<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 16, 1998
REGISTRATION NO. 333-60837.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
AMENDMENT NO. 2 TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
EARTHWEB INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
---------------
DELAWARE 7310 13-3899472
(STATE OR OTHER (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
JURISDICTION OF CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
INCORPORATION OR
ORGANIZATION)
3 PARK AVENUE
NEW YORK, NEW YORK 10016
(212) 725-6550
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
JACK D. HIDARY
PRESIDENT AND CHIEF EXECUTIVE OFFICER
EARTHWEB INC.
3 PARK AVENUE
NEW YORK, NEW YORK 10016
(212) 725-6550
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
---------------
WITH COPIES SENT TO:
JOSEPH W. BARTLETT, ESQ. WINTHROP B. CONRAD, JR., ESQ.
MORRISON & FOERSTER LLP DAVIS POLK & WARDWELL
1290 AVENUE OF THE AMERICAS 450 LEXINGTON AVENUE
NEW YORK, NEW YORK 10104-0012 NEW YORK, NEW YORK 10017
(212) 468-8000 (212) 450-4000
---------------
APPROXIMATE DATE OF COMMENCEMENT OF THE PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
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
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
PROPOSED
PROPOSED MAXIMUM
MAXIMUM AGGREGATE
TITLE OF EACH CLASS OF SECURITIES TO AMOUNT TO BE OFFERING PRICE OFFERING AMOUNT OF
BE REGISTERED REGISTERED(1) PER SHARE(2) PRICE(1)(2) REGISTRATION FEE(3)
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $.01 par value 2,415,000 $14.00 $33,810,000 $10,177.50
- --------------------------------------------------------------------------------------------------
</TABLE>
(1) Includes shares of Common Stock which the Underwriters have the right to
purchase upon exercise of the over-allotment option.
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(o) under the Securities Act of 1933.
(3) Previously paid.
---------------
THE REGISTRANT HEREBY AMENDS THE REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THE REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+ +
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
PROSPECTUS Subject to Completion
Dated October 16, 1998
2,100,000 Shares
[LOGO OF EARTHWEB INC. APPEARS HERE]
EARTHWEB INC.
Common Stock
(par value, $0.01 per share)
The shares of Common Stock offered hereby are being sold by EarthWeb Inc.
("EarthWeb" or the "Company"). Prior to this offering (the "Offering"), there
has been no public market for the Common Stock. It is currently estimated that
the initial public offering price will be between $12.00 and $14.00 per share.
See "Underwriting" for a discussion of the factors to be considered in
determining the initial public offering price.
The Company has filed an application to qualify the Common Stock for quotation
on the Nasdaq National Market ("Nasdaq") under the symbol "EWBX."
The Underwriters have reserved for sale, at the initial public offering price,
shares of Common Stock for certain directors, officers, employees, friends and
family of the Company who have expressed an interest in purchasing such shares
of Common Stock in the Offering. See "Underwriting." Such persons are expected
to purchase, in the aggregate, not more than 5% of the Common Stock offered in
the Offering.
SEE "RISK FACTORS" BEGINNING ON PAGE 7 FOR CERTAIN INFORMATION THAT SHOULD BE
CONSIDERED BY PROSPECTIVE INVESTORS.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
<TABLE>
- --------------------------------------------------------------
<CAPTION>
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNT (1) COMPANY (2)
- --------------------------------------------------------------
<S> <C> <C> <C>
Per Share $ $ $
- --------------------------------------------------------------
Total (3) $ $ $
- --------------------------------------------------------------
</TABLE>
(1)The Company and the Selling Stockholders have agreed to indemnify the
several Underwriters against certain liabilities, including liabilities under
the Securities Act of 1933, as amended (the "Securities Act"). See
"Underwriting."
(2)Before deducting expenses of the Offering payable by the Company estimated
at $ .
(3)The Selling Stockholders have granted the Underwriters an option,
exercisable within 30 days after the date of this Prospectus, to purchase up to
an additional 315,000 shares of Common Stock on the same terms and conditions
as set forth above, solely to cover over-allotments, if any. If such over-
allotment option is exercised in full, the total Price to Public and
Underwriting Discount will be $ and $ , respectively, and the proceeds to
the Selling Stockholders will be $ . See "Underwriting" and "Principal and
Selling Stockholders."
The shares of Common Stock are offered by the Underwriters subject to prior
sale, when, as and if delivered to and accepted by the Underwriters, and
subject to approval of certain legal matters by Davis Polk & Wardwell, counsel
for the Underwriters. It is expected that delivery of the shares of Common
Stock will be made against payment therefor on or about , 1998, at the
offices of J.P. Morgan Securities Inc., 60 Wall Street, New York, New York.
J.P. MORGAN & CO.
BEAR, STEARNS & CO. INC.
VOLPE BROWN WHELAN & COMPANY
WIT CAPITAL CORPORATION
as e-Manager
, 1998
<PAGE>
[INSIDE FRONT COVER]
[GRAPHIC DEPICTING EARTHWEB'S ONLINE SERVICE MODEL, AND THE FOLLOWING TEXTUAL
LANGUAGE: "WELCOME TO EARTHWEB INC. EARTHWEB INC. IS THE LEADING PROVIDER OF
INTERNET-BASED ONLINE SERVICES TO THE INFORMATION TECHNOLOGY COMMUNITY
WORLDWIDE. THE COMPANY'S INTEGRATED BUSINESS-TO-BUSINESS ONLINE SERVICES
ADDRESS THE NEEDS OF IT PROFESSIONALS FOR CONTENT, COMMUNITY AND COMMERCE."]
[GRAPHIC DEPICTING SAMPLE EARTHWEB ONLINE SERVICES PAGE, AND ITS RELATIONSHIP
TO EARTHWEB'S OFFERINGS, IT PROFESSIONAL BENEFITS AND VENDOR BENEFITS]
[GATEFOLD--LEFT SIDE]
[GRAPHIC DEPICTING SAMPLE PAGES FROM EARTHWEB'S ONLINE OFFERINGS SUPERIMPOSED
ON THE EARTHWEB LOGO AND THE FOLLOWING TEXTUAL LANGUAGE: "EARTHWEB'S ONLINE
SERVICES ADDRESS THE NEEDS OF IT PROFESSIONALS ACROSS VARIOUS SEGMENTS OF THE
IT INDUSTRY."]
[GATEFOLD--RIGHT SIDE]
[GRAPHIC WITH LOGOS OF EARTHWEB'S ADVERTISERS AND THE FOLLOWING TEXTUAL
LANGUAGE: "OUR ADVERTISERS"]
[GRAPHIC DEPICTING SAMPLE PAGES FROM EARTHWEB'S ONLINE OFFERINGS]
[GRAPHIC WITH LOGOS OF EARTHWEB'S BUSINESS PARTNERS AND THE FOLLOWING TEXTUAL
LANGUAGE:"OUR BUSINESS PARTNERS"]
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS THAT
STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK.
SPECIFICALLY, THE UNDERWRITERS MAY OVER-ALLOT IN CONNECTION WITH THE OFFERING
AND MAY BID FOR, AND PURCHASE SHARES OF THE COMMON STOCK IN THE OPEN MARKET.
FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
2
<PAGE>
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION IN CONNECTION WITH THE OFFERING OTHER
THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY OR ANY OF THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE
AN OFFER TO SELL OR SOLICITATION OF ANY OFFER TO BUY BY ANYONE IN ANY
JURISDICTION IN WHICH SUCH OFFER TO SELL OR SOLICITATION IS NOT AUTHORIZED, OR
IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO
SO, OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION.
NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER
ANY CIRCUMSTANCES CREATE ANY IMPLICATION THAT THE INFORMATION HEREIN IS CORRECT
AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF OR THAT THERE HAS BEEN NO CHANGE
IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Prospectus Summary..................... 4
Risk Factors........................... 7
Use of Proceeds........................ 16
Dividend Policy........................ 16
Capitalization......................... 17
Dilution............................... 18
Selected Financial Data................ 19
Management's Discussion and Analysis of
Financial Condition and Results of
Operations............................ 21
Business............................... 27
</TABLE>
<TABLE>
<CAPTION>
PAGE
<S> <C>
Management........................... 35
Principal and Selling Stockholders... 40
Certain Transactions................. 42
Description of Capital Stock......... 43
Shares Eligible for Future Sale...... 45
Underwriting......................... 47
Legal Matters........................ 49
Experts.............................. 49
Available Information................ 49
Index to Financial Statements........ F-1
</TABLE>
UNTIL , 1998 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
EFFECTING TRANSACTIONS IN THE COMMON STOCK OFFERED HEREBY, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
---------------
This Prospectus contains various data related to the number of Internet users,
the size of Internet commerce, the worldwide market for information technology
products and services, the size of business-to-business Internet advertising
and the size of the consumer related Internet advertising, all of which have
been included in the studies prepared by the Internet market research firms of
International Data Corporation, Forrester Research and Jupiter Communications.
Such market data includes projections that are based on a number of
assumptions. The assumptions include the following: (i) no catastrophic failure
of the Internet; (ii) the worldwide economy will resume its expansion; (iii)
Internet security will be adequately addressed; (iv) the number of people
online and the total number of hours spent online will increase significantly
over the next five years; (v) the use of the Internet will increase
significantly in major foreign countries and some of such countries will adopt
the U.S. style of advertising on the Internet; (vi) media advertising will
continue to grow in all categories and online advertising will comprise an
increased percentage of all media advertising; (vii) the value of online
advertising dollars spent per online user hour will increase; (ix) non-
technology industry Internet advertising will increase; (x) the download speed
of content will increase dramatically; and (xi) a proliferation of Internet
access devices other than the PC (e.g., PC/television sets). If any one or more
of the foregoing assumptions turns out to be incorrect, the projections based
on such assumptions may be materially different from actual results. There can
be no assurance that the actual size of the Internet-related markets and
products will grow over the next three to four years at the rates projected by
International Data Corporation, Forrester Research or Jupiter Communications,
or at all, and lack of growth at such projected rates may have a material
adverse effect on the Company's business, results of operations and financial
condition.
3
<PAGE>
PROSPECTUS SUMMARY
The following summary should be read in conjunction with, and is qualified in
its entirety by, the more detailed information and financial statements
(including the notes thereto) appearing elsewhere in this Prospectus. Unless
otherwise indicated, all information in this Prospectus assumes (i) the
conversion (the "Preferred Stock Conversion") of 653,111 shares of the
Company's Series A Convertible Preferred Stock, par value $.01 per share
("Series A Preferred Stock") into 1,273,566 shares of Common Stock and 598,086
shares of the Company's Series B Convertible Preferred Stock, par value $.01
per share ("Series B Preferred Stock") (collectively, the "Preferred Stock")
into 1,166,267 shares of Common Stock, (ii) a 0.65 for 1.00 reverse stock split
(the "Reverse Stock Split") of the Company's Common Stock to be effected prior
to the effectiveness of the Registration Statement of which this Prospectus
forms a part, and (iii) no exercise of the over-allotment option for 315,000
shares of Common Stock granted to the Underwriters by certain stockholders of
the Company. See "Underwriting."
THE COMPANY
EarthWeb Inc. ("EarthWeb" or the "Company") is the leading provider of
Internet-based online services to the information technology ("IT") community
worldwide. The Company's integrated business-to-business online services
address the needs of IT professionals for content, community and commerce.
EarthWeb's content offerings include a wide range of technical materials, such
as resource directories, tutorials and a reference library, which enhance the
ability of IT professionals to perform their job functions. Its community
areas, such as bulletin boards and question and answer services, allow users
to help one another solve technical problems and share information. Its
commerce services provide a single online source for IT professionals to
purchase specialized software and other products. EarthWeb's online services
also offer a channel through which advertisers and vendors can efficiently and
effectively target what the Company believes to be the largest aggregation of
IT professionals worldwide. As a global intermediary for IT professionals,
advertisers and vendors, EarthWeb is positioned as a trusted third party that
offers an integrated environment where these constituencies can share
information, interact with one another and transact business. EarthWeb believes
that none of the companies which it considers its competitors offer the depth
and range of online services provided by the Company.
EarthWeb's online services address the needs of IT professionals across various
segments of the IT industry. EarthWeb's flagship service, developer.com,
focuses primarily on the software development and Internet segments.
Developer.com features a vast collection of online resources, including the
full text of more than 150 technical books, over 300 exclusive technical
articles, over 375 proprietary tutorials, and access to over 150,000 technical
resources. EarthWeb has also obtained the online rights to over 3,000
additional technical books that are expected to be added to its online
reference library. Developer.com's Gamelan directory is the industry-recognized
site for Java resources. The Company recently acquired datamation.com
("Datamation"), a leading resource for IT enterprise managers providing case
studies, technical articles and technology assessment tools, substantially all
of which are proprietary assets of the Company. EarthWeb's online services also
include intranetjournal.com, a site for intranet managers, javascripts.com, a
resource for JavaScript developers, and jars.com, a site providing ratings and
reviews of Java and other code. EarthWeb's unique blend of online services
currently attracts an average of over 1.4 million users a month to its online
services and the email version of EarthWeb's Journal, featuring highlights from
the Company's online services, currently has over 305,000 subscribers.
IT professionals have become more specialized and have grown in number as the
pace and complexity of technological change has increased. IT professionals
today play a central role in many organizations because their ability to deploy
and integrate new information technologies is essential to executing business
strategy and maintaining competitiveness. Organizations are increasingly
adopting technologies such as client/server architectures, data warehousing,
Internet/intranet applications and object-oriented software development. These
and other technologies have continued to fuel the growth in the worldwide
market for IT products and services, which is forecasted to grow from an
estimated $717 billion in 1997 to $1.1 trillion in 2001, according to
International Data Corporation ("IDC"). IT spending in 1997 in North America,
Western Europe and Japan is estimated by IDC to be 41%, 28% and 14%,
respectively, of total global IT spending. EarthWeb believes, based on industry
estimates, that the number of IT professionals worldwide is approximately 15
million and will continue to grow.
EarthWeb leverages the interactive nature of the Internet to serve as an
intermediary between IT professionals, business and consumer advertisers and
vendors. Business-to-business Internet advertising is forecasted by Forrester
Research, Inc. ("Forrester") to increase from an estimated $290 million in 1998
to $2.6 billion in 2002 and consumer-oriented Internet advertising is
forecasted by Jupiter Communications to increase from an estimated $1.9 billion
to $7.7 billion in the same period. Internet commerce is forecasted by IDC to
grow from an estimated $12.4 billion in 1997 to $239.5 billion in 2001, with
the business-to-business component growing from an estimated $7.3 billion to
$179.4 billion in the same period. The Company uses advanced Internet
technologies to enable its advertisers to target their advertisements to
specific user groups
4
<PAGE>
and to measure the effectiveness of their advertisements. EarthWeb also
provides an online channel for large and small vendors to sell specialized
software and other products. This online channel offers IT professionals a wide
selection of products which they can purchase via secure online transactions,
many of which can be downloaded directly.
EarthWeb seeks to maintain and strengthen its position as the leading provider
of online services to IT professionals worldwide. The Company intends to extend
its online services model across various segments of the IT industry, promote
EarthWeb and its other online brands, grow existing revenue streams, add new
revenue streams, pursue strategic acquisitions and expand internationally. In
implementing its growth strategy, the Company has launched ITknowledge.com, a
new subscription-based online service offering premium content for IT
professionals.
EarthWeb was incorporated in New York in April 1996, commenced operations on
October 25, 1996 and was reincorporated in Delaware in June 1997. The Company
was formerly known as IdentiNet, Inc., which was incorporated in October 1994.
IdentiNet, Inc. was merged into IdentiNet LLC, a newly formed LLC, on May 31,
1995. IdentiNet LLC changed its name to EarthWeb LLC effective November 24,
1995. EarthWeb LLC transferred substantially all of its assets and liabilities
to EarthWeb on October 25, 1996 in exchange for 2,925,000 shares of Common
Stock, which at such time represented all of the issued and outstanding Common
Stock. References to "EarthWeb" or the "Company" in this Prospectus which refer
to the period prior to October 25, 1996 are to the Company's predecessors. From
its inception in 1994 until mid-1997, EarthWeb primarily developed and
maintained Web sites and online commerce infrastructures for its customers. The
Company's principal executive office is located at 3 Park Avenue, New York, New
York 10016 and its telephone number at such location is (212) 725-6550. The
Company's corporate Web site address is http://www.earthweb.com. Information
contained on the Company's Web site is not part of this Prospectus.
THE OFFERING
<TABLE>
<S> <C>
COMMON STOCK OFFERED BY THE
COMPANY(1).................... 2,100,000 shares
COMMON STOCK TO BE OUTSTANDING
AFTER THE OFFERING(1)(2)...... 7,901,279 shares
USE OF PROCEEDS................ General corporate purposes, including expansion
of sales and marketing capabilities, possible
strategic acquisitions or investments,
international expansion and working capital
requirements. See "Use of Proceeds."
PROPOSED NASDAQ SYMBOL......... "EWBX"
</TABLE>
- -------
(1) Assumes no exercise of the Underwriters' over-allotment option granted by
the Selling Stockholders.
(2) Based on shares of Common Stock outstanding as of June 30, 1998, including
the shares issued as a result of the Preferred Stock Conversion. Does not
include 646,857 shares of Common Stock reserved for issuance pursuant to the
Stock Plan (as hereinafter defined) of which options to purchase 409,306 shares
were outstanding and 9,713 were exercisable. See "Management--Benefit Plans."
RISK FACTORS
See "Risk Factors" for a discussion of certain considerations relevant to an
investment in the Common Stock.
5
<PAGE>
SUMMARY FINANCIAL DATA
The following table sets forth summary financial data of the Company that is
derived from the financial statements of the Company. The data should be read
in conjunction with the financial statements and related notes and other
financial information included therein.
<TABLE>
<CAPTION>
--------------------------------------------------------------
YEARS ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
------------------------------ -------------------------
1995 1996 1997 1997 1998
------ ------ ------- ------ -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Dollars in thousands,
except share and per
share data
STATEMENT OF OPERATIONS
DATA:
Revenues................ $ -- $ 472 $ 1,135 $ 592 $ 974
Gross profit (deficit).. -- 158 (223) (9) 181
Loss from continuing
operations(1).......... (705) (2,004) (5,437) (2,277) (2,916)
Net loss................ (640) (2,046) (7,821) (2,826) (2,916)
Basic and diluted net
loss per share from
continuing operations.. (0.24) (0.69) (1.86) (0.78) (1.00)
Basic and diluted net
loss per share......... $ (0.22) $ (0.70) $ (2.67) $ (0.97) $ (1.00)
Weighted average shares
outstanding used in
computing basic and
diluted net loss per
share.................. 2,925,000 2,925,000 2,925,000 2,925,000 2,927,970
Pro forma basic and
diluted net loss per
share from continuing
operations(2).......... $ (1.13) $ (0.54)
Pro forma basic and
diluted net loss per
share(2)............... $ (1.63) $ (0.54)
Shares used in computing
pro forma basic and
diluted net loss per
share(2)............... 4,812,055 5,367,805
</TABLE>
<TABLE>
<CAPTION>
-----------------------
AS OF JUNE 30, 1998
ACTUAL AS ADJUSTED (3)
------------------------
(UNAUDITED)
<S> <C> <C>
Dollars in thousands
BALANCE SHEET DATA:
Cash and cash equivalents.............................. $4,762 $29,451
Working capital........................................ 5,024 29,713
Total assets........................................... 8,920 33,609
Stockholders' equity................................... 7,269 31,958
</TABLE>
- -------
(1) From its inception in 1994 until mid-1997, EarthWeb primarily developed and
maintained Web sites and online commerce infrastructures for its customers.
During this period, substantially all of the Company's revenues were derived
from development contracts, maintenance fees and software license fees. During
1996, the Company began developing its business of online services for IT
professionals. The Company's software products and professional services
divisions were discontinued in 1997 and have been recorded as discontinued
operations for all periods.
(2) The pro forma per share amounts are computed by using the sum of the
weighted average number of shares of Common Stock and the shares issued as a
result of the Preferred Stock Conversion.
(3) Based on shares outstanding as of June 30, 1998, which includes the
conversion of 1,251,197 shares of Preferred Stock into 2,439,833 shares of
Common Stock and gives effect to the sale of 2,100,000 shares of Common Stock
offered hereby (assuming an initial offering price of $13.00), but excludes:
(i) 409,306 shares of Common Stock issuable upon exercise of options
outstanding under the Stock Plan, at a weighted average exercise price of $3.24
per share; and (ii) 237,551 shares of Common Stock reserved for future issuance
under the Stock Plan. See "Description of Capital Stock."
6
<PAGE>
RISK FACTORS
In addition to the other information in this Prospectus, prospective investors
should carefully consider the following risk factors when evaluating an
investment in the Common Stock being offered hereby.
EXTREMELY LIMITED OPERATING HISTORY; ANTICIPATED LOSSES
Although EarthWeb commenced operations in October 1994, it did not begin
operating its current business of providing online services to IT professionals
until October 1995 and did not begin generating advertising revenues until June
1996. Accordingly, EarthWeb has an extremely limited operating history upon
which an evaluation of the Company can be based, and its prospects are subject
to the risks, expenses and uncertainties frequently encountered by companies in
the new and rapidly evolving markets for Internet products and services. Such
risks include the failure to continue to develop and extend the Company's
online service brands, the rejection of the Company's services by Internet
users, vendors or advertisers, the inability of the Company to maintain and
increase the levels of traffic on its online services, the development of
similar or superior services or products by competitors, the failure of the
market to adopt the Internet as an advertising medium, the failure to
successfully sell Internet advertising through the Company's recently developed
internal sales force, reductions in market prices for Internet advertising as a
result of competition or other factors, the inability of the Company to
integrate effectively the technology and operations of any acquired businesses
or technologies with its operations and the inability to identify, attract,
retain and motivate qualified personnel. There can be no assurance that the
Company will be successful in addressing such risks and the failure of the
Company to do so could have a material adverse effect on the Company's
business, results of operations and financial condition.
As of June 30, 1998, EarthWeb had an accumulated deficit of $11.2 million.
Although the Company has experienced revenue growth in recent periods, there
can be no assurance that the revenues of the Company will continue at their
current level or increase in the future. The Company has not achieved
profitability on a quarterly or annual basis to date, and the Company
anticipates that it will continue to incur net losses for the foreseeable
future. The Company currently expects to increase its operating expenses
significantly, expand its sales and marketing operations and continue to
develop and extend its online services. To the extent that such expenses
precede or are not subsequently followed by increased revenues, EarthWeb's
business, results of operations and financial condition could be materially and
adversely affected.
The extremely limited operating history of EarthWeb and the uncertain nature of
the markets addressed by the Company make the prediction of future results of
operations difficult or impossible and, therefore, the recent revenue growth
experienced by the Company should not be taken as indicative of the rate of
revenue growth, if any, that can be expected in the future. The Company
believes that period-to-period comparisons of its results of operations are not
meaningful and that the results for any period should not be relied upon as an
indication of future performance.
DEVELOPING MARKET; UNPROVEN ACCEPTANCE OF THE COMPANY'S ONLINE SERVICES
The market for the Company's online services has only recently begun to
develop, is rapidly evolving and is characterized by an increasing number of
market entrants. As is typical of a new and rapidly evolving industry, demand
and market acceptance for recently introduced services is subject to a high
level of uncertainty and risk. Because the market for the Company's online
services is new and evolving, it is difficult to predict the future growth
rate, if any, and size of this market. There can be no assurance either that
the market for the Company's online services will continue to develop or become
sustainable. If use of its online services fails to continue to grow, the
Company's ability to establish other online services would be materially and
adversely affected. In addition, EarthWeb's business strategy includes
extending its online services model to additional segments of the IT industry.
However, there can be no assurance that the Company will be successful in its
efforts.
DEPENDENCE ON CONTINUED GROWTH IN THE USE OF THE INTERNET; DEPENDENCE ON
INTERNET INFRASTRUCTURE
The Company's future success is substantially dependent upon continued growth
in the use of the Internet to support the sale of advertising on the Company's
online services and in the acceptance and volume of commerce transactions on
the Internet. There can be no assurance that the number of Internet users will
continue to grow or that commerce over the Internet will become more
widespread. As is typical in the case of a new and rapidly evolving industry,
demand and
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market acceptance for recently introduced services are subject to a high level
of uncertainty. The Internet may not prove to be a viable commercial
marketplace for a number of reasons, including lack of acceptable security
technologies, lack of access and ease of use, congestion of traffic,
inconsistent quality of service and lack of availability of cost-effective,
high-speed service, potentially inadequate development of the necessary
infrastructure, excessive governmental regulation, uncertainty regarding
intellectual property ownership or timely development and commercialization of
performance improvements, including high speed modems. See "--Online Security
Risks;--Intellectual Property; and--Government Regulation and Legal
Uncertainties."
EarthWeb's success also depends upon, among other things, the continued
development and maintenance of a viable Internet infrastructure to support the
continued growth in the use of the Internet. The maintenance and improvement of
this infrastructure will require timely development of products, such as high
speed modems and communications equipment, to continue to provide reliable
Internet access and improved content. The current Internet infrastructure may
not be able to support an increased number of users or the increased bandwidth
requirements of users, and, as such, the performance or reliability of the
Internet may be adversely affected. Furthermore, the Internet has experienced
certain outages and delays as a result of damage to portions of its
infrastructure. Similar outages and delays in the future, including those
resulting from Year 2000 problems, could adversely affect the level of traffic
on the Company's online services. The effectiveness of the Internet may decline
due to delays in the development or adoption of new standards and protocols
(for example, the next-generation Internet protocol) designed to support
increased levels of activity. There can be no assurance that the infrastructure
or products or services necessary to ensure the continued expansion of the
Internet will be developed, or that the Internet will become a viable
commercial medium for advertisers. If the necessary infrastructure, standards,
protocols, products, services or facilities are not developed, or if the
Internet does not become a viable commercial medium, EarthWeb's business,
results of operations and financial condition could be materially and adversely
affected. Even if such infrastructure, standards or protocols or complementary
products, services or facilities are developed, there can be no assurance that
the Company will not be required to incur substantial expenditures in order to
adapt its services to changing or emerging technologies, which could have a
material adverse effect on the Company's business, results of operations and
financial condition.
RELIANCE ON ADVERTISING REVENUES AND UNCERTAIN ADOPTION OF THE INTERNET AS AN
ADVERTISING MEDIUM
EarthWeb presently derives substantially all of its revenues from the sale of
advertisements on its online services under short-term contracts. Most of the
Company's advertising customers have only limited experience with the Internet
as an advertising medium, have not devoted a significant portion of their
advertising expenditures to Internet advertising and may not find such
advertising to be effective for promoting their products and services relative
to traditional print and broadcast media. The Company's ability to generate
significant advertising revenues will depend upon, among other factors,
advertisers' acceptance of the Internet as an effective and sustainable
advertising medium, the development of a large base of users of the Company's
online services possessing demographic characteristics attractive to
advertisers and the ability of the Company to maintain effective advertising
delivery and measurement systems. No standards have yet been widely accepted
for the measurement of the effectiveness of Internet advertising, and there can
be no assurance that such standards will develop sufficiently to support
Internet advertising as a significant advertising medium. In addition, there
can be no assurance that advertisers will determine that banner advertising,
which comprises substantially all of the Company's revenues, is an effective or
attractive advertising medium, and there can be no assurance that the Company
will effectively transition to any other forms of Internet advertising, should
they develop.
Certain advertising filter software programs are available that limit or remove
advertising from an Internet user's desktop. Such software, if generally
adopted by users, may have a materially adverse effect upon the viability of
advertising on the Internet. The Company relies primarily on its in-house
advertising sales force for domestic advertising sales, which involves
additional risks and uncertainties, including risks associated with the
recruitment, retention, management, training and motivation of sales personnel.
As a result of the foregoing, there can be no assurance that the Company will
sustain or increase current advertising sales levels. Failure to do so could
have a material adverse effect on the Company's business, results of operations
and financial condition.
In addition, there is intense competition in the sale of advertising on the
Internet, including competition from Internet portals and other high-traffic
sites, which has resulted in a wide range of rates quoted by different vendors
for a variety of advertising services. As a result, future levels of Internet
advertising revenues that will be realized generally or by any specific company
are difficult to project. Competition among current and future suppliers of
Internet navigational services or Web sites and advertising networks, as well
as competition with other traditional media for advertising placements,
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could result in significant price competition, reduced pricing for Internet
advertising and reductions in the Company's advertising revenues.
DEPENDENCE ON A LIMITED NUMBER OF ADVERTISERS
EarthWeb's revenues to date have been derived from a limited number of
customers which advertise on EarthWeb's services and the Company expects that a
limited number of advertisers will continue to account for a significant
portion of the Company's revenues. In particular, Microsoft and IBM accounted
for approximately 15% and 10%, respectively, of the Company's revenues for the
six months ended June 30, 1998 and the Company's top 20 advertisers accounted
for an aggregate of approximately 69% of the Company's revenues during the same
period. Both Microsoft and IBM advertised on EarthWeb's online services during
the year ended December 31, 1997, but revenues from each accounted for less
than 10% of the Company's revenues during such period. Moreover, advertisements
delivered by the Company are typically sold pursuant to purchase order
agreements which are subject to cancellation. There can be no assurance that
current advertisers will continue to purchase advertising from the Company or
that the Company will be able to successfully attract additional advertisers.
The loss of one or more of the advertisers that represent a material portion of
the revenues generated could have a material adverse effect on the Company's
business, results of operations and financial condition. In addition, the non-
payment or late payment of amounts due by a significant advertiser could have a
material adverse effect on the Company's business, results of operations and
financial condition. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
COMPETITION
The market for Internet-based online services is relatively new, intensely
competitive and rapidly changing. Since the advent of commercial services on
the Internet, the number of online services competing for users' attention and
spending has proliferated because of, among other reasons, the absence of
substantial barriers to entry, and the Company expects that competition will
continue to intensify. The Company competes with other companies who have
particular sections of their Web sites directed at certain segments or sub-
segments of the IT professional community, such as Ziff-Davis (InternetUser),
CNET (builder.com and activex.com), CMP (TechWeb), Mecklermedia
(webdeveloper.com), Wired Digital (Webmonkey) and IDG (Javaworld). The Company
also competes for circulation and advertising impressions with general interest
portal and destination sites as well as traditional media. With respect to
sales of products, the Company competes with traditional retailers of such
products, such as book, software and online retail stores.
Many of the Company's current and potential competitors have longer operating
histories, larger customer bases, greater brand recognition and significantly
greater financial, marketing and other resources than the Company. These
competitors may be able to respond more quickly to new or emerging technologies
and changes in customer requirements and to devote greater resources to the
development, promotion and sale of their products and services than the
Company. There can be no assurance that the Company will be able to compete
successfully against its current or future competitors.
FLUCTUATIONS IN QUARTERLY RESULTS OF OPERATIONS; SEASONALITY
As a result of the Company's extremely limited operating history, the Company
does not have historical financial data for a significant number of periods on
which to base planned operating expenses. The Company's expense levels are
based in part upon its expectations concerning future revenue and, to a large
extent, are fixed. Quarterly revenues and operating results depend
substantially upon the advertising revenues received within the quarter, which
are difficult to forecast accurately. Accordingly, the cancellation or deferral
of a small number of advertising contracts could have a material adverse effect
on the Company's business, results of operations and financial condition. The
Company may be unable to adjust spending in a timely manner to compensate for
any unexpected revenue shortfall, and any significant shortfall in revenue in
relation to the Company's expectations would have an immediate adverse effect
on the Company's business, results of operations and financial condition.
The Company's results of operations may fluctuate significantly in the future
as a result of a variety of factors, many of which are outside the Company's
control. These factors include, without limitation, the level of usage of the
Internet, demand for Internet advertising, the addition or loss of advertisers,
the level of user traffic on EarthWeb's online services, economic conditions
specific to the Internet industry and online media and economic conditions
generally. Management believes that its revenues are also subject to seasonal
fluctuations because advertisers generally place fewer advertisements during
the first and third calendar quarter of each year. As a strategic response to
the foregoing, the Company may from time to time make certain pricing, service
or marketing decisions or business combinations that could have a material
adverse effect on the Company's business, results of operations and financial
condition.
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Due to the foregoing factors, among others, the Company's quarterly operating
results may fall below the expectations of securities analysts and investors in
the future. In such event, the trading price of the Company's Common Stock
would likely be materially and adversely affected.
RISKS ASSOCIATED WITH BRAND DEVELOPMENT
EarthWeb believes that establishing and maintaining brand identity of its
several brands is a critical aspect for attracting and expanding its targeted
Internet-based audience and that the importance of brand recognition will
increase due to the growing number of Internet online services. Promotion and
enhancement of EarthWeb's brands will depend largely on the Company's success
in continuing to provide high quality online services, which cannot be assured.
If users do not perceive the Company's existing online services to be of high
quality, or if the Company introduces new online services or enters into new
business ventures that are not favorably received by users, the Company will
risk diluting its brands and decreasing the attractiveness of its audiences to
advertisers. Furthermore, in order to attract and retain Internet users and to
promote and maintain its brands in response to competitive pressures, the
Company may find it necessary to increase substantially its financial
commitment to creating and maintaining a distinct brand loyalty among users. If
the Company is unable to provide high quality online services, or otherwise
fails to promote and maintain its brands, or if the Company incurs excessive
expenses in an attempt to improve its online services, or promote and maintain
its brands, the Company's business, results of operations and financial
condition could be materially and adversely affected.
