-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, V5SUlR3Ctfx1/ixEcALJs7+GTwq/Op4k5oyA0A8jwvoCAU4kcvaC60xbTJCVcfjc +eA0sa+ZMOmuiCMEu+Esjg== 0000950123-99-010540.txt : 19991129 0000950123-99-010540.hdr.sgml : 19991129 ACCESSION NUMBER: 0000950123-99-010540 CONFORMED SUBMISSION TYPE: S-1/A PUBLIC DOCUMENT COUNT: 5 FILED AS OF DATE: 19991126 FILER: COMPANY DATA: COMPANY CONFORMED NAME: KNOT INC CENTRAL INDEX KEY: 0001062292 STANDARD INDUSTRIAL CLASSIFICATION: PERIODICALS: PUBLISHING OR PUBLISHING AND PRINTING [2721] IRS NUMBER: 133895178 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-1/A SEC ACT: SEC FILE NUMBER: 333-87345 FILM NUMBER: 99764631 BUSINESS ADDRESS: STREET 1: 462 BROADWAY 6TH FLOOR CITY: NEW YORK STATE: NY ZIP: 10013 BUSINESS PHONE: 2122198555 MAIL ADDRESS: STREET 1: 462 BROADWAY, 6TH FLOOR CITY: NEW YORK STATE: NY ZIP: 10013 S-1/A 1 AMENDMENT NO. 4 TO FORM S-1 1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 26, 1999 REGISTRATION NO. 333-87345 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ AMENDMENT NO. 4 TO FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ------------------------ THE KNOT, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 7375 13-3895178 (STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER) CLASSIFICATION CODE NUMBER)
------------------------ 462 BROADWAY 6TH FLOOR NEW YORK, NY 10013 TELEPHONE: (212) 219-8555 (ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES) ------------------------ DAVID LIU CHIEF EXECUTIVE OFFICER THE KNOT, INC. 462 BROADWAY 6TH FLOOR NEW YORK, NY 10013 (212) 219-8555 (NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE OF AGENT FOR SERVICE) ------------------------ COPIES TO: ALEXANDER D. LYNCH, ESQ. JOHN M. HESSION, ESQ. BRIAN B. MARGOLIS, ESQ. JOCELYN M. AREL, ESQ. BROBECK, PHLEGER & HARRISON LLP TESTA, HURWITZ & THIBEAULT, LLP 1633 BROADWAY, 47TH FLOOR 125 HIGH STREET NEW YORK, NY 10019 BOSTON, MA 02110 (212) 581-1600 (617) 248-7000
------------------------ APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as practicable after the effective date of this Registration Statement. If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. [ ] If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] - --------- If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] - --------- If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] - --------- If delivery of the prospectus is expected to be made pursuant to Rule 434, check the following box. [ ] ------------------------ CALCULATION OF REGISTRATION FEE
- -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- PROPOSED PROPOSED MAXIMUM MAXIMUM TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE AMOUNT OF SECURITIES REGISTERED REGISTERED(1) PER SHARE(2) OFFERING PRICE(2) REGISTRATION FEE(3) - -------------------------------------------------------------------------------------------------------------------- Common Stock, par value $0.01 per share................................. 4,025,000 $10.00 $40,250,000 $11,190 - -------------------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------------
(1) Includes 525,000 shares which the underwriters have the option to purchase to cover over-allotments, if any. (2) Estimated solely for the purposes of computing the registration fee pursuant to Rule 457(a) under the Securities Act of 1933, as amended. (3) Previously paid. ------------------------ REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2 The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted. SUBJECT TO COMPLETION, DATED NOVEMBER 26, 1999 3,500,000 SHARES [THE KNOT LOGO] COMMON STOCK ------------------ Prior to this offering, there has been no public market for our common stock. The initial public offering price is expected to be between $8.00 and $10.00 per share. We intend to apply to list our common stock on The Nasdaq Stock Market's National Market under the symbol "KNOT." The underwriters have an option to purchase a maximum of 525,000 additional shares to cover over-allotments of shares. INVESTING IN OUR COMMON STOCK INVOLVES RISKS. SEE "RISK FACTORS" ON PAGE 5.
UNDERWRITING PRICE TO DISCOUNTS AND PROCEEDS TO PUBLIC COMMISSIONS THE KNOT -------------------- -------------------- -------------------- Per Share....................................... $ $ $ Total........................................... $ $ $
Delivery of the shares of common stock will be made on or about , 1999. Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense. CREDIT SUISSE FIRST BOSTON HAMBRECHT & QUIST SALOMON SMITH BARNEY The date of this prospectus is , 1999. 3 INSIDE FRONT COVER: - Background: photo of bride and groom. - Bottom half of page contains centered text reading: "How do I get her ring size?"; "Where do I seat my father's 2nd wife's children?"; "How can I find a photographer from 1,500 miles away?"; "Can my brother be my bridesmaid?"; "How can we combine Jewish and Scottish traditions?"; When do we send out the invitations?"; "Is anyone else having cold feet?"; "What if we want fishing rods instead of flatware?"; "Have any exotic honeymoons for under $3,000?"; "How do you tie a bow tie?"; "How do we tell guests where we're registered?"; and "How do I make this feeling last forever?" - At bottom of page: "the knot, the new word in weddings; advice. ideas. relief. shopping." GATEFOLD: - Title text reading "the new word in weddings . . . the knot" (across top of both pages of gatefold). - Centered on gatefold is The Knot's home page screen shot displaying a link to The Knot's Ultimate Checklist, links to The Knot's areas, links to The Knot Registry, links to "This Week's Features", links to planning tools, and a link to The Knot Shop. - Surrounding The Knot's home page screen are overlays of photos of brides, grooms, friends and family. - Right side of gatefold lists services and information provided by The Knot Web site. Text reads: "Online and Offline All The Time", "Inspiring Ideas", "Up-to-date Etiquette", "Online/800# Gift Registry", "Personal Planning Tools", "Nationwide Vendor Listings", "Active Chat Rooms", "Wedding Supply Shopping", "Honeymoon Travel Agent", "Thousands of Editorial Articles", "15,000 Gown Pictures", "10,000 Gown Gifts", and "395,000 Registered Couples". - Bottom right hand corner contains The Knot's Web site address and the words "open all night". 4 ------------------ TABLE OF CONTENTS
PAGE ---- PROSPECTUS SUMMARY.................. 1 RISK FACTORS........................ 5 FORWARD-LOOKING STATEMENTS.......... 20 TRADEMARKS.......................... 20 ASSUMPTIONS......................... 20 USE OF PROCEEDS..................... 21 DIVIDEND POLICY..................... 21 CAPITALIZATION...................... 22 DILUTION............................ 23 SELECTED FINANCIAL DATA............. 24 UNAUDITED PRO FORMA CONDENSED STATEMENT OF OPERATIONS........... 25 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS..................... 26 BUSINESS............................ 39 MANAGEMENT.......................... 57 CERTAIN TRANSACTIONS................ 69 PRINCIPAL STOCKHOLDERS.............. 71 DESCRIPTION OF CAPITAL STOCK........ 73 SHARES ELIGIBLE FOR FUTURE SALE..... 76 UNDERWRITING........................ 78 NOTICE TO CANADIAN RESIDENTS........ 81 LEGAL MATTERS....................... 83 EXPERTS............................. 83 WHERE YOU CAN FIND ADDITIONAL INFORMATION....................... 83 INDEX TO FINANCIAL STATEMENTS....... F-1
------------------ YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS DOCUMENT OR TO WHICH WE HAVE REFERRED YOU. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION THAT IS DIFFERENT. THIS DOCUMENT MAY ONLY BE USED WHERE IT IS LEGAL TO SELL THESE SECURITIES. THE INFORMATION IN THIS DOCUMENT MAY ONLY BE ACCURATE ON THE DATE OF THIS DOCUMENT. DEALER PROSPECTUS DELIVERY OBLIGATION UNTIL , 1999, ALL DEALERS THAT EFFECT TRANSACTIONS IN THESE SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE DEALER'S OBLIGATION TO DELIVER A PROSPECTUS WHEN ACTING AS AN UNDERWRITER AND IN CONNECTION WITH UNSOLD ALLOTMENTS OR SUBSCRIPTIONS. i 5 PROSPECTUS SUMMARY Because this is only a summary, it does not contain all of the information that may be important to you. You should read the entire prospectus, including "Risk Factors" and the financial statements and the notes to the financial statements, before deciding to invest in our common stock. Information contained on our online sites does not constitute part of this prospectus. References in this prospectus to "The Knot," "we," "our" and "us" refer to The Knot, Inc. THE KNOT, INC. OUR BUSINESS The Knot is the leading online destination targeting the wedding market. Weddings are major milestone events and consumers tend to allocate significant budgets to their weddings and related purchases. According to an independent research report, the domestic wedding market generates over $45 billion in retail sales annually. Our easy-to-use online sites provide full-service offerings for couples planning their weddings. We provide future brides and grooms with comprehensive content, including thousands of articles on wedding planning organized by topic and a database of local wedding vendors in 52 markets nationwide. Our sites also feature numerous interactive services and personalized planning tools. By providing hosted chats and message boards, we create an online community where brides and grooms can interact. We offer consumers a convenient place to purchase a broad range of wedding-related items through our online gift registry, shops for wedding supplies and travel agency. We also author a series of books and publish a semiannual gown guide that provide cross-promotional opportunities and increase our brand awareness and our online audience. We provide advertisers and vendors with targeted access to couples actively seeking information and making meaningful buying decisions relating to all aspects of their weddings. We receive revenue primarily from sponsorship and advertising contracts and production contracts related to the development of online sites and tools. We also generate revenue from the sale of merchandise, publishing and the sale of travel packages. For the nine months ended September 30, 1999, sponsorship, advertising and production revenues represented 65% of our net revenues. In September 1999, we generated over 15.4 million page views on our Web site compared to 2.5 million page views in December 1998. We are currently enrolling as members an average of over 1,000 new couples per day. OUR STRATEGY Our strategy is to expand our position as the leading online resource providing comprehensive wedding planning information, products and services by: - building strong brand recognition of The Knot; - aggressively growing our membership base and increasing member usage; - providing a full-service shopping solution to make the wedding planning process more convenient, efficient and enjoyable; - generating multiple revenue streams; and - pursuing strategic alliances and acquisitions. 1 6 OUR OFFICES Our business was incorporated on May 2, 1996. Our principal executive offices are located at 462 Broadway, 6th Floor, New York, New York 10013. Our telephone number is (212) 219-8555. The address of our Web site is www.theknot.com. We are also located on America Online (keywords "Knot" and "weddings"). THE OFFERING Common stock offered................................. 3,500,000 shares Common stock to be outstanding after this offering... 13,973,103 shares Use of proceeds...................................... For general corporate purposes, capital expenditures and working capital.
The number of shares of common stock to be outstanding after this offering is based on our shares outstanding as of November 22, 1999. This information excludes 3,849,868 shares of common stock reserved for issuance under our 1999 Stock Incentive Plan, of which 1,729,415 shares are issuable upon the exercise of stock options outstanding as of November 22, 1999, and 2,066,667 shares of common stock issuable upon the exercise of warrants outstanding as of November 22, 1999. 2 7 SUMMARY FINANCIAL DATA (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
PERIOD FROM MAY 2, 1996 YEAR ENDED NINE MONTHS ENDED (INCEPTION) TO DECEMBER 31, SEPTEMBER 30, DECEMBER 31, --------------------- ----------------------- 1996 1997 1998 1998 1999 -------------- --------- --------- ----------- --------- (UNAUDITED) STATEMENT OF OPERATIONS DATA: Net revenues....................... $ 71 $ 596 $ 1,040 $ 826 $ 2,635 Cost of revenues................... 9 67 131 82 904 --------- --------- --------- --------- --------- Gross profit....................... 62 529 909 744 1,731 Total operating expenses........... 768 1,425 2,823 1,935 7,982 Loss from operations............... (706) (896) (1,914) (1,191) (6,251) Net loss........................... $ (752) $ (1,095) $ (1,509) $ (830) $ (6,008) ========= ========= ========= ========= ========= Basic and diluted net loss per share............................ $ (0.46) $ (0.67) $ (0.60) $ (0.35) $ (1.96) ========= ========= ========= ========= ========= Weighted average number of shares used in calculating basic and diluted net loss per share....... 1,625,410 1,625,410 2,497,065 2,344,126 3,066,960 ========= ========= ========= ========= ========= Pro forma basic and diluted net loss per share................... $ (0.46) $ (0.67) $ (0.32) $ (0.19) $ (0.67) ========= ========= ========= ========= ========= Pro forma weighted average number of shares used in calculating basic and diluted net loss per share............................ 1,625,410 1,625,410 4,780,024 4,264,126 8,932,455 ========= ========= ========= ========= =========
Unaudited pro forma basic and diluted net loss per share have been calculated assuming the conversion of all previously outstanding preferred stock into common stock, as if the shares had converted immediately upon their issuance. See Note 2 of Notes to Financial Statements for an explanation of the determination of the number of shares used in computing basic and diluted net loss per share.
SEPTEMBER 30, 1999 ------------------------------------- PRO FORMA ACTUAL PRO FORMA AS ADJUSTED ------- ----------- ----------- (UNAUDITED) (UNAUDITED) BALANCE SHEET DATA: Cash and cash equivalents............................ $ 9,302 $ 9,302 $37,597 Working capital...................................... 9,257 9,257 37,552 Total assets......................................... 13,846 13,846 42,141 Convertible preferred stock.......................... 17,901 -- -- Total stockholders' equity........................... 11,524 11,524 39,819
The pro forma balance sheet data reflect the automatic conversion into common stock of all outstanding convertible preferred stock upon the closing of this offering. The pro forma as adjusted data reflect our receipt of the estimated net proceeds from the sale of the 3,500,000 shares of common stock 3 8 offered by us at an assumed initial public offering price of $9.00 per share, after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. For more information, see "Management's Discussion and Analysis of Financial Condition and Results of Operations" and our financial statements and related notes included elsewhere in this prospectus. 4 9 RISK FACTORS Any investment in our common stock involves a high degree of risk. You should consider carefully the following information about these risks, together with the other information contained in this prospectus, before you decide to buy our common stock. If any of the following events actually occurs, our business and financial results may suffer. In such event, the market price of our common stock could decline, and you could lose all or part of your investment in our common stock. RISKS RELATED TO OUR BUSINESS WE HAVE AN UNPROVEN BUSINESS MODEL AND IT IS UNCERTAIN WHETHER ONLINE WEDDING-RELATED SITES CAN GENERATE SUFFICIENT REVENUES TO SURVIVE. Our model for conducting business and generating revenues is new and unproven. Our business model depends upon our ability to generate revenue streams from multiple sources through our online sites, including: - Internet sponsorship and advertising fees from third parties; and - online sales of wedding gifts and supplies. It is uncertain whether wedding-related online sites that rely on attracting sponsors and advertisers, as well as people to purchase wedding gifts and supplies, can generate sufficient revenues to survive. For our business to be successful, we must provide users with an acceptable blend of products, information, services and community offerings that will attract wedding consumers to our online sites frequently. In addition, we must provide sponsors, advertisers and vendors the opportunity to reach these wedding consumers. We provide our services to users without charge and we may not be able to generate sufficient revenues to pay for these services. Accordingly, we are not certain that our business model will be successful or that we can sustain revenue growth or be profitable. WE HAVE A LIMITED OPERATING HISTORY AND EXPECT TO ENCOUNTER DIFFICULTIES FACED BY EARLY STAGE COMPANIES IN THE INTERNET ADVERTISING AND ONLINE WEDDING MARKETS. We commenced operations in May 1996 and recorded our first revenues in September 1996, immediately following the launch of our first online property. Accordingly, we have only a limited operating history with which you can evaluate our business and prospects. An investor in our common stock must consider the risks and difficulties frequently encountered by early stage companies in new and rapidly evolving markets, such as the Internet advertising and online wedding markets. These risks include our ability to: - increase the audience on our sites; - broaden awareness of our brand; - strengthen user-loyalty; - offer compelling content; - maintain our leadership in generating traffic; - maintain our current, and develop new, strategic relationships; - attract a large number of advertisers from a variety of industries; 5 10 - respond effectively to competitive pressures; - generate revenues from the sale of merchandise and e-commerce; - integrate our recent acquisitions into our existing operations; - continue to develop and upgrade our technology; and - attract, integrate, retain and motivate qualified personnel. As a result of our limited operating history, we do not have historical financial data for a significant number of periods upon which to forecast our revenues and results of operations. These risks could negatively impact our financial condition if left unaddressed. For more information on the effects of some of these risks, see "Management's Discussion and Analysis of Financial Condition and Results of Operations." WE HAVE A HISTORY OF SIGNIFICANT LOSSES SINCE OUR INCEPTION AND EXPECT TO INCUR SIGNIFICANT LOSSES FOR THE FORESEEABLE FUTURE. We have not achieved profitability and expect to continue to incur significant losses and negative cash flow for the foreseeable future. We incurred net losses of $752,000 for the period from May 2, 1996 (inception) through December 31, 1996, $1.1 million for the year ended December 31, 1997, $1.5 million for the year ended December 31, 1998, and $6.0 million for the nine months ended September 30, 1999. As of September 30, 1999, our accumulated deficit was $9.4 million. We also expect to continue to incur significant operating expenses and capital expenditures and, as a result, we will need to generate significant revenues to achieve and maintain profitability. Even if we do achieve profitability, we cannot assure you that we can sustain or increase profitability on a quarterly or annual basis in the future. Failure to achieve or maintain profitability may materially and adversely affect the market price of our common stock. For more information on our losses and the effects of our expenses on our financial performance, see "Management's Discussion and Analysis of Financial Condition and Results of Operations." WE LACK SIGNIFICANT REVENUES AND MAY BE UNABLE TO ADJUST SPENDING QUICKLY ENOUGH TO OFFSET ANY UNEXPECTED REVENUE SHORTFALL. Our revenues for the foreseeable future will remain dependent on user traffic levels and advertising activity on our sites and the expansion of our e-commerce activity. In addition, we plan to expand and develop content and to upgrade and enhance our technology and infrastructure to support our growth. We incur a significant percentage of our expenses, such as employee compensation and rent, prior to generating revenues associated with those expenses. Moreover, our expense levels are based, in part, on our expectation of future revenues. We may be unable to adjust spending quickly enough to offset any unexpected revenue shortfall. If we have a shortfall in revenues in relation to our growth in expenses, then our results of operations would be materially and adversely affected. For more information on our net revenues and the effects of our expenses on our financial performance, see "Selected Financial Data" and "Management's Discussion and Analysis of Financial Condition and Results of Operations." 6 11 OUR QUARTERLY REVENUES AND OPERATING RESULTS ARE SUBJECT TO SIGNIFICANT FLUCTUATION AND THESE FLUCTUATIONS MAY ADVERSELY AFFECT THE TRADING PRICE OF OUR COMMON STOCK. Our quarterly revenues and operating results have fluctuated significantly in the past and are expected to continue to fluctuate significantly in the future as a result of a variety of factors, many of which are outside our control. These factors include: - the level of online usage; - the level of traffic on our online sites; - demand for online advertising; - seasonal trends in both online usage and advertising placements; - the addition or loss of advertisers; - the advertising budgeting cycles of specific advertisers; - the number of users that purchase merchandise from us; - the amount and timing of capital expenditures and other costs relating to the expansion of our operations, including those related to acquisitions; - the introduction of new sites and services by us or our competitors; - changes in our pricing policies or the pricing policies of our competitors; - general economic conditions; and - economic conditions specific to the Internet, electronic commerce and online media. We do not believe that period-to-period comparisons of our operating results are necessarily meaningful and you should not rely upon these comparisons as indicators of our future performance. Due to the foregoing factors, it is possible that our results of operations in one or more future quarters may fall below the expectations of securities analysts and investors. In such event, the trading price of our common stock is likely to decline. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Quarterly Results of Operations Data" for detailed information on our quarterly operating results. OUR FINANCIAL CONDITION AND REVENUES WOULD BE ADVERSELY AFFECTED IF TRAFFIC ON OUR AOL SITE DECREASED OR IF CARRIAGE OF OUR SITES ON AOL WAS DISCONTINUED. AOL has accounted for a significant portion of our online traffic to date. In 1999, approximately 40% of our users were customers of AOL's Internet services. If the financial condition and operations of AOL were to deteriorate significantly, or if the traffic on our AOL site were to substantially decrease, our revenues could be adversely affected. In addition, our anchor tenant agreement with AOL expires on January 6, 2003. AOL may extend it for an additional two years, but does not have any obligation to extend or renew the agreement. Through the AOL agreement, we provide content on America Online, AOL.com, AOL Hometown, Netscape and CompuServe. Under the terms of the agreement, AOL may terminate the agreement without cause only with respect to our carriage on AOL Hometown, Netscape, and CompuServe upon 30 days' prior written 7 12 notice. If the carrying of our sites on AOL is discontinued, we would lose members, sponsors and advertisers and our business, results of operations and financial condition would be materially and adversely affected. For more information about our relationship with AOL, see "Business -- Relationship with AOL." BECAUSE WEDDINGS OCCUR MORE FREQUENTLY IN THE SECOND AND THIRD QUARTERS OF THE CALENDAR YEAR, OUR OPERATING RESULTS MAY FLUCTUATE DUE TO SEASONAL FACTORS. Seasonal and cyclical patterns may affect our revenues. In 1997, 19% of weddings occurred in the first quarter, 28% occurred in the second quarter, 30% occurred in the third quarter and 23% occurred in the fourth quarter. Because we launched The Knot Registry in November 1998 and acquired Bridalink in July 1999, we have limited experience generating merchandise revenues. Therefore, we have been unable to determine whether our merchandise revenues are affected by seasonal fluctuations in the number of weddings. In addition, we believe that advertising sales in traditional media, such as television and radio, generally are lower in the first and third calendar quarters of each year. Historically, we have experienced increases in our traffic during the first and second quarters of the year. As a result of these factors, we may experience fluctuations in our revenues from quarter to quarter. WE MAY BE UNABLE TO CONTINUE TO BUILD AWARENESS OF THE KNOT BRAND NAME WHICH WOULD NEGATIVELY IMPACT OUR BUSINESS AND CAUSE OUR SPONSORSHIP AND ADVERTISING REVENUES TO DECLINE. Building recognition of our brand is critical to attracting and expanding our online user base. Because we plan to continue building brand recognition, we may find it necessary to accelerate expenditures on our sales and marketing efforts or otherwise increase our financial commitment to creating and maintaining brand awareness. Our failure to successfully promote and maintain our brand would adversely affect our business and cause us to incur significant expenses in promoting our brand without an associated increase in our net revenues. IF WE CANNOT PROTECT OUR DOMAIN NAMES, IT WILL IMPAIR OUR ABILITY TO BRAND SUCCESSFULLY THE KNOT. We currently hold various Web domain names, including www.theknot.com. The acquisition and maintenance of domain names generally is regulated by Internet regulatory bodies. The regulation of domain names in the United States 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 successfully carry out our business strategy of establishing a strong brand for The Knot if we cannot prevent others from using similar domain names or trademarks. This could impair our ability to increase market share and revenues. 8 13 OUR BUSINESS COULD BE ADVERSELY AFFECTED IF WE ARE NOT ABLE TO SUCCESSFULLY INTEGRATE OUR RECENT AND ANY FUTURE ACQUISITIONS. In July 1999, we acquired Bridalink.com, an Internet wedding supply store, and Click Trips, Inc., an online travel agency. In August 1999, we acquired Wedding Photographers Network, an online searchable database of wedding photographers. We may encounter difficulty integrating the personnel, operations, technology and software of these acquired businesses. In addition, one or more of the key personnel of the acquired businesses may decide not to work for us. These difficulties could disrupt our ongoing business, distract our management and employees, increase our expenses and adversely affect our results of operations. In the future, we may acquire, or invest in, complementary companies, products or technologies. Acquisitions and investments involve numerous risks, including: - difficulties in integrating operations, technologies, products and personnel; - diversion of financial and management resources from existing operations; - risks of entering new markets; - potential loss of key employees; and - inability to generate sufficient revenues to offset acquisition or investment costs. THE COSTS ASSOCIATED WITH POTENTIAL ACQUISITIONS OR STRATEGIC ALLIANCES COULD DILUTE YOUR INVESTMENT OR ADVERSELY AFFECT OUR RESULTS OF OPERATIONS. To pay for an acquisition or to enter into a strategic alliance, we might use equity securities, debt, cash, including the proceeds from this offering, or a combination of the foregoing. If we use equity securities, our stockholders may experience dilution. In addition, an acquisition may involve non-recurring charges or involve amortization of significant amounts of 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. IF THE USE OF THE INTERNET AS AN ADVERTISING AND MARKETING MEDIUM FAILS TO DEVELOP OR DEVELOPS MORE SLOWLY THAN WE EXPECT, OUR FUTURE REVENUES AND PROSPECTS WOULD BE MATERIALLY AND ADVERSELY AFFECTED. Our future success depends in part on a significant increase in the use of the Internet as an advertising and marketing medium. Sponsorship, advertising and production revenues constituted 65% of our net revenues for the nine months ended September 30, 1999 and 82% of our net revenues for the year ended December 31, 1998. The Internet advertising market is new and rapidly evolving, and it cannot yet be compared with traditional advertising media to gauge its effectiveness. As a result, demand for and market acceptance of Internet advertising solutions are uncertain. Many of our current and potential customers have little or no experience with Internet advertising and have allocated only a limited portion of their advertising and marketing budgets to Internet activities. The adoption of Internet advertising, particularly by entities that have historically relied upon traditional methods of advertising and marketing, requires the acceptance of a new way of advertising and marketing. These customers may find Internet advertising to be 9 14 less effective for meeting their business needs than traditional methods of advertising and marketing. Furthermore, there are software programs that limit or prevent advertising from being delivered to a user's computer. Widespread adoption of this software by users would significantly undermine the commercial viability of Internet advertising. WE HAVE A SMALL NUMBER OF SPONSORS AND ADVERTISERS AND THE LOSS OF A NUMBER OF THESE WOULD RESULT IN A DECLINE IN OUR REVENUES. We derive sponsorship revenues from contracts ranging up to three years and advertising revenues principally from short-term advertising contracts. We depend on a limited number of sponsors and advertisers for a significant part of our net revenues. Consequently, the loss of any of these sponsors or advertisers would cause our revenues to decline. For the nine months ended September 30, 1999, no single sponsor or advertiser accounted for 10% or more of our net revenues. For the year ended December 31, 1998, Banfi Products Corp. accounted for 19% of our net revenues. During the nine months ended September 30, 1999, we did not generate net revenues from the sale of sponsorships or advertisements to Banfi Products Corp. We anticipate that our future results of operations will continue to depend to a significant extent upon revenues from a small number of sponsors and advertisers. In addition, we anticipate that such sponsors and advertisers will continue to vary over time. For example, although Banfi Products accounted for a large percentage of our revenues in 1998, different sponsors and advertisers will account for a large percentage of our revenues this year. To achieve our long-term goals, we will need to attract additional significant sponsors and advertisers on an ongoing basis. If we fail to enter into a sufficient number of large contracts during a particular period, our revenues for that period would be adversely affected. For more information on our advertising revenues, see "Management's Discussion and Analysis of Financial Condition and Results of Operations." OUR BUSINESS AND PROSPECTS WOULD SUFFER IF WE ARE UNABLE TO PROTECT AND ENFORCE OUR INTELLECTUAL PROPERTY RIGHTS. We rely solely upon copyright, trade secret and trademark law and assignment of invention and confidentiality agreements to protect our proprietary technology, processes, content and other intellectual property to the extent that protection is sought or secured at all. We cannot assure you that any steps we might take will be adequate to protect against infringement and misappropriation of our intellectual property by third parties. Similarly, we cannot assure you that third parties will not be able to independently develop similar or superior technology, processes, content or other intellectual property. The unauthorized reproduction or other misappropriation of our intellectual property rights could enable third parties to benefit from our technology without paying us for it. If this occurs, our business and prospects would be materially and adversely affected. In addition, disputes concerning the ownership or rights to use intellectual property could be costly and time consuming to litigate, may distract management from other tasks of operating the business, and may result in our loss of significant rights and the loss of our ability to operate our business. OUR PRODUCTS AND SERVICES MAY INFRINGE ON INTELLECTUAL PROPERTY RIGHTS OF THIRD PARTIES AND ANY INFRINGEMENT COULD REQUIRE US TO INCUR SUBSTANTIAL COSTS AND DISTRACT OUR MANAGEMENT. Although we avoid infringing known proprietary rights of third parties, including licensed content, we may be subject to claims alleging infringement of third-party 10 15 proprietary rights. If we are subject to claims of infringement or are infringing the rights of third parties, we may not be able to obtain licenses to use those rights on commercially reasonable terms, if at all. In that event, we would need to undertake substantial reengineering to continue our online offerings. Any effort to undertake such reengineering might not be successful. Furthermore, a party making such a claim could secure a judgement that requires us to pay substantial damages. A judgment could also include an injunction or other court order that could prevent us from selling our products. Any claim of infringement could cause us to incur substantial costs defending against the claim, even if the claim is invalid, and could distract our management from our business. WE DEPEND UPON QVC TO PROVIDE US WAREHOUSING, FULFILLMENT AND DISTRIBUTION SERVICES, AND SYSTEM FAILURES OR OTHER PROBLEMS AT QVC COULD CAUSE US TO LOSE CUSTOMERS AND REVENUES. We have a services agreement with QVC to warehouse, fulfill and arrange for distribution of approximately 97% of our products. Our agreement with QVC expires on the fourth anniversary of this offering. QVC does not have any obligation to renew this agreement. If QVC's ability to provide us with these services in a timely fashion or at all is impaired, whether through labor shortage, slow down or stoppage, deteriorating financial or business condition, Year 2000 problems or other system failures or for any other reason, or if the services agreement is not renewed, we would not be able, at least temporarily, to sell or ship our products to our customers. We may be unable to engage alternative warehousing, fulfillment and distribution services on a timely basis or upon terms favorable to us. Our experience with QVC as a warehousing, fulfillment and distribution service provider is limited. In connection with our transition to QVC as our primary fulfillment provider, we have experienced system failures and other problems resulting in duplicate orders and billing, delivery mistakes and damaged products. We are unable to predict whether we will have similar problems in the future. Any of these problems could cause us to lose customers and revenues. WE MAY NOT BE ABLE TO OBTAIN ADDITIONAL FINANCING NECESSARY TO EXECUTE OUR BUSINESS STRATEGY. We currently believe that the net proceeds from this offering, together with our current cash and cash equivalents, will be sufficient to fund our working capital and capital expenditure requirements for at least the next 12 months. To the extent we require additional funds to support our operations or the expansion of our business, we may need to sell additional equity, issue debt or convertible securities or obtain credit facilities through financial institutions. We cannot assure you that additional funding, if required, will be available to us in amounts or on terms acceptable to us. If sufficient funds are not available or are not available on acceptable terms, our ability to fund our expansion, take advantage of acquisition opportunities, develop or enhance our services or products, or otherwise respond to competitive pressures would be significantly limited. INCREASED COMPETITION IN OUR MARKETS COULD REDUCE OUR MARKET SHARE, THE NUMBER OF OUR ADVERTISERS, OUR ADVERTISING REVENUES AND OUR MARGINS. The Internet advertising and online wedding markets are new, rapidly evolving and intensely competitive, and we expect such competition to intensify in the future. 11 16 We face competition for members, users and advertisers from the following areas: - online services or Web sites targeted at brides and grooms as well as the online sites of retail stores, manufacturers and regional wedding directories; - bridal magazines, such as Bride's and Modern Bride; and - online and retail stores offering gift registries, especially from retailers offering specific bridal gift registries. We expect competition to increase because of the business opportunities presented by the growth of the Internet and e-commerce. Our competition may also intensify as a result of industry consolidation and a lack of substantial barriers to entry. Many of our current and potential competitors have longer operating histories, significantly greater financial, technical and marketing resources, greater name recognition and substantially larger user or membership bases than we have and, therefore, have a significantly greater ability to attract advertisers and users. In addition, many of our competitors may be able to respond more quickly than we can to new or emerging technologies and changes in Internet user requirements, as well as devote greater resources than we can to the development, promotion and sale of services. There can be no assurance that our current or potential competitors will not develop products and services comparable or superior to those that we develop or adapt more quickly than we do to new technologies, evolving industry trends or changing Internet user preferences. Increased competition could result in price reductions, lower margins or loss of market share. In addition, if we expand internationally, we may face additional competition. There can be no assurance that we will be able to compete successfully against current and future competitors. IF SALES TO SPONSORS OR ADVERTISERS FORECASTED IN A PARTICULAR PERIOD ARE DELAYED OR DO NOT OTHERWISE OCCUR, OUR RESULTS OF OPERATIONS FOR A PARTICULAR PERIOD WOULD BE MATERIALLY AND ADVERSELY AFFECTED. The time between the date of initial contact with a potential sponsor or advertiser and the execution of a contract with the sponsor or advertiser is often lengthy, typically ranging from six weeks for smaller agreements to six months for larger agreements, and is subject to delays over which we have little or no control, including: - customers' budgetary constraints; - customers' internal acceptance reviews; - the success and continued internal support of advertisers' and sponsors' own development efforts; and - the possibility of cancellation or delay of projects by advertisers or sponsors. During the sales cycle, we may expend substantial funds and management resources in advance of generating sponsorship or advertising revenues. Accordingly, if sales to advertisers or sponsors forecasted in a particular period are delayed or do not otherwise occur, we would generate less sponsorship and advertising revenues during that period and our results of operations for that period would suffer. 12 17 OUR POTENTIAL INABILITY TO COMPETE EFFECTIVELY IN OUR INDUSTRY FOR QUALIFIED PERSONNEL COULD HINDER THE SUCCESS OF OUR BUSINESS. Competition for personnel in the Internet and wedding industries is intense. We may be unable to retain those employees who are important to the success of our business. We may also face difficulties attracting, integrating or retaining other highly qualified employees in the future. We have experienced, and expect to continue to experience, difficulty in hiring and retaining highly-skilled employees with appropriate qualifications as a result of our rapid growth and expansion. If we cannot attract new personnel or retain and motivate our current personnel, our business may not succeed. SYSTEMS DISRUPTIONS AND FAILURES COULD CAUSE ADVERTISER OR USER DISSATISFACTION AND COULD REDUCE THE ATTRACTIVENESS OF OUR SITES. The continuing and uninterrupted performance of our computer systems is critical to our success. Our advertisers and sponsors, users and members may become dissatisfied by any systems disruption or failure that interrupts our ability to provide our services and content to them. Substantial or repeated system disruptions or failures would reduce the attractiveness of our online sites significantly. Substantially all of our communications hardware and some of our other computer hardware operations are located at Exodus Communications' facilities in Jersey City, New Jersey. Fire, floods, earthquakes, power loss, telecommunications failures, break-ins and similar events could damage these systems. Computer viruses, electronic break-ins or other similar disruptive problems could also adversely affect our online sites. Our business could be materially and adversely affected if our systems were affected by any of these occurrences. We do not presently have any secondary "off-site" systems or a formal disaster recovery plan. Our sites must accommodate a high volume of traffic and deliver frequently updated information. Our sites have in the past experienced slower response times or decreased traffic. These types of occurrences in the future could cause users to perceive our sites as not functioning properly and therefore cause them to use another online site or other methods to obtain information or services. In addition, our users depend on Internet service providers, online service providers and other site operators for access to our online sites. Many of them have experienced significant outages in the past, and could experience outages, delays and other difficulties due to system disruptions or failures unrelated to our systems. Although we carry general liability insurance, our insurance may not cover any claims by dissatisfied providers or subscribers or may not be adequate to indemnify us for any liability that may be imposed in the event that a claim were brought against us. Any system disruption or failure, security breach or other damage that interrupts or delays our operations could cause us to lose users, sponsors and advertisers and adversely affect our business and results of operations. WE MAY NOT BE ABLE TO DELIVER VARIOUS SERVICES IF THIRD PARTIES FAIL TO PROVIDE RELIABLE SOFTWARE, SYSTEMS AND RELATED SERVICES TO US. We are dependent on various third parties for software, systems and related services in connection with our hosting and accounting software, data transmission and security systems. Several of the third parties that provide software and services to us have a limited operating history and have relatively new technology. These third parties are dependent on reliable delivery of services from others. To date, we have not experienced significant problems with the services that these third parties provide to us. If our current providers were to experience prolonged systems failures or delays, we would need to pursue alternative sources of services. Although alternative sources of these services are available, 13 18 we may be unable to secure such services on a timely basis or on terms favorable to us. As a result, we may experience business disruptions if these third parties fail to provide reliable software, systems and related services to us. WE MAY BE LIABLE IF THIRD PARTIES MISAPPROPRIATE OUR USERS' PERSONAL INFORMATION. If third parties were able to penetrate our network security or otherwise misappropriate our users' personal or credit card information, we could be subject to liability. Our liability could include claims for unauthorized purchases with credit card information, impersonation or other similar fraud claims as well as for other misuses of personal information, such as for unauthorized marketing purposes. These claims could result in costly and time-consuming litigation which could adversely affect our financial condition. In addition, the Federal Trade Commission and state agencies have been investigating various Internet companies regarding their use of personal information. We could have additional expenses if new regulations regarding the use of personal information are introduced or if our privacy practices are investigated. WE MAY SUFFER DISRUPTION TO OUR BUSINESS AND WE COULD INCUR MATERIAL EXPENSES IF ANY OF THE COMPUTER SYSTEMS OR SOFTWARE WE RELY ON FAIL TO BE YEAR 2000 COMPLIANT. The Year 2000 problem could harm our business and financial results. Many currently installed computer systems and software products are coded to accept or recognize only two-digit entries in the date code field. These systems may interpret the date code "00" as the year 1900 rather than the year 2000. As a result, computer systems and/or software used by many companies and governmental agencies may need to be upgraded or replaced to comply with Year 2000 requirements or risk system failure or miscalculations causing disruptions of normal business activities. Although we have completed testing of our systems, including internally developed proprietary software, third-party software, hardware and services, and believe that they are Year 2000 compliant, we have not developed a contingency plan. Moreover, we may discover Year 2000 problems that need to be upgraded, modified or replaced, which could be time consuming and expensive. In addition there can be no assurance that our non-information technology systems, including our telephone systems and utilities, are Year 2000 compliant and will not have to be upgraded, modified or replaced. Our failure to fix or replace internally developed proprietary software, third-party software, hardware or services on a timely basis could result in lost revenues, increased operating costs, the loss of customers and other business interruptions. We depend heavily on a number of third-party vendors to provide both network services and equipment. A significant Year 2000-related disruption of the network services or equipment that third-party vendors provide to us could cause our sponsors, advertisers, members and visitors to consider seeking alternate providers. Year 2000 issues could also cause an unmanageable burden on our technical support personnel, which could divert our technical resources away from the technological development we need to succeed. In addition, there can be no assurance that governmental agencies, utility companies, Internet access companies, third-party service providers, including AOL and QVC, and others outside of our control will be Year 2000 compliant. The failure by such entities to be Year 2000 compliant could result in a systemic failure such as a prolonged Internet, telecommunications or electrical failure. These suppliers could also prevent us from delivering services to our customers, decrease the use of the Internet or prevent users from accessing our sites. 14 19 IF THE ASSUMPTIONS THAT WE USE REGARDING THE GROWTH OF E-COMMERCE AND INTERNET ARE INCORRECT, THEN THE FINANCIAL PROJECTIONS WE INCLUDE IN THIS PROSPECTUS MAY BE MATERIALLY DIFFERENT FROM ACTUAL RESULTS. This prospectus contains various third-party data and projections related to our business and the Internet, including those relating to revenue generated by e-commerce, the number of Internet users and the amount spent on Internet advertising. These data and projections have been included in studies prepared by independent market research firms, and the projections are based on surveys, financial reports and models used by these firms, as well as a number of assumptions. If the underlying data or one or more of the assumptions contained in these reports turns out to be incorrect, actual results or circumstances may be materially different from the projections included in this prospectus. Any difference could reduce our revenue and harm our results of operations. RISKS RELATED TO OUR INDUSTRY IF THE USE OF THE INTERNET AND COMMERCIAL ONLINE SERVICES AS MEDIA FOR COMMERCE DOES NOT CONTINUE TO GROW, OUR BUSINESS AND PROSPECTS WOULD BE MATERIALLY AND ADVERSELY AFFECTED. We cannot assure you that a sufficiently broad base of consumers will adopt, and continue to use, the Internet and commercial online services as media for commerce, particularly for purchases of wedding gifts and supplies. Even if consumers adopt the Internet or commercial online services as a media for commerce, we cannot be sure that the necessary infrastructure will be in place to process such transactions. Our long-term viability depends substantially upon the widespread acceptance and the development of the Internet or commercial online services as effective media for consumer commerce and for advertising. Use of the Internet or commercial online services to effect retail transactions and to advertise is at an early stage of development. Convincing consumers to purchase wedding gifts and supplies online may be difficult. Demand for recently introduced services and products over the Internet and commercial online services is subject to a high level of uncertainty. Few proven services and products exist. The development of the Internet and commercial online services into a viable commercial marketplace is subject to a number of factors, including: - continued growth in the number of users of such services; - concerns about transaction security; - continued development of the necessary technological infrastructure; - development of enabling technologies; - uncertain and increasing government regulation; and - the development of complementary services and products. IF USERS EXPERIENCE DIFFICULTIES BECAUSE OF CAPACITY CONSTRAINTS OF THE INFRASTRUCTURE OF THE INTERNET AND OTHER COMMERCIAL ONLINE SERVICES, POTENTIAL USERS MAY NOT BE ABLE TO ACCESS OUR SITES AND OUR BUSINESS AND PROSPECTS WOULD BE HARMED. To the extent that the Internet and other online services continue to experience growth in the number of users and frequency of use by consumers resulting in increased bandwidth demands, there can be no assurance that the infrastructure for the Internet and 15 20 other online services will be able to support the demands placed upon them. The Internet and other online services have experienced outages and delays as a result of damage to portions of their infrastructure. Outages or delays, including those resulting from Year 2000 problems, could adversely affect online sites, e-mail and the level of traffic on all sites. We also depend on online access providers that provide our users with access to our services. In the past, users have experienced difficulties due to systems failures unrelated to our systems. In addition, the Internet or other online services could lose their viability due to delays in the development or adoption of new standards and protocols required to handle increased levels of Internet or other online service activity or to increased governmental regulation. Insufficient availability of telecommunications services to support the Internet or other online services also could result in slower response times and negatively impact use of the Internet and other online services generally, and our sites in particular. If the use of the Internet and other online services fails to grow or grows more slowly than expected, if the infrastructure for the Internet and other online services does not effectively support growth that may occur or if the Internet and other online services do not become a viable commercial marketplace, we may not achieve profitability. WE MAY BE UNABLE TO RESPOND TO THE RAPID TECHNOLOGICAL CHANGE IN OUR INDUSTRY AND THIS MAY HARM OUR BUSINESS. If we are unable, for technological, legal, financial or other reasons, to adapt in a timely manner to changing market conditions or customer requirements, we could lose users and market share to our competitors. The Internet and e-commerce are characterized by rapid technological change. Sudden changes in user and customer requirements and preferences, frequent new product and service introductions embodying new technologies and the emergence of new industry standards and practices could render our existing online sites and proprietary technology and systems obsolete. The emerging nature of products and services in the online wedding market and their rapid evolution will require that we continually improve the performance, features and reliability of our online services. Our success will depend, in part, on our ability: - to enhance our existing services; - to develop and license new services and technology that address the increasingly sophisticated and varied needs of our prospective customers and users; and - to respond to technological advances and emerging industry standards and practices on a cost-effective and timely basis. The development of online sites and other proprietary technology entails significant technological and business risks and requires substantial expenditures and lead time. We may be unable to use new technologies effectively or adapt our online sites, proprietary technology and transaction-processing systems to customer requirements or emerging industry standards. Updating our technology internally and licensing new technology from third parties may require significant additional capital expenditures. IF WE BECOME SUBJECT TO BURDENSOME GOVERNMENT REGULATION AND LEGAL UNCERTAINTIES RELATED TO DOING BUSINESS ONLINE, OUR SPONSORSHIP, ADVERTISING AND MERCHANDISE REVENUES COULD DECLINE AND OUR BUSINESS AND PROSPECTS COULD SUFFER. Laws and regulations directly applicable to Internet communications, commerce and advertising are becoming more prevalent. Laws and regulations may be adopted covering 16 21 issues such as user privacy, pricing, content, taxation and quality of products and services. Any new legislation could hinder the growth in use of the Internet and other online services generally and decrease the acceptance of the Internet and other online services as media of communications, commerce and advertising. The governments of states and foreign countries might attempt to regulate our transmissions or levy sales or other taxes relating to our activities. The laws governing the Internet remain largely unsettled, even in areas where legislation has been enacted. It may take years to determine whether and how existing laws such as those governing intellectual property, privacy, libel and taxation apply to the Internet and Internet advertising services. In addition, the growth and development of the market for e-commerce may prompt calls for more stringent consumer protection laws, both in the United States and abroad, which may impose additional burdens on companies conducting business online. The adoption or modification of laws or regulations relating to the Internet and other online services could cause our sponsorship, advertising and merchandise revenues to decline and our business and prospects to suffer. WE MAY BE SUED FOR INFORMATION RETRIEVED FROM OUR SITES. We may be subject to claims for defamation, negligence, copyright or trademark infringement, personal injury or other legal theories relating to the information we publish on our online sites. These types of claims have been brought, sometimes successfully, against online services as well as other print publications in the past. We could also be subject to claims based upon the content that is accessible from our online sites through links to other online sites or through content and materials that may be posted by members in chat rooms or bulletin boards. Our insurance, which covers commercial general liability, may not adequately protect us against these types of claims. WE MAY INCUR POTENTIAL PRODUCT LIABILITY FOR PRODUCTS SOLD ONLINE. Consumers may sue us if any of the products that we sell online are defective, fail to perform properly or injure the user, or if consumers experience problems with honeymoon packages purchased through our sites. To date, we have had limited experience selling products online and developing relationships with manufacturers or suppliers of such products. We plan to sell a range of products targeted specifically at brides and grooms through The Knot Registry, The Knot Shop, Bridalink.com, Click Trips and other e-commerce sites that we may acquire in the future. Such a strategy involves numerous risks and uncertainties. Although our agreements with manufacturers and providers of travel services typically contain provisions intended to limit our exposure to liability claims, these limitations may not prevent all potential claims. Liability claims could require us to spend significant time and money in litigation or to pay significant damages. As a result, any such claims, whether or not successful, could seriously damage our financial results, reputation and brand name. WE COULD FACE ADDITIONAL REGULATORY REQUIREMENTS, TAX LIABILITIES AND OTHER RISKS IF WE DECIDE TO EXPAND INTERNATIONALLY. We may decide to expand internationally. To date, we have no experience in developing localized versions of our sites for international markets and in marketing and selling internationally. If we decide to expand internationally and we cannot overcome these challenges, our business will suffer. There are additional risks related to doing business in international markets, such as changes in regulatory requirements, tariffs and other trade barriers, fluctuations in currency exchange rates, and adverse tax 17 22 consequences. In addition, there are likely to be different consumer preferences and requirements in such markets. Furthermore, we may face difficulties in staffing and managing any foreign operations. We cannot assure you that one or more of these factors would not harm any future international operations. WE MAY INCUR SIGNIFICANT EXPENSES RELATED TO THE SECURITY OF PERSONAL INFORMATION ONLINE. The need to transmit securely confidential information online has been a significant barrier to e-commerce and online communications. Any well-publicized compromise of security could deter people from using the Internet or other online services or from using them to conduct transactions that involve transmitting confidential information. Because our success depends on the acceptance of online services and e-commerce, we may incur significant costs to protect against the threat of security breaches or to alleviate problems caused by such breaches. RISKS RELATED TO THIS OFFERING AFTER THIS OFFERING, OUR EXECUTIVE OFFICERS, DIRECTORS AND 5% OR GREATER STOCKHOLDERS WILL EXERCISE SIGNIFICANT CONTROL OVER ALL MATTERS REQUIRING A STOCKHOLDER VOTE. After this offering, our executive officers, directors and existing stockholders who each own greater than 5% of the common stock that was outstanding immediately before this offering and their affiliates will, in the aggregate, beneficially own approximately 76% of our outstanding common stock. As a result, these stockholders will be able to exercise control over all matters requiring approval by our stockholders, including the election of directors and approval of significant corporate transactions. This concentration of ownership could also have the effect of delaying or preventing a change in control. FUTURE SALES OF OUR COMMON STOCK MAY NEGATIVELY AFFECT OUR STOCK PRICE. Following this offering, we will have a large number of shares of common stock outstanding and available for resale beginning at various points in time in the future. The market price of our common stock could decline as a result of sales of a large number of shares of our common stock in the public market or the perception that such sales could occur. THERE HAS BEEN NO PRIOR MARKET FOR OUR COMMON STOCK, OUR STOCK PRICE MAY EXPERIENCE EXTREME PRICE AND VOLUME FLUCTUATIONS AND ANY VOLATILITY IN OUR STOCK PRICE COULD RESULT IN CLAIMS AGAINST US. Prior to this offering, investors could not buy or sell our common stock publicly. An active public market for our common stock may not develop or be sustained after the offering. The initial public offering price will be determined by negotiations between us and the representatives of the underwriters. The market price of our common stock may decline below the initial public offering price after this offering. Fluctuations in market price and volume are particularly common among securities of Internet and other technology companies. The market price of our common stock may fluctuate significantly in response to the following factors, some of which are beyond our control: - variations in quarterly operating results; - changes in market valuations of Internet and other technology companies; 18 23 - our announcements of significant contracts, acquisitions, strategic partnerships, joint ventures or capital commitments; - failure to complete significant sponsorship, advertising and merchandise sales; - additions or departures of key personnel; - future sales of common stock; and - changes in financial estimates by securities analysts. In the past, securities class action litigation has often been brought against a company following periods of volatility in the market price of its common stock. We may in the future be the target of similar litigation. Securities litigation could result in substantial costs and divert management's attention and resources. WE MAY SPEND THE NET PROCEEDS OF THIS OFFERING IN WAYS WITH WHICH YOU MAY NOT AGREE. The net proceeds of this offering are not allocated for specific uses. Our management will have broad discretion to spend the net proceeds from this offering in ways with which investors may not agree. The failure of our management to apply these funds effectively would result in unfavorable returns, which could cause the price of our common stock to decline. ANTI-TAKEOVER PROVISIONS IN OUR CHARTER DOCUMENTS AND DELAWARE LAW MAY MAKE IT DIFFICULT FOR A THIRD PARTY TO ACQUIRE US. Provisions of our certificate of incorporation, our bylaws and Delaware law could make it more difficult for a third party to acquire us, even if doing so might be beneficial to our stockholders. 19 24 FORWARD-LOOKING STATEMENTS This prospectus contains forward-looking statements which involve risks and uncertainties. These forward-looking statements, which are usually accompanied by words such as "may," "might," "will," "should," "could," "intends," "estimates," "predicts," "potential," "continue," "believes," "anticipates," "plans," "expects" and similar expressions, relate to statements about our market opportunities, our strategy, our competition, our projected expense levels and the adequacy of our available cash resources. This prospectus also contains forward-looking statements attributed to third parties relating to their estimates regarding the wedding industry and the growth of Internet use. These forward-looking statements are based on assumptions that may be incorrect and there can be no assurance that the projections included in these forward-looking statements will come to pass. Our actual results could differ materially from those expressed or implied by these forward-looking statements as a result of various factors, including the risk factors described above and elsewhere in this prospectus. We undertake no obligation to update publicly any forward-looking statements for any reason, even if new information becomes available or other events occur in the future. TRADEMARKS The Knot is a registered trademark and/or service mark of The Knot, Inc. We have applied for federal registration of the marks The Knot Ultimate Wedding Checklist, Wedding Photographers Network, WPN, The Knot Wedding Gift Registry, The Knot Registry, Click Trips and Bridalink Store. Other trademarks and service marks appearing in this prospectus are the property of their respective holders. ASSUMPTIONS Unless otherwise indicated, all information in this prospectus reflects the automatic conversion of all outstanding shares of convertible preferred stock into 7,360,000 shares of our common stock upon the closing of this offering, assumes the filing of our amended and restated certificate of incorporation upon the closing of this offering and assumes no exercise of the underwriters' over-allotment option. 20 25 USE OF PROCEEDS We estimate that we will receive net proceeds from the sale of the shares of common stock in this offering of $28.3 million, assuming an initial public offering price of $9.00 per share and after deducting estimated underwriting discounts and commissions and estimated offering expenses. If the underwriters exercise their over-allotment option in full, we estimate that our net proceeds will be $32.7 million. The principal purposes of this offering are to obtain additional capital, to create a public market for our common stock and to facilitate future access to public equity markets. As of the date of this prospectus, we have not allocated the net proceeds of this offering for specific uses. We expect to use the proceeds for general corporate purposes. The actual amounts expended for specific purposes will vary significantly depending on a number of factors, including revenue growth, if any, and the extent and timing of our entry into target markets and capital expenditures. We may also use a portion of the net proceeds to acquire or invest in businesses, technologies or products that are complementary to our business. However, we have no present plans or commitments and are not currently engaged in any negotiations with respect to such transactions. Pending our use of the net proceeds of this offering for these purposes, we intend to invest the proceeds in short-term, interest-bearing, investment-grade securities. DIVIDEND POLICY We have not declared or paid any cash dividends on our capital stock since our inception. We intend to retain future earnings, if any, to finance the operation and expansion of our business and do not anticipate paying any cash dividends in the foreseeable future. Consequently, stockholders will need to sell shares of common stock to realize a return on their investment, if any. 21 26 CAPITALIZATION The following table sets forth our capitalization as of September 30, 1999: - on an actual basis; - on a pro forma basis to give effect to the automatic conversion of 7,360,000 shares of outstanding preferred stock into 7,360,000 shares of common stock upon the closing of this offering; - on a pro forma as adjusted basis to give effect to the sale of 3,500,000 shares of common stock by us in this offering at an assumed initial public offering price of $9.00 per share, after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. This information should be read in conjunction with our financial statements and the notes to those statements included in this prospectus.
SEPTEMBER 30, 1999 ------------------------------- PRO PRO FORMA ACTUAL FORMA AS ADJUSTED ------- ------- ----------- (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) Long-term debt.............................................. $ -- $ -- $ -- Stockholders' equity: Preferred Stock, $.001 par value, actual -- no shares authorized, issued or outstanding; pro forma and pro forma as adjusted -- 5,000,000 shares authorized and no shares issued or outstanding............................ -- -- -- Series A convertible preferred stock, $.001 par value; actual -- 3,360,000 shares authorized, issued and outstanding; pro forma and pro forma as adjusted -- no shares authorized, issued or outstanding................ 3,938 -- -- Series B convertible preferred stock, $.001 par value; actual -- 4,000,000 shares authorized, issued and outstanding; pro forma and pro forma as adjusted -- no shares authorized, issued or outstanding................ 13,963 -- -- Common stock, $.01 par value; actual -- 14,640,000 shares authorized and 3,093,608 shares issued and outstanding; pro forma -- 100,000,000 shares authorized and 10,453,608 shares issued and outstanding; pro forma as adjusted -- 100,000,000 shares authorized and 13,953,608 shares issued and outstanding........................... 31 104 139 Additional paid-in-capital.................................. 7,796 25,624 53,884 Deferred compensation....................................... (2,716) (2,716) (2,716) Deferred sales and marketing................................ (2,123) (2,123) (2,123) Accumulated deficit......................................... (9,365) (9,365) (9,365) ------- ------- ------- Total stockholders' equity.............................. $11,524 $11,524 $39,819 ======= ======= ======= Total capitalization................................. $11,524 $11,524 $39,819 ======= ======= =======
The table above is based on shares outstanding as of September 30, 1999. This table excludes: - 1,762,968 shares of common stock issuable upon the exercise of stock options outstanding as of September 30, 1999, with a weighted average exercise price of $1.97 per share, which include 2,203 shares issuable upon exercise of stock options not granted under our existing stock option plan; - 10,000 shares of common stock issuable upon the exercise of stock options granted in connection with the Bridalink.com acquisition; - 5,000 shares of common stock issued in connection with the Click Trips acquisition and 10,000 shares of common stock issuable upon the exercise of options to be granted upon achievement by Click Trips of performance-based goals; - 10,000 shares of common stock issued in connection with the Wedding Photographers Network acquisition; - 133,511 shares of common stock issuable to management of Casenhiser Clothing Company, Inc. in connection with their employment by us, on the second, third and fourth anniversaries of the April 1998 acquisition of Bridal Search; - 366,667 shares of common stock issuable upon the exercise of a warrant with an exercise price of $7.20 per share held by AOL; and - 1,700,000 shares of common stock issuable upon the exercise of a warrant with an exercise price of $5.00 per share held by QVC Interactive Holdings, LLC. 22 27 DILUTION Our pro forma net tangible book value as of September 30, 1999 was approximately $10.6 million, or approximately $1.01 per share of common stock. Pro forma net tangible book value per share is determined by dividing the amount of our total tangible assets less total liabilities by the number of shares of our common stock outstanding after giving pro forma effect to the conversion of each share of preferred stock into one share of common stock upon the closing of this offering. Dilution in pro forma net tangible book value per share represents the difference between the amount per share paid by investors in this offering and the pro forma net tangible book value per share of common stock immediately after the completion of this offering. After giving effect to our sale of 3,500,000 shares offered hereby at an assumed initial public offering price of $9.00 per share and after deducting estimated underwriting discounts and estimated offering expenses payable by us, and the application of the estimated net proceeds therefrom, our pro forma net tangible book value as of September 30, 1999 would have been $38.9 million, or $2.79 per share. This represents an immediate increase in pro forma net tangible book value of $1.78 per share to existing stockholders and an immediate dilution in pro forma net tangible book value of $6.21 per share to new investors. The following table illustrates this per share dilution: Assumed initial public offering price per share............. $9.00 Pro forma net tangible book value per share as of September 30, 1999.......................................... $1.01 Increase per share attributable to new investors.......... 1.78 ----- Pro forma net tangible book value per share after this offering.................................................. 2.79 ----- Dilution in pro forma net tangible book value per share to new investors............................................. $6.21 =====
The following table summarizes, on a pro forma basis as of September 30, 1999, after giving effect to the automatic conversion of all outstanding shares of preferred stock into common stock upon the closing of this offering, the total number of shares of common stock purchased from us, the total consideration paid to us and the average price per share paid to us by existing stockholders and by new investors before deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us, assuming an initial public offering price of $9.00 per share:
SHARES PURCHASED TOTAL CONSIDERATION ---------------------- ---------------------- AVERAGE PRICE NUMBER PERCENT AMOUNT PERCENT PER SHARE ----------- ------- ----------- ------- ------------- Existing stockholders................. 10,453,608 74.9% $19,509,600 38.2% $1.87 New investors......................... 3,500,000 25.1% 31,500,000 61.8% 9.00 ----------- ----- ----------- ----- Total............................. 13,953,608 100.0% $51,009,600 100.0% =========== ===== =========== =====
The foregoing tables and calculations exclude: - 1,762,968 shares of common stock issuable upon the exercise of stock options outstanding as of September 30, 1999, with a weighted average exercise price of $1.97 per share, which include 2,203 shares issuable upon exercise of stock options not granted under our existing stock option plan; - 10,000 shares of common stock issuable upon the exercise of stock options granted in connection with the Bridalink.com acquisition; - 5,000 shares of common stock issued in connection with the Click Trips acquisition and 10,000 shares of common stock issuable upon the exercise of options to be granted upon achievement by Click Trips of performance-based goals; - 10,000 shares of common stock issued in connection with the Wedding Photographers Network acquisition; - 133,511 shares of common stock issuable to management of Casenhiser Clothing Company, Inc. in connection with their employment by us, on the second, third and fourth anniversaries of the April 1998 acquisition of Bridal Search; - 366,667 shares of common stock issuable upon the exercise of a warrant with an exercise price of $7.20 per share held by AOL; and - 1,700,000 shares of common stock issuable upon the exercise of a warrant with an exercise price of $5.00 per share held by QVC Interactive Holdings, LLC. To the extent that any of these options or warrants are exercised, there will be further dilution to new investors. 23 28 SELECTED FINANCIAL DATA The selected balance sheet data as of December 31, 1997 and 1998 and as of September 30, 1999 and the selected statement of operations data for the period from May 2, 1996 (inception) through December 31, 1996, the years ended December 31, 1997 and 1998 and the nine months ended September 30, 1999 have been derived from our audited financial statements included in this prospectus. Balance sheet data as of December 31, 1996 have been derived from our audited financial statements not included in this prospectus. The statement of operations data for the nine months ended September 30, 1998 have been derived from unaudited financial statements included in this prospectus. In the opinion of management, the statement of operations data for the nine months ended September 30, 1998 have been prepared on the same basis as the audited financial statements appearing in this prospectus and include all necessary adjustments, consisting only of normal recurring adjustments, we believe to be necessary for a fair presentation of the data. Unaudited pro forma basic and diluted net loss per share have been calculated assuming the conversion of all previously outstanding preferred stock into common stock, as if the shares had converted immediately upon their issuance. The selected financial data set forth below should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations," our financial statements and the notes to those statements included in this prospectus.
