Section 240.14a-101 Schedule 14A.
Information required in proxy statement.
Schedule 14A Information
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
(Amendment No. )
Filed by the Registrant [X]
Filed by a party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted
by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or Section
240.14a-12
THE KNOT, INC.
..................................................................
(Name of Registrant as Specified In Its Charter)
..................................................................
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11
(1) Title of each class of securities to which transaction
applies:
............................................................
(2) Aggregate number of securities to which transaction
applies:
.......................................................
(3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (set forth the amount
on which the filing fee is calculated and state how it was
determined):
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(4) Proposed maximum aggregate value of transaction:
.......................................................
(5) Total fee paid:
.......................................................
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by
Exchange Act Rule 0-11(a)(2) and identify the filing for
which the offsetting fee was paid previously. Identify the
previous filing by registration statement number, or the
Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
.......................................................
(2) Form, Schedule or Registration Statement No.:
.......................................................
(3) Filing Party:
.......................................................
(4) Date Filed:
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[THE KNOT LOGO]
THE KNOT, INC.
462 BROADWAY, 6TH FLOOR
NEW YORK, NEW YORK 10013
April 12, 2004
To the Stockholders of
THE KNOT, INC.:
You are cordially invited to attend the Annual Meeting of Stockholders of
The Knot, Inc., to be held at the offices of Proskauer Rose LLP, 1585 Broadway,
23rd Floor, New York, New York 10036 on Thursday, May 13, 2004 at 9:00 a.m.
Details of the business to be conducted at the Annual Meeting are given in
the attached Notice of Annual Meeting and Proxy Statement which you are urged to
read carefully.
If you do not plan to attend the Annual Meeting, please sign, date, and
return the enclosed proxy promptly in the accompanying reply envelope. If you
decide to attend the Annual Meeting and wish to change your proxy vote, you may
do so automatically by voting in person at the Annual Meeting.
We look forward to seeing you at the Annual Meeting.
DAVID LIU
David Liu
President, Chief Executive Officer and
Chairman of the Board
YOUR VOTE IS IMPORTANT
IN ORDER TO ASSURE YOUR REPRESENTATION AT THE ANNUAL MEETING, YOU ARE
REQUESTED TO COMPLETE, SIGN AND DATE THE ENCLOSED PROXY AS PROMPTLY AS POSSIBLE
AND RETURN IT IN THE ENCLOSED ENVELOPE (TO WHICH NO POSTAGE NEED BE AFFIXED IF
MAILED IN THE UNITED STATES).
[THE KNOT LOGO]
THE KNOT, INC.
462 BROADWAY, 6TH FLOOR
NEW YORK, NEW YORK 10013
------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 13, 2004
------------------------
To the Stockholders of
THE KNOT, INC.:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of The Knot,
Inc. ('The Knot') will be held at the offices of Proskauer Rose LLP, 1585
Broadway, 23rd Floor, New York, New York 10036 on Thursday, May 13, 2004 at 9:00
a.m. (the 'Annual Meeting') to consider and vote upon the following matters,
which are more fully described in the accompanying Proxy Statement:
1. To elect two (2) nominees to the class of directors whose terms
expire in 2007. The Board has nominated the following persons for
re-election at the Annual Meeting: Sandra Stiles and Joseph Brehob;
2. To ratify the appointment of Ernst & Young LLP as The Knot's
independent auditors for the fiscal year ending December 31, 2004; and
3. To transact such other business as may properly come before the
Annual Meeting or any adjournment or postponement thereof.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice. All stockholders of record at the close of
business on March 31, 2004 will be entitled to vote at the Annual Meeting and at
any adjournment or postponement thereof. The stock transfer books of The Knot
will remain open between May 3, 2004 and the date of the meeting. A list of
stockholders entitled to vote at the Annual Meeting will be available for
inspection at the Annual Meeting and, while the transfer books remain open prior
thereto, at our offices during regular business hours.
By Order of the Board of Directors
RICHARD SZEFC
RICHARD SZEFC
Chief Financial Officer, Treasurer and
Secretary
April 12, 2004
YOUR VOTE IS VERY IMPORTANT, REGARDLESS OF THE NUMBER OF SHARES YOU OWN.
PLEASE READ THE ATTACHED PROXY STATEMENT CAREFULLY, COMPLETE, SIGN AND DATE THE
ENCLOSED PROXY CARD AS PROMPTLY AS POSSIBLE AND RETURN IT IN THE ENCLOSED
ENVELOPE.
THE KNOT, INC.
462 BROADWAY, 6TH FLOOR
NEW YORK, NEW YORK 10013
--------------------------
PROXY STATEMENT
--------------------------
GENERAL
This Proxy Statement is furnished to the holders of common stock, par value
$0.01 per share (the 'Common Stock'), of The Knot, Inc., a Delaware corporation
('The Knot'), in connection with the solicitation by the Board of Directors (the
'Board') of The Knot for use at the annual meeting of stockholders and at any
adjournment or postponement of the annual meeting (the 'Annual Meeting'). The
Annual Meeting will be held at the offices of Proskauer Rose, LLP, 1585
Broadway, 23rd Floor, New York, New York 10036 on Thursday, May 13, 2004 at 9:00
a.m. All stockholders of record on March 31, 2004 will be entitled to notice of
and to vote at the Annual Meeting. We intend to mail this Proxy Statement and
the accompanying proxy (the 'Proxy') to our stockholders on or about April 15,
2004.
The mailing address of our principal executive office is 462 Broadway, 6th
Floor, New York, New York 10013.
PURPOSE OF MEETING
The specific proposals to be considered and acted upon at the Annual Meeting
are summarized in the accompanying Notice of Annual Meeting of Stockholders
(collectively, the 'Proposals'). Each Proposal is described in more detail in
this Proxy Statement.
VOTING
On March 31, 2004, the record date for determination of stockholders
entitled to vote at the Annual Meeting, there were 21,995,987 shares of Common
Stock outstanding held by stockholders of record. A list of stockholders
eligible to vote at the Annual Meeting will be available for inspection at the
Annual Meeting and, while the stock transfer books remain open prior thereto,
during regular business hours at our principal executive office at the address
specified above. You are entitled to one vote for each share of Common Stock you
hold on March 31, 2004.
The holders of a majority of the stock issued and outstanding and entitled
to vote, present in person or by proxy, shall constitute a quorum at the Annual
Meeting. Abstentions and broker non-votes will be counted as present for
purposes of determining whether a quorum is present at the Annual Meeting.
'Broker non-votes' are shares held by brokers or nominees which are present in
person or represented by proxy, but which are not voted because instructions
have not been received from the beneficial owner with respect to a particular
matter for which the broker or nominee does not have discretionary power to
vote.
If a quorum is present, the two nominees who receive the greatest number of
votes properly cast (in person or by proxy) will be elected as directors for
terms expiring in 2007. Neither abstentions nor broker non-votes will have any
effect on the outcome of voting with respect to the election of directors.
Stockholders may not cumulate votes for the election of directors.
Proposals other than for the election of directors shall be approved by the
affirmative vote of the holders of a majority of the shares of the Common Stock
present at the Annual Meeting, in person or by proxy, and entitled to vote
thereon. Abstentions will be counted towards the tabulations of votes cast on
these proposals presented to the stockholders and will have the same effect as
negative votes, whereas broker non-votes will not be counted for purposes of
determining whether such a proposal has been approved.
Under the General Corporation Law of the State of Delaware, stockholders are
not entitled to dissenter's rights with respect to any matter to be considered
and voted on at the Annual Meeting, and The Knot will not independently provide
stockholders with any such right.
PROXIES
If the enclosed form of proxy is properly signed and returned, the shares
represented thereby will be voted at the Annual Meeting in accordance with the
instructions specified thereon. If the proxy does not specify how the shares
represented thereby are to be voted, the proxy will be voted FOR the election of
the directors proposed by the Board, FOR the ratification of Ernst & Young LLP
as The Knot's independent auditors, and as the proxy holders deem advisable for
all other matters as may properly come before the Annual Meeting.
Any person giving a Proxy has the power to revoke it at any time before its
exercise. It may be revoked by:
notifying the Secretary of The Knot in writing before the Annual Meeting;
delivering to the Secretary of The Knot before the Annual Meeting a signed
proxy with a later date; or
attending the Annual Meeting and voting in person.
