vest. These options have a
weighted-average exercise price of $1.15 per unit and a
weighted-average remaining contractual term of 2.8 years.
As of December 31, 2006 and 2007, the Company had 2,082,760
and 2,612,585 units available for grant under the
RHG Plan, respectively. Non-vested awards at
December 31, 2006 and
F-61
Revolution Health
Group LLC
Notes to
Consolidated Financial
Statements (Continued)
(in thousands,
except unit and per unit data)
2007 were 10,712,937 and 7,255,852, respectively, with
weighed-average grant date fair values of $0.87 and $0.92,
respectively. As of December 31, 2007, compensation expense
related to non-vested awards that will be recognized over the
remaining 3.5 years of the vesting period is $7,468.
The Company recognized compensation expense of $2,765, $1,429,
$1,072 and $(5,900) for the years ended December 31, 2006
and 2007 and nine months ended September 30, 2007 and 2008
(unaudited), respectively. In connection with the Waterfront
Media Inc. acquisition, as described in Note 17, in
September 2008, the RHG Plan was terminated and existing options
that had not been exercised were cancelled. Upon termination of
the RHG Plan, a share based liability of $5,900 was reversed to
the consolidated statement of operations, with the credit
classified in the same manner in which the stock compensation
expense was originally recorded.
On June 23, 2006, the Company granted 400,000 Class C
units to a Board member for special advisory services. The grant
vests over a two-year service period. The fair market value of
this grant on the date of grant was $400. The Company will
remeasure the fair value each reporting period and record the
expense over the vesting period. At December 31, 2006 and
2007, the fair market value of the grant was $600. For the years
ended December 31, 2006 and 2007 and the nine months ended
September 30, 2007 and 2008 (unaudited), the Company
recorded $150, $300, 228 and $(270) of compensation expense,
respectively, related to this grant.
On June 30, 2005, the Company granted 2,500,000 and
1,000,000 Class C units to two Board members. The fair
market value of these grants was $3,500. The Company is
recording the fair value over the vesting period of the units.
For the years ended December 31, 2006 and 2007 and the nine
months ended September 30, 2007 and 2008 (unaudited), the
Company recorded $888, $450, $338 and $1,062, respectively, of
compensation expense and increased the members capital
accounts in conjunction with these class unit grants.
In 2006, the Company made a loan to one of the Board members
related to his stock grant to be repaid from future
distributions.
|
|
16.
|
Restricted Stock
Grant
|
The Company entered into a Master License and Services Agreement
dated April 2006, which granted a perpetual license to certain
software frameworks and solutions and provided software
programming, maintenance and other services to RHG. The parties
also entered into the RHG Equity Agreement dated April 2006,
pursuant to which RHG granted Class D units, which vest
evenly over ten years. In return, the Company was granted an
option to purchase 19% of the licensor. The value of the RHG
stock grant was $500 and it was determined that the option in
the licensor had the same value.
In August 2006, RHG began renegotiations on the transaction and
stopped any further payments. An agreement in principle was
reached that both the option agreement and the stock grant would
be terminated at this time. The probability of the forfeiture of
the grant was considered to be 100% at that time and, as a
result, the stock grant was determined to have no value in the
transaction. In addition, as it was clear that the option would
be negotiated out of the agreement prior to the option period,
the option was also considered to have a zero value. As a
result, by year-end, the Company wrote off the asset and
liability related to the option and the equity grant.
In April 2007, an amended agreement with the licensor was
executed. Under the renegotiated agreement, the license is
valued at $1,000; annual maintenance fees are $100 with five
years and
F-62
Revolution Health
Group LLC
Notes to
Consolidated Financial
Statements (Continued)
(in thousands,
except unit and per unit data)
considered prepaid, based on dollars already paid; the option
agreement was terminated and the stock grant was terminated.
|
|
17.
|
Subsequent
Events Restructuring and Acquisition
|
On or about September 30, 2008, the Company completed a
corporate restructuring transaction whereby the Company became a
wholly owned subsidiary of a new holding company called WF
Holding Company, LLC (WF Holding). After this step
(referred to as the Restructuring), the
Companys unit holders hold their interests through WF
Holding.