PERIOD FROM MAY 2, 1996 YEAR ENDED NINE MONTHS (INCEPTION) TO DECEMBER 31, ENDED SEPTEMBER 30, DECEMBER 31, --------------------- --------------------- 1996 1997 1998 1998 1999 -------------- --------- --------- --------- --------- (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) STATEMENT OF OPERATIONS DATA: Net revenues..................................... $ 71 $ 596 $ 1,040 $ 826 $ 2,635 Cost of revenues................................. 9 67 131 82 904 --------- --------- --------- --------- --------- Gross profit..................................... 62 529 909 744 1,731 Operating expenses: Product and content development................ 262 635 1,031 788 1,685 Sales and marketing............................ 255 503 768 476 2,913 General and administrative..................... 242 265 809 539 2,194 Non-cash compensation.......................... -- -- 93 57 717 Non-cash sales and marketing................... -- -- -- -- 127 Depreciation and amortization.................. 9 22 122 75 346 --------- --------- --------- --------- --------- Total operating expenses......................... 768 1,425 2,823 1,935 7,982 Loss from operations............................. (706) (896) (1,914) (1,191) (6,251) Interest income (expense), net................... (46) (199) 15 (29) 243 --------- --------- --------- --------- --------- Loss before extraordinary items.................. (752) (1,095) (1,899) (1,220) (6,008) Extraordinary items.............................. -- -- 390 390 -- --------- --------- --------- --------- --------- Net loss......................................... $ (752) $ (1,095) $ (1,509) $ (830) $ (6,008) ========= ========= ========= ========= ========= Loss per share -- basic and diluted: Loss before extraordinary items................ $ (0.46) $ (0.67) $ (0.76) $ (0.52) $ (1.96) Extraordinary items............................ -- -- 0.16 0.17 -- --------- --------- --------- --------- --------- Net loss per share............................... $ (0.46) $ (0.67) $ (0.60) $ (0.35) $ (1.96) ========= ========= ========= ========= ========= Weighted average number of shares used in calculating basic and diluted net loss per share.......................................... 1,625,410 1,625,410 2,497,065 2,344,126 3,066,960 ========= ========= ========= ========= ========= Pro forma basic and diluted net loss per share... $ (0.46) $ (0.67) $ (0.32) $ (0.19) $ (0.67) ========= ========= ========= ========= ========= Pro forma weighted average number of shares used in calculating basic and diluted net loss per share.......................................... 1,625,410 1,625,410 4,780,024 4,264,126 8,932,455 ========= ========= ========= ========= =========
DECEMBER 31, -------------------------- SEPTEMBER 30, 1996 1997 1998 1999 ----- ------- ------ ------------- (IN THOUSANDS) BALANCE SHEET DATA: Cash and cash equivalents................................... $ 16 $ 305 $1,038 $ 9,302 Working capital............................................. (84) 194 1,003 9,257 Total assets................................................ 194 1,153 1,950 13,846 Convertible preferred stock................................. -- -- 3,938 17,901 Total stockholders' equity.................................. (751) (1,017) 1,646 11,524
24 29 UNAUDITED PRO FORMA CONDENSED STATEMENT OF OPERATIONS The following unaudited pro forma condensed statement of operations for the year ended December 31, 1998 has been derived from the application of pro forma adjustments to the historical financial statements of The Knot, Inc. and Casenhiser Clothing Company, Inc. d/b/a Bridal Search, which are included elsewhere in this prospectus. The unaudited pro forma condensed statement of operations information gives effect to the acquisition of the assets of Casenhiser Clothing Company, Inc. as if such transaction had occurred on January 1, 1998. The unaudited pro forma condensed statement of operations does not purport to be indicative of what our actual results of operations would have been assuming the acquisition of Casenhiser Clothing Company, Inc. had been completed on January 1, 1998, nor does it purport to be indicative of results of operations that we may achieve in the future. We have accounted for the acquisition of Casenhiser Clothing Company, Inc. using the purchase method of accounting. We have allocated the aggregate purchase price to the assets acquired based upon their fair values. We have allocated the excess purchase price over the fair value of the assets acquired to goodwill. Pro forma basic and diluted net loss per share have been calculated assuming the conversion of all previously outstanding preferred stock into common stock, as if the shares had converted immediately upon their issuance. See Note 2 of Notes to Financial Statements for an explanation of the determination of the number of shares used in computing basic and diluted net loss per share. The adjustment to pro forma net revenues for the year ended December 31, 1998 reflects the elimination of $38,000 of licensing fees that we paid to Casenhiser Clothing Company, Inc. The adjustments to pro forma total operating expenses include $19,000 of goodwill amortized during the period, $97,000 of non-cash compensation amortized during the period, $33,000 of payroll and related expenses and $9,000 of facilities costs.
YEAR ENDED DECEMBER 31, 1998 ----------------------------------------------------------- CASENHISER CLOTHING PRO THE KNOT, INC. COMPANY, INC. ADJUSTMENTS FORMA -------------- ---------------- ----------- --------- (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) Net revenues................................... $1,040 $44 $(38) $1,046 Cost of revenues............................... 131 -- -- 131 --------- --------- --------- --------- Gross profit................................... 909 44 (38) 915 Total operating expenses....................... 2,823 48 120 2,991 --------- --------- --------- --------- Loss from operations........................... (1,914) (4) (158) (2,076) Net loss....................................... $(1,509) $(6) $(158) $(1,673) ========= ========= ========= ========= Basic and diluted net loss per share........... $(0.60) $(0.66) ========= ========= Weighted average number of shares used in calculating basic and diluted net loss per share........................................ 2,497,065 2,537,588 ========= ========= Pro forma basic and diluted net loss per share........................................ $(0.32) $(0.35) ========= ========= Pro forma weighted average number of shares used in calculating basic and diluted net loss per share............................... 4,780,024 4,820,547 ========= =========
25 30 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS You should read the following discussion of our financial condition and results of operations together with our financial statements, the notes to those statements and the other information in this prospectus. This discussion contains forward-looking statements that involve risks and uncertainties. You should consider carefully the information about these risks and uncertainties contained in the section of this prospectus entitled "Risk Factors" before you decide to buy our common stock. OVERVIEW The Knot is the leading online wedding destination on the World Wide Web and the primary wedding content provider on America Online and several other of AOL's leading brands, including AOL.com, Netscape Netcenter and CompuServe. We commenced operations in May 1996, and recorded our first revenues in September 1996, immediately following the launch of our first online property. Our Web site was launched in July 1997. We launched The Knot Registry, our online gift registry, in November 1998 and significantly expanded our registry product offerings in July 1999. In July 1999, we acquired the assets of Bridalink.com, an Internet wedding supply store and the common stock of Click Trips, Inc., an online travel agency. Also in July 1999, we entered into a strategic alliance with Weddingpages, Inc. In August 1999, we acquired the assets of Wedding Photographers Network, a searchable database of local wedding photographers. We derive revenues from the sale of sponsorship, advertising and production contracts. We also derive revenues from the sale of merchandise, from publishing and from the sale of travel packages. Sponsorship revenues are derived principally from contracts currently ranging up to three years. Sponsorships are designed to integrate advertising with specific editorial content. Sponsors can purchase the exclusive right to promote products or services on a specific editorial area and can purchase a special feature on our sites. Advertising revenues are derived principally from short-term contracts which typically range from one month up to one year. Advertising contracts include banner advertisements and listings for local wedding vendors. Sponsorship and advertising contracts provide for the delivery of a minimum number of impressions. Impressions are the featuring of a sponsor's advertisement, banner, link or other form of content on our sites. To date, we have recognized our sponsorship and advertising revenues over the duration of the contracts on a straight line basis as we have exceeded minimum guaranteed impressions. To the extent that minimum guaranteed impressions are not met, we are generally obligated to extend the period of the contract until the guaranteed impressions are achieved. If this were to occur, we would defer and recognize the corresponding revenues over the extended period. Production revenues are derived from the development of online sites and tools. Production revenues are recognized when the development is completed and the online sites and tools are delivered. To promote our brand on third-party sites, we produce online sites for third parties featuring both The Knot and the third party. The cost of production of these sites is included in our operating expenses. In return, we receive distribution and exposure to their viewers, outbound links to our sites and, in some circumstances, offline brand marketing. We do not recognize revenues with respect to these barter transactions. 26 31 Sponsorship, advertising and production revenues amounted to $1.7 million, or 65% of our net revenues, for the nine months ended September 30, 1999, and $853,000 or 82% of our net revenues, for the year ended December 31, 1998. For the nine months ended September 30, 1999, our top six advertisers accounted for 39% of our net revenues. For the year ended December 31, 1998, a different advertiser accounted for 19% of our net revenues. For the year ended December 31, 1997, one advertiser accounted for 42% of our net revenues and another advertiser accounted for 13% of our net revenues. From May 2, 1996 (our inception date) through December 31, 1996, four advertisers accounted for 34%, 30%, 23% and 13% of net revenues. Our large advertisers generally differed from period to period. We expect that our large advertisers will continue to differ over time. Merchandise revenues are derived from the sales of merchandise through Bridalink.com, which was acquired in July 1999, The Knot Registry and The Knot Shop. Merchandise revenues include outbound shipping and handling charges. For the nine months ended September 30, 1999, merchandise revenues were derived principally from Bridalink.com and The Knot Registry. Merchandise revenues are recognized when products are shipped to customers, reduced by an allowance for estimated sales returns. Merchandise revenues amounted to 26% of our net revenues for the nine months ended September 30, 1999 and 2% of our net revenues for the year ended December 31, 1998. Publishing revenues are derived from author royalties paid to us related to our book publishing contract and from sales of books published by us, such as our gown guide. Royalties are recognized when we have met all contractual obligations, which typically include the delivery and acceptance of a final manuscript. Revenues from the sale of books are recognized when the books are shipped, reduced by an allowance for estimated sales returns. Publishing revenues amounted to 6% of our net revenues for the nine months ended September 30, 1999 and 14% of our net revenues for the year ended December 31, 1998. Travel revenues are derived from commissions earned on the sale of travel packages by our online travel agency, Click Trips, Inc., which we acquired on July 31, 1999. These revenues are recognized when the customer commences travel. Travel commission revenues amounted to 2% of our net revenues for the nine months ended September 30, 1999. We generated revenues for the nine months ended September 30, 1998 and for the year ended December 31, 1997, through usage fees paid by AOL based on the number of customers visiting our AOL site. Usage fees were recognized as they were earned based upon user time spent on our AOL site. We generated $47,000 and $74,000 of usage revenues from AOL which represented 5% and 13% of our net revenues for the years ended December 31, 1998 and 1997, respectively. We paid $16,000 and $68,000 in commissions to AOL for the years ended December 31, 1998 and 1997, respectively. On September 30, 1998, we entered into an anchor tenant agreement with AOL which eliminated usage revenues receivable from, and commissions payable to, AOL. Under this anchor tenant agreement, we pay carriage fees to AOL. For the nine months ended September 30, 1999, we paid $750,000 in carriage fees to AOL. For the year ended December 31, 1998, we did not pay carriage fees to AOL. We are obligated to pay carriage fees to AOL of $250,000 for the three months ended December 31, 1999 and $300,000 each quarter thereafter for the remainder of the agreement. We recorded deferred compensation of approximately $3.3 million through September 30, 1999, primarily as a result of the issuance of stock options to employees 27 32 with exercise prices per share subsequently determined for financial reporting purposes to be below the fair market value per share of our common stock at the dates of grant. The difference is recorded as a reduction of stockholders' equity and amortized as non-cash compensation expense on an accelerated method over the four-year vesting period of the related options. In July 1999, we amended our anchor tenant agreement with AOL and recorded deferred sales and marketing of $2.3 million as a result of the issuance of a warrant to AOL in connection with that amendment. Deferred sales and marketing is being amortized as non-cash sales and marketing expense on a straight-line basis over the life of the agreement. Extraordinary items for the year ended December 31, 1998 consist of a gain of $1.1 million, representing the forgiveness of a portion of a note payable to AOL including interest accrued on this note, and a loss of $719,000, representing the write-off of unamortized deferred financing costs associated with such note payable. We have incurred net losses of $9.4 million from our inception on May 2, 1996 through September 30, 1999. We have historically relied on advances under a retired note payable to AOL and on private sales of equity securities to fund our operations. We expect operating and net losses to continue for the foreseeable future as we continue to incur significant expenses while pursuing our business strategy. RESULTS OF OPERATIONS The following table sets forth for the periods presented certain data from our statement of operations, expressed as a percentage of net revenues.
PERIOD FROM MAY 2, 1996 YEAR ENDED NINE MONTHS ENDED (INCEPTION) TO DECEMBER 31, SEPTEMBER 30, DECEMBER 31, --------------- -------------------- 1996 1997 1998 1998 1999 -------------- ------ ------ ----------- ------ (UNAUDITED) Net revenues....................... 100.0% 100.0% 100.0% 100.0% 100.0% Cost of revenues................... 12.8 11.2 12.6 9.9 34.3 -------- ------ ------ ------ ------ Gross profit....................... 87.2 88.8 87.4 90.1 65.7 Operating expenses: Product and content development................... 371.2 106.6 99.1 95.5 63.9 Sales and marketing.............. 361.2 84.4 73.9 57.7 110.5 General and administrative....... 343.1 44.4 77.9 65.2 83.3 Non-cash compensation............ -- -- 9.0 6.9 27.2 Non-cash sales and marketing..... -- -- -- -- 4.8 Depreciation and amortization.... 12.9 3.7 11.7 9.1 13.1 -------- ------ ------ ------ ------ Total operating expenses........... 1,088.4 239.1 271.6 234.4 302.8 Loss from operations............... (1,001.2) (150.3) (184.2) (144.3) (237.1) Interest income (expense), net..... (64.9) (33.4) 1.4 (3.6) 9.2 -------- ------ ------ ------ ------ Loss before extraordinary items.... (1,066.1) (183.7) (182.8) (147.9) (227.9) Extraordinary items................ -- -- 37.5 47.2 -- -------- ------ ------ ------ ------ Net loss........................... (1,066.1)% (183.7)% (145.3)% (100.7)% (227.9)% ======== ====== ====== ====== ======
28 33 NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1999 Net Revenues Net revenues increased to $2.6 million for the nine months ended September 30, 1999 from $826,000 for the nine months ended September 30, 1998. Sponsorship, advertising and production revenues increased to $1.7 million for the nine months ended September 30, 1999 from $656,000 for the nine months ended September 30, 1998, primarily due to a $854,000 increase in revenues generated from additional sponsorship and production contracts and a $266,000 increase in revenues generated from the launch of local vendor advertising programs in July 1999. As a percentage of net revenues, sponsorship, advertising and production revenues accounted for approximately 65% and 79% for the nine months ended September 30, 1999 and 1998, respectively. Merchandise revenues amounted to $694,000 for the nine months ended September 30, 1999, resulting primarily from a $453,000 increase related to the acquisition of Bridalink.com in July 1999 and a $240,000 increase related to the launch of The Knot Registry in November 1998. As a percentage of net revenues, merchandise revenues accounted for 26% for the nine months ended September 30, 1999. There were no merchandise revenues in the corresponding period in 1998. Publishing revenues increased to $160,000 for the nine months ended September 30, 1999 from $143,000 for the nine months ended September 30, 1998. The increase in publishing revenues was due to a $58,000 increase in sales of our gown guide which was published at the end of June 1999, partially offset by a $43,000 decrease in book publishing revenues. As a percentage of net revenues, publishing revenues accounted for 6% and 17% for the nine months ended September 30, 1999 and 1998, respectively. Travel revenues accounted for $54,000 of our net revenues for the nine months ended September 30, 1999, resulting from the acquisition of Click Trips, Inc. in July 1999. As a percentage of net revenues, travel revenues accounted for 2% for the nine months ended September 30, 1999. There were no travel revenues in the corresponding period in 1998. We anticipate that the components of our net revenues will continue to fluctuate as our business continues to grow. Cost of Revenues Cost of revenues consists of the cost of merchandise sold, payroll and related expenses for our personnel who are responsible for the production of customized online sites and tools, and costs of Internet access and hosting services. Cost of revenues increased to $904,000 for the nine months ended September 30, 1999 from $82,000 for the nine months ended September 30, 1998. The increase was primarily due to an increase in the sale of merchandise through Bridalink.com of $317,000 and through The Knot Registry of $169,000, and a $141,000 increase in the cost of producing online sites and tools. As a percentage of our net revenues, cost of revenues increased to 34% for the nine months ended September 30, 1999 from 10% for the nine months ended September 30, 1998. We anticipate that the cost of revenues will continue to grow in absolute dollars as we increase our merchandising efforts and expand our sponsorship and production contracts. Sponsorship, advertising and production gross margins are currently greater than merchandise gross margins. As our business continues to grow and our net revenues 29 34 continue to change, we expect our cost of revenues to continue to fluctuate as a percentage of net revenues. Product and Content Development Product and content development expenses consist of payroll and related expenses for creative personnel, information technology, and expenses for third-party software developers and contract programmers. Product and content development expenses increased to $1.7 million for the nine months ended September 30, 1999 from $788,000 for the nine months ended September 30, 1998. The increase was primarily attributable to a $908,000 increase resulting from our hiring additional staff to enhance the content and functionality of our sites, partially offset by a $241,000 decrease in third-party programming and content licensing fees. As a percentage of our net revenues, product and content development expenses decreased to 64% for the nine months ended September 30, 1999 from 95% for the nine months ended September 30, 1998. We believe that significant investments in product and content development are required to remain competitive and, therefore, expect that our product and content development expenses will continue to increase in absolute dollars for the foreseeable future. Sales and Marketing Sales and marketing expenses consist primarily of payroll and related expenses for sales and marketing, customer service and public relations personnel, as well as expenditures for our AOL anchor tenant agreement, advertising and promotional activities, and fulfillment and distribution of merchandise. Sales and marketing expenses increased to $2.9 million for the nine months ended September 30, 1999, from $476,000 for the nine months ended September 30, 1998. The increase was primarily due to a $750,000 increase in carriage fees paid under our anchor tenant agreement with AOL, which went into effect on January 1, 1999, a $519,000 increase in personnel costs related to the hiring of additional sales and marketing personnel and a $331,000 increase in sales commissions. As a percentage of our net revenues, sales and marketing expenses increased to 111% for the nine months ended September 30, 1999 from 58% for the nine months ended September 30, 1998. We believe that significant investments in sales and marketing personnel and programs are required to remain competitive and to build our brand both online and offline, and, therefore, that our sales and marketing expenses will continue to increase in absolute dollars for the foreseeable future. General and Administrative General and administrative expenses consist primarily of payroll and related expenses for our executive management, finance and administrative personnel, legal and accounting fees, facilities costs and insurance expenses. General and administrative expenses increased to $2.2 million for the nine months ended September 30, 1999 from $539,000 for the nine months ended September 30, 1998. 30 35 This increase was primarily due to a $650,000 increase in personnel costs and a $198,000 increase in professional fees. As a percentage of our net revenues, general and administrative expenses increased to 83% for the nine months ended September 30, 1999 from 65% for the nine months ended September 30, 1998. We expect our general and administrative expenses to increase in absolute dollars for the foreseeable future as we continue to hire personnel and incur expenses to build our administrative infrastructure to support the growth of our business and our operations as a public company. Non-Cash Compensation We recorded $3.0 million of deferred compensation during the nine months ended September 30, 1999 and $268,000 of deferred compensation for the nine months ended September 30, 1998. Amortization of deferred compensation increased to $695,000 for the nine months ended September 30, 1999 from $57,000 for the nine months ended September 30, 1998. As a percentage of our net revenues, amortization of deferred compensation increased to 26% for the nine months ended September 30, 1999 from 7% of our net revenues for the nine months ended September 30, 1998. Non-Cash Sales and Marketing We recorded $2.3 million of deferred sales and marketing during the nine months ended September 30, 1999, related to the issuance of a warrant to AOL in connection with our amended anchor tenant agreement in July 1999. Amortization of deferred sales and marketing was $127,000 for the nine months ended September 30, 1999. As a percentage of net revenues, amortization of deferred sales and marketing amounted to 5% for the nine months ended September 30, 1999. Depreciation and Amortization Depreciation and amortization expenses consist of depreciation and amortization of property and equipment and amortization of goodwill related to acquisitions. Depreciation and amortization expenses increased to $346,000 for the nine months ended September 30, 1999 from $75,000 for the nine months ended September 30, 1998. This increase was primarily due to a $153,000 increase in depreciation due to the increase in property and equipment purchases and an additional $118,000 of amortization of goodwill related to acquisitions. As a percentage of net revenues, depreciation and amortization expense increased to 13% for the nine months ended September 30, 1999 from 9% for the nine months ended September 30, 1998. PERIOD FROM MAY 2, 1996 (INCEPTION) TO DECEMBER 31, 1996 AND YEARS ENDED DECEMBER 31, 1997 AND 1998 Net Revenues Net revenues increased to $1.0 million for the year ended December 31, 1998 from $596,000 for the year ended December 31, 1997 and from $71,000 in the period from inception through December 31, 1996. The increase for each period was due primarily to 31 36 an increase in the average dollar value of sponsorship programs and in the number of sponsors and advertisers. As a percentage of net revenues, sponsorship and advertising revenues accounted for approximately 82%, 100%, and 100% for the years ended December 31, 1998 and 1997 and for the period from inception through December 31, 1996, respectively. Merchandise revenues were $17,000 for the year ended December 31, 1998 as a result of the launch of The Knot Registry in November 1998. As a percentage of net revenues, merchandise revenues accounted for 2% for the year ended December 31, 1998. There were no merchandise revenues for the year ended December 31, 1997 or for the period from inception through December 31, 1996. Publishing revenues were $143,000, for the year ended December 31, 1998 as a result of the delivery and acceptance of the first book under our publishing contract. As a percentage of net revenues, pubishing revenues accounted for 14% for the year ended December 31, 1998. There were no publishing revenues for the year ended December 31, 1997 or for the period from inception through December 31, 1996. Cost of Revenues Cost of revenues increased to $131,000 for the year ended December 31, 1998, from $67,000 for the year ended December 31, 1997 and from $9,000 in the period from inception through December 31, 1996. These increases in cost of revenues were primarily due to the increased number of sponsors and advertisers resulting in an increased expense of $35,000 for the year ended December 31, 1998 and $45,000 for the year ended December 31, 1997. These increases in cost of revenues were also due to an increase in Internet access and hosting services expenses of $13,000 for the year ended December 31, 1998 and $5,000 for the year ended December 31, 1997. Cost of revenues for the year ended December 31, 1998 included the cost of merchandise sold as a result of the launch of The Knot Registry in November 1998. As a percentage of net revenues, cost of revenues remained relatively constant at 13%, 11% and 13% for the years ended December 31, 1998 and 1997, and for the period from inception through December 31, 1996, respectively. Product and Content Development Product and content development expenses increased to $1.0 million for the year ended December 31, 1998, from $635,000 for the year ended December 31, 1997 and from $262,000 for the period from inception through December 31, 1996. The increase for each period was primarily attributable to increased personnel costs related to enhancing the content and functionality of our sites. As a percentage of net revenues, product and content development expenses decreased to 99% from 107% and from 371% for the years ended December 31, 1998 and 1997, and for the period from inception through December 31, 1996, respectively. The percentage decreases for each period were primarily attributable to the higher growth rate in our net revenues as compared to the growth rate associated with these expenses. 32 37 Sales and Marketing Sales and marketing expenses increased to $768,000 for the year ended December 31, 1998, from $503,000 for the year ended December 31, 1997 and from $255,000 for the period from inception through December 31, 1996. The increase for the year ended December 31, 1998 was primarily a result of a $236,000 increase in personnel costs, which include sales commissions, and a $95,000 increase in costs incurred to retain an outside public relations firm. The increase for the year ended December 31, 1997 was primarily a result of a $107,000 increase in personnel costs and a $68,000 increase in commissions we paid to AOL. As a percentage of net revenues, sales and marketing expenses decreased to 74% from 84% and from 361% for the years ended December 31, 1998 and 1997 and for the period from inception through December 31, 1996, respectively. The percentage decreases for each period were primarily attributable to the higher growth rate in our net revenues as compared to the growth rate associated with these expenses. General and Administrative General and administrative expenses increased to $809,000 for the year ended December 31, 1998, from $265,000 for the year ended December 31, 1997 and from $242,000 for the period from inception through December 31, 1996. The increase for each period was primarily due to an increase in personnel costs and facilities expenses resulting from an increase in the number of personnel hired to support the growth of our business. The increase for the year ended December 31, 1998 was primarily due to a $119,000 increase in facilities expenses and a $105,000 increase in personnel costs. As a percentage of net revenues, general and administrative expenses increased to 78% for the year ended December 31, 1998 from 44% for the year ended December 31, 1997 and decreased from 343% for the period from inception through December 31, 1996. The percentage increase from 1997 to 1998 was primarily attributable to increased personnel costs, while the percentage decrease from 1996 to 1997 was primarily attributable to the higher growth rate in our net revenues as compared to the growth rate in general and administrative expenses. Non-Cash Compensation We recorded $480,000 in deferred compensation for the year ended December 31, 1998. Amortization of deferred compensation was $93,000, or 9% of our net revenues, for the year ended December 31, 1998. Depreciation and Amortization Depreciation and amortization expenses increased to $122,000 for the year ended December 31, 1998, from $22,000 for the year ended December 31, 1997 and from $9,000 in the period from inception through December 31, 1996. The increase for each period was primarily due to increased depreciation resulting from increased purchases of property and equipment to support the growth of our business. Also included in depreciation and amortization for the year ended December 31, 1998 was approximately $54,000 of goodwill amortization related to the acquisition of Bridal Search in April 1998. As a percentage of net revenues, depreciation and amortization remained relatively constant at 12%, 4% and 13% of net revenues for the years ended December 31, 1998 and 1997, and for the period from inception through December 31, 1996, respectively. 33 38 QUARTERLY RESULTS OF OPERATIONS The following table sets forth certain unaudited quarterly statement of operations data for each of the seven quarters ended September 30, 1999. We have prepared these data on the same basis as our audited financial statements in this prospectus and have included all necessary adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of our results of operations for these interim periods. You should read these interim financial data together with our audited financial statements and the notes to those statements in this prospectus. Our historical results of operations do not necessarily indicate the results of operations we will achieve in the future, and our results of operations for interim periods do not necessarily indicate the results of operations for any future period.
THREE MONTHS ENDED --------------------------------------------------------------------------------- MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, 1998 1998 1998 1998 1999 1999 1999 --------- --------- --------- --------- --------- --------- --------- (IN THOUSANDS) Net revenues........... $ 226 $ 439 $ 161 $ 214 $ 194 $ 544 $ 1,897 Cost of revenues....... 33 28 21 49 53 188 663 ------- ------- ------- ------- ------- ------- ------- Gross profit........... 193 411 140 165 141 356 1,234 Operating expenses: Product and content development....... 166 290 333 242 401 464 820 Sales and marketing......... 94 144 238 292 706 788 1,419 General and administrative.... 83 153 302 271 420 621 1,153 Non-cash compensation...... -- 22 35 36 129 213 375 Non-cash sales and marketing......... -- -- -- -- -- -- 127 Depreciation and amortization...... 7 31 38 46 69 106 171 ------- ------- ------- ------- ------- ------- ------- Total operating expenses............. 350 640 946 887 1,725 2,192 4,065 Loss from operations... (157) (229) (806) (722) (1,584) (1,836) (2,831) Interest income (expense), net....... (49) 4 16 44 (10) 110 143 ------- ------- ------- ------- ------- ------- ------- Loss before extraordinary items................ (206) (225) (790) (678) (1,594) (1,726) (2,688) Extraordinary items.... -- 390 -- -- -- -- -- ------- ------- ------- ------- ------- ------- ------- Net loss............... $ (206) $ 165 $ (790) $ (678) $(1,594) $(1,726) $(2,688) ======= ======= ======= ======= ======= ======= =======
Net revenues for the three months ended September 30, 1999 increased by $1.4 million as compared to the three months ended June 30, 1999 primarily as a result of revenues generated from additional sponsorship and production contracts, the launch of local vendor advertising programs in July 1999, as well as merchandise revenues generated through Bridalink.com which was acquired in July 1999. There was a corresponding increase in both cost of revenues and sales and marketing expenses during the three months ended September 30, 1999. Net revenues for the three months ended June 30, 1999 increased from the three months ended March 31, 1999 as a result of an increase in the average dollar value of sponsorship agreements and in the number of sponsors and advertisers. Net revenues for the three months ended September 30, 1998 decreased from the prior three month period 34 39 as a result of lower sponsorship revenues as well as decreased publishing revenues. Net revenues for the three months ended June 30, 1998 increased from the prior three month period primarily as a result of publishing revenues recognized from the delivery and acceptance of the first book under our book publishing contract. Sales and marketing expenses for the three months ended March 31, 1999 increased from the three months ended December 31, 1998 as a result of carriage fees under our new anchor tenant agreement with AOL which went into effect on January 1, 1999. LIQUIDITY AND CAPITAL RESOURCES We funded our operations from our inception on May 2, 1996 through April 1998 primarily with advances under a retired note payable to AOL. Subsequent to April 1998, we have funded our operations primarily through private sales of preferred equity securities totaling $18.0 million. As of September 30, 1999, we had $9.3 million in cash and cash equivalents. Net cash used in operating activities was $4.8 million for the nine months ended September 30, 1999. This resulted primarily from the net loss for the period of $6.0 million as adjusted for depreciation and amortization of $1.2 million and an increase in accounts receivable of $717,000, other current assets of $646,000 and inventories of $389,000, partially offset by increases in accounts payable and accrued expenses of $788,000 and deferred revenue of $788,000. Net cash used in operating activities was $1.7 million for the year ended December 31, 1998, $837,000 for the year ended December 31, 1997 and $625,000 for the period from May 2, 1996 (inception) through December 31, 1996, primarily as a result of the net loss for the periods of $1.9 million, $1.1 million and $752,000, respectively, adjusted for depreciation and amortization of $242,000, $105,000 and $9,000, respectively. Net cash used in investing activities was $1.6 million for the nine months ended September 30, 1999, primarily due to the purchase of property and equipment of $1.2 million and cash paid for business acquisitions of $335,000. Net cash used in investing activities was $305,000 for the year ended December 31, 1998, $24,000 for the year ended December 31, 1997 and $58,000 for the period from inception through December 31, 1996, primarily due to the purchase of property and equipment and, in 1998, cash paid for a business acquisition. Net cash provided by financing activities was $14.7 million for the nine months ended September 30, 1999 primarily resulting from the issuance of Series B Preferred Stock in April 1999. Financing activities provided $2.8 million for the year ended December 31, 1998 from the sale of Series A Preferred Stock. Financing activities for the year ended December 31, 1997 provided $1.2 million and for the period from inception through December 31, 1996 provided $700,000, representing borrowings under a note payable to AOL. Although we have no material commitments for capital expenditures, our capital expenditures have increased from $58,000 for the period from inception through December 31, 1996 to over $1.1 million for the nine months ended September 30, 1999, consistent with the growth in our operations and staffing. We anticipate that this increase in capital expenditures will continue for the foreseeable future as a result of increased growth. We intend to continue to pursue acquisitions of, or investments in, complementary 35 40 businesses, services and technologies, expand our sales and marketing programs and conduct more aggressive brand promotions. As of September 30, 1999, we had commitments under non-cancelable operating leases amounting to $6.1 million, of which $374,000 will be due on or before September 30, 2000. As of September 30, 1999, we had a commitment under our amended anchor tenant agreement with AOL in the amount of $3.9 million, of which $1.2 million will be due on or before September 30, 2000. We currently believe that the net proceeds from this offering, together with our current cash and cash equivalents, will be sufficient to fund our working capital and capital expenditure requirements for at least the next 12 months. We cannot assure you that additional funding, if required, will be available to us in amounts or on terms acceptable to us. If sufficient funds are not available or are not available on acceptable terms, our ability to fund our expansion, take advantage of acquisition opportunities, develop or enhance our services or products, or otherwise respond to competitive pressures would be significantly limited. Those limitations would materially and adversely affect our business, results of operations and financial condition. RECENT ACQUISITIONS On July 6, 1999, we purchased all of the assets of Bridalink.com for approximately $124,000 in cash and the issuance of immediately vested stock options to purchase up to 10,000 shares of our common stock at an exercise price $1.50 per share. The common stock was valued at $7.00 per share for financial reporting purposes. Bridalink.com operates www.bridalink.com, an Internet wedding supply store located in Northern California. On July 31, 1999, we acquired all of the capital stock of Click Trips, Inc. for 5,000 shares of common stock. The common stock was valued at $7.00 per share for financial reporting purposes. Under the terms of the acquisition agreement, the 5,000 shares of common stock will be held in escrow for six months for the purpose of indemnifying us against any potential liabilities of Click Trips. Click Trips has the right to receive options to purchase up to an additional 10,000 shares of our common stock upon the attainment of $1.2 million in commission revenue for the year ended December 31, 2000. The exercise price related to the options will be equal to the fair market value of our common stock on the date of grant. Click Trips operates www.clicktrips.com, an online travel agency and is located in Warminster, Pennsylvania. On August 18, 1999, we acquired the assets of Wedding Photographers Network, a division of The Denis Reggie Company, for 10,000 shares of our common stock. The common stock was valued at $8.00 per share for financial reporting purposes. Wedding Photographers Network is a searchable database of local wedding photographers and is located in Atlanta, Georgia. We have accounted for these acquisitions using the purchase method of accounting. Goodwill resulting from these acquisitions is being amortized using the straight line method over three years. The results of operations for each acquisition are included in the period subsequent to the date of each acquisition. 36 41 YEAR 2000 COMPLIANCE Many currently installed computer systems and software products are coded to accept or recognize only two-digit entries in the date code field. These systems and software products will need to accept four-digit entries to distinguish 21st century dates from 20th century dates. As a result, computer systems and/or software may need to be upgraded, redesigned or replaced to comply with such Year 2000 requirements to avoid system failure or miscalculations causing disruptions of normal business activities. Our business, results of operations and financial condition would suffer if the systems on which we depend to conduct our business are not Year 2000 compliant. Our potential areas of exposure include products purchased from third parties, information technology that we use for internal operations including computers and software, and non-information technology systems and services including telephone systems, electricity and other items that we use for internal operations. STATE OF READINESS We are not currently aware of any Year 2000 compliance problems relating to our systems that would have a material adverse effect on our business, results of operations and financial condition. We have made a preliminary assessment of the Year 2000 readiness of our operating, financial and administrative systems, including hardware and software. All of the internally developed production systems for our sites are Year 2000 compliant. We have received and have on file Year 2000 readiness statements from AOL, QVC and each of our current third-party technology vendors. In each case, these technology vendors state that the Year 2000 date change will not result in a significant interruption in critical services or negatively impact their clients in any material way. With respect to information technology we addressed Year 2000 compliance issues primarily through commercially available patches or upgrades in the ordinary course of business. We have completed integrated testing of our systems, including internally developed proprietary software, third-party software, hardware and services, and have found no Year 2000 compliance problems. We have contacted our principal vendors of material non-information technology systems and services used by us, such as our telephone system and utility providers, and requested confirmation of the Year 2000 compliance of their systems and services. We have received notification from some of these vendors that the systems and services that they provide to us are Year 2000 compliant. We have replaced the systems and services of non-compliant vendors with compliant alternatives. COSTS To date, we have spent an immaterial amount on Year 2000 compliance issues, and we expect to incur additional costs not to exceed $200,000 in connection with identifying, evaluating and addressing Year 2000 compliance issues. Most of our expenses for the Year 2000 have related to, and are expected to continue to relate to, the operating costs associated with time spent by employees and consultants in the evaluation process and execution of Year 2000 compliance. Such expenses, if higher than anticipated, could have a material adverse effect on our business, results of operations and financial condition. 37 42 RISKS We believe, based upon our investigations and testing to date, that the Year 2000 issue will not have a material adverse effect on our business, results of operations or financial condition. However, despite all of our efforts to date towards insuring Year 2000 compliance, latent issues may still surface in the future that require upgrades, modifications, or replacement, all of which could be time-consuming and expensive. Our failure to fix or replace internally developed proprietary software, third-party software, hardware, or services on a timely basis could result in lost revenues, increased operating costs, the loss of customers and other business interruptions. We depend heavily on a number of third-party vendors to provide both network services and equipment. A significant Year 2000-related disruption of the network, services or equipment that third-party vendors provide to us could cause our sponsors, advertisers, members and visitors to consider seeking alternate providers. Year 2000 issues could also cause an unmanageable burden on our technical support personnel, which in turn could materially and adversely affect our business, results of operations and financial condition. In addition, there can be no assurance that governmental agencies, utility companies, Internet access companies, third-party service providers, including AOL and QVC, and others outside of our control will be Year 2000 compliant. The failure by such entities to be Year 2000 compliant could result in a systemic failure such as a prolonged Internet, telecommunications or electrical failure. These suppliers could also prevent us from delivering services to our customers, decrease the use of the Internet or prevent users from accessing our sites which could have a material adverse effect on our business, results of operations and financial condition. CONTINGENCY PLAN Because no systems have been found to be non-compliant, we have determined that a contingency plan is not required. We are unable to provide for contingencies arising as a result of large scale or Internet-wide failure because we are not aware of any adequate replacement service for the Internet. 38 43 BUSINESS OVERVIEW The Knot is the leading online wedding destination on the World Wide Web and the primary wedding content provider on America Online and several other of AOL's leading brands, including AOL.com, Netscape Netcenter and CompuServe. We combine comprehensive content and an online community with wedding-related commerce. Our online sites provide full-service offerings targeted at the planning needs of today's brides and grooms. We believe that our sites enable our users to overcome the many challenges of the wedding planning process by providing a one-stop solution. In addition, we provide advertisers and vendors with targeted access to couples actively seeking information and making meaningful buying decisions relating to all aspects of their weddings. Located at www.theknot.com on the Web and on AOL at keywords "Knot" and "weddings", our sites provide future brides and grooms with useful information and resources. We offer: - - a searchable database that draws on thousands of articles on wedding planning; - - a database of approximately 13,000 local vendors in 52 markets nationwide; - - a searchable bridal gown database with more than 15,000 gown images from over 140 bridal designers; - - a searchable database with more than 750 bridal accessories, including headpieces, shoes and purses; - - 45 weekly hosted chats; - - nine integral tools for planning the wedding; - - an online gift registry with more than 10,000 gifts; - - an online shop of over 450 wedding supplies and gifts; and - - honeymoon travel packages. We also service the wedding market through a series of books and a semiannual gown guide. These traditional forms of media provide cross-promotional opportunities and assist us in increasing our brand awareness and our online audience. Engaged couples are increasingly turning to The Knot. In September 1999, we generated over 15.4 million page views on our Web site compared to 2.5 million in December 1998. As of September 30, 1999, more than 395,000 couples had enrolled on our site to become members, and we are currently enrolling as members an average of over 1,000 new couples per day. INDUSTRY BACKGROUND Growth of the Internet and Online Commerce The Internet has emerged as a global medium that allows millions of people worldwide to obtain information, communicate and conduct business. In its June 1999 report, International Data Corporation estimates that the number of Internet users 39 44 worldwide will grow from approximately 142 million users in 1998 to 502 million by the end of 2003. Additionally, worldwide commerce revenues on the Internet are expected to grow from approximately $50 billion at the end of 1998 to approximately $1.3 trillion by the end of 2003. The Internet has also become an attractive medium for advertising. Advertisers can utilize the Internet to target specific groups based on consumer tastes and buying patterns. Forrester Research estimates that the dollar volume of online advertising will increase from $1.5 billion in 1998 to $15.3 billion in 2003. The Wedding Industry Each year approximately 2.4 million couples get married in the United States. According to an independent research report, the domestic wedding market generates approximately $45 billion in retail sales annually. Presumed to be a once-in-a-lifetime occasion, a wedding is a major milestone event and, therefore, consumers tend to allocate significant budgets to the wedding and related purchases. According to a 1997 survey of readers of Bride's magazine, the average amount spent on a wedding was $19,104, excluding the honeymoon. Planning a wedding can be a stressful and confusing process. Engaged couples must make numerous decisions and expensive purchases. A typical wedding requires decisions and planning relating to bridal registries, invitations, wedding gowns and wedding party attire, wedding rings, photographers, music, caterers, flowers and honeymoons. In addition to the number of decisions faced by engaged couples, the fixed date and the emotional significance of the event intensify the stress. For the majority of engaged couples, the process of planning a wedding is an entirely new one. They do not know where to find the necessary information and services, how much services or goods should cost or when decisions need to be made. These planning decisions are further complicated because many couples choose to have their weddings in locations other than where they live. Researching and soliciting local wedding services from distant locations without traveling and making an enormous time commitment is extremely difficult. Today's to-be-weds are seeking reliable resources and information to assist in their planning and purchase decisions. Vendors and advertisers highly value to-be-weds as a consumer group. Replenished on an annual basis, wielding substantial budgets and facing a firm deadline, engaged couples are ideal recipients of advertisers' messages and vendors' products and services. According to Modern Bride, during the six months prior to and the six months following a wedding, the average couple will make more buying decisions and purchase more products and services than at any other time in their lives. The challenges and obstacles that engaged couples face make them especially receptive to marketing messages. A disproportionate amount of advertising revenues are generated per subscriber by bridal magazines. According to Advertising Age, in 1998 the top three bridal magazines generated an average of $190.74 in revenues per reader, compared to an average of $75.50 in revenues per reader in the top three travel magazines and an average of $53.63 in revenues per reader in the top three women's magazines. The wedding market also represents significant opportunities for the retail industry. Over 91% of all to-be-weds register for gifts. According to a 1997 report by Bride's magazine, engaged couples receive gifts from an average of 200 guests, most of whom are spending between $70 and $100. Because items are selected by the engaged couple but paid for by their guests, price sensitivity is minimal and registry products are rarely discounted by retailers. Registry for products in all categories has grown, prompting many 40 45 national retailers -- previously without registries -- to enter the gift registry market. Weddings also generate substantial revenues for travel services companies. Honeymoon travel generates an estimated $4.5 billion annually. According to a 1997 Bride's survey, over 99% of all newlyweds go on a honeymoon with an average cost of $3,657 per couple. Traditional Wedding Resources Fail to Adequately Service Today's Engaged Couples The wedding market is highly fragmented and wedding resources are widely dispersed. In addition, to-be-weds face difficulty in locating wedding planning information. Traditionally, to-be-weds have relied upon many different resources when planning their weddings, including family and friends, bridal magazines, books, bridal registries, wedding consultants and travel agents. Because the traditional providers of wedding resources are single-service/product focused, to-be-weds must manage multiple providers. Consequently, to-be-weds find wedding planning to be stressful, time consuming and inconvenient. Seeking information and ideas, most engaged couples turn to bridal magazines for assistance. Many couples, however, find that the sheer volume of gown ad pages, scarcity of editorial content, the lack of organization of these magazines and their infrequent publishing schedules make them an inefficient and insufficient source of timely and relevant wedding planning information. In addition, the registry process is equally burdensome. Increasingly, to-be-weds supplement department store bridal registries, the customary source of wedding gifts, to satisfy their gift preferences. Despite the inconvenience, a significant portion of today's engaged couples register at two or more stores and increasingly turn to specialty and discount stores to obtain the product variety they desire. The Internet and the Wedding Industry To-be-weds are seeking a comprehensive resource to assist in their preparation and planning for a wedding. Because of its global reach and capacity to transmit information rapidly, the Internet represents an ideal medium over which to-be-weds can easily access information and communicate with the widely-dispersed providers of local wedding resources. We expect the impact of the Internet on the wedding market to be significant. In 1997, the median age was 26 for first-time brides and 28 for first-time grooms, placing them in the demographic age group, 18 to 34 years, that currently comprises approximately 41% of all home Web users. As Internet use continues to increase, engaged couples are more likely to turn to online resources as the first place they look for wedding products, information and registry services. Recognizing this trend, traditional providers of wedding resources have begun to offer their services and products online. Like their offline equivalents, however, these online offerings are single-service/product focused. To-be-weds continue to search for a comprehensive solution to their information, planning and purchasing needs at a single destination. THE KNOT SOLUTION We are the leading online destination targeting the wedding market. We focus on the needs of engaged couples and have created an online environment that provides information, advice, community, tools and commerce in the areas of wedding planning most important to couples including engagement, wedding day, honeymoons and newlywed life. In addition, we provide vendors and advertisers with targeted marketing opportunities 41 46 due to the well-defined demographic profile of our users. Key components of our solution include: BENEFITS TO USERS Relevant Wedding Content. We provide creative and up-to-date information and resources to attract users to our sites. Weddings are information-intensive events requiring extensive research, planning and decision-making. Our sites provide future brides and grooms with a wide range of wedding-related information and resources. We also provide offline information and services to brides and grooms. We author books that serve as guides for wedding planning and publish The Knot Ultimate Wedding Gown Guide, a semiannual publication cataloguing wedding gowns from the top designers in the world. Active Membership and Community Participation. Our online sites generate a high degree of member involvement through chats, message boards and personalized interactive services. To-be-weds actively seek forums to exchange ideas and ask questions during the planning process. We encourage and promote active participation within our online community. The Knot community allows our members to interact with other couples, as well as our own experts, on wedding planning issues and concerns. For example, our "Ask Carley" area is an interactive service in which wedding etiquette and other questions are answered daily by our experts on wedding planning. This area includes a searchable database that draws from an archive of up-to-date answers to over 11,000 questions. We also send out a weekly general newsletter to our subscribers updating them on new articles, features and upcoming events on our sites and bi-weekly newsletters focused on specific topics, such as registries and accessories. Additionally, our interactive services allow users to prepare and modify their wedding budget and create personalized checklists and Web pages. Convenient, Comprehensive Shopping Experience. We integrate our interactive services and informative content with comprehensive shopping services, which range from wedding gifts and supplies to honeymoons. We have developed The Knot Registry, which we believe is the Internet's most comprehensive wedding gift registry. Unlike other online bridal registries which link users to large retailers in exchange for a payment from the retailer, we buy products directly from manufacturers. This enables us to provide our users with a large selection of products from a wide range of categories, while maintaining a high level of customer service. We offer registry gifts ranging from fine china and blenders to mountain bikes and safaris. Our strategic relationship with QVC facilitates our ability to offer a broad range of products and enables products to be shipped generally within 48 hours of receipt of order. Wedding guests can quickly and easily purchase gifts online or offline via toll-free phone service, fax or mail, 24 hours a day. Through our online wedding supply stores, to-be-weds can conveniently purchase from one source a broad range of gifts for the wedding party and supplies for the wedding ceremony, such as decorated disposable cameras, ring pillows and unity candles. Many of these items are highly specialized and difficult to find through traditional retail outlets. Access to the Local Wedding Market. Through our strategic alliance with Weddingpages, Inc., we offer a database of approximately 13,000 local wedding vendors. In July 1999, we entered into an 18-month exclusive agreement with Weddingpages, a publisher of local wedding magazines across the United States and owner of a Web site offering wedding-related services and information. Weddingpages Bride and Home is published in 52 markets twice yearly. This magazine is distributed on a continual roll-out 42 47 basis with estimated newsstand circulation that exceeds the combined circulation of Bride's and Modern Bride. Through this strategic alliance, we offer a national online site with a local sales force in over 50 markets and an extensive database that brides and grooms can search to find vendors at their wedding locations. Categories in the local vendor database include wedding venues, caterers, florists, bridal shops, photographers, musicians and limousine services. Weddingpages sells online advertising to local wedding vendors on our behalf. We receive the revenue from these sales and pay Weddingpages a 65% sales commission. We also pay Weddingpages a monthly fee for related administrative and operating functions, including customer service, ad production and accounting services. In addition, in August 1999, we acquired Wedding Photographers Network, a division of The Denis Reggie Company. Wedding Photographers Network allows to-be-weds to search for local wedding photographers meeting their specific needs. BENEFITS TO ADVERTISERS, SPONSORS AND VENDORS We provide advertisers, sponsors and vendors with targeted access to couples actively seeking information and advice and making meaningful spending decisions relating to all aspects of their weddings. We offer advertisers, sponsors and vendors an opportunity to establish brand loyalty with first-time purchasers of many products and services. Advertisers and Sponsors. We are able to deliver to advertisers and sponsors significant leads to potential purchasers. Editorial content and advertising are often integrated on our sites. For example, an article about honeymoons might feature an advertisement for a resort. Instead of traditional banners or buttons, our sponsors usually select our custom-developed marketing programs that offer special features, including tools. When a user clicks on an advertisement positioned on our sites, a sponsor's site appears which showcases the advertiser's products and services. These sites can provide relevant product and contact information, electronic catalogues of products or hyperlinks to the sponsor's Web site. Companies can also enter into longer term arrangements to exclusively sponsor entire editorial areas or special features. Vendors. We provide our vendors with a consumer group that will make more buying decisions than at any other time in their lives. Our easy-to-use shopping sites increasingly promote e-commerce. Vendors' products are attractively displayed with color photographs and descriptions customized for the bridal market. Through our interactive online features, such as chat rooms and message boards, and by utilizing the creative content portions of our sites, we encourage and assist our users in making purchasing decisions. OUR STRATEGY Our objective is to expand our position as the leading online resource providing comprehensive wedding planning, information, products and services. Key elements of our business strategy include the following: Build Strong Brand Recognition. Building brand recognition of the Knot is critical to attracting and expanding our online user base. We have secured the leading position in the online wedding market. To maintain the focus on The Knot brand, we will continue to emphasize our editorial and creative content. We believe that our content and ability to make the wedding process easier, more fun and convenient for today's busy couples will continue to build our brand. 43 48 We will also strengthen brand awareness through our book series and gown guide. Through our affiliation with Weddingpages, the largest local wedding publication in the United States, we are increasing our brand awareness at the local level. We plan to continue building brand recognition by leveraging our membership base and creating innovative and integrated marketing solutions. Aggressively Grow Membership. New member enrollment per month has grown from 11,000 in December 1998 to over 36,000 in September 1999. We currently enroll as members an average of over 1,000 new couples per day. We intend to continue to grow our membership base and increase member usage through our content offerings, interactive services, active community participation and strategic relationships. Provide Full-Service Wedding Resources. We facilitate the wedding planning process by providing what we believe is one of the most comprehensive package of services, tools and commerce applications. By continuing to combine our extensive wedding content and our active online community with a full-service shopping solution, we plan to maintain our strong position and to make the wedding planning process more convenient, efficient and enjoyable. We intend to continue to expand the services we offer and the content we provide. Capitalize on Multiple Revenue Opportunities. We intend to leverage the size and favorable demographics of our online community to generate multiple revenue streams. Our primary focus to date has been on national advertising revenues and on providing our sponsors and advertisers with targeted access to couples actively seeking information and making purchase decisions. We view our relationships with our sponsors and advertisers as critical to our success. We intend to continue to seek additional sponsorship contracts with longer terms and higher dollar values for our contracts. We also intend to benefit from our increased presence in the local wedding market. Our searchable database features advertising in 52 local markets for local wedding vendors, such as photographers, caterers and florists. We expect to generate increasing online revenues from The Knot Registry and our convenient gift and supply shops. We will continue to use our content to promote e-commerce opportunities. Additionally, we expect to realize revenues from publishing our books and semiannual gown guide. We will pursue additional revenue opportunities, as appropriate, in connection with the needs of today's engaged and newly married couples. We also intend to extend the relationship we build with our users and provide access to additional products and services relevant to newlyweds and growing families. Continue to Pursue Strategic Alliances and Acquisitions. We plan to expand our business through strategic alliances and acquisitions. Since April 1999, we have entered into strategic relationships with QVC and Weddingpages, and we have acquired Bridalink, Click Trips and Wedding Photographers Network. Our relationship with QVC allows us to rapidly purchase, process and ship merchandise for The Knot Registry, and our relationship with Weddingpages allows us to provide our users with access to an extensive database of local vendors and resources. The acquisitions of Bridalink, Click Trips and Wedding Photographers Network expanded the resources available on our sites for to-be- weds. We intend to seek other opportunities to acquire or form alliances with other companies that will enhance our business. We have no present plans or commitments with respect to acquisitions or alliances and we are not currently engaged in any negotiations with respect to these opportunities. 44 49 THE KNOT'S ONLINE NETWORK Our sites allow users to access information, participate in interactive chats and message boards, and purchase items online. The following is a brief description of our online content: EDITORIAL CONTENT Engagement This area provides advice on proposing, choosing a diamond ring, and throwing an engagement party. It also includes steps to take after the bride and groom are engaged. Planning Advice This area informs couples on the business points of planning a wedding. Topics include questions to ask wedding vendors, points to be included in contracts and tips for weddings on a budget. Wedding Ideas Photos, stories, and creative ideas from weddings around the country are featured in this area. Additional topics include ethnic traditions, second weddings and theme wedding ideas. The Dress The articles and photo features in this area cover all aspects of bridal fashion. Highlights include the latest bridal gown trends, advice on choosing accessories and advice on which gowns look good on whom. Big Day Beauty Articles and photos in this area advise brides on the latest trends in bridal make-up and hair, as well as recommend pre-wedding fitness and spa treatments. Grooms and Guys This area is devoted to grooms, groomsmen, dads and ring bearers. Articles include topics from wedding duties and toasts to groomsmen gifts and bachelor parties. Maids and Moms This area is devoted to helping bridesmaids, moms and flowergirls sort out their wedding duties. Also included are articles on throwing showers, finding bridesmaid dresses and throwing bachelorette parties. Newlywed Nesting This area focuses on helping the bride and groom set up house, including what to register for, how to entertain, how to make post-wedding financial decisions and how to maintain relationships after the wedding. Honeymoon Escapes Articles and photo features in this area cover honeymoon destinations throughout the world. Included in the area is advice on overseas travel, resorts, packing tips and activities. 45 50 INTERACTIVE FEATURES AND TOOLS Ask Carley In this area, the wedding editors provide answers to couples' etiquette questions. Topics include divorced families, second weddings, problem bridesmaids, and general wedding etiquette. Gown Search This database of wedding attire includes more than 15,000 wedding gown images from over 140 bridal designers. A bride can search for gowns by price, designer or silhouette and save results to her own saved gown list to view later. In addition, this database features bridesmaid dresses, attire for the mothers of the bride and groom, and flower girl dresses. Big Day Budgeter This personalized budget calculator creates a category-by-category wedding budget. For each category, the budgeter offers advice and explains what the couple can afford in their price range. The budgeter saves the couple's budget information online, where they can update it 24 hours a day. Local Vendor Finder In partnership with Weddingpages, we provide listings of approximately 13,000 wedding vendors in 52 local markets nationwide. Categories include caterers, bakers, banquet halls, limousine companies, musicians, and other wedding professionals. Information includes contact information, photos and service descriptions. Personal Wedding Web Pages Couples can create a Web page for their wedding. On these three-page Web sites couples can include photos, personal stories, ceremony details such as location and time, local lodging and activities for guests, names and description of bridal party members and a link to buy items on the couple's registry list at The Knot. The Ultimate Wedding Checklist This checklist provides a personalized, week-by-week wedding planning to-do list created according to a couple's wedding date. Couples visit the Web site for their daily to-dos and check off items they have completed. Wedding Photographers Network This is a database of professional wedding photographers that provides couples the ability to search by date, location and price. Couples can view online portfolios of the photographers' work. Diamond Finder This database of diamond information helps couples find an appropriate stone based on budget, cut, quality and size requirements. This feature also includes the ability to appraise a diamond or to double-check a price. Wedding Guest List Manager This online address book allows couples to manage their guest list, invitations and seating. Couples can track guest address information as well as the total number of guests invited and guest responses. Additionally, they can create a seating chart and record gifts received and thank you notes sent. Accessory Search This database allows brides to search for bridal accessories by designer name or category. Categories include headpieces, shoes, purses, gloves and jewelry. Brides can also search by specific criteria such as price point. Search results include photos, price, style number and purchase information. 46 51 COMMUNITY FEATURES Wedding Chat We have 24-hour chat rooms on both America Online and the Web. We have 45 weekly hosted chats. Our 18 chat hosts, usually newlyweds, manage the room to facilitate conversation flow and help brides find information on The Knot that answers their questions. Newsletters Couples can subscribe to a general weekly newsletter featuring updates on current Knot editorial articles, tips on using The Knot and special promotions. Couples can also subscribe to biweekly newsletters focused on topics such as registry and accessories. Discussion Groups The Knot message boards provide an area for couples to exchange personal stories, creative ideas and advice. Special board features include the wedding dress resale classifieds board, and the "vendor referral" board, where brides list their favorite wedding professionals. Wedding Announcements A database of wedding announcements that allows visitors to The Knot to find couples marrying in a specific area of the country or on a specific wedding date. Photos and stories about the couples' weddings are included in this area, which also allows visitors to post good wishes for them. SPONSORSHIP, ADVERTISING AND PRODUCTION We have derived a significant amount of our revenues to date from the sale of sponsorship, advertising and production contracts. For the nine months ended September 30, 1999, sponsorship, advertising and production revenues represented 65% of our net revenues. Our strategy is focused on generating a majority of our advertising revenues from sponsors and advertisers who seek a cost-effective means to reach the wedding market. Sponsors advertise on the editorial areas of our sites, and can purchase special features in an area designated solely for them. These programs are typically exclusive and are for a period of up to three years. Sponsorships provide content while showcasing sponsors' products and services, creating a relationship between our users and our sponsors. The special feature programs typically include an exclusive Knot-designed online site, as well as site-wide banners and links to the sponsor's Web site. In addition, special features also include integrated marketing programs which may include online promotional events, such as sweepstakes, or hosted chat sessions, collection of user data for the sponsor, offline promotions, such as collateral material distribution at bridal shows and links to other strategic areas of the sponsor's Web site. For example, OurBeginning.com, a wedding invitation supplier, is the exclusive sponsor of The Complete Guide to Invitations where we publish articles about wording, addressing and assembling invitations as well as an Invitation Q&A section. There are advertising banners and text that link to OurBeginning.com's special feature area as well as to their site. The special feature area also contains links to the OurBeginning.com Web site. Both content specific area and special feature sponsorships may also include interactive tools. For example, Mondera's Wedding Band Finder, which is hosted on our 47 52 Web site allows users to search for wedding bands by gender, price or metal. If there are wedding bands available that meet the user's criteria, a buy button appears on the screen. If the user clicks on the buy button, they will be linked directly to Mondera's Web site where the user can make the purchase. We offer short-term advertising contracts ranging from one month to one year. For example, a local photographer can purchase a listing on our Wedding Photographers Network which typically contains key contact information and may also contain a portfolio sample of a photographer's work. Advertisers can also purchase banner advertisements. E-COMMERCE The Knot Shop and Bridalink.com We offer wedding supplies through The Knot Shop and Bridalink.com. Bridalink.com is our separate online store for wedding supplies which we maintain in order to attract new users and generate additional revenue. We offer over 450 products, including decorated disposable cameras, wedding bubbles and bells, ring pillows, toasting flutes, car decorating kits, table centerpieces, goblets and glasses, garters and unity candles. These highly specialized items are often difficult to find through traditional retail outlets, and the purchase of these items is often left to the last minute. Consumers can place orders online, through a toll-free number, fax or via mail, 24 hours a day. We fulfill orders from our warehouse located in Redding, California. The Knot Registry The Knot Registry offers a broad selection of more than 10,000 products and services from more than 500 well-recognized brands. Approximately 45% of our products are supplied by QVC vendors. Wedding guests can quickly and easily purchase gifts online or via phone or fax, 24 hours a day. We offer traditional registry categories such as china, household appliances and electronics, in addition to non-traditional categories, such as outdoor gear, dance lessons, entertainment and travel. Couples also may register for services which are typically not available from traditional bridal registries, such as home mortgage down payments, car loans and leases and investment services such as mutual funds. The Knot Registry is designed to provide convenience for the engaged couple, allowing them to: - register from anywhere 24 hours a day; - modify and monitor their registry selections at any time throughout their engagement; - arrange for custom announcements, including personalized e-mail and registry announcement cards, to guests, notifying them of the couple's registration; - select a delivery date; - elect to participate in completion programs after the wedding to purchase registry gifts selected but not received; and - interact with our shopping experts through e-mail, instant messenger or a toll-free phone service to help them decide which products best suit their needs. 48 53 Couples may browse products by traditional categories or price. To assist registering couples through the difficult and time-consuming gift selection process, The Knot Registry is also organized into custom groupings of products and services designed to match the interests of particular lifestyles, such as adventurous, romantic or cosmopolitan. This merchandising strategy is designed to save the registrant time and streamline the registry process. Through The Knot Registry, wedding guests can quickly and easily purchase gifts online. The Knot Registry offers direct access to the couple's registry list, a custom display of what remains to be purchased by category or price and secure transactions to complete the order online. For guests lacking online access, the couple's custom registry list is available for review via a toll-free phone service, fax or mail, 24 hours a day. In April 1999, we entered into a services agreement with QVC. Under this agreement, QVC provides us warehousing, sales, fulfillment and distribution services in connection with The Knot Registry. This services agreement was fully implemented on September 7, 1999. Our strategic relationship with QVC affords us the ability to purchase merchandise for The Knot Registry from QVC vendors at a specified premium over QVC's volume discount rate. At the customer's request, a product generally can be shipped within 48 hours of order. We utilize QVC to process and ship all merchandise orders from The Knot Registry. Our services agreement with QVC expires on the fourth anniversary of this offering. We have the option to extend the term of the services agreement for an additional 180 days. QVC may terminate our services agreement if we fail to pay any amounts due or otherwise breach the terms of the agreement, or if we are sold or become bankrupt. We believe The Knot Registry model offers several advantages over other online retailers, traditional bridal registries or both. These advantages include:
ADVANTAGE OVER TRADITIONAL ADVANTAGE OVER BRIDAL REGISTRY ONLINE RETAILERS --------------- ---------------- - - Items are registered weeks or even months prior X to the desired shipment date. This allows us to better plan our inventory needs and maximize inventory turns. - - The state-of-the-art fulfillment capabilities X X of QVC allow us to implement a just-in-time inventory strategy which reduces our inventory carrying costs. - - Since wedding guests often pay for gifts when X X ordered and prior to procurement, we benefit from the float on these funds. - - Shipments are often bundled and shipped X X together, reducing shipment costs. - - The bride and groom may review their list of X X gifts prior to shipment, enabling them to round out sets or exchange gifts prior to shipment. This review minimizes returns, while representing an opportunity for us to sell them additional products.