DEPENDENCE ON KEY PERSONNEL
EarthWeb's performance is substantially dependent on the performance of its
senior management and key technical personnel. In particular, the Company's
success depends substantially on the continued efforts of Jack D. Hidary and
William Gollan. The Company has acquired key person life insurance on only
certain members of its senior management personnel. The loss of the services of
any of its executive officers or other key employees could have a material
adverse effect on the business, results of operations and financial condition
of the Company.
The Company's future success also depends upon its continuing ability to
attract and retain highly qualified technical and managerial personnel.
Competition for such personnel is intense and there can be no assurance that
the Company will be able to attract and retain highly qualified technical and
managerial personnel either currently or in the future. The inability to
attract and retain the necessary technical and managerial personnel could have
a material and adverse effect upon the Company's business, results of
operations and financial condition.
MANAGEMENT OF GROWTH
The Company's recent growth has placed, and is expected to continue to place, a
significant strain on its managerial, operational and financial resources. To
manage its future growth, the Company must continue to implement and improve
its operational and financial systems and to expand, train and manage its
employee base. The Company also currently intends to establish or acquire
additional services which will create additional operational and management
complexities. In addition, the Company expects that its operational and
management systems will face increased strain as a result of the expansion of
its services into new segments of the IT industry. There can be no assurance
that the Company will be able to manage effectively the expansion of its
operations, that the Company's systems, procedures and controls will be
adequate to support the Company's operations or that Company management will be
able to achieve the rapid execution necessary to fully exploit market
opportunities for the expansion of the Company's online services. Any inability
to manage growth effectively could have a material adverse effect on the
Company's business, results of operations and financial condition.
RISKS ASSOCIATED WITH POTENTIAL ACQUISITIONS
Since EarthWeb commenced its current business in 1996, its strategy has
included the acquisition of certain assets of Internet-based content providers
to enhance its current online services and the Company expects to continue this
strategy in the future. The continued growth of EarthWeb will depend in part on
its ability to identify suitable acquisition candidates and to acquire them on
appropriate terms. Any such acquisitions would be accompanied by the risks
commonly encountered in such transactions, including the difficulty of
assimilating the technology, operations and personnel of the acquired
companies, the potential disruption of the Company's ongoing business,
additional expenses associated with amortization of acquired intangible assets,
the maintenance of uniform standards, controls, procedures and policies, and
the potential
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unknown liabilities associated with acquired businesses. There can be no
assurance that the Company will be able to identify candidates that it deems
suitable for acquisition or that the Company will be able to consummate desired
acquisitions on terms acceptable to it or that it will be successful in
integrating the acquired companies. If realized, any of these risks could have
a material and adverse effect upon the Company's business, results of
operations and financial condition.
RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS AND EXPANSION
A key part of the Company's strategy is to develop its online service brands in
international markets. To date, the Company has only limited experience in
developing localized versions of its online services and in marketing and
operating its online services internationally. The Company intends to enter
into relationships with foreign business partners. If the international
revenues are not adequate to offset investments in international activities,
the Company's business, results of operations and financial condition could be
materially adversely affected. The Company may experience difficulty in
managing international operations because of distance, as well as language and
cultural differences, and there can be no assurance that the Company or its
future foreign business associates will be able to successfully market and
operate its online services in foreign markets. The Company also believes that,
in light of substantial anticipated competition, it will be necessary to
implement its business strategy quickly in international markets to obtain a
significant share of the market, and there can be no assurance that the Company
will be able to do so. In addition to the uncertainty of the Company's ability
to continue to generate revenues from its foreign operations and expand its
international presence, certain risks are inherent in transacting business on
an international level, such as unexpected changes in regulatory requirements,
export restrictions, trade barriers, difficulties in staffing and managing
foreign operations, political instability, fluctuations in currency exchange
and adverse tax consequences. The occurrence of any of these risks could
adversely impact the success of the Company's international operations and, as
a result, have a material adverse effect on the Company's future international
operations and, consequently, on the Company's overall business, results of
operations and financial condition.
DEPENDENCE ON CONTENT PROVIDERS
EarthWeb's success depends upon its ability to provide a wide range of in-depth
content. The markets for EarthWeb's online services are characterized by
rapidly changing technology, emerging industry standards and the rapidly
changing needs of EarthWeb's targeted audience. EarthWeb relies on a number of
publishers of technical materials, its vendors and the users of its online
services for the continuing provision of up-to-date content. No single content
provider is material to the Company's operations. However, there can be no
assurance that the publishers of technical materials with which the Company
currently maintains relationships, EarthWeb's current vendors or the current
users of EarthWeb's online services will continue to provide the Company with a
similar flow of content in terms of quality or quantity, or at all, or that
they will continue to provide the Company with a similar flow of content in
terms of quality or quantity, or at all, or that they will continue to do it on
the same terms as before. If the flow of content for EarthWeb's online services
decreases either in terms of quality or quantity, or ceases completely, the
Company's business, results of operations and financial condition could be
materially adversely affected.
DEPENDENCE ON STRATEGIC ALLIANCES
The Company relies on strategic alliances with, among others, Sun Microsystems,
IBM, Microsoft, CMP, Ziff-Davis, MacMillan and Netscape to attract users to its
online services and to attract paid advertising to its online services. There
can be no assurance that these relationships will continue beyond their initial
terms or that the Company will develop additional third party alliances on
acceptable commercial terms, if at all. No one of these strategic alliances is
individually material to the Company's operations. However, the inability of
the Company to maintain current strategic relationships generally or develop
new strategic relationships could have a material adverse affect on the
Company's business, results of operation and financial condition.
RISK OF CAPACITY CONSTRAINTS AND SYSTEMS FAILURES
The performance of EarthWeb's online services is critical to the Company's
reputation, its ability to attract advertisers to the Company's services and
achieving market acceptance of its online services. Any system failure,
including network, software or hardware failure, that causes interruption or an
increase in response time of the Company's online services could result in
decreased usage of the Company's services and, if sustained or repeated, could
reduce the attractiveness of the Company's online services to its users,
vendors and advertisers. An increase in the volume of queries conducted through
the Company's online services could strain the capacity of the software or
hardware employed by the Company, which could lead to slower response time or
system failures, and adversely affect the Company's advertising revenues. The
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Company also faces technical challenges associated with higher levels of
personalization and localization of content delivered to users of its online
services.
The process of managing advertising within large, high traffic Internet online
services such as the Company's is an increasingly important and complex task.
The Company relies on both internal and licensed third party advertising
inventory management and analysis systems. To the extent that any extended
failure of the Company's advertising management system results in incorrect
advertising insertions, the Company may be exposed to "make good" obligations
to its advertising customers. By displacing advertising inventory, such
obligations could defer advertising revenues and thereby have a material
adverse effect on the Company's business, results of operations and financial
condition. The Company's operations are dependent in part upon its ability to
protect its operating systems against physical damage from acts of God, power
loss, telecommunications failures, physical break-ins and similar events. The
occurrence of any of these events could result in interruptions, delays or
cessations in service to users of the Company's online services, which could
have a material adverse effect on the Company's business, results of operations
and financial condition.
ONLINE SECURITY RISKS
The Company is potentially vulnerable to attempts by unauthorized computer
users ("hackers") to penetrate the Company's network security. If successful,
such individuals could misappropriate proprietary information or cause
interruptions in the Company's online services. The Company may be required to
expend significant capital and resources to protect against the threat of such
security breaches or to alleviate problems caused by such breaches. In addition
to security breaches, inadvertent transmission of computer viruses could expose
the Company to risk of loss or litigation and possible liability. Continued
concerns over the security of Internet transactions and the privacy of the
users may also inhibit the growth of the Internet generally as a means of
conducting commercial transactions.
INTELLECTUAL PROPERTY
Legal standards relating to the validity, enforceability and scope of
protection of certain intellectual property rights in Internet-related
industries are uncertain and still evolving, and no assurance can be given as
to the future viability or value of any intellectual property rights of the
Company or other companies within the IT industry. There can be no assurance
that the steps taken by the Company to protect its intellectual property rights
will be adequate or that third parties will not infringe or misappropriate the
Company's proprietary rights. Any such infringement or misappropriation, should
it occur, could have a material adverse effect on the Company's business,
results of operations and financial condition. Furthermore, there can be no
assurance that the Company's business activities will not infringe upon the
proprietary rights of others, or that other parties will not assert
infringement claims against the Company. The Company anticipates that it may be
subject to claims in the ordinary course of its business, including claims of
alleged infringement by the Company of the trademarks and other intellectual
property rights of third parties due to the dissemination of the Company's
content or the provision of access by the Company's online services to content
made available by third parties. Such claims and any resultant litigation,
should it occur, could subject the Company to significant liability for damages
and could result in invalidation of the Company's proprietary rights and, even
if not meritorious, could be time-consuming and expensive to defend, and could
result in the diversion of management time and attention, any of which could
have a material adverse effect on the Company's business, results of operations
and financial condition.
EarthWeb regards substantial elements of its online services as proprietary and
attempts to protect them by relying on trademark, service mark, trade dress,
copyright and trade secret laws and restrictions on disclosure and transferring
title. The Company currently has no patents or patents pending for its online
services and does not anticipate that patents will become a significant part of
the Company's intellectual property in the foreseeable future. The Company also
enters into confidentiality agreements with its employees, consultants, vendors
and customers, license agreements with third parties and generally seeks to
control access to and distribution of its technology, documentation and other
proprietary information. The Company pursues the registration of its trademarks
in the United States and internationally, and has obtained the United States
trademark for "EarthWeb" and its related logo, "Plugin Datamation" and
"Datamation" and has applied for the registration of certain additional
trademarks and service marks, including developer.com and developerdirect.com.
Effective trademark, copyright and trade secret protection may not be available
in every country in which the Company's online services are distributed or made
available through the Internet. There can be no assurance that the steps taken
by the Company to protect its proprietary rights will be adequate or that third
parties will not infringe or misappropriate the Company's copyrights,
trademarks, service marks, trade dress and similar proprietary rights.
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The Company has licensed in the past, and it expects that it may license in the
future, certain elements of its distinctive trademarks, service marks, trade
dress, trade secrets and similar proprietary rights to third parties, including
in connection with the Company's online services that may be operated by third
parties. While the Company attempts to ensure that the quality of its several
brands is maintained by such licensees, no assurance can be given that such
licensees will not take actions that could materially and adversely affect the
value of the Company's proprietary rights or the reputation of its online
services, either of which could have a material adverse effect on the Company's
business, results of operation and financial condition. Also, the Company is
aware that third parties have from time to time copied significant portions of
developer.com directory listings for use in competitive Internet navigational
tools and services, and there can be no assurance that the distinctive elements
of developer.com can be protected under copyright law.
YEAR 2000 COMPLIANCE
The Year 2000 issue involves the potential for system and processing failures
of date-related data resulting from computer-controlled systems using two
digits rather than four to define the applicable year. For example, computer
programs that contain time-sensitive software may recognize a date using two
digits of "00" as the year 1900 rather than the year 2000. This could result in
system failure or miscalculations causing disruptions of operations, including,
among other things, a temporary inability to process transactions, send
invoices or engage in similar ordinary business activities.
EarthWeb believes that its internal software and hardware systems will function
properly with respect to dates in the year 2000 and thereafter and has
completed its internal IT and non-IT assessment. The Company expects to incur
no significant costs in the future for Year 2000 problems. Nonetheless, there
can be no assurance in this regard until such systems are operational in the
Year 2000. The Company has contacted all of its significant suppliers to
determine the extent to which the Company's systems are vulnerable to those
third parties' failure to make their own systems Year 2000 compliant. The
Company was informed by such suppliers that their systems are Year 2000
compliant. Additionally, any Year 2000 problems experienced by the Company's
advertising customers could affect the placement of advertisements on the
Company's online services. In the event any of the Company's suppliers or
vendors prove not to be Year 2000 compliant, the Company believes that it could
find a replacement vendor or supplier which is Year 2000 compliant without
significant delay or expense. However, if substantially all of the Company's
suppliers and vendors prove not to be Year 2000 compliant and if the Company
experiences difficulties in finding replacement vendors, then, as a result, the
Company's business could be materially adversely affected. The failures to
correct material Year 2000 problems by the Company's suppliers and vendors
could result in an interruption in, or a failure of, certain normal business
activities or operations of the Company. Such failures could materially and
adversely affect the Company's results of operations, liquidity and financial
condition. Due to the general uncertainty inherent in the Year 2000 problem,
resulting from the uncertainty of the Year 2000 readiness of third-party
suppliers and vendors, the Company is unable to determine at this time whether
the consequences of Year 2000 failures will have a material impact on the
Company's results of operations, liquidity or financial condition.
LIABILITY FOR INFORMATION SERVICES
Because content made available by third parties may be downloaded by the online
services operated or facilitated by the Company and may be subsequently
distributed to others, there is a potential that claims will be asserted
against the Company for defamation, negligence or personal injury, or based on
other theories due to the nature of such content. Such claims have been
brought, and sometimes successfully asserted, against online service providers
in the past. In addition, the Company could be exposed to liability with
respect to the selection of listings that may be accessible through the
Company's online services or through content and materials that may be posted
by users in classifieds, bulletin board or chat room services offered by the
Company. Such claims may include, among others, claims that by providing
hypertext links to Internet sites operated by third parties, the Company is
liable for wrongful actions by such third parties through such Internet sites.
It is also possible that users could make claims against the Company for losses
incurred in reliance on information provided on the Company's online services.
Although the Company carries general liability insurance, the Company's
insurance may not cover potential claims of this type or may not be adequate to
fully indemnify the Company. Any imposition of liability or legal defense
expenses that are not covered by insurance or are in excess of insurance
coverage could have a material adverse effect on the Company's business,
results of operations and financial condition.
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GOVERNMENT REGULATION AND LEGAL UNCERTAINTIES
Since few laws or regulations currently are directly applicable to access or
commerce on the Internet, the Company is not subject to direct government
regulation, other than regulations applicable to businesses generally. However,
a number of legislative and regulatory proposals are under consideration by
federal, state, local and foreign governmental organizations and, as a result,
a number of laws or regulations may be adopted with respect to Internet user
privacy, taxation, infringement, pricing, quality of products and services and
intellectual property ownership. It is also uncertain as to how existing laws
will be applied to the Internet in areas such as property ownership, copyright,
trademark, trade secret, obscenity and defamation. The adoption of new laws or
the adaptation of existing laws to the Internet may decrease the growth in the
use of the Internet, which could in turn decrease the demand for the Company's
online services, increase the cost of the Company doing business or otherwise
have a material adverse effect on the Company's business, results of operations
and financial condition.
BROAD DISCRETION IN USE OF PROCEEDS
The Company intends to use the net proceeds from the sale offered hereby for
general corporate purposes, including expanding its sales and marketing
capabilities, possible strategic acquisitions, international expansion and
working capital requirements. Accordingly, management will have significant
flexibility in applying the net proceeds of this Offering. The failure of
management to apply such funds effectively could have a material adverse effect
on the Company's business, results of operations and financial condition. See
"Use of Proceeds."
CONCENTRATION OF STOCK OWNERSHIP
As of August 31, 1998, the present directors, executive officers, greater than
5% stockholders and their respective affiliates beneficially owned
approximately 75% of the outstanding Common Stock of the Company, after giving
effect to the Offering and the Preferred Stock Conversion. As of August 31,
1998, Warburg, Pincus Ventures, L.P. ("Warburg") beneficially owned
approximately 31% of the outstanding Common Stock of the Company, after giving
effect to the Offering and the Preferred Stock Conversion. As a result of their
ownership, the directors, executive officers, greater than 5% stockholders
(including Warburg) and their respective affiliates collectively are able to
control all matters requiring stockholder approval, including the election of
directors and approval of significant corporate transactions. Such
concentration of ownership may also have the effect of delaying or preventing a
change in control of the Company. See "Principal and Selling Stockholders."
SHARES ELIGIBLE FOR FUTURE SALE; REGISTRATION RIGHTS
No prediction can be made as to the effect, if any, that future sales of Common
Stock, or the availability of shares for future sales, will have on the market
price of the Common Stock prevailing from time to time. Sales of substantial
amounts of Common Stock in the public market after the closing of the Offering,
or the perception that such sales could occur, could adversely affect the
prevailing market price of the Common Stock. Upon completion of the Offering,
there will be 7,901,279 shares of Common Stock outstanding (regardless of
whether or not the Underwriters' over-allotment option is exercised but
assuming no exercise of outstanding options). Of these shares, the 2,100,000
shares sold in the Offering (2,415,000 shares, if the Underwriters' over-
allotment option is exercised in full) will be freely tradable without
restriction or further registration under the Securities Act by persons other
than "affiliates" of the Company, as that term is defined in Rule 144 under the
Securities Act ("Rule 144"). The remaining shares will be "restricted
securities" (the "Restricted Shares") as that term is defined under Rule 144,
and may not be publicly resold except in compliance with the registration
requirements of the Securities Act or pursuant to an exemption from such
registration requirements, including that provided by Rule 144. The Company and
the stockholders, officers and directors of the Company have agreed that during
the period beginning from the date of this Prospectus and continuing to and
including the date 180 days after the date of this Prospectus they will not (i)
offer, sell, contract to sell or otherwise dispose of Common Stock or any
securities of the Company which are substantially similar to the Common Stock,
including but not limited to any securities that are convertible into or
exchangeable for, or that represent the right to receive Common Stock or any
such substantially similar securities or (ii) enter into any swap, option,
future, forward or other agreement that transfers, in whole or in part, the
economic consequences of ownership of Common Stock or any securities
substantially similar to the Common Stock (other than pursuant to employee
stock option plans existing on, or upon the conversion or exchange of
convertible or exchangeable securities outstanding as of, the date of this
Prospectus and the issuance of Common Stock in connection with the transactions
described in this Prospectus), without the prior written consent of J.P. Morgan
Securities Inc. See "Underwriting." After giving effect to these contractual
restrictions, an aggregate of 2,442,314 shares of Common Stock
14
<PAGE>
(including 2,481 shares issuable upon exercise of vested stock options), will
be eligible for sale in the public market, subject to Rule 144. Additionally,
following such period, 5,798,798 shares of Common Stock may be sold in the
public market through the exercise of demand and piggyback registration rights
held by certain of the Company's current stockholders. See "Shares Eligible for
Future Sale" and "Description of Capital Stock--Registration Rights."
The Company intends to register on a Form S-8 registration statement under the
Securities Act, during the 180-day lock-up period, a total of 646,857 shares of
Common Stock reserved for issuance under the Company's Stock Plan, none of
which may be sold for a period of 180 days subsequent to the completion of the
Offering. As of June 30, 1998, there were outstanding options to purchase
409,306 shares of Common Stock, of which 9,713 were exercisable. Future
substantial sales of Common Stock in the public market following this Offering,
the expectation of such sales or the availability of shares for sale, could
adversely affect the market price of the Common Stock. See "Shares Eligible for
Future Sale" and "Management--Benefit Plans."
NO PRIOR TRADING MARKET; POTENTIAL VOLATILITY OF STOCK PRICE
Prior to the Offering, there has been no public market for the Common Stock,
and there can be no assurance that an active trading market will develop or, if
one does develop, that it will be maintained. The initial public offering price
of the Common Stock has been determined through negotiations between the
Company and the Representatives (as hereinafter defined), and may not be
indicative of future market prices. See "Underwriting." There can be no
assurance that the market price of the Common Stock will not be highly volatile
or that it will not decline below the initial public offering price. Factors
such as variations in the Company's financial results, earnings, estimates by
securities analysts, fluctuations in the stock prices of the Company's
competitors, any loss of key management, adverse regulatory actions or
decisions, announcements of extraordinary events such as litigation or
acquisitions or changes in pricing policies by the Company or its competitors,
as well as changes in the market for the Company's online services and general
economic, political and market conditions, may have a significant effect on the
market price for the Common Stock.
Upon commencement of the Offering, the Common Stock will be quoted on Nasdaq
which has experienced extreme price and volume trading volatility in recent
years. This volatility has had a substantial effect on the market prices of
companies for reasons frequently unrelated or disproportionate to the operating
performance of the specific companies. These broad market fluctuations may
adversely affect the market price of the Common Stock.
DILUTION
The public offering price is substantially higher than the pro forma net
tangible book value per share of the Common Stock. Assuming a public offering
price of $13.00 per share, investors purchasing shares of Common Stock in the
Offering, based upon the pro forma net tangible book value per share of Common
Stock as of June 30, 1998 of $3.95, will incur immediate and substantial
dilution in the amount of $9.05 per share. See "Dilution."
ABSENCE OF DIVIDENDS
The Company anticipates that earnings will be retained for the development of
the Company's business and that no cash dividends will be declared on the
Common Stock in the foreseeable future. See "Dividend Policy."
ANTI-TAKEOVER PROVISIONS
Certain provisions of the Delaware General Corporation Law (the "DGCL") may
delay, discourage or prevent a change in control of the Company. Such
provisions may discourage bids for Common Stock at a premium over the market
price and may adversely affect the market price and the voting and other rights
of the holders of Common Stock. In addition to the Common Stock, upon
consummation of the Offering, the Company's Amended and Restated Certificate of
Incorporation will authorize the issuance of up to 2,000,000 shares of
preferred stock without designation. The Board of Directors will have the
authority without action by the Company's stockholders to fix the rights,
privileges and preferences of, and to issue shares of, such preferred stock,
which may have the effect of delaying, deterring or preventing a change in
control of the Company. See "Description of Capital Stock--Preferred Stock" and
"--Delaware Law."
15
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 2,100,000 shares of Common
Stock being offered hereby (at an assumed initial public offering price of
$13.00 per share) are estimated to be approximately $24,689,000 (regardless of
whether or not the Underwriters' over-allotment option is exercised), after
deducting underwriting discounts and commissions and estimated Offering
expenses payable by the Company.
The Company expects to use such net proceeds for general corporate purposes,
including expansion of its sales and marketing capabilities, possible strategic
acquisitions or investments and working capital requirements. The Company
evaluates potential strategic acquisitions or investments, but at the present
time the Company has no understandings, commitments or agreements with respect
to any such acquisition or investment. Pending such uses, the Company intends
to invest the net proceeds from the Offering in United States government
securities and investment-grade, interest-bearing instruments. The Company has
made no material commitments or allocations for the net proceeds, and the use
of the proceeds will depend upon developments and opportunities in the
Company's business and the Internet industry in general.
The foregoing represents the Company's present intentions based upon its
present plans and business conditions. The occurrence of certain unforeseen
events or changed business conditions, however, could result in the application
of the proceeds of the Offering in a manner other than as described in this
Prospectus. See "Risk Factors--Broad Discretion in Use of Proceeds."
The Company will not receive any of the proceeds from the sale of shares of
Common Stock by the Selling Stockholders.
DIVIDEND POLICY
The Company has never declared or paid any cash dividends on its Common Stock
and does not expect to do so in the foreseeable future. The Company currently
intends to retain any earnings to finance the expansion and development of the
business. Any future determination of the payment of dividends will be made at
the discretion of the Board of Directors of the Company based upon conditions
then existing, including the Company's earnings, financial condition and
capital requirements as well as such economic and other conditions as the Board
of Directors may deem relevant.
16
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company (i) on an
actual basis as of June 30, 1998, and (ii) adjusted to reflect the Preferred
Stock Conversion and to give effect to the sale of 2,100,000 shares of Common
Stock offered hereby (assuming an initial offering price of $13.00). This table
should be read in conjunction with "Selected Financial Data," "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the financial statements of the Company and notes thereto included elsewhere in
this Prospectus.
<TABLE>
<CAPTION>
---------------------
AS OF JUNE 30, 1998
ACTUAL AS ADJUSTED
-------- -----------
<S> <C> <C>
Dollars in thousands, except share data
Total long-term obligations.............................. $ 132 $ 132
Stockholders' equity:
Series A Convertible Preferred Stock, $.01 par value;
1,000,000 shares authorized; 653,111 shares issued and
outstanding, actual (no shares issued and outstanding,
as adjusted).......................................... 6 --
Series B Convertible Preferred Stock, $.01 par value;
600,000 shares authorized; 598,086 shares issued and
outstanding, actual (no shares issued and outstanding,
as adjusted).......................................... 6 --
Common Stock, $.01 par value; 21,750,000 shares
authorized; 3,361,446 shares issued and outstanding,
actual (7,901,279 shares issued and outstanding, as
adjusted) (1)......................................... 34 79
Additional paid-in capital............................. 18,469 43,125
Unearned compensation.................................. (18) (18)
Accumulated deficit.................................... (11,228) (11,228)
-------- --------
Total stockholders' equity........................... 7,269 31,958
-------- --------
Total capitalization................................. $ 7,401 $ 32,090
======== ========
</TABLE>
- -------
(1) Does not include 646,857 shares of Common Stock reserved for issuance
pursuant to the Stock Plan of which options to purchase 409,306 shares were
outstanding and 9,713 were exercisable at June 30, 1998. See "Management--
Stock Option Plan."
17
<PAGE>
DILUTION
The Company's net tangible book value as of June 30, 1998 was approximately
$6.5 million, or $1.12 per share of Common Stock. Net tangible book value per
share is equal to the total tangible assets of the Company minus total
liabilities divided by the number of shares of Common Stock outstanding (after
giving effect to the Preferred Stock Conversion). After giving effect to the
sale of the 2,100,000 shares of Common Stock offered hereby (at an assumed
initial public offering price of $13.00 per share), deducting underwriting
discounts and commissions and estimated Offering expenses payable by the
Company, the pro forma net tangible book value of the Company would have been
approximately $31.2 million, or $3.95 per share of Common Stock. This
represents an immediate increase in net tangible book value of $2.83 per share
to existing stockholders and an immediate dilution of $9.05 per share to new
investors. Dilution is determined by subtracting pro forma net tangible book
value per share after the Offering from the amount of cash paid by a new
investor for a share of Common Stock. The following table illustrates such
dilution:
<TABLE>
<CAPTION>
--------------------
<S> <C> <C>
Assumed initial public offering price per share.......... $13.00
---------
Net tangible book value per share as of June 30, 1998.... $1.12
Increase in net tangible book value per share attribut-
able to new investors................................... 2.83
---------
Pro forma net tangible book value per share after the Of-
fering.................................................. 3.95
---------
Dilution per share to new investors...................... $ 9.05
=========
</TABLE>
The following table sets forth as of June 30, 1998 the number of shares of
Common Stock purchased from the Company, the total consideration paid and the
average price per share paid by existing stockholders and by new investors:
<TABLE>
<CAPTION>
-------------------------------------------------------------
SHARES PURCHASED TOTAL CONSIDERATION
--------------------- --------------------------------------
AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- --------- ----------- --------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders... 5,801,279 73.42% $20,553,272 42.95% $ 3.54
New investors........... 2,100,000 26.58 27,300,000 57.05 13.00
--------- --------- ----------- ---------
Total................... 7,901,279 100% $47,853,272 100%
========= ========= =========== =========
</TABLE>
The foregoing tables assume (i) the completion of the Preferred Stock
Conversion and (ii) no exercise of the Underwriters' over-allotment option. If
the Underwriters' over-allotment is exercised in full, the pro forma net
tangible book value per share of Common Stock as of June 30, 1998 would have
been $3.95 per share, which would result in dilution to the new investors of
$9.05 per share, and the number of shares held by the new investors will
increase to 2,415,000, or 31% of the total number of shares to be outstanding
after the Offering, and the number of shares held by the existing stockholders
will be 5,486,279 shares, or 69% of the total number of shares to be
outstanding after the Offering. As of June 30, 1998, there were outstanding
options to purchase an aggregate of 409,306 shares of Common Stock, 9,713 of
which were then exercisable, and the Company had also reserved for issuance up
to an additional 237,551 shares of Common Stock for issuance upon the exercise
of options which had not yet been granted under the Stock Plan. To the extent
options or warrants are exercised, there will be further dilution to new
investors.
18
<PAGE>
SELECTED FINANCIAL DATA
The following selected financial data should be read in conjunction with the
financial statements and notes thereto and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" included elsewhere
in this Prospectus. The statement of operations data for the years ended
December 31, 1995, 1996 and 1997 and the balance sheet data as of December 31,
1996 and 1997 are derived from the audited financial statements of the Company,
and are included elsewhere in this Prospectus. The balance sheet data as of
December 31, 1995 is derived from the audited financial statements of the
Company not included herein. The selected financial data as of June 30, 1998,
and for the six months ended June 30, 1997 and 1998, are derived from unaudited
financial statements of the Company, which in the opinion of management include
all adjustments, consisting only of normal recurring adjustments, necessary for
a fair presentation of the financial information set forth therein. The
historical results are not necessarily indicative of future results.
----------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
---------------------------------- ----------------------
1995 1996 1997 1997 1998
--------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Dollars in thousands,
except share and
per share data
STATEMENT OF OPERATIONS
DATA:
Revenues................ $ -- $ 472 $ 1,135 $ 592 $ 974
Cost of revenues........ -- 314 1,358 601 793
--------- --------- ---------- ---------- ----------
Gross profit (deficit).. -- 158 (223) (9) 181
--------- --------- ---------- ---------- ----------
Operating expenses
Product development... 36 68 1,003 476 556
Sales and marketing... -- 252 1,018 424 810
General and
administrative....... 626 1,802 2,567 1,296 1,332
Depreciation and
amortization......... 42 101 893 140 477
--------- --------- ---------- ---------- ----------
Total operating
expenses........... 704 2,223 5,481 2,336 3,175
--------- --------- ---------- ---------- ----------
Loss from operations.... (704) (2,065) (5,704) (2,345) (2,994)
Interest and other
income (expense), net.. (1) 61 267 68 78
--------- --------- ---------- ---------- ----------
Loss from continuing
operations............. (705) (2,004) (5,437) (2,277) (2,916)
Income (loss) from
discontinued
operations............. 65 (42) (2,384) (549) --
--------- --------- ---------- ---------- ----------
Net loss................ $ (640) $ (2,046) $ (7,821) $ (2,826) $ (2,916)
========= ========= ========== ========== ==========
Basic and diluted net
loss per share from
continuing operations.. $ (0.24) $ (0.69) $ (1.86) $ (0.78) $ (1.00)
Basic and diluted net
income (loss) per share
from discontinued
operations............. $ 0.02 $ (0.01) $ (0.81) $ (0.19) --
Basic and diluted net
loss per share......... $ (0.22) $ (0.70) $ (2.67) $ (0.97) $ (1.00)
Weighted average shares
outstanding used in
computing basic and
diluted net income
(loss) per share....... 2,925,000 2,925,000 2,925,000 2,925,000 2,927,970
Pro forma basic and
diluted net loss per
share from continuing
operations(1).......... $ (1.13) $ (0.54)
Pro forma basic and
diluted net loss per
share from discontinued
operations(1).......... $ (0.50) --
Pro forma basic and
diluted net loss per
share(1)............... $ (1.63) $ (0.54)
Shares used in computing
basic and diluted net
loss per share(1)...... 4,812,055 5,367,805
</TABLE>
- -------
(1) The pro forma per share amounts are computed by using the sum of the
weighted average number of shares of Common Stock and the shares issued as a
result of the Preferred Stock Conversion.
19
<PAGE>
<TABLE>
<CAPTION>
----------------------------------------------
AS OF DECEMBER 31,
-------------------------------- AS OF
1995 1996 1997 JUNE 30, 1998
---------- ---------- ---------- -------------
<S> <C> <C> <C> <C>
Dollars in thousands
BALANCE SHEET DATA:
Cash and cash equivalents........ $ 886 $ 3,779 $ 4,775 $ 4,762
Working capital.................. 865 3,315 4,317 5,024
Total assets..................... 1,393 5,652 8,514 8,920
Long-term obligations............ 25 94 85 132
Stockholders' equity............. 1,251 4,259 6,445 7,269
</TABLE>
20
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
EarthWeb is the leading provider of Internet-based online services to the IT
community worldwide. The Company's integrated business-to-business online
services address the needs of IT professionals for content, community and
commerce. EarthWeb's content offerings include a wide range of technical
materials, such as resource directories, tutorials and a reference library,
which enhance the ability of IT professionals to perform their job functions.
Its community areas, such as bulletin boards and question and answer services,
allow users to help one another solve technical problems and share information.
Its commerce services provide a single online source for IT professionals to
purchase specialized software and other products. EarthWeb's online services
also offer a channel through which advertisers and vendors can efficiently and
effectively target what the Company believes to be the largest aggregation of
IT professionals worldwide.
From its inception in 1994 until mid-1997, EarthWeb primarily developed and
maintained Web sites and online commerce infrastructures for its customers.
During this period, substantially all of the Company's revenues were derived
from development contracts, maintenance fees and software license fees. During
1996, the Company began developing online services for IT professionals. The
Company's operations not related to providing online services to IT
professionals were discontinued in 1997 and have been recorded as discontinued
operations for all periods.