The Restructuring occurred to facilitate a business combination
of the Company with Waterfront Media Inc. In October 2008, after
the Restructuring, WF Holding, the Company and Waterfront Media
Inc. entered into an agreement whereby Waterfront Media Inc.
purchased all the outstanding membership interests of the
Company held by WF Holding in exchange for certain shares of
Waterfront Media Inc. stock. In January 2010, Waterfront Media
Inc. changed its name to Everyday Health, Inc.
F-63
Helping Consumers Live Healthier Lives Every Day Our daily tools and interactive features are the
core of our everyday approach to healthy living. From customized meal plans to condition management
tips, from expert blogs to support from an active community of like-minded health enthusiasts, our
users turn to us for the support they need to live healthier lives. Virtual Symptom Checker iPhone
Applications Blogs Leading Community Experts Tools and Widgets Trackers Meal Trusted Plans
Editorial www.EverydayHealth.com |
Helping Consumers Live Healthier Lives Every Day Our daily tools and interactive features are the
core of our everyday approach to healthy living. From customized meal plans to condition management
tips, from expert blogs to support from an active community of like-minded health enthusiasts, our
users turn to us for the support they need to live healthier lives. Virtual Symptom Checker iPhone
Applications Blogs Leading Community Experts Tools and Widgets Trackers Meal Trusted Plans
Editorial www.EverydayHealth.com |
Part II
INFORMATION NOT
REQUIRED IN PROSPECTUS
|
|
Item 13.
|
Other Expenses of
Issuance and Distribution
|
The following table sets forth the various expenses expected to
be incurred by the Registrant in connection with the sale and
distribution of the securities being registered hereby, other
than underwriting discounts and commissions. All amounts are
estimated except the SEC registration fee and the Financial
Industry Regulatory Authority filing fee.
|
|
|
|
|
SEC registration fee
|
|
$
|
7,130
|
|
Financial Industry Regulatory Authority filing fee
|
|
|
10,500
|
|
Blue Sky fees and expenses
|
|
|
|
*
|
Accounting fees and expenses
|
|
|
|
*
|
Legal fees and expenses
|
|
|
|
*
|
Printing and engraving expenses
|
|
|
|
*
|
Registrar and Transfer Agents fees
|
|
|
|
*
|
Miscellaneous fees and expenses
|
|
|
|
*
|
|
|
|
|
|
Total
|
|
$
|
|
*
|
|
|
|
|
|
|
|
|
* |
|
To be filed by amendment |
|
|
Item 14.
|
Indemnification
of Directors and Officers
|
Section 102 of the Delaware General Corporation Law, or
DGCL, allows a corporation to eliminate the personal liability
of directors of a corporation to the corporation or its
stockholders for monetary damages for breach of fiduciary duty
as a director, except where the director breached the duty of
loyalty, failed to act in good faith, engaged in intentional
misconduct or knowingly violated a law, authorized the payment
of a dividend or approved a stock repurchase in violation of the
DGCL or obtained an improper personal benefit.
Section 145 of the DGCL provides, among other things, that
we may indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or
completed action, suit or proceeding other than an
action by or in the right of the Registrant by
reason of the fact that the person is or was a director,
officer, agent or employee of the Registrant, or is or was
serving at our request as a director, officer, agent or employee
of another corporation, partnership, joint venture, trust or
other enterprise against expenses, including attorneys
fees, judgments, fines and amounts paid in settlement actually
and reasonably incurred by the person in connection with such
action, suit or proceeding. The power to indemnify applies
(a) if such person is successful on the merits or otherwise
in defense of any action, suit or proceeding, or (b) if
such person acting in good faith and in a manner he or she
reasonably believed to be in the best interest, or not opposed
to the best interest, of the Registrant, and with respect to any
criminal action or proceeding had no reasonable cause to believe
his or her conduct was unlawful. The power to indemnify applies
to actions brought by or in the right of the Registrant as well
but only to the extent of defense expenses, including
attorneys fees but excluding amounts paid in settlement,
actually and reasonably incurred and not to any satisfaction of
judgment or settlement of the claim itself, and with the further
limitation that in such actions no indemnification shall be made
in the event of any adjudication of liability to the Registrant,
unless the court believes that in light of all the circumstances
indemnification should apply.