49 54 CLICK TRIPS, INC. On July 31, 1999, we acquired Click Trips, Inc., an online travel agency located at www.clicktrips.com. Click Trips specializes in destination travel packages to the Caribbean, Bermuda and Mexico. Click Trips closely monitors honeymoon and leisure travel trends and is therefore able to offer a high level of customer service and great knowledge of resorts. In addition, the live chat, past guest reviews, message boards and travel articles available on Click Trips allow us to strengthen our sense of community among our online audience. The Click Trips acquisition advances our brand-building initiative by integrating the travel-related content and commerce platform with our existing wedding-related offerings. PUBLICATIONS The Knot Book Series Our book series consists of three books which are being published over three years by Broadway Books, a division of Random House. We develop the content of each book through the interaction between our users and our wedding experts. This "real-world" approach, directed by our editorial team and based on user experience and feedback, distinguishes us from the approach of traditional wedding resources. Each book encourages readers to visit our sites. To date, we have completed two of the books and a third is under development: - The Knot's Complete Guide to Weddings in the Real World was published in December 1998 and has gone to a second printing. This book is a detailed wedding-planning resource for to-be-weds, offering the information a bride and groom need to plan their wedding, from buying the ring to crossing the threshold. - The Knot Ultimate Wedding Planner, our second book, has been accepted by the publisher and is scheduled to be published in January 2000. This book includes worksheets, checklists, etiquette, tips, calendars and answers to frequently-asked questions. We sell our books on our online sites and through bookstores. We earn royalties on sales of our books. Wedding Gown Guide We released The Knot Ultimate Wedding Gown Guide in June 1999. This guide is an extensive catalogue of wedding gowns from the top designers in the world, published without advertisements to be an attractive and efficient alternative to traditional bridal magazines. With over 300 pages of color photos, the publication provides in one resource information a bride needs to find the dress of her dreams, including front, back and detail photos of over 1,000 gowns, full descriptions and price information, and an index of designers and their locations. The Ultimate Wedding Gown Guide also provides a buying checklist and accessory and trend information. We intend to publish The Knot Ultimate Wedding Gown Guide twice a year. We sell the gown guide on our Web site, through QVC's television show and at bridal trade shows. 50 55 MEMBERSHIP We believe a large and active membership base is critical to our success. Membership enrollment is free. Our members enjoy the use of personal Web pages, message boards, budgeting tools, wedding checklists and gown search. We recognize the importance of maintaining confidentiality of member information and we have established a privacy policy to protect personal information. Our current privacy policy is set forth on our sites. Our policy is not to tell any third party any member's personal identifying information, but we may share aggregated information about our members with other pre-screened organizations who have specific direct mail product and service offers we think may be of interest to our members. We may share aggregated member information with third parties, such as a member's zip code or gender. In addition, we may use information revealed by members and information built from user behavior to target advertisements, content and e-mail. RELATIONSHIP WITH AOL On July 23, 1999, we entered into an amended anchor tenant agreement with AOL, which extended the term of our existing agreement with AOL through January 6, 2003 and expanded our presence on AOL. Under the terms of the agreement, The Knot is the primary wedding content provider on AOL and several other of AOL's leading brands, including AOL.com, Netscape Netcenter and CompuServe. AOL provides promotions and reserves programming areas for The Knot. Under our original services agreement with AOL, we obtained usage fees from AOL based on the number of customers visiting our AOL site, and we paid AOL commissions on our advertising revenues. Under the new agreement, we now pay AOL a quarterly carriage fee, with no obligation to pay AOL advertising commissions. AOL may terminate the agreement regarding our carriage on specific properties upon 30 days' prior written notice. MARKETING We utilize a number of strategies and programs to build awareness of The Knot brand and to position The Knot as the definitive resource for wedding planning and information. We employ an active press relations team, which responds to numerous press inquiries. We promote our brand through television and radio appearances by Carley Roney, our head wedding expert. In addition, we actively encourage our promotions staff to speak at industry and corporate events to enhance our reputation and promote our diverse products. Our participation in wedding tradeshows and other industry events also provides opportunities to promote The Knot brand. We are the exclusive online sponsor of the Great Bridal Expo, the largest traveling consumer/trade show dedicated to the wedding market. In exchange for our agreement to design, promote and host the Great Bridal Expo Web site, the Great Bridal Expo has agreed to distribute approximately 50,000 of The Knot branded shopping bags in 25 cities nationwide and will display two large banners featuring The Knot throughout the trade shows. In addition, The Knot Ultimate Wedding Gown Guide will be sold at the registration desks for the Great Bridal Expo, and a video featuring The Knot will be displayed at each of the locations. 51 56 We also take advantage of cross-promotional opportunities among our properties and services. For example, The Knot's online presence will introduce, promote and sell our publications. These opportunities help increase our brand awareness and online traffic. COMPETITION The Internet advertising and online wedding markets are new, rapidly evolving and intensely competitive, and we expect such competition to intensify in the future. We face competition primarily from three separate areas: online sites, magazines and gift registries. There are many wedding-related sites on the Internet, developed and maintained by online content providers. Retail stores, manufacturers, wedding magazines and regional wedding directories also have online sites which compete with us. We expect competition to increase because of the business opportunities presented by the growth of the Internet and e-commerce. Competition may also intensify as a result of industry consolidation and a lack of substantial barriers to entry in our market. Moreover, we face competition for sponsorship and advertising sales from other online content providers and advertisement server companies that provide banner advertisement services that might be considered an alternative marketing solution. We also face competition for our services from bridal magazines. Bride's and Modern Bride are the two dominant bridal publications in terms of revenue and circulation. According to Advertising Age, these two magazines and Bridal Guide, the third leading bridal magazine, generated gross advertising revenues of $198.4 million in 1998. The Knot Registry faces competition from online sources such as registry aggregators. We also compete with retail stores offering gift registries, especially from retailers offering specific bridal gift registries. These stores, particularly national department store chains, have strong brand awareness, many years of retailing experience, and most now have online transactional capabilities. We believe that the principal competitive factors in the online wedding market are brand recognition, convenience, ease of use, information, quality of service and products, member affinity and loyalty, reliability and selection. As to these factors, we believe that we compete favorably. Our dedicated editorial, sales and products staffs concentrate their efforts on producing the most comprehensive online wedding resource available. Generally, many of our current and potential competitors have longer operating histories, significantly greater financial, technical and marketing resources, greater name recognition and substantially larger user or membership bases than we have. Therefore, these competitors have a significantly greater ability to attract advertisers and users. In addition, many of these competitors may be able to respond more quickly than we can to new or emerging technologies and changes in Internet user requirements and to devote greater resources than we do to the development, promotion and sale of services. There can be no assurance that our current or potential competitors will not develop products and services comparable or superior to those developed by us or adapt more quickly than we do to new technologies, evolving industry trends or changing Internet user preferences. Increased competition could result in price reductions, reduced margins or loss of market share, any of which would materially and adversely affect our business, results of operation and financial condition. In addition, if we expand internationally, we may face additional competition. There can be no assurance that we will be able to compete successfully 52 57 against current and future competitors, or that competitive pressures faced by us would not have a material adverse effect on our business, results of operations and financial condition. INFRASTRUCTURE, OPERATIONS AND TECHNOLOGY Our technology infrastructure provides for continuous availability of our online service. All of the critical components of the system are redundant, allowing us to withstand unexpected component failure and to undergo maintenance or upgrades. Our operation is dependent on the ability to maintain our computer and telecommunications systems in effective working order and to protect our systems against damage from fire, natural disaster, power loss, telecommunications failure or similar events. Our system hardware is co-located at Exodus Communications' Jersey City, New Jersey data center. Systems administrators and network managers at Exodus monitor our servers, operate our network and execute backups. Our servers have access to auxiliary power during outages. Our systems are copied to backup tapes daily, which are in turn sent to us for offsite storage. Database and Web servers are redundant and operate using clustering technology for effective load-balancing and fault tolerance. Regular capacity planning allows us to quickly upgrade existing hardware and integrate new hardware to react quickly to a rapidly expanding member base and increased traffic to our sites. We generally operate at 99.9% uptime and no unexpected downtime. Key content management and e-commerce components are designed, developed and deployed by our in-house technology group. We also license commercially available technology when appropriate in lieu of dedicating our own human or financial resources. Current examples include eShare Expressions, our chat server and NetGravity, our ad server. Also, we use MapQuest for geographical mapping applications. We employ several layers of security to protect data transmission and prevent unauthorized access. We keep all of our production servers behind firewalls for security purposes and do not allow outside access, at the operating systems level, except via special secure channels. Strict password management and physical security measures are followed. Computer emergency response team alerts are read, and, where appropriate, recommended action is taken to address security risks and vulnerabilities. From time to time, we use the services of third party computer security experts and penetration tests have been performed to help improve security. E-commerce transactions and browser-based administration screens employ secure sockets layer encryption to secure data transmitted between clients and servers. Credit card information captured during e-commerce transactions is never shared with outside parties, and we provide shoppers with a toll-free number to place orders by phone as an alternative to completing a transaction online. GOVERNMENT REGULATION We are not currently subject to direct federal, state or local regulation, and laws or regulations applicable to access to or commerce over the Internet, other than regulations applicable to businesses generally. Due to the increasing popularity and use of the Internet and other online services, however, it is possible that a number of laws and regulations may be adopted regarding the Internet or other online services covering issues such as user privacy, freedom of expression, pricing, content and quality of products and services, taxation, advertising, intellectual property rights and information security. The nature of such legislation and the manner in which it may be interpreted and enforced cannot be 53 58 fully determined and, therefore, such legislation could subject us and/or our customers to potential liability, which in turn could have an adverse effect on our business, results of operations and financial condition. The adoption of any such laws or regulations might also decrease the rate of growth of Internet use, which in turn could decrease the demand for our service or increase the cost of doing business or in some other manner have a material adverse effect on our business, results of operations and financial condition. In addition, applicability to the Internet of existing laws governing issues such as property ownership, copyrights and other intellectual property issues, taxation, libel, obscenity and personal privacy is uncertain. The vast majority of such laws were adopted prior to the advent of the Internet and related technologies and, as a result, do not contemplate or address the unique issues of the Internet and related technologies. Several states have also proposed legislation that would limit the uses of personal user information gathered online or require online services to establish privacy policies. The Federal Trade Commission has also initiated action against at least one online service regarding the manner in which information is collected from users and provided to third parties. Changes to existing laws or the passage of new laws intended to address these issues, including some recently proposed changes, could create uncertainty in the marketplace that could reduce demand for our services or increase the cost of doing business as a result of litigation costs or increased service delivery costs, or could in some other manner have a material adverse effect on our business, results of operations and financial condition. In addition, because our services are accessible throughout the United States, other jurisdictions may claim that we are required to qualify to do business as a foreign corporation in a particular state. We are qualified to do business in New York, California, Texas and Virginia and our failure to qualify as a foreign corporation in a jurisdiction where we are required to do so could subject us to taxes and penalties for the failure to qualify and could result in our inability to enforce contracts in such jurisdictions. Any such new legislation or regulation, or the application of laws or regulations from jurisdictions whose laws do not currently apply to our business, could have a material adverse effect on our business, results of operations and financial condition. To obtain membership on our sites, users must disclose their names, addresses, e-mail addresses and roles in the wedding. Our members use budgeting tools, wedding checklists, gown search, personal Web pages and message boards on our sites. We do not currently sell any member's personal identifying information to third parties unless the member has provided written consent. We may share aggregated member information with third parties, such as a member's zip code or gender. In addition, we may use information revealed by members and information built from user behavior to target advertising, content and e-mail. Privacy concerns may cause visitors to avoid online sites that collect behavioral information and even the perception of security and privacy concerns, whether or not valid, may indirectly inhibit market acceptance of our services. In addition, because we rely on the collection and use of personal data from our members for targeting advertisements shown on our services, we may be harmed by any laws or regulations that restrict our ability to collect or use this data. The European Union recently enacted its own privacy regulations that may result in limits on the collection and use of some user information. The FTC has begun investigations into the privacy practices of companies that collect information about individuals on the Internet. Although we are not currently subject to direct regulation by the FTC, there can be no assurance that we will not become subject to direct regulation in the future. 54 59 It may take years to determine how existing laws such as those governing intellectual property, privacy, libel and taxation apply to the Internet. Any new legislation or regulation regarding the Internet, or the application of existing laws and regulations to the Internet, could harm us. Additionally, while we do not currently operate outside of the United States, the international regulatory environment relating to the Internet market could have a material and adverse effect on our business, results of operations and financial condition if we expand internationally. INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS We regard our copyrights, service marks, trademarks, trade dress, trade secrets, proprietary technology and similar intellectual property as critical to our success, and rely on trademark and copyright law, trade secret protection, confidentiality and assignment of invention agreements, and/or license agreements with employees, customers, independent contractors, partners and others to protect our proprietary rights. We strategically pursue the registration of our trademarks and service marks in the United States, and have applied for and obtained registration in the United States for some of our trademarks and service marks, including "theknot". Effective trademark, service mark, copyright and trade secret protection may not be available in every country in which our products and services are made available online. We have licensed in the past, and expect to license in the future, some of our proprietary rights, such as trademarks or copyrighted material, to third parties. While we attempt to ensure that the quality of our brand is maintained by our licensees, there can be no assurance that our licensees will not take actions that might materially adversely affect the value of our proprietary rights or reputation, which could have a material adverse effect on our business, financial condition and results of operations. There can be no assurance that the steps we have taken to protect our proprietary rights will be adequate or that third parties will not infringe or misappropriate our copyrights, trademarks, trade secrets and similar proprietary rights. In addition, there can be no assurance that other parties will not assert claims of infringement of intellectual property against us. Although we believe that our products and services do not infringe upon the intellectual property rights of others and that we have all rights necessary to utilize the intellectual property employed in our business, we may be subject to claims alleging infringement of third-party intellectual property rights. Any such claims could require us to spend significant sums on litigation, pay damages, delay product installments, develop non-infringing intellectual property or acquire licenses to intellectual property that is the subject of any such infringement. Therefore, such claims could have a material adverse effect on our business, results of operations and financial condition. EMPLOYEES At November 22, 1999, we had a total of 110 employees, of which 53 were involved in product and content development, 35 were involved in sales and marketing, and 22 were involved in general and administrative functions. None of our employees is represented by a labor union. We have not experienced any work stoppages and we consider relations with our employees to be good. Competition for qualified personnel in our industry is intense. We believe that we will need to continue to attract, hire and retain qualified personnel to be successful in the future. 55 60 FACILITIES We currently lease approximately 20,000 square feet of space at our headquarters in New York City. The lease expires on March 31, 2012. We lease approximately 3,100 square feet of space for our customer service center and merchandising operation in Orange County, California. The lease for this space expires on August 31, 2002. We also lease approximately 3,000 square feet of space for warehousing and operations in Redding, California. This lease expires on May 31, 2001, with an option to extend for an additional two years. Click Trips, our subsidiary in Warminster, Pennsylvania, also leases approximately 1,100 square feet of office space. The lease for this space expires on December 1, 2000, with an option to extend for an additional year. We currently anticipate that we will require additional space to accommodate our growth as more personnel are hired. LEGAL PROCEEDINGS We are not presently a party to any material legal proceedings. 56 61 MANAGEMENT OUR EXECUTIVE OFFICERS, KEY EMPLOYEES AND DIRECTORS The executive officers, key employees and directors of The Knot, and their ages and positions as of November 22, 1999, are:
NAME AGE POSITION - ---- ---- -------- David Liu(2)......................... 34 President, Chief Executive Officer and Chairman of the Board Sandra Stiles(1)..................... 49 Chief Operating Officer, Assistant Secretary and Director Richard Szefc........................ 50 Chief Financial Officer, Treasurer and Secretary Carlos Manuel Abreu.................. 40 Chief Technology Officer Carley Roney......................... 31 Editor-in-Chief Michael Wolfson...................... 33 Vice President, Distribution Rob Fassino.......................... 32 Vice President, Business Integration Russell Casenhiser................... 34 Vice President of Retail Sales Adam Sandow.......................... 31 Vice President of Sales John Link(1)(2)...................... 57 Director Ann Winblad(1)(2).................... 48 Director
- ------------------------- (1) Member of the Audit Committee. (2) Member of the Compensation Committee. DAVID LIU is a co-founder of The Knot and has been our Chief Executive Officer and a director since our inception in May 1996. From January 1993 to May 1996, Mr. Liu served as Director of Production of RunTime Inc., a CD-ROM development firm that he co-founded with Ms. Roney. Prior to January 1993, Mr. Liu was the Director of Production at VideOvation, a subsidiary of the Reader's Digest. Mr. Liu received a B.F.A. in Film and Television from New York University. Mr. Liu is married to Ms. Roney. SANDRA STILES has been Chief Operating Officer since November 1998 and Assistant Secretary since September 1999. From November 1998 to May 1999, she served as our Chief Financial Officer. Ms. Stiles has served as a director of The Knot since May 1998. From September 1994 to October 1998, she was the Senior Vice President and Director of Operations for the Children's Book and Value Publishing division of Random House. She also served as a Vice President and the Corporate Comptroller of Random House from October 1990 to August 1994. Prior to October 1990, Ms. Stiles held various positions at OmniCorp Holdings, Inc., Bertelsmann Inc. and Arthur Andersen & Co. She received a B.S. in Accounting from New York University. RICHARD SZEFC has been Chief Financial Officer since May 1999 and Treasurer and Secretary since September 1999. From July 1998 to May 1999, Mr. Szefc was an independent consultant. From April 1990 to July 1998, Mr. Szefc served as Executive Vice President and Chief Financial Officer of Random House. Prior to April 1990, Mr. Szefc 57 62 served as a partner in the audit practice of Arthur Andersen & Co. Mr. Szefc received a B.S. in Economics from the University of Pennsylvania. CARLOS MANUEL ABREU has served as our Chief Technology Officer since February 1999. From March 1992 to January 1999, Mr. Abreu was the Chief Executive Officer and Chief Technology Officer of Cyberphilia, Inc., a developer of intranets, extranets and e-commerce solutions for advertising, pharmaceutical, public relations, publishing, architectural, e-commerce and other companies. Mr. Abreu received a B.S. in Computer Science from Rutgers University. CARLEY RONEY is a co-founder of The Knot. She has served as the Editor-in-Chief since our inception in May 1996. From May 1996 to September 1999, she also served as Vice President of Creative Development. From January 1994 to May 1996, she served as President at RunTime Inc., a CD-ROM development firm that she co-founded with David Liu. Ms. Roney received a M.A. in cultural studies and a B.F.A. in Film and Television from New York University. Ms. Roney is married to Mr. Liu. MICHAEL WOLFSON is a co-founder of The Knot and has served as Vice President of Distribution since our inception. From May 1996 to September 1999, he served as our Secretary. From April 1998 to April 1999, he also served as the Vice President of Membership Acquisition. From October 1994 to February 1996, Mr. Wolfson served as Director of Development of the Digital Media Division of Margeotes Fertitta and Partners, an advertising agency. In 1992, Mr. Wolfson founded and served as President of Luna Pictures, a company providing Avid-based editing facilities for television and movie production companies. Mr. Wolfson received a B.F.A. in Film and Television from New York University. ROB FASSINO is a co-founder of The Knot. He has served as Vice President, Business Integration since August 1999. He also served as Vice President of Production from April 1999 to August 1999, and Vice President of Sales from June 1996 to April 1999. From October 1994 to June 1996, Mr. Fassino served as the Director of the Digital Media Division of Margeotes Fertitta and Partners, an advertising agency. Mr. Fassino received a B.F.A. in Film and Television from New York University. RUSSELL CASENHISER has served as Vice President of Retail Sales since May 1999. He has also served as Director of Registry Operations from April 1998 to May 1999. From January 1996 to April 1998, Mr. Casenhiser was the President and co-founder of Bridal Search, an online directory of bridal gowns. From September 1992 to December 1995, Mr. Casenhiser served as the President of La Galleria, a high-end retail clothing store. Mr. Casenhiser received a B.S. in Economics from Pepperdine University and a M.B.A from Pepperdine University. ADAM SANDOW has served as Vice President of Sales since February 1999. From December 1994 to January 1999, Mr. Sandow was President of Travel Publishing Group, Inc., a consumer magazine publisher. JOHN LINK has served as one of our directors since June 1999. Mr. Link has been the Executive Vice President of Information Technology since January 1991 and Chief Information Officer of QVC since March 1994. He also served as Senior Vice President of Information Technology from June 1989 to March 1994. Prior to June 1989, Mr. Link held various senior technical management positions at Sun Company. Mr. Link received a B.A. in Physics from the University of Delaware, a Master of Science in Computer Science from the University of Pennsylvania and completed the Program for Management 58 63 Development at Harvard Business School. He is a member of the Society for Information Management. ANN WINBLAD has served as one of our directors since April 1998. Ms. Winblad has been a general partner of Hummer Winblad Venture Partners, a venture capital investment firm, since 1989. She is a member of the board of trustees of the University of St. Thomas and is an advisor to numerous entrepreneurial groups such as the Software Development Forum, the Stanford/MIT Venture Forum and the Massachusetts Computer Software Council, Software Industry Business Practices. Ms. Winblad also serves on the boards of directors of Net Perceptions Inc., a developer and supplier of realtime recommendation technology for the Internet, Liquid Audio Inc., a provider of an open platform that enables the digital delivery of music over the Internet, and several private companies. Ms. Winblad received a B.S. in Mathematics and Business Administration from the University of St. Thomas and an M.A. in Education with an Economics focus from the University of St. Thomas. COMPOSITION OF THE BOARD Prior to the closing of this offering, we intend to file a revised certificate of incorporation under which our board of directors will be divided into three classes, each of whose members will serve for a staggered three-year term. Upon the expiration of the term of a class of directors, directors in that class will be elected for three-year terms at the annual meeting of stockholders in the year in which their term expires. Our board of directors has resolved that John Link and Ann Winblad will be Class I Directors whose terms expire at the 2000 annual meeting of stockholders. Sandra Stiles will be a Class II Director whose term expires at the 2001 annual meeting of stockholders. David Liu will be a Class III Director whose term expires at the 2002 annual meeting of stockholders. A director's term will be subject to the election and disqualification of their successors, or their earlier death, resignation or removal. BOARD COMMITTEES The Audit Committee of the board of directors reviews, acts on and reports to the board of directors on various auditing and accounting matters, including the recommendation of our auditors, the scope of the annual audits, fees to be paid to the auditors, the performance of our independent auditors and the accounting practices of The Knot. The members of the Audit Committee are John Link, Sandra Stiles and Ann Winblad. The Compensation Committee of the board of directors recommends, reviews and oversees the salaries, benefits and stock option plans for our employees, consultants, directors and other individuals whom we compensate. The Compensation Committee also administers our compensation plans. The members of the Compensation Committee are John Link, David Liu and Ann Winblad. DIRECTOR COMPENSATION Directors who are also employees of The Knot receive no additional compensation for their services as directors. Directors who are not employees of The Knot will not receive a fee for attendance in person at meetings of the board of directors or committees of the Board of Directors, but they will be reimbursed for travel expenses and other out-of-pocket costs incurred with in connection with the attendance at meetings. 59 64 EMPLOYMENT AGREEMENTS AND SEVERANCE ARRANGEMENTS On April 12, 1999, we entered into an employment contract with Mr. Liu, our Chief Executive Officer, for three years. The contract provides for salary and the payment of one or more annual bonuses at the sole discretion of the board of directors. In the event of his termination without cause before the end of the contract term, Mr. Liu is entitled to one year's salary plus benefits. The contract also contains a covenant by Mr. Liu not to compete for the term of the contract and for one year after the term expires. As of August 1, 1999, Mr. Liu's annual salary is $180,000. On April 12, 1999, we entered into an employment contract with Ms. Roney, our Editor-in-Chief, for three years. The contract provides for salary and the payment of one or more annual bonuses at the sole discretion of the Board of Directors. In the event of her termination without cause before the end of the contract term, Ms. Roney is entitled to one year's salary plus benefits. The contract also contains a covenant by Ms. Roney not to compete for the term of the contract and for one year after the term expires. As of August 1, 1999, Ms. Roney's annual salary is $120,000. On November 2, 1998, we entered into an employment contract with Ms. Stiles, our Chief Operating Officer, which is terminable at any time. In the event of her termination without cause, Ms. Stiles is entitled to one year's salary plus benefits. As of August 1, 1999, Ms. Stiles' annual salary is $175,000. On May 31, 1999, we entered into an employment contract with Mr. Szefc, our Chief Financial Officer, which is terminable at any time. The contract provides for an annual salary of $135,000 which has subsequently been increased to $150,000, and, for termination without cause, one year's salary plus benefits. In addition, in the event an individual or related group of persons acquires 50% or more of our voting stock, at least 50% of Mr. Szefc's options will vest immediately. As of July 16, 1999, Mr. Szefc's salary is $150,000. EXECUTIVE COMPENSATION The following table sets forth the compensation earned for all services rendered to us in all capacities during 1998 by our Chief Executive Officer and our most highly compensated executive officers, other than our Chief Executive Officer, who earned more than $100,000 in 1998 on an annualized basis and who served as executive officers at the end of 1998. 60 65 SUMMARY COMPENSATION TABLE
LONG-TERM COMPENSATION ANNUAL COMPENSATION AWARDS SECURITIES ------------------- UNDERLYING OTHER ANNUAL NAME AND PRINCIPAL POSITION SALARY BONUS OPTIONS COMPENSATION - --------------------------- ------- ------- ----------------- ------------ David Liu...................... $94,833(1) $30,000 -- $ -- Chief Executive Officer Sandra Stiles.................. 18,333(2) -- -- -- Chief Operating Officer
- ------------------------- (1) During the first quarter of 1998, Mr. Liu received $21,500 of the $94,833 in compensation from Element Studios, a corporation formed in connection with our inception. (2) Ms. Stiles did not receive salary prior to November 2, 1998. Total annualized salary for 1998 equals $110,000. OPTION GRANTS IN LAST YEAR The following table sets forth information regarding exercisable and unexercisable stock options granted to each of the named executive officers in the last fiscal year. No options were exercised by the named executive officers during the year ended December 31, 1998. There was no public trading market for the common stock as of December 31, 1998. Potential realizable values are computed by: - multiplying the number of shares of common stock subject to a given option by the assumed market value on the date of grant, - assuming that the aggregate stock value derived from that calculation compounds annually for the entire term of the option, and - subtracting from that result the aggregate option exercise prices.
INDIVIDUAL GRANTS (1) ------------------------------------------------ POTENTIAL REALIZABLE % OF TOTAL VALUE AT ASSUMED NUMBER OF OPTIONS ANNUAL RATES OF STOCK SECURITIES GRANTED TO PRICE APPRECIATION FOR UNDERLYING EMPLOYEES EXERCISE OPTION TERM(2) OPTIONS IN FISCAL PRICE PER EXPIRATION ----------------------- NAME GRANTED YEAR SHARE DATE 5% 10% - ---- ---------- ---------- --------- ---------- ---------- ---------- David Liu................. -- -- $ -- -- $ -- $ -- Sandra Stiles............. 380,000 65.2% 0.50 04/30/08 119,490 302,811
- ------------------------- (1) Each option represents the right to purchase one share of common stock. The options shown in these columns, which were originally granted under our stock option plan, vest according to the following schedule: (a) twenty-five percent (25%) upon the one year anniversary of the grant and (b) thereafter, ratably per month for the remaining 36 months. Total options granted to employees in the last fiscal year were 583,000. 61 66 (2) Amounts represent hypothetical gains that could be achieved for the options if exercised at the end of the option term. The 5% and 10% assumed annual rates of compounded stock price appreciation are mandated by rules of the Securities and Exchange Commission and do not represent our estimate or projection of our future common stock prices. These amounts represent assumed rates of appreciation in the value of our common stock from the fair market value on the date of grant. Actual gains, if any, on stock option exercise depend on the future performance of the common stock. The amounts reflected in the table may not necessarily be achieved. The initial public offering price is higher than the estimated fair market value on the date of grant, and the potential realizable value of the option grants would be significantly higher than the numbers shown in the table if future stock prices were projected to the end of the option term by applying the same annual rates of stock price appreciation to the initial public offering price. AGGREGATED OPTION EXERCISES IN THE YEAR ENDED DECEMBER 31, 1998 AND YEAR-END OPTION VALUES The following table provides summary information concerning stock options held as of December 31, 1998 by each of the named executive officers. No options were exercised during fiscal 1998 by any of the named executive officers. The value of unexercised in-the-money options has been calculated by determining the difference between the exercise price per share payable upon exercise of such options and the assumed initial offering price of $9.00 per share.
NUMBER OF SECURITIES VALUE OF UNEXERCISED UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS OPTIONS AT DECEMBER 31, 1998 AT DECEMBER 31, 1998 ----------------------------- --------------------------- NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE - ---- ------------ -------------- ----------- ------------- David Liu........................ -- -- $ -- $ -- Sandra Stiles.................... -- 380,000 -- 3,230,000
1999 STOCK INCENTIVE PLAN INTRODUCTION. The 1999 Stock Incentive Plan is intended to serve as the successor program to our 1997 Long Term Incentive Plan. The 1999 plan was adopted by the board of directors and approved by the stockholders in November 1999. The 1999 plan will become effective when the underwriting agreement for this offering is signed. At that time, all outstanding options under our existing 1997 plan will be transferred to the 1999 plan, and no further option grants will be made under the 1997 plan. The transferred options will continue to be governed by their existing terms, unless our compensation committee decides to extend one or more features of the 1999 plan to those options. Except as otherwise noted below, the transferred options have substantially the same terms as will be in effect for grants made under the discretionary option grant program of our 1999 plan. SHARE RESERVE. 3,849,868 shares of our common stock have been authorized for issuance under the 1999 plan. This share reserve consists of the number of shares we estimate will be carried over from the 1997 plan plus an additional increase of approximately 1,000,000 shares. The share reserve under our 1999 plan will automatically increase on the first trading day in January each calendar year, beginning with calendar year 2001, by an amount equal to two percent (2%) of the total number of shares of our common stock outstanding on the last trading day of December in the prior calendar year, but in no event will this annual increase exceed 1,000,000 shares (or such other lesser 62 67 number determined by the Board). In addition, no participant in the 1999 plan may be granted stock options or direct stock issuances for more than 500,000 shares (1,000,000 shares in the year of initial hire) of common stock in total in any calendar year. PROGRAMS. Our 1999 plan has five separate programs: - the discretionary option grant program, under which eligible individuals may be granted options to purchase shares of our common stock at an exercise price not less than the fair market value of those shares on the grant date; - the stock issuance program, under which eligible individuals may be issued shares of common stock directly, upon the attainment of performance milestones or the completion of a specified period of service or as a bonus for past services; - the salary investment option grant program, under which our executive officers and other highly compensated employees may be given the opportunity to apply a portion of their base salary each year to the acquisition of special below market stock option grants; - the automatic option grant program, under which option grants will automatically be made at periodic intervals to eligible non-employee board members to purchase shares of common stock at an exercise price equal to the fair market value of those shares on the grant date; and - the director fee option grant program, under which our non-employee board members may be given the opportunity to apply a portion of any retainer fee otherwise payable to them in cash each year to the acquisition of special below-market option grants. ELIGIBILITY. The individuals eligible to participate in our 1999 plan include our officers and other employees, our board members and any consultants we hire. ADMINISTRATION. The discretionary option grant and stock issuance programs will be administered by our compensation committee. This committee will determine which eligible individuals are to receive option grants or stock issuances under those programs, the time or times when the grants or issuances are to be made, the number of shares subject to each grant or issuance, the status of any granted option as either an incentive stock option or a nonstatutory stock option under the federal tax laws, the vesting schedule to be in effect for the option grant or stock issuance and the maximum term for which any granted option is to remain outstanding. The compensation committee will also have the authority to select the executive officers and other highly compensated employees who may participate in the salary investment option grant program in the event that program is put into effect for one or more calendar years. PLAN FEATURES. Our 1999 plan will include the following features: - The exercise price for any options granted under the plan may be paid in cash or in shares of our common stock valued at fair market value on the exercise date. The option may also be exercised through a same-day sale program without any cash outlay by the optionee. - The compensation committee will have the authority to cancel outstanding options under the discretionary option grant program, including any transferred options from our 1997 plan, in return for the grant of new options for the same or different 63 68 number of option shares with an exercise price per share based upon the fair market value of our common stock on the new grant date. - Stock appreciation rights may be issued under the discretionary option grant program. These rights will provide the holders with the election to surrender their outstanding options for a payment from us equal to the fair market value of the shares subject to the surrendered options less the exercise price payable for those shares. We may make the payment in cash or in shares of our common stock. None of the options under our 1997 plan have any stock appreciation rights. CHANGE IN CONTROL. The 1999 plan will include the following change in control provisions which may result in the accelerated vesting of outstanding option grants and stock issuances: - In the event that we are acquired by merger, asset sale, or sale of more than 50% of our voting securities by the stockholders, each outstanding option under the discretionary option grant program which is not to be assumed by the successor corporation will immediately become exercisable for all the option shares, and all outstanding unvested shares will immediately vest, except to the extent our repurchase rights with respect to those shares are to be assigned to the successor corporation. - The compensation committee may grant options which will become exercisable for all the option shares (i) in the event those options are assumed in the acquisition but the optionee's service with us or the acquiring entity is subsequently terminated or (ii) in connection with a successful tender offer for more than fifty percent of our outstanding voting stock or a change in the majority of our board through one or more contested elections the vesting of any outstanding shares under our 1999 plan may be accelerated upon similar terms and conditions. SALARY INVESTMENT OPTION GRANT PROGRAM. In the event the compensation committee decides to put this program into effect for one or more calendar years, each of our executive officers and other highly compensated employees may elect to reduce his or her base salary for the calendar year by an amount not less than $5,000 nor more than $50,000. Each selected individual who makes such an election will automatically be granted, on the first trading day in January of the calendar year for which his or her salary reduction is to be in effect, an option to purchase that number of shares of common stock determined by dividing the salary reduction amount by two-thirds of the fair market value per share of our common stock on the grant date. The option will have exercise price per share equal to one-third of the fair market value of the option shares on the grant date. As a result, the option will be structured so that the fair market value of the option shares on the grant date less the exercise price payable for those shares will be equal to the amount of the salary reduction. The option will become exercisable in a series of twelve equal monthly installments over the calendar year for which the salary reduction is to be in effect. AUTOMATIC OPTION GRANT PROGRAM. Each individual who first becomes a non- employee board member at any time after the effective date of this offering will receive an option grant to purchase 15,000 shares of common stock on the date such individual joins the board. In addition, on the date of each annual stockholders meeting held after the effective date of this offering, each non-employee board member who is to continue to serve as a non-employee board member, including each of our current non-employee board 64 69 members, will automatically be granted an option to purchase 5,000 shares of common stock, provided such individual has served on the board for at least six months. Each automatic grant will have an exercise price per share equal to the fair market value per share of our common stock on the grant date and will have a term of 10 years, subject to earlier termination following the optionee's cessation of board service. The option will be immediately exercisable for all of the option shares; however, we may repurchase, at the exercise price paid per share, any shares purchased under the option which are not vested at the time of the optionee's cessation of board service. The shares subject to each initial 15,000-share automatic option grant will vest in a series of three (3) successive annual installments upon the optionee's completion of each year of board service over the three (3)-year period measured from the grant date. The shares subject to each annual 5,000-share automatic grant will vest upon the optionee's completion of one (1) year of Board Service measured from the grant date. However, the shares will immediately vest in full upon certain changes in control or ownership or upon the optionee's death or disability while a board member. DIRECTOR FEE OPTION GRANT PROGRAM. If this program is put into effect in the future, then each non-employee board member may elect to apply all or a portion of any cash retainer fee for the year to the acquisition of a below-market option grant. The option grant will automatically be made on the first trading day in January in the year for which the non-employee board member would otherwise be paid the cash retainer fee in the absence of his or her election. The option will have an exercise price per share equal to one-third of the fair market value of the option shares on the grant date, and the number of shares subject to the option will be determined by dividing the amount of the retainer fee applied to the program by two-thirds of the fair market value per share of our common stock on the grant date. Accordingly, the fair market value of the option shares on the grant date less the exercise price payable for those shares will be equal to the portion of the retainer fee applied to that option. The option will become exercisable in a series of twelve equal monthly installments over the calendar year for which the election is in effect. However, the option will become immediately exercisable for all the option shares upon the death or disability of the optionee while serving as a board member. ADDITIONAL PROGRAM FEATURES. Our 1999 plan will also have the following features: - Outstanding options under the salary investment and director fee option grant programs will immediately vest if we are acquired by a merger or asset sale or if there is a successful tender offer for more than 50% of our outstanding voting stock or a change in the majority of our board through one or more contested elections. - Limited stock appreciation rights will automatically be included as part of each grant made under the salary investment option grant program and the automatic and director fee option grant programs, and these rights may also be granted to one or more officers as part of their option grants under the discretionary option grant program. Options with this feature may be surrendered to us upon the successful completion of a hostile tender offer for more than 50% of our outstanding voting stock. In return for the surrendered option, the optionee will be entitled to a cash distribution from us in an amount per surrendered option share based upon the highest price per share of our common stock paid in that tender offer. - The board may amend or modify the 1999 plan at any time, subject to any required stockholder approval. The 1999 plan will terminate no later than November 3, 2009. 65 70 EMPLOYEE STOCK PURCHASE PLAN INTRODUCTION. Our Employee Stock Purchase Plan was adopted by the board of directors and approved by the stockholders in November 1999. The plan will become effective immediately upon the signing of the underwriting agreement for this offering. The plan is designed to allow our eligible employees and the eligible employees of our participating subsidiaries to purchase shares of common stock, at semi-annual intervals, with their accumulated payroll deductions. SHARE RESERVE. 300,000 shares of our common stock will initially be reserved for issuance. The reserve will automatically increase on the first trading day in January each calendar year, beginning in calendar year 2001, by an amount equal to the total number of shares of our common stock issued under the plan in the prior calendar year. In no event will any such annual increase exceed 300,000 shares without approval of our board of directors. OFFERING PERIODS. The plan will have a series of successive offering periods, each with a maximum duration of 24 months. The initial offering period will start on the date the underwriting agreement for the offering covered is signed and will end on the last business day in January 2002. The next offering period will start on the first business day in February 2002, and subsequent offering periods will be set by our compensation committee. ELIGIBLE EMPLOYEES. Individuals scheduled to work more than 20 hours per week for more than 5 calendar months per year may join an offering period on the start date or any semi-annual entry date within that period. Semi-annual entry dates will occur on the first business day of February and August each year. Individuals who become eligible employees after the start date of an offering period may join the plan on any subsequent semi-annual entry date within that offering period. PAYROLL DEDUCTIONS. A participant may contribute up to 15% of his or her Base Salary through payroll deductions, and the accumulated deductions will be applied to the purchase of shares on each semi-annual purchase date. The purchase price per share will be equal to 85% of the fair market value per share on the participant's entry date into the offering period or, if lower, 85% of the fair market value per share on the semi-annual purchase date. Semi-annual purchase dates will occur on the last business day of January and July each year. However, a participant may not purchase more than 1,000 shares on any purchase date, and not more than 150,000 shares may be purchased in total by all participants on any purchase date. Our compensation committee will have the authority to change these limitations for any subsequent offering period. RESET FEATURE. If the fair market value per share of our common stock on any purchase date is less than the fair market value per share on the start date of the two-year offering period, then that offering period will automatically terminate, and a new two-year offering period will begin on the next business day. All participants in the terminated offering will be transferred to the new offering period. CHANGE IN CONTROL. Should we be acquired by merger or sale of substantially all of our assets or more than 50 percent of our voting securities, then all outstanding purchase rights will automatically be exercised immediately prior to the effective date of the acquisition. The purchase price will be equal to 85% of the market value per share on the participant's entry date into the offering period in which an acquisition occurs or, if lower, 85% of the fair market value per share immediately prior to the acquisition. 66 71 PLAN PROVISIONS. The following provisions will also be in effect under the plan: - The plan will terminate no later than the last business day of January 2010. - The board may at any time amend, suspend or discontinue the plan. However, certain amendments may require stockholder approval. LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS Our amended and restated certificate of incorporation provides that the liability of a director of The Knot shall be eliminated or limited to the fullest extent permitted by the Delaware General Corporation Law. Under the Delaware General Corporation Law, the directors have a fiduciary duty to The Knot which is not eliminated by this provision of the amended and restated certificate of incorporation and, in appropriate circumstances, equitable remedies such as injunctive or other forms of non-monetary relief will remain available. Section 145 of the Delaware General Corporation Law empowers a corporation to indemnify its directors and officers to purchase insurance with respect to liability arising out of their capacity or status as directors and officers, provided that this provision shall not eliminate or limit the liability of a director: - for any breach of the director's duty of loyalty to The Knot or its stockholders; - for acts or omissions which are found by a court of competent jurisdiction to be not in good faith or which involve intentional misconduct or a knowing violation of law; - for the payment of dividends or approval of stock repurchases or redemptions that are prohibited by the Delaware General Corporation Law; or - for any transaction from which the director derived an improper personal benefit. The Delaware General Corporation Law provides further that the indemnification permitted thereunder shall not be deemed exclusive of any other rights to which the directors and officers may be entitled under the corporation's bylaws, any agreement, a vote of stockholders or otherwise. Our amended and restated certificate of incorporation eliminates the personal liability of directors to the fullest extent permitted by Section 102(b)(7) of the Delaware General Corporation Law and provides that The Knot shall fully 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, whether civil, criminal, administrative or investigative, by reason of the fact that that person is or was a director or officer of The Knot, or is or was serving at the request of The Knot as a director or officer of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise. This indemnification shall be against expenses including attorney's fees, judgments, fines and amounts paid in settlement actually and reasonably incurred by the indemnitee in connection with such action, suit or proceeding. Prior to the completion of this offering, we intend to enter into indemnification agreements with each of our current directors and executive officers, in addition to the indemnification provided for in The Knot's amended and restated certificate of incorporation. The Knot believes that these provisions and agreements are necessary to attract and retain qualified directors and executive officers. In addition, The Knot intends to obtain liability insurance for its directors and officers. 67 72 At present, there is no pending litigation or proceeding involving any director, officer, employee or agent as to which indemnification will be required or permitted under the amended and restated certificate of incorporation or under the indemnification agreements referred to above. The Knot is not aware of any threatened litigation or proceeding that may result in a claim for this type of indemnification. 68 73 CERTAIN TRANSACTIONS SERIES A PREFERRED STOCK AND INVESTMENTS BY AOL During 1996, AOL advanced $700,000 to us to fund the development of our online property located on AOL. On January 17, 1997, AOL loaned us $1,150,000 under a promissory note bearing interest at the rate of 6.54% per year. In addition, we granted AOL a warrant to purchase 3,250,820 shares of Series A Preferred Stock at $0.38 per share. The promissory note and the warrant were scheduled to expire on January 16, 2007. In connection with AOL's investment, we entered into an interactive services agreement under which The Knot would be featured on AOL. The interactive services agreement was later superseded by an anchor tenant agreement as described below. On April 28, 1998, we sold an aggregate of 3,360,000 shares of our Series A Preferred Stock at a price of $1.172 per share to Hummer Winblad Venture Partners III, L.P., Hummer Winblad Technology Fund III, L.P. and AOL for an aggregate purchase price of $3.9 million. In connection with the sale of these shares, AOL converted $937,600 of the principal outstanding under the promissory note held by AOL into 800,000 shares of Series A Preferred Stock. The remaining $912,400 balance of principal plus accrued interest was forgiven and the aforementioned warrant was cancelled. In addition, the investors entered into an investors rights agreement under which we granted the investors registration rights for the shares underlying the Series A Preferred Stock. For more information, see "Description of Capital Stock -- Registration Rights." SERIES B PREFERRED STOCK On April 13, 1999, we sold 4,000,000 shares of our Series B Preferred Stock at a price of $3.75 per share to QVC. QVC paid an aggregate of $15.0 million for the shares of Series B Preferred Stock and received a warrant to purchase 1,700,000 shares of our common stock at an exercise price of $5.00 per share. The warrant becomes exercisable upon the earlier of the fourth anniversary of the issuance of the warrant or our initial public offering of common stock. In addition, QVC received registration rights in connection with their shares of stock and the shares issuable upon the exercise of its warrant, and became a party to the investor rights agreement. The Series B Preferred Stock and the warrant have been assigned to QVC Interactive Holdings, LLC. We also entered into a services agreement with QVC, which we believe is on terms and conditions no less favorable to us than we could have obtained from unaffiliated third parties. For the nine months ended September 30, 1999, the Company purchased merchandise and incurred warehouse fulfillment and distribution costs in the approximate amounts of $26,000 and $60,000, respectively, under the Services Agreement. AOL ANCHOR TENANT AGREEMENT On July 23, 1999, we entered into an amended anchor tenant agreement with AOL, which extended the term of our existing agreement with AOL through January 6, 2003. Under the terms of the agreement, The Knot continues to be the primary wedding content provider on AOL and on several other of AOL's leading properties, including AOL.com Netscape Netcenter and CompuServe. Under the terms of the agreement, we pay carriage fees to AOL. For the nine months ended September 30, 1999, we paid $750,000 in carriage fees to AOL. For the year ended December 31, 1998, we did not pay AOL carriage fees. Under the terms of the agreement, AOL may terminate the agreement 69 74 without cause only with respect to our carriage on AOL Hometown, Netscape and CompuServe upon 30 day's prior notice. Advertisements and promotions are subject to AOL's approval, and the advertisements may not promote AOL competitors such as other Internet service providers or search engines. We believe the terms and conditions of our anchor tenant agreement with AOL, taken as a whole, are no less favorable to us than we could have obtained from unaffiliated third parties. In consideration for AOL's agreement to extend the term of the agreement, we granted to AOL a warrant, exercisable for eight years from the date of grant, to purchase 366,667 shares of our common stock at a price equal to $7.20 per share. The warrant is immediately exercisable and expires in July 2007. In addition, AOL received registration rights with respect to the shares issuable under the warrant. BRIDAL SEARCH On April 2, 1998, we acquired substantially all of the assets of Casenhiser Clothing Company, Inc. d/b/a Bridal Search for $50,000 and the issuance of 162,540 shares of our common stock. In addition, we agreed to issue up to 356,046 additional shares of common stock upon the achievement of future performance criteria, of which 178,031 shares were issued in connection with the launch of The Knot Registry in November 1998. In August 1999, we entered into a settlement and release agreement under which Bridal Search agreed to forego its rights to receive the remaining 178,015 shares associated with the achievement of future performance criteria in exchange for a payment of $150,000. In addition, in connection with their employment by us, we are required to issue 178,015 shares of common stock to under which former members of Bridal Search's management upon the first, second, third and fourth anniversaries of their employment, of which 44,504 shares were earned and issued in April 1999. 70 75 PRINCIPAL STOCKHOLDERS The following table sets forth information regarding the beneficial ownership of the common stock as of November 22, 1999, and as adjusted to reflect the sale of the shares of common stock offered by this prospectus, by each person or group of affiliated persons whom we know to beneficially own 5% or more of the common stock, each of our directors and named executive officers and all of our directors and executive officers as a group. Unless otherwise indicated, the address of each beneficial owner listed below is c/o The Knot, Inc., 462 Broadway, 6th Floor, New York, New York 10013. The following table gives effect to the shares of common stock issuable within 60 days of November 22, 1999 upon the exercise of all options and other rights beneficially owned by the indicated stockholders on that date. Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission and includes voting and investment power of the to shares. Unless otherwise indicated, the persons named in the table have sole voting and sole investment control of all shares beneficially owned.
PERCENTAGE OF SHARES BENEFICIALLY OWNED(1) NUMBER OF SHARES -------------------------------- BENEFICIAL OWNER BENEFICIALLY OWNED(1) BEFORE OFFERING AFTER OFFERING - ---------------- --------------------- --------------- -------------- NAMED EXECUTIVE OFFICERS AND DIRECTORS: David Liu(2)(3).................... 673,383 6.4% 4.8% Sandra Stiles(4)................. 158,334 1.5 1.1 John Link(5)..................... -- * * Ann Winblad(6)................... 2,560,000 24.4 18.3 OTHER 5% STOCKHOLDERS: QVC Interactive Holdings, LLC(7)........................ 5,700,000 46.8 36.4 Hummer Winblad Funds(6).......... 2,560,000 24.4 18.3 America Online, Inc.(8).......... 1,166,667 10.8 8.1 Rob Fassino(2)................... 673,383 6.4 4.8 Carley Roney(2)(3)............... 673,383 6.4 4.8 Michael Wolfson(2)............... 673,383 6.4 4.8 All directors and executive officers as a group (6 persons)(9)...................... 3,391,717 31.9 24.0
- ------------------------- * Less than 1%. (1) Percentage of beneficial ownership is based on 10,473,103 shares of common stock outstanding as of November 22, 1999 and 13,973,103 shares of common stock outstanding after this offering. (2) Consists of 673,383 shares owned by each of the four founders of The Knot, of which 505,037 shares are subject to repurchase under a vesting agreement over the 36-month period beginning April 28, 1998, as long as each such founder remains an employee of The Knot. As of November 22, 1999, 252,519 of the 505,037 shares held by each 71 76 founder subject to vesting, had vested. The Knot has the right to repurchase all or any portion of the unvested shares for $0.01 per share for a period of 60 days from the date of early termination. (3) Excludes 673,383 shares of common stock owned by this stockholder's spouse. (4) Consists of 142,500 shares of common stock issuable upon exercise of presently exercisable options and 15,834 shares of common stock issuable upon the exercise of options exercisable within 60 days. Does not include 221,666 shares of common stock issuable upon the exercise of options that do not vest within 60 days of November 22, 1999. (5) Mr. Link's address is c/o QVC, Studio Park, West Chester, PA 19380. (6) Consists of common stock issuable upon automatic conversion of 2,432,000 shares of Series A Preferred Stock owned by Hummer Winblad Venture Partners III, L.P., and 128,000 shares of Series A Preferred Stock owned by Hummer Winblad Technology Fund III, L.P. John Hummer, Ann Winblad (one of our directors) and Mark Gorenberg are general partners of Hummer Winblad Equity Partners II, L.P., the general partner of each of the Hummer Winblad Funds. Consequently, Hummer Winblad Equity Partners II and Mr. Hummer, Ms. Winblad and Mr. Gorenberg may each be deemed to beneficially own all of the shares held by the Hummer Winblad Funds. Hummer Winblad Equity Partners II, Mr. Hummer, Ms. Winblad and Mr. Gorenberg each disclaim beneficial ownership of such shares, except to the extent of their pecuniary interest. The address of the Hummer Winblad Funds is 2 South Park, 2nd Floor, San Francisco, CA 94107. (7) Consists of common stock issuable upon automatic conversion of 4,000,000 shares of Series B Preferred Stock owned by QVC Interactive Holdings, LLC and 1,700,000 shares issuable upon the exercise of a currently exercisable warrant at the time of the initial public offering. The address of QVC Interactive Holdings, LLC is Studio Park, West Chester, PA 19380. (8) Consists of common stock issuable upon automatic conversion of 800,000 shares of Series A Preferred Stock owned by AOL and 366,667 shares issuable upon the exercise of a currently exercisable warrant. The address of AOL is 22000 AOL Way, Dulles, Virginia 20166. (9) Includes 158,334 shares of common stock issuable upon the exercise of options which are currently vested or which vest within 60 days of November 22, 1999. 72 77 DESCRIPTION OF CAPITAL STOCK GENERAL Immediately prior to the closing of this offering, we intend to amend and restate our certificate of incorporation and bylaws. Our amended and restated certificate of incorporation and bylaws are included as exhibits to the registration statement of which this prospectus forms a part. The material terms of our amended and restated certificate of incorporation and bylaws are summarized below. Upon the closing of our offering, our authorized capital stock will consist of 100,000,000 shares of common stock, par value $0.01 per share, and 5,000,000 shares of preferred stock, par value $0.001 per share. COMMON STOCK As of November 22, 1999, there were 10,473,103 shares of our common stock outstanding held of record by seventeen (17) stockholders. Holders of common stock are entitled to one vote for each share held on all matters submitted to a vote of stockholders and do not have cumulative voting rights. Accordingly, holders of a majority of the shares of common stock entitled to vote in any election of directors may elect all of the directors standing for election. Holders of common stock are entitled to receive ratably those dividends, if any, as may be declared by our board of directors out of funds legally available for that purpose, subject to any preferential dividend rights of any outstanding preferred stock. Upon the liquidation, dissolution or winding up of The Knot, the holders of our common stock are entitled to receive ratably our net assets available, if any, after the payment of all debts and other liabilities and subject to the prior rights of any outstanding preferred stock. Holders of our common stock have no preemptive, subscription, redemption or conversion rights. The outstanding shares of our common stock are, and the shares offered in this offering will be, when issued and paid for, fully paid and nonassessable. The rights, preferences and privileges of 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 which we may designate and issue in the future. PREFERRED STOCK Upon the closing of this offering, there will be no shares of preferred stock outstanding. Our board of directors will be authorized, without further stockholder approval, to issue from time to time up to an aggregate of 5,000,000 shares of preferred stock in one or more series and to fix or alter the designations, preferences, rights and any qualifications, limitations or restrictions of the shares of each series thereof, including the dividend rights, dividend rates, conversion rights, voting rights, terms of redemption, including sinking fund provisions, redemption price or prices, liquidation preferences and the number of shares constituting any series or designation of series. For more information, see "-- Anti-Takeover Effects of Various Provisions of Delaware Law and The Knot's Certificate of Incorporation and Bylaws." OPTIONS We have 3,849,868 shares of our common stock reserved for issuance, upon exercise of stock options, under our 1999 Stock Incentive Plan. As of November 22, 1999, there were outstanding options to purchase a total of 1,729,415 shares of common stock, of which options to purchase approximately 229,259 will be exercisable upon the closing of this offering. Since we intend to file a registration statement on Form S-8 as soon as 73 78 practicable following the closing of this offering, any shares issued upon exercise of these options will be immediately available for sale in the public market, subject to the terms of lock-up agreements entered into with the underwriters. In addition, we have issued options to purchase 12,203 shares of common stock outside of our existing stock option plan, all of which are exercisable. For more information, see "Management -- 1999 Stock Incentive Plan" and "Shares Eligible for Future Sale." REGISTRATION RIGHTS Under an investors' rights agreement, beginning six months after the closing of this offering, the holders of 9,426,667 shares of common stock and shares of common stock issuable upon the exercise of outstanding warrants will be entitled to demand registration rights in connection with the registration of their shares under the Securities Act of 1933. We are not required to effect more than four registrations under these demand registration rights. In addition, these holders will be entitled to piggyback registration rights in connection with the registration of their shares under the Securities Act of 1933, subject to various limitations. Further, at any time after we become eligible to file a registration statements on Form S-3, these holders may require us to file registration statements under the Securities Act of 1933 on Form S-3 in connection with their shares of common stock. These registration rights are subject to conditions and limitations, among them the right of the underwriters of an offering to limit the number of shares of common stock held by security holders with registration rights to be included in a registration. Generally, we are required to bear all of the expenses of all of these registrations, except underwriting discounts and selling commissions. Registration of any shares of common stock held by security holders with registration rights would result in shares becoming freely tradable without restriction under the Securities Act of 1933 immediately upon effectiveness of such registration. ANTI-TAKEOVER EFFECTS OF PROVISIONS OF DELAWARE LAW AND OUR CERTIFICATE OF INCORPORATION AND BYLAWS We are subject to the provisions of Section 203 of the Delaware General Corporation Law. Subject to some exceptions, Section 203 prohibits a publicly held Delaware corporation from engaging in a "business combination" with an "interested stockholder" for a period of three years after the date of the transaction in which the person became an interested stockholder, unless the interested stockholder attained that status with the approval of the board of directors or the business combination is approved in a prescribed manner. A "business combination" includes mergers, asset sales and other transactions resulting in a financial benefit to the interested stockholder. Subject to various exceptions, an "interested stockholder" is a person who, together with his, her or its affiliates and associates, owns or, within three years did own, 15% or more of the corporation's voting stock. This statute could prohibit or delay the accomplishment of mergers or other takeover or change in control attempts aimed at us and, accordingly, may discourage attempts to acquire us. In addition, various provisions of our amended and restated certificate of incorporation and our amended and restated bylaws, which provisions will be in effect upon the closing of the offering and are summarized in the following paragraphs, may be deemed to have an anti-takeover effect and may delay, defer or prevent a tender offer or takeover attempt that a stockholder might consider in its best interest, including those attempts that might result in a premium over the market price for the shares held by stockholders. 74 79 BOARD OF DIRECTORS VACANCIES. Our amended and restated certificate of incorporation authorizes our board of directors to fill vacant directorships or increase the size of the board of directors. This may deter a stockholder from removing incumbent directors and simultaneously gaining control of our board of directors by filling the vacancies created by this removal with its own nominees. STOCKHOLDER ACTION; SPECIAL MEETING OF STOCKHOLDERS. Our amended and restated certificate of incorporation provides that stockholders may not take action by written consent, but only at duly called annual or special meetings of stockholders. Our amended and restated bylaws further provides that special meetings of our stockholders may be called only by the chairman of the board of directors, our chief executive officer or a majority of the board of directors. ADVANCE NOTICE REQUIREMENTS FOR STOCKHOLDER PROPOSALS AND DIRECTORS NOMINATIONS. Our amended and restated bylaws provide that stockholders seeking to bring business before an annual meeting of stockholders, or to nominate candidates for election as directors at an annual meeting of stockholders, must provide us timely notice thereof in writing. To be timely, a stockholder's notice must be delivered to or mailed and received at our principal executive offices, not less than 90 days nor more than 120 days prior to the first anniversary of the date of the preceding year's annual meeting provided regarding the previous year's annual meeting of stockholders; provided, that if no annual meeting of stockholders was held in the previous year or the date of the annual meeting of stockholders has been changed to be more than 30 calendar days earlier than or 70 calendar days after this anniversary, notice by the stockholder, to be timely, must be so received not earlier than 120 days prior to such annual meeting nor later than the later of: - 90 days prior to the annual meeting of stockholders; or - the close of business on the 10th day following the date on which notice of the date of the meeting is given to stockholders or made public, whichever occurs first. Our amended and restated bylaws also specify requirements as to the form and content of a stockholders' notice. These provisions may preclude stockholders from bringing matters before an annual meeting of stockholders or from making nominations for directors at an annual meeting of stockholders. AUTHORIZED BUT UNISSUED SHARES. The authorized but unissued shares of common stock and preferred stock are available for future issuance without stockholder approval, subject to various limitations imposed by the Nasdaq National Market. These additional shares may be utilized for a variety of corporate purposes, including future public offerings to raise additional capital, corporate acquisitions and employee benefit plans. The existence of authorized but unissued shares of common stock and preferred stock could make more difficult or discourage an attempt to obtain control of The Knot by means of a proxy contest, tender offer, merger or otherwise. The Delaware General Corporation Law provides generally that the affirmative vote of a majority of the shares entitled to vote on any matter is required to amend a corporation's certificate of incorporation or bylaws, unless a corporation's certificate of incorporation or bylaws, as the case may be, requires a greater percentage. TRANSFER AGENT AND REGISTRAR The transfer agent and registrar for our common stock is American Stock Transfer & Trust Company, New York, New York. 75 80 SHARES ELIGIBLE FOR FUTURE SALE Sales of substantial amounts of our common stock in the public market could adversely affect prevailing market prices of our common stock. Furthermore, since no shares will be available for sale shortly after this offering because of contractual and legal restrictions on resale described below, sales of substantial amounts of common stock in the public market after these restrictions lapse could adversely affect the prevailing market price and our ability to raise equity capital in the future. Upon the closing of this offering, we will have outstanding an aggregate of 13,973,103 shares of our common stock, assuming no exercise of the underwriters' over-allotment option and no exercise of outstanding options. Of these shares, all shares sold in this offering will be freely tradeable without restriction or further registration under the Securities Act unless such shares are purchased by "affiliates" as that term is defined in Rule 144 under the Securities Act. The following table illustrates the shares eligible for sale in the public market:
NUMBER OF SHARES DATE - ---------------- ---- 0 After the date of this prospectus, freely tradable shares sold in this offering and shares saleable under Rule 144(k) that are not subject to the 180-day lock-up 0 After 90 days from the date of this prospectus, shares saleable under Rule 144 or Rule 701 that are not subject to the 180-day lock-up 10,455,900 After 180 days from the date of this prospectus, the 180-day lock-up is released and these shares are saleable under Rule 144 (subject, in some cases, to volume limitations), Rule 144(k) or Rule 701 17,203 After 180 days from the date of this prospectus, restricted securities that are held for less than one year are not yet saleable under Rule 144
LOCK-UP AGREEMENTS All of our stockholders and option holders have signed lock-up agreements under which they agreed not to transfer or dispose of, directly or indirectly, any shares of our common stock or any securities convertible into or exercisable or exchangeable for shares of our common stock for 180 days after the date of this prospectus. RULE 144 In general, under Rule 144 as currently in effect, beginning 90 days after the date of this prospectus, a person who has beneficially owned shares of our common stock for at least one year would be entitled to sell within any three-month period a number of shares that does not exceed the greater of: - 1% of the number of shares of common stock then outstanding, which will equal approximately 139,731 shares immediately after the offering, or - the average weekly trading volume of the common stock on the Nasdaq National Market during the four calendar weeks preceding the filing of a notice on Form 144 76 81 in connection with such sale. Sales under Rule 144 are also subject to manner-of-sale provisions, notice requirements and the availability of current public information about us. RULE 144(k) Under Rule 144(k), a person who is not one of our affiliates at any time during the 90 days preceding a sale and who has beneficially owned the shares proposed to be sold for at least two years, including the holding period of any prior owner other than an affiliate, is entitled to sell such shares without complying with the manner of sale, public information, volume limitation or notice provisions of Rule 144. Therefore, unless otherwise contractually restricted, "144(k)" shares may be sold immediately upon completion of this offering. RULE 701 In general, under Rule 701 of the Securities Act as currently in effect, each of our employees, consultants or advisors who purchases shares from us in connection with a compensatory stock plan or other written agreement is eligible to resell such shares 90 days after the effective date of this offering in reliance on Rule 144, but without compliance with restrictions, including the holding period, contained in Rule 144. REGISTRATION RIGHTS After this offering, the holders of 9,426,667 shares of common stock and shares of common stock issuable upon the exercise of outstanding warrants will be entitled to rights in connection with the registration of those shares under the Securities Act. For more information, see "Description of Capital Stock -- Registration Rights." After such registration, these shares of our common stock become freely tradeable without restriction under the Securities Act. These sales could have a material adverse effect on the trading price of our common stock. STOCK PLANS We intend to file a registration statement under the Securities Act covering 3,849,868 shares of common stock reserved for issuance under our 1999 Stock Incentive Plan, and our Employee Stock Purchase Plan and the shares reserved for issuance upon exercise of outstanding non-plan options. We expect this registration statement to be filed and to become effective as soon as practicable after the effective date of this offering. As of November 22, 1999, options to purchase 1,729,415 shares of common stock were issued and outstanding. All of these shares will be eligible for sale in the public market from time to time, subject to vesting provisions, Rule 144 volume limitations applicable to our affiliates and, in the case of some options, the expiration of lock-up agreements. 77 82 UNDERWRITING Under the terms and subject to the conditions contained in an underwriting agreement dated , 1999, we have agreed to sell to the underwriters named below, for whom Credit Suisse First Boston Corporation, Hambrecht & Quist LLC and Salomon Smith Barney Inc. are acting as representatives, the following respective numbers of shares of common stock:
Number of Underwriter Shares ----------- --------- Credit Suisse First Boston Corporation..................... Hambrecht & Quist LLC...................................... Salomon Smith Barney Inc. ................................. --------- Total...................................................... 3,500,000 =========
The underwriting agreement provides that the underwriters are obligated to purchase all the shares of common stock in the offering if any are purchased, other than those shares covered by the over-allotment option described below. The underwriting agreement provides that if an underwriter defaults, the purchase commitments of non-defaulting underwriters may be increased or the offering of common stock may be terminated. We have granted to the underwriters a 30-day option to purchase on a pro rata basis up to 525,000 additional shares at the initial public offering price less the underwriting discounts and commissions. The option may be exercised only to cover any over-allotments in the sale of the common stock. The underwriters propose to offer the shares of common stock initially at the public offering price on the cover page of this prospectus and to selling group members at that price less a concession of $ per share. The underwriters and selling group members may allow a discount of $ per share on sales to other broker/dealers. After the initial public offering, the public offering price and concession and discount to broker/dealers may be changed by the representatives. The following table summarizes the compensation and estimated expenses we will pay.