To date, the Company has purchased five Websites to expand and extend its
online service offerings. In August 1997, the Company acquired jars.com
("JARS"), the Web site of the Java Applet Rating Service, for $1.1 million
consisting of a $500,000 cash payment at closing and four quarterly payments of
$150,000. JARS is a premier online service providing ratings and reviews of
Java and other source code. In February 1998, the Company acquired the
companion Web sites, htmlgoodies.com and javagoodies.com, which provide
tutorials and other technical resources for Web developers. In April 1998, the
Company acquired intranetjournal.com, a leading online service for intranet
managers. In May 1998, the Company acquired javascripts.com, an online service
which complements EarthWeb's other offerings by providing a large repository of
JavaScript source code. The aggregate cost of the htmlgoodies.com,
javagoodies.com, intranetjournal.com and javascripts.com Web site purchases
totaled approximately $370,000, of which approximately $200,000 is payable over
the next 36 months. In July 1998, the Company acquired Datamation, which
provides online articles, resources and product analysis for IT enterprise
managers. The purchase price for Datamation was $600,000 all of which has been
paid. Datamation has served the IT enterprise management community as an
industry recognized brand for over 40 years; in December 1997, it moved its
operations from print to online. At June 30, 1998, the Company had intangible
assets of $779,000, primarily related to the acquisition of JARS. The
acquisition of Datamation will result in other intangibles, the exact amount of
which will be based on the final allocation of the purchase price. Other
intangibles are amortized on a straight-line basis over a period of three
years.
The Company currently derives substantially all of its revenue from
advertisements and sponsorships on its online services. The Company first
recognized revenues from advertising in June 1996 and advertising revenues
constituted 100%, 86% and 95% of the Company's total revenues for the years
ended December 31, 1996 and December 31, 1997 and the six months ended June 30,
1998, respectively. The Company has historically utilized third party firms to
sell and serve advertisements on EarthWeb's sites. At the end of the third
quarter of 1997, the Company hired its first sales employee and in the first
quarter of 1998, the Company began relying predominantly on its in-house sales
force. The Company's in-house sales force has increased EarthWeb's average cost
per thousand ("CPM") by marketing to advertisers the advantages of using
EarthWeb's online services to reach the IT professional community. EarthWeb
also derives revenues from online commerce and brand licensing. In the future,
EarthWeb expects to derive additional revenues from membership subscription
fees for ITknowledge.com and other premium service offerings.
Advertising revenue is recognized in the period in which the advertisement is
displayed, provided that no significant Company obligations remain and the
collection of the receivable is probable. The Company obligations typically
include guarantees of a minimum number of "impressions" (times that an
advertisement is viewed by users of the Company's online services over a
specified period of time). Typically, if the minimum number of impressions are
not achieved, the Company will extend the advertising campaign until the
related guarantee is met, which would result in delayed revenue recognition. To
date, the Company has never been required to provide a cash refund in the event
the minimum number of impressions has not been achieved. The Company records
revenues and expenses for barter transactions (receipt of advertisements or
other goods or services in exchange for advertisements on its online services)
at the lesser of the estimated fair value of the advertisements, goods or
services received or the fair value of the advertisements given. In future
periods, management intends to maximize cash advertising revenues, although the
Company will continue to enter into barter advertising transactions as
appropriate.
21
<PAGE>
In order to expand its online services, the Company anticipates incurring
additional expenses to increase its product development and sales and marketing
efforts, pursue additional strategic acquisitions and support the growth of the
organization. The sales and marketing expenses will primarily include expenses
related to hiring additional employees and increasing advertising and brand
promotion activities. As a result of these expenditures and other factors, the
Company expects to continue to incur losses in the near future.
The Company expects to experience significant fluctuations in its future
quarterly results due to a variety of factors, many of which are outside of the
Company's control. These factors include the level of usage on the Internet,
demand for Internet advertising, the addition or loss of advertisers, the level
of user traffic on EarthWeb's online services, economic conditions specific to
the Internet industry and online media and economic conditions generally.
Management believes that its revenues are also subject to seasonal fluctuations
because advertisers generally place fewer advertisements during the first and
third calendar quarter of each year. The Company believes that certain expenses
as a percentage of revenues may fluctuate between periods based on the growth
of revenues; however, the Company expects expenses to continue to grow in
absolute dollars for the forseeable future.
RESULTS OF OPERATIONS
Six Months Ended June 30, 1998 Compared to Six Months Ended June 30, 1997
Revenues. Revenues for the six months ended June 30, 1998 increased 64% to
$974,000 from $593,000 for the six months ended June 30, 1997. The increase in
revenues was due to an increase in advertising revenues of $423,000 offset by a
slight decrease in other revenues due to a one-time guaranteed royalty payment
in 1997. Approximately 65% of the growth in advertising revenues was
attributable to an increase in the volume of advertising sold. A secondary
reason for the increase in advertising revenue was the ability of the Company's
in house sales force to sell advertising at a higher price (CPM). Management
does not expect significant price increases in the future and expects to derive
growth in revenues primarily through increased volume of advertising sold.
Barter transactions accounted for approximately 25% and 21% of revenues for the
six months ended June 30, 1998 and 1997, respectively. During the six months
ended June 30, 1998 and 1997, barter advertising revenues primarily related to
the exchange of advertisements with other companies.
Cost of Revenues. The Company's cost of revenues consists primarily of employee
salaries and related expenses (including payroll taxes and benefits),
consulting fees, Internet access and hosting fees, computer related expenses
and content licensing fees required to support and deliver the Company's online
services. Cost of revenues for the six months ended June 30, 1998 increased 32%
to $793,000 from $601,000 for the six months ended June 30, 1997. The increase
in cost of revenues was primarily attributable to increased consulting fees,
employee salaries and related expenses and content licensing fees due to the
expansion of the Company's online service offerings.
Product Development Expenses. The Company's product development expenses
consist primarily of employee salaries and related expenses (including payroll
taxes and benefits), consulting fees and computer leasing costs required to
support the development of new service offerings. Product development expenses
for the six months ended June 30, 1998 increased 17% to $556,000 from $476,000
for the six months ended June 30, 1997. The increase in product development
expenses was primarily attributable to the expansion of the Company's online
service offerings.
Sales and Marketing Expenses. Sales and marketing expenses consist primarily of
employee salaries and commissions of the Company's sales force and marketing
personnel and related expenses (including payroll taxes and benefits),
advertising (including expenses recorded for barter transactions), promotional
materials and trade show exhibition expenses. Sales and marketing expenses for
the six months ended June 30, 1998 increased 91% to $810,000 from $424,000 for
the six months ended June 30, 1997. The increase in sales and marketing
expenses for the six months ended June 30, 1998 was primarily attributable to
an increase in salaries and related expenses (including payroll taxes and
benefits) and related costs of $309,000 for its in-house sales force which did
not exist during the six months ended June 30, 1997. Barter transactions
accounted for approximately 29% and 35% of sales and marketing expenses for the
six months ended June 30, 1998 and 1997, respectively. Management expects sales
and marketing expenses to increase due to the growth of its sales force and
increase in advertising and promotional activities.
General and Administrative Expenses. General and administrative expenses
consist primarily of employee salaries and related expenses (including payroll
taxes and benefits) for executive, administrative, and accounting personnel,
facility costs, recruiting fees, insurance costs and professional fees. General
and administrative expenses for the six months ended June 30, 1998 increased 3%
to $1,332,000 from $1,295,000 for the six months ended June 30, 1997. General
and administrative expenses were approximately the same for the two periods
because the infrastructure in place during the six months ended June 30, 1997
was sufficient to support the growth of the Company's online services business.
Management expects general and administrative expenses to increase in future
periods due to the growth of the business.
22
<PAGE>
Depreciation and Amortization. Depreciation and amortization consists primarily
of depreciation of property and equipment and amortization of intangible assets
related to acquisitions. Depreciation and amortization for the six months ended
June 30, 1998 increased 240% to $477,000 from $140,000 for the six months ended
June 30, 1997. The increase was primarily a result of additional depreciation
on property and equipment and amortization of intangible assets from
acquisitions.
Interest and Other Income, net. Interest and other income, net consists
primarily of interest earned on cash and cash equivalents. Interest and other
income, net for the six months ended June 30, 1998 increased 16% to $78,000
from $68,000 for the six months ended June 30, 1997. The increase was primarily
the result of higher average cash balances during the six months ended June 30,
1998.
Income Taxes. No provision for federal and state income taxes has been recorded
as the Company incurred net operating losses through June 30, 1998. As of
December 31, 1997, the Company had approximately $7.4 million of net operating
loss carryforwards for federal income tax purposes, expiring in 2012, available
to offset future taxable income. Given the Company's limited operating history,
losses incurred to date and the difficulty in accurately forecasting the
Company's future results, management does not believe that the realization of
the related deferred income tax assets meets the criteria required by generally
accepted accounting principles and, accordingly, a full 100% valuation
allowance has been recorded.
Year Ended December 31, 1997 Compared to Year Ended December 31, 1996
Revenues. Revenues for 1997 increased 140% to $1.1 million from $472,000 for
1996. The increase resulted from growth in the volume of advertising
impressions sold and a full year of advertising sales activity in 1997 compared
to only seven months of advertising sales activity in 1996. During 1997, the
average selling price (CPM) for advertising did not change substantially
compared to 1996 levels. Barter transactions accounted for approximately 16%
and 55% of revenues for the years ended December 31, 1997 and 1996,
respectively. During 1997, barter advertising revenues primarily related to the
exchange of advertisements with other companies. In 1996, as a result of the
contribution by Sun Microsystems of server equipment with a value of $257,000
in exchange for advertising, the Company recorded a one-time barter
transaction.
Cost of Revenues. The cost of revenues for 1997 increased 332% to $1.4 million
from $314,000 for 1996. This increase was primarily the result of costs related
to the growth of the Company's online business which included hiring additional
content and productions personnel resulting in increased employee salaries and
related expenses (including payroll taxes and benefits) of $821,000.
Product Development Expenses. Product development expenses for 1997 increased
1,367% to $1.0 million from $68,000 in 1996. The increase in product
development expenses was primarily the result of increased salaries and related
expenses (including payroll taxes and benefits) of $580,000, and consultant
fees of $252,000 to support the development of the Company's online services.
Sales and Marketing Expenses. Sales and marketing expenses for 1997 increased
304% to $1.0 million from $252,000 in 1996. The increase in sales and marketing
expenses is primarily the result of an increase in marketing activities,
including advertising, trade show exhibitions, and promotional activities which
increased $493,000 and employee salaries and related costs (including payroll
taxes and benefits), which increased $163,000. Expenses from barter
transactions were 18% and 0% of sales and marketing expenses for the years
ended December 31, 1997 and 1996, respectively.
General and Administrative Expenses. General and administrative expenses for
1997 increased 42% to $2.6 million from $1.8 million in 1996. The increase in
general and administrative expenses was predominantly the result of increased
salaries and related expenses (including payroll taxes and benefits) of
$550,000, with the balance of the increase primarily due to increases in rent
expense for the Company's additional office space and recruiting costs.
Depreciation and Amortization. Depreciation and amortization for 1997 increased
785% to $893,000 from $101,000 for 1996. This increase was primarily the result
of additional depreciation on property and equipment and amortization of
intangible assets from the JARS acquisition. In addition, depreciation and
amortization expense for 1997 included a write-off of intangible assets of
$337,000 related to the JARS acquisition.
Interest and Other Income, net. Interest and other income, net for 1997
increased 334% to $267,000 from $61,000 for 1996. The increase was the result
of higher average cash balances during 1997.
Year Ended December 31, 1996 Compared to Year Ended December 31, 1995
During the year ended December 31, 1995, EarthWeb did not generate any revenues
from its online services business and operating expenses increased
approximately $1.5 million due primarily to increases in sales and marketing
expenses and the growth of the Company's infrastructure. The Company does not
believe that a comparison of its results of operations for these two periods
would be meaningful.
23
<PAGE>
QUARTERLY RESULTS OF OPERATION
The following table sets forth certain unaudited quarterly statement of
operations data for each of the four quarters during the year ended December
31, 1997 as well as the two quarters in the six months ended June 30, 1998. In
the opinion of management, this information has been prepared substantially on
the same basis as the audited financial statements appearing elsewhere in this
Prospectus, and all necessary adjustments, consisting only of normal recurring
adjustments, have been included in the amounts stated below to present fairly
the unaudited quarterly results. The quarterly data should be read in
conjunction with the audited financial statements of the Company and the notes
thereto appearing elsewhere in this Prospectus. The operating results for any
quarter are not necessarily indicative of the operating results for any future
period.
<TABLE>
<CAPTION>
---------------------------------------------------------------------
QUARTERS ENDED
MARCH 31, JUNE 30, SEPT. 30, DEC. 31, MARCH 31, JUNE 30,
1997 1997 1997 1997 1998 1998
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Dollars in thousands
Revenues:
Advertising............ $ 261 $ 239 $ 177 $ 294 $ 284 $ 640
Other.................. 69 23 17 55 24 26
--------- --------- --------- --------- --------- ---------
Total revenues........ 330 262 194 349 308 666
Cost of revenues........ 258 343 346 411 395 398
--------- --------- --------- --------- --------- ---------
Gross profit (deficit).. 72 (81) (152) (62) (87) 268
Operating expenses:
Product development.... 237 239 291 236 246 310
Sales and marketing.... 159 265 328 266 333 477
General and
administrative........ 610 686 706 565 605 727
Depreciation and
amortization.......... 63 77 199 554 233 244
--------- --------- --------- --------- --------- ---------
Total operating
expenses............. 1,069 1,267 1,524 1,621 1,417 1,758
--------- --------- --------- --------- --------- ---------
Loss from operations.... (997) (1,348) (1,676) (1,683) (1,504) (1,490)
Interest and other
income, net............ 41 26 125 75 47 31
--------- --------- --------- --------- --------- ---------
Loss from continuing
operations............. (956) (1,322) (1,551) (1,608) (1,457) (1,459)
Loss from discontinued
operations............. (172) (377) (631) (1,204) -- --
--------- --------- --------- --------- --------- ---------
Net loss................ $ (1,128) $ (1,699) $ (2,182) $(2,812) $ (1,457) $(1,459)
========= ========= ========= ========= ========= =========
</TABLE>
As a result of the Company's extremely limited operating history, the Company
does not have historical financial data for a significant number of periods on
which to base planned operating expenses. The Company's expense levels are
based in part upon its expectations concerning future revenue and, to a certain
extent, are fixed. Quarterly revenues and operating results depend
substantially upon the advertising revenues received within the quarter, which
are difficult to forecast accurately. Accordingly, the cancellation or deferral
of a small number of advertising contracts could have a material adverse effect
on the Company's business, results of operations and financial condition. The
Company may be unable to adjust spending in a timely manner to compensate for
any unexpected revenue shortfall, and any significant shortfall in revenue in
relation to the Company's expectations would have an immediate adverse effect
on the Company's business, results of operations and financial condition.
Due to the foregoing factors, quarterly revenues and results of operations are
difficult to forecast, and the Company does not believe that period-to-period
comparisons of its operating results will necessarily be meaningful and should
not be relied upon as indicators of future performance. In one or more future
quarters the Company's results of operations may fall below the expectations of
securities analysts and investors. In such event, the trading price of the
Common Stock would likely be materially adversely affected.
The Company has a limited operating history and its prospects are subject to
the risks, expenses and uncertainties frequently encountered by companies in
the new and rapidly evolving markets for Internet products and services. These
risks include the failure to develop and extend the Company's online service
brands, the rejection of the Company's services by Internet consumers, vendors
and/or advertisers, the inability of the Company to maintain and increase the
levels of traffic on its online services, as well as other risks and
uncertainties.
24
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company historically has satisfied its cash requirements primarily through
private placements of convertible preferred stock and common stock and lease
financings.
Net cash used in operating activities was $6.7 million for the year ended
December 31, 1997 and $2.5 million for the six months ended June 30, 1998. Cash
used in operating activities in 1997 was primarily attributable to a net loss
of $7.8 million, partially offset by depreciation and amortization of $893,000.
Cash used in operating activities for the first six months of 1998 resulted
primarily from a net loss of $2.9 million, offset by depreciation and
amortization of $477,000.
Net cash used in investing activities of $2.3 million for the year ended
December 31, 1997 was primarily attributable to cash used for the purchase of
fixed assets of $954,000, acquisitions of $812,000 and a restricted deposit of
$512,000 collateralizing letters of credit. Net cash used in investing
activities for the first six months of 1998 of $638,000 was attributable to
purchases of fixed assets of $251,000, payments on obligations related to
acquisitions of Web sites of $537,000, offset by the release of restricted cash
of $150,000. In July 1998, the Company used approximately $700,000 for the
acquisition of various assets.
Net cash provided by financing activities was $10.0 million for the year ended
December 31, 1997 and primarily consisted of proceeds from the issuance of
Series B Preferred Stock. Net cash provided by financing activities was $3.1
million for the first six months ended June 30, 1998 related to the issuance of
Common Stock. In July 1998, the Company received an additional $638,000 in
connection with the issuance of Common Stock in June 1998.
The Company currently believes that the cash proceeds from the Offering,
together with existing cash balances, will be sufficient to meet anticipated
cash requirements until such time as the Company generates positive cash flow
from operations. There can be no assurance that additional capital beyond the
amounts currently forecasted by the Company will not be required nor that any
such required additional capital will be available on reasonable terms, if at
all, at such time as required by the Company.
YEAR 2000
The Year 2000 issue involves the potential for system and processing failures
of date-related data resulting from computer-controlled systems using two
digits rather than four to define the applicable year. For example, computer
programs that contain time-sensitive software may recognize a date using two
digits of "00" as the year 1900 rather than the year 2000. This could result in
system failure or miscalculations causing disruptions of operations, including,
among other things, a temporary inability to process transactions, send
invoices or engage in similar ordinary business activities.
EarthWeb believes that its internal software and hardware systems will function
properly with respect to dates in the year 2000 and thereafter and has
completed its internal IT and non-IT assessment. The Company expects to incur
no significant costs in the future for Year 2000 problems. Nonetheless, there
can be no assurance in this regard until such systems are operational in the
year 2000. The Company has contacted all of its significant suppliers to
determine the extent to which the Company's systems are vulnerable to those
third parties' failure to make their own systems Year 2000 compliant. The
Company was informed by such suppliers that their systems are Year 2000
compliant. Additionally, any Year 2000 problems experienced by the Company's
advertising customers could affect the placement of advertisements on the
Company's online services. In the event any of the Company's suppliers or
vendors prove not to be Year 2000 compliant, the Company believes that it could
find a replacement vendor or supplier which is Year 2000 compliant without
significant delay or expense. However, if substantially all of the Company's
suppliers and vendors prove not to be Year 2000 compliant and if the Company
experiences difficulties in finding replacement vendors, then, as a result, the
Company's business could be materially adversely affected. The failures to
correct material Year 2000 problems by the Company's suppliers and vendors
could result in an interruption in, or a failure of, certain normal business
activities or operations of the Company. Such failures could materially and
adversely affect the Company's results of operations, liquidity and financial
condition. Due to the general uncertainty inherent in the Year 2000 problem,
resulting from the uncertainty of the Year 2000 readiness of third-party
suppliers and vendors, the Company is unable to determine at this time whether
the consequences of Year 2000 failures will have a material impact on the
Company's results of operations, liquidity or financial condition.
25
<PAGE>
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, FASB issued Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income" ("SFAS No. 130"), which establishes standards
for reporting and display of comprehensive income and its components in the
financial statements. SFAS No. 130 is effective for fiscal years beginning
after December 15, 1997. Reclassification of financial statements for earlier
periods provided for comparative purposes is required. SFAS No. 130 offers
alternatives for presentation of disclosures required by the standard. The
adoption of SFAS No. 130 is not expected to have an impact on the Company's
results of operations, financial position or cash flows.
In June 1997, FASB issued Statement of Financial Accounting Standards No. 131,
"Disclosures about Segments of an Enterprise and Related Information" ("SFAS
No. 131"), which establishes standards for reporting information about
operating segments in annual financial statements. 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. The adoption of SFAS No. 131 is not expected to have an
impact on the Company's results of operations, financial position or cash
flows.
In February 1998, FASB issued SFAS No. 132, "Employers' Disclosures about
Pension and Other Postretirement Benefits" ("SFAS No. 132"), which requires
disclosures about pension and postretirement benefits. SFAS No. 132 is
effective for fiscal years beginning after December 15, 1997. The adoption of
SFAS No. 132 is not expected to have an impact on the Company's results of
operations, financial position or cash flows.
In March 1998, the American Institute of Certified Public Accountants ("AICPA")
issued Statement of Position 98-1, "Accounting for the Cost of Computer
Software Developed or Obtained for Internal Use" ("SOP 98-1"). SOP 98-1 is
effective for financial statements for years beginning after December 15, 1998.
SOP 98-1 provides guidance over accounting for computer software developed or
obtained for internal use including the requirement to capitalize specified
costs and amortization of such costs. The Company does not expect the adoption
of this standard to have a material effect on the Company's capitalization
policy.
In March 1998, AIPCA issued Statement of Position 98-4, "Deferral of the
Effective Date of a provision of SOP 97-2" ("SOP 98-4"). SOP 98-4 defers for
one year the application of certain provisions of Statement of Position 97-2
"Software Revenue Recognition" ("SOP 97-2"). Different informal and
unauthoritative interpretations of certain provisions of SOP 97-2 have arisen
and, as a result, the AICPA is considering amendments to SOP 97-2, so they can
issue interpretations regarding the applicability and the method of application
of those provisions. The adoption of SOP 97-2 has not had a material impact on
the Company's results of operations, financial position or cash flows. However,
due to the uncertainties related to the outcome of these amendments, the impact
on the future financial results of the Company is not currently determinable.
In April 1998, the AICPA issued Statement of Position 98-5, "Reporting on the
Costs of Start-Up Activities" ("SOP 98-5"). SOP 98-5, which is effective for
fiscal years beginning after December 15, 1998, provides guidance on the
financial reporting of start-up costs and organization costs. It requires costs
of start-up activities and organization costs to be expensed as incurred. As
the Company has expensed these costs historically, the adoption of this
standard is not expected to have a significant impact on the Company's results
of operations, financial position or cash flows.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivatives and
Hedging Activities" ("SFAS 133"), which establishes accounting and reporting
standards of derivative instruments, including certain derivative instruments
embedded in other contracts, and for hedging activities. The adoption of SFAS
No. 133 is not expected to have an impact on the Company's results of
operations, financial position or cash flows upon the adoption of this
standard.
26
<PAGE>
BUSINESS
The following Business section contains forward-looking statements which
involve risks and uncertainties. The Company's actual results could differ
materially from those anticipated in these forward-looking statements as a
result of certain factors, including those set forth under "Risk Factors" and
elsewhere in this Prospectus.
EarthWeb is the leading provider of Internet-based online services to the IT
community worldwide. The Company's integrated business-to-business online
services address the needs of IT professionals for content, community and
commerce. EarthWeb's content offerings include a wide range of technical
materials, such as resource directories, tutorials and a reference library,
which enhance the ability of IT professionals to perform their job functions.
Its community areas, such as bulletin boards and question and answer services,
allow users to help one another solve technical problems and share information.
Its commerce services provide a single online source for IT professionals to
purchase specialized software and other products. EarthWeb's online services
also offer a channel through which advertisers and vendors can efficiently and
effectively target what the Company believes to be the largest aggregation of
IT professionals worldwide. As a global intermediary for IT professionals,
advertisers and vendors, EarthWeb is positioned as a trusted third party that
offers an integrated environment where these constituencies can share
information, interact with one another and transact business. EarthWeb believes
that none of the companies which it considers its competitors offer the depth
and range of online services provided by the Company.
EarthWeb's online services address the needs of IT professionals across various
segments of the IT industry. EarthWeb's flagship service, developer.com,
focuses primarily on the software development and Internet segments.
Developer.com features a vast collection of online resources, including the
full text of more than 150 technical books, over 375 proprietary tutorials, and
access to over 150,000 technical resources. EarthWeb has also obtained the
online rights to over 3,000 additional technical books that are expected to be
added to its online reference library. Developer.com's Gamelan directory is the
industry-recognized site for Java resources. The Company recently acquired
datamation.com, a leading resource for IT enterprise managers providing case
studies, technical articles and technology assessment tools. EarthWeb's online
services also include intranetjournal.com, a site for intranet managers,
javascripts.com, a resource for JavaScript developers, and jars.com, a site
providing ratings and reviews of Java and other code. Since March 1998 (the
first month in which the Company was afforded reliable data to make such a
calculation) EarthWeb's unique blend of online services has attracted an
average of over 1.4 million users a month to its online services (based on the
number of distinct Internet Protocol addresses which log onto the Company's
services). The email version of EarthWeb's Journal, featuring highlights from
the Company's online services, currently has over 305,000 subscribers.
INDUSTRY OVERVIEW
IT Industry
Professionals in the IT industry have become more specialized and have grown in
number as the pace and complexity of technological change has increased. IT
professionals today play a central role in many organizations because their
ability to deploy and integrate new information technologies is essential to
executing business strategy and maintaining competitiveness. Organizations are
increasingly adopting technologies such as client/server architectures, data
warehousing, Internet/intranet applications and object-oriented software
development. These and other technologies have continued to fuel the growth in
the worldwide market for IT products and services, which is forecasted to grow
from an estimated $717 billion in 1997 to $1.1 trillion in 2001, according to
IDC. IT spending in 1997 in North America, Western Europe and Japan is
estimated by IDC to be 41%, 28% and 14%, respectively, of total global IT
spending. EarthWeb believes, based on industry estimates, that the number of IT
professionals worldwide is approximately 15 million and will continue to grow.
27
<PAGE>
With the increasing complexity of information technology, professionals tend to
develop specialized knowledge and skill bases relevant to a particular segment
or sub-segment of the IT industry. These segments can be categorized into six
broad areas, each with major subsegments:
<TABLE>
<CAPTION>
SEGMENT DESCRIPTION MAJOR SUB-SEGMENTS
--------------------- ------------------------------- ------------------------
<C> <C> <S>
Software Development Creation of software C/C++, Java, Visual
applications using various Basic and other
programming languages, tools programming languages,
and environments object-oriented
technology and visual
development environments
Internet Technologies Use of technologies based on Internet, intranet,
and Web Development Internet protocols for extranet, Web sites,
communication and commerce both Internet commerce,
within and between Internet security and
organizations Internet protocols
Enterprise Management Deployment of sophisticated, Systems management
large-scale software software, financial
applications and systems to management systems,
manage and support functions enterprise resource
within businesses and other planning, Year 2000,
organizations middleware, field sales
automation, data
warehousing and supply
chain management
Networking and Design, installation and Network and directory
Telecommunications management of infrastructure services, data and voice
for data and voice communications
communications technologies, wireless
and mobile
communications and
Internet service
provider network
infrastructure
Hardware Design, manufacture, purchase Personal, midrange and
and maintenance of hardware mainframe systems;
components and peripherals computer chip, PC
display, multimedia and
disk storage
technologies
Services, Support and Services that support the Systems integration,
Consulting development, implementation and outsourced custom
maintenance of enterprise development, systems
computing systems design and maintenance,
outsourced network
management and technical
support
</TABLE>
IT professionals need to stay abreast of rapid technological developments in a
marketplace where vendors continually introduce new products with a variety of
standards and short life cycles. They have historically relied on resources
provided by IT publishers, software and hardware vendors, training service
providers and fellow professionals to follow the latest trends in the industry.
IDC forecasts that the IT education and training market alone will grow from an
estimated $16.7 billion in 1997 to $25.8 billion in 2001. Due to the fast rate
of change, however, technical information, training materials, and software
tools become quickly dated and obsolete. This environment creates the following
common needs among IT professionals:
Content. IT professionals require a wide range of independent, in-depth
and up-to-date content including technical resources, such as source
code, technical articles and white papers; market information about
emerging products and technologies; expert technical advice; training
and skills development; IT related research; and specialized reference
materials.
Community. IT professionals need an environment in which they can share
technical information with one another, work together to find solutions
to common technical problems, learn about upcoming IT conferences
and other industry events and seek employment and hire personnel.
Commerce. IT professionals increasingly need a centralized channel
through which they can purchase specialized IT products. In particular,
IT professionals need a source for obtaining hard-to-find technologies,
including software produced by small and mid-sized vendors that is not
widely available through existing channels.
IT professionals devote considerable time, effort and financial resources
researching new technologies, seeking answers to technical questions and
developing and implementing IT solutions. They have had to rely on fragmented
and disparate sources, such as technical books and print magazines, training
materials provided by service providers and traditional software retailers.
None of these sources has provided a comprehensive solution for IT
professionals' need for content, community and commerce.
The Internet
The Internet enables millions of people worldwide to have access to current
news and information, create community among individuals with similar
professional or personal interests and conduct business electronically. The
number of Internet users worldwide is projected to grow from an estimated 82
million at the end of 1997 to 329 million by the year 2002, according to IDC.
With this growth in the number of Internet users, the Internet is emerging as a
mass
28
<PAGE>
communication and commerce medium, which offers advertisers and vendors certain
advantages. The Internet permits advertisers to target specific demographic
groups, measure the effectiveness of their advertising campaigns and revise
them in response to real-time feedback. Business-to-business Internet
advertising is forecasted by Forrester to increase from an estimated $290
million in 1998 to $2.6 billion in 2002 and consumer-oriented Internet
advertising is forecasted by Jupiter Communications to increase from an
estimated $1.9 billion to $7.7 billion in the same period. The Internet
provides online merchants with the ability to reach a global audience and to
operate with minimal infrastructure, reduced overhead and greater economies of
scale, while providing customers with broad selection, increased pricing
information and unparalleled convenience. IDC forecasts that total commerce on
the Internet will grow from an estimated $12.4 billion in 1997 to $239.5
billion in 2001, with the business-to-business component growing from an
estimated $7.3 billion to $179.4 billion in the same period.
THE EARTHWEB SOLUTION
EarthWeb provides online services to IT professionals in an integrated
business-to-business environment that addresses their needs for content,
community and commerce. The Company provides comprehensive online services for
IT professionals and offers channels through which advertisers and IT vendors
can target potential buyers. As a global intermediary for IT professionals,
advertisers and vendors, EarthWeb is positioned as a trusted third party that
offers a forum for these constituencies to share information, interact with one
another and transact business.
Content. EarthWeb's online services provide access to technical resources that
enhance IT professionals' ability to perform their daily job functions. These
resources contain up-to-date information and allow IT professionals to keep
pace with the rapidly changing IT industry. EarthWeb's technical resources
include a library of full-text reference books, training materials and
tutorials, technical articles, white papers and source code libraries. IT
professionals can easily browse these technical resources using EarthWeb's
proprietary categorization system as well as search across EarthWeb's wide
range of content using a single semantic search engine.
Community. EarthWeb provides various means by which users can contribute
materials to its sites and communicate with each other. Users are encouraged to
submit source code, object code, development tools and other materials that are
then archived in EarthWeb's directories. EarthWeb's online services also
include a number of bulletin boards for technical discussion that allow users
to solve problems together, and which are managed by experienced IT
professionals to maintain the quality of content. These discussion threads are
then archived creating an online knowledge repository for future reference.
EarthWeb also provides IT professionals with a centralized calendar of upcoming
conferences and other industry events and online technical job listings. The
Company believes that nurturing a sense of community fosters loyalty and
affinity among its users and increases the amount of time they spend using its
online services.
Commerce. EarthWeb provides IT professionals with a centralized online location
to purchase products, including specialized software and technical books. Many
of the products in the online store are difficult to find through existing
channels. Vendors include major software developers, such as Microsoft, Lotus
and Symantec, as well as small and mid-sized specialized software vendors.
EarthWeb also provides a classified advertising service that allows IT
professionals to buy and sell specialized hardware. The Company has implemented
an electronic software delivery mechanism that enables users to download
directly a variety of software immediately after purchase.
Benefits for Advertisers and Vendors. EarthWeb provides IT advertisers and
vendors with a channel to target what it believes to be the world's largest
aggregation of IT professionals. Many of these professionals either make or
influence purchasing decisions. EarthWeb's advertisers and vendors generally
can enhance the effectiveness of their advertising or merchandising by
customizing or refining advertisements, and by placing them on either a
targeted area on EarthWeb's sites or across EarthWeb's entire network of online
services. EarthWeb also provides small to mid-size vendors with a much needed
distribution channel and the ability to focus their marketing efforts cost
effectively.
BUSINESS STRATEGY
EarthWeb seeks to maintain and strengthen its position as the leading provider
of online services to IT professionals worldwide. The Company intends to
achieve this objective by implementing the following key strategies:
Extend Online Services to Additional IT Segments. EarthWeb intends to extend
its online services model across additional segments of the IT industry.
Specifically, the Company seeks to replicate, through internal development and
acquisitions, its integrated service offerings to address the needs of IT
professionals in segments of the IT industry beyond its current
29
<PAGE>
offerings in the software development, Internet and enterprise management
segments. The recent acquisition of datamation.com, for instance, provides
EarthWeb with a strong service offering for the enterprise management segment.
EarthWeb also intends to continue strengthening its existing online offerings
by maintaining what it believes to be the most in-depth, independent and up-to-
date content available for IT professionals and enhancing its interactive
community-building and commerce services.