Section 174 of the DGCL provides, among other things, that
a director, who willfully or negligently approves of an unlawful
payment of dividends or an unlawful stock purchase or
redemption, may be held liable for such actions. A director who
was either absent when the unlawful actions were approved or
dissented at the time, may avoid liability by causing his or her
dissent to such actions to be entered in the books containing
minutes of the meetings of the board of directors at the time
such action occurred or immediately after such absent director
receives notice of the unlawful acts.
II-1
Our amended and restated certificate of incorporation and
amended and restated bylaws, in each case to be in effect upon
the closing of this offering, will authorize us to provide for
the indemnification of directors to the fullest extent
permissible under the DGCL. Our amended and restated bylaws will
also provide that we have the power to indemnify our officers,
employees and other agents to the fullest extent not prohibited
by the DGCL. In addition, we have entered into separate
indemnification agreements, the form of which is attached as
Exhibit 10.5 hereto, with our directors which would require
us, among other things, to indemnify them against certain
liabilities which may arise by reason of their status or service
as directors to the fullest extent not prohibited by law. These
indemnification provisions and the indemnification agreements
may be sufficiently broad to permit indemnification of our
officers and directors for liabilities, including reimbursement
of expenses incurred, arising under the Securities Act of 1933,
as amended, which we refer to as the Securities Act. We intend
to maintain director and officer liability insurance, if
available on reasonable terms.
The form of Underwriting Agreement, to be attached as
Exhibit 1.1 hereto, provides for indemnification by the
Underwriters of us and our officers and directors for certain
liabilities, including liabilities arising under the Securities
Act, and affords certain rights of contribution with respect
thereto.
See also the undertakings set out in response to Item 17
herein.
|
|
Item 15.
|
Recent Sales of
Unregistered Securities
|
In the three years preceding the filing of this registration
statement, we have sold the following securities that were not
registered under the Securities Act. The following information
does not give effect to
a
-for-
reverse split of our common stock to be effected prior to the
completion of this offering.
|
|
(a)
|
Issuances of Capital
Stock and Warrants
|
1. On March 22, 2007, we issued a warrant to purchase
110,018 shares of Series C redeemable convertible
preferred stock for an aggregate exercise price of $360,000 to
an accredited investor.
2. On various dates between August 30, 2007 and
February 14, 2008, we sold 3,934,855 shares of
Series D redeemable convertible preferred stock to 13
accredited investors in exchange for an aggregate of $27,026,945.
3. On October 7, 2008, we issued 8,930,966 shares
of Series E redeemable convertible preferred stock to one
accredited investor in exchange for all membership interests in
Revolution Health Group LLC.
4. On various dates between October 15, 2008 and
November 26, 2008, we sold 2,951,128 shares of
Series F redeemable convertible preferred stock to 13
accredited investors in exchange for an aggregate of $22,468,117.
5. On September 18, 2009, we issued a warrant to
purchase 47,285 shares of Series F redeemable
convertible preferred stock for an aggregate exercise price of
$360,000 to an accredited investor.
6. On October 8, 2009, we issued a warrant to purchase
65,674 shares of Series F redeemable convertible
preferred stock for an aggregate exercise price of $500,000 to
an accredited investor.
No underwriters were used in the foregoing transactions. The
sales of securities described above were deemed to be exempt
from registration pursuant to Section 4(2) of the
Securities Act as transactions by an issuer not involving a
public offering. All of the purchasers in these transactions
represented to us in connection with their purchase that they
were acquiring the shares for investment and not distribution,
and that they could bear the risks of the investment and could
hold the securities for an indefinite period of time. Such
purchasers received written disclosures that the securities had
not been registered under the Securities Act and that any resale
must be made pursuant to a
II-2
registration or an available exemption from such registration.
All of the foregoing securities are deemed restricted securities
for the purposes of the Securities Act.
|
|
(b)
|
Certain Grants and
Exercises of Stock Options
|
Pursuant to our 2003 Stock Option Plan, as of June 30, 2010
we have issued options to purchase an aggregate of
6,786,862 shares of common stock. Of these options:
|
|
|
|
|
options to purchase 1,368,831 shares of common stock have
been canceled or lapsed without being exercised;
|
|
|
|
|
|
options to purchase 301,295 shares of common stock have
been exercised; and
|
|
|
|
|
|
options to purchase a total of 5,116,736 shares of common
stock are currently outstanding, at a weighted-average exercise
price of $4.51 per share.
|
The sale and issuance of the securities described above were
deemed to be exempt from registration under the Securities Act
in reliance on Rule 701 promulgated under Section 3(b)
of the Securities Act, as transactions by an issuer not
involving a public offering or transactions pursuant to
compensatory benefit plans and contracts relating to
compensation as provided under Rule 701.