Per Share Total ------------------------------- ------------------------------- Without With Without With Over-allotment Over-allotment Over-allotment Over-allotment -------------- -------------- -------------- -------------- Underwriting Discounts and Commissions paid by us................. $ $ $ $ Expenses payable by us.................. $ $ $ $
The underwriters have informed us that they do not expect discretionary sales to exceed 5% of the number of shares of common stock being offered. 78 83 We, our officers and directors and substantially all of our existing stockholders and option holders have agreed that we will not offer, sell, contract to sell, pledge or otherwise dispose of, directly or indirectly, or file with the Securities and Exchange Commission a registration statement under the Securities Act of 1933 relating to, any additional debt securities shares of our common stock or securities convertible into or exchangeable or exercisable for any of our common stock, or publicly disclose the intention to make any such offer, sale, pledge, disposition or filing, without the prior written consent of Credit Suisse First Boston Corporation for a period of 180 days after the date of this prospectus, except in our case issuances under the exercise of employee stock options outstanding on the date hereof. The underwriters have reserved for sale, at the initial public offering price, up to 175,000 shares of the common stock for officers, directors, employees, business associates and persons related to, or affiliated with, the foregoing, who may have an interest in purchasing common stock in the offering. The number of shares available for sale to the general public in the offering will be reduced to the extent such persons purchase such reserved shares. Any reserved shares not so purchased will be offered by the underwriters to the general public on the same terms as the other shares. We have agreed to indemnify the underwriters against specified liabilities under the Securities Act of 1933, or to contribute to payments which the underwriters may be required to make in respect thereof. We will make application to list the shares of common stock on The Nasdaq Stock Market's National Market under the symbol "KNOT." Prior to this offering, there has been no public market for the common stock. The initial public offering price will be determined by negotiation between us and the underwriters. The principal factors to be considered in determining the public offering price include the following: the information included in this prospectus and otherwise available to the representatives; market conditions for initial public offerings; the history and the prospects for the industry in which we will compete; the ability of our management; the prospects for our future earnings; the present state of our development and our current financial condition; the general condition of the securities markets at the time of this offering; and the recent market prices of, and the demand for, publicly traded common stock of generally comparable companies. The representatives on behalf of the underwriters may engage in over-allotment, stabilizing transactions, syndicate covering transactions and penalty bids in accordance with Regulation M under the Securities Exchange Act of 1934. - Over-allotment involves syndicate sales in excess of the offering size, which creates a syndicate short position. - Stabilizing transactions permit bids to purchase the underlying security so long as the stabilizing bids do not exceed a specified maximum. - Syndicate covering transactions involve purchases of the common stock in the open market after the distribution has been completed in order to cover syndicate short positions. - Penalty bids permit the representatives to reclaim a selling concession from a syndicate member when the common stock originally sold by such syndicate 79 84 member are purchased in a stabilizing transaction or a syndicate covering transaction to cover syndicate short positions. Such stabilizing transactions, syndicate covering transactions and penalty bids may cause the price of the common stock to be higher than it would otherwise be in the absence of these transactions. These transactions may be effected on The Nasdaq National Market or otherwise and, if commenced, may be discontinued at any time. 80 85 NOTICE TO CANADIAN RESIDENTS RESALE RESTRICTIONS The distribution of the common stock in Canada is being made only on a private placement basis exempt from the requirement that we prepare and file a prospectus with the securities regulatory authorities in each province where trades of common stock are effected. Accordingly, any resale of the common stock in Canada must be made in accordance with applicable securities laws which will vary depending on the relevant jurisdiction, and which may require resales to be made in accordance with available statutory exemptions or pursuant to a discretionary exemption granted by the applicable Canadian securities regulatory authority. Purchasers are advised to seek legal advice prior to any resale of the common stock. REPRESENTATIONS OF PURCHASERS Each purchaser of common stock in Canada who receives a purchase confirmation will be deemed to represent to us and the dealer from whom such purchase confirmation is received that: - such purchaser is entitled under applicable provincial securities laws to purchase such common stock without the benefit of a prospectus qualified under such securities laws, - where required by law, that such purchaser is purchasing as principal and not as agent, and - such purchaser has reviewed the text above under "Resale Restrictions." RIGHTS OF ACTION FOR ONTARIO PURCHASERS The securities being offered are those of a foreign issuer and Ontario purchasers will not receive the contractual right of action prescribed by Ontario securities law. As a result, Ontario purchasers must rely on other remedies that may be available, including common law rights of action for damages or rescission or rights of action under the civil liability provisions of the U.S. federal securities laws. ENFORCEMENT OF LEGAL RIGHTS All of the issuer's directors and officers as well as the experts named herein may be located outside of Canada and, as a result, it may not be possible for Canadian purchasers to effect service of process within Canada upon the issuer or such persons. All or a substantial portion of the assets of the issuer and such persons may be located outside of Canada and, as a result, it may not be possible to satisfy a judgment against the issuer or such persons in Canada or to enforce a judgment obtained in Canadian courts against such issuer or persons outside of Canada. NOTICE TO BRITISH COLUMBIA RESIDENTS A purchaser of common stock to whom the Securities Act (British Columbia) applies is advised that such purchaser is required to file with the British Columbia Securities Commission a report within ten days of the sale of any common stock acquired by such purchaser pursuant to this offering. Such report must be in the form attached to British Columbia Securities Commission Blanket Order BOR #95/17, a copy of which may be 81 86 obtained from us. Only one such report must be filed in respect of common stock acquired on the same date and under the same prospectus exemption. TAXATION AND ELIGIBILITY FOR INVESTMENT Canadian purchasers of common stock should consult their own legal and tax advisors with respect to the tax consequences of an investment in the common stock in their particular circumstances and with respect to the eligibility of the common stock for investment by the purchaser under relevant Canadian legislation. 82 87 LEGAL MATTERS The validity of the common stock offered by this prospectus will be passed upon for us by Brobeck, Phleger & Harrison LLP, New York, New York. Various legal matters in connection with the offering will be passed upon for the underwriters by Testa, Hurwitz & Thibeault, LLP, Boston, Massachusetts. EXPERTS The consolidated financial statements and schedule for The Knot, Inc. as of December 31, 1997 and 1998 and September 30, 1999 and for the period from its inception on May 2, 1996 to December 31, 1996, the years ended December 31, 1997 and 1998 and the nine month period ended September 30, 1999, included in this prospectus and elsewhere in the registration statement have been audited by Ernst & Young LLP, independent auditors, as set forth in their report appearing elsewhere in this prospectus, and are included in reliance upon such report given upon the authority of such firm as experts in accounting and auditing. The financial statements for Casenhiser Clothing Company, Inc. d/b/a Bridal Search as of December 31, 1997 and April 1, 1998 and for the year ended December 31, 1997 and for the period ended April 1, 1998, included in this prospectus and elsewhere in the registration statement, have been audited by Ernst & Young LLP, independent auditors, as set forth in their report appearing elsewhere in this prospectus, and are included in reliance upon such report given upon the authority of such firm as experts in accounting and auditing. WHERE YOU CAN FIND ADDITIONAL INFORMATION We have filed with the Securities and Exchange Commission a registration statement on Form S-1 with exhibits and schedules, under the Securities Act with respect to the common stock to be sold in this offering. This prospectus does not contain all of the information set forth in this registration statement. For further information about The Knot and the shares of common stock to be sold in the offering, please refer to this registration statement. For additional information, please refer to the exhibits that have been filed with our registration statement on Form S-1. You may read and copy all or any portion of the registration statement or any other information we file at the Securities and Exchange Commission's public reference room at 450 Fifth Street, N.W., Washington, D.C., 20549. You can request copies of these documents upon payment of a duplicating fee, by writing to the Securities and Exchange Commission. Please call the Securities and Exchange Commission at 1-800-SEC-0330 for further information about the public reference rooms. Our Securities and Exchange Commission filings, including the registration statement, will also be available to you on the Securities and Exchange Commission's Web site (http://www.sec.gov). As a result of this offering, we will become subject to the information and reporting requirements of the Securities Exchange Act of 1934, and will file periodic reports, proxy statements and other information with the Securities and Exchange Commission. We intend to furnish our stockholders with annual reports containing audited financial statements and to make available to our stockholders quarterly reports for the first three quarters of each year containing unaudited financial information. 83 88 INDEX TO FINANCIAL STATEMENTS THE KNOT, INC. Report of Independent Auditors.............................. F-2 Consolidated Balance Sheets as of December 31, 1997 and 1998 and September 30, 1999.................................... F-3 Consolidated Statements of Operations for the period from May 2, 1996 (date of inception) to December 31, 1996 and the years ended December 31, 1997 and 1998 and the nine months ended September 30, 1998 (Unaudited) and 1999...... F-4 Consolidated Statements of Stockholders' (Deficit) Equity for the period from May 2, 1996 (date of inception) to December 31, 1996 and the years ended December 31, 1997 and 1998 and the nine months ended September 30, 1999..... F-5 Consolidated Statements of Cash Flows for the period from May 2, 1996 (date of inception) to December 31, 1996 and the years ended December 31, 1997 and 1998 and the nine months ended September 30, 1998 (Unaudited) and 1999...... F-6 Notes to Consolidated Financial Statements.................. F-8 CASENHISER CLOTHING COMPANY, INC. Report of Independent Auditors.............................. F-24 Balance Sheets as of December 31, 1997 and April 1, 1998.... F-25 Statements of Operations for the year ended December 31, 1997 and the period ended April 1, 1997 (Unaudited) and April 1, 1998............................................. F-26 Statements of Shareholder's (Deficit) Equity for the year ended December 31, 1997 and the period ended April 1, 1998...................................................... F-27 Statements of Cash Flows for the year ended December 31, 1997 and the period ended April 1, 1997 (Unaudited) and April 1, 1998............................................. F-28 Notes to Financial Statements............................... F-29
F-1 89 REPORT OF INDEPENDENT AUDITORS The Board of Directors and Stockholders of The Knot, Inc. We have audited the accompanying consolidated balance sheets of The Knot, Inc. (the "Company") as of December 31, 1997 and 1998 and September 30, 1999, and the related consolidated statements of operations, stockholders' (deficit) equity and cash flows for the period from May 2, 1996 (date of inception) to December 31, 1996, the years ended December 31, 1997 and 1998, and the nine month period ended September 30, 1999. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of the Company at December 31, 1997 and 1998, and September 30, 1999 and the consolidated results of their operations and their cash flows for the period from May 2, 1996 (date of inception) to December 31, 1996, the years ended December 31, 1997 and 1998, and the nine month period ended September 30, 1999 in conformity with generally accepted accounting principles. /s/ ERNST & YOUNG LLP New York, New York October 26, 1999, except for Note 12 as to which the date is November 5, 1999 F-2 90 THE KNOT, INC. CONSOLIDATED BALANCE SHEETS
PRO FORMA STOCKHOLDER'S DECEMBER 31, EQUITY AT ------------------------- SEPTEMBER 30, SEPTEMBER 30, 1997 1998 1999 1999 ----------- ----------- ------------- ------------- (Unaudited) ASSETS Current assets: Cash and cash equivalents...................... $ 305,375 $ 1,037,589 $ 9,301,870 Accounts receivable, net of allowance of $133,000 in 1999............................. 39,480 189,545 1,078,808 Inventories.................................... -- 28,741 511,639 Other current assets........................... 1,667 32,018 677,931 ----------- ----------- ----------- Total current assets............................. 346,522 1,287,893 11,570,248 Property and equipment, net...................... 51,144 243,044 1,281,714 Goodwill, net.................................... -- 349,677 622,199 Deferred financing costs, net.................... 747,029 -- 296,667 Other assets..................................... 8,149 69,293 75,344 ----------- ----------- ----------- Total assets..................................... $ 1,152,844 $ 1,949,907 $13,846,172 =========== =========== =========== LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY Current liabilities: Accounts payable and accrued expenses.......... $ 104,385 $ 225,094 $ 1,424,341 Deferred revenue............................... 48,436 60,111 889,263 ----------- ----------- ----------- Total current liabilities........................ 152,821 285,205 2,313,604 Note payable..................................... 2,016,770 -- -- Other liabilities................................ -- 18,800 8,800 ----------- ----------- ----------- Total liabilities................................ 2,169,591 304,005 2,322,404 Commitments and contingencies Stockholders' (deficit) equity: Series A convertible preferred stock, $.001 par value; 3,360,000 shares authorized, issued and outstanding at December 31, 1998 and September 30, 1999 (liquidation value of $3,937,920 at September 30, 1999)............ -- 3,937,920 3,937,920 Series B convertible preferred stock, $.001 par value; 4,000,000 shares authorized, issued and outstanding at September 30, 1999 (liquidation value of $15,000,000 at September 30, 1999).......................... -- -- 13,963,000 Common stock, $.01 par value; 14,640,000 shares authorized; 1,625,410, 3,034,103 and 3,093,608 shares issued and outstanding at December 31, 1997 and 1998 and September 30, 1999, respectively; 100,000,000 and 10,453,608 shares authorized and outstanding, proforma, respectively....................... 16,254 30,341 30,936 $ 104,536 Additional paid-in-capital..................... 814,779 1,421,714 7,796,448 25,623,768 Deferred compensation.......................... -- (387,020) (2,716,139) (2,716,139) Deferred sales and marketing................... -- -- (2,122,984) (2,122,984) Accumulated deficit............................ (1,847,780) (3,357,053) (9,365,413) (9,365,413) ----------- ----------- ----------- ----------- Total stockholders' (deficit) equity............. (1,016,747) 1,645,902 11,523,768 $11,523,768 ----------- ----------- ----------- =========== Total liabilities and stockholders' (deficit) equity......................................... $ 1,152,844 $ 1,949,907 $13,846,172 =========== =========== ===========
See accompanying notes. F-3 91 THE KNOT, INC. CONSOLIDATED STATEMENTS OF OPERATIONS
PERIOD FROM MAY 2, 1996 (DATE OF NINE MONTHS ENDED INCEPTION) TO YEAR ENDED DECEMBER 31, SEPTEMBER 30, DECEMBER 31, ------------------------- ------------------------- 1996 1997 1998 1998 1999 ------------- ----------- ----------- ----------- ----------- (Unaudited) Net revenues......................... $ 70,567 $ 596,071 $ 1,039,584 $ 825,791 $ 2,635,430 Cost of revenues..................... 9,044 66,905 131,214 81,977 903,990 ---------- ----------- ----------- ----------- ----------- Gross profit......................... 61,523 529,166 908,370 743,814 1,731,440 Operating expenses: Product and content development.... 261,921 635,440 1,030,323 788,362 1,685,057 Sales and marketing................ 254,864 503,113 768,250 476,159 2,913,246 General and administrative......... 242,116 264,746 809,385 538,589 2,194,582 Non-cash compensation.............. -- -- 93,046 56,787 716,719 Non-cash sales and marketing....... -- -- -- -- 127,016 Depreciation and amortization...... 9,128 22,226 121,718 75,411 346,461 ---------- ----------- ----------- ----------- ----------- Total operating expenses............. 768,029 1,425,525 2,822,722 1,935,308 7,983,081 Loss from operations................. (706,506) (896,359) (1,914,352) (1,191,494) (6,251,641) Interest income (expense), net....... (45,780) (199,135) 14,968 (29,412) 243,281 ---------- ----------- ----------- ----------- ----------- Loss before extraordinary gain on extinguishment of debt............. (752,286) (1,095,494) (1,899,384) (1,220,906) (6,008,360) Extraordinary gain on extinguishment of debt............................ -- -- 390,111 390,111 -- ---------- ----------- ----------- ----------- ----------- Net loss............................. $ (752,286) $(1,095,494) $(1,509,273) $ (830,795) $(6,008,360) ========== =========== =========== =========== =========== Loss per share -- basic and diluted: Loss before extraordinary gain on extinguishment of debt.......... $ (.46) $ (.67) $ (.76) $ (.52) $ (1.96) Extraordinary gain on extinguishment of debt.......... -- -- .16 .17 -- ---------- ----------- ----------- ----------- ----------- Net loss........................... $ (.46) $ (.67) $ (.60) $ (.35) $ (1.96) ========== =========== =========== =========== =========== Weighted average number of shares used in calculating basic and diluted net loss per share......... 1,625,410 1,625,410 2,497,065 2,344,126 3,066,960 ========== =========== =========== =========== ===========
See accompanying notes. F-4 92 THE KNOT, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' (DEFICIT) EQUITY
SERIES A CONVERTIBLE SERIES B CONVERTIBLE PREFERRED STOCK PREFERRED STOCK COMMON STOCK ADDITIONAL ---------------------- ----------------------- --------------------- PAID IN SHARES AMOUNT SHARES AMOUNT SHARES PAR VALUE CAPITAL --------- ---------- --------- ----------- --------- --------- ---------- Issuance of common stock at inception, May 2, 1996............ -- $ -- -- $ -- 1,625,410 $16,254 $ (15,254) Net loss for the period from May 2, 1996 (date of inception) to December 31, 1996................. -- -- -- -- -- -- -- --------- ---------- --------- ----------- --------- ------- ---------- Balance at December 31, 1996....... -- -- -- -- 1,625,410 16,254 (15,254) Issuance of warrant in connection with note payable................. -- -- -- -- -- -- 830,033 Net loss for the year ended December 31, 1997................. -- -- -- -- -- -- -- --------- ---------- --------- ----------- --------- ------- ---------- Balance at December 31, 1997....... -- -- -- -- 1,625,410 16,254 814,779 Issuance of common stock in connection with acquisition....... -- -- -- -- 162,540 1,626 169,775 Deferred compensation related to unvested common stock in connection with acquisition....... -- -- -- -- -- -- 186,916 Issuance of common stock........... -- -- -- -- 1,068,122 10,681 (10,681) Sale of Series A Convertible Preferred Stock, net of costs..... 2,560,000 3,000,320 -- -- -- -- (217,378) Conversion of note payable......... 800,000 937,600 -- -- -- -- -- Issuance of common stock........... -- -- -- -- 178,031 1,780 185,153 Deferred compensation related to the issuance of stock options..... -- -- -- -- -- -- 293,150 Amortization of deferred compensation...................... -- -- -- -- -- -- -- Net loss for the year ended December 31, 1998................. -- -- -- -- -- -- -- --------- ---------- --------- ----------- --------- ------- ---------- Balance at December 31, 1998....... 3,360,000 3,937,920 -- -- 3,034,103 30,341 1,421,714 Issuance of common stock........... -- -- -- -- 44,505 445 (445) Sale of Series B Convertible Preferred Stock, net of costs..... -- -- 4,000,000 15,000,000 -- -- (127,509) Issuance of warrant in connection with sale of Series B Convertible Preferred Stock................... -- -- -- (1,037,000) -- -- 1,037,000 Issuance of common stock in connection with acquisitions...... -- -- -- -- 15,000 150 114,850 Issuance of stock options in connection with acquisitions...... -- -- -- -- -- -- 55,000 Issuance of warrant in connection with distribution agreement....... -- -- -- -- -- -- 2,250,000 Amortization of deferred sales and marketing......................... -- -- -- -- -- -- -- Deferred compensation related to the issuance of stock options..... -- -- -- -- -- -- 3,045,838 Amortization of deferred compensation...................... -- -- -- -- -- -- -- Net loss for the nine months ended September 30, 1999................ -- -- -- -- -- -- -- --------- ---------- --------- ----------- --------- ------- ---------- Balance at September 30, 1999...... 3,360,000 $3,937,920 4,000,000 $13,963,000 3,093,608 $30,936 $7,796,448 ========= ========== ========= =========== ========= ======= ========== TOTAL DEFERRED STOCKHOLDERS' DEFERRED SALES AND ACCUMULATED (DEFICIT) COMPENSATION MARKETING DEFICIT EQUITY ------------ ----------- ----------- ------------- Issuance of common stock at inception, May 2, 1996............ $ -- $ -- $ -- $ 1,000 Net loss for the period from May 2, 1996 (date of inception) to December 31, 1996................. -- -- (752,286) (752,286) ----------- ----------- ----------- ----------- Balance at December 31, 1996....... -- -- (752,286) (751,286) Issuance of warrant in connection with note payable................. -- -- -- 830,033 Net loss for the year ended December 31, 1997................. -- -- (1,095,494) (1,095,494) ----------- ----------- ----------- ----------- Balance at December 31, 1997....... -- -- (1,847,780) (1,016,747) Issuance of common stock in connection with acquisition....... -- -- -- 171,401 Deferred compensation related to unvested common stock in connection with acquisition....... (186,916) -- -- -- Issuance of common stock........... -- -- -- -- Sale of Series A Convertible Preferred Stock, net of costs..... -- -- -- 2,782,942 Conversion of note payable......... -- -- -- 937,600 Issuance of common stock........... -- -- -- 186,933 Deferred compensation related to the issuance of stock options..... (293,150) -- -- -- Amortization of deferred compensation...................... 93,046 -- -- 93,046 Net loss for the year ended December 31, 1998................. -- -- (1,509,273) (1,509,273) ----------- ----------- ----------- ----------- Balance at December 31, 1998....... (387,020) -- (3,357,053) 1,645,902 Issuance of common stock........... -- -- -- -- Sale of Series B Convertible Preferred Stock, net of costs..... -- -- -- 14,872,491 Issuance of warrant in connection with sale of Series B Convertible Preferred Stock................... -- -- -- -- Issuance of common stock in connection with acquisitions...... -- -- -- 115,000 Issuance of stock options in connection with acquisitions...... -- -- -- 55,000 Issuance of warrant in connection with distribution agreement....... -- (2,250,000) -- -- Amortization of deferred sales and marketing......................... -- 127,016 -- 127,016 Deferred compensation related to the issuance of stock options..... (3,045,838) -- -- -- Amortization of deferred compensation...................... 716,719 -- -- 716,719 Net loss for the nine months ended September 30, 1999................ -- -- (6,008,360) (6,008,360) ----------- ----------- ----------- ----------- Balance at September 30, 1999...... $(2,716,139) $(2,122,984) $(9,365,413) $11,523,768 =========== =========== =========== ===========
See accompanying notes. F-5 93 THE KNOT, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS
PERIOD FROM MAY 2, 1996 (DATE OF NINE MONTHS ENDED INCEPTION) TO YEAR ENDED DECEMBER 31, SEPTEMBER 30, DECEMBER 31, ------------------------- ------------------------- 1996 1997 1998 1998 1999 ------------- ----------- ----------- ----------- ----------- (Unaudited) OPERATING ACTIVITIES Net loss before extraordinary gain on extinguishment of debt......................... $(752,286) $(1,095,494) $(1,899,384) $(1,220,906) $(6,008,360) Adjustments to reconcile net loss before extraordinary gain on extinguishment of debt to net cash used in operating activities Depreciation and amortization................ 9,128 22,226 67,429 39,299 192,459 Amortization of goodwill..................... -- -- 54,289 36,112 154,002 Amortization of deferred financing costs..... -- 83,004 27,668 27,668 -- Amortization of deferred compensation............................... -- -- 93,046 56,787 716,719 Amortization of deferred sales and marketing.................................. 127,016 Noncash interest expense..................... 45,780 120,990 30,248 30,248 -- Allowance for doubtful accounts and loan receivable................................. -- -- -- -- 183,000 Changes in operating assets and liabilities: Accounts receivable........................ (40,567) 1,087 (150,065) (42,404) (716,808) Inventories................................ -- -- (28,741) (33,719) (388,556) Other current assets....................... (57,271) 56,604 (29,959) (11,007) (645,551) Other assets............................... (29,485) 21,336 (61,144) (61,405) (6,051) Accounts payable and accrued expenses...... 199,324 (94,939) 120,709 54,856 788,088 Deferred revenue........................... -- 48,436 11,675 23,168 788,224 Other liabilities.......................... -- -- 18,800 18,800 (10,000) --------- ----------- ----------- ----------- ----------- Net cash used in operating activities.......... (625,377) (836,750) (1,745,429) (1,082,503) (4,825,818) INVESTING ACTIVITIES Purchases of property and equipment............ (58,231) (24,267) (255,299) (203,522) (1,185,119) Loan receivable................................ -- -- -- (50,000) (50,000) Acquisition of businesses, net of cash acquired..................................... -- -- (50,000) -- (335,051) --------- ----------- ----------- ----------- ----------- Net cash used in investing activities.......... (58,231) (24,267) (305,299) (253,522) (1,570,170) FINANCING ACTIVITIES Proceeds from note payable..................... 700,000 1,150,000 -- -- -- Proceeds from short term borrowings............ -- -- -- -- 750,000 Repayment of short term borrowings............. -- -- -- -- (750,000) Financing costs................................ -- -- (217,378) (217,378) (339,731) Proceeds from issuance of convertible preferred stock........................................ -- -- 3,000,320 3,000,320 15,000,000 --------- ----------- ----------- ----------- ----------- Net cash provided by financing activities................................... 700,000 1,150,000 2,782,942 2,782,942 14,660,269 --------- ----------- ----------- ----------- ----------- Increase in cash and cash equivalents.......... 16,392 288,983 732,214 1,446,917 8,264,281 Cash and cash equivalents at beginning of period....................................... -- 16,392 305,375 305,375 1,037,589 --------- ----------- ----------- ----------- ----------- Cash and cash equivalents at end of period..... $ 16,392 $ 305,375 $ 1,037,589 $ 1,752,292 $ 9,301,870 ========= =========== =========== =========== ===========
F-6 94 THE KNOT, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS -- (CONTINUED)
PERIOD FROM MAY 2, 1996 (DATE OF NINE MONTHS ENDED INCEPTION) TO YEAR ENDED DECEMBER 31, SEPTEMBER 30, DECEMBER 31, ------------------------- ------------------------- 1996 1997 1998 1998 1999 ------------- ----------- ----------- ----------- ----------- (Unaudited) SUMMARY OF NONCASH INVESTING AND FINANCING ACTIVITIES Issuance of warrant in connection with long term debt.................................... $ -- $ 830,033 $ -- $ -- $ -- Issuance of common stock in connection with recapitalization............................. -- -- 10,681 10,681 -- Issuance of common stock in connection with acquisition.................................. -- -- 358,334 171,401 -- Accrued deferred financing costs............... -- -- -- -- 84,445 Conversion of loan payable into preferred stock........................................ -- -- 937,600 937,600 -- --------- ----------- ----------- ----------- ----------- Total noncash investing and financing activities................................... $ -- $ 830,033 $ 1,306,615 $ 1,119,682 $ 84,445 ========= =========== =========== =========== ===========
See accompanying notes. F-7 95 THE KNOT, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 1999 1. ORGANIZATION AND NATURE OF OPERATIONS The Knot, Inc. (the "Company"), formerly Weddings.com, Inc., was incorporated in the state of Delaware on May 2, 1996 ("Inception"). On June 18, 1996, the Company changed its name from Weddings.com, Inc. to The Knot, Inc. The Company is a leading online destination targeting the wedding market. The Company provides wedding resources on the World Wide Web and is the primary wedding content provider on America Online and several other of AOL's leading brands, including AOL.com, Netscape Netcenter and CompuServe. The Company's online sites provide articles on wedding planning, organized by topic, a database of local wedding vendors, interactive services and personalized planning tools, a searchable bridal gown database, various communities of hosted chats and message boards, a gift registry, a wedding supply and gift store and honeymoon travel packages. The Company also authors a series of books and publishes a semiannual gown guide. The accompanying financial statements include the accounts of Click Trips, Inc., a wholly owned subsidiary from July 31, 1999 through September 30, 1999. All intercompany transactions have been eliminated in consolidation. In August 1999, the Board of Directors authorized the filing of a registration statement with the Securities and Exchange Commission ("SEC") that would permit the Company to sell shares of the Company's common stock in connection with a proposed initial public offering ("IPO"). Following the closing of the Company's IPO, the Company will be authorized to issue 105,000,000 shares; 100,000,000 of these shares will be designated as common stock having a par value of $.01, and 5,000,000 of these shares will be undesignated preferred shares, having a par value of $.001. The Company will be authorized to issue shares of undesignated preferred stock in one or more classes or series without further stockholder approval. If the offering is consummated under the terms presently anticipated, all the then outstanding shares of the Company's convertible stock will automatically convert into shares of common stock on a one-for-one basis upon the closing of the proposed IPO. The conversion of all of the convertible preferred stock has been reflected in the accompanying unaudited pro forma consolidated balance sheet as if it had occurred on September 30, 1999. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results may differ from those estimates. The most significant estimates included in the preparation of the financial statements are related to asset lives, the valuation of common stock, preferred stock and warrants. F-8 96 THE KNOT, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) FAIR VALUE OF FINANCIAL INSTRUMENTS The carrying amounts of cash and cash equivalents, accounts receivable, and accounts payable approximate fair value due to the short-term nature of these instruments. The carrying amounts of outstanding borrowings approximate fair value. CASH AND CASH EQUIVALENTS The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. Cash equivalents were approximately $243,000, $1,003,000, and $9,039,000 at December 31, 1997 and 1998 and September 30, 1999, respectively. The market value of the Company's cash equivalents approximates their cost plus accrued interest. INVENTORY Inventory consists of finished goods. Inventory costs are determined principally by using the average cost method, and are stated at the lower of such cost or net realizable value. PROPERTY AND EQUIPMENT Property and equipment are stated at cost less accumulated depreciation and amortization. Depreciation is computed using the straight-line method over the estimated useful lives of the related assets which range from three to seven years. Leasehold improvements are amortized over the shorter of their estimated useful lives or the term of the related lease agreement. IMPAIRMENT OF LONG-LIVED ASSETS The Company reviews its long-lived assets, including goodwill, for impairment whenever events or changes in circumstances such as significant declines in revenues, earnings or cash flows or material adverse changes in the business climate, indicate that the carrying amount of an asset may be impaired. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of the assets to future estimated undiscounted net cash flows expected to be generated by the assets. If the assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. To date, no impairment has occurred. GOODWILL Goodwill is being amortized over three years using the straight-line method. Accumulated amortization of goodwill approximates $54,000 and $208,000 at December 31, 1998 and September 30, 1999, respectively. F-9 97 THE KNOT, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) INCOME TAXES The Company accounts for income taxes on the liability method as required by Statement of Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes." Under this method, deferred tax assets and liabilities are recognized for the future tax consequence attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax 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. The effect on deferred tax liabilities of a change in tax rates is recognized in results of operations in the period that includes the enactment date. NET REVENUES BY TYPE Net revenues by type are as follows:
PERIOD FROM INCEPTION YEAR ENDED NINE MONTHS ENDED THROUGH DECEMBER 31, SEPTEMBER 30, DECEMBER 31, --------------------- ------------------------ TYPE 1996 1997 1998 1998 1999 - ---- ------------ -------- ---------- ----------- ---------- (UNAUDITED) Sponsorship, advertising and production........... $70,567 $596,071 $ 853,240 $656,117 $1,724,154 Merchandise............ -- -- 17,487 -- 694,119 Publishing, travel and other................ -- -- 168,857 169,674 217,157 ------- -------- ---------- -------- ---------- Total.................. $70,567 $596,071 $1,039,584 $825,791 $2,635,430 ======= ======== ========== ======== ==========
REVENUE RECOGNITION Sponsorship and Advertising Sponsorship revenues are derived principally from contracts currently ranging up to three years. Sponsorships are designed to integrate advertising with specific editorial content. Sponsors can purchase the exclusive right to promote products or services on a specific editorial area and can purchase special feature on the Company's sites. Advertising revenues are derived principally from short-term contracts which typically range from one month up to one year. Advertising contracts include banner advertisements and listings for local wedding vendors. Sponsorship and advertising contracts provide for the delivery of a minimum number of impressions. Impressions are the featuring of a sponsor's advertisement, banner, link or other form of content on our sites. To date, the Company has recognized sponsorship and advertising revenues over the duration of the contracts on a straight line basis as the Company has exceeded minimum guaranteed impressions. To the extent that minimum guaranteed impressions are not met, the Company is generally obligated to extend the period of the contract until the guaranteed impressions are achieved. If this were to occur, F-10 98 THE KNOT, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) the Company would defer and recognize the corresponding revenues over the extended period. Production revenues are derived from the development of online sites and tools. Production revenues are recognized when the development is completed and the online sites and tools are delivered. To promote the Company's brand on third-party sites, the Company produces online sites for third parties featuring both The Knot and the third party. The cost of production of these sites is included in operating expenses. In return, the Company receives distribution and exposure to the viewers of such third party sites, outbound links to its sites and, in some circumstances, offline brand marketing. The Company does not recognize revenue with respect to these barter transactions. Usage revenues received from America Online, Inc. ("AOL") which totaled approximately $74,000 for the year ended December 31, 1997 and $47,000 (unaudited) for the nine months ended September 30, 1998 were derived from AOL customers visiting the Company's AOL site. Usage revenues were recognized as they were earned based upon hours of viewership of the Company's site. As discussed in Note 4, the Company signed a new agreement with AOL which eliminated usage revenues from, and licensing fees to AOL, subsequent to September 30, 1998. Merchandise Merchandise revenues are derived from sales of merchandise through Bridalink.com, The Knot Registry and The Knot Shop. Merchandise revenues include outbound shipping and handling charges. Merchandise revenues from product sales are recognized when the products are shipped to customers, reduced by an allowance for estimated sales returns. Publishing Publishing revenues are derived from author royalties related to book publishing contracts and sales of books published by the Company. Royalties related to book publishing contracts are recognized when the Company has met all contractual obligations, which typically includes the delivery and acceptance of a final manuscript. Revenues related to the sale of books are recognized when the books are shipped, reduced by an allowance for estimated returns. Travel Travel revenues are derived from commissions on the sale of travel packages by the Company's online travel agency, Click Trips, Inc. Such revenues are recognized when the customer commences travel. DEFERRED REVENUE Deferred revenue represents payments received or billings in excess of revenue recognized related to sponsorship, advertising and production contracts, as well as advances received against future royalties to be earned relating to book publishing contracts. F-11 99 THE KNOT, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) COST OF REVENUES Cost of revenues consists of the cost of merchandise sold, payroll and related expenses for personnel who are responsible for the production of customized online sites and tools, and costs of Internet and hosting services. ADVERTISING COSTS Advertising costs are expensed as incurred. Advertising expense totaled approximately $69,000, $79,000, $46,000, $11,000 (unaudited) and $57,000 for the period from inception through December 31, 1996 and for the years ended December 31, 1997 and 1998 and the nine months ended September 30, 1998 and 1999, respectively. CONCENTRATION OF CREDIT RISK Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and cash equivalents and accounts receivable. The Company maintains a significant portion of its cash and cash equivalents with one financial institution. The Company's customers are primarily concentrated in the United States. The Company performs on-going credit evaluations, generally does not require collateral, and establishes an allowance for doubtful accounts based upon factors surrounding the credit risk of customers, historical trends and other information. To date, such losses have been within management's expectations. For the year ended December 31, 1998, one advertiser accounted for 19% of our net revenues. For the year ended December 31, 1997, one advertiser accounted for 42% of our net revenues and a different advertiser accounted for 13% of our net revenues. From May 2, 1996 (our inception date) through December 31, 1996, four advertisers accounted for 34%, 30%, 23% and 13% of our net revenues, respectively. At September 30, 1999, two advertisers accounted for 14% and 12% of accounts receivable, respectively. At December 31, 1998, four advertisers accounted for 26%, 16%, 13%, and 12% of accounts receivable, respectively. At December 31, 1997, two advertisers accounted for 62% and 38% of accounts receivable, respectively. STOCK-BASED COMPENSATION The Company accounts for its employee stock option plan in accordance with the provisions of Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to Employees," and related interpretations and complies with the disclosure provisions of SFAS No. 123, "Accounting for Stock-Based Compensation." STOCK SPLITS On January 17, 1997 and April 27, 1998, the Company effected a 1,000 for 1 and a 16.2541 for 1 stock split, respectively. All share amounts have been retroactively restated to reflect these events in the accompanying financial statements. F-12 100 THE KNOT, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) INTERIM FINANCIAL INFORMATION The unaudited interim financial information as of September 30, 1998 and for the nine months then ended has been prepared on the same basis as the annual financial statements and, in the opinion of the Company's management, contains all adjustments (consisting of normal recurring accruals) necessary for a fair presentation. Operating results for any interim period are not necessarily indicative of results to be expected for the entire year. NET LOSS PER SHARE The Company computes net loss per share in accordance with SFAS No. 128, "Earnings per Share." Basic net loss per share is computed by dividing net loss by the weighted average number of common shares outstanding during the period. Diluted net loss per share adjusts basic loss per share for the effects of convertible securities, stock options and other potentially dilutive financial instruments, only in the periods in which such effect is dilutive. There were no dilutive securities in any of the periods presented herein. SEGMENT INFORMATION In June 1997, the FASB issued SFAS No. 131, "Disclosures About Segments of an Enterprise and Related Information," which establishes standards for the way that a public enterprise reports information about operating segments in annual financial statements and requires that those enterprises report selected information about operating segments in interim financial reports issued to shareholders. It also establishes standards for related disclosures about products and services, geographic areas and major customers. SFAS No. 131 is effective for fiscal years beginning after December 15, 1997. In the initial year of application, comparative information for earlier years must be restated. The Company operates in a single segment. The chief operating decision maker allocates resources and assesses the performance associated with sponsorship and advertising, merchandise, publishing and travel on a single segment basis. COMPREHENSIVE INCOME As of January 1, 1998, the Company adopted the provisions of SFAS No. 130, "Reporting Comprehensive Income." This statement establishes standards for reporting and displaying comprehensive income and its components in a full set of general purpose financial statements. Since the Company's comprehensive net loss is equal to its net loss for all periods presented, the adoption of this standard has had no impact on the Company's financial statements. SOFTWARE DEVELOPMENT COSTS In March 1998, the Accounting Standards Executive Committee of the American Institute of Certified Public Accountants ("AICPA") issued Statement of Position ("SOP") 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use." This SOP is effective for fiscal years beginning after December 15, F-13 101 THE KNOT, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 1998. The Company has adopted the provisions of SOP 98-1 during the nine months ended September 30, 1999 with no material effect. All projects are being amortized over their estimated useful lives, which has been determined by management to be three years. Amortization on the projects begins when the software is ready for its intended use. 3. PROPERTY AND EQUIPMENT Property and equipment consists of the following:
DECEMBER 31, ------------------- SEPTEMBER 30, 1997 1998 1999 ------- -------- ------------- Leasehold improvements...................... $ 8,200 $ 8,200 $ 100,109 Software.................................... -- 47,900 489,058 Furniture and fixtures...................... 3,761 14,222 28,785 Computer equipment.......................... 70,537 271,505 955,004 ------- -------- ---------- 82,498 341,827 1,572,956 Less accumulated depreciation and amortization.............................. 31,354 98,783 291,242 ------- -------- ---------- $51,144 $243,044 $1,281,714 ======= ======== ==========
4. RELATED PARTY TRANSACTIONS AOL During 1996, AOL advanced $700,000 to the Company to fund the development of the Company's online property located on AOL. During 1996, the Company entered into an Interactive Services Agreement with AOL whereby AOL agreed to carry the Company's content for a period of three years. As a result of this agreement, AOL paid the Company a usage fee based on hours of viewership of the Company's site on AOL. AOL received a commission equal to a percentage of the Company's advertising revenues, as defined, that were derived from its site. This agreement was amended in 1998 eliminating usage fees paid to the Company and eliminating commissions paid to AOL. The Company paid commissions to AOL in the approximate amounts of $0, $68,000, $16,000 and $16,000 (unaudited) for the period from Inception through December 31, 1996, the years ended December 31, 1997 and 1998 and for the nine months ended September 30, 1998, respectively. The Company earned usage fees from AOL in the approximate amounts of $0, $74,000, $47,000 and $47,000 (unaudited) for the period from Inception through December 31, 1996, the years ended December 31, 1997 and 1998 and for the nine months ended September 30, 1998, respectively. On January 17, 1997, the Company and AOL entered into a Note and Warrant Purchase Agreement, whereby the Company issued to AOL a Secured Promissory Note F-14 102 THE KNOT, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (the "AOL Note") and a Stock Subscription Warrant (the "AOL Warrant") to purchase 3,250,820 shares of the Company's Series A Convertible Preferred Stock. The AOL Warrant was valued at approximately $830,000, based on its estimated fair value. Such value was recorded as deferred financing costs and was amortized on a straight line basis over the life of the AOL Warrant. The Company borrowed a total of $1,850,000 under the AOL Note, inclusive of the $700,000 advanced in 1996. The AOL Note bore interest at 6.54% per annum and was payable January 16, 2007. On April 28, 1998, AOL exchanged the note payable of $2,047,018, which included accrued interest of $197,018, and the AOL Warrant for 800,000 shares of Series A Convertible Preferred Stock (see Note 8) valued at $937,600. At the date of exchange, AOL was solely a creditor of the Company, since the AOL Warrant was worthless. In accordance with SFAS No. 15, "Accounting by Debtors and Creditors for Troubled Debt Restructurings" this transaction was accounted for as a troubled debt restructuring and an extraordinary gain on the extinguishment of debt was recognized. On September 30, 1998, the Company entered into an Anchor Tenant Agreement with AOL (the "AOL Agreement"), whereby the Company received distribution within the AOL service. Beginning January 1, 1999, the Company was obligated to pay carriage fees throughout the term of the AOL Agreement. This agreement superseded any prior agreements between the Company and AOL. The company paid carriage fees to AOL in the amount of $750,000 for the nine months ended September 30, 1999. In July 1999, the Company entered into an amended and restated Anchor Tenant Agreement with AOL ("Restated AOL Agreement") which superseded the AOL Agreement. The Restated AOL Agreement expires on January 6, 2003 and provides for a quarterly carriage fee payable over the remaining term of the Restated AOL Agreement. At September 30, 1999, the Company is obligated to pay carriage fees to AOL as follows: Year ending September 30: 2000......................................... $1,150,000 2001......................................... 1,200,000 2002......................................... 1,200,000 2003......................................... 300,000 ---------- Total.......................................... $3,850,000 ==========
Pursuant to the Restated AOL Agreement, the Company issued a warrant to purchase 366,667 shares of the Company's common stock at $7.20 per share, subject to certain anti -dilution provisions. The warrant is immediately exercisable and expires in July 2007. The Company valued this warrant at approximately $2,250,000, by using the Black-Scholes option pricing model with an expected volatility factor of 55%, risk free interest rate of 5%, F-15 103 THE KNOT, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) no dividend yield, and a 2-year life, which will be recognized as non-cash sales and marketing expense on the straight line basis over the term of the agreement. QVC, INC. ("QVC") On April 13, 1999, the Company sold 4,000,000 shares of Series B Convertible Preferred Stock ("Series B") for $15,000,000 to QVC. In connection with the sale of Series B Convertible Preferred Stock, the Company issued a warrant to QVC to purchase 1,700,000 shares of common stock at $5.00 per share subject to certain anti-dilution provisions. The warrant becomes exercisable upon the earlier of the fourth anniversary of the issuance of the warrant or upon the occurrence of certain events including the closing of an initial public offering. At issuance, the fair value of the warrant was calculated to be approximately $1,037,000 by using the Black-Scholes option pricing model with an expected volatility factor of 55%, risk free interest rate of 5%, no dividend yield, and a 2-year life. In April 1999, the Company entered into a services agreement with QVC (the "Services Agreement"), whereby QVC will provide warehousing, fulfillment and distribution services with respect to the Company's registry and book products. Additionally, the services agreement, which has a term of four years from the date of this offering, provides for the Company to purchase certain merchandise through QVC at amounts in excess of QVC's cost. The fees for such services were negotiated on an arm's length basis. For the nine months ended September 30, 1999, the Company purchased merchandise and incurred warehousing, fulfillment and distribution costs in the approximate amounts of $26,000 and $60,000, respectively, under the Services Agreement. The Company also has an agreement with QVC to sell merchandise through a co-branded site accessible from within QVC's on-line site. 5. ACQUISITIONS CASENHISER CLOTHING COMPANY, INC. d/b/a BRIDAL SEARCH On April 2, 1998, the Company acquired all of the assets of Bridal Search for $50,000 in cash and 162,540 shares of the Company's common stock valued at $1.05 per share for financial reporting purposes. In addition, the Company was required to issue up to 356,046 additional shares to Bridal Search upon the achievement of future performance criteria, of which 178,031 shares were issued in connection with the launch of the Company's registry in November 1998 at a value of $1.05 per share. The remaining 178,015 shares were issuable upon the attainment of certain revenue based goals. In August 1999, the Company entered into a Settlement and Release Agreement whereby Bridal Search agreed to forego its rights to receive the remaining 178,015 shares related to revenue based goals in exchange for a payment of $150,000. Such amount, representing contingent purchase price, was recorded as additional goodwill. The purchase price, net of tangible assets acquired, principally fixed assets of approximately $4,000, was recorded as goodwill. F-16 104 THE KNOT, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Under the agreement, the former owners of Bridal Search are also entitled to receive an additional 178,015 shares of the Company's common stock, contingent upon their employment by the Company and which vest over four years. The value of these shares of $186,916 was recorded as deferred compensation. As of September 30, 1999, 44,504 shares had vested pursuant to the agreement. Bridalink.com In July 1999, the Company acquired all of the assets of Bridalink.com for approximately $124,000 in cash and the issuance of 10,000 immediately vested stock options to purchase common stock at an exercise price of $1.50 per share. The common stock was valued at $7.00 per share for financial reporting purposes. Bridalink.com operates an online wedding supply store located in Northern California. The acquisition was accounted for under the purchase method of accounting. The purchase price, including legal fees, of $191,000, net of tangible assets acquired, principally inventory and fixed assets of $124,000 was recorded as goodwill. CLICK TRIPS, INC. In July 1999, the Company acquired all of the capital stock of Click Trips, Inc. ("Click Trips") for 5,000 shares of common stock. The common stock was valued at $7.00 per share for financial reporting purposes. Such shares are being held in escrow for six months for the purpose of indemnifying the Company against any potential liabilities of Click Trips. Click Trips has the right to receive options to purchase up to 10,000 shares of the Company's common stock upon the attainment of $1,200,000 in commission revenues for the year ended December 31, 2000. The exercise price related to such options will be equal to the fair market value of the Company's common stock on the date of grant. Click Trips operates an online travel agency. The acquisition was accounted for under the purchase method of accounting. The purchase price, including legal fees, of $67,000, net of tangible assets acquired, principally fixed assets of approximately $16,000, was recorded as goodwill. WEDDING PHOTOGRAPHERS NETWORK In August 1999, the Company acquired all of the assets of Wedding Photographers Network ("WPN"), a division of The Denis Reggie Company, for 10,000 shares of the Company's common stock. The common stock was valued at $8.00 per share for financial reporting purposes. WPN offers a search engine to obtain a listing of professional wedding photographers in various local areas. This acquisition was accounted for under the purchase method of accounting. The purchase price of $159,000 which includes legal fees, and liabilities assumed of approximately $38,000, was recorded as goodwill. Unaudited pro forma data for the Company for the year ended December 31, 1998, and for the nine months ended September 30, 1999 giving effect to the acquisitions of Bridal Search, Bridalink.com, Click Trips, Inc. and Wedding Photographers Network as if these acquisitions had occurred at the beginning of each period presented (with the exception of Bridal Search which is already reflected in the Company's consolidated F-17 105 THE KNOT, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) historical financial statements for the nine months ended September 30, 1999) are shown below. Pro forma basic and diluted net loss per share has been calculated assuming the conversion of all convertible preferred stock on the date of issuance.
YEAR ENDED NINE MONTHS ENDED DECEMBER 31, 1998 SEPTEMBER 30, 1999 ----------------- ------------------ Net revenues................................. $ 1,698,000 $ 3,665,025 Loss before extraordinary item............... (1,895,000) (5,865,000) Net loss..................................... (1,505,000) (5,865,000) Basic and diluted net loss per share......... (.59) (1.90) Pro forma basic and diluted net loss per (.31) (.65) share......................................
6. ALLIANCE AGREEMENT WITH WEDDINGPAGES, INC. In July 1999, the Company entered into an 18-month exclusive alliance agreement with Weddingpages, Inc., ("Weddingpages"). Weddingpages sells online advertising to local wedding vendors on our behalf. We receive the revenue from the sale of advertisements and pay Weddingpages a 65% sales commission. We also pay Weddingpages a monthly fee for related administration and operating functions, including customer service, ad production, and accounting services. 7. SHORT TERM BORROWINGS In July 1998, the Company entered into a short term borrowing agreement with a bank whereby the Company was allowed to borrow up to $750,000 at an interest rate equal to prime plus 2%. The agreement matured in April 1999. In August 1999, this balance was paid in full. 8. CAPITAL STOCK The Company's Amended and Restated Articles of Incorporation provides for 22,000,000 authorized shares of capital stock consisting of 14,640,000 shares of common stock each having a par value of $.01 per share and 7,360,000 shares of convertible preferred stock, each having a par value of $.001. PREFERRED STOCK On April 28, 1998, the Company sold 2,560,000 shares of Series A Convertible Preferred Stock ("Series A") for $3,000,320. Simultaneously, the AOL Note in the amount of $2,047,018, which included accrued interest of $197,018 and the AOL Warrant were exchanged for 800,000 shares of Series A Convertible Preferred Stock valued at $937,600 (See Note 4). On April 13, 1999, the Company sold 4,000,000 shares of Series B Convertible Preferred Stock ("Series B") for $15,000,000 to QVC (see Note 4). F-18 106 THE KNOT, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Each share of Series A and Series B Preferred Stock is convertible into one share of the Company's common stock subject to certain anti-dilution provisions. The Series A and Series B Convertible Preferred Stock will be automatically converted into common stock upon completion of an initial public offering of the Company's common stock with minimum net proceeds to the Company of $10,000,000 with a minimum price per share of $7.50. The holders of the Series A and Series B Preferred Stock shall be entitled to receive noncumulative annual dividends, at the rate of $.09 and $.30 per share, respectively, if and when declared by the Board of Directors. The holders of preferred stock are entitled to the number of votes equal to the number of shares of common stock into which their preferred stock is convertible. Neither series of preferred stock is redeemable. In the event of any liquidation, dissolution or winding up of the Company, the holders of Series A and B Preferred Stock shall be entitled to receive $1.172 and $3.75 for each outstanding share of stock, respectively, plus declared but unpaid dividends on such shares. COMMON STOCK From inception through April 24, 1998, all outstanding common shares of the Company were owned by Element Studios, Inc. ("Element"), formerly MW Entertainment, Inc. On April 24, 1998, in connection with a recapitalization of the Company prior to the sale of Series A Preferred Stock, Element was dissolved. The outstanding common shares of the Company owned by Element were distributed equally to the four founders of Element. On April 28, 1998, the Company issued an additional 1,068,122 common shares to the founders. Following the recapitalization, each founder was the holder of 673,383 common shares. In conjunction with the Series A issuance, the founders entered into Vesting Agreements, whereby each founder granted the Company the right to repurchase 505,037 shares of common stock for $.01, if the founder is no longer employed by the Company. The amount of shares subject to the Vesting Agreements are reduced ratably over thirty six months. Common shares subject to repurchase are held in escrow and amounted to 392,807 and 266,544, per founder, at December 31, 1998, and September 30, 1999, respectively. 9. STOCK OPTIONS Under the terms of the Company's 1997 Long Term Incentive Plan (the "1997 Plan"), 2,849,868 shares of common stock of the Company have been reserved for incentive stock options, nonqualified stock options (incentive and nonqualified stock options are collectively referred to as "Options"), restricted stock, or any combination thereof. Awards may be granted to such directors, officers, employees and consultants of the Company as the Board of Directors shall in its discretion select. Only employees of the Company are eligible to receive grants of incentive stock options. F-19 107 THE KNOT, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
WEIGHTED AVERAGE SHARES EXERCISE PRICE --------- -------------- Balance at December 31, 1996.......................... -- $ -- Options granted....................................... 98,825 .01 Options canceled...................................... -- -- --------- Options outstanding at December 31, 1997.............. 98,825 .01 Options granted....................................... 583,000 .50 Options canceled...................................... (8,810) .01 --------- Options outstanding at December 31, 1998.............. 673,015 .93 Options granted....................................... 1,131,750 2.84 Options canceled...................................... (44,000) 1.77 --------- Options outstanding at September 30, 1999............. 1,760,765 $1.97 =========
As of December 31, 1998 and September 30, 1999, 34,828 and 229,509, respectively, of the above options were exercisable. Generally, options are granted at the fair market value of the stock on the date of grant as determined by the Board of Directors. Options vest up to a four year period and have terms not to exceed 10 years. Had compensation for the Plan been determined consistent with the provisions of SFAS No. 123, the effect on the Company's net loss before extraordinary items and basic and diluted net loss before extraordinary items per share would have been changed to the following pro forma amounts:
NINE MONTHS ENDED YEAR ENDED DECEMBER 31, SEPTEMBER 30, ------------------------- ------------------------- 1997 1998 1998 1999 ----------- ----------- ----------- ----------- (UNAUDITED) Net loss before extraordinary items, as reported.......... $(1,095,494) $(1,899,384) $(1,220,906) $(6,008,360) Net loss before extraordinary items, pro forma.............. (1,096,282) (1,988,488) (1,273,178) (6,341,133) Basic and diluted loss before extraordinary items per share, as reported.......... (.67) (.76) (.52) (1.96) Basis and diluted loss per share, pro forma............ (.67) (.80) (.54) (2.07)
F-20 108 THE KNOT, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The fair value of each option granted has been estimated on the date of grant using the minimum value method option pricing model with the following assumptions:
DECEMBER 31, ------------------ SEPTEMBER 30, 1997 1998 1999 ------- ------- ------------- Expected option lives......................... 4 years 4 years 4 years Risk-free interest rates...................... 5.72% 4.64% 5.75% Expected volatility........................... 0% 0% 0% Dividend yield................................ 0% 0% 0%
For purposes of pro forma disclosures, the estimated fair value of options is amortized to expense over the options' vesting period. During the year ended December 31, 1998 and the nine months ended September 30, 1999, the Company granted options with exercise prices that were subsequently determined to be less than the value for financial reporting purposes on the date of grant. As a result, the Company has recorded deferred compensation of approximately $293,000 during 1998 and $3,046,000 during the nine months ended September 30, 1999. These amounts, together with deferred compensation recorded in connection with the acquisition of Bridal Search, will be recognized as noncash compensation expense on an accelerated basis over the vesting period of the options consistent with the method described in FASB Interpretation No. 28. 10. INCOME TAXES Deferred income taxes reflect the net tax effects of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and amounts used for income tax purposes. F-21 109 THE KNOT, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Significant components of the Company's deferred tax assets and liabilities consist of the following:
DECEMBER 31, SEPTEMBER 30, ----------------------- ------------------------- 1997 1998 1998 1999 --------- ----------- ----------- ----------- (UNAUDITED) Deferred tax assets: Net operating loss carryforwards................... $ 804,600 $ 1,374,000 $ 1,030,200 $ 3,874,000 Deferred revenue.............. -- 5,800 4,300 2,900 Depreciation and amortization............... 8,900 49,500 37,200 111,100 Other......................... 500 800 500 100 --------- ----------- ----------- ----------- Total deferred tax assets....... 814,000 1,430,100 1,072,200 3,988,100 Deferred tax liabilities: Capitalized software costs.... -- -- -- (188,500) --------- ----------- ----------- ----------- Net deferred tax assets......... 814,000 1,430,100 1,072,200 3,799,600 Valuation allowance........... (814,000) (1,430,100) (1,072,200) (3,799,600) --------- ----------- ----------- ----------- Total deferred tax assets....... $ -- $ -- $ -- $ -- ========= =========== =========== ===========
Net deferred tax assets have been fully offset by a valuation allowance due to the uncertainty of realizing such benefit. At December 31, 1998, the Company had net operating loss carryforwards of approximately $2,975,000 for federal and state income tax purposes which are set to expire in years 2011 through 2018. 11. COMMITMENTS OPERATING LEASES The Company leases office facilities and certain warehouse space under noncancelable operating lease agreements which expire at various dates through 2003. In October 1999, the Company entered into a lease amendment for additional office space through March 31, 2012. Future minimum lease payments under noncancelable operating leases including the lease amendment made in October 1999, are as follows: Year ending September 30: 2000..................................... $ 374,000 2001..................................... 415,000 2002..................................... 416,000 2003..................................... 400,000 2004..................................... 450,000 Thereafter............................... 4,060,000 ---------- Total...................................... $6,115,000 ==========
Rent expense for the period from Inception to December 31, 1996, the years ended December 31, 1997 and 1998 and the nine months ended September 30, 1998 and 1999 F-22 110 THE KNOT, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) amounted to approximately $30,000, $43,000, $183,000, $98,000 (unaudited) and $198,000, respectively. Sublease income for the year ended December 31, 1998 and the nine months ended September 30, 1998 and 1999 amounted to $97,000, $66,000 (unaudited) and $36,000, respectively. 12. SUBSEQUENT EVENTS 1999 STOCK INCENTIVE PLAN (THE "1999 PLAN") In November 1999, the Company's Board of Directors adopted the 1999 Plan, as a successor plan to the 1997 Plan, pursuant to which 1,000,000 additional shares of the Company's common stock have been reserved for issuance to selected employees, non-employee directors and consultants. All options under the 1997 Plan are incorporated into the 1999 Plan and no further option grants will be made under the 1997 Plan. The 1999 Plan will become effective upon completion of the Company's initial public offering of its common stock. EMPLOYEE STOCK PURCHASE PLAN In November 1999, the Company's Board of Directors adopted the Employee Stock Purchase Plan to be effective upon completion of the Company's initial public offering of its common stock. The Company has initially reserved 300,000 shares of common stock for issuance under the 1999 Plan. COMMON STOCK At November 5, 1999, the Company had reserved the following shares of common stock for future issuance after giving effect to transactions in this footnote: Conversion of Series A and Series B Preferred Stock.... 7,360,000 Options under the 1999 Stock Incentive Plan............ 3,849,868 Common stock warrant................................... 1,700,000 Common stock warrant................................... 366,667 Options under the Employee Stock Purchase Plan......... 300,000 Options related to the acquisition of Bridalink.com.... 10,000 Options related to the acquisition of Click Trips, Inc.................................................. 10,000 Common Shares issuable in connection with employment of certain management of Bridal Search.................. 133,511 ---------- Total common stock reserved for future issuance........ 13,730,046 ==========
F-23 111 REPORT OF INDEPENDENT AUDITORS The Shareholder of Casenhiser Clothing Company, Inc. We have audited the accompanying balance sheets of Casenhiser Clothing Company, Inc. (the "Company") as of December 31, 1997 and April 1, 1998, and the related statements of operations, shareholder's equity and cash flows for the year ended December 31, 1997 and the period ended April 1, 1998. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company at December 31, 1997 and April 1, 1998 and the results of its operations and its cash flows for the year ended December 31, 1997 and the period ended April 1, 1998 in conformity with generally accepted accounting principles. /s/ ERNST & YOUNG LLP New York, New York August 18, 1999 F-24 112 CASENHISER CLOTHING COMPANY, INC. BALANCE SHEETS
DECEMBER 31, APRIL 1, 1997 1998 ------------ --------- ASSETS Current assets: Cash................................................ $ 2,333 $ 3,249 Inventories......................................... 2,480 2,320 Other current assets................................ 1,750 850 --------- --------- Total current assets.................................. 6,563 6,419 Property and equipment................................ 45,902 45,902 Less: accumulated depreciation........................ (39,436) (40,113) --------- --------- Property and equipment, net........................... 6,466 5,789 --------- --------- Total assets.......................................... $ 13,029 $ 12,208 ========= ========= LIABILITIES AND SHAREHOLDER'S EQUITY Current liabilities: Accounts payable and accrued expenses............... $ -- $ 5,743 --------- --------- Total current liabilities............................. -- 5,743 Commitments and contingencies Shareholder's equity: Common stock, $.01 par value; 100,000 shares authorized; 10,000, shares issued and outstanding at December 31, 1997 and April 1, 1998, respectively..................................... 100 100 Additional paid-in-capital.......................... 172,578 172,578 Accumulated deficit................................. (159,649) (166,213) --------- --------- Total shareholder's equity............................ 13,029 6,465 --------- --------- Total liabilities and shareholder's equity............ $ 13,029 $ 12,208 ========= =========
See accompanying notes. F-25 113 CASENHISER CLOTHING COMPANY, INC. STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, PERIOD ENDED PERIOD ENDED 1997 APRIL 1, 1997 APRIL 1, 1998 ------------ ------------- ------------- (UNAUDITED) Net revenues.................................... $137,590 $11,908 $44,025 Operating expenses.............................. 75,898 18,810 48,402 -------- ------- ------- Income (loss) from operations................... 61,692 (6,902) (4,377) Interest expense................................ (7,631) (1,149) (2,187) -------- ------- ------- Net income (loss)............................... $ 54,061 $(8,051) $(6,564) ======== ======= ======= Income (loss) per share -- basic and diluted: Net income (loss)............................. $ 5.41 $ (.81) $ (.66) ======== ======= ======= Weighted average number of shares used in calculating basic and diluted net income (loss) per share.............................. 10,000 10,000 10,000 ======== ======= =======
See accompanying notes. F-26 114 CASENHISER CLOTHING COMPANY, INC. STATEMENTS OF SHAREHOLDER'S (DEFICIT) EQUITY
COMMON STOCK ADDITIONAL --------------- PAID IN ACCUMULATED TOTAL (DEFICIT) SHARES AMOUNT CAPITAL DEFICIT EQUITY ------ ------ ---------- ----------- --------------- Balance at December 31, 1996..... 10,000 $100 $172,578 $(213,710) $(41,032) Net income for the year ended December 31, 1997................ -- -- -- 54,061 54,061 ------ ---- -------- --------- -------- Balance at December 31, 1997..... 10,000 100 172,578 (159,649) 13,029 Net loss for the period ended April 1, 1998.................. -- -- -- (6,564) (6,564) ------ ---- -------- --------- -------- Balance at April 1, 1998......... 10,000 $100 $172,578 $(166,213) $ 6,465 ====== ==== ======== ========= ========
See accompanying notes. F-27 115 CASENHISER CLOTHING COMPANY, INC. STATEMENTS OF CASH FLOWS
YEAR ENDED PERIOD ENDED PERIOD ENDED DECEMBER 31, APRIL 1, APRIL 1, 1997 1997 1998 ------------ ------------ ------------ (UNAUDITED) OPERATING ACTIVITIES Net income (loss).......................... $ 54,061 $(8,051) $(6,564) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation expense..................... 4,311 1,078 677 Changes in operating assets and liabilities: Inventories........................... (2,480) -- 160 Other current assets.................. (1,750) -- 900 Accounts payable and accrued expenses............................ (51,820) 6,973 5,743 -------- ------- ------- Net cash provided by operating activities............................... 2,322 -- 916 Increase in cash........................... 2,322 -- 916 Cash at beginning of period................ 11 11 2,333 -------- ------- ------- Cash at end of period...................... $ 2,333 $ 11 $ 3,249 ======== ======= =======
See accompanying notes. F-28 116 CASENHISER CLOTHING COMPANY, INC. NOTES TO FINANCIAL STATEMENTS APRIL 1, 1998 1. ORGANIZATION AND NATURE OF OPERATIONS Casenhiser Clothing Company, Inc. d/b/a Bridal Search built and maintained an online database of wedding gowns, gown descriptions and photographs. This database was licensed exclusively to The Knot, Inc. On April 2, 1998, The Knot, Inc. acquired all of the assets of Bridal Search for $50,000 in cash and 162,540 shares of The Knot, Inc.'s common stock, and the licensing agreement was terminated. In addition, The Knot, Inc. was required to issue up to 356,046 additional shares to Bridal Search upon the achievement of future performance criteria, of which 178,031 shares were issued in November 1998. The remaining 178,015 shares were issuable upon the attainment of certain revenue based goals. In August 1999, The Knot, Inc. entered into a Settlement and Release Agreement whereby Bridal Search agreed to forego its rights to receive the remaining 178,015 shares related to revenue based goals in exchange for a payment of $150,000. Under the agreement, former management of Bridal Search are also entitled to receive an additional 178,015 shares of The Knot, Inc.'s common stock, contingent upon their employment by The Knot, Inc. which vest over four years. As of June 30, 1999, 44,504 shares had vested pursuant to the agreement. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results may differ from those estimates. The most significant estimates included in the preparation of the financial statements are related to asset lives. FAIR VALUE OF FINANCIAL INSTRUMENTS The carrying amounts of cash and accounts payable approximate fair value due to the short-term nature of these instruments. INVENTORY Inventory consists of finished goods. Inventory costs are determined principally by using the first-in, first-out (FIFO) method, and are stated at the lower of such cost or realizable value. PROPERTY AND EQUIPMENT Property and equipment is comprised primarily of office and computer equipment and is stated at cost less accumulated depreciation. Depreciation is computed using the straight-line method over the estimated useful lives of the related assets, five years. F-29 117 CASENHISER CLOTHING COMPANY, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) IMPAIRMENT OF LONG-LIVED ASSETS The Company reviews its long-lived assets for impairment whenever events or changes in circumstances such as significant declines in revenues, earnings or cash flows or material adverse changes in the business climate, indicate that the carrying amount of an asset may be impaired. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of the assets to future estimated undiscounted net cash flows expected to be generated by the assets. If the assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. To date, no impairment has incurred. INCOME TAXES The Company accounts for income taxes on the liability method as required by Statement of Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes". Under this method, deferred tax assets and liabilities are recognized for the future tax consequence attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. The Company has elected to be taxed as an S Corporation for federal income tax purposes. As such, the Company has not been subject to federal income tax since the shareholder has included the corporation's taxable income or loss in their individual income tax returns. NET REVENUES BY TYPE Net revenues by type are as follows:
YEAR ENDED PERIOD ENDED APRIL 1, DECEMBER 31, ---------------------- TYPE 1997 1997 1998 - ---- ------------ ----------- ------- (UNAUDITED) Licensing................................. $107,317 $ -- $37,157 Merchandise............................... 19,773 1,908 6,868 Advertising............................... 10,500 10,000 -- -------- ------- ------- Total..................................... $137,590 $11,908 $44,025 ======== ======= =======
REVENUE RECOGNITION Licensing Licensing revenue is recognized on a monthly basis in accordance with a licensing agreement with The Knot, Inc. F-30 118 CASENHISER CLOTHING COMPANY, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) Merchandise Merchandise revenues are derived from the sale of wedding supply and novelty items and are recognized when the products are shipped to customers. Such revenues include outbound shipping and handling charges. The Company provides an allowance for estimated sales returns. Advertising Advertising revenues are derived principally from short-term advertising contracts and recognized on a straight-line basis over the duration of the contract. ADVERTISING COSTS Advertising costs are expensed as incurred. Advertising expense approximated $3,400, $100, and $2,800 (unaudited) for the year ended December 31, 1997 and the periods ended April 1, 1998 and 1997, respectively. CONCENTRATION OF CREDIT RISK For the year ended December 31, 1997 and the period ended April 1, 1998, one customer (The Knot, Inc.) accounted for 78% and 84% of net revenues, respectively. COMPREHENSIVE INCOME As of January 1, 1998, the Company adopted the provisions of SFAS No. 130, "Reporting Comprehensive Income". This statement establishes standards for reporting and displaying comprehensive income and its components in a full set of general purpose financial statements. The adoption of this standard has had no impact on the Company's financial statements. Accordingly, the Company's comprehensive net loss is equal to its net loss for all periods presented. 3. COMMITMENTS OPERATING LEASES The Company leased office space in California on a month to month basis. Rent expense for the years ended December 31, 1997 and the periods ended April 1, 1998 and 1997 amounted to $1,000, $2,000 and $0 (unaudited), respectively. 4. YEAR 2000 (UNAUDITED) The Company currently operates numerous date-sensitive computer applications and systems throughout its business. As the century change approaches, it will be essential for the Company to ensure that these systems properly recognize the year 2000 and continue to process critical operation and financial information. The Company has established processes for evaluating and managing the risks and costs associated with preparing the Company's systems and applications for the year 2000 change. The Company has substantially completed these modifications and costs to allow thorough testing before the year 2000. F-31 119 BACK INSIDE COVER: - Center of page contains four photos from various weddings. - Bottom of page contains The Knot's Web site address and lists The Knot's AOL keyword ("weddings"). 120 [THE KNOT LOGO] 121 PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION The following table sets forth the estimated costs and expenses, other than the underwriting discounts and commissions, payable by the registrant in connection with the sale of the common stock being registered.