Enhance Worldwide Brand Recognition. The Company will continue to promote the
EarthWeb brand as the leading integrated source of content, community, and
commerce for all segments of the IT industry. In addition, EarthWeb plans to
promote its branded online services, such as developer.com and datamation.com,
under the EarthWeb umbrella through online and offline advertising, strategic
alliances and other promotional activities. The Company seeks to reinforce for
users, advertisers, and vendors that the EarthWeb brands represent technical
competence, comprehensiveness, timeliness, and neutrality. The Company believes
that the extension of the EarthWeb's online services model to additional IT
segments will attract additional users and further enhance awareness of its
brands.
Cultivate Multiple Revenue Streams. EarthWeb believes its business-to-business
model has strongly positioned it to grow its existing revenue streams and
develop new sources of revenue. The Company currently derives most of its
revenues from advertising and sponsorships. With regard to advertising revenue,
the Company will seek to maintain or increase the premium CPM rates it commands
for its targeted user base and to attract non-technology advertisers by
marketing the attractive demographics of its IT professional user base. With
regard to the Company's other current revenue streams, EarthWeb seeks to
attract more merchandisers to its online store and enter into additional brand
licensing arrangements. Future sources of revenue include the sale of
subscriptions to premium services. The Company launched its first subscription
service, ITknowledge.com, on October 2, 1998. The Company has the rights to the
content used in launching ITknowledge.com. Although the Company has migrated
some content from its existing sites, the Company expects that most of the
content in the subscription service will be content that does not exist on its
other sites. EarthWeb believes that many IT professionals or their employers
will be willing to pay for access to an increased volume of enhanced content.
The Company believes it can grow its current and future revenue streams with
minimal incremental costs by leveraging its existing sales, marketing and
technology infrastructure.
Grow Through Targeted Acquisitions. EarthWeb will continue to pursue
acquisitions to fulfill a number of objectives. The first, and most important,
is to strengthen EarthWeb's existing online services and extend its offerings
into additional IT industry segments. The second is to obtain valuable brands,
expertise and access to new advertisers and users. The third is to increase
traffic on EarthWeb's online services. Based on the Company's five acquisitions
since August 1997, EarthWeb has found that the addition of new sites generally
increases traffic on its existing sites as well as on the acquired sites.
EarthWeb believes it will continue to be able to find attractive candidates for
acquisition.
Expand Internationally. Many IT professionals reside outside the United States
and approximately one-third of the Company's traffic originates
internationally. EarthWeb believes that the number of IT professionals
worldwide will grow significantly in the future. The Company intends to
capitalize on these international market opportunities through localization and
translation of selected content into foreign languages and the creation of
regional business ventures to increase EarthWeb's audience worldwide. EarthWeb
has successfully localized and translated portions of its content for the
Japanese market and has other language translation efforts underway.
ONLINE SERVICES
EarthWeb offers a broad range of online services to meet IT professionals'
needs for content, community and commerce.
Content
The content on EarthWeb's sites includes technical resources, reference
materials, decision support tools, training materials and tutorials, technical
news, articles and information.
Technical Resources. EarthWeb's online services provide IT professionals with
access to over 150,000 resources and examples for use in their work, including
reusable source code and software interface components. EarthWeb also provides
online decision support tools including a regular technology survey of more
than 1,000 IT professionals and online assessment tools enabling IT managers to
evaluate their technology infrastructure. EarthWeb further provides extensive
technical resource directories which are categorized using its proprietary
categorization system and contain links to over 17,000 technical resources
related to topics such as Active Server Pages, ActiveX, C/C++, Cold Fusion,
CGI, databases,
30
<PAGE>
distributed objects, HTML/DHTML, intranets, Java, JavaScript, middleware, Perl,
push technology, Visual Basic, XML, VRML, data warehousing, networks, Year
2000, datamining and storage systems. Most of these technical resources are
submitted by users and include links to Web sites that contain technical
articles, training materials and source code. Most of the interface components
are provided through licenses with various aggregators of content. EarthWeb has
expended considerable time and effort in developing its proprietary
categorization system which enables users to quickly identify and locate
relevant technical resources, and has received industry recognition for this
system.
Reference Materials. EarthWeb believes its reference library is the largest
online library of technical books for IT professionals. Its more than 150
technical reference, how-to and training books for IT professionals are
provided in full text in HTML and address areas such as ActiveX, APIs,
browsers, C/C++, CGI, Perl, databases, HTML, Intranets, Java, Java Beans,
JavaScript, Linux, middleware, office suites, operating systems and utilities,
push technologies, servers and networks, SQL, TCP/IP, Unix, Visual Basic,
Visual InterDev, VRML, Web graphics and Web site management. EarthWeb is in the
process of adding more than 3,000 additional books to its online reference
library, which will comprise over 1.5 million pages of text. These books are
provided by leading publishers, such as Macmillan Computer Publishing and the
Coriolis Group, a division of International Thompson Publishing. EarthWeb also
provides in-depth product analysis, benchmarks and other product reference
information that facilitate product evaluation. Reference materials can be
browsed by their table of contents or searched using a semantic search engine.
Most of the online books can also be purchased in physical form through
EarthWeb's online store.
Training Materials and Tutorials. EarthWeb features over 375 original,
proprietary, in-depth technical tutorials for IT professionals on subjects such
as Active Server Pages, ActiveX, CGI, databases, distributed objects, emerging
technologies, Internet, HTML/DHTML, intranets, Java, JavaScript, multimedia,
Perl, general programming, Visual Basic, VRML and XML. The tutorials include
workshops on specific technical issues, online textbooks, source code, tests
and quizzes. The vast majority of these tutorials are owned exclusively by
EarthWeb; the others come from a variety of third-party publishers. EarthWeb
believes it offers one of the largest collections of training materials and
tutorials for IT professionals on the Web, and adds new training materials on a
weekly basis.
Technical News, Articles and Information. EarthWeb provides a range of original
articles, aggregated news and case studies. EarthWeb provides a vast collection
of articles on various technical subjects, including software development,
Internet technologies and Web development and enterprise management. EarthWeb
owns the articles which it has commissioned to be written. EarthWeb's online
Journal features highlights from EarthWeb's online services as well as original
news, research, analysis and feature articles. The Journal is published in HTML
and email formats. Currently, the email version has over 240,000 subscribers
and is growing at an average rate of more than 3,000 new subscribers each week.
EarthWeb also provides news of most interest to IT professionals, which is
aggregated daily from various media sources, including CMP and Ziff-Davis.
Community
EarthWeb provides useful interactive forums for IT professionals, such as
technical bulletin boards, question and answer services and job listings.
Technical Bulletin Boards. EarthWeb's online services include more than 20
technical bulletin boards containing more than 3,000 interactive technical
discussion threads, which are focused and managed by experienced IT
professionals. There are currently over 15,000 postings on the Company's Web
sites. These online bulletin boards enable users to help each other solve
technical problems. These bulletin boards are then archived, creating an online
knowledge repository for future reference. EarthWeb enables users to locate
relevant discussion threads through its search engine.
Technical Question and Answer Services. EarthWeb encourages users to submit
questions or problems that are answered by EarthWeb's network of experienced IT
professionals. Detailed answers are published online in a searchable format.
Technical Job Listings; Other Services. EarthWeb has entered into arrangements
with CareerBuilder and Junglee to provide its users with thousands of IT job
listings that can be searched by a number of parameters such as job type,
salary range and geographic location. Currently, companies that have job
listings posted with EarthWeb include Microsoft, Yahoo!, Intel, USWeb and
others. EarthWeb also provides a comprehensive calendar of upcoming IT
conferences and other industry events, and hosts online conference proceedings.
Commerce
EarthWeb provides a channel for IT professionals to shop online for specialized
IT products.
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Online Shopping. EarthWeb's online store provides IT professionals access to
over 700 products from over 100 vendors, including Microsoft, Lotus, Symantec
and other leading IT vendors. EarthWeb also offers products from small and mid-
size specialized software vendors. Many of such products are not available in
stores or catalogs. EarthWeb provides a browsable online catalog, secure
transactions and secure electronic delivery of software products. Books
purchased online are delivered directly from the vendor. EarthWeb intends to
contract with third parties for physical product fulfillment for books and
software. The Company has various agreements with product manufacturers whose
publications and software are sold on the Company's Web sites. The Company
records the gross revenue earned and the related royalty due to the vendor as a
cost of revenue when the products are sent electronically to the customers.
Classified Ads. EarthWeb provides technical classified advertising services for
the IT professional through a contractual arrangement with Classifieds2000. The
classified advertising section includes listings for technical equipment
ranging from desktop computers, modems and printers to hubs/repeaters, routers,
servers and switches.
MARKETING AND SALES
Marketing
The Company employs a combination of online and offline advertising and
promotional campaigns to promote use of its online services by users,
advertisers and vendors. The Company purchases advertising on search engines
and directories such as HotBot, Excite, NetCenter, AltaVista and Lycos and on
selected technical Web sites such as TechWeb and ZDNet. As part of these
arrangements with search engines, the Company buys advertising which appears
when certain keywords or topics are entered. EarthWeb is promoted by over
30,000 links from other Web sites and links on major distribution portals and
search engines. Additionally, EarthWeb's Java directory has a permanent
bookmark on Netscape's Communicator 4.0, and EarthWeb's developer.com was
chosen as one of 21 "gold channels" in the channel directory of Microsoft
Internet Explorers 4.0. EarthWeb further markets its online services through
its Journal, which is currently emailed to more than 305,000 subscribers.
EarthWeb also promotes its online services through traditional print media. The
Company has an ongoing public relations program, participates in tradeshows,
conferences, speaking engagements and promotional contests and publishes
articles in technical publications.
The Company pursues strategic relationships with key marketing partners to
enhance brand awareness. Developer.com's Gamelan directory has been exclusively
designated by Sun Microsystems as "The Official Directory for Java" since 1996.
EarthWeb's developer.com was designated by Apple as the exclusive online
location for the proceedings of the 1998 Apple Worldwide Developers Conference.
EarthWeb also licenses its brands to strategic third parties such as Macmillan
Computer Publishing which established the EarthWeb Press to publish books and
software for IT professionals.
Advertising Sales
EarthWeb historically has derived substantially all of its revenues from the
sale of advertisements. The Company believes it has been able to achieve its
advertising revenues to date primarily through its ability to enable
advertisers to efficiently and effectively reach targeted segments of the IT
community. Based on independent research commissioned by the Company, 81% of
EarthWeb's users are the primary or co-primary decision makers for purchases of
Internet and Web applications in their enterprises. EarthWeb believes that
targeting this audience has enabled it to sell advertising space at rates that
are higher than the average rates charged by online services aimed at more
general audiences since the beginning of 1997. Based upon publicly available
banner advertisement rate cards, EarthWeb's rates are approximately 2.5 to 4.0
times higher than the rates of Lycos, Excite, Yahoo! and Infoseek, which the
Company believes to be a representative group of online services aimed at more
general audiences. Independent research has also shown that 89% of users have
some college education, 30% have at least some graduate level education and 62%
are between 18 and 34 years old. EarthWeb believes these demographics will be
attractive to non-technology advertisers.
The Company offers advertisers two main advertising options: run-of-site and
premium placement. Run-of-site advertisements rotate on a random basis
throughout EarthWeb's online services, offering advertisers the broadest reach
of EarthWeb users. Run-of-site advertisements are typically sold in blocks of
50,000 impressions, currently at a CPM of $68, before volume discounts and
advertising agency commissions, for banner advertising. Advertisements can also
be displayed in specific sections in EarthWeb's service, which target specific
IT professional subsegments, at a CPM of $78, before volume discounts and
advertising agency commissions, for banner advertising. EarthWeb also offers
advertisers the opportunity to sponsor its weekly electronic newsletter, which
reaches over 305,000 users, at a CPM of $100.
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EarthWeb organizes its sales force by geographic regions as follows: New
England/Eastern Canada; Mid-Atlantic; Southeast/Midwest; Texas, Southwest and
two territories within the Northwest. As of July 31, 1998, EarthWeb had an
advertising sales force consisting of 12 representatives. The Company plans to
add several additional sales personnel by the end of 1998.
During the first six months of 1998, 60 advertisers, an increase of 186% over
the last six months of 1997, placed advertisements on EarthWeb's online
services. Microsoft and IBM accounted for approximately 15% and 10%,
respectively, of the Company's revenues for the six months ended June 30, 1998.
The following is a partial list of the Company's significant advertisers:
Allaire Novell
Apple Computer Object Design
CyberCash Oracle
IBM O'Reilly Software
Intel Seagate
Lotus Silicon Graphics
Microsoft Stingray
Miller Freeman Sun Microsystems
Net Objects Tandem
Netscape ZD Expo/JavaOne
COMPETITION
EarthWeb believes it competes on the basis of brand recognition, exclusivity of
content and services, quality and quantity of content, product and resource
selection, convenience, reliability and speed of fulfillment. The Company
believes that it is differentiated and well positioned against its competitors
because of its unique focus on providing a combination of content, community
and commerce, including training materials, technical directories, a reference
library, a knowledge repository of technical questions and answers and
specialized technical products, for its users.
The market for Internet-based online services is relatively new, intensely
competitive and rapidly changing. Since the advent of commercial services on
the Internet, the number of online services competing for users' attention and
spending has proliferated because of, among other reasons, the absence of
substantial barriers to entry, and the Company expects that competition will
continue to intensify. The Company competes with other companies who have
particular sections of their Web sites directed at certain segments or sub-
segments of the professional community, such as Ziff-Davis (InternetUser), CNET
(builder.com and activex.com), CMP (TechWeb), Mecklermedia (webdeveloper.com),
Wired Digital (Webmonkey) and IDG (Javaworld). The Company also competes for
circulation and advertising impressions with general interest portal and
destination sites as well as traditional media. With respect to sales of
products, the Company competes with traditional retailers of such products,
such as book, software and online retail stores.
Many of the Company's current and potential competitors have longer operating
histories, larger customer bases, greater brand recognition and significantly
greater financial, marketing and other resources than the Company. These
competitors may be able to respond more quickly to new or emerging technologies
and changes in customer requirements and to devote greater resources to the
development, promotion and sale of their products and services than the
Company. There can be no assurance that the Company will be able to compete
successfully against its current or future competitors.
INFRASTRUCTURE, OPERATIONS AND TECHNOLOGY
The Company makes its Web sites available using multiple Sun Microsystems and
Wintel-based servers that run on Sun Solaris and Microsoft NT operating
systems. For disk storage, the Company partially relies on a high performance
and fully redundant central storage system from EMC. The full implementation of
this central storage system will significantly enhance the scalability of
EarthWeb's online services. The Company licenses software from the following
vendors: Apache and Netscape (Web servers); Accipiter (advertising management
system); BroadVision (commerce system); Netscape (subscriptions system) and
CyberSource (secure credit card capture and billing).
The Company maintains two data centers, one for production and one for
development and staging. In the event of an outage at the production facility,
the systems in the development and staging center are capable of supporting the
Company's online services. The Company's Internet connections are fully
redundant, so that if a failure in the network or equipment of one service
provider occurs, traffic is automatically routed through the other provider.
All of the Company's
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production servers are powered by an uninterruptible power supply with a diesel
generator designed to provide back-up power to the power supply at the
production facility within seconds of a power outage. In addition, all of the
Company's production systems are copied to backup tapes each night and
regularly stored at an off-site storage facility. The Company maintains a
quality assurance process to constantly monitor its servers, processes and
network connectivity. The Company has implemented these various redundancies
and backup systems in order to minimize the risk associated with damage from
fire, power loss, telecommunications failure, break-ins, computer viruses and
other events beyond the Company's control. See "Risk Factors--Risk of Capacity
Constraints and System Failures."
INTELLECTUAL PROPERTY
The Company protects its intellectual property through a combination of license
agreements, trademark, service mark, copyright, trade secret laws and other
methods of restricting disclosure and transferring title. The Company obtains
the majority of its content under license agreements with publishers, through
work for hire arrangements with third parties and from internal staff
development. The Company currently has no patents or patents pending for its
current online services and does not anticipate that patents will become a
significant part of the Company's intellectual property in the foreseeable
future. The Company also enters into confidentiality agreements with its
employees, consultants, vendors and customers, license agreements with third
parties and generally seeks to control access to and distribution of its
technology, documentation and other proprietary information. The Company
pursues the registration of its trademarks in the United States and
internationally, and has obtained a United States registration for its
"EarthWeb" trademark and the related logo, "Plugin Datamation" and "Datamation"
and has applied for registration of certain of its other trademarks and
servicemarks, such as "developer.com" and "developerdirect.com." The legal
status of intellectual property on the Internet is currently subject to various
uncertainties. See "Risk Factors--Intellectual Property."
EMPLOYEES
As of July 31, 1998 the Company had 53 full time employees, including 16 in
sales and marketing. The Company's future success depends in large part on its
ability to attract and retain highly qualified employees. Competition for such
personnel is intense and there can be no assurance that the Company will be
able to retain its senior management or other key personnel in the future. The
Company's employees are not represented by any union, and the Company considers
its relations with its employees to be good.
FACILITIES
The Company's headquarters are currently located in a leased facility in New
York City consisting of a total of approximately 33,500 square feet of office
space, the majority of which is under a ten year lease.
LEGAL PROCEEDINGS
The Company is not a party to any material legal proceedings.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following sets forth certain information with respect to the directors and
executive officers of the Company as of July 31, 1998.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
NAME AGE POSITION
- --------------------------------------------------------------------------------
<S> <C> <C>
Jack D. Hidary(1) 30 President, Chief Executive Officer and Director
Murray Hidary 27 Executive Vice President, Business Development, Secretary, Treasurer
and Director
Nova Spivack 29 Strategic Planning Advisor and Director
William Gollan 51 Senior Vice President
Irene Math 36 Vice President, Finance
Kevin McPherson 40 Vice President, Worldwide Advertising Sales
John Kleine 44 Vice President, Systems and Operations
Scott Anderson 43 Vice President, Marketing
Cary Davis(1)(2) 32 Director
Henry Kressel(1)(2) 64 Director
</TABLE>
- -------
(1) Member of the Compensation Committee of the Board of Directors
(2) Member of the Audit Committee of the Board of Directors
Messrs. Jack D. Hidary and Murray Hidary are brothers.
JACK D. HIDARY has served as the President, Chief Executive Officer and a
director of the Company since April 1996 and has co-managed its predecessors
since January 1995. Mr. Hidary is a co-founder of the Company. From November
1991 to July 1994, Mr. Hidary served as a Stanley Fellow in Clinical
Neuroscience at the National Institutes of Health, where he helped establish a
digital brain imaging laboratory making use of Internet, neural network and
other advanced technologies. Prior to this fellowship, Mr. Hidary helped build
ColumbiaNet, the online service of Columbia University, where he also studied
Philosophy and Neuroscience.
MURRAY HIDARY has been the Executive Vice President, Business Development and a
director of the Company since April 1996 and has co-managed its predecessors
since January 1995. Mr. Hidary is a co-founder of the Company. Mr. Hidary
studied Music and Composition at New York University.
NOVA SPIVACK has been the Strategic Planning Adviser of the Company since
August 1998 and has been a director of the Company since April 1996. From April
1996 until July 1998, Mr. Spivack served as Executive Vice President, Strategic
Planning of the Company and since January 1995 has co-managed its predecessors.
Mr. Spivack is a co-founder of the Company. Prior to 1994, Mr. Spivack was the
Editor/Reviewer of Interactive and Multimedia News at Individual, Inc. Mr.
Spivack received his B.A. in Philosophy from Oberlin College and a C.S.S.
degree from the International Space University.
WILLIAM GOLLAN has been the Senior Vice President of the Company since November
1997. Prior to joining the Company, Mr. Gollan was a Senior Vice President of
LitleNet beginning in February 1996 focusing on electronic software
distribution. From March 1994 to April 1996, Mr. Gollan was a Vice President,
Sales and Marketing for Kurzweil Applied Intelligence. From December 1987 to
March 1994, Mr. Gollan was a Managing Director of Weathervane Management
Consultants. In 1990, Mr. Gollan co-founded Computer Buying World Magazine, an
IDG monthly trade magazine focused on the computer distribution channel. Mr.
Gollan attended Northeastern University.
IRENE MATH has been the Vice President, Finance of the Company since November
1996. From June 1995 to May 1996, Ms. Math served as Corporate Controller for
MCI/News Corp.'s Internet Ventures. From July 1992 to May 1995, she was a Vice
President in Banking and Corporate Finance at Chemical Bank. From September
1984 to June 1992, Ms. Math held various positions at Arthur Andersen & Co. Ms.
Math graduated from Lehigh University with a B.S. in Accounting and is a
Certified Public Accountant.
KEVIN MCPHERSON has been the Vice President, Worldwide Advertising Sales of the
Company since July 1998. From 1997 through June 1998, Mr. McPherson served as
Vice President and Publisher of BYTE Magazine. From September 1996 to January
1997, Mr. McPherson served as Senior Vice President of Network Sales for IDG.
From 1981 through September 1996, Mr. McPherson served in various capacities at
Computerworld including Senior Vice President and Publisher. Mr. McPherson
received a B.A. from the University of Richmond and an M.B.A from the
University of Connecticut.
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<PAGE>
JOHN KLEINE has been the Vice President, Systems and Operations of the Company
since January 1998. Prior to joining the Company, Mr. Kleine served as Vice
President, Director of Business Systems from 1983 to 1997 at True North
Communications where he was responsible for all desktop systems, voice and data
networking, data center operations and graphics design computing. Prior to
1983, Mr. Kleine held various financial positions at Warner Communications,
Inc. and Viacom International, Inc. Mr. Kleine received his B.A. in Accounting
and Mathematics from Queens College.
SCOTT ANDERSON has been the Vice President, Marketing of the Company since
August 1998. From 1994 to July 1998, Mr. Anderson served as a Partner and
Worldwide Management Supervisor at Ogilvy & Mather where he ran the global IBM
Software Group account. In 1994, Mr. Anderson worked at west coast advertising
agency, Suissa Miller, where he launched Crayola's software family. Prior to
that, he worked at Drew Advertising where, among other accomplishments, he
built the Peter Norton software brand franchise. He won the American Marketing
Association's Effie award for marketing effectiveness for both the Crayola and
IBM software launches. Mr. Anderson received a B.S. from Rutgers University.
CARY DAVIS has been a director of the Company since February 1998. Mr. Davis
has served with E.M. Warburg, Pincus & Co., LLC, since October 1994 and has
been a Vice President since January 1998. From August 1992 to September 1994,
Mr. Davis was employed by Dell Computer Corporation, where his last position
was Manager of Worldwide Desktop Marketing. Mr. Davis also serves as a director
of BEA Systems, Inc. Mr. Davis holds a B.A. from Yale University and an M.B.A.
from Harvard University.
HENRY KRESSEL has been a director of the Company since October 1996. Dr.
Kressel has served with E.M. Warburg, Pincus & Co., LLC, an investment firm,
since 1983 and has been a Managing Director since 1985. Prior to 1983, Dr.
Kressel was Staff Vice President for research and development in solid state
technology at the RCA Corporation. Dr. Kressel also serves as a director of
Level One Communications, Inc., a semi-conductor company, IA Corporation, a
software development company and Nova Corporation, a credit card processing
company. Dr. Kressel received a B.A from Yeshiva University, a Masters in
Applied Physics from Harvard University, a Ph.D. in Engineering from the
University of Pennsylvania and an M.B.A. from The Wharton School of Business at
the University of Pennsylvania.
BOARD OF DIRECTORS
The Company currently has five directors serving on its Board of Directors.
Each of the current members of the Board of Directors has been elected pursuant
to the terms of the Amended and Restated Shareholders Agreement entered into in
June 1997 by and among Global Network Partners LLC ("GNP"), EarthWeb LLC and
Warburg, which provisions will terminate upon the consummation of the Offering.
The Board of Directors has established an Audit Committee, the members of which
are Henry Kressel and Cary Davis, who are nonemployee directors and a
Compensation Committee, the members of which are Henry Kressel and Cary Davis,
who are nonemployee directors, and Jack D. Hidary.
The Audit Committee is responsible for recommending to the Board of Directors
the engagement of the independent auditors of the Company and reviewing with
the independent auditors the scope and results of the audits, the internal
accounting controls of the Company, audit practices and the professional
services furnished by the independent auditors.
The Compensation Committee is responsible for reviewing and approving all
compensation arrangements for officers of the Company, and is also responsible
for administering the Stock Plan.
The Delaware General Corporation Law provides that a Company may indemnify its
directors and officers as to certain liabilities. The Company's Certificate of
Incorporation and Bylaws provide for the indemnification of its directors and
officers. The effect of such provisions is to indemnify, to the fullest extent
permitted by law, the directors and officers of the Company against all costs,
expenses and liabilities incurred by them in connection with any action, suit
or proceeding in which they are involved by reason of their affiliation with
the Company. The Company intends to maintain directors and officers liability
insurance.
The Company does not currently pay any director's fees.
EMPLOYMENT AND CONSULTING AGREEMENTS
Jack D. Hidary and Murray Hidary (the "Managers") entered into employment
agreements (individually, an "Employment Agreement" and, collectively, the
"Employment Agreements") with GNP effective January 1, 1995. Each Employment
Agreement provided for an initial two year term, which will extend
automatically for additional one-year terms unless terminated by 60 days prior
notice from the respective Manager. Through an Intercompany Services Agreement
dated as of October 25, 1996 among the Managers, Nova Spivack, the Company, GNP
and EarthWeb LLC (the "Intercompany Services Agreement"), which amends certain
provisions of each of the Employment Agreements (and for purposes of the
following discussion, all references to the Employment Agreements shall be to
the Employment Agreements as amended by the
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<PAGE>
Intercompany Services Agreement), each of the Managers agreed to serve as an
officer and employee of the Company as if the Company were "the Company" under
their respective Employment Agreement. In connection therewith, the Company
agreed to assume all of the obligations of GNP under the Employment Agreements,
including payments of salary and other compensation. Mr. Jack D. Hidary
receives an annual base salary of $160,000 per annum, subject to cost of living
increases, and Mr. Murray Hidary receives an annual base salary of $130,000 per
annum, subject to cost of living increases. Each Manager is also entitled to
receive bonuses as may from time-to-time be awarded by the Board of Directors
to such Manager.
In the event either Mr. Jack D. Hidary or Mr. Murray Hidary is terminated
without "cause" (as such term is defined in the respective Employment
Agreement), each may continue to receive their respective base salary for a
period of up to two years following such termination. The continued payment of
such Manager's base salary is contingent upon such Manager's not disclosing the
Company's confidential information or competing with the business of the
Company.
The Company entered into a consulting agreement with Nova Spivack, effective
August 1, 1998, pursuant to which Mr. Spivack will provide advisory services to
the CEO and senior management. Under this agreement, Mr. Spivack receives
compensation in the amount of $6,000 per month, subject to cost of living
increases, and a separation payment of $200,000 in cash, of which $100,000 was
paid upon execution of the agreement and the remainder will be paid upon the
earlier to occur of the consummation of this Offering and February 1, 1999. The
term of the agreement is 18 months. If EarthWeb terminates the agreement for
"cause", as defined in the agreement, Mr. Spivack will be entitled to up to 12
months compensation plus bonuses. If EarthWeb terminates the agreement without
"cause", Mr. Spivack will be entitled to up to 18 months compensation plus
bonuses. If Mr. Spivack terminates the agreement for "cause", as defined in the
agreement, he may be entitled to up to 15 months compensation plus bonuses. If
Mr. Spivack terminates the agreement without "cause", he may be entitled to up
to 12 months compensation plus bonuses. The agreement prohibits Mr. Spivack
from competing with the Company during the term of the agreement and for two
years thereafter, subject to an additional two-year extension.
The Company entered into an employment agreement with Irene Math dated November
4, 1996, pursuant to which Ms. Math serves as Vice President, Finance of the
Company. The agreement provides for an initial annual base salary of $115,000,
subject to cost of living increases. Ms. Math is also entitled to receive
bonuses payable in accordance with management bonus programs established by the
Company. The agreement is terminable at any time by either party. In the event
of (i) the involuntary termination of Ms. Math by the Company for reasons set
forth in the agreement, or (ii) a change of control, Ms. Math is entitled to
receive (a) up to six months salary and benefits, and (b) the vesting of an
additional 15% of any unvested stock options. The agreement prohibits Ms. Math
from competing with the Company during the term of the agreement and for one
year thereafter.
The Company entered into an employment agreement with William Gollan dated
November 3, 1997, pursuant to which Mr. Gollan serves as Senior Vice President
of the Company. Mr. Gollan was paid a one-time signing bonus of $42,500.
The agreement provides for an initial annual base salary of $137,500, subject
to increase upon certain specified business results being achieved, plus
bonuses. If Mr. Gollan is terminated "without cause" as defined in the
agreement, he is entitled to up to nine months salary and benefits. Pursuant to
the terms of his stock option agreement, upon a termination of Mr. Gollan
without cause or the occurrence of certain significant events, the vesting of
certain of Mr. Gollan's stock options will accelerate. The agreement prohibits
Mr. Gollan from competing with the Company during the term of the agreement and
one year thereafter.
BENEFIT PLANS
Stock Option Plan
The Company's 1996 Amended and Restated Stock Plan, (as amended to date, the
"Stock Plan") was adopted by the Board of Directors of the Company in October
1996 and was subsequently ratified by the stockholders of the Company. The
Stock Plan provides for the grant of incentive stock options and non-qualified
stock options. The Stock Plan also provides for the issuance of stock
appreciation rights and restricted stock. Directors, employees and consultants
of the Company are eligible to receive grants under the Stock Plan. The Stock
Plan is administered by the Compensation Committee. The Stock Plan authorizes
646,857 shares of Common Stock for issuance, subject to adjustment as set forth
in the Stock Plan. As of December 31, 1997, options relating to 201,489 shares
of Common Stock were outstanding and approximately 445,368 remained available
for future grants. No stock appreciation rights of restricted stock have been
granted under the Stock Plan.
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401(k) Plan
The Company maintains a 401(k) retirement savings plan (the "401(k) Plan"). All
employees of the Company, meeting certain minimum eligibility requirements are
eligible to participate in the 401(k) Plan. The 401(k) Plan provides that the
employee may contribute up to 15% of his or her pre-tax gross compensation (but
not greater than a statutorily prescribed annual limit). The 401(k) Plan
permits, but does not require, additional contributions to the 401(k) Plan by
the Company. All amounts contributed by the employee participants in
conformance with plan requirements and earnings on such contributions are fully
vested at all times. For the year ended December 31, 1997, the Company did not
contribute to the 401(k) Plan.
SUMMARY OF EXECUTIVE COMPENSATION
The table below sets forth information concerning the annual and long-term
compensation for services rendered in all capacities to the Company during the
year ended December 31, 1997 for: (i) the Chief Executive Officer of the
Company and (ii) each other executive officers of the Company whose salary and
bonus exceeded $100,000 in 1997 (collectively, the "Named Executive Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
-------------------------------------------
LONG-TERM
COMPENSATION
AWARDS
ANNUAL COMPENSATION ------------
SECURITIES
NAME AND OTHER ANNUAL UNDERLYING
PRINCIPAL POSITION SALARY BONUS(1) COMPENSATION OPTIONS
- ------------------ -------- -------- ------------ ------------
<S> <C> <C> <C> <C>
Jack D. Hidary
Chief Executive Officer and
President $160,000 $10,000 -- --
Nova Spivack(2)
Executive Vice President,
Strategic Planning 130,000 10,000 -- --
Murray Hidary
Executive Vice President,
Business Development 130,000 10,000 -- --
Irene Math
Vice President, Finance 118,000 10,000 -- 29,249
</TABLE>
- -------
(1) Represents bonuses earned in 1997, one-half of which was paid in 1998.
(2) Mr. Spivack was Executive Vice President, Strategic Planning through July
1998.
OPTION GRANTS IN FISCAL YEAR ENDED DECEMBER 31, 1997
The following table sets forth information regarding stock options granted
pursuant to the Stock Plan during the fiscal year ended December 31, 1997 to
each of the Named Executive Officers. The Company has never granted stock
appreciation rights.
<TABLE>
<CAPTION>
---------------------------------------------------------------------------
OPTION GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS
-----------------------------------------------------
PERCENT OF
TOTAL OPTIONS POTENTIAL REALIZABLE
GRANTED TO VALUE AT ASSUMED
EMPLOYEES (NET ANNUAL RATES
NUMBER OF OF FORFEITURES) IN OF
SECURITIES FISCAL YEAR EXERCISE OR STOCK PRICE
UNDERLYING ENDED BASE APPRECIATION FOR
OPTIONS DECEMBER 31, PRICE PER EXPIRATION OPTION TERM(4)
NAME GRANTED(1) 1997(2) ($/SHARE)(3) DATE 5% 10%
- ---- ---------- ------------------ ------------ ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Jack D. Hidary.......... -- -- $ -- -- -- --
Nova Spivack............ -- -- -- -- -- --
Murray Hidary........... -- -- -- -- -- --
Irene Math.............. 17,518 8.7% $1.54 2/18/04 $293,469 $416,813
11,731 5.8% $3.08 9/30/04 $178,456 $261,054
</TABLE>
- -------
(1) Such options were granted pursuant to and in accordance with the Stock
Plan. See "Benefit Plans--Stock Option Plan."