SOLICITATION
We will bear the entire cost of solicitation, including the preparation,
assembly, printing and mailing of this Proxy Statement, the Proxy and any
additional soliciting materials furnished to stockholders. Copies of
solicitation materials will be furnished to brokerage houses, fiduciaries and
custodians holding shares in their names that are beneficially owned by others
so that they may forward the solicitation materials to such beneficial owners.
In addition, we may reimburse such persons for their costs of forwarding the
solicitation materials to such beneficial owners. The original solicitation of
proxies by mail may be supplemented by solicitation by telephone or other means
by our directors, officers, employees or agents. No additional compensation will
be paid to these individuals for any such services. Except as described above,
we do not presently intend to solicit proxies other than by mail.
PROPOSAL 1
ELECTION OF DIRECTORS
The Knot's Amended and Restated Certificate of Incorporation, as amended
(the 'Certificate of Incorporation'), provides for a classified Board consisting
of three classes of directors serving staggered three year terms. These classes
are required to be as nearly equal in number as possible. Our Amended and
Restated Bylaws provide for a Board consisting of such number of directors as
may be fixed from time to time by resolution of the members of the Board or by
our stockholders at an annual meeting of stockholders. Two directors are to be
elected at the Annual Meeting for a term expiring at the 2007 annual meeting of
stockholders or until a successor has been duly elected and qualified.
The Board has nominated Sandra Stiles and Joseph Brehob to stand for
re-election to the class of directors whose term expires at the 2007 annual
meeting of stockholders or until a successor is elected and has qualified. Each
person nominated for re-election has agreed to serve if elected, and management
has no reason to believe that any nominee will be unavailable to serve. In the
event any of the nominees are unable or decline to serve as a director at the
time of the Annual Meeting, the proxies will be voted for any nominee who may be
designated by the present Board to fill the vacancy. Unless otherwise
instructed, the proxy holders will vote the proxies received by them 'FOR' the
nominees named below.
BUSINESS EXPERIENCE OF NOMINEES FOR ELECTION TO TERMS EXPIRING IN 2007
Sandra Stiles (54) has been our Chief Operating Officer since November 1998
and Assistant Secretary since September 1999. From November 1998 to May 1999,
she served as our Chief Financial
2
Officer. Ms. Stiles has served as one of our directors 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 Controller of
Random House from October 1990 to August 1994. Ms. Stiles received a B.S. in
Accounting from New York University.
Joseph Brehob (36) has served as one of our directors since April 2002.
Mr. Brehob has been the Vice President of Internet Marketing of The May
Department Stores Company since January 2001. From November 1997 until
January 2001, Mr. Brehob served as a Divisional Vice President of The May
Merchandising Division. Prior to November 1997, he held various management and
other positions with May. He has been employed by The May Department Stores
Company since 1991. Mr. Brehob received a B.S. in Business from Indiana
University.
BUSINESS EXPERIENCE OF CONTINUING DIRECTOR WITH TERM EXPIRING IN 2005
David Liu (38) 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 Carley Roney, our Editor-in-Chief.
Prior to January 1993, Mr. Liu was the Director of Production at VideOvation, a
subsidiary of 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, our Editor-in-Chief.
BUSINESS EXPERIENCE OF CONTINUING DIRECTORS WITH TERMS EXPIRING IN 2006
Randy Ronning (55) has served as one of our directors since June 2001.
Mr. Ronning has been the Executive Vice President of Affiliate Relations, iQVC,
and New Business Development at QVC since January 2001. Prior to 2001,
Mr. Ronning held various management positions at JC Penney. From 1998 to 2000,
he was President of the Catalog and Internet Divisions. From 1994 to 1997 he was
President of the Home and Leisure Division. From 1992 to 1994, he was President
of JC Penney International. Mr. Ronning is a board member of the Electronic
Retail Association and a private company. Mr. Ronning received a B.A. in
Journalism from the University of Oregon.
Ann Winblad (53) 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 and the Stanford/MIT Venture
Forum. Ms. Winblad also serves on the boards of directors of Net Perceptions
Inc. and several private companies. Ms. Winblad received a B.A. in Business
Administration and Mathematics from the College of St. Catherine and an M.A. in
education with a focus in international economics from the University of St.
Thomas.
CORPORATE GOVERNANCE
Overview. The Board of Directors has implemented a number of corporate
governance enhancements to further strengthen the Board's capacity to oversee
The Knot and to serve the long-term interests of its stockholders. The Knot's
corporate governance policies, Board committee charters, codes of conduct and
other documents setting forth The Knot's corporate governance practices can be
accessed in the 'Investor Relations -- Corporate Governance' section of The
Knot's website at www.theknot.com.
Director Independence. In February 2004, the Board of Directors undertook
its annual review of director independence. As a result of this review, the
Board affirmatively determined that a majority of its directors (Mr. Brehob,
Mr. Ronning and Ms. Winblad) are independent as defined by rule 4200 of the
NASDAQ Stock Market (the 'NASDAQ') and rule 10A-3 promulgated by the Securities
and Exchange Commission (the 'SEC').
Presiding Director. In March 2004, the Board of Directors created a new
position of Presiding Director. The Presiding Director's primary
responsibilities include presiding over periodic executive
3
sessions of the non-employee members of the Board of Directors and performing
other duties that the Board may from time to time delegate to assist it in the
fulfillment of its responsibilities. The non-employee members of the Board have
determined that they will each serve in this position on a rotating basis from
meeting to meeting.
Codes of Conduct. The Board has adopted a Code of Business Conduct and
Ethics that applies to all officers, directors and employees, and a Code of
Ethics for the Chief Executive Officer and Senior Financial Officers. Both codes
of conduct can be accessed in the 'Investor Relations -- Corporate Governance'
section of The Knot's website at www.theknot.com, as well as any amendments to,
or waivers under, the Code of Ethics for the Chief Executive Officer and Senior
Financial Officers. Copies may be obtained by writing to The Knot, Inc. at 462
Broadway, 6th Floor, New York, New York 10013, Attention: Investor Relations.
The purpose of these codes of conduct and ethics is to promote honest and
ethical conduct, including the ethical handling of actual or apparent conflicts
of interest between personal and professional relationships; to promote full,
fair, accurate, timely and understandable disclosure in periodic reports
required to be filed by The Knot; and to promote compliance with all applicable
rules and regulations that apply to The Knot and its officers, directors and
employees.
COMMUNICATING WITH THE BOARD OF DIRECTORS
In order to communicate with the Board of Directors as a whole, with
non-employee directors or with specified individual directors, correspondence
may be directed to The Knot, Inc. at 462 Broadway, 6th Floor, New York, New York
10013, Attention: Corporate Secretary. All such correspondence will be forwarded
to the appropriate director or group of directors.
BOARD MEETINGS AND COMMITTEES
The Board met a total of six times and acted by written consent three times
during the year ended December 31, 2003. The Board has a Compensation Committee
and an Audit Committee.
The Compensation Committee is currently composed of Mr. Ronning and
Ms. Winblad. The Compensation Committee met a total of two times and acted by
written consent once during the year ended December 31, 2003. The Compensation
Committee evaluates performance and establishes and oversees executive
compensation policy and makes decisions about base pay, incentive pay and any
supplemental benefits for the Chief Executive Officer and our other Executive
Officers. The Compensation Committee also administers our stock incentive plans
and approves the grant of stock options, the timing of the grants, the price at
which the options are to be offered and the number of shares for which options
are to be granted to our executive officers, directors and other employees. The
Compensation Committee also performs other duties and responsibilities as set
forth in a Charter approved by the Board of Directors.
The Audit Committee is currently composed of Ms. Winblad, Mr. Brehob and Mr.
Ronning. The Audit Committee met five times in 2003. The Audit Committee
appoints our independent auditors, subject to ratification by our stockholders,
reviews the plan for and the results of the independent audit, approves the fees
of our independent auditors, reviews with management and the independent
auditors our quarterly and annual financial statements and our internal
accounting, financial and disclosure controls, reviews and approves transactions
between The Knot and its officers, directors and affiliates and performs other
duties and responsibilities as set forth in a Charter approved by the Board of
Directors.
Each member of the Compensation Committee and the Audit Committee is
independent, as independence is defined by the listing standards of the NASDAQ
and the applicable rules and regulations of the SEC. The Board has also
determined that each member of the Audit Committee has the ability to read and
understand financial statements and that Ms. Winblad and Mr. Ronning qualify as
Audit Committee financial experts as defined by the rules of the SEC. The
Compensation Committee and Audit Committee Charters can be accessed in the
'Investor Relations -- Corporate Governance' section of The Knot's website at
www.theknot.com.