AMOUNT TO BE PAID ---------- SEC registration fee....................................... $ 12,788 NASD filing fee............................................ 5,100 Nasdaq National Market listing fee......................... 95,000 Legal fees and expenses.................................... 350,000 Accounting fees and expenses............................... 250,000 Printing and engraving..................................... 250,000 Blue Sky fees and expenses................................. 10,000 Transfer Agent and Registrar fees and expenses............. 15,000 Miscellaneous.............................................. 12,112 ---------- Total................................................. $1,000,000 ==========
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS The registrant's Certificate of Incorporation in effect as of the date hereof, and the registrant's Amended and Restated Certificate of Incorporation to be in effect upon the closing of this offering (collectively, the "Certificate") provides that, except to the extent prohibited by the Delaware General Corporation Law, as amended (the "DGCL"), the registrant's directors shall not be personally liable to the registrant or its stockholders for monetary damages for any breach of fiduciary duty as directors of the registrant. Under the DGCL, the directors have a fiduciary duty to the registrant which is not eliminated by this provision of the Certificate and, in appropriate circumstances, equitable remedies such as injunctive or other forms of non-monetary relief will remain available. In addition, each director will continue to be subject to liability under the DGCL for breach of the director's duty of loyalty to the registrant, for acts or omissions which are found by a court of competent jurisdiction to be not in good faith or involving intentional misconduct, for knowing violations of law, for actions leading to improper personal benefit to the director, and for payment of dividends or approval of stock repurchases or redemptions that are prohibited by DGCL. This provision also does not affect the directors' responsibilities under any other laws, such as the Federal securities laws or state or Federal environmental laws. The registrant intends to obtain liability insurance for its officers and directors. Section 145 of the DGCL empowers a corporation to indemnify its directors and officers and to purchase insurance with respect to liability arising out of their capacity or status as directors and officers, provided that this provision shall not eliminate or limit the liability of a director: (i) for any breach of the director's duty of loyalty to the corporation II-1 122 or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) arising under Section 174 of the DGCL, or (iv) for any transaction from which the director derived an improper personal benefit. The DGCL provides further that the indemnification permitted thereunder shall not be deemed exclusive of any other rights to which the directors and officers may be entitled under the corporation's bylaws, any agreement, a vote of stockholders or otherwise. The Certificate eliminates the personal liability of directors to the fullest extent permitted by Section 102(b)(7) of the DGCL and provides that the registrant shall fully 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 (whether civil, criminal, administrative or investigative) by reason of the fact that such person is or was a director or officer of the registrant, or is or was serving at the request of the registrant as a director or officer of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise, against expenses (including attorney's fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by such person in connection with such action, suit or proceeding. Prior to the completion of this offering, we intend to enter into indemnification agreements with each of our current directors and executive officers to give them additional contractual assurances regarding the scope of the indemnification provided in our certificate of incorporation and to provide additional procedural protections in the event of litigation. At present, there is no pending litigation or proceeding involving any director, officer, employee or agent as to which indemnification will be required or permitted under the Certificate. The registrant is not aware of any threatened litigation or proceeding that may result in a claim for such indemnification. We intend to obtain liability insurance for our directors and officers. ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES Common Stock. On April 2, 1998, November 13, 1998 and April 2, 1999, the registrant issued 162,540, 178,031 and 44,504 shares of common stock, respectively, valued at $1.05 for financial reporting purposes, to Casenhiser Clothing Company, Inc. d/b/a Bridal Search and certain members of its management in connection with the acquisition of the assets of Bridal Search. On April 28, 1998 the registrant issued to each of its four founders 267,030 shares of common stock valued at $1.05 for financial reporting purposes, in connection with a recapitalization of the company. On July 30, 1999, the registrant issued 5,000 shares of common stock valued at $7.00 per share for financial reporting purposes, to Jack Benoff in connection with the acquisition of Click Trips, Inc. On August 18, 1999, the registrant issued 10,000 shares of common stock valued at $8.00 per share for financial reporting purposes, to Denis Reggie in connection with the acquisition of Wedding Photographers Network. Preferred Stock and Warrants. On April 28, 1998, the registrant sold an aggregate of 3,360,000 shares of Series A Preferred Stock to Hummer Winblad Venture Partners III, L.P., Hummer Winblad Technology Fund III, L.P. and America Online for an aggregate purchase price of $3.9 million. Upon the closing of this offering, all of the outstanding shares of Series A Preferred Stock will convert into an aggregate of 3,360,000 shares of common stock. On April 13, 1999, the registrant sold 4,000,000 shares of Series B Preferred Stock to QVC, Inc. for an aggregate of $15.0 million. Upon the closing of this offering all of the II-2 123 outstanding shares of Series B Preferred Stock will convert into an aggregate of 4,000,000 shares of common stock. In connection with this sale, QVC received a warrant to purchase 1,700,000 shares of common stock at an exercise price of $5.00 per share. The warrant becomes exercisable upon the earlier of the fourth anniversary of the issuance of the warrant or the initial public offering of the registrant's common stock. On July 23, 1999, the registrant issued to America Online a warrant to purchase 366,667 shares of common stock at a price equal to $7.20 per share, in connection with the amended anchor tenant agreement between registrant and AOL. The warrant is exercisable for eight years from the date of grant. Options. The registrant from time to time has granted stock options to employees, directors and consultants. The following table sets forth information regarding such grants during the past three fiscal years.
NUMBER OF OPTIONS EXERCISE PRICES ----------------- --------------- May 2, 1996 (inception) to December 31, 1996........ 0 $ 0 January 1, 1997 to December 31, 1997................ 98,825 $ 0.01 January 1, 1998 to December 31, 1998................ 583,000 $ 0.50
The above securities were offered and sold by the registrant in reliance upon exemptions from registration pursuant either to (i) Section 4(2) of the Securities Act of 1933, as transactions not involving any public offering, or (ii) Rule 701 under the Securities Act of 1933. No underwriters were involved in connection with the sales of securities referred to in this Item 15. ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES (a) Exhibits.
NUMBER DESCRIPTION - ------ ----------- 1.1 Form of Underwriting Agreement 3.1** Amended and Restated Certificate of Incorporation 3.2** Form of Amended and Restated Certificate of Incorporation to be in effect upon the closing of this offering 3.3** Bylaws 3.4** Form of Amended and Restated Bylaws to be in effect upon the closing of this offering 4.1** Specimen Common Stock certificate 4.2** See Exhibits 3.1, 3.2, 3.3 and 3.4 for provisions defining the rights of holders of common stock of the registrant 4.3** Common Stock Warrant Certificate of QVC Interactive Holdings, Inc. 4.4** Warrant Agreement of America Online, Inc. 5.1** Opinion of Brobeck, Phleger & Harrison LLP 10.1** Employment Agreement between The Knot, Inc. and David Liu 10.2** Employment Agreement between The Knot, Inc. and Carley Roney 10.3** Employment Agreement between The Knot, Inc. and Richard Szefc
II-3 124
NUMBER DESCRIPTION - ------ ----------- 10.4** Employment Agreement between The Knot, Inc. and Sandra Stiles 10.5** 1999 Stock Incentive Plan 10.6** Employee Stock Purchase Plan 10.7** Third Amended and Restated Investor Rights Agreement 10.8+ Services Agreement between The Knot, Inc. and QVC, Inc. 10.9+ Amended and Restated Anchor Tenant Agreement between The Knot, Inc. and America Online, Inc. 10.10** Form of Indemnification Agreement 21.1** Subsidiaries 23.1 Consent of Ernst & Young LLP 23.2** Consent of Brobeck, Phleger & Harrison LLP (included in Exhibit 5.1) 24.1** Powers of Attorney (See Signature Page) 27.1** Financial Data Schedule
- ------------------------- * To be supplied by amendment. ** Previously filed. + Confidential treatment has been requested for certain portions omitted from this Exhibit pursuant to Rule 406 promulgated under the Securities Act. Confidential portions of this Exhibit have been separately filed with the Securities and Exchange Commission. (b) Financial Statement Schedules. Schedule II -- Valuation and Qualifying Accounts, Nine Months Ended September 30, 1999 ITEM 17. UNDERTAKINGS The undersigned registrant hereby undertakes to provide to the Underwriter at the closing specified in the Underwriting Agreement, certificates in such denominations and registered in such names as required by the Underwriter 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 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 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 Act and will be governed by the final adjudication of such issue. II-4 125 The undersigned registrant hereby undertakes that: (1) For purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4), or 497(h) under the Securities Act of 1933, shall be deemed to be part of this registration statement as of the time it was declared effective. (2) For the purpose of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. II-5 126 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, as amended, the registrant has duly caused this Amendment No. 4 to the Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized in the City of New York, State of New York, on this 26th day of November, 1999. THE KNOT, INC. By: /s/ DAVID LIU ------------------------------------ David Liu President and Chief Executive Officer Pursuant to the requirements of the Securities Act of 1933, as amended, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated:
SIGNATURE TITLE(S) DATE --------- -------- ---- /s/ DAVID LIU President, Chief Executive November 26, 1999 - --------------------------------------------------- Officer and Chairman of David Liu the Board of Directors (principal executive officer) * Chief Financial Officer, November 26, 1999 - --------------------------------------------------- Treasurer and Secretary Richard Szefc (principal financial and accounting officer) * Chief Operating Officer, November 26, 1999 - --------------------------------------------------- Assistant Secretary and Sandra Stiles Director * Director November 26, 1999 - --------------------------------------------------- John Link * Director November 26, 1999 - --------------------------------------------------- Ann Winblad *By: /s/ DAVID LIU ---------------------------------------------- David Liu as Attorney-in-Fact
II-6 127 REPORT OF INDEPENDENT AUDITORS We have audited the consolidated financial statements of The Knot, Inc. as of December 31, 1997 and 1998 and September 30, 1999, and the related consolidated statements of operations, stockholders' (deficit) equity and cash flows for the period from May 2, 1996 (date of inception) to December 31, 1996, the years ended December 31, 1997 and 1998, and the nine month period ended September 30, 1999, and have issued our report thereon dated October 26, 1999. Our audits also included the consolidated financial statement schedule listed in Item 14(a). This schedule is the responsibility of the Company's management. Our responsibility is to express an opinion based on our audits. In our opinion, the consolidated financial statement schedule referred to above, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth therein. /s/ ERNST & YOUNG LLP New York, New York October 26, 1999, except for Note 12 as to which the date is November 5, 1999 S-1 128 SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS NINE MONTHS ENDED SEPTEMBER 30, 1999
BALANCE AT CHARGED TO WRITE-OFFS BALANCE AT BEGINNING COSTS AND CHARGED TO NET OF SEPTEMBER 30, OF YEAR EXPENSES OTHER ACCOUNTS RECOVERIES 1999 ---------- ---------- -------------- ---------- ------------- Allowance for Doubtful Accounts 1999................ $ -- $133,000 $ -- $ -- $133,000 Allowance for Loan Receivable 1999......................... $ -- $ 50,000 $ -- $ -- $ 50,000
S-2 129 INDEX TO EXHIBITS
NUMBER DESCRIPTION - ------ ----------- 1.1 Form of Underwriting Agreement 3.1** Amended and Restated Certificate of Incorporation 3.2** Form of Amended and Restated Certificate of Incorporation to be in effect upon the closing of this offering 3.3** Bylaws 3.4** Form of Amended and Restated Bylaws to be in effect upon the closing of this offering 4.1** Specimen Common Stock certificate 4.2** See Exhibits 3.1, 3.2, 3.3 and 3.4 for provisions defining the rights of holders of common stock of the registrant 4.3** Common Stock Warrant Certificate of QVC Interactive Holdings, Inc. 4.4** Warrant Agreement of America Online, Inc. 5.1** Opinion of Brobeck, Phleger & Harrison LLP 10.1** Employment Agreement between The Knot, Inc. and David Liu 10.2** Employment Agreement between The Knot, Inc. and Carley Roney 10.3** Employment Agreement between The Knot, Inc. and Richard Szefc 10.4** Employment Agreement between The Knot, Inc. and Sandra Stiles 10.5** 1999 Stock Incentive Plan 10.6** Employee Stock Purchase Plan 10.7** Third Amended and Restated Investor Rights Agreement 10.8+ Services Agreement between The Knot, Inc. and QVC, Inc. 10.9+ Amended and Restated Anchor Tenant Agreement between The Knot, Inc. and America Online, Inc. 10.10** Form of Indemnification Agreement 21.1** Subsidiaries 23.1 Consent of Ernst & Young LLP 23.2** Consent of Brobeck, Phleger & Harrison LLP (included in Exhibit 5.1) 24.1** Powers of Attorney (See Signature Page) 27.1** Financial Data Schedule
- ------------------------- * To be supplied by amendment. ** Previously filed. + Confidential treatment has been requested for certain portions omitted from this Exhibit pursuant to Rule 406 promulgated under the Securities Act. Confidential portions of this Exhibit have been separately filed with the Securities and Exchange Commission. EX-1.1 2 FORM OF UNDERWRITING AGREEMENT 1 3,500,000 SHARES THE KNOT, INC. COMMON STOCK UNDERWRITING AGREEMENT __________ __, 1999 Credit Suisse First Boston Corporation Hambrecht & Quist Llc Salomon Smith Barney Inc., As Representatives of the Several Underwriters, c/o Credit Suisse First Boston Corporation, Eleven Madison Avenue, New York, N.Y. 10010-3629 Dear Sirs: 1. Introductory. The Knot, Inc., a Delaware corporation ("COMPANY"), proposes to issue and sell 3,500,000 shares ("FIRM SECURITIES") of its Common Stock, par value $.01 per share ("SECURITIES"), and also proposes to issue and sell to the Underwriters, at the option of the Underwriters, an aggregate of not more than 525,000 additional shares ("OPTIONAL SECURITIES") of its Securities as set forth below. The Firm Securities and the Optional Securities are herein collectively called the "OFFERED SECURITIES". As part of the offering contemplated by this Agreement, Hambrecht & Quist LLC (the "DESIGNATED UNDERWRITER") has agreed to reserve out of the Firm Securities purchased by it under this Agreement, up to 175,000 shares, for sale to the Company's directors, officers, employees and other parties associated with the Company (collectively, "PARTICIPANTS"), as set forth in the Prospectus (as defined herein) under the heading "Underwriters" (the "DIRECTED SHARE PROGRAM"). The Firm Securities to be sold by the Designated Underwriter pursuant to the Directed Share Program (the "DIRECTED SHARES") will be sold by the Designated Underwriter pursuant to this Agreement at the public offering price. Any Directed Shares not orally confirmed for purchase by a Participant by the end of the 2 business day on which this Agreement is executed will be offered to the public by the Underwriters as set forth in the Prospectus. The Company hereby agrees with the several Underwriters named in Schedule A hereto ("UNDERWRITERS") as follows: 2. Representations and Warranties of the Company. The Company represents and warrants to, and agrees with, the several Underwriters that: (a) A registration statement (No. 333-87345) relating to the Offered Securities, including a form of prospectus, has been filed with the Securities and Exchange Commission ("COMMISSION") and either (i) has been declared effective under the Securities Act of 1933, as amended ("ACT"), and is not proposed to be amended or (ii) is proposed to be amended by amendment or post-effective amendment. If such registration statement ("INITIAL REGISTRATION STATEMENT") has been declared effective, either (i) an additional registration statement ("ADDITIONAL REGISTRATION STATEMENT") relating to the Offered Securities may have been filed with the Commission pursuant to Rule 462(b) ("RULE 462(b)") under the Act and, if so filed, has become effective upon filing pursuant to such Rule and the Offered Securities all have been duly registered under the Act pursuant to the initial registration statement and, if applicable, the additional registration statement or (ii) such an additional registration statement is proposed to be filed with the Commission pursuant to Rule 462(b) and will become effective upon filing pursuant to such Rule and upon such filing the Offered Securities will all have been duly registered under the Act pursuant to the initial registration statement and such additional registration statement. If the Company does not propose to amend the initial registration statement or if an additional registration statement has been filed and the Company does not propose to amend it, and if any post-effective amendment to either such registration statement has been filed with the Commission prior to the execution and delivery of this Agreement, the most recent amendment (if any) to each such registration statement has been declared effective by the Commission or has become effective upon filing pursuant to Rule 462(c) ("RULE 462(c)") under the Act or, in the case of the additional registration statement, Rule 462(b). For purposes of this Agreement, "EFFECTIVE TIME" with respect to the initial registration statement or, if filed prior to the execution and delivery of this Agreement, the additional registration statement means (i) if the Company has advised the Representatives that it does not propose to amend such registration statement, the date and time as of which such registration statement, or the most recent post-effective amendment thereto (if any) filed prior to the execution and delivery of this Agreement, was declared effective by the Commission or has become effective upon filing pursuant to Rule 462(c), or (ii) if the Company has advised the Representatives that it proposes to file an amendment or post-effective amendment to such registration statement, the date and time as of which such registration statement, as amended by such amendment or post-effective amendment, as the case may be, is declared effective by the Commission. If an additional registration statement has not been filed prior to the execution and delivery of this Agreement but the Company has advised the 3 Representatives that it proposes to file one, "EFFECTIVE TIME" with respect to such additional registration statement means the date and time as of which such registration statement is filed and becomes effective pursuant to Rule 462(b). "EFFECTIVE DATE" with respect to the initial registration statement or the additional registration statement (if any) means the date of the Effective Time thereof. The initial registration statement, as amended at its Effective Time, including all information contained in the additional registration statement (if any) and deemed to be a part of the initial registration statement as of the Effective Time of the additional registration statement pursuant to the General Instructions of the Form on which it is filed and including all information (if any) deemed to be a part of the initial registration statement as of its Effective Time pursuant to Rule 430A(b) ("RULE 430A(b)") under the Act, is hereinafter referred to as the "INITIAL REGISTRATION STATEMENT". The additional registration statement, as amended at its Effective Time, including the contents of the initial registration statement incorporated by reference therein and including all information (if any) deemed to be a part of the additional registration statement as of its Effective Time pursuant to Rule 430A(b), is hereinafter referred to as the "ADDITIONAL REGISTRATION STATEMENT". The Initial Registration Statement and the Additional Registration Statement are herein referred to collectively as the "REGISTRATION STATEMENTS" and individually as a "REGISTRATION STATEMENT". The form of prospectus relating to the Offered Securities, as first filed with the Commission pursuant to and in accordance with Rule 424(b) ("RULE 424(b)") under the Act or (if no such filing is required) as included in a Registration Statement, is hereinafter referred to as the "PROSPECTUS". No document has been or will be prepared or distributed in reliance on Rule 434 under the Act. (b) If the Effective Time of the Initial Registration Statement is prior to the execution and delivery of this Agreement: (i) on the Effective Date of the Initial Registration Statement, the Initial Registration Statement conformed in all respects to the requirements of the Act and the rules and regulations of the Commission ("RULES AND REGULATIONS") and did not include any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading, (ii) on the Effective Date of the Additional Registration Statement (if any), each Registration Statement conformed, or will conform, in all respects to the requirements of the Act and the Rules and Regulations and did not include, or will not include, any untrue statement of a material fact and did not omit, or will not omit, to state any material fact required to be stated therein or necessary to make the statements therein not misleading and (iii) on the date of this Agreement, the Initial Registration Statement and, if the Effective Time of the Additional Registration Statement is prior to the execution and delivery of this Agreement, the Additional Registration 3 4 Statement each conforms, and at the time of filing of the Prospectus pursuant to Rule 424(b) or (if no such filing is required) at the Effective Date of the Additional Registration Statement in which the Prospectus is included, each Registration Statement and the Prospectus will conform, in all respects to the requirements of the Act and the Rules and Regulations, and neither of such documents includes, or will include, any untrue statement of a material fact or omits, or will omit, to state any material fact required to be stated therein or necessary to make the statements therein not misleading. If the Effective Time of the Initial Registration Statement is subsequent to the execution and delivery of this Agreement: on the Effective Date of the Initial Registration Statement, the Initial Registration Statement and the Prospectus will conform in all respects to the requirements of the Act and the Rules and Regulations, neither of such documents will include any untrue statement of a material fact or will omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading, and no Additional Registration Statement has been or will be filed. The two preceding sentences do not apply to statements in or omissions from a Registration Statement or the Prospectus based upon written information furnished to the Company by any Underwriter through the Representatives specifically for use therein, it being understood and agreed that the only such information is that described as such in Section 7(b) hereof. (c) The Company has not distributed and, prior to the later of (a) any Closing Date (as defined herein) and (b) the completion of the distribution of the Offered Securities, will not distribute any offering material in connection with the offering of the Offered Securities other than a Registration Statement, any preliminary prospectus contained therein or the Prospectus or any amendment or supplement thereto. (d) The Company has been duly incorporated and is an existing corporation in good standing under the laws of the State of Delaware, with power and authority (corporate and other) to own its properties and conduct its business as described in the Prospectus; and the Company is duly qualified to do business as a foreign corporation in good standing in all other jurisdictions in which its ownership or lease of property or the conduct of its business requires such qualification, except where the failure to be so qualified would not have a material adverse effect on the condition (financial or otherwise), business, prospects, properties or results of operations of the Company and its subsidiaries taken as a whole ("MATERIAL ADVERSE EFFECT"). (e) Each subsidiary of the Company has been duly incorporated and is an existing corporation in good standing under the laws of the jurisdiction of its 4 5 incorporation, with power and authority (corporate and other) to own its properties and conduct its business as described in the Prospectus; and each subsidiary of the Company is duly qualified to do business as a foreign corporation in good standing in all other jurisdictions in which its ownership or lease of property or the conduct of its business requires such qualification, except where the failure to be so qualified would not have a Material Adverse Effect; all of the issued and outstanding capital stock of each subsidiary of the Company has been duly authorized and validly issued and is fully paid and nonassessable; and the capital stock of each subsidiary owned by the Company, directly or through subsidiaries, is owned free from liens, encumbrances and defects. (f) The Offered Securities and all other outstanding shares of capital stock of the Company have been duly authorized; all outstanding shares of capital stock of the Company are, and, when the Offered Securities have been delivered and paid for in accordance with this Agreement on each Closing Date (as defined below), such Offered Securities will have been, validly issued, fully paid and nonassessable and will conform to the description thereof contained in the Prospectus; and the stockholders of the Company have no preemptive rights with respect to the Securities. The authorized capital stock of the Company conforms to the description thereof contained in the Prospectus. The information set forth under the caption "Capitalization" in the Prospectus is true and complete. The descriptions of the Company's stock option, stock purchase and other stock plans or arrangements, and the options or other rights granted and exercised thereunder, set forth in the Prospectus, accurately and fairly present the information required to be shown with respect to such plans, arrangements, options and rights. Without limiting the generality of the preceding sentence, there are no outstanding options, warrants, subscriptions, rights, calls, convertible securities, commitments of sale or liens or other rights granted or issued by the Company to purchase Securities or other securities of the Company, other than as disclosed in the Prospectus. (g) Except as disclosed in the Prospectus, there are no contracts, agreements or understandings between the Company and any person that would give rise to a valid claim against the Company or any Underwriter for a brokerage commission, finder's fee or other like payment in connection with this offering. (h) Except as disclosed in the Prospectus, there are no contracts, agreements or understandings between the Company and any person granting such person the right to require the Company to file a registration statement under the Act with respect to any securities of the Company owned or to be owned by such person, or to require the Company to include such securities in the securities registered pursuant 5 6 to any other registration statement filed by the Company under the Act. (i) The Company has filed a registration statement pursuant to Section 12(g) of the Securities Exchange Act of 1934, as amended ("EXCHANGE ACT"), to register the Securities and has filed an application to list the Securities on the Nasdaq National Market; and the Securities have been approved for listing on the Nasdaq Stock Market's National Market subject to notice of issuance. (j) No consent, approval, authorization, or order of, or filing with, any governmental agency or body or any court is required for the consummation of the transactions contemplated by this Agreement in connection with the issuance and sale of the Offered Securities by the Company, except such as have been obtained and made under the Act and such as may be required under state securities or Blue Sky laws or the by-laws or rules and regulations of the National Association of Securities Dealers, Inc. ("NASD"). (k) Neither the Company nor any subsidiary of the Company is (i) in violation of the charter or by-laws of the Company or any such subsidiary, (ii) in default in the performance of any obligation, agreement, covenant or condition contained in any indenture, loan agreement, mortgage, lease or other agreement or instrument that is material to the Company and its subsidiaries, taken as a whole, to which the Company or any subsidiary of the Company is a party or by which the Company or any subsidiary of the Company or any of their properties is bound or (iii) in violation of any applicable law or any rule, regulation, judgment, order or decree of any court or any governmental body or agency having jurisdiction over the Company, any subsidiary of the Company or any of their properties which violations individually or in the aggregate could have a Material Adverse Effect. (l) The execution, delivery and performance of this Agreement, and the issuance and sale of the Offered Securities will not result in a breach or violation of any of the terms and provisions of, or constitute a default under, any statute, any rule, regulation or order of any governmental agency or body or any court, domestic or foreign, having jurisdiction over the Company or any subsidiary of the Company or any of their properties, or any agreement or instrument to which the Company or any such subsidiary is a party or by which the Company or any such subsidiary is bound or to which any of the properties of the Company or any such subsidiary is subject, or the charter or by-laws of the Company or any such subsidiary, and will not result in the suspension, termination or revocation of any Authorization (as defined below) of the Company or any subsidiary of the Company or any other impairment of the rights of the holder of any such Authorization, and the Company has full power and authority to enter into this 6 7 Agreement and to authorize, issue and sell the Offered Securities as contemplated by this Agreement. (m) This Agreement has been duly authorized, executed and delivered by the Company and is a valid and binding agreement on the part of the Company, enforceable in accordance with its terms, except as rights to indemnification hereunder may be limited by applicable law and except as the enforcement hereof may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws relating to or affecting creditors' rights generally or by general equitable principles. (n) Except as disclosed in the Prospectus, the Company and its subsidiaries have good and marketable title to all real properties and all other properties and assets owned by them, in each case free from liens, encumbrances and defects that would materially affect the value thereof or materially interfere with the use made or to be made thereof by them; and except as disclosed in the Prospectus, the Company and its subsidiaries hold any leased real or personal property under valid and enforceable leases with no exceptions that would materially interfere with the use made or to be made thereof by them. (o) The Company and its subsidiaries possess adequate certificates, authorities or permits ("AUTHORIZATIONS") issued by appropriate governmental agencies or bodies necessary to conduct the business now operated by them and have not received any notice of proceedings relating to the revocation or modification of any Authorization that, if determined adversely to the Company or any of its subsidiaries, would individually or in the aggregate have a Material Adverse Effect. (p) No labor dispute with the employees of the Company or any subsidiary exists or, to the knowledge of the Company, is imminent that might have a Material Adverse Effect. (q) The Company and its subsidiaries own, possess valid and enforceable licenses to or other rights to use, or can acquire on reasonable terms, adequate trademarks, trade names and other rights to inventions, know-how, patents, copyrights, confidential information and other intellectual property (collectively, "INTELLECTUAL PROPERTY") currently employed by the Company and its subsidiaries in connection with the business now operated by them, except where the failure to own or possess such Intellectual Property would not, singly or in the aggregate, have a Material Adverse Effect. The Company has duly registered with all required authorities the domain name of its sites on the World Wide Web 7 8 ("DOMAIN NAMES") located at http://www.theknot.com, http:///www.bridalink.com and http://www.clicktrips.com, and is the sole and exclusive owner of and possesses all rights necessary to use the Domain Names. Neither the Company, nor its subsidiaries, has received any notice of a claim, nor does any of them have knowledge of facts for any such claim, that: (i) challenges the Company's or its subsidiaries' rights in or to any Intellectual Property; (ii) challenges the validity or scope of any Intellectual Property; (iii) any third party has or will be able to establish any rights in the Intellectual Property, except for the ownership rights of the owners of the Intellectual Property which is licensed to the Company or the rights of parties to whom the Company has granted licenses of such Intellectual Property; (iv) the Intellectual Property infringes or otherwise violates any patent, copyright, trade secret, trademark or other proprietary right of any third party; or (v) there is infringement of the Intellectual Property by any third party, which, in the case of any such claim specified in clauses (i), (ii), (iii), (iv) or (v) above, singly or in the aggregate, if the subject of an unfavorable decision, ruling or finding, would have a Material Adverse Effect. The Company has agreements in place with each employee, consultant or other person or party engaged by the Company for the assignment to the Company of all intellectual property and exploitation rights in the work performed and the protection of the trade secrets and confidential information of the Company and of third parties which have been developed by such person for or on behalf of the Company. (r) Except as disclosed in the Prospectus, neither the Company nor any of its subsidiaries is in violation of any statute, any rule, regulation, decision or order of any governmental agency or body or any court, domestic or foreign, relating to the use, disposal or release of hazardous or toxic substances or relating to the protection or restoration of the environment or human exposure to hazardous or toxic substances (collectively, "ENVIRONMENTAL LAWS"), owns or operates any real property contaminated with any substance that is subject to any environmental laws, is liable for any off-site disposal or contamination pursuant to any environmental laws, or is subject to any claim relating to any environmental laws, which violation, contamination, liability or claim would individually or in the aggregate have a Material Adverse Effect; and the Company is not aware of any pending investigation which might lead to such a claim. (s) Except as disclosed in the Prospectus, there are no pending actions, suits or proceedings against or affecting the Company, any of its subsidiaries or any of their respective properties that, if determined adversely to the Company or any of its subsidiaries, would individually or in the aggregate have a Material Adverse Effect, or would materially and adversely affect the ability of the Company to perform its obligations under this Agreement, or which are otherwise material in 8 9 the context of the sale of the Offered Securities; and no such actions, suits or proceedings are, to the Company's knowledge, threatened or contemplated. (t) The financial statements included in each Registration Statement and the Prospectus present fairly the financial position of the Company and its consolidated subsidiaries as of the dates shown and their results of operations and cash flows for the periods shown, and such financial statements have been prepared in conformity with the generally accepted accounting principles in the United States applied on a consistent basis and the schedules included in each Registration Statement present fairly the information required to be stated therein; and the assumptions used in preparing the pro forma financial statements included in each Registration Statement and the Prospectus provide a reasonable basis for presenting the significant effects directly attributable to the transactions or events described therein, the related pro forma adjustments give appropriate effect to those assumptions, and the pro forma columns therein reflect the proper application of those adjustments to the corresponding historical financial statement amounts; and the other financial and statistical information and date set forth in each Registration Statement and the Prospectus (and any amendment or supplement thereto) are, in all material respects, accurately presented and prepared on a basis consistent with such financial statements and the books and records of the Company. (u) Except as disclosed in the Prospectus, since the date of the latest audited financial statements included in the Prospectus there has been no material adverse change, nor any development or event involving a prospective material adverse change, in the condition (financial or other), business, properties or results of operations of the Company and its subsidiaries taken as a whole, and, except as disclosed in or contemplated by the Prospectus, there has been no dividend or distribution of any kind declared, paid or made by the Company on any class of its capital stock. (v) The Company is not and, after giving effect to the offering and sale of the Offered Securities and the application of the proceeds thereof as described in the Prospectus, will not be an "investment company" as defined in the Investment Company Act of 1940, as amended. (w) Furthermore, the Company represents and warrants to the Underwriters that (i) the Registration Statement, the Prospectus and any preliminary prospectus comply, and any further amendments or supplements thereto will comply, with any applicable laws or regulations of foreign jurisdictions in which the Prospectus or any preliminary prospectus, as amended or supplemented, if applicable, are 9 10 distributed in connection with the Directed Share Program, and that (ii) no authorization, approval, consent, license, order, registration or qualification of or with any government, governmental instrumentality or court, other than such as have been obtained, is necessary under the securities law and regulations of foreign jurisdictions in which the Directed Shares are offered outside the United States. (x) The Company has not offered, or caused the Underwriters to offer, any offered Securities to any person pursuant to the Directed Share Program with the specific intent to unlawfully influence (i) a customer or supplier of the Company to alter the customer's or supplier's level or type of business with the Company or (ii) a trade journalist or publication to write or publish favorable information about the Company or its products. (y) No relationship, direct or indirect, exists between or among the Company or any of its subsidiaries on the one hand, and the directors, officers, stockholders, customers or suppliers of the Company or any of its subsidiaries on the other hand, which is required by the Act to be disclosed in the Registration Statement or the Prospectus which is not so disclosed. (z) The Company and each of its subsidiaries maintains a system of internal accounting controls sufficient to provide reasonable assurance that (i) transactions are executed in accordance with management's general or specific authorizations; (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with generally accepted accounting principles and to maintain accountability for assets; (iii) access to assets is permitted only in accordance with management's general or specific authorization; and (iv) the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences. (aa) All material tax returns required to be filed by the Company and each of its subsidiaries in any jurisdiction have been filed, other than those filings being contested in good faith, and all material taxes, including withholding taxes, penalties and interest, assessments, fees and other charges due pursuant to such returns or pursuant to any assessment received by the Company or any of its subsidiaries have been paid, other than those being contested in good faith and for which adequate reserves have been provided. (bb) The Company has reviewed its operations and those of any third 10 11 parties with which the Company has a material relationship to evaluate the extent to which the business or operations of the Company will be affected by the Year 2000 Problem. As a result of such review, the Company has no reason to believe, and does not believe, that the Year 2000 Problem will have a Material Adverse Effect. The "YEAR 2000 PROBLEM" as used herein means any significant risk that computer hardware or software used in the receipt, transmission, processing, manipulation, storage, retrieval, retransmission or other utilization of data or in the operation of mechanical or electrical systems of any kind will not be able to reliably distinguish dates beginning on January 1, 2000 from dates prior to January 1, 2000. (cc) The Company has not at any time during the last five (5) years (i) made any unlawful contribution to any candidate for foreign office or failed to disclose fully any contribution in violation of law, or (ii) made any payment to any federal or state governmental officer or official, or other person charged with similar public or quasi-public duties, other than payments required or permitted by the laws of the United States or any jurisdiction thereof. (dd) The Company has not taken and will not take, directly or indirectly, any action designed to or that might reasonably be expected to cause or result in stabilization or manipulation of the price of Securities to facilitate the sale or resale of the Offered Securities. (ee) The Company carries, or is covered by, insurance in such amounts and covering such risks as is adequate for the conduct of its business and the value of its respective properties and as is customary for companies engaged in similar business. 3. Purchase, Sale and Delivery of Offered Securities. On the basis of the representations, warranties and agreements herein contained, but subject to the terms and conditions herein set forth, the Company agrees to sell to the Underwriters, and the Underwriters agree, severally and not jointly, to purchase from the Company, at a purchase price of $ per share, the respective numbers of shares of Firm Securities set forth opposite the names of the Underwriters in Schedule A hereto. The Company will deliver the Firm Securities to the Representatives for the accounts of the Underwriters, against payment of the purchase price in Federal (same day) funds by official bank check or checks or wire transfer to an account at a bank acceptable to Credit Suisse First Boston Corporation ("CSFBC") drawn to the order of the Company at the office of Brobeck, Phleger & Harrison LLP, 1633 Broadway, 47th Floor, New York, 11 12 NY 10019, at 10:00 A.M., New York time, on , 1999, or at such other time not later than seven full business days thereafter as CSFBC and the Company determine, such time being herein referred to as the "FIRST CLOSING DATE". For purposes of Rule 15c6-1 under the Exchange Act, the First Closing Date (if later than the otherwise applicable settlement date) shall be the settlement date for payment of funds and delivery of securities for all the Offered Securities sold pursuant to the offering. The certificates for the Firm Securities so to be delivered will be in definitive form, in such denominations and registered in such names as CSFBC requests and will be made available for checking and packaging at the above office of Brobeck, Phleger & Harrison LLP at least 24 hours prior to the First Closing Date. In addition, upon written notice from CSFBC given to the Company from time to time not more than 30 days subsequent to the date of the Prospectus, the Underwriters may purchase all or less than all of the Optional Securities at the purchase price per Security to be paid for the Firm Securities. The Company agrees to sell to the Underwriters the number of shares of Optional Securities specified in such notice and the Underwriters agree, severally and not jointly, to purchase such Optional Securities. Such Optional Securities shall be purchased for the account of each Underwriter in the same proportion as the number of shares of Firm Securities set forth opposite such Underwriter's name bears to the total number of shares of Firm Securities (subject to adjustment by CSFBC to eliminate fractions) and may be purchased by the Underwriters only for the purpose of covering over-allotments made in connection with the sale of the Firm Securities. No Optional Securities shall be sold or delivered unless the Firm Securities previously have been, or simultaneously are, sold and delivered. The right to purchase the Optional Securities or any portion thereof may be exercised from time to time and to the extent not previously exercised may be surrendered and terminated at any time upon notice by CSFBC to the Company. Each time for the delivery of and payment for the Optional Securities, being herein referred to as an "OPTIONAL CLOSING DATE", which may be the First Closing Date (the First Closing Date and each Optional Closing Date, if any, being sometimes referred to as a "CLOSING DATE"), shall be determined by CSFBC but shall be not later than five full business days after written notice of election to purchase Optional Securities is given. The Company will deliver the Optional Securities being purchased on each Optional Closing Date to the Representatives for the accounts of the several Underwriters, against payment of the purchase price therefor in Federal (same day) funds by official bank check or checks or wire transfer to an account at a bank acceptable to CSFBC drawn to the order of the Company, at the above office of Brobeck, Phleger & Harrison LLP. The certificates for the Optional Securities being purchased on each Optional Closing Date will be in definitive form, in such denominations and registered in such names as CSFBC requests upon reasonable notice prior to such Optional Closing Date and will be 12 13 made available for checking and packaging at the above office of Brobeck, Phleger & Harrison LLP at a reasonable time in advance of such Optional Closing Date. 4. Offering by Underwriters. It is understood that the several Underwriters propose to offer the Offered Securities for sale to the public as set forth in the Prospectus. 5. Certain Agreements of the Company. The Company agrees with the several Underwriters that: (a) If the Effective Time of the Initial Registration Statement is prior to the execution and delivery of this Agreement, the Company will file the Prospectus with the Commission pursuant to and in accordance with subparagraph (1) (or, if applicable and if consented to by CSFBC, subparagraph (4)) of Rule 424(b) not later than the earlier of (A) the second business day following the execution and delivery of this Agreement or (B) the fifteenth business day after the Effective Date of the Initial Registration Statement. The Company will advise CSFBC promptly of any such filing pursuant to Rule 424(b). If the Effective Time of the Initial Registration Statement is prior to the execution and delivery of this Agreement and an additional registration statement is necessary to register a portion of the Offered Securities under the Act but the Effective Time thereof has not occurred as of such execution and delivery, the Company will file the additional registration statement or, if filed, will file a post-effective amendment thereto with the Commission pursuant to and in accordance with Rule 462(b) on or prior to 10:00 P.M., New York time, on the date of this Agreement or, if earlier, on or prior to the time the Prospectus is printed and distributed to any Underwriter, or will make such filing at such later date as shall have been consented to by CSFBC. (b) The Company will advise CSFBC promptly of any proposal to amend or supplement the initial or any additional registration statement as filed or the related prospectus or the Initial Registration Statement, the Additional Registration Statement (if any) or the Prospectus and will not effect such amendment or supplementation without CSFBC's consent; and the Company will also advise CSFBC promptly of the effectiveness of each Registration Statement (if its Effective Time is subsequent to the execution and delivery of this Agreement) and of any amendment or supplementation of a Registration Statement or the Prospectus and of the institution by the Commission of any stop order proceedings in respect of a Registration Statement and will use its best efforts to prevent the issuance of any such stop order and to obtain as soon as possible its lifting, if issued. 13 14 (c) If, at any time when a prospectus relating to the Offered Securities is required to be delivered under the Act in connection with sales by any Underwriter or dealer, any event occurs as a result of which the Prospectus as then amended or supplemented would include an untrue statement of a material fact or omit to state any material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, or if it is necessary at any time to amend the Prospectus to comply with the Act, the Company will promptly notify CSFBC of such event and will promptly prepare and file with the Commission, at its own expense, an amendment or supplement which will correct such statement or omission or an amendment which will effect such compliance. Neither CSFBC's consent to, nor the Underwriters' delivery of, any such amendment or supplement shall constitute a waiver of any of the conditions set forth in Section 6. (d) As soon as practicable, but not later than the Availability Date (as defined below), the Company will make generally available to its securityholders an earnings statement covering a period of at least 12 months beginning after the Effective Date of the Initial Registration Statement (or, if later, the Effective Date of the Additional Registration Statement) which will satisfy the provisions of Section 11(a) of the Act. For the purpose of the preceding sentence, "AVAILABILITY DATE" means the 45th day after the end of the fourth fiscal quarter following the fiscal quarter that includes such Effective Date, except that, if such fourth fiscal quarter is the last quarter of the Company's fiscal year, "AVAILABILITY DATE" means the 90th day after the end of such fourth fiscal quarter. (e) The Company will furnish to the Representatives copies of each Registration Statement (four of which will be signed and will include all exhibits), each related preliminary prospectus, and, so long as a prospectus relating to the Offered Securities is required to be delivered under the Act in connection with sales by any Underwriter or dealer, the Prospectus and all amendments and supplements to such documents, in each case in such quantities as CSFBC reasonably requests. The Prospectus shall be so furnished on or prior to 3:00 P.M., New York time, on the business day following the later of the execution and delivery of this Agreement or the Effective Time of the Initial Registration Statement. All other documents shall be so furnished as soon as available. The Company will pay the expenses of printing and distributing to the Underwriters all such documents. (f) The Company will arrange for the qualification of the Offered Securities for sale under the laws of such jurisdictions as CSFBC designates and will 14 15 continue such qualifications in effect so long as required for the distribution. (g) During the period of five years hereafter, the Company will furnish to the Representatives and, upon request, to each of the other Underwriters, as soon as practicable after the end of each fiscal year, a copy of its annual report to stockholders for such year; and the Company will furnish to the Representatives (i) as soon as available, a copy of each report and any definitive proxy statement of the Company filed with the Commission under the Exchange Act or mailed to stockholders, and (ii) from time to time, such other information concerning the Company as CSFBC may reasonably request. (h) The Company will pay all expenses incident to the performance of its obligations under this Agreement, including, without limitation, (i) for any filing fees and other expenses (including fees and disbursements of counsel) incurred in connection with qualification of the Offered Securities for sale and determination of their eligibility for investment under the laws of such jurisdictions as CSFBC designates and the printing of memoranda relating thereto, (ii) for the filing fee incident to, and the reasonable fees and disbursements of counsel to the Underwriters in connection with, the review by the NASD of the Offered Securities, (iii) for any travel expenses of the Company's officers and employees and any other expenses of the Company in connection with attending or hosting meetings with prospective purchasers of the Offered Securities, and (iv) for expenses incurred in distributing preliminary prospectuses and the Prospectus (including any amendments and supplements thereto) to the Underwriters. (i) For a period of 180 days after the date of the initial public offering of the Offered Securities, the Company will not offer, sell, contract to sell, pledge or otherwise dispose of, directly or indirectly, or file with the Commission a registration statement under the Act relating to, any additional shares of its Securities or securities convertible into or exchangeable or exercisable for any shares of its Securities, or publicly disclose the intention to make any such offer, sale, pledge, disposition or filing, without the prior written consent of CSFBC, other than (i) the Company's issuance of Securities upon the exercise of warrants and stock options that are presently outstanding and described as such in the Prospectus or which may be issued hereafter under the Company's option plans described in the Prospectus, (ii) the Company's granting of options pursuant to the Company's option plans described in the Prospectus and (iii) the Company's issuance of Securities under the employee stock purchase plan described in the Prospectus. Prior to the date of this Agreement, the Company has obtained and delivered to counsel for the Underwriters the executed Lock-up Agreements (as defined). 15 16 (j) To use its best efforts to list for quotation the Securities on the Nasdaq National Market and to maintain the listing of the Securities on the Nasdaq National Market. (k) To use its best efforts to do and perform all things required or necessary to be done and performed under this Agreement by the Company prior to the Closing Date or any Optional Closing Date, as the case may be, and to satisfy all conditions precedent to the delivery of the Offered Securities. (l) If the Registration Statement at the time of the effectiveness of this Agreement does not cover all of the Securities, to file an Additional Registration Statement with the Commission registering the Securities not so covered in compliance with Rule 462(b) by 10:00 P.M., New York City time, on the date of this Agreement and to pay to the Commission the filing fee for such Additional Registration Statement at the time of the filing thereof or to give irrevocable instructions for the payment of such fee pursuant to Rule 111(b) under the Act. (m) In connection with the Directed Share Program, the Company will ensure that the Directed Shares will be restricted to the extent required by the NASD or the NASD rules from sale, transfer, assignment, pledge or hypothecation for a period of three months following the date of the effectiveness of the Registration Statement. The Designated Underwriter will notify the Company as to which Participants will need to be so restricted. The Company will direct the transfer agent to place stop transfer restrictions upon such securities for such period of time. (n) The Company will pay all fees and disbursements of counsel incurred by the Underwriters in connection with the Directed Share Program and stamp duties, similar taxes or duties or other taxes, if any, incurred by the underwriters in connection with the Directed Share Program. Furthermore, the company covenants with the Underwriters that the company will comply with all applicable securities and other applicable laws, rules and regulations in each foreign jurisdiction in which the Directed Shares are offered in connection with the Directed Share Program. 6. Conditions of the Obligations of the Underwriters. The obligations of the several Underwriters to purchase and pay for the Firm Securities on the First Closing Date and the Optional Securities to be purchased on each Optional Closing Date will be subject to the accuracy of the representations and warranties on the part of the Company 16 17 herein, to the accuracy of the statements of Company officers made pursuant to the provisions hereof, to the performance by the Company of its obligations hereunder and to the following additional conditions precedent: (a) The Representatives shall have received a letter, dated the date of delivery thereof (which, if the Effective Time of the Initial Registration Statement is prior to the execution and delivery of this Agreement, shall be on or prior to the date of this Agreement or, if the Effective Time of the Initial Registration Statement is subsequent to the execution and delivery of this Agreement, shall be prior to the filing of the amendment or post-effective amendment to the registration statement to be filed shortly prior to such Effective Time), of Ernst & Young LLP confirming that they are independent public accountants within the meaning of the Act and the applicable published Rules and Regulations thereunder and stating to the effect that: (i) in their opinion the financial statements and schedules examined by them and included in the Registration Statements comply as to form in all material respects with the applicable accounting requirements of the Act and the related published Rules and Regulations; (ii) they have performed the procedures specified by the American Institute of Certified Public Accountants for a review of interim financial information as described in Statement of Auditing Standards No. 71, Interim Financial Information, on the unaudited financial statements included in the Registration Statements; (iii) on the basis of the review referred to in clause (ii) above, a reading of the latest available interim financial statements of the Company, inquiries of officials of the Company who have responsibility for financial and accounting matters and other specified procedures, nothing came to their attention that caused them to believe that: (A) the unaudited financial statements included in the Registration Statement do not comply as to form in all material respects with the applicable accounting requirements of the Act and the related published Rules and Regulations or any material modifications should be made to such unaudited financial statements for them to be in conformity with generally accepted accounting principles; (B) at the date of the latest available balance sheet read by 17 18 such accountants, or at a subsequent specified date not more than three business days prior to the date of such letter, there was any change in the capital stock or any increase in short-term indebtedness or long-term debt of the Company and its consolidated subsidiaries or, at the date of the latest available balance sheet read by such accountants, there was any decrease in consolidated net current assets or net assets, as compared with amounts shown on the latest balance sheet included in the Prospectus; or (C) for the period from the closing date of the latest income statement included in the Prospectus to the closing date of the latest available income statement read by such accountants there were any decreases, as compared with the corresponding period of the previous year and with the period of corresponding length ended the date of the latest income statement included in the Prospectus, in consolidated net sales, or any increases in loss from operations or in the total or per share amounts of net loss, except in all cases set forth in clauses (B) and (C) above for changes, increases or decreases which the Prospectus discloses have occurred or may occur or which are described in such letter; and (iv) they have compared specified dollar amounts (or percentages derived from such dollar amounts) and other financial information contained in the Registration Statements (in each case to the extent that such dollar amounts, percentages and other financial information are derived from the general accounting records of the Company and its subsidiaries subject to the internal controls of the Company's accounting system or are derived directly from such records by analysis or computation) with the results obtained from inquiries, a reading of such general accounting records and other procedures specified in such letter and have found such dollar amounts, percentages and other financial information to be in agreement with such results, except as otherwise specified in such letter. For purposes of this subsection, (i) if the Effective Time of the Initial Registration Statement is subsequent to the execution and delivery of this Agreement, "REGISTRATION STATEMENTS" shall mean the initial registration statement as proposed to be amended by the amendment or post-effective amendment to be filed shortly prior to its Effective Time, (ii) if the Effective Time of the Initial Registration Statement is prior to the execution and delivery of this Agreement 18 19 but the Effective Time of the Additional Registration is subsequent to such execution and delivery, "REGISTRATION STATEMENTS" shall mean the Initial Registration Statement and the additional registration statement as proposed to be filed or as proposed to be amended by the post-effective amendment to be filed shortly prior to its Effective Time, and (iii) "PROSPECTUS" shall mean the prospectus included in the Registration Statements. (b) If the Effective Time of the Initial Registration Statement is not prior to the execution and delivery of this Agreement, such Effective Time shall have occurred not later than 10:00 P.M., New York time, on the date of this Agreement or such later date as shall have been consented to by CSFBC. If the Effective Time of the Additional Registration Statement (if any) is not prior to the execution and delivery of this Agreement, such Effective Time shall have occurred not later than 10:00 P.M., New York time, on the date of this Agreement or, if earlier, the time the Prospectus is printed and distributed to any Underwriter, or shall have occurred at such later date as shall have been consented to by CSFBC. If the Effective Time of the Initial Registration Statement is prior to the execution and delivery of this Agreement, the Prospectus shall have been filed with the Commission in accordance with the Rules and Regulations and Section 5(a) of this Agreement. Prior to such Closing Date, no stop order suspending the effectiveness of a Registration Statement shall have been issued and no proceedings for that purpose shall have been instituted or, to the knowledge of the Company or the Representatives, shall be contemplated by the Commission. (c) Subsequent to the execution and delivery of this Agreement, there shall not have occurred (i) any change, or any development or event involving a prospective change, in the condition (financial or other), business, properties or results of operations of the Company and its subsidiaries taken as one enterprise which, in the judgment of a majority in interest of the Underwriters including the Representatives, is material and adverse and makes it impractical or inadvisable to proceed with completion of the public offering or the sale of and payment for the Offered Securities; (ii) any downgrading in the rating of any debt securities of the Company by any "nationally recognized statistical rating organization" (as defined for purposes of Rule 436(g) under the Act), or any public announcement that any such organization has under surveillance or review its rating of any debt securities of the Company (other than an announcement with positive implications of a possible upgrading, and no implication of a possible downgrading, of such rating); (iii) any material suspension or material limitation of trading in securities generally on the New York Stock Exchange, or any setting of minimum prices for trading on such exchange, or any suspension of trading of any securities of the 19 20 Company on any exchange or in the over-the-counter market; (iv) any banking moratorium declared by U.S. Federal or New York authorities; or (v) any outbreak or escalation of major hostilities in which the United States is involved, any declaration of war by Congress or any other substantial national or international calamity or emergency if, in the judgment of a majority in interest of the Underwriters including the Representatives, the effect of any such outbreak, escalation, declaration, calamity or emergency makes it impractical or inadvisable to proceed with completion of the public offering or the sale of and payment for the Offered Securities. (d) The Representatives shall have received an opinion, dated such Closing Date, of Brobeck, Phleger & Harrison LLP, counsel for the Company, to the effect that: (i) The Company is a corporation duly incorporated, validly existing and in good standing under the laws of the State of Delaware, with corporate power and authority to own, lease and operate its properties and to conduct its business as described in the Registration Statements and the Prospectus (and any amendment or supplement thereto); and each of the Company and the Company's subsidiaries is duly qualified to do business as a foreign corporation in good standing in each of the jurisdictions listed on Exhibit A hereto; (ii) To such counsel's knowledge, Click Trips, Inc. is the only subsidiary of the Company. Click Trips, Inc. is in good standing in the Commonwealth of Pennsylvania. (iii) All the shares of capital stock of the Company outstanding prior to the issuance of the Offered Securities have been duly authorized and validly issued, to our knowledge, are FULLY PAID AND nonassessable; (iv) The Offered Securities have been duly authorized and, when issued and delivered to the Underwriters against payment therefor in accordance with the terms of the Underwriting Agreement, will be validly issued, fully paid and nonassessable and free of (A) any preemptive rights arising under the restated certificate of incorporation and by-laws of the Company or the Delaware General Corporation Law or (B) to such counsel's knowledge, similar rights that entitle or will entitle any person to acquire any shares of capital stock of the Company upon the issuance and sale of the Offered Securities; 20 21 (v) To such counsel's knowledge, except as described in the Prospectus, no holder of any securities of the Company or any other person has the right, contractual or otherwise, to cause the Company to sell or otherwise issue to them, or to permit them to underwrite the sale of, any of the Shares or the right to have any Common Stock or other securities of the Company included in the Registration Statement or the right, as a result of the filing of the Registration Statement, to require the Company to register under the Securities Act any shares of Common Stock or other securities of the Company, and any registration rights in connection with the Registration Statement and the offering contemplated thereby have been waived; (vi) The Company is not and, after giving effect to the offering and sale of the Offered Securities and the application of the proceeds thereof as described in the Prospectus, will not be an "investment company" or a person "controlled" by an "investment company" within the meaning of the Investment Company Act of 1940, as amended; (vii) No consent, approval, authorization or other order of, or registration or filing with, any governmental body, agency or official or any court is required on the part of the Company (except (A) as have been obtained under the Act and the Exchange Act or (B) such as may be required under state securities or Blue Sky laws governing the purchase and distribution of the Offered Securities, as to which such counsel need not express an opinion) for the valid issuance and sale of the Offered Securities to the Underwriters as contemplated by this Agreement; (viii) Neither the offer, sale or delivery of the Offered Shares, the execution, delivery or performance by the Company of this Agreement, compliance by the Company with the provisions of this Agreement nor consummation by the Company of the transactions contemplated by this Agreement (A) violates the restated certificate of incorporation or the by-laws, or other organizational documents, of the Company, or (B) constitutes a breach of, or a default under, any agreement, indenture, lease or other instrument to which the Company or any of its subsidiaries is a party or by which the Company or any of its subsidiaries or any of their respective properties is bound that is an exhibit to the Registration Statement, which breach or default would reasonably be expected to have a material adverse effect on the condition (financial or other), business, properties or results of operations of the Company and its subsidiaries taken as a whole or (C) will result in any violation of any existing law or 21 22 regulation (other than applicable state securities and Blue Sky laws, as to which such counsel need not express an opinion), or any ruling, judgment, injunction, order or decree known to us and applicable to the Company or any of its subsidiaries or any of their respective properties; (ix) The Company has the corporate power and authority to enter into this Agreement and to issue, sell and deliver the Offered Securities to the Underwriters as provided in this Agreement; this Agreement has been duly authorized, executed and delivered by this Company; (x) The Registration Statements were declared effective under the Act as of the dates and times specified in such opinion; to the knowledge of such counsel, no stop order suspending the effectiveness of a Registration Statement or any part thereof has been issued and no proceedings for that purpose have been instituted or are pending before or contemplated by the Commission; and any required filing of the Prospectus pursuant to Rule 424(b) has been made in accordance with Rule 424(b). (xi) All of the Offered Securities have been approved for quotation on the Nasdaq National Market, upon issuance as contemplated in this Agreement; (xii) To such counsel's knowledge, (A) there are no legal or governmental proceedings or investigations pending or threatened to which the Company or any of its subsidiaries is a party, or to which the property of the Company or any of its subsidiaries is subject, which are required to be described in any Registration Statement or the Prospectus (or any amendment or supplement thereto) that are not so described and (B) there are no agreements, contracts, indentures, leases or other documents that are required to be described in any Registration Statement or the Prospectus or to be filed as exhibits to any Registration Statement that are not so described or filed, as the case may be; and (xiii) The statements set forth under the caption "Description of Capital Stock" in the Prospectus, insofar as such statements purport to summarize certain provisions of the capital stock of the Company, provide a fair summary of such provisions in all material respects; the form of certificate for the Securities conforms in all material respects to the requirements of the Delaware General Corporation Law; the description in the Registration Statement and the Prospectus of the restated certificate of 22 23 incorporation and the by-laws of the Company fairly presents the information required to be presented by the Act and the applicable rules and regulations thereunder in all material respects; and the statements set forth under the caption "Shares Eligible for Future Sale" in the Prospectus, insofar as such statements constitute a summary of the legal matters, documents or proceedings referred to therein, provide a fair summary of such legal matters, documents and proceedings in all material respects. In addition, such counsel shall state that, in connection with the preparation of the Registration Statements and the Prospectus, such counsel has participated in conferences with certain officers and other representatives of the Company, its independent public accounts, the Underwriters and the Underwriters' counsel at which the contents of the Registration Statements, the Prospectus and related matters were discussed. Such counsel shall further state that, although such counsel is not passing upon, and does not assume any responsibility for, and has not independently checked or verified, the accuracy, completeness or fairness of the information contained in the Registration Statements and the Prospectus, based upon such counsel's participation as described above, (i) such counsel is of the opinion that each Registration Statement and the Prospectus (other than the consolidated financial statements, including the notes and schedules thereto, and the other financial and statistical data included in such Registration Statement and the Prospectus, as to which such counsel need not express such belief), and each amendment or supplement thereto, as of their respective effective or issue dates, complied as to form in all material respects with the requirements of the Act and the Rules and Regulations; (ii) no facts have come to the attention of such counsel which have caused such counsel to believe that the Registration Statements (other than the consolidated financial statements, including the notes and schedules thereto, and the other financial and statistical data included in the Registration Statements, as to which such counsel need not express such belief), at the time the Registration Statements became effective, contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein not misleading; and (iii) no facts have come to the attention of such counsel which have caused such counsel to believe that, as of the date of the Prospectus and as of the Closing Date, that the Prospectus (other than the consolidated financial statements, including the notes and schedules thereto, and the other financial and statistical data included in the Prospectus, as to which such counsel need not express such belief) contained or contains any untrue statement of a material fact or 23 24 omits to state a material fact necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. (e) The Representatives shall have received from Testa, Hurwitz & Thibeault, LLP, counsel for the Underwriters, such opinion or opinions, dated such Closing Date, with respect to the incorporation of the Company, the validity of the Offered Securities delivered on such Closing Date, the Registration Statements, the Prospectus and other related matters as the Representatives may require, and the Company shall have furnished to such counsel such documents as they request for the purpose of enabling them to pass upon such matters. In rendering such opinion, Testa, Hurwitz & Thibeault, LLP may assume as to all matters governed by New York law that the laws of the State of New York are identical in all respects to the laws of the Commonwealth of Massachusetts. (f) The Representatives shall have received a certificate, dated such Closing Date, of the President or any Vice President and a principal financial or accounting officer of the Company in which such officers, to the best of their knowledge after reasonable investigation, shall state that: the representations and warranties of the Company in this Agreement are true and correct; the Company has complied with all agreements and satisfied all conditions on its part to be performed or satisfied hereunder at or prior to such Closing Date; no stop order suspending the effectiveness of any Registration Statement has been issued and no proceedings for that purpose have been instituted or are contemplated by the Commission; the Additional Registration Statement (if any) satisfying the requirements of subparagraphs (1) and (3) of Rule 462(b) was filed pursuant to Rule 462(b), including payment of the applicable filing fee in accordance with Rule 111(a) or (b) under the Act, prior to the time the Prospectus was printed and distributed to any Underwriter; and, subsequent to the date of the most recent financial statements in the Prospectus, there has been no material adverse change, nor any development or event involving a prospective material adverse change, in the condition (financial or other), business, properties or results of operations of the Company and its subsidiaries taken as a whole except as set forth in or contemplated by the Prospectus or as described in such certificate. (g) The Representatives shall have received a letter, dated such Closing Date, of Ernst & Young LLP which meets the requirements of subsection (a) of this Section, except that the specified date referred to in such subsection will be a date not more than three days prior to such Closing Date for the purposes of this subsection. 