(2) Based on an aggregate of 201,489 options granted (net of forfeitures) to
employees in the year ended December 31, 1997, including options granted to
Named Executive Officers.
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(3) The exercise price per share of each option was equal to the fair market
value of the Common Stock on the date of the grant as determined by the Board
of Directors. The Company determined fair market value of the Common Stock on
the date of the grant based upon the most recent price paid by a third party
for the Company's Preferred Stock with an appropriate discount as a result of
the Preferred Stock having a liquidation preference, the right to board
representation and a cumulative preferred dividend.
(4) Potential realizable values are computed by (i) multiplying the number of
shares of Common Stock subject to a given option by an assumed initial public
offering price of $13.00 per share, (ii) assuming that the aggregate stock
value derived from that calculation compounds at the annual 5% or 10% rate
shown in the table for the entire seven-year term of the option and (iii)
subtracting from that result the aggregate option exercise price. The 5% and
10% assumed annual rates of stock price appreciation are mandated by the rules
of the Securities and Exchange Commission and do not represent the Company's
estimate or projection of future Common Stock prices. Actual gains, if any,
resulting from stock option exercises and Common Stock holdings are dependent
on the future performance of the Common Stock, overall stock market conditions
and the option holder's continued employment with the Company through the
vesting period. There can be no assurance that the amounts reflected in this
table will be achieved.
DECEMBER 31, 1997 -- FISCAL YEAR END OPTION VALUES
The following table sets forth information concerning the values of unexercised
in-the-money options held by the Named Executive Officers as of December 31,
1997, which represent the positive spread between the respective exercise
prices of outstanding stock options and an assumed initial public offering
price of $13.00 per share.
<TABLE>
<CAPTION>
---------------------------------------------------
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS AT
FISCAL YEAR END FISCAL YEAR END(1)
------------------------- -------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Jack D. Hidary.............. -- -- -- --
Nova Spivack................ -- -- -- --
Murray Hidary............... -- -- -- --
Irene Math.................. -- 29,249 -- $317,128
</TABLE>
- -------
(1) Based on the value of $13.00, the assumed initial public offering price per
share, minus the per share exercise price, multiplied by the number of shares
issuable upon exercise of the option.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
On August 1, 1998, Messrs. Jack D. Hidary, Cary Davis and Henry Kressel were
appointed as members of the Compensation Committee. Mr. Hidary has served as
President and Chief Executive Officer of the Company since April 1996. Mr.
Hidary is also a member of GNP, which is the controlling member of EarthWeb
LLC. In October 1996, the Company issued 2,925,000 shares of Common Stock to
EarthWeb LLC and assumed substantially all of the liabilities of EarthWeb LLC
in exchange for substantially all of the assets of EarthWeb LLC. At the time of
such transaction, EarthWeb LLC was the sole owner of Common Stock then
outstanding and, consequently, the members of EarthWeb LLC (which included GNP,
of which Messrs. Jack D. Hidary, Murray Hidary and Nova Spivack were the
members at such time) retained their proportionate interests in EarthWeb
through the ownership by EarthWeb LLC of such Common Stock. In June 1998, the
Company issued 433,965 shares of its Common Stock to EarthWeb LLC for an
aggregate purchase price of $3.7 million. Mr. Hidary will abstain from
Compensation Committee decisions regarding his own compensation. Mr. Davis has
served with E.M. Warburg, Pincus & Co., LLC since October 1994 and has been a
Vice President since January 1998. Dr. Kressel has served with E.M. Warburg,
Pincus & Co., LLC since 1983 and has been a Managing Director since 1985. In
October 1996, the Company issued 653,111 shares of Series A Preferred Stock to
Warburg in a private placement for an aggregate purchase price of approximately
$6.7 million, of which $4.9 million was received by the Company and the
remainder was used to repay certain investors and cover the transaction costs.
In June 1997, the Company issued 598,086 shares of Series B Preferred Stock to
Warburg for an aggregate purchase price of $10.0 million. All of the Series A
Preferred Stock and Series B Preferred Stock are convertible into Common Stock
at the ratio of 1.95 shares of Common Stock for each share of Preferred Stock
and, thus, will convert into 2,439,833 shares of Common Stock upon the
consummation of the Offering.
39
<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of Common Stock as of August 31, 1998 (assuming the Preferred Stock
Conversion) and as adjusted to reflect the sale of the Common Stock offered
hereby by (i) each person (or group within the meaning of Section 13(d)(3) of
the Securities Exchange Act of 1934) known by the Company to own beneficially
5% or more of the Common Stock, (ii) the Company's directors and Named
Executive Officers, (iii) all directors and executive officers of the Company
as a group. In addition, prior to the consummation of the Offering, EarthWeb
LLC will be recapitalized. In that recapitalization, Global Network Partners
LLC will redeem interest for not less than 126,000 shares of Common Stock.
Warburg, Pincus Ventures, L.P. and Global Network Partners LLC (the "Selling
Stockholders") will be selling shares in the Offering, if and to the extent
that the Underwriters exercise the overallotment option.
<TABLE>
<CAPTION>
-----------------------------------------------
BENEFICIAL OWNERSHIP BENEFICIAL OWNERSHIP
PRIOR TO OFFERING(2) AFTER OFFERING(2)(3)
NAME AND ADDRESS OF
BENEFICIAL OWNERS(1)(2) NUMBER PERCENT NUMBER PERCENT
- ----------------------- ----------- ---------- ------ -------
<S> <C> <C> <C> <C>
EarthWeb LLC................... 3,358,965 57.90% 3,358,965 42.51%
Warburg, Pincus Ventures,
L.P.(4)....................... 2,439,833 42.06% 2,439,833 30.88%
Jack D. Hidary(5)(6)........... 3,465,368 58.68% 3,465,368 43.29%
Murray Hidary(5)(6)............ 3,465,368 58.68% 3,465,368 43.29%
Nova Spivack(5)(6)............. 3,465,368 58.68% 3,465,368 43.29%
Cary Davis(7).................. 2,439,833 42.06% 2,439,833 30.88%
Henry Kressel(7)............... 2,439,833 42.06% 2,439,833 30.88%
Irene Math(8).................. 17,525 * 17,525 *
All Directors and executive
officers as a group
(10 persons)(5)(6)(7)(9)...... 5,905,202 100.00% 5,905,202 74.74%
</TABLE>
- -------
* Less than 1%
(1) Unless otherwise noted, the address of each of the persons listed is 3 Park
Avenue, New York, New York 10016.
(2) As used in this table, "beneficial ownership" means the sole or shared
power to vote or direct the voting or to dispose or direct the disposition of
any security. A person is deemed to be the beneficial owner of securities that
can be acquired within 60 days from the date of this Prospectus through the
exercise of any option, warrant or right. Shares of Common Stock subject to
options, warrants or rights which are currently exercisable or exercisable
within 60 days are deemed outstanding for computing the ownership percentage of
the person holding such options, warrants or rights, but are not deemed
outstanding for computing the ownership percentage of any other person. The
amounts and percentages are based upon 5,905,202 shares of Common Stock
outstanding as of August 31, 1998, and 8,005,202 shares of Common Stock
outstanding as of the close of the Offering, respectively.
(3) Assumes no exercise of the Underwriters' over-allotment option. If the
over-allotment option is exercised in full, the Selling Stockholders will sell
an aggregate of 315,000 additional shares of Common Stock. Specifically,
Warburg, Pincus Ventures, L.P. and Global Network Partners LLC will sell
189,000 and 126,000 shares, respectively, and will beneficially own 2,250,834
and 3,232,965 shares, or 28.49% and 40.92% of the Company's outstanding Common
Stock, respectively, after completion of the Offering.
(4) The sole general partner of Warburg, Pincus Ventures, L.P. ("Warburg") is
Warburg, Pincus & Co., a New York general partnership ("WP"). E.M. Warburg,
Pincus & Co., LLC, a New York limited liability company ("EMWP"), manages
Warburg. The members of EMWP are substantially the same as the partners of WP.
Lionel I. Pincus is the managing partner of WP and the managing member of EMWP
and may be deemed to control both WP and EMWP. WP has a 15% interest in the
profits of Warburg as the general partner and also owns approximately 1.5% of
the limited partnership interests in Warburg. Henry Kressel, a director of the
Company, is a Managing Director of EMWP, and thus may be deemed to have an
indirect, pecuniary interest (within the meaning of Rule 16a-1 under the
Exchange Act) in an undeterminate portion of the shares beneficially owned by
Warburg and WP. The address for Warburg is 466 Lexington Avenue, New York, New
York 10017.
(5) Jack D. Hidary, Murray Hidary and Nova Spivack are members of Global
Network Partners LLC, which is owned 38.5% by Jack D. Hidary, 38.5% by Murray
Hidary and 23% by Nova Spivack. Global Network Partners LLC has a 72.13% member
interest in EarthWeb LLC and, as a result, is a controlling member of EarthWeb
LLC and thus may be deemed to beneficially own the shares of Common Stock owned
by EarthWeb LLC. Jack D. Hidary, Murray Hidary and Nova Spivack each disclaim
beneficial ownership of such shares except to the extent of their pecuniary
interest therein.
(6) Includes 106,403 shares subject to stock options that are exercisable
within 60 days (including options which vest upon the completion of the
Offering) and shares issued upon the exercise of certain stock options, which
are the subject of various Voting Trust Agreements between the Company, Global
Network Partners LLC and certain optionholders of the
40
<PAGE>
Company, including the 17,525 shares beneficially owned by Ms. Math and 52,882
shares beneficially owned by all directors and officers as a group. Pursuant to
such agreement, Global Network Partners LLC (which is owned by Jack D. Hidary,
Murray Hidary and Nova Spivack) has the right to vote shares received upon the
exercise of such options, and thus may be deemed to beneficially own the shares
of stock subject to such options. Jack D. Hidary, Murray Hidary and Nova
Spivack each disclaim beneficial ownership of such shares.
(7) All of the shares indicated as owned by Dr. Kressel and Mr. Davis are owned
directly by Warburg and are included because of Dr. Kressel's and Mr. Davis'
affiliation with Warburg. Dr. Kressel and Mr. Davis disclaim beneficial
ownership of these shares within the meaning of Rule 13d-3 under the Exchange
Act.
(8) Includes 15,575 shares subject to stock options that are exercisable within
60 days (includes options which vest upon the completion of the Offering).
(9) Includes 50,932 shares subject to stock options that are exercisable within
60 days (includes options which vest upon the completion of the Offering).
As of July 31, 1998, the Company had six holders of its Common Stock.
41
<PAGE>
CERTAIN TRANSACTIONS
In October 1996, the Company issued 2,925,000 shares of Common Stock to
EarthWeb LLC and assumed substantially all of the liabilities of EarthWeb LLC
in exchange for substantially all of the assets of EarthWeb LLC. At the time of
such transaction, EarthWeb LLC was the sole owner of Common Stock then
outstanding and, consequently, the members of EarthWeb LLC (which included GNP,
of which Messrs. Jack D. Hidary, Murray Hidary and Nova Spivack were the
members at such time) retained their proportionate interests in EarthWeb
through the ownership by EarthWeb LLC of such Common Stock.
In October 1996, the Company issued 653,111 shares of Series A Preferred Stock
to Warburg in a private placement for an aggregate purchase price of
approximately $6.7 million, of which $4.9 million was received by the Company
and the remainder was used to repay certain investors and cover the transaction
costs. In June 1997, the Company issued 598,086 shares of Series B Preferred
Stock to Warburg for an aggregate purchase price of $10.0 million. All of the
Series A Preferred Stock and Series B Preferred Stock is convertible into
Common Stock at the ratio of 1.95 shares of Common Stock for each share of
Preferred Stock and, thus, will convert into 2,439,833 shares of Common Stock
upon the consummation of the Offering. In June 1998, the Company issued 433,965
shares of its Common Stock to EarthWeb LLC for an aggregate purchase price of
$3.7 million. $637,500 of the $3.7 million purchase price had not been paid as
of June 30, 1997, and a corresponding shareholder receivable was recorded by
the Company as at such date. This receivable did not bear interest and was paid
in full by July 1998.
The controlling member of EarthWeb LLC is GNP, the members of which are Jack D.
Hidary, Murray Hidary and Nova Spivack, directors of the Company. As of August
31, 1998, Warburg held approximately 42% of the capital stock of the Company.
Warburg is entitled to demand and piggyback registration rights with respect to
the Common Stock issuable upon the conversion of the Series A Preferred Stock
and the Series B Preferred Stock, and EarthWeb LLC and GNP have the same
registration rights with respect to any Common Stock held by them. See
"Description of Capital Stock--Registration Rights."
Pursuant to certain provisions of the Shareholders Agreement, Warburg granted
GNP an option to purchase up to 10% of the shares that Warburg receives upon
conversion of its Preferred Stock, subject to Warburg realizing a return of at
least five times on its investment. The rights become conditionally exercisable
upon the consummation of certain sales of the Company and upon the closing of
certain public offerings (including the Offering) after the expiration of any
restrictions on resale of such shares.
Holders of stock options under the Stock Plan and stock issued upon exercise of
stock options (collectively, "Optionees") have entered into a Voting Trust
Agreement among such parties, the Company and GNP (the "Voting Trust
Agreement"). Under the Voting Trust Agreement, Optionees have provided GNP with
voting power with respect to all shares of Common Stock issued upon the
exercise of their options and have given the Company the right to purchase such
shares in certain events. The Voting Trust Agreement terminates six months
after the Company completes an underwritten public offering in which it
realizes proceeds in excess of $10,000,000.
The Company has entered into a consulting agreement with Nova Spivack dated as
of August 1, 1998. See "Management--Employment Agreements." Pursuant to the
above-referenced consulting agreement, certain repurchase rights with respect
to Mr. Spivack's interests in GNP were waived.
42
<PAGE>
DESCRIPTION OF CAPITAL STOCK
GENERAL
The Company's authorized capital stock consists of 21,750,000 shares of Common
Stock, $.01 par value, and 2,750,000 shares of preferred stock (the "Preferred
Stock"), $.01 par value, which has been designated as follows: (i) 1,000,000
shares are designated as Series A Convertible Preferred Stock (the "Series A
Preferred"), (ii) 600,000 shares are designated as Series B Convertible
Preferred Stock (the "Series B Preferred"), and (iii) 1,150,000 shares are
designated as Series C Convertible Preferred Stock (the "Series C Preferred").
Immediately prior to the completion of the Offering, there will be 5,801,279
shares of Common Stock outstanding (assuming no exercise of outstanding options
and giving effect to the issuance of 2,439,833 shares of Common Stock upon the
Preferred Stock Conversion) and no shares of Series A Preferred, Series B
Preferred, or Series C Preferred outstanding. Concurrently with the completion
of the Offering, the Company plans to amend and restate its Certificate of
Incorporation to (i) cancel and retire all currently authorized shares of
Preferred Stock, and (ii) integrate the Company's Certificate of Incorporation
and the amendment thereto into one document (the "Amended and Restated
Certificate of Incorporation").
The following summary of the terms and provisions of the Company's capital
stock does not purport to be complete and is qualified in its entirety by
reference to the Amended and Restated Certificate of Incorporation and Bylaws,
which have been filed as exhibits to the Registration Statement, of which this
Prospectus is a part, and applicable law.
COMMON STOCK
The holders of Common Stock are entitled to one vote for each share on all
matters voted upon by stockholders, including the election of directors.
Subject to the rights of any then outstanding shares of Preferred Stock, the
holders of the Common Stock are entitled to such dividends as may be declared
in the discretion of the Board of Directors out of funds legally available
therefor. See "Dividend Policy." Holders of Common Stock are entitled to share
ratably in the net assets of the Company upon liquidation after payment or
provision for all liabilities and any preferential liquidation rights of any
Preferred Stock then outstanding. The holders of Common Stock have no
preemptive rights to purchase shares of stock of the Company. Shares of Common
Stock are not subject to any redemption provisions and are not convertible into
any other securities of the Company. All outstanding shares of Common Stock
are, and the shares of Common Stock to be sold by the Company in the Offering
when payment is received therefor will be, fully paid and nonassessable.
PREFERRED STOCK
The Amended and Restated Certificate of Incorporation authorizes 2,000,000
shares of undesignated preferred stock which the Board of Directors of the
Company has the authority, without further action by the Company's
stockholders, to issue from time to time in one or more series and to fix the
number of shares, designations, voting powers, preferences, optional and other
special rights, and the restrictions or qualifications thereof. The rights,
preferences, privileges, and restrictions or qualifications, of different
series of preferred stock may differ with respect to dividend rates, amounts
payable on liquidation, voting rights, conversion rights, redemption
provisions, sinking fund provisions, and other matters. The issuance of such
preferred stock could: (i) decrease the amount of earnings and assets available
for distribution to holders of Common Stock; (ii) adversely affect the rights
and powers, including voting rights, of holders of Common Stock and (iii) have
the effect of delaying, deferring, or preventing a change in control of the
Company. The Company has no present plans to issue any additional shares of
preferred stock. The information set forth in this Prospectus assumes the
occurrence of the Preferred Stock Conversion upon the completion of the
Offering. The Series A and B Preferred Stock automatically converts to Common
Stock upon the consummation of a firm commitment underwritten offering of
Common Stock meeting the requirements set forth in the Certificate of
Incorporation.
REGISTRATION RIGHTS
Six months after the consummation of this Offering, the holders of a majority
of the Common Stock held by Warburg and the members holding a majority interest
in each of GNP and EarthWeb LLC are entitled to demand registration rights with
respect to an aggregate of 5,798,798 shares of Common Stock (assuming the
Preferred Stock Conversion) (the "Registrable Securities"). Pursuant to these
rights, such shareholders may require that the Company file up to an aggregate
of six registration statements under the Securities Act, subject to certain
minimum size and other conditions. In addition, if the Company proposes to
register any of its securities under the Securities Act, whether for its own
account or for any of its shareholders, holders of the Registrable Securities
are entitled, subject to certain restrictions and limitations, to include their
Registrable Securities in such registration. The Company is required to bear
substantially all registration and selling expenses (except for underwriting
discounts, selling expenses and the fees and expenses of more than one counsel
representing holders of Registrable Securities) in connection with the above-
described registrations. The foregoing registration rights are transferable in
certain circumstances and may be amended or waived only with the written
consent of the Company and a specified number of holders of Registrable
Securities.
43
<PAGE>
LIMITATION ON DIRECTORS' LIABILITIES
The Certificate of Incorporation limits, to the maximum extent permitted by the
DGCL, the personal liability of directors and officers for monetary damages for
breach of their fiduciary duties as directors and officers, except in certain
circumstances involving certain wrongful acts, such as a breach of the
director's duty of loyalty or acts of omission which involve intentional
misconduct or a knowing violation of law.
Section 145 of the Delaware General Corporation Act permits the Company to
indemnify officers, directors or employees against expenses (including
attorney's fees), judgments, fines and amounts paid in settlement in connection
with legal proceedings "if [as to any officer, director or employee] he acted
in good faith and in a manner he reasonably believed to be in, or not opposed
to the best interests of the corporation, and, with respect to any criminal act
or proceeding, had no reasonable cause to believe his conduct was unlawful,"
provided that with respect to actions by, or in the right of the corporation
against, such individuals, indemnification is not permitted as to any matter as
to which such person "shall have been adjudged to be liable for negligence or
misconduct in the performance of his duty to the corporation, unless, and only
to the extent that, the court in which such action or suit was brought shall
determine upon application that, despite the adjudication of liability, but in
view of all the circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses as the court shall deem proper."
Individuals who are successful in the defense of such action are entitled to
indemnification against expenses reasonably incurred in connection therewith.
The By-Laws of the Company require the Company to indemnify directors and
officers against liabilities which they may incur under the circumstances set
forth in the preceding paragraph.
The Company plans to maintain standard policies of insurance under which
coverage is provided (a) to its directors and officers against loss arising
from claims made by reason of breach of duty or other wrongful act, and (b) to
the Company with respect to payments which may be made by the Company to such
officers and directors pursuant to the above indemnification provision or
otherwise as a matter of law.
DELAWARE LAW
The Company is a Delaware corporation and is subject to Section 203 of the
Delaware General Corporation Laws, an anti-takeover law. In general, Section
203 prohibits a publicly held Delaware corporation from engaging in a "business
combination" with an "interested stockholder" for a period of three years
following the date the person became an interested stockholder, unless (with
certain exceptions) the "business combination" or the transaction in which the
person became an interested stockholder is approved in a prescribed manner.
Generally, a "business combination" includes a merger, asset or stock sale, or
other transaction resulting in a financial benefit to the interested
stockholder. An "interested stockholder" is a person who, together with
affiliates and associates, owns (or within three years prior to the
determination of interested stockholder status, did own) 15% or more of a
corporation's voting stock, other than "interested stockholders" prior to the
time the Common Stock of the Company is quoted on Nasdaq. The existence of this
provision would be expected to have an anti-takeover effect with respect to
transactions not approved in advance by the Board of Directors, including
discouraging takeover attempts that might result in a premium over the market
price for the shares of Common Stock held by stockholders.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Common Stock is American Stock
Transfer and Trust Company.
44
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon consummation of the Offering approximately 7,901,279 shares of Common
Stock will be outstanding (assuming no exercise of the Underwriters' over-
allotment option and no exercise of outstanding options). Of these shares, the
2,100,000 shares of Common Stock sold in the Offering (assuming no exercise of
the Underwriters' over-allotment option) will be freely tradable without
restriction or further registration under the Securities Act, except for
certain manner of sale, volume limitations and other restrictions with respect
to any shares held by an affiliate of the Company within the meaning of Rule
144 (a "Company Affiliate"), which will be subject to the resale limitations of
Rule 144 (excluding the holding period requirement). Under Rule 144 a person is
an affiliate of an entity if such person directly or indirectly controls or is
controlled by or is under common control with such entity and may include
certain officers and directors, principal stockholders and certain other
stockholders with special relationships. This Prospectus may not be used in
connection with any resale of shares of Common Stock acquired in the Offering
by Company Affiliates.
In general, under Rule 144 as currently in effect, if a minimum of one year has
elapsed since the later of the date of acquisition of the restricted securities
from the issuer or from an affiliate of the issuer, a person (or persons whose
shares of Common Stock are aggregated), including persons who may be deemed
Company Affiliates, would be entitled to sell within any three-month period a
number of shares of Common Stock that does not exceed the greater of (i) one
percent of the then-outstanding shares of Common Stock (i.e., approximately
79,013 shares immediately after consummation of the Offering (assuming no
exercise of the Underwriters' over-allotment option)) or (ii) the average
weekly trading volume during the four calendar weeks preceding the date on
which notice of the sale is filed with the Commission. Sales under Rule 144 are
also subject to certain restrictions as to the manner of sale (which
restrictions are proposed to be eliminated), notice requirements and the
availability of current public information about the Company. In addition,
under Rule 144(k), if a period of at least two years has elapsed since the
later of the date restricted securities were acquired from the Company or the
date they were acquired from a Company Affiliate, a shareholder who is not a
Company Affiliate at the time of sale and who has not been a Company Affiliate
for at least three months prior to the sale would be entitled to sell shares of
Common Stock in the public market immediately without compliance with the
foregoing requirements under Rule 144. Rule 144 does not require the same
person to have held the securities for the applicable periods. The foregoing
summary of Rule 144 is not intended to be a complete description thereof. In
addition, any employee, director or officer of, or consultant to, the Company
who purchased shares pursuant to a written compensatory plan or contract may be
entitled to rely on the resale provisions of Rule 701 of the Securities Act,
which permits non-affiliates to sell their Rule 701 shares without having to
comply with the public information, holding period, volume limitation or notice
provisions of Rule 144, and permits affiliates to sell their Rule 701 shares
without having to comply with the holding period restrictions of Rule 144, in
each case, commencing 90 days after the date of this Prospectus.
Following the Offering, the Company intends to file a registration statement on
Form S-8 under the Securities Act to register 646,857 shares of Common Stock
reserved or to be available for issuance pursuant to the Stock Plan. Shares of
Common Stock issued pursuant to such plan generally will be available for sale
in the open market by holders who are not Company Affiliates and, subject to
the volume and other applicable limitations of Rule 144, by holders who are
Company Affiliates, unless such shares are subject to vesting restrictions or
the contractual restrictions described below.
On the date of this Prospectus (assuming no exercise of the Underwriters' over-
allotment option), 5,801,279 shares are "restricted securities" as defined in
Rule 144 and may not be publicly resold, except in compliance with the
registration requirements of the Securities Act or pursuant to an exemption
from registration, including that provided by Rule 144. Of the 5,801,279
"restricted securities," and without consideration of the contractual
restrictions described below, none of the shares would be available for
immediate sale in the public market without restriction pursuant to Rule
144(k). Beginning 90 days after the date of this Prospectus, and without
consideration of the contractual restrictions described below, approximately
2,481 shares would be eligible for sale in reliance upon Rule 701. The holders
of the remaining approximately 5,798,798 restricted securities will not be able
to sell such shares pursuant to Rule 144 until a one-year period has elapsed
since the shares were acquired from the Company or an "affiliate" of the
Company, all of which such periods will end in November 1999. Furthermore,
holders of an aggregate of 5,798,798 shares are entitled to piggyback
registration rights, and demand registration rights. To date, none of these
holders has indicated an intention to exercise such demand registration rights.
See "Description of Capital Stock--Registration Rights."
The Company and the shareholders, officers and directors of the Company have
agreed that during the period beginning from the date of this Prospectus and
continuing to and including the date 180 days after the date of this Prospectus
they will not (i) offer, sell, contract to sell or otherwise dispose of any
securities of the Company which are substantially similar to the Common Stock,
including but not limited to any securities that are convertible into or
exchangeable for, or that
45
<PAGE>
represent the right to receive Common Stock or any such substantially similar
securities or (ii) enter into any swap, option, future, forward or other
agreement that transfers, in whole or in part, the economic consequences of
ownership of Common Stock or any securities substantially similar to the Common
Stock (other than (x) pursuant to employee stock option plans existing on, or
upon the conversion or exchange of convertible or exchangeable securities
outstanding as of, the date of this Prospectus and (y) the issuance of Common
Stock in connection with the transactions described in this Prospectus),
without the prior written consent of J.P. Morgan Securities Inc. See
"Underwriting."
As a result of these contractual restrictions and the provisions of Rules 144
and 701, approximately 2,442,314 shares will be eligible for sale beginning 180
days after the date of this Prospectus. Additional shares may be available if
options are exercised between October 15, 1998 and 180 days after the date of
this Prospectus.
Prior to the Offering, there has been no public market for the Common Stock,
and no prediction can be made of the effect, if any, that sales of Common Stock
or the availability of shares for sale will have on the market price prevailing
from time to time. Nevertheless, sales of substantial amounts of Common Stock
in the public market or otherwise, or the perception that such sales could
occur, could adversely affect the prevailing market price for the Common Stock.
46
<PAGE>
UNDERWRITING
Under the terms and subject to the conditions contained in an Underwriting
Agreement dated the date of this Prospectus (the "Underwriting Agreement"), the
Underwriters named below, for whom J.P. Morgan Securities Inc., Bear, Stearns &
Co. Inc. and Volpe Brown Whelan & Company, LLC are acting as representatives
(the "Representatives") and Wit Capital Corporation ("Wit Capital") is
facilitating online distribution ("e-Manager(TM)"), have severally agreed to
purchase, and the Company has agreed to sell to them, the respective number of
shares of Common Stock set forth opposite their names below.
<TABLE>
<CAPTION>
UNDERWRITERS NUMBER OF SHARES
- ------------ ----------------
<S> <C>
J.P. Morgan Securities Inc.....................................
Bear, Stearns & Co. Inc........................................
Volpe Brown Whelan & Company, LLC..............................
---------
Total........................................................ 2,100,000
=========
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters to purchase shares of Common Stock are subject to the approval of
certain legal matters by counsel and to certain other conditions. Under the
terms and conditions of the Underwriting Agreement, all of the Underwriters are
obligated to take and pay for all such shares of Common Stock, if any are
taken.
The Underwriters propose initially to offer the shares of Common Stock directly
to the public at the public offering price set forth on the cover page of this
Prospectus and to certain dealers at such price less a concession not in excess
of $ per share. The Underwriters may allow, and such dealers may reallow, a
concession not in excess of $ per share to certain other dealers. After the
initial public offering of the Common Stock, the offering price and other
selling terms may be changed from time to time by the Underwriters.
Pursuant to the Underwriting Agreement, the Selling Stockholders have granted
to the Underwriters an option, exercisable for 30 days from the date hereof, to
purchase up to 315,000 additional shares of Common Stock, on the same terms and
conditions as set forth on the cover page hereof. The Underwriters may exercise
such option solely to cover over-allotments, if any, made in connection with
the sale of shares of Common Stock offered hereby. To the extent such option is
exercised, each of the Underwriters will have a commitment, subject to certain
conditions, to purchase approximately the same percentage of such additional
shares as the number of shares of Common Stock to be purchased by it as shown
in the table above bears to the total number shares of Common Stock initially
offered hereby.
The Company and the stockholders, officers and directors of the Company have
agreed that during the period beginning from the date of this Prospectus and
continuing to and including the date 180 days after the date of this Prospectus
they will not (i) offer, pledge, announce the intention to sell, sell, contract
to sell, sell any option or contract to purchase, purchase any option or
contract to sell, grant any option, right or warrant to purchase or otherwise
transfer or dispose of, directly or indirectly, any shares of Common Stock or
any securities of the Company which are substantially similar to the Common
Stock, including but not limited to any securities that are convertible into or
exercisable or exchangeable for, or that represent the right to receive Common
Stock or any such substantially similar securities or (ii) enter into any swap,
option, future, forward or other agreement that transfers, in whole or in part,
the economic consequences of ownership of Common Stock or any securities
substantially similar to the Common Stock (other than (x) pursuant to employee
stock option plans existing on, or upon the conversion or exchange of
convertible or exchangeable securities outstanding as of, the date of this
Prospectus and (y) the issuance of Common Stock in connection with the
transactions described in this Prospectus), without the prior written consent
of J.P. Morgan Securities Inc.
The Underwriters have reserved for sale, at the initial public offering price,
shares of the Common Stock for certain directors, officers, employees, friends
and family of the Company who have expressed an interest in purchasing such
shares of Common Stock in the Offering. Such persons are expected to purchase,
in the aggregate, not more than 5% of the
47
<PAGE>
Common Stock offered 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 to the general public on the same basis as other shares offered
hereby.
The Underwriters, at the request of the Company, have reserved for sale at the
initial public offering price up to shares of Common Stock to subscribers
to EarthWeb's online services who express an interest in purchasing such
shares. The sale of such shares will be made by Wit Capital acting as e-
Manager(TM) in the Offering. Purchases of reserved shares are to be made
through an account at Wit Capital in accordance with Wit Capital's procedures
for opening an account and transacting in securities. Any reserved shares not
purchased by subscribers to EarthWeb's online services will be offered by the
Underwriters on the same basis as other shares offered hereby.
The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities, losses and expenses, including
liabilities under the Securities Act, or to contribute to payments that the
Underwriters may be required to make in respect thereof.
In connection with the Offering, the Underwriters may engage in transactions
that stabilize, maintain or otherwise affect the price of the Common Stock.
Specifically, the Underwriters may over-allot in connection with the Offering,
creating a syndicate short position. In addition, the Underwriters may bid for,
and purchase, shares of Common Stock in the open market to cover syndicate
short positions or to stabilize the price of the Common Stock. Finally, the
underwriting syndicate may reclaim selling concessions allowed for distributing
the Common Stock in the Offering, if the syndicate repurchases previously
distributed Common Stock in syndicate covering transactions, in stabilization
transactions or otherwise. Any of these activities may stabilize or maintain
the market price of the Common Stock above independent market levels. The
Underwriters are not required to engage in these activities, and may end any of
these activities at any time.
Prior to the Offering, there has been no public market for the Common Stock.
The initial public offering price for the shares of Common Stock offered hereby
has been determined by agreement between the Company and the Underwriters.
Among the factors considered in making such determination were the history of
and the prospects for the industry in which the Company competes, an assessment
of the Company's management, the present operations of the Company, the
historical results of operations of the Company and the trend of its revenues
and earnings, the prospects for future earnings of the Company, the general
condition of the securities markets at the time of the Offering and the prices
of similar securities of generally comparable companies. There can be no
assurance that an active trading market will develop for the Common Stock or
that the Common Stock will trade in the public market at or above the initial
public offering price.
Robert Lessin is the Chairman, Chief Executive Officer and a substantial
shareholder of Wit Capital, one of the Underwriters. Mr. Lessin is the sole
shareholder of RHL Ventures, LLC ("RHL"). RHL purchased certain interests in
EarthWeb LLC (the controlling shareholder of the Company) equivalent to 29,173
shares of Common Stock. Pursuant to the regulations of the National Association
of Securities Dealers, Inc. the difference between the price per share paid by
Mr. Lessin (determined based on the purchase price of the EarthWeb LLC
interests) and the public offering price per share of Common Stock is deemed to
be underwriting compensation.