Each director attended at least 75% of the aggregate of (i) the total
meetings of the Board and (ii) the total number of meetings held by all
Committees of the Board on which he or she served, that
4
were held in 2003. The Knot's policy on director attendance at annual meetings
calls for directors to be invited but not required to attend annual meetings of
stockholders. One director, Mr. Liu, our Chairman of the Board, attended the
2003 Annual Meeting of Stockholders.
The Board of Directors does not have a standing nominating committee or
committee performing similar functions. The Board has determined that it was
appropriate not to have a nominating committee because of the relatively small
size of the Board. The Board has affirmed, by resolution in February 2004, that
a majority of the independent directors of the Board will recommend nominees for
director. The independent directors of the Board, in carrying out the nomination
function, will not operate under a charter. As disclosed above, each of the
independent directors of the Board, who will carry out the nomination function,
is independent, as independence is defined by the listing standards of NASDAQ.
The independent directors of the Board intend to consider director nominees on a
case-by-case basis, and therefore, have not formalized any specific, minimum
qualifications that they believe must be met by a director nominee, identified
any specific qualities or skills that they believe are necessary for one or more
of our directors to possess, or formalized a process for identifying and
evaluating nominees for director, including nominees recommended by
stockholders.
The Board of Directors has determined, in connection with the Board's
nomination function described above, that it is the policy of the independent
directors acting in such capacity to consider director candidates that are
recommended by stockholders. The independent directors will evaluate nominees
for director recommended by stockholders in the same manner as nominees
recommended by other sources. Stockholders wishing to bring a nomination for a
director candidate before a stockholders meeting must give written notice to The
Knot's Corporate Secretary, pursuant to the procedures set forth under
'Communicating with the Board of Directors' and subject to the deadline set
forth under 'Deadline for Stockholder Proposals.' The stockholder's notice must
set forth all information relating to each person whom the stockholder proposes
to nominate that is required to be disclosed under applicable rules and
regulations of the SEC and The Knot's bylaws. The Knot's bylaws can be accessed
in the 'Investor Relations -- Corporate Governance' section of The Knot's
website at www.theknot.com.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of our Compensation Committee during the year ended
December 31, 2003 were Mr. Ronning and Ms. Winblad.
Mr. Ronning is the Executive Vice President of Affiliate Relations, iQVC,
and New Business Development at QVC. 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 Series B Preferred Stock converted into
Common Stock on a one-for-one basis and the warrant became exercisable upon our
initial public offering of Common Stock. The warrant expired unexercised on
December 2, 2001. The Common Stock has been assigned to QVC Interactive
Holdings, LLC (now known as Interactive Technology 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. Our services agreement with QVC expired in December 2003;
however, pursuant to the agreement, we had the option to continue to operate
under the services agreement for an additional l80 days, which we are currently
doing. For the years ended December 31, 2003, 2002 and 2001, we purchased
merchandise and incurred warehousing, fulfillment and distribution and billing
costs under the agreement in the aggregate amounts of $123,000, $118,000 and
$128,000, respectively.
DIRECTOR COMPENSATION
We reimburse our directors for travel and other out-of-pocket costs incurred
in connection with their attendance at meetings of the Board. In addition, our
1999 Stock Incentive Plan (the '1999 Plan') provides that each eligible
non-employee director will automatically receive an immediately exercisable
option to purchase 15,000 shares of Common Stock upon the director's initial
election or appointment
5
to the Board. Each 15,000-share option 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-year period measured from the option grant date.
The 1999 Plan also provides that, on the date of each annual meeting of
stockholders, each non-employee Board member who is to continue to serve as a
non-employee Board member will automatically be granted an immediately
exercisable option to purchase 5,000 shares of Common Stock. Each annual
5,000-share option will vest upon the optionee's completion of one (1) year of
Board service measured from the option grant date. Any shares of common stock
purchased under these options are subject to repurchase by us, at the exercise
price paid per share, upon a director's cessation of board service prior to
vesting in those shares. Any outstanding repurchase rights automatically
terminate in the event we are acquired by merger, asset sale or sale of more
than 50% of our voting securities by the stockholders. The exercise price per
share in effect for options granted to directors under the 1999 Plan is the
closing sale price of the Common Stock on the grant date.
On May 14, 2003, the date of our last Annual Meeting of Stockholders, Mr.
Brehob, Mr. Ronning and Ms. Winblad each received an automatic grant to purchase
5,000 shares of Common Stock. The exercise price per share in effect under these
options is $1.80, the fair market value per share of the Common Stock on the
grant date. These options vest upon completion of one year of Board service.
VOTE REQUIRED
The affirmative vote of a plurality of the shares of Common Stock present in
person or represented by proxy and entitled to vote at the Annual Meeting is
required for the election of directors. The two nominees for the class of
directors whose terms expire at the 2007 annual meeting of stockholders
receiving the highest number of affirmative votes of the stockholders entitled
to vote at the Annual Meeting will be elected a director of The Knot. Pursuant
to applicable Delaware law, abstentions and broker non-votes will have no effect
on the outcome of the vote. Unless otherwise instructed, the proxyholders will
vote each returned Proxy 'FOR' the nominees named above.
RECOMMENDATION OF THE BOARD
THE BOARD OF DIRECTORS RECOMMENDS A VOTE 'FOR' THE NOMINEES LISTED ABOVE.
PROPOSAL 2
RATIFICATION OF INDEPENDENT AUDITORS
The Audit Committee of The Board of Directors has reappointed the firm of
Ernst & Young LLP, independent auditors for The Knot during the fiscal year
ended December 31, 2003, to serve in the same capacity for the year ending
December 31, 2004, and is asking the stockholders to ratify this appointment.
Representatives of the firm of Ernst & Young LLP are expected to be present at
the Annual Meeting and will have an opportunity to make a statement if they so
desire and will be available to respond to appropriate questions.
The appointment of independent auditors is made annually by the Audit
Committee and subsequently submitted to the stockholders for ratification.
Before making its appointment of Ernst & Young LLP, the Audit Committee
carefully considered that firm's qualifications as independent auditors for the
Company. This included a review of its performance in prior years, as well as
its reputation for integrity and competence in the fields of accounting and
auditing. The Committee has expressed its satisfaction with Ernst & Young LLP in
all of these respects.
FEES
Audit Fees. The aggregate fees billed by Ernst & Young LLP for professional
services rendered for the audit of our annual financial statements, the reviews
of the financial statements included in our quarterly reports on Form 10-Q and
for other attest services, primarily consents related to SEC registration
statements, were $308,500 and $326,000 for 2003 and 2002, respectively.
Tax Fees. The aggregate fees billed by Ernst &Young LLP for tax compliance,
tax consulting and tax planning services were $136,540 and $50,400 for 2003 and
2002, respectively.
6
Audit -- Related Fees. No services were rendered by Ernst & Young during
2003 and 2002 other than those described above.
All Other Fees. No services were rendered by Ernst & Young during 2003 and
2002 other than those described above.
PRE-APPROVAL POLICIES AND PROCEDURES
The Audit Committee pre-approves all audit and permissible non-audit
services and has considered whether the provision of the services covered by the
category 'Tax Fees' is compatible with maintaining the independence of Ernst &
Young LLP. The Audit Committee has authorized each of its members to pre-approve
audit, audit-related, tax and non-audit services, provided that such approved
service is reviewed with the full Audit Committee at its next meeting.
As early as practicable in each fiscal year, Ernst & Young provides to the
Audit Committee a schedule of the audit and other services that they expect to
provide or may provide during the year. The schedule will be specific as to the
nature of the proposed services, the proposed fees, and other details that the
Audit Committee may request. The Audit Committee will by resolution authorize or
decline the proposed services. Upon approval, this schedule will serve as the
budget for fees by specific activity or service for the year.
A schedule of additional services proposed to be provided by Ernst & Young
or proposed revisions to services already approved, along with associated
proposed fees, may be presented to the Audit Committee for their consideration
and approval at any time. The schedule will be specific as to the nature of the
proposed service, the proposed fee, and other details that the Audit Committee
may request. The Audit Committee will by resolution authorize or decline
authorization for each proposed new service.