24 25 (h) The Representatives shall have received from each person who is a director or executive officer of the Company, and from all other holders of shares of Securities or securities convertible into or exchangeable or exercisable for any shares of Securities, an agreement dated on or before the date of this Agreement (collectively, the "LOCK-UP AGREEMENTS"), to the effect that, for a period of 180 days after the initial public offering of Securities pursuant to this Agreement, such person not offer, sell, contract to sell, pledge or otherwise dispose of, directly or indirectly, any shares of Securities or securities convertible into or exchangeable or exercisable for any shares of Securities, or publicly disclose the intention to make any such offer, sale, pledge or disposal without the prior written consent of CSFBC. The Company will furnish the Representatives with such conformed copies of such opinions, certificates, letters and documents as the Representatives reasonably requests. CSFBC may in its sole discretion waive on behalf of the Underwriters compliance with any conditions to the obligations of the Underwriters hereunder, whether in respect of an Optional Closing Date or otherwise. 7. Indemnification and Contribution. (a) The Company will indemnify and hold harmless each Underwriter, its partners, directors and officers and each person, if any, who controls such Underwriter within the meaning of Section 15 of the Act, against any losses, claims, damages or liabilities, joint or several, to which such Underwriter may become subject, under the Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in any Registration Statement, the Prospectus, or any amendment or supplement thereto, or any related preliminary prospectus, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, and will reimburse each Underwriter for any legal or other expenses reasonably incurred by such Underwriter in connection with investigating or defending any such loss, claim, damage, liability or action as such expenses are incurred; provided, however, that the Company will not be liable in any such case to the extent that any such loss, claim, damage or liability arises out of or is based upon an untrue statement or alleged untrue statement in or omission or alleged omission from any of such documents in reliance upon and in conformity with written information furnished to the Company by any Underwriter through the Representatives specifically for use therein, it being understood and agreed that the only such information furnished by any Underwriter consists of the information described as such in subsection (b) below; and provided, further, however, that with respect to any untrue statement or alleged untrue statement in or omission or alleged omission from any preliminary prospectus, the foregoing indemnity agreement contained in this subsection (a) shall not inure to the 25 26 benefit of any Underwriter from whom the person asserting any losses, claims, damages or liabilities purchased the Offered Securities concerned, to the extent, but only to the extent, that a prospectus relating to such Offered Securities was required to be delivered by such Underwriter under the Act in connection with such purchase and any such loss, claim, damage, or liability of such Underwriter results from the fact that there was not sent or given to such person, at or prior to the written confirmation of the sale of such Offered Securities to such person, a copy of the Prospectus, if the Company had previously furnished copies thereof to such Underwriter. In connection with the offer and sale of the Directed Shares, the Company agrees, promptly upon a request in writing, to indemnify and hold harmless the Designated Underwriter from and against any and all losses, claims, damages and liabilities (including, without limitation, any legal or other expenses reasonably incurred in connection with defending or investigating any such action or claim) incurred by it as a result of the failure of eligible employees and persons having business relationships with the Company to pay for and accept delivery of the Directed Shares which, by the end of the first business day following the date of this Agreement, were subject to a properly confirmed agreement to purchase. (b) Each Underwriter will severally and not jointly indemnify and hold harmless the Company, its directors and officers and each person, if any who controls the Company within the meaning of Section 15 of the Act, against any losses, claims, damages or liabilities to which the Company may become subject, under the Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in any Registration Statement, the Prospectus, or any amendment or supplement thereto, or any related preliminary prospectus, or arise out of or are based upon the omission or the alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, in each case to the extent, but only to the extent, that such untrue statement or alleged untrue statement or omission or alleged omission was made in reliance upon and in conformity with written information furnished to the Company by such Underwriter through the Representatives specifically for use therein, and will reimburse any legal or other expenses reasonably incurred by the Company in connection with investigating or defending any such loss, claim, damage, liability or action as such expenses are incurred, it being understood and agreed that the only such information furnished by any Underwriter consists of the following information in the Prospectus furnished on behalf of each Underwriter: the concession and reallowance figures appearing in the fourth paragraph under the caption "Underwriting" and the information contained in the sixth and the final paragraphs under the caption "Underwriting". 26 27 (c) Promptly after receipt by an indemnified party under this Section of notice of the commencement of any action, such indemnified party will, if a claim in respect thereof is to be made against the indemnifying party under subsection (a) or (b) above, notify the indemnifying party of the commencement thereof; but the omission so to notify the indemnifying party will not relieve it from any liability which it may have to any indemnified party otherwise than under subsection (a) or (b) above. In case any such action is brought against any indemnified party and it notifies the indemnifying party of the commencement thereof, the indemnifying party will be entitled to participate therein and, to the extent that it may wish, jointly with any other indemnifying party similarly notified, to assume the defense thereof, with counsel satisfactory to such indemnified party (who shall not, except with the consent of the indemnified party, be counsel to the indemnifying party), and after notice from the indemnifying party to such indemnified party of its election so to assume the defense thereof, the indemnifying party will not be liable to such indemnified party under this Section for any legal or other expenses subsequently incurred by such indemnified party in connection with the defense thereof other than reasonable costs of investigation. Notwithstanding anything contained herein to the contrary, if indemnity may be sought pursuant to the last paragraph in Section 7 (a) hereof in respect of such action or proceeding, then in addition to such separate firm for the indemnified parties, the indemnifying party shall be liable for the reasonable fees and expenses of not more than one separate firm (in addition to any local counsel) for the Designated Underwriter for the defense of any losses, claims, damages and liabilities arising out of the Directed Share Program, and all persons, if any, who control the Designated Underwriter within the meaning of either Section 15 of the Act of Section 20 of the Exchange Act. No indemnifying party shall, without the prior written consent of the indemnified party, effect any settlement of any pending or threatened action in respect of which any indemnified party is or could have been a party and indemnity could have been sought hereunder by such indemnified party unless such settlement (i) includes an unconditional release of such indemnified party from all liability on any claims that are the subject matter of such action and (ii) does not include a statement as to, or an admission of, fault, culpability or a failure to act by or on behalf of an indemnified party. (d) If the indemnification provided for in this Section is unavailable or insufficient to hold harmless an indemnified party under subsection (a) or (b) above, then each indemnifying party shall contribute to the amount paid or payable by such indemnified party as a result of the losses, claims, damages or liabilities referred to in subsection (a) or (b) above (i) in such proportion as is appropriate to reflect the relative benefits received by the Company on the one hand and the Underwriters on the other from the offering of the Securities or (ii) if the allocation provided by clause (i) above is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) above but also the relative fault of the Company on the one hand and the Underwriters on the other in connection with the 27 28 statements or omissions which resulted in such losses, claims, damages or liabilities as well as any other relevant equitable considerations. The relative benefits received by the Company on the one hand and the Underwriters on the other shall be deemed to be in the same proportion as the total net proceeds from the offering (before deducting expenses) received by the Company bear to the total underwriting discounts and commissions received by the Underwriters. The relative fault shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company or the Underwriters and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such untrue statement or omission. The amount paid by an indemnified party as a result of the losses, claims, damages or liabilities referred to in the first sentence of this subsection (d) shall be deemed to include any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any action or claim which is the subject of this subsection (d). Notwithstanding the provisions of this subsection (d), no Underwriter shall be required to contribute any amount in excess of the amount by which the total price at which the Securities underwritten by it and distributed to the public were offered to the public exceeds the amount of any damages which such Underwriter has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. The Underwriters' obligations in this subsection (d) to contribute are several in proportion to their respective underwriting obligations and not joint. (e) The obligations of the Company under this Section shall be in addition to any liability which the Company may otherwise have and shall extend, upon the same terms and conditions, to each person, if any, who controls any Underwriter within the meaning of the Act; and the obligations of the Underwriters under this Section shall be in addition to any liability which the respective Underwriters may otherwise have and shall extend, upon the same terms and conditions, to each director of the Company, to each officer of the Company who has signed a Registration Statement and to each person, if any, who controls the Company within the meaning of the Act. 8. Default of Underwriters. If any Underwriter or Underwriters default in their obligations to purchase Offered Securities hereunder on either the First or any Optional Closing Date and the aggregate number of shares of Offered Securities that such defaulting Underwriter or Underwriters agreed but failed to purchase does not exceed 10% of the total number of shares of Offered Securities that the Underwriters are obligated to purchase on such Closing Date, CSFBC may make arrangements satisfactory to the Company for the purchase of such Offered Securities by other persons, including 28 29 any of the Underwriters, but if no such arrangements are made by such Closing Date, the non-defaulting Underwriters shall be obligated severally, in proportion to their respective commitments hereunder, to purchase the Offered Securities that such defaulting Underwriters agreed but failed to purchase on such Closing Date. If any Underwriter or Underwriters so default and the aggregate number of shares of Offered Securities with respect to which such default or defaults occur exceeds 10% of the total number of shares of Offered Securities that the Underwriters are obligated to purchase on such Closing Date and arrangements satisfactory to CSFBC and the Company for the purchase of such Offered Securities by other persons are not made within 36 hours after such default, this Agreement will terminate without liability on the part of any non-defaulting Underwriter or the Company, except as provided in Section 9 (provided that if such default occurs with respect to Optional Securities after the First Closing Date, this Agreement will not terminate as to the Firm Securities or any Optional Securities purchased prior to such termination). As used in this Agreement, the term "Underwriter" includes any person substituted for an Underwriter under this Section. Nothing herein will relieve a defaulting Underwriter from liability for its default. 9. Survival of Certain Representations and Obligations. The respective indemnities, agreements, representations, warranties and other statements of the Company or its officers and of the several Underwriters set forth in or made pursuant to this Agreement will remain in full force and effect, regardless of any investigation, or statement as to the results thereof, made by or on behalf of any Underwriter, the Company or any of their respective representatives, officers or directors or any controlling person, and will survive delivery of and payment for the Offered Securities. If this Agreement is terminated pursuant to Section 8 or if for any reason the purchase of the Offered Securities by the Underwriters is not consummated, the Company shall remain responsible for the expenses to be paid or reimbursed by it pursuant to Section 5 and the respective obligations of the Company and the Underwriters pursuant to Section 7 shall remain in effect, and if any Offered Securities have been purchased hereunder the representations and warranties in Section 2 and all obligations under Section 5 shall also remain in effect. If the purchase of the Offered Securities by the Underwriters is not consummated for any reason other than solely because of the termination of this Agreement pursuant to Section 8 or the occurrence of any event specified in clause (iii), (iv) or (v) of Section 6(c), the Company will reimburse the Underwriters for all out-of-pocket expenses (including fees and disbursements of counsel) reasonably incurred by them in connection with the offering of the Offered Securities. 10. Notices. All communications hereunder will be in writing and, if sent to the Underwriters, will be mailed, delivered or telegraphed and confirmed to the Representatives, c/o Credit Suisse First Boston Corporation, Eleven Madison Avenue, New York, NY 10010-3629, Attention: Investment Banking Department -- Transactions 29 30 Advisory Group, or, if sent to the Company, will be mailed, delivered or telegraphed and confirmed to it at 462 Broadway, Sixth Floor, New York, NY 10013, Attention: Chief Executive Officer, with a copy to Alexander D. Lynch, Esq., Brobeck, Phleger & Harrison LLP, 1633 Broadway, 47th Floor, New York, NY 10019; provided, however, that any notice to an Underwriter pursuant to Section 7 will be mailed, delivered or telegraphed and confirmed to such Underwriter. 11. Successors. This Agreement will inure to the benefit of and be binding upon the parties hereto and their respective successors and the officers and directors and controlling persons referred to in Section 7, and no other person will have any right or obligation hereunder. 12. Representation of Underwriters. The Representatives will act for the several Underwriters in connection with this financing, and any action under this Agreement taken by the Representatives jointly or by CSFBC will be binding upon all the Underwriters. 13. Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original, but all such counterparts shall together constitute one and the same Agreement. 14. APPLICABLE LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAWS. The Company hereby submits to the non-exclusive jurisdiction of the Federal and state courts in the Borough of Manhattan in The City of New York in any suit or proceeding arising out of or relating to this Agreement or the transactions contemplated hereby. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] 30 31 If the foregoing is in accordance with the Representatives' understanding of our agreement, kindly sign and return to the Company one of the counterparts hereof, whereupon it will become a binding agreement between the Company and the several Underwriters in accordance with its terms. Very truly yours, THE KNOT, INC. By: ----------------------------------------- Chief Executive Officer The foregoing Underwriting Agreement is hereby confirmed and accepted as of the date first above written. Credit Suisse First Boston Corporation Hambrecht & Quist LLC Salomon Smith Barney Inc. Acting on behalf of themselves and as the Representatives of the several Underwriters By: Credit Suisse First Boston Corporation By: ----------------------------------------- [Insert title] 31 32 SCHEDULE A
UNDERWRITER NUMBER OF ----------- FIRM SECURITIES --------------- Credit Suisse First Boston Corporation............ Hambrecht & Quist LLC............................. Salomon Smith Barney Inc. ........................ --------------- Total........................... ===============
EX-10.8 3 SERVICES AGREEMENT 1 Exhibit 10.8 ****CERTAIN PORTIONS OF THIS EXHIBIT HAVE BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT UNDER RULE 406 OF THE SECURITIES EXCHANGE ACT OF 1933, AS AMENDED. SERVICES AGREEMENT This SERVICES AGREEMENT (this "Agreement") is made this 13th day of April, 1999, by and between QVC, Inc., a Delaware corporation ("QVC"), and The Knot, Inc., a Delaware corporation ("Company"), individually a "Party," and collectively, the "Parties." WHEREAS, Company is the owner and operator of a site on the world wide web located at the domain name address of www.theknot.com (the "Company Site" or "Company's Site"); WHEREAS, the purpose of the Company Site is to provide content, commerce and services related to weddings to users who visit the Company Site; WHEREAS, it is anticipated that customers of Company (individually a "Customer" and collectively "Customers") will order goods by means of the Company Site to be delivered to the Customers or recipients designated by the Customers (individually a "Recipient" and collectively the "Recipients"); and WHEREAS, Company and QVC desire that QVC provide certain fulfillment, customer service and information technology services to the Company on the terms and conditions set forth in this Agreement; NOW, THEREFORE, in consideration of the agreements and obligations set forth herein and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto hereby agree as follows: 1. Term. This Agreement shall be for a term (the "Term") commencing on the date hereof and, unless sooner terminated as provided herein, terminating on the earlier of (i) the date five years after the Commencement Date (defined below), or (ii) the date that is four years after the date of closing of an underwritten public offering of the securities of Company with a per share price greater than $7.50 and aggregate proceeds in excess of $10,000,000. Upon the expiration or termination of this Agreement, other than pursuant to Section 12.2, the term of this Agreement shall be automatically extended for a period of 180 days or such shorter period as Company shall notify QVC. 2. Transition Period. Commencing on the date hereof and continuing for a period agreed to by the Parties, but in no event more than one hundred eighty (180) days hereafter, QVC and Company shall consult regarding the establishment of procedures for the transactions contemplated by this Agreement (the "Transition Period"). The last day of such period shall be referred to herein as the "Commencement Date." The parties shall exercise reasonable commercial efforts to cause the Commencement Date to occur as soon as possible after the date hereof. 3. Orders. 3.1. A function of the Company Site is to accept orders from Customers for the purchase of goods from Company. For the purposes of this Agreement, all of the goods ordered from the Company Site will be classified as (i) goods purchased by Company from QVC from those - --------------- 2 goods then available for sale to the public by QVC through its televised shopping programming (individually a "QVC Good" and collectively "QVC Goods"), (ii) goods purchased by Company from QVC from those goods (other than QVC Goods) then available for sale to the public through the iQVC internet site (individually an "iQVC Good" and collectively the "iQVC Goods) which goods are not usually held at a warehouse facility designated by QVC, (iii) goods other than QVC Goods or iQVC Goods purchased by Company and held at a QVC warehouse facility in anticipation of orders from Customers (individually a "Company Good" and collectively the "Company Goods"), and (iv) goods other than QVC Goods and iQVC Goods purchased by Company and not held at a QVC warehouse facility (individually a "Third Party Good" and collectively the "Third Party Goods"). Notwithstanding the foregoing, the QVC Goods and the iQVC Goods shall not include (i) goods advertised by QVC as being "exclusive" to QVC or iQVC, and (ii) goods for which the vendor to QVC of such QVC Goods or iQVC Goods (a "QVC Vendor") has not licensed QVC to sell or re-sell the QVC Goods or the iQVC Goods to Company. QVC Goods, iQVC Goods, Company Goods and Third Party Goods shall be referred to herein individually as a "Good" and collectively as the "Goods." 3.2. Commencing on the Commencement Date, at least once each day during the Term, Company shall transmit electronically to QVC in a file format established by QVC and acceptable to Company, an order file for each order of Goods received by Company through the Company Site (an "Electronic Order"). For each Electronic Order, Company shall pay QVC a fee (the "Electronic Order Fee") of US [****]. In the event that the Company elects pursuant to Section 8 of this Agreement to have QVC perform order taking functions for Goods ordered by means of telephone, facsimile or any means other than an Electronic Order (a "Telephonic Order"), Company shall pay QVC a fee (the "Telephonic Order Fee") of US $[****] for each Good ordered by means of a Telephonic Order. Electronic Orders and Telephonic Orders are referred to herein individually as an "Order" and collectively as the "Orders." The Electronic Order Fees and the Telephonic Order Fees are collectively referred to herein as the "Order Fees." 4. Purchase of Goods from QVC. 4.1. Commencing on the Commencement Date, from time to time during the Term, Company may purchase QVC Goods and iQVC Goods from QVC. 4.2. The price of each QVC Good and iQVC Good purchased by Company shall be an amount equal to [****] of the cost paid by QVC for such QVC Good or iQVC Good, including all taxes, tariffs and duties, however, excluding all QVC mark-ups relating to shipping and handling and storage charges. 4.3. The transmission by Company to QVC of an Electronic Order will constitute an offer by Company to purchase the QVC Goods and iQVC Goods referenced in the Electronic Order. Each Telephonic Order shall be deemed to be an offer by Company to purchase the QVC Goods and iQVC Goods referenced in the Telephonic Order. During the Transition Period, the Parties will establish procedures for the modification and cancellation of Orders. 4.4. Company shall provide QVC with resale tax certificates when and in the form reasonably requested by QVC from time to time. - --------------- [****] REPRESENTS MATERIAL WHICH HAS BEEN REDACTED AND FILED SEPARATELY WITH THE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 UNDER THE SECURITIES ACT OF 1933, AS AMENDED. 2 3 5. Fulfillment Services. 5.1. After the receipt by QVC of an Order for a QVC Good, QVC shall segregate such QVC Good from inventory held for sale by QVC and locate such QVC Good in a portion of a warehouse facility designated by QVC for the storage of Goods purchased by Company (the "Company Location"). Upon such segregation, title to the QVC Good shall pass to Company, but, subject to the provisions of Section 13.3, QVC shall be liable for loss or damages to any QVC Goods resulting from theft, mishandling, breakage or destruction by QVC while in the possession of QVC. In addition to the purchase price referred to in Section 4.2. and the Order Fee, Company shall pay to QVC a warehouse fee of US$9.25 for each QVC Good so segregated. 5.2. After the receipt by QVC of an Order for an iQVC Good, QVC shall order such iQVC Good from QVC's vendor of such iQVC Good (a "QVC Vendor"). As indicated in the Order, QVC shall instruct the iQVC Vendor either (i) to ship the iQVC Good to a warehouse facility designated by QVC, in which event [****] provided however to the extent that the iQVC Goods exceed such weight and dimension standards, QVC shall pay [****] of the shipping charges and Company shall pay the balance, or (ii) to ship the iQVC Good directly to the Customer or the Recipient, in which event Company will pay the shipping charges or reimburse QVC for the shipping charges paid by QVC. Title to the iQVC Good shall pass to Company at such time as the iQVC Good is received at the warehouse facility designated by QVC and is segregated. QVC shall make commercially reasonable efforts to cause the iQVC Goods being shipped directly to the Customer or the Recipient to be shipped without any indication to the Customer or Recipient that the Order for iQVC Goods was processed through QVC. 5.3. When iQVC Goods are received at a warehouse facility from an iQVC Vendor, QVC shall verify that the Customer, stock keeping unit and quantity of iQVC Goods received correspond to those subject to the Order. QVC will not perform product quality inspection. Visible carrier damage on iQVC Goods received, if any, will be reported to the shipper. QVC will issue a replacement order on behalf of Company with the iQVC Vendor. QVC agrees that it will assign to Company any rights that QVC possesses to pursue a claim that Company has against the iQVC vendor with respect to such damaged iQVC Good. Company assumes the risk of loss to all iQVC Goods in transit from the QVC Vendor to the warehouse facility designated by QVC. After the receipt of such iQVC Good, QVC will place such iQVC Good in the Company Location. In addition to the purchase price referred to in Section 4.2. and the Order Fee, Company shall pay to QVC a warehouse fee of US $9.25 for each iQVC Good placed in the Company Location. Subject to the provisions of Section 13.3, QVC shall be liable for loss or damages to any iQVC Goods resulting from theft, mishandling, breakage or destruction by QVC while in the possession of QVC. 5.4. Company may from time to time purchase Company Goods in reasonable anticipation of Orders. Company may have such Company Goods shipped to a QVC warehouse facility designated by QVC and Company shall pay the shipping charges for such shipments. Company shall notify (the "Company Goods Notice") QVC of each such shipment. When - --------------- [****] REPRESENTS MATERIAL WHICH HAS BEEN REDACTED AND FILED SEPARATELY WITH THE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 UNDER THE SECURITIES ACT OF 1933, AS AMENDED. 3 4 Company Goods are received at a warehouse facility designated by QVC, QVC shall promptly verify that the stock keeping unit and quantity of Company Goods received correspond to those set forth in the Company Goods Notice and shall promptly notify Company of any discrepancies with respect to such information between the Company Goods Notice and the Company Goods received. QVC will not perform product quality inspection. Visible carrier damage on Company Goods received, if any will be reported to the shipper and the Company. Company assumes the risk of loss to all Company goods in transit from the vendor of the Company Goods to the QVC warehouse facility. After the receipt of such Company Goods, QVC will place such Company Goods in the Company Location. Company shall pay to QVC a warehouse fee of US $9.25 for each Company Good placed in the Company Location. Title to Company Goods will not pass to QVC. Notwithstanding the foregoing, in the event that a single package of Company Goods contains multiple items of the same Company Goods, Company shall pay to QVC a warehouse fee of US $9.25 for each such package of Company Goods placed in the Company Location and [****] for each "pick" of one or more Company Goods contained in such package in fulfillment of an Order, which [****] charge shall be made at the time of the picking. 5.5. After the receipt by QVC of an Order for a Third Party Good, QVC shall retransmit such Order to Company. As indicated in the Order, Company shall instruct the vendor of the Third Party Good (a "Third Party Vendor") either (i) to ship the Third Party Good with documentation specified by QVC to a QVC warehouse facility designated by QVC, in which event the shipping charges will be paid by QVC for Third Party Goods weighing up to 15 pounds and not exceeding the shipper's standard rate cube/volume dimensions, or (ii) to ship the Third Party Good with documentation specified by QVC directly to the Customer or Recipient, in which event the shipping charges will be paid by Company or Company will reimburse QVC for the shipping charges paid by QVC. QVC shall not be paid a warehouse fee of US $9.25 for Third Party Goods shipped directly to the Customer or Recipient. Company shall pay the Third Party Vendor's selling price for the Third Party Good directly to the Third Party Vendor. Title to Third Party Goods will not pass to QVC. Company shall notify, or shall cause the Third Party Vendor to notify, QVC in a manner established by QVC, of the shipment of each Third Party Good directly to the Customer or the Recipient. 5.6. When Third Party Goods are received from a Third Party Vendor, QVC shall verify that the Customer, stock keeping unit and quantity of Third Party Goods received correspond to those subject to the Order. QVC will not perform product quality inspection. Visible carrier damage on Third Party Goods received, if any, will be reported to the shipper and QVC will issue a replacement order on behalf of Company with the Third Party Vendor. Company assumes the risk of loss to all Third Party Goods in transit from the Third Party Vendor to the QVC warehouse facility. After the receipt of such Third Party Good, QVC will place such Third Party Good in the Company Location. In addition to the Order Fee, Company shall pay to QVC a warehouse fee of US $9.25 for each Third Party Good placed in the Company Location and for each replacement of a Third Party Good placed in the Company Location. 5.7. If the Order for a Good located in the Company Location specifies that the Good is to be gift wrapped, QVC will gift wrap the Good prior to shipment to the Recipient in gift wrapping paper provided by Company. Company will pay to QVC US [****] for each Good gift wrapped. In QVC'S reasonable discretion, certain oversized Goods may not be eligible for gift wrapping. - --------------- [****] REPRESENTS MATERIAL WHICH HAS BEEN REDACTED AND FILED SEPARATELY WITH THE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 UNDER THE SECURITIES ACT OF 1933, AS AMENDED. 4 5 5.8. On or about the date on which Order provides for a Good to be shipped, QVC will deliver the Good to a shipper designated by QVC. QVC will make reasonable efforts to ship all Goods to a Customer or a Recipient consistent with the shipping instructions is the Order. Each package of Goods shipped by QVC will include (i) a packing slip prepared by QVC based on the information contained in Order for such Goods and (ii) instructions for the return of the Goods by the Customer. QVC shall make commercially reasonable efforts to cause the Goods to be shipped by QVC to be shipped without any indication to the Customer or Recipient that the Order for the Goods was processed through QVC. 5.9. Company, at its sole expense, shall provide QVC with an adequate supply of gift wrapping paper, shipping boxes and packaging materials for use by QVC in the packaging and shipping of Goods. QVC shall be under no obligation to gift wrap or ship any Goods for which it does not have adequate gift wrapping paper, shipping boxes and packaging materials. QVC will make commercially reasonable efforts to regularly notify Company of the inventory of such materials and the need for additional materials. 5.10. All Goods delivered by QVC to a shipper shall be manifested by QVC in a form mutually acceptable to the Parties. Company shall pay all shipper's charges directly to shipper and, if Company elects for its shipments to be insured, pay all insurance charges. 5.11. The Company Location shall consist of an area for the storage of Goods designated for specific Customers or Recipients ("Customer Storage Area") and an area for the storage of other Goods owned by Company ("Company Storage Area"). The Company Storage Area shall be divided into the "OK Company Storage Area" and the "Not OK Company Storage Area." In the event that a Customer or a Recipient alters the Order with respect to Goods which have already been placed in a Customer Storage Area, QVC shall relocate such Goods from the Customer Storage Area to the OK Company Storage Area. In the event that Orders are received for Goods located in the OK Company Storage Area, QVC shall make a reasonable effort to use such Goods to fill the Orders instead of using the procedures described in Sections 5.1., 5.2. and 5.4. 5.12 Notwithstanding anything to the contrary contained herein, QVC shall not be obligated to receive, warehouse or ship any goods which do not comply with QVC policies; provided that QVC has provided Company in a timely manner with all changes to QVC policies relating to receiving, warehousing or shipping. By way of example, and not of limitation, QVC shall not be obligated to receive warehouse or ship any hazardous materials, foods, pornographic materials, goods containing alcohol, firearms and ammunition or goods that exceed QVC's size, weight or value limitations. 5.13 QVC shall use commercially reasonable care for the safekeeping and safe handling of all Goods in its possession. 5.14. Company shall have access to QVC's warehouse facilities at reasonable times for the purpose of performing inspections of the Goods and examining warehouse procedures. 5.15. From time to time, Company and QVC shall consult regarding the advisability of including certain goods sold by QVC through its televised shopping program and through iQVC 5 6 but which are likely to be subject to "stock-outs" among the goods that may be ordered by Customers from the Company Site. 5.16. The fulfillment services complimenting by this Agreement shall be available to Company, Customer and Recipient five days per week fifty-two weeks per year excluding federal holidays. 6. Returns. 6.1. Pursuant to the returns policy of Company, Customers and Recipients may return Goods to Company under conditions established by Company. QVC shall designate a QVC warehouse facility as the site to which returns of QVC Goods, iQVC Goods and Company Goods shall be made. QVC agrees to notify Company in a timely manner of any returns received on behalf of Company. 6.2. QVC shall inspect any returns received to determine whether the return packaging is empty, contains a QVC Good, an iQVC Good or a Company Good, or contains another good. If the return packaging is empty, QVC will notify Company of such receipt. If the return packaging contains a Good, QVC will determine whether the packaging of the Good was opened after shipment; if it was opened or if there is visible damage to the packaging, QVC will locate the Good in the Not OK Company Storage Area; if it was not opened and there is not visible damage to the packaging, QVC will locate the Good in the OK Company Storage Area. If the return packaging contains anything other than a Good, QVC will locate the package in the Not OK Company Storage Area. 6.3. Company shall pay to QVC a returns processing fee of US $9.25 for each empty package, each returned Good, and for each other good received at a QVC warehouse facility. Company shall not pay a returns processing fee of US $9.25 for each returned Good if the reason for the return was that the incorrect Good was shipped by QVC to the Customer or Recipient. 6.4. From time to time, Company and QVC shall review the contents of the Company Storage Area. Company shall notify QVC of the disposition of the such contents which shall be shipped, at Company's expense, to locations designated by Company. 7. Order Management System. 7.1. A record of each Order will be maintained on Company's and on QVC's order management system by Company and QVC, respectively. 7.2. Each Electronic Order will include attributes established by QVC and Company including the Customer's name, account number, Goods ordered (including the QVC SKU number for each Good), gift wrap selection, Recipient's name and address, gift message, payment method, requested ship date and whether the Goods will be shipped from a QVC warehouse facility. The same information will be recorded by QVC with respect to each Telephonic Order. 7.3. QVC's order management system, sourcing and manifesting system and returns system (the "Systems") will handle the forward flow of each Order through its life cycle. Among 6 7 other functions, the Systems will add and/or update the Customer's records, insert each Order for QVC Goods into the QVC system, transmit by means of QVC electronic document interchange ordering and shipping instructions to iQVC Vendors and Company for iQVC Goods and Third Party Goods, respectively, cause a "fraud check" to be conducted with respect to the method of payment, cause picking orders and packing slips to be produced for Goods stored at Company Locations, identify on a daily basis the QVC Goods and iQVC Goods which are then out of stock, communicate to Company on at least a daily basis the status of each pending Order (e.g. canceled, picked, backordered, shipped, billed), transmit billing information to Company's credit card clearing house for shipped-confirmed Orders (but not transfers of funds or credits between the credit card clearing house and Company), accept return of Goods from Customers and Recipients, and post credits for returned Goods to Company's credit card clearing house (but not transfers of funds or credits between the credit card clearing house and Company) with respect to returned Goods. 7.4. QVC will establish and maintain methods of reporting to Company such reports and in such formats as shall be mutually agreed, including reports of perpetual inventory located at a Company Location, projected Goods shipped, actual sales, order history of each Customer and Recipient, credit card transactions between Company and Company's credit card clearing house. 7.5. Except for the customer services to be provided pursuant to Section 8 of this Agreement, all communications with Customers and Recipients shall be conducted by Company. 7.6. In the event Company desires QVC to provide additional information technology services, the Parties will enter into good faith negotiations to determine the scope of such services. For such services, Company shall pay QVC a fee of [****] per hour per person providing such services. 8. Customer Services. 8.1. Upon notice from Company to QVC that QVC is to commence processing Telephonic Orders, QVC shall exercise commercially reasonable efforts to commence processing Telephonic Orders as soon as possible, but in no event shall QVC commence processing Telephonic Orders later 180 days after the receipt of such notice. 8.2. In the event that Company desires QVC to provide additional customer services, the Parties will enter into good faith negotiations to determine the scope of such services. For such services, Company shall pay QVC a fee of [****] per hour per person providing such services. 9. Payments. 9.1. On a monthly basis, QVC will provide Company with a detailed and itemized invoice for the amount of charges due to QVC under the terms of this Agreement. Company shall make payment of such charges which are not the subject of a good faith dispute to QVC, within 30 days after the delivery of such invoice. 9.2. At its election, QVC may implement a cost tracking system to determine its costs of providing the services set forth in this Agreement. In the event that the cost tracking system determines that the fees to be paid by Company to QVC are not sufficient to allow QVC to - --------------- [****] REPRESENTS MATERIAL WHICH HAS BEEN REDACTED AND FILED SEPARATELY WITH THE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 UNDER THE SECURITIES ACT OF 1933, AS AMENDED. 7 8 receive an amount equal to [****] of its costs for such services, at any time after the third anniversary of the Commencement Date hereof, upon notice from QVC to Company, the parties shall enter into good faith negotiations to reestablish the fees to be paid by Company to QVC for the services to be provided under the terms of this Agreement, so that QVC shall be paid an amount equal to [****] of its costs to provide such services. 10. Insurance. Company shall maintain policies of property and casualty insurance with policy limits in amounts greater than the aggregate replacement value of the Goods, gift wrapping paper, shipping boxes, and packaging materials to which title has passed to Company and located at a QVC warehouse facility. Company and QVC shall each maintain policies of public or general liability insurance and policies of product liability insurance with policy limits of not less than [****] per occurrence. Each Party shall cause the other Party to be listed as an additional insured on such policies and such policies shall provide that they may not be canceled on less than 30 days written notice to the other Party. 11. Representations and Warranties. Each Party represents and warrants to the other as follows: 11.1. It has all requisite power and authority to enter into this Agreement, and has duly authorized by all necessary corporate action the execution and delivery hereof by the officer whose name is signed on its behalf below. 11.2. Its execution and delivery of this Agreement and the performance of its obligations hereunder, do not and will not conflict with or result in a breach of or a default under its organizational instruments or any other agreement, instrument, order, law or regulation applicable to it or by which it may be bound. 11.3. This Agreement has been duly and validly executed and delivered by it and constitutes its valid and legally binding obligation, enforceable in accordance with its terms, except as enforcement may be limited by bankruptcy, insolvency or other laws of general application relating to or affecting the enforcement of creditors' rights and except as enforcement is subject to general equitable principles. 11.4. It is not in default under any contract that is material to the undertaking of its obligations under this Agreement. 12. Termination. 12.1. In the event (i) Company fails to pay any amount when due hereunder and such failure is not cured within ten (10) days after written notice thereof from QVC to Company (excluding any amounts which are the subject of a good faith dispute), (ii) either Party fails to perform any material provision of this Agreement and such failure is not cured within thirty (30) days after written notice thereof is given, (iii) with respect to either Party, a Bankruptcy Event (as defined below) occurs, (iv) either Party assigns or attempts to assign this Agreement, or any of the obligations hereunder, in violation of Section 17 hereof, or (v) a breach by Company of any material covenant made to QVC pursuant to (a) Series B Stock Purchase Agreement, (b) Common Stock Warrant Certificate, (c) Voting Agreement, (d) Second Amended and Restated Investors' Rights Agreement or (e) Amended and Restated Right of First Refusal and Co-Sale Agreement, all dated of even date herewith which is not cured within 90 days after written notice - --------------- [****] REPRESENTS MATERIAL WHICH HAS BEEN REDACTED AND FILED SEPARATELY WITH THE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 UNDER THE SECURITIES ACT OF 1933, AS AMENDED. 8 9 to Company, then, in each such case the other nondefaulting Party may terminate this Agreement by written notice to the defaulting Party without prejudice to any other rights and remedies it may have. A "Bankruptcy Event" shall mean with respect to either Party, as applicable, (i) the making by such Party of any assignment for the benefit of creditors of all or substantially all of its assets or the admission by such Party in writing of inability to pay all or substantially all of its debts as they become due; (ii) the adjudication of such Party as bankrupt or insolvent or the filing by such Party of a petition or application to any tribunal for the appointment of a trustee or receiver for such Party or any substantial part of the assets of such Party; or (iii) the commencement of any voluntary or involuntary bankruptcy proceedings, reorganization proceedings or similar proceeding with respect to such Party or the entry of an order appointing a trustee or receiver or approving a petition in any such proceeding. 12.2. Upon the consummation of a sale of 50% or more of the voting power of Company to a party other any QVC or its affiliates, either party shall have the right to terminate this Agreement upon 120 days prior written notice. 12.3. Company shall have the right, in its full discretion to terminate this Agreement at any time provided that Company provides QVC with 90 days prior written notice. 13. Limitation of Liability. 13.1. QVC MAKES NO WARRANTY, WHETHER EXPRESS OR IMPLIED, INCLUDING WITHOUT LIMITATION, ANY WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE, RELATED TO ANY GOODS OR SERVICES, AND SUCH WARRANTIES ARE HEREBY DISCLAIMED. 13.2. QVC shall not be responsible to Company for any damages arising out of, resulting from, by reason of or in connection with the Goods pursuant to this Agreement by QVC or its affiliates, agents or independent contractors, except to the extent that such liability arises from the gross negligence or willful or wanton misconduct of QVC or its affiliates, agents or independent contractors. 13.3. Company's sole and exclusive remedy against QVC for any matter or claim arising under or relating to this Agreement and any transaction involving or relating to the Goods or the services to be provided by QVC pursuant to this Agreement (the "Support Services"), whether in contract, tort (including negligence) or otherwise, shall be (i) general money damages not in excess of the lesser of the actual direct damage to Company or the purchase price for the Goods or the Support Service Fee to which the claim relates, or (ii) an equitable order for specific performance of the Support Services. EXCEPT FOR GROSS NEGLIGENCE OR WILLFUL MISCONDUCT BY QVC, IN NO EVENT WILL QVC BE LIABLE TO COMPANY FOR INCIDENTAL, SPECIAL OR CONSEQUENTIAL DAMAGES OF ANY KIND, EVEN IF QVC WAS ADVISED OR AWARE OF THE POSSIBILITY OF SUCH DAMAGES, EXCEPT TO THE EXTENT MANDATED BY APPLICABLE LAW. 13.4. Company shall indemnify and hold QVC, its affiliates, agents and independent contractors and each of their officers, directors and employees harmless from and against any and all liabilities, losses, damages, expenses, fines and penalties of any kind, including 9 10 reasonable attorneys fees, incurred by any such party as a result of any claim made against such party arising out of, resulting from, by reason of, or in connection with the provision of the Goods or the Support Services, except where such liability, loss, damage, expense, fine or penalty results solely from such party's gross negligence or willful or wanton misconduct in providing the Goods or the Support Services hereunder. 13.5. Subject to the provisions of Sections 13.1, 13.2 and 13.3, QVC shall indemnify and hold Company, its affiliates, agents and independent contractors and each of their officers, directors and employees harmless from and against any and all liabilities, losses, damages, expenses, fines and penalties of any kind, including reasonable attorneys fees, incurred by any such party as a result of any claim made against such party arising out of, resulting from, by reason of, or in connection with the breach of this Agreement by QVC 14. Taxes, Duties Royalties and Other Charges. All taxes (including sales, use and value added taxes) duties (including customs and import duties) royalties or other charges imposed in connection with the performance of this Agreement shall be paid by Company; provided however, that Company shall have no obligation under this Section 14 for federal, state or local income taxes or payments in the nature of taxes payable to any taxing authority by QVC. If QVC pays any taxes, duties or royalties on behalf of Company, Company shall reimburse QVC the total amounts paid within thirty (30) days of receipt of an invoice from QVC for the same. 15. Trademark and Trade Names. Neither Party shall use any trademarks, service marks, trade names, corporate names or intellectual property rights of the other Party without the prior written consent of such Party. 16. Relationship of the Parties. The relationship between QVC and Company under this Agreement is that of seller and buyer of goods and services. In providing the Goods and the Support Services hereunder, QVC and its affiliates, agents and independent contractors shall act as independent contractors for Company and not as agents of Company. Unless otherwise expressly authorized in writing by the Parties, neither Party shall have the right or authority to make any representation or warranty on behalf of the other Party, to assume or create any responsibility, express or implied, on behalf of or in the name of the other party, to act for or bind the other party in any manner whatsoever, or to accept payment from any person on behalf of the other Party. 17. Assignment. Neither this Agreement nor any right or obligation hereunder is assignable or transferable by either Party in whole or in part without the prior written consent of the other Party, and any such purported assignment without such consent shall be void. Notwithstanding the foregoing QVC shall have the right to assign this Agreement and its rights and obligations hereunder, without obtaining prior written consent of Company, to any entity with which QVC merges, any entity to which QVC transfers a substantial part of the assets or businesses to which this Agreement relates, or to any Affiliate of QVC or entity which controls QVC, so long as such assignee accepts such assignment of QVC's rights and obligations hereunder. Nothing in this Section 16 shall limit QVC's ability to subcontract to a third party any of QVC's obligations under the terms of this Agreement, provided that QVC obtains the consent of Company which shall not be unreasonably withheld. 10 11 18. Force Majeure. 18.1. Any delays in or failure by either Party hereto in the performance of any obligations hereunder shall be excused if and to the extent caused by occurrences beyond such party's reasonable control, including, but not limited to, acts of God, strikes or other labor disturbances, war, whether declared or not, sabotage, and any other cause or causes, whether similar or dissimilar, to those herein specified which cannot reasonably be controlled by such party, expect that this provision shall not apply to any breach of the payment obligations of Company. Additionally, in the event that further lawful performance hereof or any part hereof by either Party hereto shall be rendered impossible by or as a consequence of any law, or any act of any government or political subdivision thereof having jurisdiction over such Party or directly or indirectly over a parent company of such Party, such Party shall not be considered in default hereunder by reason of any failure to perform occasioned thereby, except that this provision shall not apply to any breach of the payment obligations of Company. In the event of non-performance, the applicable obligation hereunder will be extended for a period equal to the period of delay caused by the forces majeure described above. Each Party agrees to notify the other Party in writing of the cause of any delay of performance under this Section 18.1. 18.2 Notwithstanding the foregoing, any Party whose performance is delayed or rendered impossible as described in Section 18.1 above shall use its best efforts, without obligation to expend substantial amounts of money not otherwise required under the Agreement, to circumvent or overcome the cause of the delay. In the event that the delay should exceed 180 days, either party may, at its option, terminate this Agreement effective immediately, by giving notice to the other Party. 19. Notice. Any notice, demand, election or communication required, permitted or desired to be given between the parties hereunder shall be in writing and shall be sent by prepaid registered or certified mail, return receipt requested, or by commercial courier service, or electronic facsimile (but in the latter instance, also by mail or by commercial courier service). Notices, demands, elections or communications shall be deemed received on the first to occur of the following: (i) when personally delivered; (ii) when actually received; or (iii) when sent by commercial courier service, five (5) days following the deposit thereof with such service. Notices, demands, elections or communications shall be addressed as follows (or to any other address which either party may designate to the other by written notice): If to QVC: QVC, Inc. Studio Park West Chester, Pennsylvania 19380 Attn: President FAX: 610-701-1380 With a copy to: QVC, Inc. Studio Park West Chester, Pennsylvania 19380 Attn: General Counsel FAX: 610-701-1021 11 12 If to Company: The Knot, Inc. 462 Broadway, 6th Floor New York, New York 10003 Attn: David Liu FAX: 212-219-1929 With a copy to: Akin, Gump, Strauss, Hauer & Feld, L.L.P. 590 Madison Avenue New York, New York 10019 Attn: Alan Siegel, Esq. FAX: 212-872-1002 20. Entire Agreement. This Agreement constitutes the entire Agreement between the Parties with respect to the subject matter hereof, and it supersedes all prior agreements between them with respect to such matters. This Agreement cannot be amended or modified in any manner except by a writing signed by the parties hereto. Notwithstanding the provisions of the Pennsylvania Uniform Commercial Code, if the Parties correspond with each other after the date hereof with purchase orders, invoices or other similar documentation, the terms and conditions of such documentation shall not modify this Agreement unless the Parties expressly agree in writing that they intend to modify this Agreement thereby. 21. Severability. Should any part or provisions of this Agreement be held unenforceable or in conflict with the applicable laws or regulations of any jurisdiction, the invalid or unenforceable part or provision shall be replaced with a revision which accomplishes, to the extent possible, the original business purpose of such part or provision in a valid and enforceable manner, and the balance of this Agreement shall remain in full force and effect and be binding upon the Parties hereto. 22. Waiver. No waiver of a breach or default hereunder shall be considered valid unless in writing and signed by the Party giving such waiver, and no such waiver shall be deemed a waiver of any subsequent breach or default of the same or similar nature. 23. Governing Law. This Agreement shall be governed by the laws of the Commonwealth of Pennsylvania, without regard to principles of conflicts of laws applicable therein. Each of the Parties hereto consents to the jurisdiction of the Court of Common Pleas of Chester County, Pennsylvania or the United States District Court for the Eastern District of Pennsylvania, which shall apply Pennsylvania law. 24. Proprietary Information. The Parties hereto agree that certain information of the other Party hereto used or made available in connection with this Agreement is proprietary and confidential ("Proprietary Information"). Proprietary Information shall include information of, entrusted to, or in the possession of the disclosing Party or any of its affiliates, employees, agents or representatives and disclosed to the receiving Party by or on behalf of the disclosing party or any of its affiliates, in writing, marked as confidential, and which is not generally made available to the public at large, including but not limited to financial data, costs, margins, software, computer 12 13 programming, mailing or other marketing lists, customer lists, sources of supply, salaries and other information concerning employees, any advertising, promotion, product or program concepts, plans or proposals, or any other information of a proprietary or non-public nature. Each Party will not permit the duplication or disclosure of the other Party's Proprietary Information by or to any person (other than employees, agents or representatives who must have such information in connection with the provision of the services contemplated hereby), unless the duplication or disclosure is specifically authorized in writing by the other Party. The Parties shall use reasonable measures and take reasonable action with respect to its employees, agents or representatives to ensure that its obligation of non-use and nondisclosure hereunder is satisfied. The obligations of a receiving Party shall not apply to Proprietary Information of the disclosing Party to the extent it is: a. information that is available or becomes available to the general public without restriction through no wrongful act or omission of the receiving Party; b. information received from a third party having the right to transfer said information; c. information that is independently developed by the receiving Party reference to Proprietary Information; d. information which is ascertainable from a visual inspection of the disclosing Party's products, services, news releases, advertising, promotional literature/material disseminated by the disclosing Party without restriction or public premises; or e. required to be disclosed pursuant to a subpoena or order of a court, agency or Government authority of competent jurisdiction that is binding on the receiving Party, provided that the receiving Party shall promptly notify disclosing Party thereof and permit disclosing Party to contest the same. Upon the termination of this Agreement, the receiving Party of the Proprietary Information will promptly, and in any event upon request by the disclosing Party of the Proprietary Information deliver to the disclosing Party all Proprietary Information, including all written and electronically stored copies, then in the receiving Party's possession. Neither disclosing Party nor its affiliates, employees, agents or representatives will retain any copies, extracts or other reproductions, in whole or in part, of such Proprietary Information. At the disclosing Party's requests, all documents, memoranda, notes and other writings prepared by the receiving Party or its nor its affiliates, employees, agents or representatives based directly on the information in the Proprietary Information, or which quote from or summarize and Proprietary Information, will be destroyed as soon as reasonably practicable, and such destruction will be certified in writing to the disclosing Party by an authorized officer of the receiving Party supervising such destruction. The Parties hereto acknowledge that a breach of the covenant of confidentiality contained in this Agreement will result in irreparable and continuing damage to the disclosing Party for which there will be no adequate remedy at law. In the event of any breach of this Agreement, the receiving Party agrees that the disclosing Party will be entitled to seek an obtain specific performance of this Agreement by the receiving Party, including, upon making the requisite showing that it is entitled thereto, provisional injunctive relief restraining the receiving Party 13 14 from committing such breach, in addition to such other and further relief, including monetary damages, as provided by law. 25. Covenant of QVC. During the term of this Agreement, QVC will not, directly or indirectly, own or operate or make any type of investment (other than a less than 5% ownership interest in a publicly traded entity) in any other corporation, limited partnership, limited liability company, joint venture or any similar organization or association that engages primarily in provision of wedding-related services. 26. Limited Warranties and Remedies. 26.1. QVC warrants to Company that the Support Services provided shall be performed in a workmanlike manner with the same standard of care used in connection with QVC's iQVC and television shopping network transactions. QVC further warrants that the Support shall be free from material defects in workmanship. This warranty (the "Warranty") shall survive inspection, acceptance and payment for a period of one (1) year. 26.2 If during the term of this Agreement Company believes that there is a breach of the Warranty, the Company shall notify QVC, setting forth in writing the nature of such claimed breach. QVC shall promptly investigate such breach and advise Company of QVC's planned corrective action. If such breach of the Warranty has not been corrected within a reasonable time, Company may, in addition to all other rights and remedies provided by law or this Agreement, but subject to the provisions of Section 13 of this Agreement, be refunded the US $9.25 warehouse fee associated with respect to the Goods subject to the Order affected by such breach. [THIS SPACE IS LEFT BLANK INTENTIONALLY] 14 15 IN WITNESS WHEREOF, the Parties have executed this Services Agreement on the day first above written. QVC, Inc. The Knot, Inc. By: /s/ John F. Luke By: /s/ David Liu Title: Executive VP Title: President and Chief Executive Officer 15 EX-10.9 4 AMENDED AND RESTATED ANCHOR TENANT AGREEMENT 1 EXHIBIT 10.9 ****CERTAIN PORTIONS OF THIS EXHIBIT HAVE BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT UNDER RULE 406 OF THE SECURITIES EXCHANGE ACT OF 1933, AS AMENDED. CONFIDENTIAL AMENDED AND RESTATED ANCHOR TENANT AGREEMENT This Amended and Restated Anchor Tenant Agreement (this "Agreement"), dated July 23, 1999 (the Amendment Date) but effective as of October 1, 1998 (the "Effective Date"), is made and entered into by and between America Online, Inc. ("AOL"), a Delaware corporation, with its principal offices at 22000 AOL Way, Dulles, Virginia 20166, and The Knot, Inc. ("Interactive Content Provider" or "ICP"), a Delaware corporation, with its principal offices at 462 Broadway 6th Floor, New York, New York 10013 (each a "Party" and collectively the "Parties"). INTRODUCTION The Parties entered into an Anchor Tenant Agreement effective as of October 1, 1998 (the "Prior Agreement") and subsequently determined that it would be mutually beneficial to broaden the relationship contemplated thereby. Accordingly, the Parties have entered into this Agreement which supersedes the Prior Agreement. AOL and ICP each desires that AOL provide access to the ICP Internet Site, the Online Area and the other ICP Programming, subject to the terms and conditions set forth in this Agreement. Defined terms used but not otherwise defined in this Agreement shall be as defined on Exhibit B attached hereto. TERMS 1. DISTRIBUTION; PROGRAMMING 1.1 PROGRAMMING AND DISTRIBUTION. Beginning on a mutually agreed upon date(s) after the Amendment Date, AOL shall provide ICP with the promotions and reserved programming areas set forth on Exhibit A-1. The promotions and reserved programming areas described on Exhibit A-1 and any other promotions provided by AOL to ICP shall be referred to as the "Promotions." Subject to ICP's reasonable approval, AOL will have the right to fulfill its promotional commitments with respect to any of the foregoing by providing ICP comparable promotional or programming placements in appropriate alternative areas of the AOL Network. In addition, if AOL is unable to deliver any particular Promotion, AOL will work with ICP to provide ICP, as its sole remedy, a comparable promotional or programming placement. Except to the extent expressly described herein, the exact form, placement and nature of the Promotions shall be determined by AOL in it's reasonable editorial discretion. ICP shall comply with the programming requirements and provide the Content set forth on Exhibit A and AOL's provision of Promotions in connection with any particular AOL Property shall be conditioned upon ICP's compliance with the programming requirements and provision of the Content set forth on Exhibit A-1 for such AOL Property. 1.2 ONLINE AREA AND OTHER CONTENT. ICP shall work diligently to develop, implement and maintain the Online Area and the other ICP Programming, which shall consist of the Content described on Exhibit A-2 hereto (the "Programming Plan"). ICP shall produce the Online Area using AOL's "Rainman" forms, in the case of the AOL Service, or using other technology designated by AOL and shall develop the design of the Online Area and other ICP Programming in consultation with AOL and in accordance with any standard design and content publishing guidelines provided to ICP by AOL (including, without limitation, any HTML publishing guidelines). The ICP Internet Site shall consist of the Content described on the Programming Plan. ICP shall not authorize or permit any third party to distribute any Content of ICP through the AOL Network absent AOL's prior written approval; provided, however, that ICP shall not be deemed to have violated this provision as a result of Content in third party areas which either (a) promotes the Wedding subchannel or the Online Area or (b) is wedding-related Content and contextually relevant to the Content in such third party area. The inclusion of any additional Content for distribution through the AOL Network (including, without limitation, any features, functionality or technology) not 2 expressly described on Exhibit A-2 shall be subject to AOL's prior written approval. Each screen of the Online Area which is linked to from the main screen of the Weddings Area shall contain a promotional link back to the main screen of the Weddings Area; the form and content of such link shall be mutually agreed upon by the Parties. 1.3 LICENSE. ICP hereby grants AOL a nonexclusive worldwide license to use, market, license, store, distribute, reproduce, display, adapt, communicate, perform, transmit, and promote the ICP Internet Site, the ICP Programming and the Licensed Content (or any portion thereof) through the AOL Network as AOL may determine in its sole discretion, including without limitation the right to integrate Content from the ICP Internet Site and/or ICP Programming by linking to specific areas thereon, provided that the link to any such Content on the AOL Network shall conform to the specifications of an ICP Presence; provided, however, that if ICP gives AOL written notice [****] to a particular [****] or [****] of the Licensed Content (including the ICP Programming) by AOL [****] of the AOL Properties listed on Exhibit A-1 or any co-branded versions thereof and stating a reasonable basis for such [****], AOL shall take action reasonably promptly to [****] such [****] or [****] such [****]; provided, further, that if ICP exercises such right more than [****] (provided, that any subsequent [****] by ICP to a particular use [****] previously [****] to shall not count as a subsequent exercise of such right), AOL shall have the right, at its option, to terminate this Agreement by giving ICP written notice thereof. In the event of such termination during a quarter in which ICP has made a quarterly installment of the carriage fee set forth in section 1.5 applicable to such quarter, AOL shall have the option of (i) making the termination effective as of the end of such quarter or, subject to AOL's right to offset any and all amounts due from ICP to AOL hereunder, to refund a pro rata portion of the carriage fee (i.e., quarterly installment paid by ICP applicable to such quarter divided by the number of days in such quarter multiplied by the number of days after termination remaining in such quarter). 1.4 OTHER INTERACTIVE AREAS. 