48
<PAGE>
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon for the
Company by Morrison & Foerster LLP, New York, New York. Certain legal matters
will be passed upon for the Underwriters by Davis Polk & Wardwell, New York,
New York.
EXPERTS
The balance sheets of EarthWeb Inc. as of December 31, 1996 and 1997 and the
statements of operations, stockholders' equity and cash flows for each of the
years in the three-year period ended December 31, 1997, have been included in
this Registration Statement in reliance on the report of PricewaterhouseCoopers
LLP, independent accountants, given on the authority of that firm as experts in
accounting and auditing.
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission a
Registration Statement on Form S-1 with respect to the Common Stock being
offered by this Prospectus. This Prospectus does not contain all of the
information set forth in the Registration Statement and the exhibits and
schedules thereto. For further information with respect to the Company and the
shares of Common Stock offered hereby, reference is made to the Registration
Statement, including the exhibits and schedules thereto. Statements contained
in this Prospectus as to the contents of any contract or other document
referred to herein are not necessarily complete and, where such contract is an
exhibit to the Registration Statement, each such statement is qualified in all
respects by the provisions of such exhibit, to which such reference is hereby
made. Copies of the Registration Statement, including the exhibits and
schedules thereto, may be examined without charge at the Public Reference
Section of the Securities and Exchange Commission, 450 Fifth Street, N.W. Room
1024, Washington, D.C. 20549, and the Securities and Exchange Commission's
Regional Offices located at 500 West Madison Street, Suite 1400, Chicago, IL
60661, and 7 World Trade Center, 13th Floor, New York, NY 10048 or on the
Internet at http://www.sec.gov. Copies of all or a portion of the Registration
Statement can be obtained from the Public Reference Section of the Securities
and Exchange Commission upon payment of prescribed fees.
As a result of the Offering, the Company will become subject to the information
and reporting requirements of the Securities Exchange Act of 1934 and, in
accordance therewith, will file periodic reports, proxy statements and other
information with the Securities and Exchange Commission. Upon approval of the
Common Stock for quotation on the Nasdaq National Market, such reports, proxy
and information statements and other information may also be inspected at the
offices of Nasdaq Operations, 1735 K Street, N.W., Washington, D.C. 20006.
49
<PAGE>
EARTHWEB INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Accountants.......................................... F-2
Balance Sheets at December 31, 1996 and 1997 and June 30, 1998
(unaudited)............................................................... F-3
Statements of Operations for the years ended December 31, 1995, 1996 and
1997 and the six months ended June 30, 1997 and 1998 (unaudited).......... F-4
Statements of Cash Flows for the years ended December 31, 1995, 1996 and
1997 and the six months ended June 30, 1997 and 1998 (unaudited).......... F-5
Statements of Stockholders' Equity for the years ended December 31, 1995,
1996 and 1997 and the six months ended June 30, 1998 (unaudited).......... F-6
Notes to Financial Statements.............................................. F-7
</TABLE>
F-1
<PAGE>
After the approval by the Board of Directors of the 0.65 for 1 reverse stock
split discussed in Note 11 to the financial statements of Earthweb Inc., we
expect to be in position to render the following audit report.
PricewaterhouseCoopers LLP
New York, New York
March 31, 1998
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of
EarthWeb Inc.:
We have audited the accompanying balance sheets of EarthWeb Inc. as of December
31, 1997 and 1996, and the related statements of operations, stockholders'
equity, and cash flows for each of the three years in the period ended December
31, 1997. 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 EarthWeb Inc. as of December
31, 1997 and 1996, and the results of its operations and its cash flows for
each of the three years in the period ended December 31, 1997, in conformity
with generally accepted accounting principles.
New York, New York
March 31, 1998, except paragraph 5 of
Note 11 which the date is
F-2
<PAGE>
EARTHWEB INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
--------------------------------------------------
AS OF
DECEMBER 31, AS OF PRO FORMA
----------------------- JUNE 30, AS OF JUNE
1996 1997 1998 30, 1998
---------- ----------- ------------ -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS:
Current assets:
Cash and cash
equivalents............. $3,779,368 $ 4,775,153 $ 4,762,084 $ 4,762,084
Restricted cash.......... -- 512,000 362,000 362,000
Stockholder receivable... -- -- 637,500 637,500
Accounts receivable,
net..................... 101,179 375,961 573,994 573,994
Prepaid expenses and
other current assets.... 75,921 235,242 157,470 157,470
Assets of discontinued
operations (accounts
receivable and deferred
costs).................. 657,631 403,052 50,000 50,000
---------- ----------- ------------ -----------
Total current
assets.............. 4,614,099 6,301,408 6,543,048 6,543,048
Fixed assets, net.......... 819,261 1,650,828 1,553,129 1,553,129
Intangible assets, net..... -- 505,938 778,676 778,676
Other assets............... 63,016 55,674 44,997 44,997
Assets of discontinued
operations (fixed assets,
net)...................... 156,000 -- -- --
---------- ----------- ------------ -----------
Total assets......... $5,652,376 $ 8,513,848 $ 8,919,850 $ 8,919,850
========== =========== ============ ===========
LIABILITIES AND
STOCKHOLDERS' EQUITY:
Current liabilities:
Accounts payable......... $ 387,527 $ 574,006 $ 381,200 $ 381,200
Accrued expenses......... 234,945 414,239 581,073 581,073
Deferred revenue......... -- 89,389 70,996 70,996
Other current
liabilities............. 13,698 462,790 295,566 295,566
Liabilities of
discontinued operations
(accrued expenses and
deferred revenue)....... 663,171 443,527 190,181 190,181
---------- ----------- ------------ -----------
Total current
liabilities......... 1,299,341 1,983,951 1,519,016 1,519,016
Other liabilities,
including capital lease
obligations............. 93,858 85,311 131,599 131,599
---------- ----------- ------------ -----------
Total liabilities.... 1,393,199 2,069,262 1,650,615 1,650,615
Commitments and
contingencies
Stockholders' equity:
Series A Convertible
Preferred Stock, par
value $.01 per share;
1,000,000 shares
authorized, 653,111
shares issued and
outstanding; with a
liquidation preference
of $6,768,772,
$7,236,968 and
$7,471,065 (unaudited)
at December 31, 1996 and
1997 and June 30, 1998,
respectively............ 6,531 6,531 6,531 --
Series B Convertible
Preferred Stock, par
value $.01 per share;
600,000 shares
authorized, 598,086
shares issued and
outstanding; with a
liquidation preference
of $0, $10,349,998 and
$10,699,998 (unaudited)
at December 31, 1996 and
1997 and June 30, 1998,
respectively............ -- 5,981 5,981 --
Common stock, par value
$.01 per share;
21,750,000 shares
authorized, (1996:
18,000,000 shares
authorized); 3,361,446
(unaudited) shares
issued and outstanding
(1997 and 1996:
2,925,000 shares),
5,801,279 (unaudited) on
a pro forma basis ...... 29,250 29,250 33,615 58,013
Additional paid in
capital................. 4,715,649 14,715,614 18,469,791 18,457,905
Unearned compensation.... -- -- (18,200) (18,200)
Accumulated deficit...... (492,253) (8,312,790) (11,228,483) (11,228,483)
---------- ----------- ------------ -----------
Total stockholders'
equity.............. 4,259,177 6,444,586 7,269,235 7,269,235
---------- ----------- ------------ -----------
Total liabilities and
stockholders'
equity.............. $5,652,376 $ 8,513,848 $ 8,919,850 $ 8,919,850
========== =========== ============ ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
EARTHWEB INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
----------------------------------------------------------------
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
------------------------------------ --------------------------
1995 1996 1997 1997 1998
---------- ----------- ----------- ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues................ $ -- $ 472,109 $ 1,135,141 $ 592,581 $ 974,333
Cost of revenues........ -- 314,332 1,358,293 601,412 793,254
---------- ----------- ----------- ------------ ------------
Gross profit (deficit).. -- 157,777 (223,152) (8,831) 181,079
Operating expenses:
Product development.... 35,465 68,410 1,003,422 475,995 555,800
Sales and marketing.... -- 252,287 1,018,313 424,352 810,436
General and
administrative........ 626,441 1,801,744 2,566,670 1,295,360 1,331,909
Depreciation and
amortization.......... 41,651 100,859 892,600 140,024 476,717
---------- ----------- ----------- ------------ ------------
Total operating
expenses........... 703,557 2,223,300 5,481,005 2,335,731 3,174,862
---------- ----------- ----------- ------------ ------------
Loss from
operations......... (703,557) (2,065,523) (5,704,157) (2,344,562) (2,993,783)
Interest and other
income, (expense)
net................... (880) 61,497 267,139 67,564 78,090
---------- ----------- ----------- ------------ ------------
Loss from continuing
operations......... (704,437) (2,004,026) (5,437,018) (2,276,998) (2,915,693)
Discontinued
operations:
Income (loss) from
discontinued
operations........... 64,799 (42,255) (2,142,934) (549,470) --
Loss on disposal of
discontinued
operations........... -- -- (240,585) -- --
---------- ----------- ----------- ------------ ------------
Total income (loss)
from discontinued
operations........... 64,799 (42,255) (2,383,519) (549,470) --
---------- ----------- ----------- ------------ ------------
Net loss............ $ (639,638) $(2,046,281) $(7,820,537) $ (2,826,468) $ (2,915,693)
========== =========== =========== ============ ============
Basic and diluted net
loss per share from
continuing operations.. $ (0.24) $ (0.69) $ (1.86) $ (0.78) $ (1.00)
Basic and diluted net
income (loss) per share
from discontinued
operations............. 0.02 (0.01) (0.81) (0.19) --
---------- ----------- ----------- ------------ ------------
Basic and diluted net
loss per share......... $ (0.22) $ (0.70) $ (2.67) $ (0.97) $ (1.00)
========== =========== =========== ============ ============
Weighted average shares
of common stock
outstanding used in
computing basic and
diluted net loss per
share.................. 2,925,000 2,925,000 2,925,000 2,925,000 2,927,970
========== =========== =========== ============ ============
Pro forma basic and
diluted net loss per
share from continuing
operations............. $ (1.13) $ (0.54)
----------- ------------
Pro forma basic and
diluted net loss per
share from discontinued
operations............. $ (0.50) --
----------- ------------
Pro forma basic and
diluted net loss per
share.................. $ (1.63) $ (0.54)
----------- ------------
Shares used in computing
pro forma basic and
diluted net loss per
share.................. 4,812,055 5,367,805
=========== ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
EARTHWEB INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
---------------------------------------------------------------
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
----------------------------------- --------------------------
1995 1996 1997 1997 1998
--------- ----------- ----------- ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from
operating activities:
Net loss............... $(639,638) $(2,046,281) $(7,820,537) $ (2,826,468) $ (2,915,693)
Adjustments to
reconcile net loss to
net cash used in
operating activities:
Depreciation and
amortization......... 41,651 100,859 892,600 140,024 476,717
Charge related to
issuance of stock
options.............. -- -- 5,948 -- 17,775
Barter transaction.... -- (257,398) -- -- --
Reduction of members'
receivable........... -- 114,389 -- -- --
Deferred rent
expense.............. 26,400 64,395 (8,559) -- --
Allowance for doubtful
accounts............. -- -- 10,505 2,005 6,650
Reserve for
discontinued
operations........... -- -- 443,527 -- --
Changes in operating
assets and
liabilities:
Accounts receivable.. -- (101,179) (285,287) (295,584) (204,683)
Prepaid expenses and
other current
assets.............. (3,350) (72,571) (159,321) (24,728) 77,772
Other assets......... (144,867) 12,330 (23,521) (144,080) 10,677
Accounts payable and
accrued expenses.... 115,211 531,815 364,877 260,630 (27,138)
Deferred revenue..... -- -- 89,389 24,695 (18,393)
Other liabilities.... -- -- -- -- 16,791
Discontinued
operations.......... (59,323) 206,409 (235,526) (5,540) 99,705
--------- ----------- ----------- ------------ ------------
Net cash used in
operating
activities......... (663,916) (1,447,232) (6,725,905) (2,869,046) (2,459,820)
--------- ----------- ----------- ------------ ------------
Cash flows from
investing activities:
Purchase of fixed
assets................ (341,648) (598,543) (954,432) (571,556) (251,447)
Acquisitions........... -- -- (811,876) -- (536,869)
Restricted cash........ -- -- (512,000) -- 150,000
--------- ----------- ----------- ------------ ------------
Net cash used in
investing
activities......... (341,648) (598,543) (2,278,308) (571,556) (638,316)
--------- ----------- ----------- ------------ ------------
Cash flows from
financing activities:
Proceeds from bridge
financing............. -- 500,000 500,000 500,000 --
Proceeds from issuance
of preferred stock,
net................... -- 4,381,096 9,499,998 9,499,998 --
Proceeds from issuance
of common stock....... -- -- -- -- 3,085,067
Contribution from
members............... 1,891,511 58,100 -- -- --
--------- ----------- ----------- ------------ ------------
Net cash provided by
financing
activities......... 1,891,511 4,939,196 9,999,998 9,999,998 3,085,067
--------- ----------- ----------- ------------ ------------
Net increase
(decrease) in cash
for the period..... 885,947 2,893,421 995,785 6,559,396 (13,069)
Cash and cash
equivalents, beginning
of period.............. -- 885,947 3,779,368 3,779,368 4,775,153
--------- ----------- ----------- ------------ ------------
Cash and cash
equivalents, end of
period................. $ 885,947 $ 3,779,368 $ 4,775,153 $ 10,338,764 $ 4,762,084
========= =========== =========== ============ ============
</TABLE>
Supplemental disclosure of Non-Cash Investing and Financing Activities:
During 1996, the Company received $257,398 of equipment, in lieu of cash, in a
transaction in which the Company recorded advertising revenue of the same
amount.
During 1996, certain executives of the Company paid expenses on behalf of the
Company, in the amount of $114,389, in exchange for the reduction of their
members' receivable amounts
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
EARTHWEB INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
--------------------------------------------------------------
<TABLE>
<CAPTION>
CONVERTIBLE
PREFERRED STOCK
-----------------
SERIES A AND B COMMON STOCK
----------------- -----------------
ADDITIONAL RECEIVABLE
MEMBERS' PAID IN UNEARNED FROM ACCUMULATED
CONTRIBUTIONS SHARES AMOUNT SHARES AMOUNT CAPITAL COMPENSATION MEMBER DEFICIT
------------- --------- ------- --------- ------- ----------- ------------ ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT JANUARY
1, 1995
Members'
subscriptions.. $2,064,000
Receivable from
member......... $(172,489)
Net loss........ $ (639,638)
---------- --------- ------- --------- ------- ----------- -------- --------- ------------
BALANCE AT
DECEMBER 31,
1995............. 2,064,000 -- -- -- -- -- -- (172,489) (639,638)
Payment of
member
receivable..... 58,100
Reduction of
member
receivable..... 114,389
Net loss for the
period January
1, 1996 to
October 25,
1996........... (1,554,028)
Effect of
reorganization
(Note 1)....... (2,064,000) 2,925,000 $29,250 $ (158,916) 2,193,666
Issuance of
Series A
convertible
preferred
stock.......... 604,288 $ 6,043 4,375,053
Conversion of
promissory note
for Series A
convertible
preferred
stock.......... 48,823 488 499,512
Net loss for the
period October
26, 1996 to
December 31,
1996........... (492,253)
---------- --------- ------- --------- ------- ----------- -------- --------- ------------
BALANCE AT
DECEMBER 31,
1996............. -- 653,111 6,531 2,925,000 29,250 4,715,649 -- -- (492,253)
Issuance of
Series B
convertible
preferred
stock.......... 568,182 5,682 9,494,316
Conversion of
promissory note
for Series B
convertible
preferred
stock.......... 29,904 299 499,701
Issuance of non-
qualified stock
options........ 5,948
Net loss........ (7,820,537)
---------- --------- ------- --------- ------- ----------- -------- --------- ------------
BALANCE AT
DECEMBER 31,
1997............. -- 1,251,197 12,512 2,925,000 29,250 14,715,614 -- -- (8,312,790)
Issuance of
common stock
(unaudited).... 433,965 4,340 3,714,410
Exercise of
options
(unaudited).... 2,481 25 3,792
Issuance of non-
qualified stock
options
(unaudited).... 17,775
Issuance of
stock options
below deemed
fair value for
accounting
purposes
(unaudited).... 18,200 $(18,200)
Net loss
(unaudited).... (2,915,693)
---------- --------- ------- --------- ------- ----------- -------- --------- ------------
BALANCE AT JUNE
30, 1998
(UNAUDITED)...... -- 1,251,197 $12,512 3,361,446 $33,615 $18,469,791 $(18,200) -- $(11,228,483)
========== ========= ======= ========= ======= =========== ======== ========= ============
<CAPTION>
TOTAL
-------------
<S> <C>
BALANCE AT JANUARY
1, 1995
Members'
subscriptions.. $ 2,064,000
Receivable from
member......... (172,489)
Net loss........ (639,638)
-------------
BALANCE AT
DECEMBER 31,
1995............. 1,251,873
Payment of
member
receivable..... 58,100
Reduction of
member
receivable..... 114,389
Net loss for the
period January
1, 1996 to
October 25,
1996........... (1,554,028)
Effect of
reorganization
(Note 1)....... --
Issuance of
Series A
convertible
preferred
stock.......... 4,381,096
Conversion of
promissory note
for Series A
convertible
preferred
stock.......... 500,000
Net loss for the
period October
26, 1996 to
December 31,
1996........... (492,253)
-------------
BALANCE AT
DECEMBER 31,
1996............. 4,259,177
Issuance of
Series B
convertible
preferred
stock.......... 9,499,998
Conversion of
promissory note
for Series B
convertible
preferred
stock.......... 500,000
Issuance of non-
qualified stock
options........ 5,948
Net loss........ (7,820,537)
-------------
BALANCE AT
DECEMBER 31,
1997............. 6,444,586
Issuance of
common stock
(unaudited).... 3,718,750
Exercise of
options
(unaudited).... 3,817
Issuance of non-
qualified stock
options
(unaudited).... 17,775
Issuance of
stock options
below deemed
fair value for
accounting
purposes
(unaudited).... --
Net loss
(unaudited).... (2,915,693)
-------------
BALANCE AT JUNE
30, 1998
(UNAUDITED)...... $ 7,269,235
=============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
EARTHWEB INC.
NOTES TO FINANCIAL STATEMENTS
1. THE COMPANY
Organization
EarthWeb Inc. (the "Company") was incorporated in the State of New York on
April 25, 1996 and subsequently reincorporated in the State of Delaware on June
17, 1997.
On October 25, 1996, all of the assets and liabilities of EarthWeb LLC were
transferred, in a tax free conversion, to EarthWeb Inc., in exchange for the
issuance of 2,925,000 shares of common stock of the Company. This transaction
was accounted for as a reorganization of entities under common control, in a
manner similar to a pooling of interest.
EarthWeb LLC was originally incorporated in the State of New York on October
29, 1994 under the name IdentiNet, Inc.
Business
The Company is a leading provider of Internet-based online services to the
information technology ("IT") community worldwide.
During 1997, the Company announced its intention to restructure its business
operations and dispose of its software products and professional services
divisions. As of December 31, 1997, these divisions were in the process of
being fully disposed and operations for the years ended December 31, 1995, 1996
and 1997 have been recorded as discontinued operations.
The Company has sustained net losses and negative cash flows from operations
since its inception. The Company's ability to meet its obligations in the
ordinary course of business is dependent upon its ability to establish
profitable operations or raise additional financing through public or private
equity financings, collaborative or other arrangements with corporate sources,
or other sources of financing to fund operations. During 1998, the Company has
received additional financing of approximately $3,719,000. Management believes
that its current funds will be sufficient to enable the Company to meet its
planned expenditures through at least December 31, 1998. If anticipated
operating results are not achieved, management has the intent and believes it
has the ability to delay or reduce expenditures so as not to require additional
financial resources, if such resources were not available on terms acceptable
to the Company. Should the need arise, the Company has received a commitment
from a preferred stockholder to finance anticipated working capital
deficiencies, if any, through September 30, 1999. In addition, should the need
arise, the Company may request additional financing from a preferred
stockholder to provide up to $11 million of additional equity financing, at
previously negotiated terms. However, the preferred stockholder is under no
obligation to provide such additional funding.
2. SIGNIFICANT ACCOUNTING POLICIES AND PROCEDURES
Revenue Recognition
The Company generates several types of revenue including the following:
Advertising
Advertising revenues are derived from the sale of advertising space on the
Company's various online services. Advertising revenues are recognized over the
period in which the advertisements are displayed, provided that no significant
Company obligations remain and collection of the receivable is reasonably as-
sured. Company obligations typically include guarantees of a minimum number of
"impressions" (times that an advertisement is viewed by users of the Company's
online services over a specified period of time). To the extent that minimum
guaranteed impressions are not met, the Company defers recognition of the cor-
responding revenues until the guaranteed impressions are achieved. For the
years ended December 31, 1996 and 1997, advertising revenues represented ap-
proximately 100% and 86% of revenues from continuing operations, respectively.
Revenues from barter transactions are recorded at the lower of the estimated
fair value of the advertisements, goods or services received or the estimated
fair value of the advertisements given. Revenue from barter transactions
(representing advertisements given) is recognized as income when advertisements
are delivered on the Company's Web sites. Barter expense (representing
advertisements received) is recognized when the Company's advertisements are
run on other companies' Web sites, which is typically in the same period when
the related barter revenue is recognized. For the years ended December 31, 1996
and 1997, barter transactions represented 55% and 16% of total revenues from
continuing operations, respectively.
F-7
<PAGE>
EARTHWEB INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
2. SIGNIFICANT ACCOUNTING POLICIES AND PROCEDURES--(CONTINUED)
Online Product Sales
The Company has various agreements with product manufacturers where
publications and software are sold on the Company's Web sites. The Company
records the gross revenue earned and the related royalty due to the vendor as
cost of revenues when the products are sent electronically to the customers and
collectibility is probable. For the year ended December 31, 1997, revenues from
the sale of products online approximated $64,000 and the related cost of sales
was approximately $46,000.
Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with original
maturities of three months or less to be cash equivalents. Cash that
collateralizes certain letters of credit is recorded as restricted cash on the
balance sheet (see Note 7).
Concentration of Credit Risk
Substantially all of the Company's excess cash has been invested in highly
liquid investments. The Company performs ongoing credit evaluations of its
customers' financial conditions and generally does not require collateral on
accounts receivable. The Company maintains allowances for credit losses and
such losses have been within management's expectations. The Company's services
are provided to customers in several industries worldwide.
Accounts receivable are stated net of allowances for doubtful accounts of
approximately $0 and $11,000 as of December 31, 1996 and 1997, respectively. At
December 31, 1996, four customers accounted for 60% of the accounts receivable
balance. At December 31, 1997, two customers accounted for 52% of the accounts
receivable balance. For the year ended December 31, 1996, two customers
accounted for 68% of revenues from continuing operations and for the year ended
December 31, 1997, one customer accounted for 12% of revenues from continuing
operations.
Financial Instruments
The recorded amounts of financial instruments approximate their fair values.
Fixed Assets
Depreciation of equipment, furniture and fixtures and computer software is
provided for by the straight-line method over estimated useful life ranging
from three to five years. Amortization of leasehold improvements is provided
for over the lesser of the term of the related lease or the estimated useful
life of the improvement. The cost of additions and betterments is capitalized
and repairs and maintenance costs are charged to operations in the periods
incurred.
Capitalized Software Development Costs
The Company has capitalized certain incurred software development costs in
connection with its online services. The costs associated with research and
development of such technology were expensed as incurred. Software development
costs incurred subsequent to establishing technological feasibility have been
capitalized. Technological feasibility is established upon the completion of a
detailed program design (in the absence of any high risk issues or
uncertainties). Capitalized software costs are being amortized over a period of
two years. Maintenance costs incurred in connection with the software are being
expensed as incurred. Capitalized software development costs, net, as of
December 31, 1996 and 1997 were approximately $31,000 and $0, respectively.
Intangible Assets
Intangible assets resulting from acquisitions of Web site assets are being
amortized using the straight-line method over three years.
Income Taxes
The Company recognizes deferred taxes by the asset and liability method of
accounting for income taxes. Under the asset and liability method, deferred
income taxes are recognized for differences between the financial-statement and
tax bases of assets and liabilities at enacted statutory tax rates in effect
for the years in which the differences are expected to reverse.
F-8
<PAGE>
EARTHWEB INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
2. SIGNIFICANT ACCOUNTING POLICIES AND PROCEDURES--(CONTINUED)
The effect on deferred taxes of a change in tax rates is recognized in income
in the period that includes the enactment date. In addition, valuation
allowances are established when necessary to reduce deferred tax assets to the
amounts expected to be realized. The primary sources of temporary differences
are depreciation and amortization of intangible assets.
Risks and Uncertainties
The Company has a limited operating history and its prospects are subject to
the risks, expenses and uncertainties frequently encountered by companies in
the new and rapidly evolving markets for Internet products and services. These
risks include the failure to develop and extend the Company's online service
brands, the rejection of the Company's services by Web consumers, vendors
and/or advertisers, the inability of the Company to maintain and increase the
levels of traffic on its online services, as well as other risks and
uncertainties. In the event that the Company does not successfully implement
its business plan, certain assets may not be recoverable.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amount of assets and liabilities, disclosure of
contingent assets and liabilities at the date of the financial statements and
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from these estimates. The Company's significant estimates
include the useful lives of fixed assets and intangibles and the accounts
receivable allowance for doubtful accounts.
Long-Lived Assets
The carrying amount of assets is reviewed on a regular basis for the existence
of facts or circumstances, both internally and externally, that suggest
impairment. To date no such impairment has been indicated except as disclosed
in Note 3. The Company determines if the carrying amount of a long-lived asset
is impaired based on anticipated undiscounted cash flows before interest. In
the event of an impairment, a loss is recognized based on the amount by which
the carrying amount exceeds fair value of the asset. Fair value is determined
primarily using the anticipated cash flows before interest, discounted at a
rate commensurate with the risk involved.
Net Loss Per Share
In 1997, the Financial Accounting Standards Board ("FASB") issued Statement of
Financial Accounting Standards No. 128, "Earnings per Share" ("SFAS No. 128").
SFAS No. 128 replaced primary and fully diluted earnings per share with basic
and diluted earnings per share. Unlike primary earnings per share, basic
earnings per share excludes any dilutive effects of options, warrants and
convertible securities. Diluted earnings per share is very similar to fully
diluted earnings per share. Basic earnings per share is computed using the
weighted-average number of common shares outstanding during the period. Diluted
earnings per share is computed using the weighted-average number of common and
common stock equivalent shares outstanding during the period. Common equivalent
shares are excluded from the computation if their effect is antidilutive. The
pro forma net loss per share is computed by dividing the net loss by the sum of
the weighted average number of shares of common stock and including the shares
issued as a result of the assumed conversion of all outstanding shares of
Convertible Preferred Stock. Net loss per share amounts for all periods have
been restated to conform to SFAS No. 128 requirements.
Unaudited Interim Financial Statements
The financial statements as of June 30, 1998 and for the six months ended June
30, 1997 and 1998 are unaudited but have been prepared in accordance with
generally accepted accounting principles for interim financial statements. In
the opinion of management, all adjustments (consisting of normal recurring
adjustments) considered necessary for a fair presentation have been included.
The results of operations of any interim period are not necessarily indicative
of the results of operations for the full year.
F-9
<PAGE>
EARTHWEB INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
2. SIGNIFICANT ACCOUNTING POLICIES AND PROCEDURES--(CONTINUED)
Pro Forma Balance Sheet (Unaudited)
The pro forma June 30, 1998 balance sheet assumes the conversion of 653,111
shares of Series A Convertible Preferred Stock, and 598,086 shares of Series B
Convertible Preferred Shares into 2,439,833 shares of Common Stock.
Recent Accounting Pronouncements
In June 1997, FASB issued Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income" ("SFAS No. 130"), which establishes standards
for reporting and display of comprehensive income and its components in
the financial statements. SFAS No. 130 is effective for fiscal years beginning
after December 15, 1997. Reclassification of financial statements for earlier
periods provided for comparative purposes is required. SFAS No. 130 offers
alternatives for presentation of disclosures required by the standard. The
adoption of SFAS No. 130 will have no impact on the Company's results of
operations, financial position or cash flows.
In June 1997, FASB issued Statement of Financial Accounting Standards No. 131,
"Disclosures about Segments of an Enterprise and Related Information" ("SFAS
No. 131"), which establishes standards for reporting information about
operating segments in annual financial statements. 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. The adoption of SFAS No. 131 is not expected to have an
impact on the Company's results of operations, financial position or cash
flows.
In February 1998, FASB issued SFAS No. 132, "Employers' Disclosures about
Pension and Other Postretirement Benefits" ("SFAS No. 132"), which revises
employers' disclosures about pension and other postretirement benefit plans.
SFAS No. 132 does not change the measurement or recognition of those plans.
SFAS No. 132 is effective for fiscal years beginning after December 15, 1997.
The adoption of SFAS No. 132 is not expected to have an impact on the Company's
results of operations, financial position or cash flows.
In March 1998, the American Institute of Certified Public Accountants ("AICPA")
issued Statement of Position 98-1, "Accounting for the Cost of Computer
Software Developed or Obtained for Internal Use" ("SOP 98-1"). SOP 98-1 is
effective for financial statements for years beginning after December 15, 1998.
SOP 98-1 provides guidance over accounting for computer software developed or
obtained for internal use including the requirement to capitalize specified
costs and amortization of such costs. The Company does not expect the adoption
of this standard to have a material effect on the Company's capitalization
policy.
In March 1998, AIPCA issued Statement of Position 98-4, "Deferral of the
Effective Date of a Provision of SOP 97-2" ("SOP 98-4"). SOP 98-4 defers for
one year the application of certain provisions of Statement of Position 97-2,
"Software Revenue Recognition" ("SOP 97-2"). Different informal and
unauthoritative interpretations of certain provisions of SOP 97-2 have arisen
and, as a result, the AICPA is deliberating amendments to SOP 97-2, so they can
issue interpretations regarding the applicability and the method of application
of those provisions. The adoption of SOP 97-2 has not had a material impact on
the Company's results of operations, financial position or cash flows. However,
due to the uncertainties related to the outcome of these amendments, the impact
on the future financial results of the Company is not currently determinable.
In April 1998, the AICPA issued Statement of Position 98-5, "Reporting on the
Costs of Start-Up Activities" ("SOP 98-5"). SOP 98-5, which is effective for
fiscal years beginning after December 15, 1998, provides guidance on the
financial reporting of start-up costs and organization costs. It requires costs
of start up activities and organization costs to be expensed as incurred. As
the Company has expensed these costs historically, the adoption of this
standard is not expected to have a significant impact on the Company's results
of operations, financial position or cash flows.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivatives and
Hedging Activities" ("SFAS 133"), which establishes accounting and reporting
standards for derivative instruments, including certain derivative instruments
embedded in other contracts, (collectively referred to as derivatives) and for
hedging activities. SFAS No. 133 is effective for all fiscal quarters of fiscal
years beginning after June 15, 1999. As the Company does not currently engage
or plan to engage in derivative or hedging activities there will be no impact
to the Company's results of operations, financial position or cash flows upon
the adoption of this standard.
F-10
<PAGE>
EARTHWEB INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
3. ACQUISITION--(CONTINUED)
In August 1997, the Company acquired certain assets related to the Java Applet
Rating Service ("JARS") Web site. The total cost of the acquisition was
$1,261,876 including legal and other professional costs. As of December 31,
1997 there is a payable of $450,000 related to this acquisition that is
collateralized by a standby letter of credit agreement with a financial
institution (see Note 7). The final payment is payable in August 1998. The
Company has also entered into a four year consulting agreement with the seller
of JARS where the Company is obligated to pay a consulting fee of $180,000 per
year.
The cost of the JARS acquisition was allocated to certain assets based upon
their estimated fair values as follows:
<TABLE>
<S> <C>
Intangible assets............................................. $1,011,876
Capitalized software.......................................... 230,000
Fixed assets.................................................. 20,000
----------
$1,261,876
==========
</TABLE>
On December 31, 1997, the Company recorded a charge of approximately $337,000
related to an impairment of the intangible assets acquired in the JARS
acquisition to reflect the fair value of the remaining asset.
4. DISCONTINUED OPERATIONS
In November 1997, the Company formalized its plan to discontinue its
professional services and software products divisions. Accordingly, operating
results have been reclassified and reported in discontinued operations.