VOTE REQUIRED
The affirmative vote of a majority of the stockholders represented and
voting at the Annual Meeting will be required to ratify the selection of Ernst &
Young LLP. In the event the stockholders fail to ratify the appointment, the
Audit Committee will reconsider its selection. Even if the selection is
ratified, the Audit Committee, in its discretion, may direct the appointment of
a different independent accounting firm at any time during the year if the Audit
Committee believes that such a change would be in The Knot's and our
stockholders' best interests.
RECOMMENDATION OF THE BOARD
THE BOARD OF DIRECTORS RECOMMENDS A VOTE 'FOR' THE RATIFICATION OF THE
SELECTION OF ERNST & YOUNG LLP TO SERVE AS THE KNOT'S INDEPENDENT AUDITORS FOR
THE YEAR ENDING DECEMBER 31, 2004.
REPORT OF THE AUDIT COMMITTEE
The charter of the Audit Committee of the Board of Directors was revised in
March 2003 and specifies that the purpose of the Committee is to assist the
Board of Directors in its oversight of:
The integrity of The Knot's financial statements;
The adequacy of The Knot's system of internal accounting and financial
controls;
The appointment, engagement and performance of the independent auditors and
the evaluation of the independent auditors' qualifications and
independence; and
The Knot's compliance with legal and regulatory requirements.
In discharging its responsibilities, the Committee is not itself responsible
for the planning or the performance of audits, or for any determination that The
Knot's financial statements are complete and accurate, or in accordance with
generally accepted accounting principles. Management is responsible for the
preparation, presentation, and integrity of The Knot's financial statements and
for the appropriateness of the accounting principles and reporting policies that
are used by The Knot. The
7
Knot's independent auditors, Ernst & Young, LLP ('Ernst & Young') are
responsible for auditing The Knot's financial statements and for reviewing The
Knot's unaudited interim financial statements.
The Committee met five times during fiscal 2003. The Committee's meetings
included separate discussions with management and Ernst & Young.
As part of its oversight of The Knot's financial statements, the Committee
reviewed and discussed with both management and Ernst & Young all annual
financial statements and quarterly operating results prior to their issuance.
Management represented to the Committee that each set of financial statements
reviewed had been prepared in accordance with generally accepted accounting
principles. The Committee discussed with Ernst & Young the matters required to
be discussed pursuant to Statement on Auditing Standards No. 61 (Communication
with Audit Committees), including the quality of The Knot's accounting
principles, the reasonableness of significant judgments and the clarity of
disclosures in the financial statements. The Committee also discussed with Ernst
& Young the critical accounting policies and practices used in the preparation
of The Knot's annual consolidated financial statements and whether there were
any audit problems.
The Committee discussed with Ernst & Young that firm's independence from The
Knot and management. The Committee obtained and reviewed the written disclosures
and letter required by the Independence Standards Board Standard No. 1
(Independence Discussions with Audit Committees) and provided to the Committee
by Ernst & Young. The Committee also discussed with Ernst and Young:
The firm's internal quality control procedures;
Any material issues raised by the most recent internal quality control
review (or peer review) of the firm; and
All relationships between the firm and The Knot.
The Committee reviewed and pre-approved the fees for services rendered by
Ernst & Young for fiscal 2003 and considered whether the provision of non-audit
services by Ernst & Young in 2003 was compatible with maintaining the auditors'
independence.
In reliance on the reviews and discussions referred to above, the Committee
recommended to the Board of Directors, and the Board has approved, that the
audited consolidated financial statements be included in The Knot's Annual
Report on Form 10-K for the year ended December 31, 2003, for filing with the
SEC.
The Committee has appointed Ernst & Young as The Knot's independent auditors
for the fiscal year ending December 31, 2004.
Audit Committee
Ann Winblad (Chair)
Joseph Brehob
Randy Ronning
8
OWNERSHIP OF SECURITIES
The following table sets forth certain information regarding the beneficial
ownership of The Knot's Common Stock as of March 31, 2004 by (i) each person or
group of affiliated persons known by us to beneficially own more than five
percent of our Common Stock, (ii) each of our directors and nominees for
director, (iii) our named executive officers and (iv) all of our directors and
executive officers as a group.
AMOUNT AND NATURE
OF BENEFICIAL
OWNERSHIP
OF COMMON STOCK(2)
-------------------
NAME AND ADDRESS OF BENFICIAL OWNER(1) NUMBER PERCENT
-------------------------------------- ------ -------
David Liu(3)................................................ 840,314 3.8%
Sandra Stiles(4)............................................ 508,736 2.3
Richard Szefc(5)............................................ 529,569 2.4
Joseph Brehob(6)............................................ 25,000 *
Randy Ronning(7)............................................ 25,000 *
Ann Winblad(8).............................................. 2,565,000 11.7
Hummer Winblad Venture Partners and affiliates(8)........... 2,565,000 11.7
Liberty Media Corporation and affiliates(9)................. 4,050,590 18.4
The May Department Stores Company and affiliate(10)......... 3,575,747 16.3
Austin W. Marxe(11)......................................... 2,560,306 11.6
David M. Greenhouse(11)..................................... 2,560,306 11.6
T. Rowe Price Associates, Inc.(12).......................... 1,545,300 7.0
Capital Research and Management Company(13)................. 1,384,100 6.3
Time Warner Inc. and affiliate(14).......................... 1,261,205 5.6
All directors and executive officers as a group (6
persons)(15).............................................. 4,493,619 19.6%
---------
* Less than 1%.
(1) Except as otherwise indicated, (i) the persons named in the table directly
own, and have sole voting and investment power with respect to, all shares
of Common Stock shown as beneficially owned by them, subject to community
property laws, where applicable and (ii) the address of all employee
stockholders listed in the table is 462 Broadway, 6th Floor, New York, New
York 10013. Beneficial ownership is calculated pursuant to Rule 13d-3(d)(1)
under the Securities Exchange Act of 1934, as amended. The addresses of
individual non-employee directors and nominees for election to the Board
are indicated in their corresponding footnotes.
(2) On March 31, 2004, 21,995,987 shares of Common Stock were issued and
outstanding.
(3) Includes 151,112 shares of Common Stock issuable upon the exercise of
presently exercisable options and 14,097 shares of Common Stock issuable
upon the exercise of options exercisable within 60 days.
(4) Includes 204,751 shares of Common Stock issuable upon the exercise of
presently exercisable options and 12,152 shares of Common Stock issuable
upon the exercise of options exercisable within 60 days.
(5) Includes 510,417 shares of Common Stock issuable upon the exercise of
presently exercisable options and 12,152 shares of Common Stock issuable
upon the exercise of options exercisable within 60 days.
(6) Consists of 25,000 shares of Common Stock issuable upon the exercise of
presently exercisable options which, if exercised, include 5,000 shares of
Common Stock subject to repurchase rights by us that do not lapse within 60
days of March 31, 2004. The address of Mr. Brehob is c/o The May Department
Stores Company, 611 Olive Street, St. Louis, Missouri 63101-1799.
(7) Consists of 25,000 shares of Common Stock issuable upon the exercise of
presently exercisable options held of record by Mr. Ronning which, if
exercised, include 5,000 shares of Common Stock
(footnotes continued on next page)
9
(footnotes continued from previous page)
subject to repurchase rights by us that do not lapse within 60 days of
March 31, 2004. Pursuant to a nominee agreement, dated as of July 1, 2001,
between Interactive Technology Holdings, LLC ('ITH') and Mr. Ronning, all
options and shares of Common Stock received by Mr. Ronning in his capacity
as director of The Knot are deemed held for the benefit of ITH. The address
of Mr. Ronning is c/o QVC, Studio Park, 1200 Wilson Drive, West Chester,
Pennsylvania 19380.
(8) The information in this footnote is based upon information set forth in a
Schedule 13G filed with the SEC on February 14, 2000 by certain of the
beneficial owners listed below, and upon certain other information provided
by the beneficial owners to The Knot. Consists of 2,432,000 shares of
Common Stock held of record by Hummer Winblad Venture Partners III, L.P.
('HWVP III'), 128,000 shares of Common Stock held of record by Hummer
Winblad Technology Fund III, L.P. ('HWTF III') and 5,000 shares of Common
Stock issuable upon the exercise of presently exercisable options held of
record by Ms. Winblad. Pursuant to an assignment agreement between Hummer
Winblad Equity Partners III, L.L.C. ('HWEP III') and Ms. Winblad, all
shares of Common Stock received by Ms. Winblad in her capacity as director
of The Knot are beneficially owned by HWEP III. Ms. Winblad, John Hummer
and Mark Gorenberg are the managing members of HWEP III. HWEP III is the
general partner of HWVP III and HWTF III. Ms. Winblad, Mr. Hummer and Mr.