1.4.1 AOL Approval. ICP shall not be permitted to establish any "pointers" or links between the ICP Programming and any other area on or outside of the AOL Network, including, without limitation, sites on the World Wide Web portion of the Internet, other than temporary editorial links to contextually relevant Content and links described on Exhibit A-2, without the prior written approval of AOL. In addition, AOL may restrict its approval (at any time) to specific portions of Content, Products, or functionality within a Linked Interactive Site. In such case, establishment of the link from the ICP Programming to the Linked Interactive Site will be subject to mutual agreement of the Parties regarding the means by which access will be restricted to the approved portions of the Linked Interactive Site. All Content linked to from ICP Programming, whether or not such links require (or receive) AOL approval, shall be subject to the terms of this Agreement. Any Linked Interactive Site which is (a) described on Exhibit A-2, (b) permanently linked to any ICP Programming, or (c) contains Content which is material to the ICP Programming (e.g. contains a material amount of Content addressing a material topic of such ICP Programming, receives a material amount of AOL Member traffic, or is promoted prominently within such ICP Programming) shall conform to AOL's technical specifications and guidelines, including the Operating Standards set forth on Exhibit F. 1.4.2 Management. ICP shall design, create, edit, manage, review, update, and maintain the ICP Internet Site, ICP Programming and the Licensed Content in a timely and professional manner and in accordance with the terms of this Agreement and shall keep the Licensed Content current, accurate and well-organized. ICP shall ensure that the Licensed Content within the ICP Internet Site and ICP Programming is equal to or better - --------------- [****] REPRESENTS MATERIAL WHICH HAS BEEN REDACTED AND FILED SEPARATELY WITH THE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 UNDER THE SECURITIES ACT OF 1933, AS AMENDED. 2 CONFIDENTIAL 3 than the Content distributed by ICP through any other ICP Interactive Site in all material respects, including without limitation, quality, breadth, timeliness, functionality, features, prices of products and services and terms and conditions, except (a) to the extent inclusion of such Content would otherwise violate this Agreement, (b) as otherwise expressly stated on Exhibit A-2, and (c) to the extent AOL does not approve or accept the inclusion of, or requests specific changes to, additional Content necessary to comply with this sentence. Except as specifically provided for herein, AOL shall have no obligations of any kind with respect to the ICP Internet Site or ICP Programming. ICP shall be responsible for any hosting or communication costs associated with the ICP Internet Site and ICP Programming (including any Linked Interactive Sites), including, without limitation, the costs associated with (i) any agreed-upon direct connections between the AOL Network and the ICP Internet Site or ICP Programming (including the dedicated line for the remote managed gateway) or (ii) a mirrored version of the ICP Internet Site. Any Linked Interactive Sites shall be subject to the license set forth in Section 1.2 above. ICP will permit AOL Members to access and use any ICP Interactive Site free of charge during the Term. AOL Members shall not be required to go through a registration process (or any similar process) in order to access and use the ICP Internet Site, ICP Programming (including any Linked ICP Interactive Site) or the Licensed Content, other than in order to register within ICP's gift registry and the tools and services described on Exhibit A-2 as requiring a registration process, and such registration processes shall be no more burdensome than the registration process utilized by ICP on any other ICP Interactive Site or for non-AOL Members. During the Term and for the [****] period after the expiration or termination thereof, ICP shall allow AOL Members to access and use any ICP Interactive Site on terms and conditions no less favorable than the terms and conditions available to other users of such ICP Interactive Site. In the event ICP fails to comply with any material term of this Agreement, including without limitation ICP's obligations under this Section 1.4 or its promotional obligations under Section 2 and such failure continues beyond two (2) business days after written notice thereof, AOL will have the right (in addition to any other remedies available to AOL hereunder) to decrease the promotion it provides to ICP hereunder and/or to decrease or cease any other contractual obligation of AOL hereunder until such time as ICP corrects its non-compliance, in which event AOL will be relieved of the proportionate amount of any promotional commitment made to ICP by AOL hereunder corresponding to such decrease in promotion. 1.5 CARRIAGE FEE. On or before each of January 7, 1999, April 7, 1999, July 7, 1999 and October 7, 1999 ICP shall pay AOL Two Hundred Fifty Thousand Dollars ($250,000). Thereafter, ICP shall pay AOL Three Hundred Thousand Dollars ($300,000)on or before each of January 7, April 7, July 7 and October 7 of each year during the Term; provided, however, if ICP elects to continue the [****] set forth on Exhibit A-1.A after the end of the second year of the Term, ICP shall pay AOL an additional carriage fee of [****] per quarter thereafter. 1.6 MEMBER BENEFITS. ICP will promote through the ICP Internet Site and/or ICP Programming any special or promotional offers made available by or on behalf of ICP through any ICP Interactive Site or any other distribution channel. In addition, ICP shall promote through the ICP Internet Site and/or ICP Programming special offers exclusively available to AOL Members ("AOL Exclusive Offers") (e.g., 10% off purchases in ICP's Wedding gift registry store). ICP shall, at all times, feature at least [****] AOL Exclusive Offer for AOL Members (except as otherwise mutually agreed upon by the Parties). The AOL Exclusive Offer made available by ICP shall provide a substantial member benefit to AOL Members, either by virtue of a meaningful price discount, product enhancement, unique service benefit or other special feature. ICP will provide AOL with reasonable prior notice of AOL Exclusive Offers and other special offers so that AOL can, in its editorial discretion, market the availability of such offers. - --------------- [****] REPRESENTS MATERIAL WHICH HAS BEEN REDACTED AND FILED SEPARATELY WITH THE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 UNDER THE SECURITIES ACT OF 1933, AS AMENDED. 3 CONFIDENTIAL 4 1.7 PREMIER STATUS. 1.7.1 (a) AOL Service. So long as ICP is in compliance with this Agreement, ICP shall be the only third party receiving continuous promotion on the main screen of the Weddings subchannel (or any specific successor thereof) of the AOL Service (the "Weddings Area"), for [****] covering the entire spectrum of topics directly related to [****]. In addition, so long as ICP is in compliance with this Agreement, AOL will not enter into an arrangement with a third party to provide a [****] area within the [****] exclusively dedicated to covering the entire spectrum of topics directly related to [****]. So long as ICP is in compliance with this Agreement, the Weddings Area shall be the primary comprehensive programming area on the AOL Service that is dedicated to covering the entire spectrum of topics directly related to [****]; provided, however, that this sentence shall not be construed to limit or otherwise affect AOL's editorial discretion within the Weddings Area (e.g. to influence the overall programming plan of, limit the Content that AOL may program into, or to require AOL to include certain Content within, the Weddings Area). The entities set forth in Exhibit H are [****] Providers covering the entire spectrum of topics related to [****] that ICP represents are [****] of ICP (the "ICP Competitors"). With respect to the ICP Competitors, so long as ICP is in compliance with all material terms of this Agreement, ICP will be the [****] third-party Weddings-Only Content Provider providing permanent Weddings-Only Content and programming which covers the entire spectrum of topics related to weddings on the AOL Service [****] with the exception of wedding registries ("Exclusivity"). ICP may provide AOL with an updated list of ICP Competitors ("Competitor List") from time to time; provided, however, that Oxygen Media, Inc., Women.com Network, and iVillage, Inc. (and their respective properties and affiliates) shall not be deemed ICP Competitors in any event and this [****] shall not prevent AOL from entering into contracts or relationships with [****] Providers who are not on the [****] (a) prior to AOL entering into such contract or relationship or (b) in the case of ICP Competitors added to the Competitor List subsequent to the execution of this Agreement, prior to AOL entering into negotiations regarding such contract or relationship. ICP acknowledges that AOL does not control the Content which appears within third party content areas on the AOL Service or on interactive sites linked to from the AOL Service; provided, that AOL agrees that it will not [****] of the [****] by [****] an ICP Competitor permanently within the AOL Service on [****] which [****] an ICP Competitor (such as, by way of example, permanently placing within the AOL Service a button or banner which reads [****]). In addition, AOL shall not sell or license advertisements to [****] to appear specifically within the editorial and Rainman pages created by ICP as described in Section B.1 of Exhibit A-2 (collectively, the "Editorial Packages"); provided that this restriction shall not apply to "run of service", "run of channel" or other non-targeted advertising packages. (b) AOL.com. After the Amendment Date, so long as ICP is in compliance with this Agreement, (i) the Plan Your Wedding Time Saver (or its successor) shall be the primary comprehensive programming area on AOL.com that is dedicated to covering the entire spectrum of topics directly related to [****]; provided, however, that this sentence - --------------- [****] REPRESENTS MATERIAL WHICH HAS BEEN REDACTED AND FILED SEPARATELY WITH THE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 UNDER THE SECURITIES ACT OF 1933, AS AMENDED. 4 CONFIDENTIAL 5 shall not be construed to limit or otherwise affect AOL's editorial discretion within the Plan Your Wedding Time Saver (e.g. to influence the overall programming plan of, limit the Content that AOL may program into, or to require AOL to include certain Content within, the Plan Your Wedding Time Saver) and (ii) ICP shall have the premier programming rights in the Plan Your Wedding Time Saver described in Exhibit A-1. (c) Netscape. After the Amendment Date, so long as ICP is in compliance with this Agreement, the Weddings Index Page shall be the primary comprehensive programming area on Netscape Netcenter that is dedicated to covering the entire spectrum of topics directly related to [****]; provided, however, that this sentence shall not be construed to limit or otherwise affect AOL's editorial discretion within the Weddings Index Page (e.g. to influence the overall programming plan of, limit the Content that AOL may program into, or to require AOL to include certain Content within, the Weddings Index Page) and (ii) ICP shall have the premier programming rights on the Weddings Index Page described in Exhibit A-1. (d) CompuServe. After the Amendment Date, so long as ICP is in compliance with this Agreement, the Weddings Department of the CompuServe Service (the "Wedding Department") shall be the primary comprehensive programming area on the CompuServe Service that is dedicated to covering the entire spectrum of topics directly related to [****]; provided, however, that this sentence shall not be construed to limit or otherwise affect AOL's editorial discretion within the Weddings Department (e.g. to influence the overall programming plan of, limit the Content that AOL may program into, or to require AOL to include certain Content within, the Weddings Department) and (ii) ICP shall have the premier programming rights on the Weddings Department main screen described in Exhibit A-1. (e) AOL Hometown. After the Amendment Date ICP will be a primary third party (non-AOL Affiliate) provider of Content directly related to weddings within the "Wedding" department of Hometown AOL (or any specific successor thereof) expressly promoted by AOL on a continuous basis in AOL Hometown as specified herein. 1.7.2 Notwithstanding the foregoing, (and without limiting any actions which may be taken by AOL without violation of ICP's rights hereunder), no provision of this Agreement shall limit AOL's ability (on or off the AOL Network) to (i) undertake activities or perform duties pursuant to existing arrangements with third parties (or pursuant to any agreements to which AOL becomes a party subsequent to the Effective Date as a result of Change of Control, assignment, merger, acquisition or other similar transaction); provided, however, that [****] that, to [****], as of the Effective Date it is [****] with [****] that would [****] to [****] of Section 1.7.1 in any [****]; provided, further that in the event of [****] of the [****] and a [****] of Section 1.7.1, ICP shall have the right, [****], written notice ([****] in reasonable [****] and the [****] of Section 1.7.1) if [****] does [****] the [****] of Section 1.7.1 that is the [****] of such [****]; (ii) advertise, promote or market, or sell advertising or promotions to, any third party Weddings-Only Content Provider, including without limitation the ICP Competitors, or for any wedding-related products or services, including wedding registries; provided that, AOL will not directly guarantee promotions or advertisements for [****] on the [****] main screen (other than registries), but AOL shall not be deemed to have breached this provision by providing such promotions and advertisements on the [****] main screen on a ROS (i.e., run of service) basis so long as AOL [****] any ROS promotions or advertisements for - --------------- [****] REPRESENTS MATERIAL WHICH HAS BEEN REDACTED AND FILED SEPARATELY WITH THE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 UNDER THE SECURITIES ACT OF 1933, AS AMENDED. 5 CONFIDENTIAL 6 [****] from the [****] main screen within [****] after AOL receives written notice from ICP thereof, (iii) create contextual links to wedding-related Content or editorial commentary on wedding-related topics; or (iv) enter into arrangements with third parties, including [****], to provide programming and/or marketing areas dedicated to particular wedding-related topics (such as, without limitation, local wedding services, honeymoons, engagement rings, financial planning, etc.); provided that, in connection with such arrangements, AOL shall not guarantee promotions for any [****] on the [****] main screen other than as provided in subparagraph 1.7.2(ii). 1.7.3 AOL shall have the right to terminate AOL's commitments set forth in Section 1.7.1 and ICP's programming rights described on Exhibit A, in whole or in part, if ICP is not one of [****] dedicated to wedding-related topics and/or the Content on the ICP Programming is not commensurate with such market position, as determined by evaluating ICP, the ICP Internet Site and/or the ICP Programming, as a whole, based on relevant criteria including the following: (a) based on a mutually-approved (which approval shall not be unreasonably withheld or delayed) cross-section of third-party reviewers who are recognized authorities in such market and (b) with respect to all material quality averages or standards in such industry, including each of the following: (i) scope and quality of Content, (ii) scope, selection and pricing of products and services, (iii) quality and brands of products and services, (iv) customer service and fulfillment associated with the marketing and sale of products and services and (v) user traffic, as measured by page views, and audience reach, as measured by share or percentage of Internet online users as reported by Media Metrix or similar organization reasonably determined by AOL. 2. PROMOTION. Each Party shall cooperate with and reasonably assist the other Party in supplying material for marketing and promotional activities. ICP shall perform the promotional obligations set forth on Exhibit E attached hereto. 3. REPORTING; PAYMENT. 3.1 USAGE AND OTHER DATA. AOL shall make available to ICP a monthly report specifying for the prior month aggregate usage and Impressions with respect to ICP's presence on the AOL Network, which are similar in substance and form to the reports provided by AOL to other content partners similar to ICP. ICP will supply AOL with quarterly (or monthly upon request by AOL) reports which reflect total impressions by AOL Members to the ICP Internet Site and any Linked ICP Interactive Site during the prior month, total impressions by all users to the ICP Internet Site and any Linked ICP Interactive Site during the prior month and the number of and dollar value associated with the transactions involving AOL Members and aggregated registration information (which shall be considered Confidential Information) obtained from AOL Members at the ICP Internet Site or Linked ICP Interactive Site during the period in question. ICP represents that all URLs related to the ICP Internet Site are listed on Exhibit A-2 and ICP shall provide AOL with an update of such list promptly upon any change thereto. ICP shall provide detailed information to AOL regarding (i) AOL Advertisements sold by ICP or its agents and (ii) any advertising or paid promotional activity on the ICP Internet Site and any Linked ICP Interactive Sites. AOL shall provide detailed information to ICP regarding any AOL Advertisements sold by AOL or its agents which give rise to Advertising Revenues. In reporting any advertising arrangement, each Party shall indicate the name of the advertiser, the terms of the advertising arrangement and the amount paid (or to be paid) to the Party or its agents. 3.2 PROMOTIONAL COMMITMENTS. ICP shall provide to AOL a quarterly report documenting its compliance with any promotional commitments it has undertaken pursuant to this Agreement in the form attached as Exhibit E hereto. - --------------- [****] REPRESENTS MATERIAL WHICH HAS BEEN REDACTED AND FILED SEPARATELY WITH THE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 UNDER THE SECURITIES ACT OF 1933, AS AMENDED. 6 CONFIDENTIAL 7 3.3 PAYMENT SCHEDULE. Except as otherwise specified herein, each Party agrees to pay the other Party all amounts received and owed to such other Party as described herein on a quarterly basis within sixty (60) days of the end of the quarter in which such amounts were collected by such Party. The first quarter for which payment is to be made shall (i) begin on the first day of the month following the month of execution of this Agreement and (ii) include the portion of the month of execution following the Effective Date (unless this Agreement was executed on the first day of a month, in which case the quarter shall be deemed to begin on the first day of such month). 3.4 WIRED PAYMENTS. All payments by ICP hereunder shall be paid in immediately available, non-refundable U.S. funds wired to the "America Online" account, Account Number [****], or such other account of which AOL shall give ICP written notice. 4. ADVERTISING AND MERCHANDISING 4.1 ADVERTISING SALES. AOL owns all right, title and interest in and to the advertising and promotional spaces within the AOL Network (including, without limitation, advertising and promotional spaces on any AOL forms or pages preceding or framing the ICP Internet Site, ICP Programming, any AOL pages on which ICP Programming resides and the Editorial Packages); provided that ICP shall retain all right, title and interest in and to the Licensed Content subject to the license set forth in this Agreement. The specific advertising inventory within any AOL forms or pages shall be as reasonably determined by AOL. AOL shall have the exclusive right, but not the obligation, to sell or license Products and Advertisements through each Community Center (as defined in Exhibit A). AOL hereby grants ICP the right to license or sell promotions, advertisements, links, pointers or similar services or rights ("Advertisements") through the Online Area ("AOL Advertisements"), subject to AOL's approval for each AOL Advertisement. 4.2 ADVERTISING POLICIES. Any AOL Advertisements sold by ICP or its agents shall be subject to AOL's then-standard advertising policies, and ICP shall not sell an AOL Advertisement in a category in which AOL or the applicable AOL Property has an [****] (or other similarly [****]) relationship with a third party. ICP shall not sell an AOL Advertisement to any other Interactive Service; [****] that ICP may sell an AOL Advertisement for a wedding-related product or service of an [****], provided that such advertisement does not promote such [****] as an [****] and such AOL Advertisement, or such product or service, does not contain a direct link to any promotion or advertisement for an [****] as an [****]. ICP shall ensure that any AOL Advertisement sold by ICP complies with all applicable federal, state and local laws and regulations. 4.3 INTERACTIVE COMMERCE. Any merchandising permitted hereunder through the ICP Internet Site and/or ICP Programming (including any registries) shall be subject to (i) the then-current requirements of AOL's merchant certification program, (ii) AOL's standard terms and conditions applicable to its interactive marketing partners, (iii) prior approval by AOL of all products, goods and services to be offered through the ICP Internet Site or the ICP Programming, and (iv) ICP will take all reasonable steps necessary to conform its promotion and sale of Products through the ICP Internet Site and ICP Programming to the then-existing technologies identified by AOL which are optimized for the AOL Service including, without limitation, any "quick checkout" tool which AOL may implement to facilitate purchase of Products by AOL Members through the ICP Internet Site. ICP shall not conduct any merchandising through the ICP Programming through auctions, fee-based clubs or any method other than a direct sales format or a wedding registry without AOL's prior written consent, nor shall ICP promote any auctions or fee-based clubs on the ICP Programming; provided, however, that ICP may promote its existing [****] through the ICP Weddings Main Screen Space. In addition, ICP shall not, through the ICP Programming, (i) offer any Products on behalf of a third party by linking to such third party's site, - --------------- [****] REPRESENTS MATERIAL WHICH HAS BEEN REDACTED AND FILED SEPARATELY WITH THE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 UNDER THE SECURITIES ACT OF 1933, AS AMENDED. 7 CONFIDENTIAL 8 (ii) establish any merchandising area or registry in the format of a "shopping mall" or an aggregation of third party stores or Products, or (iii) otherwise promote or advertise any third party engaged in the activities described in clauses (i) or (ii) of this sentence, in each case without AOL's prior written consent. AOL hereby approves the offer, sale or license of all Products in the categories set forth in Exhibit I subject to AOL's continuing right to withdraw or restrict its approval if the offer, sale or license of any Product(s) or category(ies) of Products would violate AOL's contractual commitments to third parties. ICP shall provide AOL with detailed quarterly reports in mutually agreed upon form detailing all transactions on the Online Area. ICP shall give AOL commerce and merchandising partners a preferential opportunity in connection with any merchandising or commerce arrangements that ICP desires to enter into on the ICP Internet Site and/or ICP Programming. 5. CUSTOMIZED ICP PROGRAMMING AND ICP INTERNET SITE 5.1 PERFORMANCE. ICP shall optimize all ICP Programming and the ICP Internet Site for distribution hereunder according to AOL specifications and guidelines (including, without limitation, any HTML publishing guidelines) and the Operating Standards set forth on Exhibit F attached hereto. 5.2 CUSTOMIZATION. ICP shall customize all ICP Programming and the ICP Internet Site for AOL Members as follows: (a) ICP shall customize and co-brand the ICP Internet Site for distribution over certain AOL Properties as more particularly described on Exhibit A-1. The customization and co-branding described in Exhibit A-1 represents the manner in which AOL currently contemplates that such customization and co-branding will appear. ICP shall make any reasonable changes to the customization and/or co-branding requirements of any AOL Property that may occur during the Term. (b) ICP shall ensure that AOL Members accessing the ICP Programming or linking to the ICP Internet Site do not receive advertisements, promotions or links (i) for any Interactive Service or (ii) in violation of the applicable AOL Property's then-standard advertising policies. ICP shall ensure that AOL Members accessing the ICP Programming or linking to the ICP Internet Site do not receive advertisements, promotions or links in a category in which AOL or the applicable AOL Property has an [****] another [****] to a third party; provided, however, that if ICP is in violation of the terms of this Section 5.2(b) due to AOL's failure to inform ICP of such category and such violation is not willful or repeated, then AOL's [****] shall [****] require that ICP promptly (within two (2) business days) [****] any such [****], or [****] (or otherwise [****] of [****]). (c) ICP shall provide continuous navigational ability for AOL Members to return to an agreed-upon point on the applicable AOL Property (for which AOL shall supply the proper address) from ICP Internet Site or ICP Programming (e.g., the point on the applicable AOL Property from which such site is linked), which, at AOL's option, may be satisfied through the use of a hybrid browser format. ICP shall ensure that navigation back to the AOL Network from the ICP Internet Site, whether through a particular pointer or link, the "back" button on an Internet browser, the closing of an active window, or any other return mechanism, shall not be interrupted by ICP through the use of any intermediate screen or other device not specifically requested by the user, including without limitation through the use of any html pop-up window or any other similar device. Rather, such AOL traffic shall be pointed directly back to the AOL Network as designated by AOL. - --------------- [****] REPRESENTS MATERIAL WHICH HAS BEEN REDACTED AND FILED SEPARATELY WITH THE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 UNDER THE SECURITIES ACT OF 1933, AS AMENDED. 8 CONFIDENTIAL 9 (d) Upon AOL's request, ICP shall use AOL's tools and technology for all community-related utilities and functionality (including, without limitation, chat, message boards, and web page community services such as AOL Hometown) within ICP Programming and the ICP Internet Site and any registration or similar processes permitted hereunder (once AOL's registration tools become available) to the extent technically feasible and to the extent such tools and technology can be integrated in a substantially similar manner as ICP's current tools in terms of user experience. 5.3 LINKS ON ICP INTERNET SITE. The Parties will work together on mutually acceptable links (including links back to AOL) within the ICP Internet Site in order to create a robust and engaging AOL member experience. ICP shall take reasonable efforts to ensure that AOL traffic is generally either kept within the ICP Internet Site or ICP Programming or channeled back into the AOL Network. To the extent that AOL notifies ICP in writing that, in AOL's reasonable judgment, links from the ICP Internet Site or ICP Programming cause an excessive amount of AOL traffic to be diverted outside of such site and the AOL Network in a manner that has a detrimental effect on the traffic flow of the AOL audience, then ICP shall immediately reduce the number of links out of such site(s). In the event that ICP cannot or does not so limit diverted traffic from such site, AOL reserves the right to terminate such links from the AOL Network to such site. 5.4 REVIEW. ICP shall allow appropriate AOL personnel to have access to all ICP Programming and the ICP Internet Site for the purpose of reviewing such sites to determine compliance with the provisions of this Section 5. 6. TERM, TERMINATION, SITE AND CONTENT PREPARATION, PRESS RELEASES. 6.1. TERM. Unless earlier terminated as set forth herein, the initial term of this Agreement shall commence on the Effective Date and expire on January 6, 2003. Provided that AOL provides at least [****] to the [****] during the final year of the initial term, AOL shall have the right, at its option, to renew this Agreement for a two (2) renewal term on the same terms and conditions set forth herein, by giving ICP written notice of such election not later than ninety (90) days prior to the expiration of the initial term. The Parties acknowledge that AOL may give such notice whether or not it has provided ICP with the required Impressions as of such date and AOL shall have the remainder of the final year of the initial term to provide such Impressions. If AOL [****] to provide the [****] by the end of the final year of the initial term, AOL's right to renew this Agreement shall be null and void notwithstanding that AOL may have provided written notice of its election to renew this Agreement. Upon the expiration of the term of this Agreement without renewal by AOL, or upon the earlier termination of this Agreement, AOL shall have the right, at its option, [****] to [****], to use one or more ICP trademarks or tradenames as keywords and/or text-based links from the AOL Network to any ICP Interactive Site. Upon the expiration or earlier termination (other than by reason of a material breach of this Agreement by ICP) of the term of this Agreement without renewal by AOL, AOL agrees to give notice to each AOL Member then-registered in ICP's gift registry through the AOL Service, which notice shall inform such AOL Members as to how ICP's registry can be located after such expiration or termination of this Agreement. 6.2. AOL TERMINATION RIGHTS.(a) AOL shall have the right to terminate all of ICP's rights and AOL's obligations with respect to AOL Hometown [****] by giving ICP thirty (30) days prior written notice thereof; provided, however, that if AOL exercises such termination right and subsequently desires to include on AOL Hometown a community area devoted to comprehensive weddings content and information, then AOL shall discuss in good faith such opportunity with ICP prior to entering into a definitive written agreement with another provider thereof. - --------------- [****] REPRESENTS MATERIAL WHICH HAS BEEN REDACTED AND FILED SEPARATELY WITH THE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 UNDER THE SECURITIES ACT OF 1933, AS AMENDED. 9 CONFIDENTIAL 10 (b) AOL shall have the right to terminate its obligations with respect to Netscape Netcenter, including without limitation AOL's obligations under Section 1.7.1(c) and with respect to the ICP Weddings Index Page Space (as defined on Exhibit A) at any time after the date that is [****] after the Amendment Date by giving ICP written notice thereof (which notice may be given prior to the date that is [****] after the Amendment Date); provided, however, if AOL exercises such termination right, AOL will provide ICP with a [****] on the Weddings Index Page of Netscape Netcenter. (c) AOL shall have the right to terminate its obligations with respect to the CompuServe Service, including without limitation AOL's obligations under Section 1.7.1(d) and with respect to the ICP Weddings Department Screen Space (as defined on Exhibit A) at any time after the date that is twenty-six (26) months after the Amendment Date by giving ICP written notice thereof (which notice may be given prior to the date that is [****]); provided, however, if AOL exercises such termination right, AOL will provide ICP with a [****] on the main screen of the Weddings Department of the CompuServe Service. 6.3 TERMINATION FOR BREACH. Either Party may terminate this Agreement at any time in the event of a material breach by the other Party which remains uncured after thirty (30) days written notice thereof. 6.4 TERMINATION FOR BANKRUPTCY/INSOLVENCY OR CHANGES IN BUSINESS. Either Party may terminate this Agreement immediately following written notice to the other Party if the other Party (i) ceases to do business in the normal course, (ii) becomes or is declared insolvent or bankrupt, (iii) is the subject of any proceeding related to its liquidation or insolvency (whether voluntary or involuntary) which is not dismissed within ninety (90) calendar days or (iv) makes an assignment for the benefit of creditors. 6.5 TERMINATION OF PRIOR AGREEMENT. Effective as of the Effective Date, the Prior Agreement shall terminate and be of no further force and effect and the Parties shall have no liability for matters accruing thereunder after the Effective Date except for provisions of the Prior Agreement that expressly survive the term of the Prior Agreement. 6.6 SITE AND CONTENT PREPARATION. ICP shall achieve Site and Content Preparation within sixty (60) days after the Amendment Date; provided that all Content required to be provided by ICP under the Prior Agreement (e.g., the Online Area) shall continue to be provided immediately upon the Amendment Date. "Site and Content Preparation" shall mean that ICP shall have completed all necessary production work for the ICP Internet Site, all ICP Programming and any other related areas or screens (including programming all Content thereon); customized and configured the ICP Internet Site, and all ICP Programming in accordance with this Agreement; and completed all other necessary work (including, without limitation, undergone all AOL site testing set forth on Exhibit F) to prepare the ICP Internet Site, all ICP Programming and any other related areas or screens to launch on the AOL Network as contemplated hereunder. 6.7 PRESS RELEASES. Each Party will submit to the other Party, for its prior written approval, which will not be unreasonably withheld or delayed, any press release or any other public statement ("Press Release") regarding the transactions contemplated hereunder. Notwithstanding the - --------------- [****] REPRESENTS MATERIAL WHICH HAS BEEN REDACTED AND FILED SEPARATELY WITH THE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 UNDER THE SECURITIES ACT OF 1933, AS AMENDED. 10 CONFIDENTIAL 11 foregoing, either Party may issue Press Releases and other disclosures as required by law or as reasonably advised by legal counsel without the consent of the other Party and in such event, the disclosing Party will provide at least five (5) business days prior written notice of such disclosure. The failure to obtain the prior written approval of the other Party shall be deemed a material breach of this Agreement, whereby the non-breaching Party may terminate this Agreement immediately following written notice to the other Party, and the cure provision of Section 6.2 of this Agreement shall not apply. 7. WARRANTS. ICP hereby grants to AOL a warrant (the "Warrant") representing the right for a eight (8) year period to purchase shares of ICP's Common Stock (the "Common Stock") equal to two and one-half percent (2.5%) of all of ICP's capital stock, on a fully-diluted basis, as of the Amendment Date, at a price per share equal to seven and 20/100 Dollars ($ 7.20). Upon execution of this Agreement, ICP shall issue the Warrant and will enter into a Stock Subscription Warrant on the form attached hereto as Exhibit K (the "Warrant Agreement"), which will document the grant of the Warrant hereby made to AOL. The rights, preferences and privileges of the Warrant and the Common Stock issuable upon exercise of the Warrant shall be as set forth in the Warrant Agreement. AOL shall have the right to terminate this Agreement in the event of a material breach by ICP of the Warrant Agreement that remains uncured beyond thirty (30) days following written notice thereof. 8. TERMS AND CONDITIONS. The terms and conditions set forth on the Exhibits attached hereto are hereby made a part of this Agreement. IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as of the Effective Date. AMERICA ONLINE, INC. THE KNOT, INC. By: _________________________________ By: _________________________________ Print Name: ________________________ Print Name: _________________________ Title: ______________________________ Title: _____________________________ Date: _______________________________ Date: ______________________________ Tax ID/EIN#: ______________________ 11 CONFIDENTIAL 12 EXHIBIT A EXHIBIT A-1: CARRIAGE PLAN AND PROGRAMMING REQUIREMENTS A. Anchor Tenancy. ICP shall receive distribution within the AOL Service as follows: AOL shall (a) continuously and prominently place an agreed-upon ICP link, branded logo or banner (an "Anchor Tenant Button") on the Weddings Area main screen so long as AOL, in its sole discretion, maintains buttons for wedding registries on the Weddings Area main screen , which Anchor Tenant Button shall link to the Online Area, (b) provide ICP with a standard Anchor position for the first two years of the initial term, and thereafter at ICP's option for an additional [****] as set forth in Section 1.5, in (1) the Shopping Channel (or its successor on the AOL Service or AOL.com) Wedding Registries department, (2) the wedding registries area (or its successors) within the Shopping department of Netscape Netcenter, so long as ICP is entitled to premier status on Netscape Netcenter pursuant to Section 1.7.1(c), and (3) the wedding registries area (or its successors) within the Shopping Channel of the CompuServe Service, so long as ICP is entitled to premier status on the CompuServe Service pursuant to Section 1.7.1(d) (which Shopping Channels and department may, at AOL's option, be designed and developed by AOL as a single cross-platform product), (c) provide ICP with carriage on the area within the Digital City content area on the AOL Service that promotes weddings content and which is currently known as the "Wedding Guide" area; provided that, if AOL eliminates such area, AOL shall not be required to provide ICP with such carriage and ICP shall not be required to provide the DCI Promotions (as defined on Exhibit E), and (d) provide ICP with the keyword "Knot" together with such other of the keywords listed on Exhibit G as AOL may provide at its discretion, which keywords shall link to the Online Area. The Weddings Area will be accessible through the Romance and Womens subchannels (or any specific successor(s) thereof). The Parties agree and acknowledge that (i) AOL may, at any time, relaunch the Weddings Area, (ii) such relaunch may occur with such other or additional Content, wedding registries or areas as AOL may choose in its discretion (other than in the ICP Weddings Main Screen Space), and (iii) upon relaunch of the Weddings Area, AOL may issue press releases announcing the launch of the Weddings Area. Subject to the provisions contained herein, the AOL Keywords "Bridal", "Groom(s)", "Bride(s)", and "Wedding(s)" shall link to the Weddings Area. - B. Reserved Programming Space. Beginning on a mutually agreed upon date(s) after the Amendment Date, AOL will provide approximately [****] of the Programmable Space for ICP to provide Content on the Weddings Area main screen (the "ICP Weddings Main Screen Space"). AOL will provide approximately [****] of the Programmable Space for ICP to provide Content on the Plan Your Wedding Time Saver main screen of AOL.com (the "ICP Wedding Time Saver Space"). AOL will provide approximately [****] of the Programmable Space for ICP to provide Content on the Weddings Index Page of Netscape Netcenter (the "ICP Weddings Index Page Space"). AOL will provide approximately [****] of the Programmable Space for ICP to provide Content on the Wedding Department main screen of the CompuServe Service (the "ICP Wedding Department Screen Space"). The main screen of the Weddings Area, the main screen of the Plan Your Wedding Time Saver on AOL.com, the Weddings Index Page on Netscape Netcenter and the main screen of the Weddings Department on the CompuServe Service are collectively referred to herein as the "ICP Programming Space Screens." The ICP Weddings Main Screen Space, the ICP Wedding Time Saver Space, the ICP Weddings Index Page Space and the ICP Wedding Department Screen Space are collectively referred to herein as the "ICP Programming Space." Within each of the ICP Programming Space Screens, AOL will provide ICP with approximately [****] of the Programmable Space "above the fold" on such screen. AOL shall provide ICP with prominent branding near the title on each of the main screen of the Plan Your Wedding Time Saver on AOL.com , the Weddings Index Page on Netscape Netcenter, the main screen of the Weddings Department on the CompuServe Service and on each page of the Editorial Packages. In the event AOL, in its sole discretion, allocates to ICP more than the aforementioned percentage of any of the aforementioned areas or screens, ICP shall program such additional space in accordance with this Agreement, including without limitation this Exhibit A. - --------------- [****] REPRESENTS MATERIAL WHICH HAS BEEN REDACTED AND FILED SEPARATELY WITH THE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 UNDER THE SECURITIES ACT OF 1933, AS AMENDED. 12 CONFIDENTIAL 13 ICP shall have programming control of the Content within the ICP Programming Space, provided that (i) such Content shall be subject to the terms of this Agreement, shall link solely to ICP Programming for the applicable AOL Property as described in the Programming Plan and shall be directly related to the Content described on Exhibit A, (ii) ICP shall not sell or place paid advertisements, promotions or sponsorship links, or any other branded Content (except with ICP's Marks or, subject to the terms of this Agreement, AOL's Marks), within the ICP Programming Space and no more than [****] of the ICP Weddings Main Screen Space shall contain promotions, or links for any merchandising permitted to be conducted or promoted by ICP on the ICP Weddings Main Screen Space pursuant to Section 4.3 and (iii) AOL shall retain all right, title and interest in and to, and shall have sole control over, the components of the AOL Look and Feel within the ICP Programming Space. AOL shall have sole control over the remaining Programmable Space and all Non-Programmable Space, including the exclusive right to sell advertising, select branding, marks and logos and program Content within such screens; provided that, ICP shall have the right to reasonably disapprove any Content (exclusive of advertisements, promotions and registries) from an ICP Competitor contained on AOL's portion of the Programmable Space of the Weddings Area main screen ("AOL Programmable Space") as long as such disapproval is based upon editorial redundancy and is not based upon a business or competitive reason of ICP, including but not limited to, the fact that such Content is from a Weddings-Only Content Provider and/or an ICP Competitor. AOL shall notify ICP of any Content (exclusive of advertisements , promotions and registries) from an ICP Competitor contained on the AOL Programmable Space; provided that; (i) AOL's inadvertent failure to notify ICP of such Content shall not constitute a breach of contract, and (ii) ICP shall have two (2) business days to disapprove of such Content as provided herein by written notification to AOL specifying all reasons for disapproval. If ICP reasonably disapproves of such Content as provided herein, AOL shall promptly take commercially reasonable steps to discontinue the display of such Content on the AOL Programmable Space. C. Customization and Co-Branding Programming Requirements: AOL.com: ICP shall create a version of the ICP Internet Site customized for distribution through AOL.com (the "ICP-AOL.com Site") by (x) displaying on each page of the ICP-AOL.com Site headers and footers of size and type determined by AOL and which contain both AOL.com and ICP branding, links to AOL.com, and (y) programming each page of the ICP-AOL.com Site with a co-branded domain name (i.e., theknot.aol.com or some other AOL-approved treatment). The ICP-AOL.com Site shall contain Content as described in the Programming Plan. All terms and conditions of this Agreement applicable to the ICP Internet Site shall apply to the ICP-AOL.com Site except as expressly otherwise stated. COMPUSERVE: ICP shall create a version of the ICP Internet Site customized for distribution through the CompuServe Service (the "ICP-CS Site") by (x) displaying framing (including headers, footers and left side navigation/menu bars) on each page of the ICP-CS Site of size and type determined by AOL and which contain, as and to the extent determined by AOL, CompuServe and ICP branding, links to the CompuServe Service, a search box and promotional spaces to be programmed/served by AOL (provided AOL agrees knot to promote ICP Competitors in such spaces), (y) programming each page of the ICP-CS Site with a co-branded domain name (i.e., theknot.compuserve.com) and (z) matching the look and feel of the CompuServe Service on the ICP-CS Site. The ICP-CS Site shall contain Content as described in the Programming Plan. All terms and conditions of this Agreement applicable to the ICP Internet Site shall apply to the ICP-CS Site except as expressly otherwise stated. NETSCAPE: ICP shall create a version of the ICP Internet Site customized for distribution through Netscape Netcenter (the "ICP-NS Site") by (x) displaying a "C-frame" header, footer and left-side menu bar on each page of the ICP-NS Site as well as the additional standard programming elements as set forth in the Programming Plan, with such C-frame of size and type determined by AOL with the headers and footers containing both Netscape and ICP branding, links to Netscape Netcenter, a search box and two (2) promotional spaces to be programmed/served by AOL (provided that ICP shall not be required to implement the C-frame to the extent not technically feasible, but ICP shall in any event implement the headers and - --------------- [****] REPRESENTS MATERIAL WHICH HAS BEEN REDACTED AND FILED SEPARATELY WITH THE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 UNDER THE SECURITIES ACT OF 1933, AS AMENDED. 13 CONFIDENTIAL 14 footers as described above), (y) programming each page of the ICP-NS Site with a co-branded domain name (i.e., theknot.netscape.com or some other AOL-approved treatment) and (z) matching the look and feel of Netscape Netcenter on the ICP-NS Site. D. AOL Hometown: Within the "Wedding" department of the "Family Life" sub-category of the "Family & Home" category of AOL Hometown, ICP will be entitled to the following: - [****] with corporate brand or logo through the front page of the "Family & Home" category of AOL Hometown AOL, which banners link to the ICP Internet Site. - [****] of which may include an AOL-approved graphic (50 x 50 pixels in size) on the front page of the "Weddings" department of AOL Hometown which text-fields directly link to a Community Center. - [****] in size) with corporate brand or logo on the top navigation bar of the front page of the "Weddings" department, each page of the corresponding Community Center linked to from such department, and any Member Page developed within such department, which banner will link to the ICP Internet Site. All additional Promotions on Hometown AOL not specified herein will be determined at AOL's sole discretion. EXHIBIT A-2: DESCRIPTION OF CONTENT A. ICP Programming. I. Online Area 1. Overview/Purpose of Site: The one stop resource that provides brides and grooms, their families and their guests the information, goods and services that they need to have the engagement, wedding, honeymoon and home that they want. From engagement, to the registry process, from the honeymoon through to the set-up of the newlywed home, The Knot provides the answers to today's couples every need. 2. Categories of Programming: -- Original Content: Planning, beauty, fashion, grooms issues, wedding gowns/dresses, bridesmaids, searchable databases of gown/apparel/wedding photographers/local services/venues/planning information, wedding ceremony and reception music, relationships, honeymoon planning, romantic travel, books and book reviews, tuxedos and formalwear, diamonds, engagement, Ethnic Weddings among them Jewish/Asian/Afro-centric/ Latino and Greek, gay and lesbian weddings, religion, new home, decorating, etiquette, advice experts, gifts, registering, 2nd+ weddings, Families, Inter-weddings. -- Member Generated Content (e.g., chat, live events, message boards, personals and classifieds): Message boards and hosted live chat pertaining to topics described in the original content. -- Classifieds and listings: Not limited to but including local wedding venues, vendors and services, honeymoon destinations. -- Third Party Content: A broad range of wedding book authors, honeymoon books and experts, Honeymoon Magazine, wedding related content from online content providers, and other content relevant to the categories described above in original content, subject to the restrictions, terms and conditions contained in the Agreement. -- Update Frequency: Daily, weekly and monthly and permanent features. - --------------- [****] REPRESENTS MATERIAL WHICH HAS BEEN REDACTED AND FILED SEPARATELY WITH THE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 UNDER THE SECURITIES ACT OF 1933, AS AMENDED. 14 CONFIDENTIAL 15 -- Commerce: Knot registry, Knot shop, Aloha Honeymoon Travel Auctions, subject to the restrictions, terms and conditions contained in the Agreement. -- Topics Covered: See the original content. - Games: Trivia and surveys. 3. Categories of Links: -- Permanent: sites editorially relevant to the topics described in the original content Section above. Links to co-branded and non-co-branded content areas that feature ICP content or brand. All links from Online Area subject to AOL approval and other terms and conditions contained in this Agreement. -- Temporary: Links to content and sites, editorially relevant to the topics described in the original content section above. All links from Online Area subject to AOL approval and other terms and conditions contained in this Agreement. 4. Technologies Employed: Windows NT, Perl, SQL, Java. B. Other ICP Programming: AOL SERVICE PROGRAMMING PLAN: Partner provides: Comprehensive wedding-related content, the substantial portion of which does not require registration; provided that access to advice and functionality related to wedding planning may require registration subject to the terms of this Agreement. - -------------------------------------------------------------------------------- SECTION 1 - GENERAL CONTENT REQUIREMENTS - -------------------------------------------------------------------------------- The content described below will be promoted from the Weddings @ AOL screen. The topics and order of the topics below may change at AOL's discretion and approval. Gown of the Day Tool Box Wedding of the Week Plan the honeymoon --Advice from The Knot Plan the Wedding --Advice from The Knot The Knot's Bridal Gown search and Wedding Checklist will be carried on the page. In addition, The knot will produce 5 editorial packages and 3 Rainman screens per year as defined: Overall Requirements: 15 CONFIDENTIAL 16 - - The Knot will receive 60% of programming space at a minimum to be used in accordance with Section B of Exhibit A-1. - - Create these areas within 60 days after AOL's request. - - The look and feel will be determined and approved by AOL. - - Promotion within the AOL Service will be determined by AOL. - - These areas promoted by AOL and will be supported through the Knot 5 Editorial Packages Requirements: - - 1-3 Rainman screens - - Topics determined by AOL (e.g., Spring Entertainment) with consultation by ICP - - An AOL ad banner position, size to be determined by AOL - - Weekly updates unless another schedule is determined by AOL - - Sponsorships, at AOL's discretion - - Unlike real estate which does not have a specific period of time, the editorial packages will run for a period of time as determined by AOL. AOL will provide ICP with the timing guidelines prior to production. 3 Rainman Screens Requirements: - - Topics determined by AOL (e.g., Honeymoons) with consultation by ICP - - An AOL ad banner position, size to be determined by AOL - - Weekly updates unless another schedule is determined by AOL - - Sponsorships, at AOL's discretion - - AOL will choose the content topics from topics covered by ICP AOL.COM PROGRAMMING PLAN: Partner provides: Comprehensive wedding-related content, the substantial portion of which does not require registration; provided that access to advice and functionality related to wedding planning may require registration subject to the terms of this Agreement. - -------------------------------------------------------------------------------- SECTION 1 - GENERAL CONTENT REQUIREMENTS - -------------------------------------------------------------------------------- The Knot's content will be integrated prominently on the Plan Your Wedding Time Saver, a one-page step-by-step guide to wedding planning that can be done on the Web. The content described below will all be carried on this one page. The topics and order of the topics below may change, but The Knot's prominence on the page will not. All links from AOL.COM must go to co-branded pages, which will include AOL.com headers, footers and domain name. Plan your wedding budget --Advice from The Knot --Budgeteer widget from The Knot Choose the date for your wedding --Advice from The Knot The Guests --Who-to-invite advice from The Knot Choose a wedding site -- Advice from The Knot Choose a reception hall -- Advice from The Knot 16 CONFIDENTIAL 17 Wedding Etiquette --Advice from The Knot --Weekly update of The Knot's Etiquette Q & A column Find a photographer --Advice from The Knot Find a caterer --Advice from The Knot Plan the honeymoon --Advice from The Knot The Knot's Bridal Gown search and Wedding Checklist will be carried on the page. In addition, The Knot will produce 5 editorial packages and 3 HTML screens per year as defined: Overall Requirements: - - The Knot will receive 60% of programming space at a minimum to be used in accordance with Section B of Exhibit A-1 - - Create these areas within 60 days after AOL's request - - The look and feel will be determined and approved by AOL. - - Promotion within the AOL Service will be determined by AOL. - - These areas promoted by AOL and will be supported through the Knot 5 Editorial Packages Requirements: - - 1-3 HTML pages - - Topics determined by AOL (e.g., Spring Entertainment) with consultation by ICP - - An AOL ad banner position, size to be determined by AOL - - Weekly updates unless another schedule is determined by AOL - - Sponsorships, at AOL's discretion - - Unlike real estate which does not have a specific period of time, the editorial packages will run for a period of time as determined by AOL. AOL will provide ICP with timing guidelines prior to production. 3 HTML pages Requirements: - - Topics determined by AOL (e.g., . Honeymoons) with consultation by ICP - - An AOL ad banner position, size to be determined by AOL - - Weekly updates unless another schedule is determined by AOL - - Sponsorships, at AOL's discretion - AOL will choose the content topics from topics covered by ICP - -------------------------------------------------------------------------------- SECTION 2 - OTHER REQUIREMENTS - -------------------------------------------------------------------------------- 1. Branding requirements: ICP shall host the pages of the ICP Internet Site on the following domain: theknot.aol.com In addition. ICP shall co-brand the pages of the ICP Internet Site with headers and footers, for code which can be found at: http://proto.netscape.com:8080/mega/index.html ID=partner, password=c0nt3nt 17 CONFIDENTIAL 18 2. Required reporting from Partner. The Knot must provide the server logs of its Web sites that contain co-branded content. It should send the logs at least weekly to an FTP site for AOL to retrieve. They should be in CERN format and should contain HTTP referrers. COMPUSERVE PROGRAMMING PLAN: Partner provides: Comprehensive wedding-related content, the substantial portion of which does not require registration; provided that access to advice and functionality related to wedding planning may require registration subject to the terms of this Agreement. - ------------------------------------------------------------------------------- SECTION 1 - GENERAL CONTENT REQUIREMENTS - ------------------------------------------------------------------------------- The Knot's content will serve as the Weddings offering on CompuServe. The CompuServe Weddings Department main screen will be created and maintained by the Knot and hosted on CompuServe. At CompuServe's discretion at least six of the static links listed below will be featured at any one time. The Knot enable sponsorships and other placement within the Weddings main screen. The topics and order of the topics below may change, but The Knot's prominence on the page will not. Except as specified, all links from CompuServe will go to co-branded pages on the Knot's generally available web site, which will include CompuServe left hand and top navigation and domain name. -- ICP shall create two mutually agreed upon features (e.g., Weddings 202: The Knot's Guide to Second Weddings and All Inclusive Weddings: The Knot's Guide for Complete Weddings Escapes) hosted on CompuServe. This content will be original ICP content first appearing on CompuServe and shall not be promoted through any other distribution channel for a period of six (6) months after its first appearance on CompuServe. Plan your wedding budget --Advice from The Knot --Budgeteer widget from The Knot Choose the date for your wedding --Advice from The Knot The Guests --Who-to-invite advice from The Knot Choose a church -- Advice from The Knot 18 CONFIDENTIAL 19 Choose a wedding site -- Advice from The Knot Choose a reception hall -- Advice from The Knot Wedding Etiquette --Advice from The Knot --Weekly update of The Knot's Etiquette Q & A column Find a photographer --Advice from The Knot Find a caterer --Advice from The Knot Plan the honeymoon --Advice from The Knot Checklist widget --Advice from The Knot --Checklist widget from The Knot The Knot's Bridal Gown search and Wedding Checklist will be carried on the page. In addition to the links specified above, at CompuServe's option and direction, the Knot will create and feature additional content within the CompuServe Weddings Department as specified by CompuServe, including, but not limited to, content featured on the Knot's main site, newly created content specifically relating to women, or content created by the Knot for other AOL brands or third parties. The Knot will also work with CompuServe to create at least 2 major and 4 minor promotions for the CompuServe Weddings Department, including contests, special features and exclusive content as mutually agreed upon by the Parties. The CompuServe Weddings Department main screen will be updated no less than once per week, and the "Weddings 202: CompuServe Guide to Second Weddings" and "All inclusive Weddings: a Guide for Complete Weddings Escapes" main screens will be updated at least monthly. - -------------------------------------------------------------------------------- SECTION 2 - OTHER REQUIREMENTS - -------------------------------------------------------------------------------- 1. Branding requirements: At CompuServe's discretion, The Knot will co-brand each of its pages and host them on the following domain: theknot.compuserve.com 2. Required reporting from Partner. The Knot will provide reporting to CompuServe as reasonably determined by CompuServe 3. Keywords to be granted to Partner: The Knot NETCENTER PROGRAMMING PLAN: Partner provides: Comprehensive wedding-related content, the substantial portion of which does not require registration; provided that access to advice and functionality related to wedding planning may require registration subject to the terms of this Agreement. 19 CONFIDENTIAL 20 - -------------------------------------------------------------------------------- SECTION 1 - GENERAL CONTENT REQUIREMENTS - -------------------------------------------------------------------------------- The Knot's content will be integrated prominently on the Plan Your Wedding Time Saver, a one-page step-by-step guide to wedding planning that can be done on the Web. The content described below will all be carried on this one page. The topics and order of the topics below may change, but The Knot's prominence on the page will not. All links from netscape.com must go to co-branded pages. (See illustration of co-branded article page below.) Plan your wedding budget --Advice from The Knot --Budgeteer widget from The Knot Choose the date for your wedding --Advice from The Knot The Guests --Who-to-invite advice from The Knot Choose a wedding site -- Advice from The Knot Choose a reception hall -- Advice from The Knot Wedding Etiquette --Advice from The Knot --Weekly update of The Knot's Etiquette Q & A column Find a photographer --Advice from The Knot Find a caterer --Advice from The Knot Plan the honeymoon --Advice from The Knot In addition, The Knot's Bridal Gown search and Wedding Checklist will be carried on the page. - -------------------------------------------------------------------------------- SECTION 2 - OTHER REQUIREMENTS - -------------------------------------------------------------------------------- 3. Branding requirements: The Knot must co-brand each of its pages and host them on the following domain: theknot.netscape.com The code for the co-branding guidelines can be found at: http://proto.netscape.com:8080/mega/index.html ID=partner, password=c0nt3nt Implementing the code will require minor changes to the parts of the code that apply specifically to The Knot. 20 CONFIDENTIAL 21 4. Required reporting from Partner. The Knot must provide the server logs of its Web sites that contain co-branded content. It should send the logs at least weekly to an FTP site for AOL to retrieve. They should be in CERN format and should contain HTTP referrers. AOL HOMETOWN: I. ICP will, in accordance with the programming plan set forth in Section B below, do the following: (i) subject to AOL's approval, program two (2) AOL-designated promotional fields of the front page of the Wedding department of AOL Hometown (referred to herein as a "Department Page") consisting of the type of Content described in Section II.2 below and update such promotional fields with new Content on no less than a weekly basis; and (ii) design, develop, manage and maintain a community area, located within AOL Hometown (together with the Content contained therein) linked to from each of the promotional fields on the Department Page. Each such community area is referred to herein as a "Community Center" and collectively are referred to as the "Community Centers". ICP will develop and implement each Community Center, consisting of the specific Content described in Section II.2 below. II. II.1 Promotional Text Fields of Department Page(s) - ICP will program the top two promotional text fields on the Department page described above. - These promotional text fields will be programmed with contextually appropriate content which directly links to the Partner's Community Center or other page registered within AOL Hometown (displaying the AOL Hometown frameset). The promotional text fields will NOT link to a domain other than hometown.aol.com. - Each promotional field will contain the following: (1) Graphic: a 50 pixel x 50 pixel square click-able graphic, provided in .GIF format (a) NOTE: If no graphic is provided, a default, clickable wing-ding will appear. (2) Text: 60 CHARACTERS TOTAL: Three lines of twenty characters each (spaces included) (a) First line of twenty (20) characters is a hyperlinked headline (dispatches to same URL that the graphic does) (b) Second two (2) lines of twenty (20) characters each: normal text, not hyperlinkable. - These promotional text fields will be refreshed on a weekly basis. II.2 Community Center - ICP WILL PRODUCE AT LEAST ONE "COMMUNITY CENTER" FOR THE "WEDDINGS" DEPARTMENT OF AOL HOMETOWN CONSISTING OF, AT A MINIMUM, THE FOLLOWING CONTENT (ADDITIONAL CONTENT MAY BE PROVIDED SUBJECT TO AOL'S APPROVAL): (1) strong "Join our community" messaging (2) strong "build a home page now" messaging (3) a selection and listing of one or more of the best Member Page(s) (weekly basis) (4) at least five (5) of the following programming items: (a) Top Ten member page lists (b) Homesteader contests 21 CONFIDENTIAL 22 (c) Homesteader (of the week) (d) Community home page tours (e) Newsletter (f) Message board links (using AOL tools only, when available) (g) Chat links (using AOL tools only, when available) (h) Homepage building recipes (how-to or quick steps) (i) Clip art, animations, etc. to be used by Hometown AOL user in building Member Page(s) - The content within the Community Center will be updated on no less than a weekly basis. SCHEDULE OF EVENTS - ICP will provide AOL with a schedule of events, which will include a description of the content/theme for promotions and events and the start dates of these promotions and events. The schedule of events will cover no less than three months of promotions and be provided prior to the execution of this Agreement. 22 CONFIDENTIAL 23 EXHIBIT B -- DEFINITIONS DEFINITIONS. The following definitions shall apply to this Agreement: ADVERTISING REVENUES. Aggregate amounts collected plus the fair market value of any other compensation received (such as barter advertising) by ICP or ICP's agents, as the case may be, arising from the license or sale of AOL Advertisements, less applicable Advertising Sales Commissions; provided that, in order to ensure that AOL receives fair value in connection with AOL Advertisements, ICP shall be deemed to have received no less than the Advertising Minimum in instances when ICP makes an AOL Advertisement available to a third party at a cost below the Advertising Minimum. ADVERTISING MINIMUM. (i) [****] entries per month or (ii) such different rate or rates as AOL may establish based upon market conditions and publish during the Term. ADVERTISING SALES COMMISSION. In the case of an AOL Advertisement, actual amounts paid as commission to third party agencies in connection with sale of the AOL Advertisement. AFFILIATE. Any agent, distributor or franchisee of AOL, or an entity in which AOL holds at least a nineteen percent (19%) equity interest. AOL SERVICE. The narrow-band U.S. version of the America Online(R) brand service, specifically excluding (a) AOL.com and any other AOL Interactive Site, (b) the international versions of an America Online service (e.g., AOL Japan), (c) the CompuServe(R) brand service and any other CompuServe products or services, (d) Netscape Netcenter(TM) and any other Netscape(R) products or services, (e) "ICQ(TM)," "AOL NetFind(TM)," "AOL Instant Messenger(TM)," "Digital City(TM)," "NetMail(TM)," "Real Fans", "Love@AOL", "Entertainment Asylum," "AOL Hometown" or any similar independent product, service or property which may be offered by, through or with the U.S. version of the America Online(R) brand service, (f) any programming or content area offered by or through the U.S. version of the America Online(R) brand service over which AOL does not exercise complete operational control (including, without limitation, Content areas controlled by other parties and member-created Content areas), (g) any yellow pages, white pages, classifieds or other search, directory or review services or Content offered by or through the U.S. version of the America Online(R) brand service, (h) any property, feature, product or service which AOL or its affiliates may acquire subsequent to the Effective Date and (i) any other version of an America Online service which is materially different from the narrow-band U.S. version of the America Online brand service, by virtue of its branding, distribution, functionality, Content or services, including, without limitation, any co-branded version of the service and any version distributed through any broadband distribution platform or through any platform or device other than a desktop personal computer. AOL.com. AOL's primary Internet-based Interactive Site marketed under the "AOL.COM(TM)" brand, specifically excluding (a) the AOL Service, (b) any international versions of such site, (c) CompuServe.com, Netscape Netcenter, any other CompuServe or Netscape products or services or interactive sites, (d) "ICQ(TM)," "AOL NetFind(TM)," "AOL Instant Messenger(TM)," "NetMail(TM)" or any similar independent product or service offered by or through such site or any other AOL Interactive Site, (e) any programming or Content area offered by or through such site over which AOL does not exercise complete operational control (including, without limitation, Content areas controlled by other parties and member-created Content areas), (f) any programming or Content area offered by or through the U.S. version of the America Online(R) brand service which was operated, maintained or controlled by the former AOL Studios division, (g) any yellow pages, white pages, classifieds or other search, directory or review services or Content offered by or through such site or any other AOL Interactive Site, (h) any property, feature, product or service which AOL or its affiliates may acquire subsequent to the Effective Date and (i) any other version of an America Online Interactive Site which is materially different from AOL's primary Internet-based Interactive Site marketed under the "AOL.COM(TM)" brand, by virtue of its branding, distribution, functionality, Content or services, including, without limitation, any co-branded versions and any version distributed through any broadband distribution platform or through any platform or device other than a desktop personal computer. AOL HOMETOWN. AOL's interactive service, marketed under the "AOL Hometown" brand available to users of the AOL Network and the World Wide Web portion of the Internet through which such users may publish and maintain World Wide Web pages, use community tools and engage in other interactive activities, specifically excluding (a) the AOL Service and AOL.com, (b) any international versions of such service and such site, (c) the CompuServe(R) brand service, Netscape Netcenter, "ICQ," "AOL NetFind(TM)," "AOL Instant Messenger(TM)," "NetMail(TM)" or any similar independent product or service offered by or through any other AOL Interactive Site, (d) any programming or Content area offered by or through such site over which AOL does not exercise complete operational control (including, without limitation, Content areas controlled by other parties and member-created Content areas, such as, without limitation, partner community center pages and Member Pages), (e) any yellow pages, white pages, classifieds or other search, directory or review services or Content offered by or through such site or any other AOL Interactive Site, (f) any property, feature, product or service which AOL or its affiliates may acquire subsequent to the Effective Date and (h) any other version of an America Online Interactive Site which is materially different from AOL's primary interactive service marketed under the "AOL Hometown" brand, by virtue of its branding, distribution, functionality, Content or services, including, without limitation, any co-branded versions and any version distributed through any broadband distribution platform or through any platform or device other than a desktop personal computer. AOL PROPERTY. Any product, service or property owned, operated, marketed, distributed, or authorized to be distributed by or through AOL or its Affiliates, including, without limitation, the AOL Service, AOL.com, the CompuServe Service, Netscape Netcenter and AOL Hometown. AOL LOOK AND FEEL. The distinctive and particular elements of graphics, design, organization, presentation, layout, user interface, navigation, trade dress and stylistic convention (including the digital implementations thereof) within the AOL Network and the total appearance and impression substantially formed by the combination, coordination and interaction of these elements. AOL MEMBER(S). Authorized users (including any sub-accounts under an authorized master account) of the AOL Network. AOL NETWORK. (i) The AOL Service, (ii) AOL.com, (iii) the CompuServe Service, (iv) CompuServe.com, (v) Netscape Netcenter and (vi) any other product or service owned, operated, distributed or authorized to be distributed by or through AOL or its Affiliates worldwide through which such party elects to offer the ICP Internet Site, ICP Programming and/or Licensed Content (which may include, without limitation, AOL-related Internet sites, "offline" information browsing products, international versions of the AOL brand service, or Compuserve) and (vii) any of the foregoing products and services authorized by AOL or its Affiliates to be distributed through a third party, including on a private label basis (including without limitation AOL's Custom Netcenter product). CHANGE OF CONTROL. (a) The consummation of a reorganization, merger or consolidation or sale or other disposition of substantially all of the assets of a party or (b) the acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended) of beneficial ownership (within the meaning of Rule 13d-3 promulgated under such Act) of more than 50% of either (i) the then outstanding shares of common stock of such party; or (ii) the combined voting power of the then outstanding voting securities of such party entitled to vote generally in the election of directors. COMPUSERVE SERVICE. The standard HTML version of the narrow-band U.S. version of the CompuServe brand service, specifically excluding (a) any international versions of such service (e.g., NiftyServe), (b) any web-based service including "compuserve.com", "cserve.com" and "cs.com", or any similar product or service offered by or through the U.S. version of the CompuServe brand service, (c) Content areas owned, maintained or controlled by CompuServe affiliates or any similar "sub-service," (d) any programming or Content area offered by or through the U.S. version of the CompuServe brand service over which CompuServe does not exercise complete or substantially complete operational control (e.g., third-party Content areas), (e) any yellow pages, white pages, classifieds or other search, directory or review services or Content (f) any co-branded or private label branded version of the U.S. version of the CompuServe brand service, (g) any version of the U.S. version of the CompuServe brand service which offers Content, distribution, services or functionality materially different from the Content, distribution, services or functionality associated with the standard, narrow-band U.S. version of the CompuServe brand service, including, without limitation, any version of such service distributed through any platform or device other than a desktop personal computer, (h) any property, feature, product or service which CompuServe or its - --------------- [****] REPRESENTS MATERIAL WHICH HAS BEEN REDACTED AND FILED SEPARATELY WITH THE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 UNDER THE SECURITIES ACT OF 1933, AS AMENDED. 