II-3
|
|
Item 16.
|
Exhibits and
Financial Statement Schedules
|
(a) Exhibits
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Description
|
|
|
1
|
.1**
|
|
Form of Underwriting Agreement.
|
|
3
|
.1*
|
|
Ninth Amended and Restated Certificate of Incorporation of the
Registrant, as currently in effect.
|
|
3
|
.2*
|
|
Certificate of Amendment to the Ninth Amended and Restated
Certificate of Incorporation of the Registrant.
|
|
3
|
.3**
|
|
Form of Amended and Restated Certificate of Incorporation of the
Registrant, to be effective upon the completion of the offering.
|
|
3
|
.4*
|
|
Bylaws of the Registrant, as currently in effect.
|
|
3
|
.5**
|
|
Form of Amended and Restated Bylaws of the Registrant, to be
effective upon the completion of the offering.
|
|
4
|
.1**
|
|
Form of the Registrant Common Stock Certificate.
|
|
4
|
.2*
|
|
Fifth Amended and Restated Stockholder Rights Agreement, by and
between the Registrant and the investors listed on
Exhibit A thereto, key holders listed on Exhibit B
thereto and other holders listed on Exhibit C thereto,
dated as of October 15, 2008.
|
|
4
|
.3*
|
|
First Amendment to the Fifth Amended and Restated Stockholder
Rights Agreement, dated as of September 18, 2009.
|
|
4
|
.4*
|
|
Second Amendment to the Fifth Amended and Restated Stockholder
Rights Agreement, dated as of October 8, 2009.
|
|
4
|
.5*
|
|
Warrant Agreement to Purchase Shares of the Series C
Preferred Stock of the Registrant by and between the Registrant
and Hercules Technology Growth Capital, Inc., dated
March 22, 2007.
|
|
4
|
.6*
|
|
Warrant to Purchase Stock issued to Square 1 Bank, dated
September 18, 2009.
|
|
4
|
.7*
|
|
Warrant to Purchase Shares of Series F Preferred Stock
issued to Compass Horizon Funding Company LLC, dated
October 8, 2009.
|
|
5
|
.1**
|
|
Opinion of Cooley LLP.
|
|
10
|
.1*
|
|
2003 Stock Option Plan, as amended, and related documents.
|
|
10
|
.1.1*
|
|
Amendment to 2003 Stock Option Plan, as amended.
|
|
10
|
.2**
|
|
2010 Equity Incentive Plan and related documents.
|
|
10
|
.3*
|
|
Lease Agreement between the Registrant and the Rector,
Church-Wardens and Vestrymen of the Trinity Church in the City
of New York, dated as of August 26, 2009.
|
|
10
|
.3.1*
|
|
First Amendment to the Lease between the Registrant and the
Rector, Church-Wardens and Vestrymen of the Trinity Church in
the City of New York, dated as of February 22, 2010.
|
|
10
|
.4*
|
|
Sublease between the Registrant and CT Corporation System, dated
August 26, 2009.
|
|
10
|
.5**
|
|
Form of Indemnification Agreement to be entered into with each
director and executive officer of the Registrant.
|
|
10
|
.6*
|
|
Loan and Security Agreement by and among the Registrant,
Revolution Health Group LLC, CarePages, Inc. and Square 1 Bank,
dated September 18, 2009.
|
|
10
|
.6.1
|
|
First Amendment to Loan and Security Agreement by and among the
Registrant, Revolution Health Group LLC, CarePages, Inc. and
Square 1 Bank, dated July 1, 2010.
|
II-4
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Description
|
|
|
10
|
.7*
|
|
Venture Loan and Security Agreement by and among the Registrant,
Revolution Health Group LLC, CarePages, Inc. and Compass Horizon
Funding Company LLC, dated October 8, 2009.
|
|
10
|
.8*
|
|
Employment Agreement between the Registrant and Brian Cooper,
dated September 9, 2003.