Gorenberg may be deemed to have shared voting and dispositive power with
respect to the shares held of record by HWVP III and HWTF III and the
shares underlying the options held of record by Ms. Winblad for the benefit
of HWEP III; however, each of them disclaims beneficial ownership of all
shares, except to the extent of their pecuniary interest in the shares, if
any. The address of Ms. Winblad, Mr. Hummer, Mr. Gorenberg, HWVP III, HWTF
III and HWEP III is 2 South Park, 2nd Floor, San Francisco, California
94107.
(9) The information in this footnote is based upon information set forth in a
Schedule 13D filed with the SEC on October 14, 2003 by Liberty Media
Corporation ('Liberty'), QVC, Inc. ('QVC'), QK Holdings, Inc. ('QK') and
ITH (together, the 'Liberty Entities'). Liberty is the beneficial owner of
approximately 98% of the outstanding common stock of QVC. QK is a wholly
owned subsidiary of QVC and is the managing member of ITH. Includes
4,025,590 shares of Common Stock held of record by ITH. Also includes
25,000 shares of Common Stock issuable upon the exercise of presently
exercisable options held of record by Mr. Ronning for the benefit of ITH
which, if exercised, include 5,000 shares of Common Stock subject to
repurchase rights by us that do not lapse within 60 days of March 31, 2004.
By virtue of the relationship among the Liberty Entities, the Liberty
Entities may be deemed to have shared voting power of the shares of Common
Stock of The Knot held of record by ITH and the options held of record by
Mr. Ronning for the benefit of ITH. Because of its indirect ownership of
QK, the managing member of ITH, Liberty may be deemed to have sole
dispositive power with respect to the shares of Common Stock owned by ITH
and the options held of record by Mr. Ronning for the benefit of ITH. To
the best knowledge of each of the Liberty Entities, none of its executive
officers or directors named on Exhibit 99.1 to the Schedule 13D
beneficially owns any shares of Common Stock of The Knot. The address of
ITH and QK is 3411 Silverside Road, Bancroft Building, Suite 205C,
Wilmington, Delaware 19810. The address of QVC is Studio Park, 1200 Wilson
Drive, West Chester, Pennsylvania 19380. The address of Liberty is 12300
Liberty Boulevard, Englewood, Colorado 80112.
(10) The information in this footnote is based upon information set forth in a
Schedule 13G filed with the SEC on February 28, 2002 by The May Department
Stores Company. Consists of 3,575,747 shares of Common Stock held of record
by May Bridal Corporation, an affiliate of The May Department Stores
Company. The address of May Bridal Corporation and The May Department
Stores Company is 611 Olive Street, St. Louis, Missouri 63101-1799.
(11) The information in this footnote is based upon information set forth in a
Schedule 13G/A filed with the SEC on February 13, 2004 by Austin W. Marxe
('Marxe') and David M. Greenhouse ('Greenhouse'), who are the controlling
principals of AWM Investment Company, Inc. ('AWM'), the general partner of
and investment adviser to Special Situations Cayman Fund, L.P.
(footnotes continued on next page)
10
(footnotes continued from previous page)
('Cayman'). AWM also serves as the general partner of MGP Advisers Limited
Partnership ('MGP'), the general partner of and investment adviser to
Special Situations Fund III, L.P. ('SSF3'). Marxe and Greenhouse are also
members of SST Advisers, L.L.C. ('SSTA'), the general partner of and
investment adviser to Special Situations Technology Fund, L.P.
('Technology') and Special Situations Technology Fund II, L.P. ('Technology
II'). The Schedule 13G/A states that 2,560,306 shares are beneficially
owned by Marxe and Greenhouse, of which 573,769 shares are owned by Cayman,
1,732,150 shares are owned by SSF3, 41,631 shares are owned by Technology
and 212,756 shares are owned by Technology II. The Schedule 13G/A further
states that Marxe and Greenhouse have shared power to vote and the shared
power to dispose of all 2,560,306 shares. The address of Marxe and
Greenhouse is 153 East 53rd Street, 55th Floor, New York, New York 10022.
(12) The information in this footnote is based upon information set forth in a
Schedule 13G filed with the SEC on February 10, 2004 by T. Rowe Price
Associates, Inc. ('Price Associates') and T. Rowe Price New Horizons Fund
('TRPNHF'). Consists of 1,545,300 shares owned by various individual and
institutional investors for which Price Associates serves as investment
adviser with power to direct investments and/or sole power to vote the
securities. Price Associates may be deemed to be a beneficial owner of such
securities; however, Price Associates expressly disclaims that it is, in
fact, the beneficial owner of such securities. The Schedule 13G further
states that Price Associates has the sole power to vote 73,800 shares and
the sole power to dispose of all 1,545,300 shares and that TRPNHF has sole
power to vote 1,350,000 shares. The address of Price Associates and TRPNHF
is 100 E. Pratt Street, Baltimore, Maryland 21202.
(13) The information in this footnote is based upon information set forth in a
Schedule 13G filed with the SEC on February 13, 2004 by Capital Research
and Management Company ('Capital'). Consists of 1,384,100 shares owned by
various investment companies for which Capital serves as investment advisor
with sole power to dispose of all 1,384,100 shares. Capital may be deemed
to be a beneficial owner of such securities; however, Capital expressly
disclaims that it is, in fact, the beneficial owner of such securities. The
address of Capital is 333 South Hope Street, Los Angeles, California 90071.
(14) The information in this footnote is based, in part, upon information set
forth in a Schedule 13G/A filed with the SEC on February 12, 2004 by Time
Warner Inc. Consists of 800,000 shares of Common Stock and 461,205 shares
presently issuable upon exercise of a warrant held of record by America
Online, Inc., a wholly owned subsidiary of Time Warner Inc. The warrant is
subject to certain anti-dilution provisions. The address of Time Warner
Inc. is 75 Rockefeller Plaza, New York, New York 10019.
(15) Includes 949,681 shares of Common Stock issuable upon the exercise of
options which are currently vested or which vest within 60 days of March
31, 2004, and 10,000 shares of Common Stock issuable upon the exercise of
presently exercisable options which, if exercised, are subject to
repurchase rights by us that do not lapse within 60 days.
MANAGEMENT
The following table sets forth, as of March 31, 2004, the name, age and
position of each of our executive officers and other key employees.
NAME AGE POSITION
---- --- --------
David Liu.......................................... 38 President, Chief Executive Officer and
Chairman of the Board
Sandra Stiles...................................... 54 Chief Operating Officer, Assistant
Secretary and Director
Richard Szefc...................................... 54 Chief Financial Officer, Treasurer and
Secretary
Carley Roney....................................... 35 Editor-in-Chief
11
David Liu is our President, Chief Executive Officer and Chairman of the
Board. See 'Business Experience of Continuing Director with Term Expiring in
2005' for a discussion of Mr. Liu's business experience. Mr. Liu is married to
Ms. Roney.
Sandra Stiles is our Chief Operating Officer and a director. See 'Business
Experience of Nominees for Election to Terms Expiring in 2007' for a discussion
of Ms. Stiles' business experience.
Richard Szefc has served as our Chief Financial Officer since May 1999 and
our Treasurer and Secretary since September 1999. From July 1998 to May 1999,
Mr. Szefc was an independent consultant. From April 1990 to June 1998, Mr. Szefc
served as Executive Vice President and Chief Financial Officer of Random House.
Mr. Szefc received a B.S. in economics from the University of Pennsylvania.
Carley Roney is a co-founder of The Knot. She has served as our
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.