Operating results and assets and liabilities of the discontinued operations are
as follows:
<TABLE>
<CAPTION>
------------ ---------------------------------- -------------------------------------
PROFESSIONAL PROFESSIONAL SOFTWARE PROFESSIONAL SOFTWARE
SERVICES SERVICES PRODUCTS TOTAL SERVICES PRODUCTS TOTAL
1995 1996 1996 1996 1997 1997 1997
------------ ------------ --------- ---------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues................ $578,998 $1,059,329 $ 133,049 $1,192,378 $2,303,813 $ 476,170 $ 2,779,983
Expenses (including loss
from disposal)......... 514,199 919,812 314,821 1,234,633 1,361,046 3,802,456 5,163,502
-------- ---------- --------- ---------- ---------- ----------- -----------
Net income (loss)....... $ 64,799 $ 139,517 $(181,772) $ (42,255) $ 942,767 $(3,326,286) $(2,383,519)
======== ========== ========= ========== ========== =========== ===========
At December 31:
Accounts Receivable..... $ 330,370 $ -- $ 330,370 $ 253,052 $ 150,000 $ 403,052
Deferred costs.......... 327,261 -- 327,261 -- -- --
Fixed assets, net....... 106,000 50,000 156,000 -- -- --
---------- --------- ---------- ---------- ----------- -----------
Assets.................. 763,631 50,000 813,631 253,052 150,000 403,052
Accrued expenses........ -- -- -- 103,585 339,942 443,527
Deferred revenue........ 663,171 -- 663,171 -- -- --
---------- --------- ---------- ---------- ----------- -----------
Net assets.............. $ 100,460 $ 50,000 $ 150,460 $ 149,467 $ (189,942) $ (40,475)
========== ========= ========== ========== =========== ===========
</TABLE>
5. FIXED ASSETS
Property and equipment consist of the following:
<TABLE>
<CAPTION>
-------------------------------------
DECEMBER 31, DECEMBER 31, JUNE 30,
1996 1997 1998
------------ ------------ -----------
(UNAUDITED)
<S> <C> <C> <C>
Computer equipment and software........... $581,638 $1,753,627 $1,799,869
Furniture and fixtures.................... 232,478 321,818 325,803
Leasehold improvements.................... 144,619 291,311 484,396
-------- ---------- ----------
958,735 2,366,756 2,610,068
Less, accumulated depreciation and
amortization........................... 139,474 715,928 1,056,939
-------- ---------- ----------
$819,261 $1,650,828 $1,553,129
======== ========== ==========
</TABLE>
F-11
<PAGE>
EARTHWEB INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
5. FIXED ASSETS--(CONTINUED)
Depreciation and amortization for the years ended December 31, 1995, 1996 and
1997 totaled approximately $42,000, $101,000 and $529,000, respectively.
6. COMMITMENTS AND CONTINGENCIES
Leases:
The Company leases office space in New York, under non-cancelable operating
leases expiring at various dates through January 2008. In addition, the Company
is a lessee, under several capital lease agreements with third parties, for
certain equipment. Future minimum lease payments under non-cancelable operating
and capital leases as of December 31, 1997 are as follows:
<TABLE>
<CAPTION>
OPERATING CAPITAL
LEASES LEASES
----------- ----------
<S> <C> <C>
1998.................................................... $ 744,000 $ 15,161
1999.................................................... 1,018,000 12,541
2000.................................................... 961,000 4,700
2001.................................................... 859,000 --
2002 and Thereafter..................................... 4,839,000 --
----------- ----------
Total................................................... $ 8,421,000 32,402
===========
Less: Amounts attributable to interest.................. 3,737
----------
Present value of net minimum lease payments............. 28,665
Less: Current portion................................... 11,625
----------
Long-term portion....................................... $ 17,040
==========
</TABLE>
Rent expense was approximately $79,000, $183,000 and $278,000, for the years
ended December 31, 1995, 1996 and 1997, respectively. The cost of equipment
under capital lease included in property and equipment was approximately
$35,000 and $44,000 at December 31, 1996 and 1997, respectively.
7. FINANCING
As of December 31, 1997, the Company has the following standby letters of
credit:
<TABLE>
<C> <S>
$287,000 -- to collateralize its principal facility lease agreement. Such
standby letter of credit is collateralized by
restricted cash.
$450,000 -- to collateralize the future payments related to the JARS
acquisition. Such standby letter of credit is collateralized by
restricted cash, accounts receivable and certain intangible assets.
</TABLE>
On June 2, 1997, the Company entered into a convertible promissory note
agreement whereby the Company received a $500,000 loan, payable upon demand.
The promissory note was converted into 29,904 shares of the Company's newly
issued Series B Convertible Preferred Stock on June 24, 1997.
During August 1996, the Company entered into a convertible promissory note
agreement whereby the Company received a $500,000 loan, payable upon demand.
The promissory note was converted into 48,823 shares of the Company's newly
issued Series A Convertible Preferred Stock on October 25, 1996.
8. CAPITAL STOCK
At December 31, 1997, the authorized capital stock of the Company consists of
21,750,000 shares of Common Stock, 2,750,000 shares of Convertible Preferred
Stock consisting of 1,000,000 shares of Series A, 600,000 shares of Series B
F-12
<PAGE>
EARTHWEB INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
8. CAPITAL STOCK--(CONTINUED)
and 1,150,000 shares of Series C. The authorized capital stock and the related
par values were adjusted as part of the Company's incorporation in the state of
Delaware on June 17, 1997 (see Note 1). During 1997, the Company's Board of
Directors approved a three-for-one Common Stock split. Shareholders of record
in November 1997 received two additional shares for each share held. All
references to the number of shares of common stock have been retroactively
restated in the financial statements to reflect the effect of the three-for-one
split.
Preferred Stock
On October 25, 1996, the Company issued 653,111 shares of Series A Convertible
Preferred Stock ("Series A") through a private placement, in consideration of
net proceeds to the Company of $4,881,096, inclusive of the conversion of a
$500,000 promissory note.
In June 1997, the Company issued 598,086 shares of Series B Convertible
Preferred Stock ("Series B") through a private placement, in consideration of
net proceeds of $9,999,998, inclusive of the conversion of a $500,000
promissory note.
The holders of the Convertible Preferred Stock are entitled to receive
cumulative dividends at specified rates, as defined. Such dividends are payable
only when declared by the Board of Directors or upon a liquidation event, as
defined, other than a mandatory conversion. In the event of any liquidation,
the holders of preferred stock have a liquidation preference over holders of
common stock. Such preference is equal to the cost basis of the respective
class of preferred stock, plus any cumulative unpaid dividends. At December 31,
1996 and 1997 cumulative dividends in arrears amounted to approximately $80,000
and $898,000, respectively.
All classes of preferred stock are convertible to common stock at prices and at
times subject to the provisions set forth in the Company's restated Certificate
of Incorporation. In the event of a public offering of the Company's shares
with net proceeds to the Company of at least $15 million and an offering price
per share determined by the applicable rates as defined in the Company's re-
stated Certificate of Incorporation, the preferred stock will be automatically
converted into common stock at the conversion rates, as defined. Preferred
stockholders are entitled to voting rights equal to the number of shares of
common stock into which the preferred stock is convertible.
Stock Option Plan
During October 1996, the Company adopted the 1996 Stock Option Plan (the
"Plan") under which incentive stock options or non-qualified stock options to
purchase common stock may be granted to eligible employees. A summary of the
status of the Company's plan, as amended, as of December 31, 1997, and changes
during the year is presented below:
<TABLE>
<CAPTION>
------------------
WEIGHTED
AVERAGE
OPTION EXERCISE
SHARES PRICE
-------- --------
<S> <C> <C>
Options outstanding at December 31, 1996
Opening balance............................................. --
Granted..................................................... 95,017 $ 1.54
Granted..................................................... 123,953 3.08
Exercised................................................... -- --
Forfeited................................................... (17,481) 1.54
--------
Options outstanding at December 31, 1997.................... 201,489 2.49
Granted (unaudited)......................................... 244,555 3.08
Granted (unaudited)......................................... 12,454 8.57
Granted (unaudited)......................................... 8,450 10.77
Exercised (unaudited)....................................... (2,481) 1.54
Forfeited (unaudited)....................................... (55,161) 2.34
--------
Options outstanding at June 30, 1998 (unaudited)............ 409,306 3.24
Options exercisable at December 31, 1997.................... --
Options exercisable at June 30, 1998 (unaudited)............ 9,713
Weighted average fair value of options granted during 1997.. $ 0.75
</TABLE>
F-13
<PAGE>
EARTHWEB INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
8. CAPITAL STOCK--(CONTINUED)
The following table summarizes information about stock options outstanding at
December 31, 1997:
<TABLE>
<CAPTION>
--------------------------------
OPTIONS OUTSTANDING
--------------------------------
WEIGHTED
AVERAGE WEIGHTED
REMAINING AVERAGE
RANGE OF SHARES CONTRACTUAL EXERCISE
EXERCISE PRICES OUTSTANDING LIFE PRICE
--------------- ----------- ----------- --------
<S> <C> <C> <C>
$1.54....................................... 77,536 6.2 years $1.54
$3.08....................................... 123,953 6.8 years $3.08
</TABLE>
Options generally vest over a period of four years, however, 15% of all
unvested options automatically vest at the date of an initial public offering
of the Company's stock in which the Company receives net proceeds of at least
$10 million. At December 31, 1997, the Company had reserved 646,857 shares of
common stock for the exercise of options.
The option plan also provides for the issuance of stock appreciation rights and
restricted stock awards under which shares of common stock may be issued to
eligible employees. No such awards have been made.
Stock-Based Compensation:
The Company applies Accounting Principles Board Opinion No. 25, "Accounting for
Stock-Issued to Employees" and related interpretations in accounting for its
stock option issuances. The Company has adopted the disclosure-only provisions
of SFAS No. 123, "Accounting for Stock-Based Compensation". Had compensation
cost for the Company's stock options issued at the fair value of the Company's
stock been determined based on the fair value of the stock options at the grant
date for awards in 1997 consistent with the provisions of SFAS No. 123, the
Company's net loss would have been adjusted to the pro forma amounts indicated
below.
<TABLE>
<CAPTION>
------------
DECEMBER 31,
1997
------------
<S> <C>
Net loss--as reported.......................................... $(7,820,537)
Net loss--pro forma............................................ $(7,860,720)
Basic net loss per share--as reported.......................... $ (2.67)
Basic net loss per share--pro forma............................ $ (2.69)
</TABLE>
The fair value of each option grant is estimated on the date of the grant using
the "Black-Scholes option-pricing model" with the following weighted average
assumptions used for grants for the year ended December 31, 1997; zero dividend
yield; no volatility; a weighted average risk-free interest rate of 6.90%; and
expected lives of 5 years.
At June 30, 1998, the Company recorded unearned compensation of $18,200
(unaudited) for options issued below the fair value of the Company's stock.
This amount will be charged to compensation expense over a four year period
(the vesting period of the options).
9. INCOME TAXES
The components of the net deferred tax asset as of December 31, 1996 and 1997
consists of the following:
<TABLE>
<CAPTION>
----------------------
1996 1997
--------- -----------
<S> <C> <C>
Operating loss carryforward......................... $ 221,513 $ 3,325,050
Depreciation of fixed assets and amortization of
intangibles........................................ (37,464) 254,250
--------- -----------
Net deferred tax asset.............................. 184,049 3,579,300
Less, Valuation allowance........................... (184,049) (3,579,300)
--------- -----------
Deferred tax asset.................................. $ -- $ --
========= ===========
</TABLE>
The difference between the Company's U.S. federal statutory rate of 35%, as
well as its state and local rate, net of a federal benefit of 7%, when compared
to its effective rate of 0% is principally comprised of its valuation
allowance.
As of December 31, 1997, the Company has a net operating loss carryforward for
Federal income tax purposes of approximately $7,389,000. The carryforward will
expire in 2012 if not used. The net deferred tax asset has been fully reserved
due to the uncertainty of the Company's ability to realize this asset in the
future.
F-14
<PAGE>
EARTHWEB INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
10. EMPLOYEE SAVINGS PLAN
The Company has a savings plan (the "Savings Plan") that qualifies as a
deferred salary arrangement under Section 401(k) of the Internal Revenue Code.
Under the Savings Plan, participating employees may defer a portion of their
pretax earnings, up to the Internal Revenue Service annual contribution limit.
For the year ended December 31, 1997, the Company did not contribute to the
Savings Plan.
11. SUBSEQUENT EVENTS (UNAUDITED)
Acquisitions
During the six months ended June 30, 1998, the Company has purchased three Web
sites. In February 1998, the Company acquired the companion Web sites
htmlgoodies.com and javagoodies.com. In April 1998, the Company acquired
intranetjournal.com. In May 1998, the Company acquired javascripts.com. The
aggregate cost of these Web site acquisitions totaled approximately $370,000,
approximately $200,000 of which is payable over the next 36 months.
In July 1998, the Company acquired substantially all of the assets and
properties of the Web site, datamation.com. In conjunction with the
acquisition, the Company also licensed on a non-exclusive, fully paid basis
from the seller, the right to use certain customer lists for the purposes of
marketing the Company's products and services. The total cost of the
acquisition and license was $600,000, subject to certain purchase price
adjustments, as defined in the acquisition agreement.
Common Stock Issuance
In June 1998, the Company issued 433,965 shares of Common Stock to EarthWeb LLC
through a private placement, in consideration of net proceeds of $3,718,750. As
of June 30, 1998, $637,500 of these funds were not transferred to the Company
and is reflected on the balance sheet as a stockholder receivable. This
receivable was subsequently paid in July 1998.
Initial Public Offering
As of July 31 1998, the Company's Board of Directors authorized the Company to
file a registration statement with the Securities and Exchange Commission for
the purpose of the initial public offering of the Company's common stock. Upon
the completion of the offering, if requirements set forth in the Certificate of
Incorporation are met, 653,111 shares of the Company's Series A Preferred Stock
and 598,086 shares of Series B Preferred Stock will be converted into 2,439,833
shares of Common Stock, and all such outstanding shares of Preferred Stock will
be cancelled and retired. Upon the conversion of the Preferred Stock, all
rights to accrued and unpaid dividends are waived.
Reverse Stock Split
In 1998, the Company authorized and implemented a 0.65 for 1 reverse stock
split. The share information in the accompanying financial statements has been
retroactively restated to reflect the effect of this reverse stock split.
F-15
<PAGE>
[INSIDE BACK COVER]
[Text: EarthWeb Meeting the Needs of the IT Community]
[Photographs of: David Mathison, Vice President, Technical Development, Reuters
New Media; Praveen Maryala, Software Engineer, AT&T; James Rose, Director of
Worldwide Advertising, IBM Software Group; Marianne Mason, Specialist--
Intranet-Webmaster, Bell Atlantic; Chris Cooper, CEO, Quote.com; Koen Van Exem,
General Manager, DIPU; and Reg Hingley, Senior Systems Engineer, Compaq Canada]
[Quotes attributed to each of the foregoing persons, respectively]
"Reuters America had a business need to find specialized
content replication software for our Planet Reuters site.
We searched developer.com to find the technologies we
needed. Thanks to developer.com, we've now got one of the
most powerful syndication systems on the Web. We applaud
developer.com for providing such a useful service."
--IT Executive
"I think developer.com is the only Internet site made for
developers like me, giving all the latest information
that we need in one place."
--IT Professional
"The launch of IBM's VisualAge for Java professional
software development tools relied much more heavily on
the Web than most product launches. Of all the IT-focused
websites used in the ad campaign, developer.com's Gamelan
Java directory was clearly the most effective in terms of
cost per click. Developer.com was a major contributor to
the success of the launch."
--IT Advertiser
"Developer.com really saves me time by having so many
excellent resources available in one place. It is
bookmarked on my browser and is one of the few sites that
I use regularly."
--IT Professional
"Offering the most innovative products has been a
significant factor in maintaining Quote.com's position as
the leading provider of quality financial services for
the Internet community. Developer.com has consistently
proved to be one of the most useful online resources for
implementing these services by providing examples for new
product ideas and the tools for their creation."
--IT Executive
"Developer direct is a one-stop shop so we, as
developers, can focus more on our products, while
developer direct takes extra care at the customer's side.
With developer direct, EarthWeb has the right channel to
give developers exactly what they want, namely direct
access to developer tools."
--IT Vendor
"Datamation has just the right blend of business sense
and technical detail for me to use in my job. I am a
Senior Systems Engineer for Compaq Canada, and in the
course of a year, I talk to many people who ask for views
on the industry and its direction. Datamation helps me
keep in touch with what is happening, without bogging me
down in technical details or wishful fantasies."
--IT Professional
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the expenses to be borne by the registrant,
other than underwriting discount, in connection with the issuance and
distribution of the Common Stock hereunder:
<TABLE>
<CAPTION>
----------
ITEM AMOUNT
---- ----------
<S> <C>
SEC registration fee......................................... $10,177.50
NASD filing fee.............................................. 3,950.00
Nasdaq National Market Listing Fees..........................
Accounting fees and expenses.................................
Legal fees and expenses......................................
Printing costs...............................................
Blue sky fees and expenses...................................
Miscellaneous................................................
----------
Total...................................................... $
==========
</TABLE>
-------
* Estimated.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 ("Section 145") of the General Corporation Law of the State of
Delaware (the "DGCL") provides that directors and officers of Delaware
corporations may, under certain circumstances, be indemnified against expenses
(including attorneys' fees) and other liabilities actually and reasonably
incurred by them as a result of any suit brought against them in their capacity
as a director or officer, if they acted in good faith and in a manner they
reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, if they
had no reasonable cause to believe their conduct was unlawful. Section 145 also
provides that directors and officers may also be indemnified against expenses
(including attorneys' fees) incurred by them in connection with a derivative
suit if they acted in good faith and in a manner they reasonably believed to be
in or not opposed to the best interests of the corporation, except that no
indemnification may be made without court approval if such person was adjudged
liable to the corporation.
The Company has implemented such indemnification provisions in its Certificate
of Incorporation which provides that officers and directors shall be entitled
to be indemnified by the Company to the fullest extent permitted by law against
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement incurred in connection with any action, suit or proceeding by reason
of the fact that he or she is or was an officer or director of the Company.
The above discussion of the Company's Certificate of Incorporation and Sections
102(b)(7) and 145 of the DGCL is not intended to be exhaustive and is qualified
in its entirety by such Certificate of Incorporation and statutes.
The Company has agreed to indemnify the Underwriters and their controlling
persons, and the Underwriters have agreed to indemnify the Company and its
controlling persons, including directors and executive officers of the Company,
against certain liabilities, including liabilities under the Securities Act.
Reference is made to the Underwriting Agreement filed as part of the Exhibits
hereto.
For information regard the Company's undertaking to submit to adjudication the
issue of indemnification for violation of the securities laws, see Item 17
hereof.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
On October 25, 1996, the Company issued (i) 2,925,000 shares of its Common
Stock to EarthWeb LLC in exchange for substantially all the assets and
liabilities of EarthWeb LLC and (ii) 653,111 shares of its Series A Preferred
Stock to Warburg, Pincus Ventures, L.P. ("Warburg") for an aggregate purchase
price of $6.7 million. On June 23, 1997, the Company issued 598,086 shares of
its Series B Preferred Stock to Warburg for an aggregate purchase price of
$10.0 million. In June 1998, the Company issued 433,965 shares of its Common
Stock to EarthWeb LLC for an aggregate purchase price of $3.7 million.
Exemption from registration for the transactions described above was claimed
pursuant to Section 4(2) of the Securities Act of 1933, as amended, regarding
transactions by the issuer not involving a public offering, in that these
transactions were made, without general solicitation or advertising, to
sophisticated investors with access to all relevant information necessary to
evaluate these investments and who represented to the Registrant that the
shares were being acquired for investment. Additionally, since February 1997,
the Registrant has granted stock options to certain of its employees and
consultants pursuant to its 1996 Amended and Restated Stock Plan. Such grants
were made in reliance on Rule 701 promulgated under the Securities Act. As of
August 31, 1998, the Registrant had granted options to purchase 480,085 shares
of Common Stock to employees and consultants pursuant to the 1996 Amended and
Restated Stock Option Plan.
II-1
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
1 Form of Underwriting Agreement
3.1 Certificate of Incorporation, as amended*
3.2 By-laws*
4.1 Amended and Restated Shareholders Agreement dated as of June 24,
1997 among the Registrant, EarthWeb LLC, GNP, Warburg, Jack D.
Hidary, Murray Hidary and Nova Spivack*
4.2 Specimen Common Stock Certificate of Registrant+
4.3 Registration Rights Agreement dated as of October 25, 1996 by and
between the Registrant, Warburg, EarthWeb LLC and GNP*
5 Form of Opinion of Morrison & Foerster LLP+
9 Form of Voting Trust Agreement, as amended*
10.1 1996 Amended and Restated Stock Plan, as amended*
10.2 Employment Agreement dated January 1, 1995 between GNP (formerly
EarthWeb Ltd.) and Jack D. Hidary*
10.3 Employment Agreement dated January 1, 1995 between GNP (formerly
EarthWeb Ltd.) and Murray Hidary*
10.4 Employment Agreement dated November 4, 1996 between the Registrant
and Irene Math*
10.5 Employment Agreement dated November 3, 1997 between the Registrant
and William Gollan*
10.6 Consulting Agreement dated as of August 1, 1998 between the
Registrant and Nova Spivack
10.7 Intercompany Services Agreement dated October 25, 1996 among the
Registrant, EarthWeb LLC, GNP (formerly EarthWeb Ltd.), Jack D.
Hidary, Murray Hidary and Nova Spivack, as amended*
10.8 Lease Agreement dated April 28, 1995 between 3 Park Avenue Co. and
MJN Enterprises, Inc., as amended
23.1 Consent of PricewaterhouseCoopers LLP
23.2 Consent of Morrison & Foerster LLP (set forth in Exhibit 5)+
23.3 Consent of Jupiter Communications*
23.4 Consent of Forrester Research, Inc.
23.5 Consent of International Data Corporation
23.6 Consent of Koen Van Exem
23.7 Consent of Chris Cooper
23.8 Consent of David Mathison
23.9 Consent of Praveen Maryala
23.10 Consent of James Rose
23.11 Consent of Marianne Mason
23.12 Consent of Reg Hingley
24 Powers of Attorney*
27 Financial Data Schedule*
</TABLE>
- -------
*Previously filed.
+To be filed by amendment.
II-2
<PAGE>
ITEM 17. UNDERTAKINGS.
The Registrant hereby undertakes the following:
(1) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than
the payment by the Registrant of expenses incurred or paid by a director,
officer or controlling person of the registrant in the successful defense
of any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
(2) For purposes of determining any liability under the Securities Act, the
information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(3) For the purpose of determining any liability under the Securities Act,
each post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
(4) The undersigned Registrant hereby undertakes to provide to the
underwriters at the closing specified in the Underwriting Agreement
certificates in such denominations and registered in such names as required
by the underwriters to permit prompt delivery to each purchaser.
II-3
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS AMENDMENT NO. 2 TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF NEW YORK, STATE OF NEW
YORK, ON OCTOBER 15, 1998.
EarthWeb Inc.
/s/ Jack D. Hidary
By: ____________________________________
JACK D. HIDARY,
President and Chief Executive Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
NO. 1 HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE
DATES STATED BELOW.
<TABLE>
<CAPTION>
NAME AND SIGNATURES TITLE DATE
------------------- ----- ----
<S> <C> <C>
/s/ Jack D. Hidary President, Chief Executive October 15, 1998
______________________________________ Officer and Director
JACK D. HIDARY
/s/ Murray Hidary* Executive Vice President, October 15, 1998
______________________________________ Secretary, Treasurer and
MURRAY HIDARY Director
/s/ Nova Spivack* Director October 15, 1998
______________________________________
NOVA SPIVACK
/s/ Henry Kressel* Director October 15, 1998
______________________________________
HENRY KRESSEL
/s/ Cary Davis* Director October 15, 1998
______________________________________
CARY DAVIS
/s/ Irene Math* Vice President, Finance October 15, 1998
______________________________________ (Principal Financial and
IRENE MATH Accounting Officer)
/s/ Jack D. Hidary
*By: _________________________________
JACK D. HIDARY
Attorney-in-fact
</TABLE>
S-1
<PAGE>
EXHIBIT INDEX
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
<TABLE>
<CAPTION>
EXHIBIT NO.DESCRIPTION PAGE
---------------------- ----
<C> <S> <C>
1 Form of Underwriting Agreement
3.1 Certificate of Incorporation, as amended*
3.2 By-laws*
4.1 Amended and Restated Shareholders Agreement dated as of
June 24, 1997 among the Registrant, EarthWeb LLC, GNP,
Warburg, Jack D. Hidary, Murray Hidary and Nova Spivack*
4.2 Specimen Common Stock Certificate of Registrant+
4.3 Registration Rights Agreement dated as of October 25, 1996
by and between the Registrant, Warburg, EarthWeb LLC and
GNP*
5 Form of Opinion of Morrison & Foerster LLP+
9 Form of Voting Trust Agreement, as amended*
10.1 1996 Amended and Restated Stock Plan, as amended*
10.2 Employment Agreement dated January 1, 1995 between GNP
(formerly EarthWeb Ltd.) and Jack D. Hidary*
10.3 Employment Agreement dated January 1, 1995 between GNP
(formerly EarthWeb Ltd.) and Murray Hidary*
10.4 Employment Agreement dated November 4, 1996 between the
Registrant and Irene Math*
10.5 Employment Agreement dated November 3, 1997 between the
Registrant and William Gollan*
10.6 Consulting Agreement dated as of August 1, 1998 between the
Registrant and Nova Spivack
10.7 Intercompany Services Agreement dated October 25, 1996
among the Registrant, EarthWeb LLC, GNP (formerly EarthWeb
Ltd.), Jack D. Hidary, Murray Hidary and Nova Spivack, as
amended*
10.8 Lease Agreement dated April 28, 1995 between 3 Park Avenue
Co. and MJN Enterprises, Inc., as amended
23.1 Consent of PricewaterhouseCoopers LLP
23.2 Consent of Morrison & Foerster LLP (set forth in Exhibit 5)+
23.3 Consent of Jupiter Communications*
23.4 Consent of Forrester Research, Inc.
23.5 Consent of International Data Corporation
23.6 Consent of Koen Van Exem
23.7 Consent of Chris Cooper
23.8 Consent of David Mathison
23.9 Consent of Praveen Maryala
23.10 Consent of James Rose
23.11 Consent of Marianne Mason
23.12 Consent of Reg Hingley
24 Powers of Attorney*
27 Financial Data Schedule*
</TABLE>
- -------
* Previously filed.
+ To be filed by amendment.
<PAGE>
EXHIBIT 1
EARTHWEB, INC.
_______ SHARES OF COMMON STOCK, $0.01 PAR VALUE
Underwriting Agreement
September __, 1998
J.P. Morgan Securities Inc.
Bear Stearns & Co. Inc.
Volpe Brown Whelan & Co.
As Representatives of several
underwriters listed in Schedule I
hereto
c/o J.P. Morgan Securities Inc.
60 Wall Street
New York, New York 10260
Ladies and Gentlemen:
EarthWeb, Inc., a Delaware corporation (the "COMPANY"), proposes to issue
and sell to the several Underwriters listed in Schedule I hereto (the
"UNDERWRITERS"), for whom you are acting as representatives (the
"REPRESENTATIVES") an aggregate of __________ shares of common stock, par value
$0.01 per share (the "SHARES"), of the Company (the "UNDERWRITTEN SHARES") and
the Company and the Selling Stockholders of the Company named in Schedule II
hereto (the "SELLING STOCKHOLDERS") propose to sell to the Underwriters, for the
sole purpose of covering over-allotments in connection with the sale of the
Underwritten Shares, at the option of the Underwriters, up to an additional
_____ shares of common stock of the Company (the "OPTION SHARES"). The
Underwritten Shares and the Option Shares are herein referred to as the
"SHARES". The shares of common stock of the Company to be outstanding after
giving effect to the sale of the Shares are herein referred to as the "COMMON
STOCK".
The Company has prepared and filed with the Securities and Exchange
Commission (the "COMMISSION") in accordance with the provisions of the
Securities Act of 1933, as amended, and the rules and regulations of the
Commission thereunder (collectively, the "SECURITIES ACT"), a registration
statement, including a prospectus, relating to the Shares. The registration
<PAGE>
statement as amended at the time when it shall become effective including
information (if any) deemed to be part of the registration statement at the time
of effectiveness pursuant to Rule 430A under the Securities Act, is referred to
in this Agreement as the "REGISTRATION STATEMENT", and the prospectus in the
form first used to confirm sales of Shares is referred to in this Agreement as
the "PROSPECTUS". If the Company has filed an abbreviated registration
statement pursuant to Rule 462(b) under the Securities Act (the "RULE 462
REGISTRATION STATEMENT"), then any reference herein to the term "Registration
Statement" shall be deemed to include such Rule 462 Registration Statement.
The Company and each of the Selling Stockholders hereby agree with the
Underwriters as follows:
1. The Company agrees to issue and sell the Underwritten Shares to the
several Underwriters as hereinafter provided, and each Underwriter, upon the
basis of the representations and warranties herein contained, but subject to the
conditions hereinafter stated, agrees to purchase, severally and not jointly,
from the Company the respective number of Underwritten Shares set forth opposite
such Underwriter's name in Schedule I hereto at a purchase price per share (the
"PURCHASE PRICE") of $______.
In addition, the Company and each of the Selling Stockholders, as and to
the extent indicated in Schedule II hereto agree, severally and not jointly, to
sell the Option Shares to the several Underwriters and the Underwriters shall
have the option to purchase at their election up to ________ Option Shares for
the sole purpose of covering over-allotments in connection with the sale of the
Underwritten Shares. The Underwriters on the basis of the representations and
warranties herein contained, but subject to the conditions hereinafter stated,
shall have the option to purchase, severally and not jointly, from the Company
and each of the Selling Stockholders at the Purchase Price that portion of the
number of Option Shares as to which such election shall have been exercised (to
be adjusted by you so as to eliminate fractional shares) determined by
multiplying such number of Option Shares by a fraction the numerator of which is
the maximum number of Option Shares which such Underwriter is entitled to
purchase and the denominator of which is the maximum number of Option Shares
that all of the Underwriters are entitled to purchase hereunder, for the sole
purpose of covering over-allotments (if any) in connection with the sale of the
Underwritten Shares by the several Underwriters. [Any such election to purchase
Option Shares shall be made in proportion to the maximum number of Option Shares
to be sold by the Company and each Selling Stockholder as set forth in Schedule
II hereto initially with respect to the Option Shares to be sold by the Company
and then among the
2
<PAGE>
Selling Stockholders in proportion to the maximum number of Optional Shares to
be sold by each Selling Stockholder as set forth in Schedule II hereto]./1/
The Underwriters may exercise the option to purchase the Option Shares at
any time (but not more than once) on or before the thirtieth day following the
date of this Agreement, by written notice from the Representatives to the
Company and the Attorneys-in-Fact (as defined below). Such notice shall set
forth the aggregate number of Option Shares as to which the option is being
exercised and the date and time when the Option Shares are to be delivered and
paid for which may be the same date and time as the Closing Date (as hereinafter
defined) but shall not be earlier than the Closing Date nor later than the tenth
full Business Day (as hereinafter defined) after the date of such notice (unless
such time and date are postponed in accordance with the provisions of Section 9
hereof). Any such notice shall be given at least two Business Days prior to the
date and time of delivery specified therein.
2. The Company and the Selling Stockholders understand that the
Underwriters intend (i) to make a public offering of the Shares as soon after
(A) the Registration Statement has become effective and (B) the parties hereto
have executed and delivered this Agreement, as in the judgment of the
Representatives is advisable and (ii) initially to offer the Shares upon the
terms set forth in the Prospectus.
3. Payment for the Shares shall be made by wire transfer in immediately
available funds to the account specified to the Representatives by the Company
with regard to payment to the Company and by the Attorneys-in-Fact, or any of
them, with regard to payment to the Selling Stockholders, in the case of the
Underwritten Shares, on ___________, 1998, or at such other time on the same or
such other date, not later than the fifth Business Day thereafter, as the
Representatives and the Company may agree upon in writing or, in the case of the
Option Shares, on the date and time specified by the Representatives in the
written notice of the Underwriters' election to purchase such Option Shares.
The time and date of such payment for the Underwritten Shares is referred to
herein as the "CLOSING DATE" and the time and date for such payment for the
Option Shares, if other than the Closing Date, are herein referred to as the
"ADDITIONAL CLOSING DATE". As used herein, the term "BUSINESS DAY" means any
day other than a day on which banks are permitted or required to be closed in
New York City.
- ------------
/1/ If less than full green shoe is exercised, will the allocation be pro rated?
3
<PAGE>
Payment for the Shares to be purchased on the Closing Date or the
Additional Closing Date, as the case may be, shall be made against delivery to
the Representatives for the respective accounts of the several Underwriters of
the Shares to be purchased on such date registered in such names and in such
denominations as the Representatives shall request in writing not later than two
full Business Days prior to the Closing Date or the Additional Closing Date, as
the case may be, with any transfer taxes payable in connection with the transfer
to the Underwriters of the Shares duly paid by the Company or the Selling
Stockholders, as the case may be. The certificates for the Shares will be made
available for inspection and packaging by the Representatives at the office of
J.P. Morgan Securities Inc. set forth above not later than 1:00 P.M., New York
City time, on the Business Day prior to the Closing Date or the Additional
Closing Date, as the case may be.