|
|
10
|
.9*
|
|
Offer Letter between the Registrant and Scott Wolf, dated
May 9, 2005.
|
|
10
|
.10*
|
|
Offer Letter between the Registrant and Gregory Jackson, dated
June 19, 2006.
|
|
10
|
.11*
|
|
Letter Agreement between the Registrant and J.M. Athletics, LLC
(subsequently assigned to Empowered Media, LLC), dated
November 7, 2005, as amended on May 12, 2009 and
November 6, 2009.
|
|
10
|
.12
|
|
Letter Agreement between the Registrant, SBD/Waterfront Media
Limited Partnership and Rodale Inc., dated February 12,
2008.
|
|
10
|
.13**
|
|
Everyday Health, Inc. 2010 Employee Stock Purchase Plan.
|
|
10
|
.14**
|
|
Everyday Health, Inc. Non-Employee Director Compensation Policy.
|
|
21
|
.1*
|
|
List of Subsidiaries.
|
|
23
|
.1
|
|
Consent of Ernst & Young LLP, independent registered
public accounting firm.
|
|
23
|
.2
|
|
Consent of Ernst & Young LLP, independent auditors.
|
|
23
|
.3**
|
|
Consent of Cooley LLP (included in Exhibit 5.1).
|
|
23
|
.4
|
|
Report and Consent of UHY LLP, independent auditors.
|
|
23
|
.5
|
|
Report and Consent of Stout, Causey and Horning P.A.,
independent auditors.
|
|
24
|
.1*
|
|
Power of Attorney (see
page II-8
of original filing).
|
|
99
|
.1*
|
|
Consent of Forrester Research, Inc.
|
|
99
|
.2*
|
|
Consent of comScore, Inc.
|
|
99
|
.3*
|
|
Consent of Manhattan Research, LLC.
|
|
99
|
.4*
|
|
Consent of Veronis Suhler Stevenson LLC.
|
|
|
|
* |
|
Previously filed. |
|
** |
|
To be filed by amendment. |
Certain portions have been omitted pursuant to
a confidential treatment request. Omitted information has been
filed separately with the SEC.
(b) No financial statement schedules are provided because
the information called for is not required or is shown either in
the financial statements or the notes thereto.
II-5
The undersigned registrant hereby undertakes to provide to the
underwriters at the closing specified in the underwriting
agreement, certificates in such denominations and registered in
such names as required by the underwriters to permit prompt
delivery to each purchaser.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors,
officers and controlling persons of the registrant pursuant to
the foregoing provisions, or otherwise, the registrant has been
advised that, in the opinion of the Securities and Exchange
Commission, such indemnification is against public policy as
expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer
or controlling person of the registrant in the successful
defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the
securities being registered, the registrant will, unless in the
opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and
will be governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the
Securities Act, the information omitted from the form of
prospectus filed as part of this registration statement in
reliance upon Rule 430A and contained in the form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to
be part of the registration statement as of the time it was
declared effective.
(2) For purposes of determining any liability under the
Securities Act, each post-effective amendment that contains a
form of prospectus shall be deemed to be a new registration
statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(3) For the purpose of determining liability under the
Securities Act to any purchaser, each prospectus filed pursuant
to Rule 424(b) as part of a registration statement relating
to an offering, other than registration statements relying on
Rule 430B or other than prospectuses filed in reliance on
Rule 430A, shall be deemed to be part of and included in
the registration statement as of the date it is first used after
effectiveness. Provided, however, that no statement made in a
registration statement or prospectus that is part of the
registration statement or made in a document incorporated or
deemed incorporated by reference into the registration statement
or prospectus that is part of the registration statement will,
as to a purchaser with a time of contract of sale prior to such
first use, supersede or modify any statement that was made in
the registration statement or prospectus that was part of the
registration statement or made in any such document immediately
prior to such date of first use.