EXECUTIVE COMPENSATION AND OTHER INFORMATION
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION
The following table sets forth information concerning the aggregate
compensation paid to our Chief Executive Officer and each of our other executive
officers (the 'Named Executive Officers') for services rendered in all
capacities to us for the years ended December 31, 2003, 2002 and 2001:
SUMMARY COMPENSATION TABLE
LONG TERM
COMPENSATION
AWARDS
ANNUAL ------------
COMPENSATION(1) SECURITIES
----------------- UNDERLYING
SALARY BONUS OPTIONS
NAME AND PRINCIPAL POSITION YEAR ($) ($) (#)
--------------------------- ---- --- --- ---
David Liu ............................................. 2003 294,166 144,820 160,000
President, Chief Executive Officer and Chairman of 2002 262,500 103,000 --
the Board 2001 250,000 75,000 41,667
Sandra Stiles ......................................... 2003 266,667 139,187
Chief Operating Officer, Assistant Secretary and 2002 247,500 86,000 125,000
Director 2001 235,000 75,000 -- 41,667
Richard Szefc ......................................... 2003 266,667 139,187 125,000
Chief Financial Officer, Treasurer and Secretary 2002 247,500 86,000 --
2001 235,000 75,000 125,000
---------
(1) The aggregate amount of perquisites and other personal benefits did not
exceed the lesser of $50,000 or 10% of the total annual salary and bonus
reported for each Named Executive Officer and has therefore been omitted.
STOCK OPTIONS
The following table sets forth information concerning stock option grants
made to each of the Named Executive Officers during the year ended December 31,
2003. We did not grant any stock appreciation rights to the Named Executive
Officers during the year ended December 31, 2003.
12
OPTION GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS
------------------------------------------------------
PERCENT OF POTENTIAL REALIZABLE
TOTAL OPTIONS/ VALUE AT ASSUMED
NUMBER OF SARS ANNUAL RATE OF STOCK
SECURITIES GRANTED TO EXERCISE PRICE APPRECIATION FOR
UNDERLYING EMPLOYEES IN OR BASE OPTION TERM(4)
OPTIONS/SARS FISCAL PRICE EXPIRATION -----------------------
NAME GRANTED(1) YEAR(%)(2) ($/SH)(3) DATE 5%($) 10%($)
---- ---------- ---------- --------- ---- ----- ------
David Liu(5)................ 160,000 16.2% 2.80 06/30/13 281,745 713,997
Sandra Stiles(5)............ 125,000 12.6% 2.80 06/30/13 220,113 557,810
Richard Szefc(5)............ 125,000 12.6% 2.80 06/30/13 220,113 557,810
---------
(1) All options were granted under our 1999 Stock Incentive Plan. Unless
otherwise indicated, each option vests and becomes exercisable in a series
of 36 equal monthly installments.
(2) We granted options to acquire an aggregate of 990,200 shares of Common Stock
to our officers and employees in 2003.
(3) The exercise price may be paid in cash or in shares of Common Stock valued
at fair market value on the exercise date or a combination of cash or shares
or any other form of consideration approved by the Board.
(4) There is no assurance provided to any Named Executive Officer or any other
holder of our securities that the actual stock price appreciation over the
10-year option term will be at the assumed 5% or 10% levels or at any other
defined level. Unless the market price of the Common Stock does in fact
appreciate over the option term, no value will be realized from the option
grants made to the Named Executive Officers.
(5) The fair market value of the underlying shares of Common Stock on June 30,
2003, the date the options were granted, was $2.80 per share.
-------------------
The following table summarizes the exercise of common stock options by the
Named Executive Officers during the year ended December 31, 2003 and the value
of unexercised options held by such officers as of December 31, 2003.
OPTION EXERCISES AND HOLDINGS
NUMBER OF
SECURITIES UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS AT
SHARES VALUE FISCAL YEAR END(#) FISCAL YEAR END($)(2)
ACQUIRED ON REALIZED --------------------------- ---------------------------
NAME EXERCISE(#) ($)(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ------ ----------- ------------- ----------- -------------
David Liu................. 34,722 124,305 129,966 161,979 351,705 247,657
Sandra Stiles............. 200,000 702,917 268,854 132,813 851,094 212,657
Richard Szefc............. -- -- 492,187 132,813 1,392,343 212,657
---------
(1) Value realized is defined as the fair market price of our Common Stock on
the date of exercise less the exercise price, multiplied by the number of
shares underlying the exercised options.
(2) Value is defined as the fair market price of our Common Stock at
December 31, 2003 less the exercise price, multiplied by the number of
shares underlying the specific options. On December 31, 2003, the closing
selling price of a share of our Common Stock on the OTC Bulletin Board was
$4.00.
EMPLOYMENT AGREEMENTS AND CHANGE OF CONTROL ARRANGEMENTS
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.
13
Stiles is entitled to one year's salary plus certain benefits. As of March 31,
2004, Ms. Stiles' annual salary was $270,000.
On May 31, 1999, we entered into an employment contract with Mr. Szefc, our
Chief Financial Officer, which is terminable at any time. In the event of his
termination without cause, Mr. Szefc is entitled to one year's salary plus
certain benefits. As of March 31, 2004, Mr. Szefc's salary was $270,000.
In the event that we are acquired by merger, asset sale or sale of more than
50% of our voting securities by the stockholders:
o All of the options awarded to the Named Executive Officers during the
year ended December 31, 2000 provide that each outstanding option which
is not to be assumed by the successor corporation will automatically
accelerate by a period of 12 months so that the options shall,
immediately prior to the effective date of such change of control, become
exercisable for all of the option shares which would otherwise have
become exercisable during the first 12 months following the effective
date of such change of control as if optionee remained in service with
The Knot throughout such 12-month period and may be exercised for any or
all of those option shares as fully-vested shares of Common Stock.
o All of the options awarded to the Named Executive Officers during the
year ended December 31, 2003 provide that each outstanding option, to the
extent outstanding at that time but not otherwise fully exercisable,
shall immediately prior to the effective date of such change in control
become exercisable as fully-vested shares of Common Stock for the greater
of: (i) all of the option shares which would otherwise have become
exercisable during the first 12 months following the effective date of
the change of control as if optionee remained in service throughout such
12-month period, and (ii) fifty percent (50%) of the option shares for
which the option would otherwise not be exercisable immediately prior to
the effective date of the change in control.
Options awarded to the Named Executive Officers in other years are fully
vested.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee offers this report regarding compensation inblad
for The Knot's Executive Officers and Chief Executive Officer.
General Compensation Policy. The fundamental policy of the Compensation
Committee is to provide The Knot's Executive Officers with competitive
compensation opportunities based upon their contribution to The Knot's
development and financial success and their personal performance. The Committee,
with this objective in mind, recommends to the Board compensation packages for
the Executive Officers designed to retain and attract top quality management and
to encourage them to contribute to the achievement of The Knot's business
objectives. In addition, the Committee attempts to establish compensation
packages that are comparable to the packages received by executives of
comparable businesses through a review of the executive compensation levels of a
comparison group of companies including information compiled from the proxy
statements of these companies. The comparison group is less inclusive than the
indices in the performance graph, which includes a large number of companies.
The Committee believes this smaller group of companies gives a more accurate
indication of the market for executive services in which The Knot competes.
Executive Officers are compensated with a combination of salary and
incentives designed to encourage efforts to achieve both the short-term and
long-term goals of The Knot. The compensation structure attempts to reward both
individual contributions as well as The Knot's overall performance. The
principal factors which the Committee considered with respect to each Executive
Officer's compensation package for fiscal 2003 are summarized below. The
Committee may, however, in its discretion apply entirely different factors in
advising the Chief Executive Officer and the Board with respect to executive
compensation for future years.
14
The basic components of the compensation packages for the Executive Officers
include the following:
o Base Salary
o Annual Incentives
o Long-Term Incentives
Base Salary. The base salary for each Executive Officer is determined on the
basis of the following factors: experience, personal performance, the median
salary levels in effect for similar positions within the comparison group of
companies and internal base salary comparability considerations. The weight
given to each of these factors differs from individual to individual, as the
Committee deems appropriate. Base salaries are generally reviewed on an annual
basis, with adjustments made in accordance with the factors indicated above. In
addition, in reviewing annual adjustments, the Committee takes into account the
Knot's performance in the fiscal year then ended.
Annual Incentives. The incentive compensation of Executive Officers is
closely related to The Knot's performance. A portion of the cash compensation of
Executive Officers consists of contingent compensation. Bonus awards may be
based on, among other things, performance objectives and goals that are tailored
to the responsibilities and functions of key executives. The Committee also may
consider other factors and circumstances that affect specific performance
objectives and goals or otherwise impact The Knot. For 2003, the Committee
approved incentive bonuses to the Executive Officers in the aggregate amount of
$423,000 based on the actual financial performance of The Knot compared to
designated corporate objectives.