23 CONFIDENTIAL 24 affiliates may acquire subsequent to the Effective Date, (i) the America Online brand service and any independent product or service which may be offered by, through or with the U.S. version of the America Online brand service and (j) the HMI versions of the CompuServe brand service. COMPUSERVE.com. CompuServe's primary Internet-based Interactive Site marketed under the "CompuServe.com(TM)" brand, specifically excluding (a) the CompuServe Service and AOL Service, (b) any international versions of such site, (c) AOL.com, Netscape Netcenter, any other AOL or Netscape products or services or interactive sites, (d) "ICQ(TM)," "AOL NetFind(TM)," "AOL Instant Messenger(TM)," "NetMail(TM)" or any similar independent product or service offered by or through such site or any other AOL or CompuServe Interactive Site, (e) any programming or Content area offered by or through such site over which AOL does not exercise complete operational control (including, without limitation, Content areas controlled by other parties and member-created Content areas), (f) any programming or Content area offered by or through the U.S. versions of the America Online(R) brand service or CompuServe brand service which was operated, maintained or controlled by the former AOL Studios division, (g) any yellow pages, white pages, classifieds or other search, directory or review services or Content offered by or through such site or any other AOL or CompuServe Interactive Site, (h) any property, feature, product or service which AOL or its affiliates may acquire subsequent to the Effective Date and (i) any other version of an AOL or CompuServe Interactive Site which is materially different from CompuServe's primary Internet-based Interactive Site marketed under the "CompuServe.com(TM)" brand, by virtue of its branding, distribution, functionality, Content or services, including, without limitation, any co-branded versions and any version distributed through any broadband distribution platform or through any platform or device other than a desktop personal computer. CONFIDENTIAL INFORMATION. Any information relating to or disclosed in the course of this Agreement, which is, or should be reasonably understood to be, confidential or proprietary to the disclosing Party, including, but not limited to, the material terms of this Agreement, information about AOL Members, technical processes and formulas, source codes, product designs, sales, cost and other unpublished financial information, product and business plans, projections and marketing data. "Confidential Information" shall not include information (a) already lawfully known to or independently developed by the receiving Party, (b) disclosed in published materials, (c) generally known to the public, or (d) lawfully obtained from any third party. CONTENT. Text, images, video, audio (including, without limitation, music used in time relation with text, images, or video), and other data, products, services, advertisements, promotions, links, URLs, pointers, technology and software. ICP INTERACTIVE SITE. Any interactive site or area (other than ICP Programming), including any mirrored site or area, which is managed, maintained or owned by ICP or its agents or to which ICP provides and/or licenses information, content or other materials, including, by way of example and without limitation, (i) an ICP site on the World Wide Web portion of the Internet or (ii) a channel or area delivered through a "push" product such as the Pointcast Network or interactive environment such as Microsoft's proposed Active Desktop or interactive television service such as WebTV. ICP INTERNET SITE. Each of the versions of the Internet site and Content, currently located at URL:http://www.theknot.com and all related URLs, which are customized for distribution through the AOL Network in accordance with this Agreement. ICP PRESENCE. Any (a) ICP trademark or logo, (b) headline or picture from ICP Content, (c) teaser, icon, or link to the ICP Internet Site or ICP Programming and/or (d) other Content which originates from, describes or promotes ICP or ICP's Content. ICP PROGRAMMING. Any (a) area within the AOL Network or outside the AOL Network but exclusively available to AOL Members, which area is developed, programmed, and/or managed by ICP, in whole or in part, pursuant to this Agreement and all Content thereon (including, without limitation, message boards, chat and other AOL Member-supplied content areas contained therein) including, without limitation, the Online Area, the ICP Programming Space, any co-branded site or page, the Community Centers, and (b) Content provided to AOL by ICP pursuant to this Agreement for distribution on or through the AOL Network other than on the ICP Internet Site (such as, without limitation, the Content programmed by ICP into the promotional fields of the AOL Hometown Department Pages). IMPRESSION. User exposure to an ICP Presence, as such exposure may be reasonably determined and measured by AOL in accordance with its standard methodologies and protocols. INTERACTIVE SERVICE. An entity offering one or more of the following: (i) online or Internet connectivity services (e.g., an Internet service provider); (ii) an interactive site or service featuring a broad selection of aggregated third party interactive content (or navigation thereto) (e.g., an online service or search and directory service) and/or marketing a broad selection of products and/or services across numerous interactive commerce categories (e.g., an online mall or other leading online commerce site); (iii) a persistent desktop client; or (iv) communications software capable of serving as the principal means through which a user creates, sends or receives electronic mail or real time or "instant" online messages (whether by telephone, computer or other means), including without limitation, greeting cards. KEYWORD(TM) SEARCH TERMS. The Keyword(TM) online search terms made available on the AOL Service for use by AOL Members, combining AOL's Keyword(TM) online search modifier with a term or phrase specifically related to ICP (and determined in accordance with the terms of this Agreement). LICENSED CONTENT. All Content provided by ICP or its agents through the ICP Internet Site and/or the AOL Network in connection with the subject matter of this Agreement, including without limitation all ICP Programming. LINKED INTERACTIVE SITE. Any site or area outside of the AOL Network which is linked to ICP Programming (through a "pointer" or similar link) subject to approval by AOL in accordance with the terms and conditions of this Agreement. LINKED ICP INTERACTIVE SITE. Any ICP Interactive Site which is also a Linked Interactive Site. MEMBER PAGE. Any web page created by an AOL Member through AOL Hometown and using the community tools available therein. NETSCAPE NETCENTER. Netscape Communications Corporation's primary Internet-based Interactive Site marketed under the "Netscape Netcenter(TM)" brand, specifically excluding (a) the AOL Service and the CompuServe Service, (b) AOL.com and CompuServe.com, (c) any international versions of such site, (d) "ICQ," "AOL Netfind(TM)," "AOL Instant Messenger(TM)," "NetMail(TM)," "AOL Hometown," "My News," "Digital City(TM)," or any similar independent product or service offered by or through such site or any other AOL Interactive Site, (e) any programming or Content area offered by or through such site over which AOL does not exercise complete operational control (including, without limitation, Content areas controlled by other parties and member-created Content areas), (f) any programming or Content area offered by or through the U.S. version of the America Online(R) brand service which was operated, maintained or controlled by the former AOL Studios division (e.g., Electra), (g) any yellow pages, white pages, classifieds or other search, directory or review services or Content offered by or through such site or any other AOL Interactive Site, (h) any property, feature, product or service which AOL or its affiliates may acquire subsequent to the Effective Date and (i) any other version of an AOL or Netscape Communications Corporation Interactive Site which is materially different from Netscape Communications Corporation's primary Internet-based Interactive Site marketed under the "Netscape Netcenter(TM)" brand, by virtue of its branding, distribution, functionality, Content or services, including, without limitation, any co-branded versions and any version distributed through any broadband distribution platform or through any platform or device other than a desktop personal computer (e.g. Custom NetCenters built specifically for third parties). NON-PROGRAMMABLE SPACE. The portions of the ICP Programming Space screens that are intended for the placement of AOL navigational elements (e.g., browser frames, navigation bars and buttons), any AOL Look and Feel components and brand-related Content, and any other Content not expressly included within the definition of Programmable Space. AOL retains sole and exclusive control over any Non-Programmable Space. ONLINE AREA. The specific area within the AOL Network, as described in Exhibit A, which shall be developed, managed or marketed by ICP pursuant to this Agreement, including but not limited to the Licensed Content, message boards, chat and other AOL Member-supplied content areas contained therein (but excluding any Linked Interactive Sites other than sites which are exclusively available to AOL Members). PRODUCTS. Any product, good or service which ICP (or others acting on its behalf or as distributors) offers, sells, provides, distributes or licenses to AOL Members directly or indirectly through (i) the ICP Internet Site (including through any Interactive Site linked thereto) or ICP Programming (including any Linked Interactive Site), (ii) any other electronic means directed at AOL Members (e.g., e-mail offers), or (iii) an "offline" means (e.g., toll-free number) 24 CONFIDENTIAL 25 for receiving orders related to specific offers within the ICP Internet Site or ICP Programming requiring purchasers to reference a specific promotional identifier or tracking code, including, without limitation, products sold through surcharged downloads (to the extent expressly permitted hereunder). PROGRAMMABLE SPACE. The portions of the ICP Programming Space screens that are intended solely for the placement of dynamic Content directly related to the subject matter of the screen, promotion of registries, or any other advertisements, promotions, sponsorships, links, pointers or similar services or rights, specifically excluding any Non-Programmable Space. TERM. The period beginning on the Effective Date and ending upon the expiration or earlier termination of this Agreement. WEDDINGS-ONLY CONTENT PROVIDER. An entity solely in the business of providing weddings-related Content or services. WEDDINGS-ONLY CONTENT. Wedding-related Content provided by a Weddings-Only Content Provider. 25 CONFIDENTIAL 26 EXHIBIT C -- STANDARD LEGAL TERMS AND CONDITIONS I. AOL NETWORK CONTENT. ICP represents and warrants that all Content contained within the ICP Internet Site and ICP Programming and all Licensed Content (i) does and will conform to AOL's applicable Terms of Service, the terms of this Agreement and any other standard, written policy of AOL and any applicable AOL Property, (ii) does not and will not infringe on or violate any copyright, trademark, U.S. patent, rights of publicity, moral rights or any other third party right, including without limitation, any music performance or other music related rights, and (iii) does not and will not contain any Content which violates any applicable law or regulation ((i), (ii) and (iii) collectively, the "Rules"). In the event that AOL notifies ICP in writing that any such Content, as reasonably determined by AOL, does not comply or adhere to the Rules, then ICP shall use its best efforts to block access by AOL Members to such Content. In the event that ICP cannot, through its best efforts, block access by AOL Members to such Content in question, then ICP shall provide AOL prompt written notice of such fact. AOL may then, at its option, either (i) restrict access from the AOL Network to the Content in question using technology available to AOL or (ii) in the event access cannot be restricted, direct ICP to remove any such Content. ICP will cooperate with AOL's reasonable requests to the extent AOL elects to implement any such access restrictions. AOL NETWORK DISTRIBUTION. The distribution, placements and/or promotions described in this Agreement or otherwise provided to ICP by AOL shall be used by ICP solely for its own benefit, will link to and promote solely the Licensed Content within the ICP Internet Site or ICP Programming expressly described on Exhibit A and will not be resold, traded, exchanged, bartered, brokered or otherwise offered or transferred to any third party or contain any branding other than ICP's branding. Further, the Content of all such distribution, placements and promotions shall be subject to AOL's policies relating to advertising and promotion, including those relating to AOL's exclusivity commitments and other contractual preferences to third parties. CHANGES TO AOL PROPERTIES. AOL reserves the right to redesign or modify the organization, structure, "look and feel," navigation and other elements of the AOL Service, AOL Hometown, AOL.com or any other AOL Property, including without limitation, by adding or deleting channels, subchannels and/or screens. If AOL eliminates or modifies an area on an AOL Property in a manner that substantially modifies the nature of the distribution required under this Agreement in a material adverse fashion, AOL will work with ICP in good faith to provide ICP, as its sole remedy, with comparable distribution reasonably satisfactory to ICP. MEMBER PAGE. AOL will have no obligation with respect to the Content and services available on or through any Member Page including, but not limited to, any duty to review or monitor any such Content and services. AOL expressly disclaims any liability to ICP for the Content and services contained in any Member Page or any expense, claim, demand, costs, loss or damage arising out of any use of the ICP-provided Content available from, without limitation, a Community Center or the ICP Internet Site. ICP agrees to release AOL and its affiliates, including partners, directors, officers, employees and agents from any and all claims, rights and recourses for such loss or damage. CONTESTS. ICP shall ensure that any contest, sweepstakes or similar promotion conducted or promoted through the ICP Internet Site and/or ICP Programming (a "Contest") complies with all applicable laws and regulations. Upon AOL's request, ICP shall provide AOL with an opinion from ICP's counsel confirming that the Contest complies with all applicable federal, state and local laws and regulations. All contests shall comply with AOL's standard policies regarding contests and ICP shall request updates of such policies prior to conducting or promoting a Contest. DISCLAIMERS. Upon AOL's request, AOL agrees to include within the ICP Internet and/or ICP Programming a disclaimer (the specific form and substance to be mutually agreed upon by the Parties) indicating that all Content (including any products and services) is provided solely by ICP and not AOL, and any transactions are solely between ICP and AOL Members using or purchasing such Content and AOL is not responsible for any loss, expense or damage arising out of the Licensed Content or services provided through the ICP Internet Site or ICP Programming (e.g., "In no event shall AOL nor any of its agents, employees, representatives or affiliates be in any respect legally liable to you or any third party in connection with any information or services contained herein and AOL makes no warranty or guaranty as to the accuracy, completeness, correctness, timeliness, or usefulness of any of the information contained herein"). ICP shall not in any manner state or imply that AOL recommends or endorses ICP or its Content. REWARDS PROGRAMS. [****], ICP shall not offer, provide, implement or otherwise make available in ICP Programming, or on any page of the ICP Internet Site directly linked to from the AOL Network, any promotional programs or plans that are intended to provide customers with rewards or benefits in exchange for, or on account of, their past or continued loyalty to, or patronage or purchase of, the products or services of ICP or any third party (e.g., a promotional program similar to a "frequent flier" program), unless such promotional program or plan is provided exclusively through AOL's "AOL Rewards" program, accessible on the AOL Service at Keyword: "AOL Rewards." In addition, ICP shall promote the AOL Rewards program with equal prominence [****] in any Promotions within ICP Programming or the AOL Network. NAVIGATION. In cases where an AOL Member performs a search for ICP through any search or navigational tool or mechanism that is accessible or available through the AOL Network (e.g., promotions, Keyword Search Terms, or any other navigational tools), AOL shall have the right to direct such AOL Member to the ICP Internet Site, or any other ICP Interactive Site determined by AOL in its reasonable discretion. AOL LOOK AND FEEL. ICP acknowledges and agrees that AOL shall own all right, title and interest in and to the AOL Look and Feel. In addition, AOL shall retain editorial control over the portions of the AOL pages and forms which frame the ICP Internet Site or ICP Programming (the "AOL Frames"). AOL may, at its discretion, incorporate navigational icons, links and pointers or other Content into such AOL Frames. OPERATIONS. AOL shall be entitled to require reasonable changes to the ICP Internet Site and ICP Programming to the extent such site will, in AOL's good faith judgment, adversely affect operations of the AOL Network. CLASSIFIEDS. ICP shall not implement or promote any classifieds listing features through ICP Programming without AOL's prior written approval. Such approval may be conditioned upon, among other things, ICP's conformance with any then-applicable service-wide technical or other standards related to online classifieds. MESSAGE BOARDS; CHAT ROOMS AND COMPARABLE VEHICLES. Any Content submitted by ICP or its agents within message boards, chat rooms or any comparable vehicles will be subject to the license grant relating to submissions to "public areas" set forth in the AOL Terms of Service. ICP acknowledges that it has no rights or interest in AOL Member submissions to message boards, chat rooms or any other vehicles through which AOL Members may make submissions within the AOL Network. ICP will refrain from editing, deleting or altering, without AOL's prior approval, any opinion expressed or submission made by an AOL Member within ICP Programming except in cases where ICP has a good faith belief that the Content in question violates an applicable law, regulation, third party right or the applicable AOL Property's Terms of Service. DUTY TO INFORM. ICP shall promptly inform AOL of any information related to the ICP Internet Site, ICP Programming or the Licensed Content which could reasonably lead to a claim, demand or liability of or against AOL and/or its Affiliates by any third party. RESPONSE TO QUESTIONS/COMMENTS; CUSTOMER SERVICE. ICP shall respond promptly and professionally to questions, comments, complaints and other reasonable requests regarding the ICP Internet Site, ICP Programming or the Licensed Content by AOL Members or on request by AOL, and shall cooperate and assist AOL in promptly answering the same. ICP shall have sole responsibility for customer service (including, without limitation, order processing, billing, shipping, etc.) and AOL shall have no responsibility with respect thereto. ICP shall comply with all applicable requirements of any federal, state or local consumer protection or disclosure law. STATEMENTS THROUGH AOL NETWORK. ICP shall not make, publish, or otherwise communicate through the AOL Network any deleterious remarks concerning AOL or its Affiliates, directors, officers, employees, or agents (including, without limitation, AOL's business projects, business capabilities, performance of duties and services, or financial position) which remarks are based on the relationship established by this Agreement or information exchanged hereunder. This section is not intended to limit good faith editorial statements made by ICP based upon publicly available information, or information developed by ICP independent of its relationship with AOL and its employees and agents. - --------------- [****] REPRESENTS MATERIAL WHICH HAS BEEN REDACTED AND FILED SEPARATELY WITH THE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 UNDER THE SECURITIES ACT OF 1933, AS AMENDED. 26 CONFIDENTIAL 27 PRODUCTION WORK. In the event that ICP requests any AOL production assistance, ICP shall work with AOL to develop detailed production plans for the requested production assistance (the "Production Plan"). Following receipt of the final Production Plan, AOL shall notify ICP of (i) AOL's availability to perform the requested production work, (ii) the proposed fee or fee structure for the requested production work and (iii) the estimated development schedule for such work. To the extent the Parties reach agreement regarding implementation of agreed-upon Production Plan, such agreement shall be reflected in a separate work order signed by the Parties. All fees to be paid to AOL for any such production work shall be paid in advance. To the extent ICP elects to retain a third party provider to perform any such production work, work produced by such third party provider must generally conform to AOL's production standards available at Keyword "Styleguide." The specific production resources which AOL allocates to any production work to be performed on behalf of ICP shall be as determined by AOL in its sole discretion. PUBLISHING TOOLS. AOL shall make available to ICP any proprietary publishing tools of AOL that are generally available to third parties and necessary for ICP to produce and refresh the Online Area during the Term (each a "Tool"). ICP shall be granted a nonexclusive license to use any such Tool, which license shall be subject to: (i) ICP's compliance with all rules and regulations relating to use of the Tools, as published from time to time by AOL, (ii) AOL's right to withdraw or modify such license at any time, and (iii) ICP's express recognition that AOL provides all Tools on an "as is" basis, without warranties of any kind. TRAINING AND SUPPORT. AOL shall make available to ICP standard AOL training and support programs necessary to produce any AOL areas hereunder. ICP can select its training and support program from the options then offered by AOL. ICP shall be responsible to pay the fees associated with its chosen training and support package. In addition, ICP will pay travel and lodging costs associated with its participation in any AOL training programs (including AOL's travel and lodging costs when training is conducted at ICP's offices). ACCOUNTS. ICP shall receive up to [****] accounts on the AOL Service for the exclusive purpose of enabling it and its agents to perform ICP's duties under this Agreement. In the event there is any abuse of any account granted hereunder, AOL reserves the right to terminate such account upon written notification to ICP. ICP will be responsible for the actions taken under or through its accounts, which actions are subject to AOL's applicable Terms of Service. The accounts shall be of the type determined by AOL to be necessary for ICP to perform its duties hereunder and ICP shall be responsible for all charges associated with such accounts, including any surcharges, including, without limitation, all premium charges, transaction charges, and any applicable communication surcharges incurred by any account issued to ICP; provided, however, that ICP shall not be charged for AOL's standard monthly usage fees and standard hourly charges. Upon the termination of this Agreement, all accounts, related screen names and any associated usage credits or similar rights, will automatically terminate unless ICP notifies AOL in writing, upon termination of this Agreement, that it elects to have some or all of the accounts granted hereunder converted to paying general accounts. AOL will have no liability for loss of any data or content related to the proper termination of any account. LAUNCH DATE. In the event that any terms contained herein relate to or depend on the launch date of the ICP Internet Site or other property contemplated by this Agreement, which launch date is later than the Effective Date, then it is the intention of the Parties to record such launch date in a written instrument signed by both Parties promptly following such launch date; provided that, in the absence of such a written instrument, the launch date shall be as reasonably determined by AOL based on the information available to AOL. KEYWORDS. Any Keyword Search Terms to be directed to the ICP Internet Site shall be (i) subject to availability for use by ICP and (ii) limited to the combination of the Keyword(TM) search modifier combined with a registered trademark of ICP. AOL reserves the right to revoke at any time ICP's use of any Keyword Search Terms which do not incorporate registered trademarks of ICP. ICP acknowledges that its utilization of a Keyword Search Term will not create in it, nor will it represent it has, any right, title or interest in or to such Keyword Search Term, other than the right, title and interest ICP holds in ICP's registered trademark independent of the Keyword Search Term. Without limiting the generality of the foregoing, ICP will not: (a) attempt to register or otherwise obtain trademark or copyright protection in the Keyword Search Term; or (b) use the Keyword Search Term, except for the purposes expressly required or permitted under this Agreement. This Section shall survive the completion, expiration, termination or cancellation of this Agreement. II. TRADEMARKS TRADEMARK LICENSE. In designing and implementing any marketing, advertising, or other promotional materials (expressly excluding Press Releases) related to this Agreement and/or referencing the other Party and/or its trade names, trademarks and service marks (the "Promotional Materials") and subject to the other provisions contained herein, ICP shall be entitled to use the following trade names, trademarks and service marks of AOL: the "America Online(R)" brand service, "AOL(TM)" service/software and AOL's triangle logo and, in connection therewith, ICP shall comply with the AOL styleguide available at keyword: "style guide"; and AOL and its Affiliates shall be entitled to use the trade names, trademarks and service marks of ICP (collectively, together with the AOL marks listed above, the "Marks"); provided that each Party: (i) does not create a unitary composite mark involving a Mark of the other Party without the prior written approval of such other Party and (ii) displays symbols and notices clearly and sufficiently indicating the trademark status and ownership of the other Party's Marks in accordance with applicable trademark law and practice. This Section shall survive the completion, expiration, termination or cancellation of this Agreement. RIGHTS. Each Party acknowledges that its utilization of the other Party's Marks will not create in it, nor will it represent it has, any right, title or interest in or to such Marks other than the licenses expressly granted herein. Each Party agrees not to do anything contesting or impairing the trademark rights of the other Party. QUALITY STANDARDS. Each Party agrees that the nature and quality of its products and services supplied in connection with the other Party's Marks shall conform to quality standards communicated in writing by the other Party for use of its trademarks. Each Party agrees to supply the other Party, upon request, with a reasonable number of samples of any Materials publicly disseminated by such Party which utilize the other Party's Marks. Each Party shall comply with all applicable laws, regulations and customs and obtain any required government approvals pertaining to use of the other Party's Marks. PROMOTIONAL MATERIALS. Each Party will submit to the other Party, for its prior written approval, which shall not be unreasonably withheld or delayed, any Promotional Materials; provided, however, that after initial public announcement of the business relationship between the Parties in accordance with the approval and other requirements contained herein, either Party's subsequent factual reference in Promotional Materials to the existence of a business relationship between AOL and ICP, including, without limitation, the availability of the Licensed Content through the AOL Network, or use of screen shots relating to the distribution under this Agreement (so long as the AOL Network is clearly identified as the source of such screen shots) for promotional purposes shall not require the approval of the other Party. Once approved, the Promotional Materials may be used by a Party and its affiliates for the purpose of promoting the distribution of the Licensed Content through the AOL Network and reused for such purpose until such approval is withdrawn with reasonable prior notice. In the event such approval is withdrawn, existing inventories of Promotional Materials may be depleted. INFRINGEMENT PROCEEDINGS. Each Party agrees to promptly notify the other Party of any unauthorized use of the other Party's Marks of which it has actual knowledge. Each Party shall have the sole right and discretion to bring proceedings alleging infringement of its Marks or unfair competition related thereto; provided, however, that each Party agrees to provide the other Party, at such other Party's expense, with its reasonable cooperation and assistance with respect to any such infringement proceedings. III. REPRESENTATIONS AND WARRANTIES Each Party represents and warrants to the other Party that: (i) such Party has the full corporate right, power and authority to enter into this Agreement, to grant the licenses granted hereunder and to perform the acts required of it hereunder; (ii) the execution of this Agreement by such Party, and the performance by such Party of its obligations and duties hereunder, do not and will not violate any agreement to which such Party is a party or by which it is otherwise bound; (iii) when executed and delivered by such Party, this Agreement will constitute the legal, valid and binding obligation of such Party, enforceable against such Party in accordance with its terms; (iv) such Party's Promotional Materials will neither infringe on any copyright, U.S. patent or any other third party right nor violate any applicable law or regulation and (v) such Party acknowledges that the other Party makes no representations, warranties or agreements related to the subject matter hereof which are not expressly provided for in this Agreement. IV. CONFIDENTIALITY Each Party acknowledges that Confidential Information may be disclosed to the other Party during the course of this Agreement. Each Party agrees that it will take reasonable steps, at least substantially equivalent to the steps it takes to protect its own proprietary information, during the term of this Agreement, and for a period of three years following expiration or termination of this Agreement, to prevent the disclosure of Confidential Information of the other Party, other than to its employees, or to its other agents who must have access to such Confidential Information for such Party to perform its obligations hereunder, who will each - --------------- [****] REPRESENTS MATERIAL WHICH HAS BEEN REDACTED AND FILED SEPARATELY WITH THE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 UNDER THE SECURITIES ACT OF 1933, AS AMENDED. 27 CONFIDENTIAL 28 agree to comply with this section. Notwithstanding the foregoing, either Party may issue a press release or other disclosure containing Confidential Information without the consent of the other Party, to the extent such disclosure is required by law, rule, regulation or government or court order. In such event, the disclosing Party will provide at least five (5) business days prior written notice of such proposed disclosure to the other Party. Further, in the event such disclosure is required of either Party under the laws, rules or regulations of the Securities and Exchange Commission or any other applicable governing body, such Party will (i) redact mutually agreed-upon portions of this Agreement to the fullest extent permitted under applicable laws, rules and regulations and (ii) submit a request to such governing body that such portions and other provisions of this Agreement receive confidential treatment under the laws, rules and regulations of the Securities and Exchange Commission or otherwise be held in the strictest confidence to the fullest extent permitted under the laws, rules or regulations of any other applicable governing body. V. RELATIONSHIP WITH AOL MEMBERS SOLICITATION OF SUBSCRIBERS. (a) During the term of this Agreement and for a two year period thereafter, ICP will not use the AOL Network (including, without limitation, the e-mail network contained therein) to solicit AOL Members on behalf of another Interactive Service. More generally, ICP will not send unsolicited, commercial e-mail (i.e., "spam") or other online communications through or into AOL's products or services, absent a Prior Business Relationship. For purposes of this Agreement, a "Prior Business Relationship" will mean that the AOL Member to whom commercial e-mail or other online communication is being sent has voluntarily either (i) engaged in a transaction with ICP or (ii) provided information to ICP through a contest, registration, or other communication, which included clear notice to the AOL Member that the information provided could result in commercial e-mail or other online communications being sent to that AOL Member by ICP or its agents. Any commercial e-mail or other online communications to AOL Members which are otherwise permitted hereunder will (a) include a prominent and easy means to "opt-out" of receiving any future commercial e-mail communications from ICP and (b) shall also be subject to AOL's then-standard restrictions on distribution of bulk e-mail (e.g., related to the time and manner in which such e-mail can be distributed through or into the AOL product or service in question). (b) ICP shall ensure that its collection, use and disclosure of information obtained from AOL Members under this Agreement ("Member Information") complies with (i) all applicable laws and regulations and (ii) AOL's standard privacy policies, available on the AOL Service at the keyword term "Privacy" (or, in the case of the ICP Internet Site, ICP's standard privacy policies so long as such policies are prominently published on the site and provide adequate notice, disclosure and choice to users regarding ICP's collection, use and disclosure of user information). ICP will not disclose Member Information collected hereunder to any third party in a manner that identifies AOL Members as end users of an AOL product or service or use Member Information collected under this Agreement to market another Interactive Service. EMAIL NEWSLETTERS. Any email newsletters sent to AOL Members by ICP or its agents shall (i) be subject to AOL's policies on use of the email functionality, including but not limited to AOL's policy on unsolicited bulk email, (ii) be sent only to AOL Members requesting to receive such newsletters, (iii) not contain Content which violates AOL's Terms of Service, and (iv) not contain any advertisements, marketing or promotion for any other Interactive Service. AOL MEMBER COMMUNICATIONS. To the extent ICP is otherwise permitted to send communications to AOL Members (in accordance with the other requirements contained herein): in any such communications to AOL Members on or off the ICP Internet Site (including, without limitation, e-mail solicitations), ICP will limit the subject matter of such communications to those categories of products, services and/or content that are specifically contemplated by this Agreement and will not encourage AOL Members to take any action inconsistent with the scope and purpose of this Agreement, including without limitation, the following actions: (i) using an Interactive Site other than the ICP Internet Site for the purchase of Products, (ii) using Content other than the Licensed Content; (iii) bookmarking of Interactive Sites; or (iv) changing the default home page on the AOL browser. Additionally, with respect to such AOL Member communications, in the event that ICP encourages an AOL Member to purchase products through such communications, ICP shall ensure that (a) the AOL Network is expressly promoted as the primary means through which the AOL Member can access the ICP Internet Site (including without limitation by stating the applicable Keyword Search Term and including direct links to specific offers within the ICP Internet Site) and (b) any link to the ICP Internet Site will link to a page which indicates to the AOL Member that such user is in a site which is affiliated with the AOL Network. VI. TREATMENT OF CLAIMS LIABILITY. UNDER NO CIRCUMSTANCES SHALL EITHER PARTY BE LIABLE TO THE OTHER PARTY FOR INDIRECT, INCIDENTAL, CONSEQUENTIAL, SPECIAL OR EXEMPLARY DAMAGES (EVEN IF THAT PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES), ARISING FROM BREACH OF THIS AGREEMENT, THE USE OF OR INABILITY TO USE THE AOL NETWORK OR ANY OTHER PROVISION OF THIS AGREEMENT, SUCH AS, BUT NOT LIMITED TO, LOSS OF REVENUE OR ANTICIPATED PROFITS OR LOST BUSINESS (COLLECTIVELY, "DISCLAIMED DAMAGES"); PROVIDED THAT EACH PARTY SHALL REMAIN LIABLE TO THE OTHER PARTY TO THE EXTENT ANY DISCLAIMED DAMAGES ARE CLAIMED BY A THIRD PARTY AND ARE SUBJECT TO INDEMNIFICATION BELOW. EXCEPT AS PROVIDED BELOW IN THE "INDEMNITY" SECTION, NEITHER PARTY SHALL BE LIABLE TO THE OTHER PARTY FOR MORE THAN THE AGGREGATE AMOUNTS PAYABLE HEREUNDER IN THE YEAR IN WHICH THE EVENT GIVING RISE TO SUCH LIABILITY OCCURRED; PROVIDED THAT EACH PARTY SHALL REMAIN LIABLE FOR THE AGGREGATE AMOUNT OF ANY PAYMENT OBLIGATIONS OWED TO THE OTHER PARTY UNDER THE PROVISIONS OF THIS AGREEMENT. NO ADDITIONAL WARRANTIES. EXCEPT AS EXPRESSLY SET FORTH IN THIS AGREEMENT, NEITHER PARTY MAKES, AND EACH PARTY HEREBY SPECIFICALLY DISCLAIMS, ANY REPRESENTATIONS OR WARRANTIES, EXPRESS OR IMPLIED, REGARDING THE AOL NETWORK, OR ANY AOL PUBLISHING TOOLS, INCLUDING ANY IMPLIED WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE AND IMPLIED WARRANTIES ARISING FROM COURSE OF DEALING OR COURSE OF PERFORMANCE. WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, AOL SPECIFICALLY DISCLAIMS ANY WARRANTY REGARDING THE PROFITABILITY OF AOL NETWORK OR THE ICP INTERNET SITE. INDEMNITY. Each Party will defend, indemnify, save and hold harmless the other Party and the officers, directors, agents, affiliates, distributors, franchisees and employees of the other Party from any and all third party claims, demands, liabilities, costs or expenses, including reasonable attorneys' fees ("Liabilities"), resulting from the indemnifying Party's material breach of any duty, representation, or warranty of this Agreement. In addition, ICP will defend, indemnify, save and hold harmless AOL and AOL's officers, directors, agents, affiliates, distributors, franchisees and employees from any and all Liabilities arising out of or in any way related to the Licensed Content. If a Party entitled to indemnification hereunder (the "Indemnified Party") becomes aware of any matter it believes is indemnifiable hereunder involving any claim, action, suit, investigation, arbitration or other proceeding against the Indemnified Party by any third party (each an "Action"), the Indemnified Party shall give the other Party (the "Indemnifying Party") prompt written notice of such Action. Such notice shall (i) provide the basis on which indemnification is being asserted and (ii) be accompanied by copies of all relevant pleadings, demands, and other papers related to the Action and in the possession of the Indemnified Party. The Indemnifying Party shall have a period of ten (10) days after delivery of such notice to respond. If the Indemnifying Party elects to defend the Action or does not respond within the requisite ten (10) day period, the Indemnifying Party shall be obligated to defend the Action, at its own expense, and by counsel reasonably satisfactory to the Indemnified Party. The Indemnified Party shall cooperate, at the expense of the Indemnifying Party, with the Indemnifying Party and its counsel in the defense and the Indemnified Party shall have the right to participate fully, at its own expense, in the defense of such Action. If the Indemnifying Party responds within the required ten (10) day period and elects not to defend such Action, the Indemnified Party shall be free, without prejudice to any of the Indemnified Party's rights hereunder, to compromise or defend (and control the defense of) such Action. In such case, the Indemnifying Party shall cooperate, at its own expense, with the Indemnified Party and its counsel in the defense against such Action and the Indemnifying Party shall have the right to participate fully, at its own expense, in the defense of such Action. Any compromise or settlement of an Action shall require the prior written consent of both Parties hereunder, such consent not to be unreasonably withheld or delayed. ACKNOWLEDGMENT. AOL AND ICP EACH ACKNOWLEDGES THAT THE PROVISIONS OF THIS AGREEMENT WERE NEGOTIATED TO REFLECT AN INFORMED, VOLUNTARY ALLOCATION BETWEEN THEM OF ALL RISKS (BOTH KNOWN AND UNKNOWN) ASSOCIATED WITH THE TRANSACTIONS CONTEMPLATED HEREUNDER. THE LIMITATIONS AND DISCLAIMERS RELATED TO WARRANTIES AND LIABILITY CONTAINED IN THIS AGREEMENT ARE INTENDED TO LIMIT THE CIRCUMSTANCES AND EXTENT OF LIABILITY. THE PROVISIONS OF THIS SECTION VI SHALL BE ENFORCEABLE INDEPENDENT OF AND SEVERABLE FROM ANY OTHER 28 CONFIDENTIAL 29 ENFORCEABLE OR UNENFORCEABLE PROVISION OF THIS AGREEMENT. VII. ARBITRATION (a) The Parties shall act in good faith and use commercially reasonable efforts to promptly resolve any claim, dispute, claim, controversy or disagreement (each a "Dispute") between the Parties or any of their respective subsidiaries, affiliates, successors and assigns under or related to this Agreement or any document executed pursuant to this Agreement or any of the transactions contemplated hereby. If the Parties cannot resolve the Dispute within such timeframe, the Dispute shall be submitted to the Management Committee for resolution. For ten (10) days after the Dispute was submitted to the Management Committee, the Management Committee shall have the exclusive right to resolve such Dispute; provided further that the Management Committee shall have the final and exclusive right to resolve Disputes arising from any provision of this Agreement which expressly or implicitly provides for the Parties to reach mutual agreement as to certain terms. If the Management Committee is unable to amicably resolve the Dispute during the ten (10) day period, then the Management Committee will consider in good faith the possibility of retaining a third party mediator to facilitate resolution of the Dispute. In the event the Management Committee elects not to retain a mediator, the Dispute will be subject to the resolution mechanisms described below. "Management Committee" shall mean a committee made up of a senior executive from each of the Parties for the purpose of resolving Disputes under this Section and generally overseeing the relationship between the Parties contemplated by this Agreement. Neither Party shall seek, nor shall be entitled to seek, binding outside resolution of the Dispute unless and until the Parties have been unable to amicably resolve the dispute as set forth in this paragraph (a) and then, only in compliance with the procedures set forth in this Section. (b) Except for Disputes relating to issues of (i) proprietary rights, including but not limited to intellectual property and confidentiality, and (ii) any provision of this Agreement which expressly or implicitly provides for the Parties to reach mutual agreement as to certain terms (which shall be resolved by the Parties solely and exclusively through amicable resolution as set forth in paragraph (a), any Dispute not resolved by amicable resolution as set forth in paragraph (a) shall be governed exclusively and finally by arbitration. Such arbitration shall be conducted by the American Arbitration Association ("AAA") in Washington, D.C. and shall be initiated and conducted in accordance with the Commercial Arbitration Rules ("Commercial Rules") of the AAA, including the AAA Supplementary Procedures for Large Complex Commercial Disputes ("Complex Procedures"), as such rules shall be in effect on the date of delivery of a demand for arbitration ("Demand"), except to the extent that such rules are inconsistent with the provisions set forth herein. Notwithstanding the foregoing, the Parties may agree in good faith that the Complex Procedures shall not apply in order to promote the efficient arbitration of Disputes where the nature of the Dispute, including without limitation the amount in controversy, does not justify the application of such procedures. (c) The arbitration panel shall consist of three arbitrators. Each Party shall name an arbitrator within ten (10) days after the delivery of the Demand. The two arbitrators named by the Parties may have prior relationships with the naming Party, which in a judicial setting would be considered a conflict of interest. The third arbitrator, selected by the first two, shall be a neutral participant, with no prior working relationship with either Party. If the two arbitrators are unable to select a third arbitrator within ten (10) days, a third neutral arbitrator will be appointed by the AAA from the panel of commercial arbitrators of any of the AAA Large and Complex Resolution Programs. If a vacancy in the arbitration panel occurs after the hearings have commenced, the remaining arbitrator or arbitrators may not continue with the hearing and determination of the controversy, unless the Parties agree otherwise. (d) The Federal Arbitration Act, 9 U.S.C. Secs. 1-16, and not state law, shall govern the arbitrability of all Disputes. The arbitrators shall allow such discovery as is appropriate to the purposes of arbitration in accomplishing a fair, speedy and cost-effective resolution of the Disputes. The arbitrators shall reference the Federal Rules of Civil Procedure then in effect in setting the scope and timing of discovery. The Federal Rules of Evidence shall apply in toto. The arbitrators may enter a default decision against any Party who fails to participate in the arbitration proceedings. (e) The arbitrators shall have the authority to award compensatory damages only. Any award by the arbitrators shall be accompanied by a written opinion setting forth the findings of fact and conclusions of law relied upon in reaching the decision. The award rendered by the arbitrators shall be final, binding and non-appealable, and judgment upon such award may be entered by any court of competent jurisdiction. The Parties agree that the existence, conduct and content of any arbitration shall be kept confidential and no Party shall disclose to any person any information about such arbitration, except as may be required by law or by any governmental authority or for financial reporting purposes in each Party's financial statements. (f) Each Party shall pay the fees of its own attorneys, expenses of witnesses and all other expenses and costs in connection with the presentation of such Party's case (collectively, "Attorneys' Fees"). The remaining costs of the arbitration, including without limitation, fees of the arbitrators, costs of records or transcripts and administrative fees (collectively, "Arbitration Costs") shall be born equally by the parties. Notwithstanding the foregoing, the arbitrators may modify the allocation of Arbitration Costs and award Attorneys' Fees in those cases where fairness dictates a different allocation of Arbitration Costs between the Parties and an award of Attorneys' Fees to the prevailing Party as determined by the arbitrators. (g) Any Dispute that is not subject to final resolution by the Management Committee or to arbitration under this Section or law (collectively, "Non-Arbitration Claims") shall be brought in a court of competent jurisdiction in the Commonwealth of Virginia. Each Party irrevocably consents to the exclusive jurisdiction of the courts of the Commonwealth of Virginia and the federal courts situated in the Commonwealth of Virginia, over any and all Non-Arbitration Claims and any and all actions to enforce such claims or to recover damages or other relief in connection with such claims or to enforce a judgment rendered in an arbitration proceeding. VIII. MISCELLANEOUS AUDITING RIGHTS. Each Party shall maintain complete, clear and accurate records of all expenses, revenues, fees, transactions and related documentation (including agreements) in connection with the performance of this Agreement ("Records"). All such Records shall be maintained for a minimum of five (5) years following termination of this Agreement. For the sole purpose of ensuring compliance with this Agreement, AOL shall have the right, at its expense, to conduct a reasonable and necessary copying and inspection of portions of the Records of ICP that are directly related to amounts payable to AOL pursuant to this Agreement, which right may, at AOL's option, be exercised by directing an independent certified public accounting firm to conduct such inspection. For the sole purpose of ensuring compliance with this Agreement, ICP shall have the right, at its expense, to direct an independent certified public accounting firm subject to strict confidentiality restrictions to conduct a reasonable and necessary copying and inspection of portions of the Records of AOL that are directly related to amounts payable to ICP pursuant to this Agreement. Any such audit may be conducted after twenty (20) business days prior written notice, subject to the following. Such audits shall not be made more frequently than once every twelve months. No such audit of AOL shall occur during the period beginning on June 1 and ending October 1. In lieu of providing access to its Records as described above, AOL shall be entitled to provide ICP with a report from an independent certified public accounting firm confirming the information to be derived from such Records. EXCUSE. Neither Party shall be liable for, or be considered in breach of or default under this Agreement on account of, any delay or failure to perform as required by this Agreement as a result of any causes or conditions which are beyond such Party's reasonable control and which such Party is unable to overcome by the exercise of reasonable diligence. INDEPENDENT CONTRACTORS. The Parties to this Agreement are independent contractors. Neither Party is an agent, representative or partner of the other Party. Neither Party shall have any right, power or authority to enter into any agreement for or on behalf of, or incur any obligation or liability of, or to otherwise bind, the other Party. This Agreement shall not be interpreted or construed to create an association, agency, joint venture or partnership between the Parties or to impose any liability attributable to such a relationship upon either Party. NOTICE. Any notice, approval, request, authorization, direction or other communication under this Agreement will be given in writing and will be deemed to have been delivered and given for all purposes (i) on the delivery date if delivered by electronic mail on the AOL Network (to screenname "AOLNotice" in the case of AOL) or by confirmed facsimile; (ii) on the delivery date if delivered personally to the Party to whom the same is directed; (iii) one business day after deposit with a commercial overnight carrier, with written verification of receipt; or (iv) five business days after the mailing date, whether or not actually received, if sent by U.S. mail, return receipt requested, postage and charges prepaid, or any other means of rapid mail delivery for which a receipt is available. In the case of AOL, such notice will be provided to both the Senior Vice President for Business Affairs (fax no. 703-265-1206) and the Deputy General Counsel (fax no. 703-265-1105), each at the address of AOL set forth in the first paragraph of this Agreement. In the case of ICP, except as otherwise specified herein, the notice address shall be the address for ICP set forth in the first paragraph of this Agreement, with the other relevant notice information, including the recipient for 29 CONFIDENTIAL 30 notice and, as applicable, such recipient's fax number or AOL e-mail address, to be as reasonably identified by AOL. NO WAIVER. The failure of either Party to insist upon or enforce strict performance by the other Party of any provision of this Agreement or to exercise any right under this Agreement shall not be construed as a waiver or relinquishment to any extent of such Party's right to assert or rely upon any such provision or right in that or any other instance; rather, the same shall be and remain in full force and effect. RETURN OF INFORMATION. Upon the expiration or termination of this Agreement, each Party shall, upon the written request of the other Party, return or destroy (at the option of the Party receiving the request) all confidential information, documents, manuals and other materials specified by the other Party. SURVIVAL. Sections IV, V, VI, VII and VIII of this Exhibit C, shall survive the completion, expiration, termination or cancellation of this Agreement. In addition, all payment terms of this Agreement and any provision which, by its nature, must survive the completion, expiration, termination or cancellation of this Agreement, shall survive the completion, expiration, termination or cancellation of this Agreement. ENTIRE AGREEMENT. This Agreement sets forth the entire agreement and supersedes any and all prior agreements of the Parties with respect to the transactions set forth herein. Neither Party shall be bound by, and each Party specifically objects to, any term, condition or other provision which is different from or in addition to the provisions of this Agreement (whether or not it would materially alter this Agreement) and which is proffered by the other Party in any correspondence or other document, unless the Party to be bound thereby specifically agrees to such provision in writing. AMENDMENT. No change, amendment or modification of any provision of this Agreement shall be valid unless set forth in a written instrument signed by the Party subject to enforcement of such amendment. FURTHER ASSURANCES. Each Party shall take such action (including, but not limited to, the execution, acknowledgment and delivery of documents) as may reasonably be requested by the other Party for the implementation or continuing performance of this Agreement. ASSIGNMENT. ICP shall not assign this Agreement or any right, interest or benefit under this Agreement without the prior written consent of AOL. Assumption of this Agreement by any successor to ICP (including, without limitation, by way of merger or consolidation) shall be subject to AOL's prior written approval. In the event of (i) any Change of Control of ICP resulting in control of ICP by an Interactive Service or (ii) any Change of Control of AOL, AOL shall have the right to terminate this Agreement upon written notice to ICP. Subject to the foregoing, this Agreement shall be fully binding upon, inure to the benefit of and be enforceable by the Parties hereto and their respective successors and assigns. SUBCONTRACTORS. To the extent ICP utilizes consultants or subcontractors to perform a material portion of its obligations under this Agreement, such consultants and/or subcontractors shall be subject to AOL's prior written approval and ICP shall provide AOL with direct contact information for the employees of such consultants and/or subcontractors who are responsible for performing such obligations, which employees shall be available during business hours for consultation with AOL. CONSTRUCTION; SEVERABILITY. In the event that any provision of this Agreement conflicts with the law under which this Agreement is to be construed or if any such provision is held invalid by a court with jurisdiction over the Parties to this Agreement, (i) such provision shall be deemed to be restated to reflect as nearly as possible the original intentions of the Parties in accordance with applicable law, and (ii) the remaining terms, provisions, covenants and restrictions of this Agreement shall remain in full force and effect. REMEDIES. Except where otherwise specified, the rights and remedies granted to a Party under this Agreement are cumulative and in addition to, and not in lieu of, any other rights or remedies which the Party may possess at law or in equity. APPLICABLE LAW; JURISDICTION. This Agreement shall be interpreted, construed and enforced in all respects in accordance with the laws of the Commonwealth of Virginia except for its conflicts of laws principles. EXPORT CONTROLS. Both parties shall adhere to all applicable laws, regulations and rules relating to the export of technical data and shall not export or re-export any technical data, any products received from the other Party or the direct product of such technical data to any proscribed country listed in such applicable laws, regulations and rules unless properly authorized. HEADINGS. The captions and headings used in this Agreement are inserted for convenience only and shall not affect the meaning or interpretation of this Agreement. COUNTERPARTS. This Agreement may be executed in counterparts, each of which shall be deemed an original and all of which together shall constitute one and the same document. 30 CONFIDENTIAL 31 EXHIBIT D CERTIFICATION OF COMPLIANCE WITH COMMITMENTS REGARDING PROMOTIONS Pursuant to Section 3.2 of the Anchor Tenant Agreement between ______________ ("ICP") and America Online, Inc. ("AOL"), dated as of _________________, 1999 (the "Agreement"), the following report is delivered to AOL for the period beginning _____________ and ending __________ (the "Period"): I. PROMOTIONAL COMMITMENTS ICP hereby certifies to AOL that ICP completed the following promotional commitments during the Period:
TYPE OF PROMOTION DATE(S) OF DURATION/CIRCULATION OF PROMOTION RELEVANT CONTRACT PROMOTION SECTION _______ _______________________ ___________________ __________________________________ ______________________ 1. _______ _______________________ ___________________ __________________________________ ______________________ 2. _______ _______________________ ___________________ __________________________________ ______________________ 3. _______ _______________________ ___________________ __________________________________ ______________________
IN WITNESS WHEREOF, this Certificate has been executed this ___ day of ___________, 199_. ______________________________________ By: __________________________________ Print Name: _________________________ Title: _______________________________ Date: ________________________________ 31 CONFIDENTIAL 32 EXHIBIT E PROMOTIONS INTERACTIVE SITE. Within each ICP Interactive Site, ICP shall include the following (collectively, the "AOL Promos"): a prominent "Try AOL" feature (at least 90 x 30 pixels or 70 x 70 pixels in size) appearing prominently on the first screen of the ICP Interactive Site through which users can obtain promotional information about AOL products or services designated by AOL and, at AOL's option, download or order the then-current version of client software for such AOL products or services. AOL will provide the creative content to be used in the AOL Promos. ICP shall post (or update, as the case may be) the creative content supplied by AOL within the spaces for the AOL Promos within five days of its receipt of such content from AOL. Without limiting any other reporting obligations of the Parties contained herein, ICP shall provide AOL with monthly written reports specifying the number of impressions to the pages containing the AOL Promos during the prior month. In the event that AOL elects to serve the AOL Promos to the ICP Interactive Site from an ad server controlled by AOL or its agent, ICP shall take all reasonable operational steps necessary to facilitate such ad serving arrangement, including, without limitation, inserting HTML code designated by AOL on the pages of the ICP Interactive Site on which the AOL Promos will appear. In addition, within each ICP Interactive Site, ICP shall provide prominent promotion for the keywords associated with the Online Area and the ICP Internet Site and links from the ICP Interactive Site to the relevant topic areas on AOL's AOL.com site, and to the extent ICP offers or promotes any products or services similar to AOL's Instant Messenger or Internet search products, ICP shall provide equal or greater promotions for such AOL products. OTHER MEDIA. In ICP's television, radio, print and "out of home" (e.g., buses and billboards, point of purchase and other "place-based" promotions) advertisements and in any publications, programs, features or other forms of media over which ICP exercises at least partial editorial control, ICP will include specific references or mentions (orally where possible) of the availability of the ICP Internet Site through the America Online(R) brand service. In any event, such references or mentions shall be at least as prominent as any references that ICP makes to any ICP Interactive Site (by way of site name, related company name, URL or otherwise). Without limiting the generality of the foregoing, ICP's listing of the "URL" for any ICP Interactive Site will be accompanied by an equally prominent listing of the "keyword" term on AOL for the Online Area and ICP Internet Site and the AOL keyword "Weddings", which listings shall conform to the keyword guidelines attached hereto as Exhibit J. All such references or mentions of AOL, and the use of AOL's trademarks, trade names and service marks in connection therewith, shall be in accordance with Section II of Exhibit C. PREFERRED ACCESS PROVIDER. In ICP's promotion of AOL, AOL shall be generally positioned as the preferred access provider through which a user can access the ICP Internet Site (and ICP shall not implement or authorize any other promotions on behalf of any third parties which are inconsistent with the foregoing). AOL shall be the only Interactive Service promoted or advertised by ICP in any offline medium. In addition, ICP shall promote AOL Hometown as prominently as it promotes its own homesteading product, including, without limitation, by including a link from the Online Area to the main page of the Weddings department in AOL Hometown and links from the ICP Internet Site to mutually agreed upon areas within AOL Hometown. DCI PROMOTIONS. Provided AOL is providing the carriage on the "Wedding Guide" area of the Digital City Content area of the AOL Service as described on subpart (c) of section A of Exhibit A-1, ICP shall provide AOL with permanent placement in the pull-down menu of the Online Area to promote AOL's Digital City service and rotational placements within the ICP Internet Site (collectively, the "DCI Promotions"). 32 CONFIDENTIAL 33 EXHIBIT F OPERATING STANDARDS 1. ICP Internet Site Infrastructure. ICP will be responsible for all communications, hosting and connectivity costs and expenses associated with the ICP Internet Site. ICP will provide all hardware, software, telecommunications lines and other infrastructure necessary to meet traffic demands on the ICP Internet Site from the AOL Network. ICP will design and implement the network between the AOL Service and ICP Internet Site such that (i) no single component failure will have a materially adverse impact on AOL Members seeking to reach the ICP Internet Site from the AOL Network and (ii) no single line under ICP's reasonable control will run at more than 70% average utilization for a 5-minute peak in a daily period. In this regard, ICP will provide AOL, upon request, with a detailed network diagram regarding the architecture and network infrastructure supporting the ICP Internet Site. In the event that ICP elects to create a custom version of the ICP Internet Site in order to comply with the terms of this Agreement, ICP will bear responsibility for all aspects of the implementation, management and cost of such customized site. 2. Optimization; Speed. ICP will use commercially reasonable efforts to ensure that: (a) the functionality and features within the ICP Internet Site are optimized for the client software then in use by AOL Members; and (b) the ICP Internet Site is designed and populated in a manner that minimizes delays when AOL Members attempt to access such site. At a minimum, ICP will ensure that the ICP Internet Site's data transfers initiate within fewer than fifteen (15) seconds on average. Prior to commercial launch of any material promotions described herein, ICP will permit AOL to conduct performance and load testing of the ICP Internet Site (in person or through remote communications), with such commercial launch not to commence until such time as AOL is reasonably satisfied with the results of any such testing. 3. Technical Problems. ICP agrees to use commercially reasonable efforts to address material technical problems (over which ICP exercises control) affecting use by AOL Members of the ICP Internet Site (an "ICP Technical Problem") promptly following notice thereof. In the event that ICP is unable to promptly resolve an ICP Technical Problem following notice thereof from AOL (including, without limitation, infrastructure deficiencies producing user delays), AOL will have the right to regulate the promotions it provides to ICP hereunder until such time as ICP corrects the ICP Technical Problem at issue. 4. Monitoring. ICP will ensure that the performance and availability of the ICP Internet Site is monitored on a continuous (24 X 7) basis. ICP will provide AOL with contact information (including e-mail, phone, pager and fax information, as applicable, for both during and after business hours) for ICP's principal business and technical representatives, for use in cases when issues or problems arise with respect to the ICP Internet Site. 5. Security. ICP will utilize Internet standard encryption technologies (e.g., Secure Socket Layer - SSL) to provide a secure environment for conducting transactions and/or transferring private member information (e.g. credit card numbers, banking/financial information, and member address information) to and from the ICP Internet Site. ICP will facilitate periodic reviews of the ICP Internet Site by AOL in order to evaluate the security risks of such site. ICP will promptly remedy any security risks or breaches of security as may be identified by AOL's Operations Security team. 6. Technical Performance. i. ICP will design the ICP Internet Site to support the AOL-Client embedded versions of the Microsoft Internet Explorer 3.XX and 4.XX browsers (Windows and Macintosh), the Netscape Browser 4.XX and make commercially reasonable efforts to support all other AOL browsers listed at: "http://webmaster.info.aol.com." ii. To the extent ICP creates customized pages on the ICP Internet Site for AOL Members, ICP develop and employ a methodology to detect AOL Members (e.g., examine the HTTP User-Agent field in order to identify the "AOL Member-Agents" listed at: http://webmaster. info.aol.com" and referenced under the heading "Browser Detection." iii.ICP will periodically review the technical information made available by AOL at http://webmaster.info.aol.com. iv. ICP will design its site to support HTTP 1.0 or later protocol as defined in RFC 1945 and to adhere to AOL's parameters for refreshing or preventing the caching of information in AOL's proxy system as outlined in the document provided at the following URL: http://webmaster.info.aol.com. ICP is responsible for the manipulation of these parameters in web based objects so as allow them to be cached or not cached as outlined in RFC 1945. v. Prior to releasing material, new functionality or features through the ICP Internet Site ("New Functionality"), ICP will use commercially reasonable efforts to either (i) test the New Functionality to confirm its compatibility with AOL Service client software and (ii) provide AOL with written notice of the New Functionality so that AOL can perform tests of the New Functionality to confirm its compatibility with the AOL Service client software. Should any new material, new functionality or features through the ICP Internet Site be released without notification to AOL, AOL will not be responsible for any adverse member experience until such time that compatibility tests can be performed and the new material, functionality or features qualified for the AOL Service. 7. AOL Internet Services Partner Support. AOL will provide ICP with access to the standard online resources, standards and guidelines documentation, technical phone support, monitoring and after-hours assistance that AOL makes generally available to similarly situated web-based partners. AOL support will not, in any case, be involved with content creation on behalf of ICP or support for any technologies, databases, software or other applications which are not supported by AOL or are related to any ICP area other than the ICP Internet Site. Support to be provided by AOL is contingent on ICP providing to AOL demo account information (where applicable), a detailed description of the ICP Internet Site's software, hardware and network architecture and access to the ICP Internet Site for purposes of such performance and the coordination load testing as AOL elects to conduct. 8. ICP Programming. The terms and conditions of this Exhibit applicable to the ICP Internet Site shall apply equally to any ICP Programming that is (a) programmed in HTML or (b) web-based. 33 CONFIDENTIAL 34 EXHIBIT G ADDITIONAL KEYWORDS 888WEDKNOT BIGDAY-BEAUTY BRIDEZILLA DIAMONDGUY GREATESCAPE HONEYMOONMAGAZINE KNOT KNOTMARCY KNOTREG KNOTREGISTRY MYKNOT OURKNOT THEKNOT THEKNOTGOWNGUIDE THEKNOTGOWNSEARCH THEKNOTREGISTRY THEKNOTTRAVELAUCTION TIE THE KNOT WEDDINGPHOTOGRAPHERS 34 CONFIDENTIAL 35 EXHIBIT H ICP COMPETITORS [****] - --------------- [****] REPRESENTS MATERIAL WHICH HAS BEEN REDACTED AND FILED SEPARATELY WITH THE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 UNDER THE SECURITIES ACT OF 1933, AS AMENDED. 35 CONFIDENTIAL 36 EXHIBIT I PRODUCTS [****] - --------------- [****] REPRESENTS MATERIAL WHICH HAS BEEN REDACTED AND FILED SEPARATELY WITH THE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 UNDER THE SECURITIES ACT OF 1933, AS AMENDED. CONFIDENTIAL 36 37 [****] - --------------- [****] REPRESENTS MATERIAL WHICH HAS BEEN REDACTED AND FILED SEPARATELY WITH THE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT PURSUANT TO RULE 406 UNDER THE SECURITIES ACT OF 1933, AS AMENDED. CONFIDENTIAL 37 38 EXHIBIT J KEYWORD GUIDELINES PRINT/GRAPHIC - - Preferred listing: (AOL Logo appears) America Online Keyword: Knot America Online Keyword: Knot - - If necessary, due to space constraints, listing may (pending approval) appear as follows: AOL KEYWORD: KNOT - - Every effort should be made to have 'America Online' spelled out - - Capitalization - listing should appear in initial caps only Note: When America Online is abbreviated to AOL - AOL must appear in all caps. K of Keyword must always be capitalized - - Font, Font style and Size must all be consistent - - Listing size must be of equal prominence to that of any/all other URLs featured BROADCAST/RADIO - - America Online Keyword must announced entirely (even if an accompanying graphic is set with AOL versus America Online) Example voiceover would read: "For more information, please visit America Online Keyword: Knot" AOL must approve all other uses prior to usage. 39 CONFIDENTIAL EX-23.1 5 CONSENT OF ERNST & YOUNG LLP 1 Exhibit 23.1 CONSENT OF INDEPENDENT AUDITORS We consent to the reference to our firm under the caption "Experts" and to the use of our reports dated October 26, 1999 (except for Note 12 as to which the date is November 5, 1999) with respect to the financial statements of The Knot, Inc. and our report dated August 18, 1999, with respect to the financial statements of Casenhiser Clothing Company, Inc. included in Amendment No. 4 to the Registration Statement (Form S-1 No. 333-87345) and related Prospectus of The Knot, Inc. dated November 26, 1999. /s/ Ernst & Young LLP --------------------- Ernst & Young LLP New York, New York November 26, 1999 -----END PRIVACY-ENHANCED MESSAGE-----