(4) For the purpose of determining liability of the
registrant under the Securities Act to any purchaser in the
initial distribution of the securities, in a primary offering of
securities of the undersigned registrant pursuant to this
registration statement, regardless of the underwriting method
used to sell the securities to the purchaser, if the securities
are offered or sold to such purchaser by means of any of the
following communications, the undersigned registrant will be a
seller to the purchaser and will be considered to offer or sell
such securities to such purchaser:
II-6
(i) Any preliminary prospectus or prospectus of the
undersigned registrant relating to the offering required to be
filed pursuant to Rule 424;
(ii) Any free writing prospectus relating to the offering
prepared by or on behalf of the undersigned registrant or used
or referred to by the undersigned registrant;
(iii) The portion of any other free writing prospectus
relating to the offering containing material information about
the undersigned registrant or its securities provided by or on
behalf of the undersigned registrant; and
(iv) Any other communication that is an offer in the
offering made by the undersigned registrant to the purchaser.
II-7
SIGNATURES
Pursuant to the requirements of the Securities Act, the
Registrant has duly caused this Amendment No. 5 to the
Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in New York, State of
New York, on the
18th day
of August, 2010.
EVERYDAY HEALTH, INC.
Benjamin Wolin
Chief Executive Officer and Director
Pursuant to the requirements of the Securities Act, this
Amendment No. 5 to the Registration Statement has been
signed below by the following persons in the capacities and on
the dates indicated.
|
|
|
|
|
|
|
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
|
/s/ Benjamin
Wolin
Benjamin
Wolin
|
|
Chief Executive Officer and Director (Principal Executive
Officer)
|
|
August 18, 2010
|
|
|
|
|
|
/s/ Brian
Cooper
Brian
Cooper
|
|
Executive Vice President and Chief Financial Officer (Principal
Financial and Accounting Officer)
|
|
August 18, 2010
|
*
D.
Jarrett Collins
|
|
Director
|
|
August 18, 2010
|
|
|
|
|
|
*
Donn
Davis
|
|
Director
|
|
August 18, 2010
|
|
|
|
|
|
*
Dana
L. Evan
|
|
Director
|
|
August 18, 2010
|
|
|
|
|
|
*
David
Golden
|
|
Director
|
|
August 18, 2010
|
|
|
|
|
|
*
Michael
Keriakos
|
|
Director
|
|
August 18, 2010
|
|
|
|
|
|
*
Habib
Kairouz
|
|
Director
|
|
August 18, 2010
|
|
|
|
|
|
*
Douglas
McCormick
|
|
Director
|
|
August 18, 2010
|
|
|
|
|
|
*
William
Bo S. Peabody
|
|
Director
|
|
August 18, 2010
|
|
|
|
|
|
*
Sharon
Wienbar
|
|
Director
|
|
August 18, 2010
|
|
|
|
|
|
|
|
*By:
|
|
/s/ Benjamin
Wolin
Benjamin
Wolin
Attorney-in-Fact
|
|
|
|
|
II-8
Exhibit Index
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Description
|
|
|
1
|
.1**
|
|
Form of Underwriting Agreement.
|
|
3
|
.1*
|
|
Ninth Amended and Restated Certificate of Incorporation of the
Registrant, as currently in effect.
|
|
3
|
.2*
|
|
Certificate of Amendment to the Ninth Amended and Restated
Certificate of Incorporation of the Registrant.
|
|
3
|
.3**
|
|
Form of Amended and Restated Certificate of Incorporation of the
Registrant, to be effective upon the completion of the offering.
|
|
3
|
.4*
|
|
Bylaws of the Registrant, as currently in effect.
|
|
3
|
.5**
|
|
Form of Amended and Restated Bylaws of the Registrant, to be
effective upon the completion of the offering.
|
|
4
|
.1**
|
|
Form of the Registrant Common Stock Certificate.
|
|
4
|
.2*
|
|
Fifth Amended and Restated Stockholder Rights Agreement, by and
between the Registrant and the investors listed on
Exhibit A thereto, key holders listed on Exhibit B
thereto and other holders listed on Exhibit C thereto,
dated as of October 15, 2008.
|
|
4
|
.3*
|
|
First Amendment to the Fifth Amended and Restated Stockholder
Rights Agreement, dated as of September 18, 2009.
|
|
4
|
.4*
|
|
Second Amendment to the Fifth Amended and Restated Stockholder
Rights Agreement, dated as of October 8, 2009.
|
|
4
|
.5*
|
|
Warrant Agreement to Purchase Shares of the Series C
Preferred Stock of the Registrant by and between the Registrant
and Hercules Technology Growth Capital, Inc., dated
March 22, 2007.