Long-Term Incentive Compensation. Long-term incentives are provided through
grants of stock options. The grants are designed to align the interests of each
Executive Officer with those of The Knot's stockholders and provide each
individual with a significant incentive to manage The Knot from the perspective
of an owner with an equity stake in the company. Each option grant allows the
individual to acquire shares of Common Stock at a fixed price per share
(generally, the market price on the grant date) over a specified period of time
(up to ten years). Each option generally becomes exercisable in installments
over periods ranging from 2 to 4 years, contingent upon the Executive Officer's
continued employment with The Knot. Accordingly, the option grant will provide a
return to the Executive Officer only if the Executive Officer remains employed
during the vesting period, and then only if the market price of the underlying
shares appreciates. The Committee considered each executive's level of
responsibility and opportunity to influence The Knot's financial results,
comparable awards made to executives in similar positions within the comparison
group of companies and the number of vested and unvested options held by each
executive at the time of the new grant. As reflected in the summary compensation
table, the Executive Officers were granted an aggregate of 410,000 options
during 2003. These options vest over a period of three years.
CEO Compensation. The plans and policies discussed above were the basis for
the 2003 compensation of the Chief Executive Officer, Mr. David Liu. In advising
the Board with respect to Mr. Liu's compensation, the Committee seeks to achieve
two objectives: (i) establish a level of base salary competitive with that paid
by the comparison group of companies and by those companies with which The Knot
may compete for executive talent and (ii) make a significant percentage of the
total compensation package contingent upon The Knot's financial performance and
stock price appreciation. In accordance with these objectives, Mr. Liu received
a base salary of $294,166 and an incentive bonus of $144,820 for fiscal 2003.
Mr. Liu currently holds a total of 291,945 stock options, of which 140,834 are
unvested as of March 31, 2004. Mr. Liu's incentive bonus for 2003 was based on
the actual financial performance of The Knot compared to designated corporate
objectives.
Compliance with Internal Revenue Code Section 162(m). Section 162(m) of the
Internal Revenue Code, enacted in 1993, generally disallows a tax deduction to
publicly held companies for compensation exceeding $1 million paid to certain of
the corporation's Executive Officers. The limitation applies only to
compensation which is not considered to be performance-based. The
non-performance based compensation paid to the Executive Officers for the 2003
fiscal year did not exceed the $1 million limit per officer, nor is it expected
that the non-performance based compensation to be paid to the Executive Officers
for fiscal year 2004 will exceed that limit. Because it is very unlikely that
the cash compensation
15
payable to any of the Executive Officers in the foreseeable future will approach
the $1 million limit, the Committee has decided at this time not to take any
other action to limit or restructure the elements of cash compensation payable
to the Executive Officers. The Committee will reconsider this decision should
the individual compensation of any Executive Officer ever approach the $1
million level.
Compensation Committee
Randy Ronning
Ann Winblad
STOCK PERFORMANCE GRAPH
The graph below compares the yearly percentage change in The Knot's
cumulative total stockholder return on the Common Stock with the cumulative
total return of (i) the Nasdaq Stock Market-United States Index and (ii) the
Russell 2000 Index. We compare the total return on the Common Stock with the
Russell 2000 Index because we do not believe we can reasonably identify a peer
group consisting of issuers similar to The Knot for purposes of the stock
performance comparison. Although the graph would normally be for a five-year
period, the Common Stock began trading publicly on December 2, 1999 and, as a
result, the following chart commences as of such date.
COMPARISON OF 37 MONTH CUMULATIVE TOTAL RETURN*
AMONG THE KNOT INC., THE NASDAQ STOCK MARKET (U.S.) INDEX
AND THE RUSSELL 2000 INDEX
[GRAPH]
NASDAQ
STOCK MAKET RUSSELL
KNOT INC. (U.S.) 2000
-------- ----------- -------
12/1/99 100 100 100
12/99 84.38 121.35 111.41
12/00 9.38 73.19 108.05
12/01 6 58.09 110.73
12/02 8.1 40.16 88.05
12/03 40 60.05 129.66
---------
* $100 invested on 12/2/99 in stock or index -- including reinvestment of
dividends for the indexes. No cash dividends have been declared on The Knot's
Common Stock. Stockholder returns over the indicated period should not be
considered indicative of future stockholder returns.
Notwithstanding anything to the contrary set forth in any of The Knot's
previous or future filings under the Securities Act of 1933, as amended, or the
Securities Exchange Act of 1934, as amended, that might incorporate by reference
this proxy statement or future filings made by The Knot under those statutes,
the Compensation Committee Report, the Audit Committee Report, reference to the
independence of the Audit Committee members and the Stock Performance Graph are
not deemed filed with the Securities and Exchange Commission, are not deemed
soliciting material and shall not be deemed incorporated by reference into any
of those prior filings or into any future filings made by The Knot under those
statutes, except to the extent that The Knot specifically incorporates such
information by reference into a previous or future filing, or specifically
requests that such information be treated as soliciting material, in each case
under those statutes.
16
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
RELATIONSHIP WITH QVC
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 Series B Preferred Stock converted into Common Stock on a one-for-one basis
and the warrant became exercisable upon our initial public offering of Common
Stock. The warrant expired unexercised on December 2, 2001. The Common Stock has
been assigned to QVC Interactive Holdings, LLC (now known as Interactive
Technology 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. Our services agreement with
QVC expired in December 2003; however, pursuant to the agreement, we had the
option to continue to operate under the services agreement for an additional l80
days, which we are currently doing. For the years ended December 31, 2003, 2002
and 2001, we purchased merchandise and incurred warehousing, fulfillment and
distribution and billing costs under the agreement in the aggregate amounts of
$123,000, $118,000 and $128,000, respectively. Randy Ronning, a member of our
Board, has been the Executive Vice President of Affiliate Relations, iQVC and
New Business Development of QVC since January 2001.
RELATIONSHIP WITH MAY DEPARTMENT STORES COMPANY
On February 19, 2002, we entered into a Common Stock Purchase Agreement (the
'Agreement') with May Bridal Corporation ('May Bridal'), an affiliate of May
Department Stores Company ('May'), pursuant to which we sold 3,575,747 shares of
Common Stock to May Bridal for $5,000,000 in cash. The agreement provides that
if we propose to sell, transfer or otherwise issue any Common or Preferred Stock
or other interest convertible into Common Stock ('equity interests') to any
third party (other than shares previously reserved or certain shares which shall
be reserved for future issuance pursuant to Stock Incentive Plans approved by
the Board of Directors or stockholders of The Knot) and which transaction would
dilute May Bridal's interest in the Common Stock or voting power of The Knot
prior to the transaction by more than one percentage point, then we shall offer
May Bridal the right to acquire a similar equity interest, on the same terms and
conditions as offered to the third party, in such amount as to preserve its
percentage interest in the Common Stock and voting power of The Knot. If we
propose to acquire any equity interest from a third party, which transaction
would result in May Bridal's interest in the Common Stock or voting power of The
Knot exceeding 20%, then we shall offer to acquire equity interests from May
Bridal on the same terms as offered to the third party, to permit May Bridal to
own less than 20% of the Common Stock or voting power of The Knot after the
transaction. In addition, under an amendment to the Agreement dated
November 11, 2003, so long as May Bridal owns more than 10% of the Common Stock
or voting power of The Knot, May Bridal shall have the right to designate one
member of our Board of Directors and to nominate and submit such person for
election by the stockholders of The Knot. Joseph Brehob, a member of our Board
designated by May Bridal, has been the Vice President of Internet Marketing of
May Department Stores Company since January 2001. May Bridal waived its right to
acquire equity interests in connection with our sale of Common Stock in November
2003 (2,800,000 shares), to two institutional investor groups for gross proceeds
of $10,500,000.
On February 19, 2002, we entered into a Media Services Agreement with May
pursuant to which The Knot and May will develop an integrated marketing program
to promote and support May department store companies which offer wedding
registry services. The Media Services Agreement, as amended, has an initial term
of three years, which may be extended under certain conditions, and may be
renewed by May for up to three additional one-year terms. For the years ended
December 31, 2003 and 2002, we recorded revenues under the Media Services
Agreement in the amounts of $253,000 and $151,000, respectively.
17
MISCELLANEOUS
The Certificate of Incorporation eliminates, subject to certain exceptions,
directors' personal liability to The Knot or our stockholders for monetary
damages for breaches of fiduciary duties. The Certificate of Incorporation does
not, however, eliminate or limit the personal liability of a director for
(i) any breach of the director's duty of loyalty to The Knot or our
stockholders, (ii) acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) unlawful payments of
dividends or unlawful stock repurchases or redemptions as provided in Section
174 of the Delaware General Corporation Law or (iv) for any transaction from
which the director derived an improper personal benefit.
Our Amended and Restated Bylaws provide that we shall indemnify our
directors and executive officers to the fullest extent permitted under the
Delaware General Corporation Law, and may indemnify our other officers,
employees and other agents as set forth in the Delaware General Corporation Law.
In addition, we have entered into indemnification agreements with our directors
and officers. The indemnification agreements contain provisions that require us,
among other things, to indemnify our directors and executive officers against
certain liabilities (other than liabilities arising from intentional or knowing
and culpable violations of law) that may arise by reason of their status or
service as our directors or executive officers or other entities to which they
provide service at our request and to advance expenses they may incur as a
result of any proceeding against them as to which they could be indemnified. We
believe that these provisions and agreements are necessary to attract and retain
qualified directors and officers. We have obtained an insurance policy covering
our directors and officers for claims that such directors and officers may
otherwise be required to pay or for which we are required to indemnify them,
subject to certain exclusions.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
The Knot's officers and directors, and persons who own more than 10% of a
registered class of our equity securities, to file reports of ownership and
changes in ownership with the SEC. Officers, directors and greater than 10%
stockholders are required by SEC regulations to furnish us with copies of all
reports they file pursuant to Section 16(a).
Based solely on a review of (i) the copies of such reports furnished to The
Knot and (ii) the written representations received from one or more of such
reporting persons or entities that no annual Form 5 reports were required to be
filed by them for 2003, we believe that, during 2003, all Section 16(a) filing
requirements applicable to our officers, directors and greater than 10%
stockholders were satisfied in a timely manner, except that Interactive
Technology Holdings, LLC filed a Form 4 on May 22, 2003 and Hummer Winblad
Equity Partners III, L.L.C. filed a Form 5 on February 11, 2004 disclosing
indirect beneficial ownership with respect to options granted to Randy Ronning
and Ann Winblad, respectively, our directors, on May 14, 2003 (which
transactions were required to have been reported with two business days of such
date).
The following forms relating to transactions in prior fiscal years were not
filed timely by the individuals or entities listed, but instead were filed
during 2003: David Liu -- Form 5 for 2002 reporting one open-market sale by his
wife, Form 5 for 2001 reporting one option grant for himself and two option
grants for his wife, Form 5 for 2000 reporting one option grant; Sandra
Stiles -- Form 5 for 2001 reporting one option grant, Form 5 for 2000 reporting
one option grant; Richard Szefc -- Form 5 for 2001 reporting one option grant,
Form 5 for 2000 reporting one option grant; Joseph Brehob -- Form 5 for 2002
reporting two option grants; Randy Ronning -- Form 5 for 2002 reporting one
option grant; Interactive Technology Holdings, LLC -- Form 4 for July 2001
reporting indirect beneficial ownership with respect to an option grant to Randy
Ronning, Form 5 for 2002 reporting indirect beneficial ownership with respect to
an option grant to Randy Ronning.
DEADLINE FOR STOCKHOLDER PROPOSALS
Stockholder proposals that are intended to be presented at our annual
meeting of stockholders to be held in 2005 must be received by us no later than
December 11, 2004, if such proposals are to be
18
included in the proxy statement and related proxy materials relating to that
meeting pursuant to Rule 14a-8 of the Securities Exchange Act of 1934, as
amended. In addition, under The Knot's bylaws, any proposal for consideration at
our annual meeting of stockholders to be held in 2005 submitted by a stockholder
other than pursuant to Rule 14a-8 will be considered timely if it is received by
The Knot's Secretary at our principal executive offices between the close of
business on January 13, 2005 and the close of business on February 12, 2005, and
is otherwise in compliance with the requirements set forth in The Knot's bylaws,
which can be accessed in the 'Investor Relations -- Corporate Governance'
section of The Knot's website at www.theknot.com. The proxy solicited by the
Board of Directors for the annual meeting of stockholders to be held in 2005
will confer discretionary authority to vote as the proxy holders deem advisable
on any stockholder proposal which is considered untimely.
ANNUAL REPORT
The Knot filed an Annual Report on Form 10-K for the fiscal year ended
December 31, 2003 with the Securities and Exchange Commission on March 19, 2004.
Stockholders may obtain a copy of this report, without charge, upon written
request, by writing to Investor Relations at our executive offices, which are
located at 462 Broadway, 6th Floor, New York, New York 10013. The report is also
available through our website at www.theknot.com.
A copy of The Knot's Annual Report for the fiscal year ended December 31,
2003 is being mailed concurrently with this proxy statement to all stockholders
entitled to notice of and to vote at the Annual Meeting. The Annual Report is
not incorporated into this proxy statement and is not considered proxy
solicitation material.
OTHER BUSINESS
The Board knows of no other business that will be presented for
consideration at the Annual Meeting. If other matters are properly brought
before the Annual Meeting, however, it is the intention of the persons named in
the accompanying proxy to vote the shares represented thereby on such matters in
accordance with their best judgment. Discretionary authority with respect to
such other matters is granted by the execution of the accompanying proxy.
By Order of the Board of Directors
RICHARD SZEFC
RICHARD SZEFC
Chief Financial Officer, Treasurer and Secretary
Dated: April 12, 2004
19
0
PROXY CARD
THE KNOT, INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints David Liu and Richard Szefc, jointly and
severally, as proxies, with full power of substitution and resubstitution, to
vote all shares of stock which the undersigned is entitled to vote at the Annual
Meeting of Stockholders of THE KNOT, INC. to be held on Thursday, May 13, 2004,
or at any postponement or adjournment thereof, as specified on the reverse, and
to vote in his or their discretion on such other business as may properly come
before the Annual Meeting or at any postponement or adjournment thereof.
(Continued and to be signed on the reverse side)
ANNUAL MEETING OF STOCKHOLDERS OF
THE KNOT, INC.
May 13, 2004
Please date, sign and mail
your proxy card in the
envelope provided as soon
as possible.
Please detach along perforated line and mail in the envelope provided.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE ELECTION OF THE DIRECTOR
NOMINEES AND "FOR" PROPOSAL 2. PLEASE SIGN, DATE AND RETURN PROMPTLY IN THE
ENCLOSED ENVELOPE. PLEASE MARK YOUR VOTE IN BLUE OR BLACK INK AS SHOWN HERE [x]
1. Election of Directors: The nominees listed are standing for re-election to
the Board for the term to expire in 2007.
NOMINEES:
[ ] FOR ALL NOMINEES O Joseph Brehob
O Sandra Stiles
[ ] WITHHOLD AUTHORITY
FOR ALL NOMINEES
[ ] FOR ALL EXCEPT
(See instructions below)
INSTRUCTION: To withhold authority to vote for any individual nominee(s), mark
"FOR ALL EXCEPT" and fill in the circle next to each nominee you
wish to withhold, as shown here:
To change the address on your account, please check the box at right and
indicate your new address in the address space above. Please note that changes
to the registered name(s) on the account may not be submitted via this
method. [ ]
2. RATIFICATION OF INDEPENDENT AUDITORS: To ratify the selection of Ernst &
Young LLP as independent auditors for the fiscal year ending December 31,
2004
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
UNLESS OTHERWISE SPECIFIED BY THE UNDERSIGNED, THIS PROXY WILL BE VOTED FOR
PROPOSALS 1 AND 2 AND WILL BE VOTED BY THE PROXYHOLDERS AT THEIR DISCRETION AS
TO ANY OTHER MATTERS PROPERLY TRANSACTED AT THE MEETING OR AT ANY POSTPONEMENT
OR ADJOURNMENT THEREOF. TO VOTE IN ACCORDANCE WITH THE BOARD OF DIRECTORS'
RECOMMENDATIONS, JUST SIGN BELOW -- NO BOXES NEED BE CHECKED.
CHECK HERE IF YOU PLAN TO ATTEND THE MEETING. [ ]
Signature of Stockholder Date: Signature of Stockholder Date:
------------------------ --------- -------------- -------------
Note: Please sign exactly as your name or names appear on this Proxy. When
shares are held jointly, each holder should sign. When signing as
executor, administrator, attorney, trustee or guardian, please give
full title as such. If the signer is a corporation, please sign full
corporate name by duly authorized officer, giving full title as such.
If signer is a partnership, please sign in partnership name by
authorized person.