|
|
4
|
.6*
|
|
Warrant to Purchase Stock issued to Square 1 Bank, dated
September 18, 2009.
|
|
4
|
.7*
|
|
Warrant to Purchase Shares of Series F Preferred Stock
issued to Compass Horizon Funding Company LLC, dated
October 8, 2009.
|
|
5
|
.1**
|
|
Opinion of Cooley LLP.
|
|
10
|
.1*
|
|
2003 Stock Option Plan, as amended, and related documents.
|
|
10
|
.1.1*
|
|
Amendment to 2003 Stock Option Plan, as amended.
|
|
10
|
.2**
|
|
2010 Equity Incentive Plan and related documents.
|
|
10
|
.3*
|
|
Lease Agreement between the Registrant and the Rector,
Church-Wardens and Vestrymen of the Trinity Church in the City
of New York, dated as of August 26, 2009.
|
|
10
|
.3.1*
|
|
First Amendment to the Lease between the Registrant and the
Rector, Church-Wardens and Vestrymen of the Trinity Church in
the City of New York, dated as of February 22, 2010.
|
|
10
|
.4*
|
|
Sublease between the Registrant and CT Corporation System, dated
August 26, 2009.
|
|
10
|
.5**
|
|
Form of Indemnification Agreement to be entered into with each
director and executive officer of the Registrant.
|
|
10
|
.6*
|
|
Loan and Security Agreement by and among the Registrant,
Revolution Health Group LLC, CarePages, Inc. and Square 1 Bank,
dated September 18, 2009.
|
|
10
|
.6.1
|
|
First Amendment to Loan and Security Agreement by and among the
Registrant, Revolution Health Group LLC, CarePages, Inc. and
Square 1 Bank, dated July 1, 2010.
|
|
10
|
.7*
|
|
Venture Loan and Security Agreement by and among the Registrant,
Revolution Health Group LLC, CarePages, Inc. and Compass Horizon
Funding Company LLC, dated October 8, 2009.
|
|
10
|
.8*
|
|
Employment Agreement between the Registrant and Brian Cooper,
dated September 9, 2003.
|
|
10
|
.9*
|
|
Offer Letter between the Registrant and Scott Wolf, dated
May 9, 2005.
|
|
10
|
.10*
|
|
Offer Letter between the Registrant and Gregory Jackson, dated
June 19, 2006.
|
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Description
|
|
|
10
|
.11*
|
|
Letter Agreement between the Registrant and J.M. Athletics, LLC
(subsequently assigned to Empowered Media, LLC), dated
November 7, 2005, as amended on May 12, 2009 and
November 6, 2009.
|
|
10
|
.12
|
|
Letter Agreement between the Registrant, SBD/Waterfront Media
Limited Partnership and Rodale Inc., dated February 12,
2008.
|
|
10
|
.13**
|
|
Everyday Health, Inc. 2010 Employee Stock Purchase Plan.
|
|
10
|
.14**
|
|
Everyday Health, Inc. Non-Employee Director Compensation Policy.
|
|
21
|
.1*
|
|
List of Subsidiaries.
|
|
23
|
.1
|
|
Consent of Ernst & Young LLP, independent registered
public accounting firm.
|
|
23
|
.2
|
|
Consent of Ernst & Young LLP, independent auditors.
|
|
23
|
.3**
|
|
Consent of Cooley LLP (included in Exhibit 5.1).
|
|
23
|
.4
|
|
Report and Consent of UHY LLP, independent auditors.
|
|
23
|
.5
|
|
Report and Consent of Stout, Causey and Horning P.A.,
independent auditors.
|
|
24
|
.1*
|
|
Power of Attorney (see
page II-8
of original filing).
|
|
99
|
.1*
|
|
Consent of Forrester Research, Inc.
|
|
99
|
.2*
|
|
Consent of comScore, Inc.
|
|
99
|
.3*
|
|
Consent of Manhattan Research, LLC.
|
|
99
|
.4*
|
|
Consent of Veronis Suhler Stevenson LLC.
|
|
|
|
* |
|
Previously filed. |
|
** |
|
To be filed by amendment. |
|
|
|
Certain portions have been omitted pursuant to a confidential
treatment request. Omitted information has been filed separately
with the SEC. |