4. (a) The Company represents and warrants to each Underwriter and the
Selling Stockholders that:
(i) no order preventing or suspending the use of any preliminary
prospectus has been issued by the Commission, and each preliminary prospectus
filed as part of the Registration Statement as originally filed or as part of
any amendment thereto, or filed pursuant to Rule 424 under the Securities Act,
complied when so filed in all material respects with the Securities Act, and did
not contain an untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements therein,
in the light of the circumstances under which they were made, not misleading;
other than any such noncompliance, untrue statement or omission in a preliminary
prospectus which has been corrected in the Prospectus; provided that this
representation and warranty shall not apply to any statements or omissions made
in reliance upon and in conformity with information relating to any Underwriter
furnished to the Company in writing by such Underwriter through the
Representatives expressly for use therein;
(ii) no stop order suspending the effectiveness of the Registration
Statement has been issued and no proceeding for that purpose has been instituted
or, to the knowledge of the Company, threatened by the Commission; and the
Registration Statement and Prospectus (as amended or supplemented if the Company
shall have furnished any amendments or supplements thereto) comply, or will
comply, as the case may be, in all material respects with the
4
<PAGE>
Securities Act and do not and will not, as of the applicable effective date as
to the Registration Statement and any amendment thereto and as of the date of
the Prospectus and any amendment or supplement thereto, contain 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, and
the Prospectus, as amended or supplemented, if applicable, at the Closing Date
or Additional Closing Date, as the case may be, will not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements therein, in light of the circumstances under which they were
made, not misleading; except that the foregoing representations and warranties
shall not apply to statements or omissions in the Registration Statement or the
Prospectus made in reliance upon and in conformity with information relating to
any Underwriter furnished to the Company in writing by such Underwriter through
the Representatives expressly for use therein;
(iii) the financial statements, and the related notes thereto, included in
the Registration Statement and the Prospectus present fairly the financial
position of the Company as of the dates indicated and the results of its
operations and changes in its cash flows for the periods specified; and said
financial statements have been prepared in conformity with generally accepted
accounting principles applied on a consistent basis, and the supporting
schedules included in the Registration Statement present fairly the information
required to be stated therein;
(iv) since the respective dates as of which information is given in the
Registration Statement and the Prospectus, there has not been any change in the
capital stock or long-term debt of the Company, or any material adverse change,
or any development involving a prospective material adverse change, in or
affecting the general affairs, business, prospects, management, financial
position, stockholders' equity or results of operations of the Company,
otherwise than as set forth or contemplated in the Prospectus; and except as set
forth or contemplated in the Prospectus the Company has not entered into any
transaction or agreement (whether or not in the ordinary course of business)
material to the Company;
(v) the Company has been duly incorporated and is validly existing as a
corporation in good standing under the laws of
5
<PAGE>
its jurisdiction of incorporation, with power and authority (corporate and
other) to own its properties and conduct its business as described in the
Prospectus, and has been duly qualified as a foreign corporation for the
transaction of business and is in good standing under the laws of each other
jurisdiction in which it owns or leases properties, or conducts any business, so
as to require such qualification, other than where the failure to be so
qualified or in good standing would not have a material adverse effect on the
Company;
(vi) this Agreement has been duly authorized, executed and delivered by the
Company;
(vii) the Company has an authorized capitalization as set forth in the
Prospectus and such authorized capital stock conforms as to legal matters to the
description thereof set forth in the Prospectus, and all of the outstanding
shares of capital stock of the Company (including the shares to be sold by the
Selling Stockholders) have been duly authorized and validly issued, are fully-
paid and non-assessable and are not subject to any pre-emptive or similar
rights; and, except as described in or expressly contemplated by the Prospectus,
there are no outstanding rights (including, without limitation, pre-emptive
rights), warrants or options to acquire, or instruments convertible into or
exchangeable for, any shares of capital stock or other equity interest in the
Company, or any contract, commitment, agreement, understanding or arrangement of
any kind, to which the Company or any of its controlling stockholders is a
party, relating to the issuance of any capital stock of the Company, any such
convertible or exchangeable securities or any such rights, warrants or options;
(viii) the Shares to be issued and sold by the Company hereunder have been
duly authorized, and, when issued and delivered to and paid for by the
Underwriters in accordance with the terms of this Agreement, will be duly issued
and will be fully paid and non-assessable and will conform to the descriptions
thereof in the Prospectus; and the issuance of the Shares is not subject to any
preemptive or similar rights;
(ix) the Company is not, nor with the giving of notice or lapse of time or
both would be, in violation of or in default under, its Amended and Restated
Certificate of Incorporation or Amended and Restated By-Laws or any indenture,
mortgage, deed of trust,
6
<PAGE>
loan agreement or other agreement or instrument to which the Company is a party
or by which it or any of its properties is bound, except for violations and
defaults which individually and in the aggregate are not material to the
Company; the issue and sale of the Shares and the performance by the Company of
its obligations under this Agreement and the consummation of the transactions
contemplated herein will not conflict with or result in a breach of any of the
terms or provisions of, or constitute a default under, any indenture, mortgage,
deed of trust, loan agreement or other agreement or instrument to which the
Company is a party or by which the Company is bound or to which any of the
property or assets of the Company is subject, nor will any such action result in
any violation of the provisions of the Amended and Restated Certificate of
Incorporation or the Amended and Restated By-Laws of the Company or any
applicable law or statute or any order, rule or regulation of any court or
governmental agency or body having jurisdiction over the Company, or any of its
properties; and no consent, approval, authorization, order, license,
registration or qualification of or with any such court or governmental agency
or body is required for the issue and sale of the Shares or the consummation by
the Company of the transactions contemplated by this Agreement, except such
consents, approvals, authorizations, orders, licenses, registrations or
qualifications as have been obtained under the Securities Act, as may be
required for the Underwriters to obtain from the National Association of
Securities Dealers, Inc. (the "NASD") and as may be required under state
securities or Blue Sky Laws in connection with the purchase and distribution of
the Shares by the Underwriters;
(x) other than as set forth or contemplated in the Prospectus, there are
no legal or governmental investigations, actions, suits or proceedings pending
or, to the knowledge of the Company, threatened against or affecting the Company
or any of its properties or to which the Company is or may be a party or to
which any property of the Company is or may be the subject which, if determined
adversely to the Company, could individually or in the aggregate have, or
reasonably be expected to have, a material adverse effect on the general
affairs, business, prospects, management, financial position, stockholders'
equity or results of operations of the Company, and, to the best of the
Company's knowledge, no such proceedings are threatened or contemplated by
governmental authorities or threatened by others; and there are no statutes,
regulations, contracts or other documents that are required
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to be described in the Registration Statement or Prospectus or to be filed as
exhibits to the Registration Statement that are not described or filed as
required; (xi) the Company owns no real property and has good and marketable
title to all personal property owned by them, in each case free and clear of all
liens, encumbrances and defects, except such as do not materially affect the
value of such property and do not interfere with the use made or proposed to be
made of such property by the Company; and any real property and buildings held
under lease by the Company are held by it under valid, existing and enforceable
leases with such exceptions as are not material and do not interfere with the
use made or proposed to be made of such property and buildings by the Company;
(xii) no relationship, direct or indirect, exists between or among the
Company on the one hand, and the directors, officers, stockholders, customers or
suppliers of the Company on the other hand, which is required by the Securities
Act to be described in the Registration Statement and the Prospectus which is
not so described;
(xiii) except for __________ and __________, no person has the right to
require the Company to register any securities for offering and sale under the
Securities Act by reason of the filing of the Registration Statement with the
Commission or the issue and sale of the Shares by the Company hereunder or, to
the best knowledge of the Company, the sale of the Shares to be sold by the
Selling Stockholders hereunder, and each of __________ and __________ has duly
waived its registration rights;
(xiv) the Company is not and, after giving effect to the offering and
sale of the Shares and the application of the proceeds thereof as described in
the Prospectus, will not be an "investment company" as such term is defined in
the Investment Company Act of 1940, as amended (the "INVESTMENT COMPANY ACT");
(xv) PricewaterhouseCoopers LLP, who have certified certain financial
statements of the Company, are independent public accountants as required by the
Securities Act;
(xvi) the Company has filed all federal, state, local and foreign tax
returns which have been required to be filed and has paid all taxes shown
thereon and all assessments received by it to
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<PAGE>
the extent that such taxes have become due and are not being contested in good
faith; and there is no tax deficiency which has been or might reasonably be
expected to be asserted or threatened against the Company;
(xvii) the Company has not taken nor will it take, directly or indirectly,
any action designed to, or that might be reasonably expected to, cause or result
in stabilization or manipulation of the price of the Common Stock;
(xviii) the Company owns, possesses or has obtained all licenses, permits,
certificates, consents, orders, approvals and other authorizations from, and has
made all declarations and filings with, all federal, state, local and other
governmental authorities (including foreign regulatory agencies), all self-
regulatory organizations and all courts and other tribunals, domestic or
foreign, necessary to own or lease, as the case may be, and to operate its
properties and to carry on its business as conducted as of the date hereof, and
the Company has not received any actual notice of any proceeding relating to
revocation or modification of any such license, permit, certificate, consent,
order, approval or other authorization; and the Company is in compliance with
all laws and regulations relating to the conduct of its business as conducted as
of the date hereof, except to the extent that failure to so comply would not,
singly or in the aggregate, have a material adverse effect on the Company's
business, results of operations and financial condition;
(xix) there are no existing or, to the best knowledge of the Company,
threatened labor disputes with the employees of the Company which are likely to
have a material adverse effect on the Company;
(xx) each employee benefit plan, within the meaning of Section 3(3) of the
Employee Retirement Income Security Act of 1974, as amended, ("ERISA") that is
maintained, administered or contributed to by the Company for employees or
former employees of the Company and its affiliates has been maintained in
compliance with its terms and the requirements of any applicable statutes,
orders, rules and regulations, including but not limited to ERISA and the
Internal Revenue Code of 1986, as amended, ("CODE"), except to the extent that
failure to so comply would not, singly or in the aggregate, have a material
adverse effect on the Company's business, results of operations and financial
condition.
9
<PAGE>
No prohibited transaction, within the meaning of Section 406 of ERISA or Section
4975 of the Code has occurred with respect to any such plan excluding
transactions effected pursuant to a statutory or administrative exemption;
(xxi) other than as set forth or contemplated in the Prospectus, the
Company owns or possesses adequate licenses or other rights to use all patents,
copyrights, trademarks, trade dress, service marks, trade names, technology,
trade secrets and know-how (the "INTELLECTUAL PROPERTY") necessary to conduct
its business in the manner described in the Prospectus and the Company has not
received any notice of infringement or conflict with (and the Company is not
aware of any infringement or conflict with) asserted rights of others with
respect to any patents, copyrights, trademarks, trade dress, service marks,
trade names, technology or know-how which could result in any material adverse
effect upon the Company; and the discoveries, inventions, products or processes
of the Company necessary to conduct its business in the manner described in the
Prospectus do not, to the best knowledge of the Company, infringe or conflict
with any right or patent of any third party, or any discovery, invention,
product or process which is the subject of a patent application filed by any
third party, known to the Company which could have a material adverse effect on
the Company;
(xxii) the Company maintains a system of internal accounting controls
sufficient to provide reasonable assurance that (A) transactions are executed
in accordance with management's general or specific authorizations; (B)
transactions are recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting principles and to
maintain asset accountability; (C) access to assets is permitted only in
accordance with management's general or specific authorization; and (D) the
recorded accountability for assets is compared with the existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences;
(xxiii) all outstanding shares of Common Stock, and all securities
convertible into or exercisable or exchangeable for Common Stock, are subject to
valid, binding and enforceable agreements (collectively, the "LOCK-UP
AGREEMENTS") that restrict the holders thereof from selling, making any short
sale of, granting any option for the purchase of, or otherwise transferring or
10
<PAGE>
disposing of, any of such shares of Common Stock, or any such securities
convertible into or exercisable or exchangeable for Common Stock, for a period
of 180 days after the date of the Prospectus without the prior written consent
of the Company or J.P. Morgan Securities Inc.;
(xxiv) the Company (A) has notified each holder of a currently outstanding
option issued under the EarthWeb, Inc. Stock Option Plan (the "OPTION PLAN") and
each person who has acquired shares of Common Stock pursuant to the exercise of
any option granted under the Option Plan that pursuant to the terms of the
Option Plan, none of such options or shares may be sold or otherwise transferred
or disposed of for a period of 180 days after the date of the initial public
offering of the Shares and (B) has imposed a stop-transfer instruction with the
Company's transfer agent in order to enforce the foregoing lock-up provision
imposed pursuant to the Option Plan;
(xxv) as of the date the Registration Statement becomes effective, the
Common Stock will be authorized for listing on the Nasdaq National Market (as
herein defined) upon official notice of issuance;
(xxvi) the Company has no subsidiaries;
(xxvii) the initial public offering of the Underwritten Shares as
currently contemplated in the Registration Statement constitutes a Qualified
Public Offering as was defined in the Company's Certificate of Incorporation
immediately prior to the amendment and restatement thereof on [ ], 1998; and
(xxviii) upon completion of the offering of the Shares, the Amended and
Restated Shareholders Agreement dated as of June 26, 1997 (the "SHAREHOLDERS
AGREEMENT") shall cease to have any legal effect, except for the registration
rights set forth in Sections _____ thereof.
(b) Each of the Selling Stockholders severally represents and warrants to,
and agrees with, each of the Underwriters that:
(i) all consents, approvals, authorizations and orders necessary for the
execution and delivery by such Selling Stockholder of this Agreement and the
Power of Attorney (the "POWER OF ATTORNEY") and the
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<PAGE>
Custody Agreement (the "CUSTODY AGREEMENT") hereinafter referred to, and for the
sale and delivery of the Shares to be sold by such Selling Stockholder
hereunder, have been obtained; and such Selling Stockholder has full right,
power and authority to enter into this Agreement, the Power of Attorney and the
Custody Agreement and to sell, assign, transfer and deliver the Shares to be
sold by such Selling Stockholder hereunder; this Agreement, the Power of
Attorney and the Custody Agreement have each been duly authorized, executed and
delivered by such Selling Stockholder;
(ii) the sale of the Shares to be sold by such Selling Stockholder
hereunder and the compliance by such Selling Stockholder with all of the
provisions of this Agreement, the Power of Attorney and the Custody Agreement
and the consummation of the transactions herein and therein contemplated will
not conflict with or result in a breach or violation of any of the terms or
provisions of, or constitute a default under, any statute, any indenture,
mortgage, deed of trust, loan agreement or other agreement or instrument to
which such Selling Stockholder is a party or by which such Selling Stockholder
is bound or to which any of the property or assets of such Selling Stockholder
is subject, nor will such action result in any violation of the provisions of
[the Certificate of Incorporation or By-laws of such Selling Stockholder if such
Selling Stockholder is a corporation], the Partnership Agreement of such Selling
Stockholder if such Selling Stockholder is a partnership, or any statute or any
order, rule or regulation of any court or governmental agency or body having
jurisdiction over such Selling Stockholder or the property of such Selling
Stockholder;
(iii) such Selling Stockholder has good and valid title to the Shares to
be sold at the Additional Closing Date, by such Selling Stockholder hereunder,
free and clear of all liens, encumbrances, equities or adverse claims; such
Selling Stockholder will have, immediately prior to the Additional Closing Date,
good and valid title to the Shares to be sold at the Additional Closing Date by
such Selling Stockholder, free and clear of all liens, encumbrances, equities or
adverse claims; and, upon delivery of the certificates representing such Shares
and payment therefor pursuant hereto, good and valid title to such Shares, free
and clear of all liens, encumbrances, equities or adverse claims, will pass to
the several Underwriters;
(iv) such Selling Stockholder has not taken and will not take, directly or
indirectly, any action which is designed to or which has constituted or which
might reasonably be expected to cause or result in stabilization or manipulation
of the price of any security of the Company to facilitate the sale or resale of
the Shares; and
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<PAGE>
(v) the Registration Statement and the Prospectus (as amended or
supplemented) comply or will comply, as the case may be, in all material
respects the Securities Act and do not and will not, as of the applicable
effective date of the Registration Statement and any amendment thereto and as of
the date of the Prospectus and any amendment or supplement thereto, contain 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,
and the Prospectus, as amended or supplemented, if applicable, at the Closing
Date or Additional Closing Date, as the case may be, will not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements therein, in light of the circumstances under which they were
made, not misleading; except that the foregoing representations and warranties
shall not apply to statements or omissions in the Registration Statement or the
Prospectus made in reliance upon and in conformity with information relating to
any Underwriter furnished to the Company in writing by such Underwriter through
the Representatives expressly for use therein.
Each of the Selling Stockholders represents and warrants that certificates
in negotiable form representing all of the Shares to be sold by such Selling
Stockholders hereunder placed in custody under a Custody Agreement relating to
such Shares, in the form heretofore furnished to you, duly executed and
delivered by such Selling Stockholder to [______________], as custodian (the
"CUSTODIAN"), and that such Selling Stockholder has duly executed and delivered
Powers of Attorney, in the form heretofore furnished to you, appointing the
person or persons indicated in Schedule II hereto, and each of them, as such
Selling Stockholder's Attorneys-in-fact (the "ATTORNEYS-IN-FACT" or any one of
them the "ATTORNEY-IN FACT") with authority to execute and deliver this
Agreement on behalf of such Selling Stockholder, to determine the purchase price
to be paid by the Underwriters to the Selling Stockholders as provided herein,
to authorize the delivery of the Shares to be sold by such Selling Stockholder
hereunder and otherwise to act on behalf of such Selling Stockholder in
connection with the transactions contemplated by this Agreement and the Custody
Agreement.
Each of the Selling Stockholders specifically agrees that the Shares
represented by the certificates held in custody for such Selling Stockholder
under the Custody Agreement, are subject to the interests of the Underwriters
hereunder, and that the arrangements made by such Selling Stockholder for such
custody, and the appointment by such Selling Stockholder of the Attorneys-in-
Fact by the Power of Attorney, are to that extent irrevocable. Each of the
Selling Stockholders
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<PAGE>
specifically agrees that the obligations of such Selling Stockholder hereunder
shall not be terminated by operation of law, whether by the death or incapacity
of any individual Selling Stockholder, or, in the case of an estate or trust, by
the death or incapacity of any executor or trustee or the termination of such
estate or trust, or in the case of a partnership or corporation, by the
dissolution of such partnership or corporation, or by the occurrence of any
other event. If any individual Selling Stockholder or any such executor or
trustee should die or become incapacitated, or if any such estate or trust
should be terminated, or if any such partnership or corporation should be
dissolved, or if any other such event should occur, before the delivery of the
Shares hereunder, certificates representing such Shares shall be delivered by or
on behalf of such Selling Stockholder in accordance with the terms and
conditions of this Agreement and the Custody Agreement, and actions taken by the
Attorneys-in-Fact pursuant to the Powers of Attorney shall be as valid as if
such death, incapacity, termination, dissolution or other event had not
occurred, regardless of whether or not the Custodian, the Attorneys-in-Fact, or
any of them, shall have received notice of such death, incapacity, termination,
dissolution or other event.
5. (a) The Company covenants and agrees with each of the several
Underwriters as follows:
(i) to use its best efforts to cause the Registration Statement to become
effective at the earliest possible time and, if required, to file the final
Prospectus with the Commission within the time periods specified by Rule 424(b)
and Rule 430A under the Securities Act and to furnish copies of the Prospectus
to the Underwriters in New York City prior to 10:00 a.m., New York City time, on
the Business Day next succeeding the date of this Agreement in such quantities
as the Representatives may reasonably request;
(ii) to deliver, at the expense of the Company, to the Representatives
four signed copies of the Registration Statement (as originally filed) and each
amendment thereto, in each case including exhibits, and to each other
Underwriter a conformed copy of the Registration Statement (as originally filed)
and each amendment thereto, in each case without exhibits and, during the period
mentioned in Section 5(a)(v) below, to each of the Underwriters as many copies
of the Prospectus (including all amendments and supplements thereto) as the
Representatives may reasonably request;
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<PAGE>
(iii) before filing any amendment or supplement to the Registration
Statement or the Prospectus, whether before or after the time the Registration
Statement becomes effective, to furnish to the Representatives a copy of the
proposed amendment or supplement for review and not to file any such proposed
amendment or supplement to which the Representatives reasonably object;
(iv) to advise the Representatives promptly, and to confirm such advice in
writing when the Registration Statement has become effective, (A) when any
amendment to the Registration Statement has been filed or becomes effective, (B)
when any supplement to the Prospectus or any amended Prospectus has been filed
and to furnish the Representatives with copies thereof, (C) of any request by
the Commission for any amendment to the Registration Statement or any amendment
or supplement to the Prospectus or for any additional information, (D) of the
issuance by the Commission of any stop order suspending the effectiveness of the
Registration Statement or of any order preventing or suspending the use of any
preliminary prospectus or the Prospectus or the initiation or threatening of any
proceeding for that purpose, (E) of the occurrence of any event, within the
period referenced in Section 5(a)(v) below, 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 in order to make the
statements therein, in the light of the circumstances when the Prospectus is
delivered to a purchaser, not misleading, and (F) of the receipt by the Company
of any notification with respect to any suspension of the qualification of the
Shares for offer and sale in any jurisdiction or the initiation or threatening
of any proceeding for such purpose; and to use its best efforts to prevent the
issuance of any such stop order, or of any order preventing or suspending the
use of any preliminary prospectus or the Prospectus, or of any order suspending
any such qualification of the Shares, or notification of any such order thereof
and, if issued, to obtain as soon as possible the withdrawal thereof;
(v) if, during such period of time after the first date of the public
offering of the Shares as in the opinion of counsel for the Underwriters a
prospectus relating to the Shares is required by law to be delivered in
connection with sales by the Underwriters or any dealer, any event shall occur
as a result of which it is necessary to amend or supplement the Prospectus in
order to make the
15
<PAGE>
statements therein, in the light of the circumstances when the Prospectus is
delivered to a purchaser, not misleading, or if it is necessary to amend or
supplement the Prospectus to comply with law, forthwith to prepare and furnish,
at the expense of the Company, to the Underwriters and to the dealers (whose
names and addresses the Representatives will furnish to the Company) to which
Shares may have been sold by the Representatives on behalf of the Underwriters
and to any other dealers upon request, such amendments or supplements to the
Prospectus as may be necessary so that the statements in the Prospectus as so
amended or supplemented will not, in the light of the circumstances when the
Prospectus is delivered to a purchaser, be misleading or so that the Prospectus
will comply with law;
(vi) to endeavor to qualify the Shares for offer and sale under the
securities or Blue Sky laws of such jurisdictions as the Representatives shall
reasonably request and to continue such qualification in effect so long as
reasonably required for distribution of the Shares; provided that the Company
shall not be required to file a general consent to service of process in any
jurisdiction;
(vii) to make generally available to its security holders and to the
Representatives as soon as reasonably practicable an earnings statement covering
a period of at least twelve months beginning with the first fiscal quarter of
the Company occurring after the effective date of the Registration Statement,
which shall satisfy the provisions of Section 11(a) of the Securities Act and
Rule 158 of the Commission promulgated thereunder;
(viii) during the period of five years after the date of this Agreement,
to furnish to the Representatives copies of all reports or other communications
(financial or other) furnished to holders of the Shares, and copies of any
reports and financial statements furnished to or filed with the Commission or
any national securities exchange;
(ix) for a period of 180 days after the date of the initial public
offering of the Shares not to (A) offer, pledge, announce the intention to sell,
sell, contract to sell, sell any option or contract to purchase, purchase any
option or contract to sell, grant any option, right or warrant to purchase or
otherwise transfer or dispose of, directly or indirectly, any shares of Common
Stock or any
16
<PAGE>
securities of the Company which are substantially similar to the Common Stock,
including but not limited to any securities convertible into or exercisable or
exchangeable for Common Stock, or that represent the right to receive Common
Stock or any such substantially similar securities or (B) enter into any swap,
option, future, forward or other agreement that transfers, in whole or in part,
any of the economic consequences of ownership of the Common Stock or any
securities substantially similar to Common Stock, whether any such transaction
described in clause (A) or (B) above is to be settled by delivery of Common
Stock or such other securities, in cash or otherwise without the prior written
consent of J.P. Morgan Securities Inc., provided, however, the foregoing shall
not prohibit (w) the issuance of Shares to be sold hereunder, (x) the issuance
of stock options granted under existing director or employee stock option or
stock purchase plans, (y) the issuance of any shares of Common Stock of the
Company issued upon the exercise of options granted under existing employee
stock option plans, or (z) the issuance of any shares of Common Stock upon the
conversion or exchange of convertible, exercisable or exchangeable securities
outstanding on the date hereof;
(x) to use the net proceeds received by the Company from the sale of the
Shares pursuant to this Agreement in the manner specified in the Prospectus
under the caption "Use of Proceeds";
(xi) to use its best efforts to list for quotation the Shares on the
National Association of Securities Dealers Automated Quotations National Market
(the "NASDAQ NATIONAL MARKET");
(xii) whether or not the transactions contemplated in this Agreement are
consummated or this Agreement is terminated, to pay or cause to be paid all
costs and expenses incident to the performance of its obligations hereunder,
including without limiting the generality of the foregoing, all costs and
expenses (A) incident to the preparation, issuance, reregistration, transfer,
execution and delivery of the Shares, (B) incident to the preparation,
printing and filing under the Securities Act of the Registration Statement, the
Prospectus and any preliminary prospectus (including in each case all exhibits,
amendments and supplements thereto), (C) incurred in connection with the
registration or qualification of the Shares under the laws of such jurisdictions
as the Representatives may designate (including fees of counsel for
17
<PAGE>
the Underwriters and its disbursements), (D) in connection with the listing of
the Shares on the Nasdaq National Market, (E) related to the filing with, and
clearance of the offering by, the National Association of Securities Dealers,
Inc., (F) in connection with the printing (including word processing and
duplication costs) and delivery of this Agreement, the Preliminary and
Supplemental Blue Sky Memoranda and the furnishing to the Underwriters and
dealers of copies of the Registration Statement and the Prospectus, including
mailing and shipping, as herein provided, (G) any expenses incurred by the
Company in connection with a "road show" presentation to potential investors,
the cost of preparing stock certificates and (H) the cost and charges of any
transfer agent and any registrar; it is understood, however, that, except as
provided in this Section, and Sections 7 and 8 hereof, the Underwriters will pay
all of their own costs and expenses, including the fees of their counsel, stock
transfer taxes on resale of any of the Shares by them, and any advertising
expenses connected with any offers they may make.
(b) Each of the Selling Stockholders covenants and agrees with each of the
several Underwriters as follows:
(i) for a period of 180 days after the date of the initial public offering
of the Shares not to (A) offer, pledge, announce the intention to sell, sell,
contract to sell, sell any option or contract to purchase, purchase any option
or contract to sell, grant any option, right or warrant to purchase or otherwise
transfer or dispose of, directly or indirectly, any shares of Common Stock or
any securities convertible into or exercisable or exchangeable for Common Stock
or (B) enter into any swap or other agreement that transfers, in whole or in
part, any of the economic consequences of ownership of the Stock, whether any
such transaction described in clause (A) or (B) above is to be settled by
delivery of Common Stock or such other securities, in cash or otherwise or (C)
make any demand for or exercise any right with respect to the registration of
any shares of stock or any security convertible into or exercisable or
exchangeable for stock without the prior written consent of the
Representatives, in each case other than the Shares to be sold by such Selling
Stockholder hereunder; and
(ii) to deliver to the Representatives prior to or at the Closing Date a
properly completed and executed United States Treasury Department Form W-9 (or
other applicable form or statement specified by the Treasury Department
regulations in lieu thereof) in order to facilitate
18
<PAGE>
the Underwriters' documentation of their compliance with the reporting and
withholding provisions of the Tax Equity and Fiscal Responsibility Act of 1982
with respect to the transactions herein contemplated.
6. The several obligations of the Underwriters hereunder to purchase the
Shares on the Closing Date or the Additional Closing Date, as the case may be,
are subject to the performance by the Company and each of the Selling
Stockholders of their respective obligations hereunder and to the following
additional conditions:
(a) the Registration Statement shall have become effective (or if a post-
effective amendment is required to be filed under the Securities Act, such post-
effective amendment shall have become effective) not later than 5:00 P.M., New
York City time, on the date hereof; and no stop order suspending the
effectiveness of the Registration Statement or any post-effective amendment
shall be in effect, and no proceedings for such purpose shall be pending before
or threatened by the Commission; the Prospectus shall have been filed with the
Commission pursuant to Rule 424(b) within the applicable time period prescribed
for such filing by the rules and regulations under the Securities Act and in
accordance with Section 5(a)(i) hereof; and all requests for additional
information shall have been complied with to the satisfaction of the
Representatives;
(b) the respective representations and warranties of the Company and the
Selling Stockholders contained herein are true and correct on and as of the
Closing Date or the Additional Closing Date, as the case may be, as if made on
and as of the Closing Date or the Additional Closing Date, as the case may be,
and each of the Company and the Selling Stockholders shall have complied with
all agreements and all conditions on its part to be performed or satisfied
hereunder at or prior to the Closing Date or the Additional Closing Date, as the
case may be;
(c) subsequent to the execution and delivery of this Agreement and prior
to the Closing Date or the Additional Closing Date, as the case may be, there
shall not have occurred any downgrading, nor shall any notice have been given of
(i) any downgrading, (ii any intended or potential downgrading or (ii any review
or possible change that does not indicate an improvement, in the rating accorded
any securities of or guaranteed by the Company by any "nationally recognized
statistical rating organization", as such term is defined for purposes of Rule
436(g)(2) under the Securities Act;
(d) since the respective dates as of which information is given in the
Prospectus there shall not have been any change in the capital stock or
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<PAGE>
long-term debt of the Company or any material adverse change, or any development
involving a prospective material adverse change, in or affecting the general
affairs, business, prospects, management, financial position, stockholders'
equity or results of operations of the Company, otherwise than as set forth or
contemplated in the Prospectus, the effect of which in the judgment of the
Representatives makes it impracticable or inadvisable to proceed with the public
offering or the delivery of the Shares on the Closing Date or the Additional
Closing Date, as the case may be, on the terms and in the manner contemplated in
the Prospectus; and the Company has not sustained since the date of the latest
audited financial statements included in the Prospectus any material loss or
interference with its business from fire, explosion, flood or other calamity,
whether or not covered by insurance, or from any labor dispute or court or
governmental action, order or decree, otherwise than as set forth or
contemplated in the Prospectus;
(e) the Representatives shall have received on and as of the Closing Date
or the Additional Closing Date, as the case may be, (i) a certificate of an
executive officer of the Company, with specific knowledge about the Company's
financial matters, satisfactory to the Representatives to the effect set forth
in Sections 6(a), 6(b), 6(c) and 6(d) (with respect to the respective
representations, warranties, agreements and conditions of the Company) and to
the further effect that there has not occurred any material adverse change, or
any development involving a prospective material adverse change, in or affecting
the general affairs, business, prospects, management, financial position,
stockholders' equity or results of operations of the Company from that set forth
or contemplated in the Registration Statement, and (ii) a Certificate of the
Selling Stockholders, satisfactory to the Representatives, to the effect set
forth in Section 6(b) (with respect to the representations, warranties,
agreements and conditions of the Selling Stockholders);
(f) Morrison & Foerster LLP, counsel for the Company, shall have furnished
to the Representatives their written opinion, dated the Closing Date or the
Additional Closing Date, as the case may be, in form and substance satisfactory
to the Representatives, to the effect that:
(i) the Company has been duly incorporated and is validly existing as a
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;
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<PAGE>
(ii) the Company has been duly qualified as a foreign corporation for the
transaction of business and is in good standing under the laws of each other
jurisdiction in which the conduct of any business requires such qualification,
other than where the failure to be so qualified or in good standing would not
have a material adverse effect on the Company;
(iii) to such counsel's knowledge after due inquiry of officers of the
Company (it being understood that for purposes of this opinion, due inquiry does
not include any search of court or administrative records), there is no legal or
governmental investigation, action, suit or proceeding pending, threatened
against or affecting the Company or any properties of the Company or to which
the Company is or may be a party or to which the property of the Company is or
may be subject which is required to be described in the Registration Statement
or the Prospectus and is not so described; and there is no statute, regulation,
contract or other document known to such counsel of a character required to be
described in the Prospectus or to be filed as an exhibit to the Registration
Statement that is not described or filed as required, and all such contracts or
other documents described in the Prospectus have been accurately described in
all material respects;
(iv) this Agreement has been duly authorized, executed and delivered by
the Company;
(v) the Company has authorized capital stock as set forth in the
Prospectus;
(vi) all outstanding shares of the Company's Common Stock, $0.01 par value
have been duly authorized and are validly issued, fully paid and non-assessable;
(vii) the Shares have been duly authorized, and upon delivery to the
Underwriters against payment therefor in accordance with the terms of this
Agreement, will be validly issued, fully paid and non-assessable and the
issuance of the Shares is not subject to any preemptive rights;
(viii) the statements in the Prospectus under "Management--Board of
Directors; --Employment Agreements; --Benefit Plans," "Principal Stockholders",
"Certain Transactions",
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<PAGE>
"Description of Capital Stock," "Shares Eligible for Future Sale" and
"Underwriting", and in the Registration Statement in Items 14 and 15, insofar as
such statements constitute a summary of the terms of the Common Stock, legal
matters, documents or proceedings referred to therein, fairly present the
information called for with respect to such terms, legal matters, documents or
proceedings;
(ix) such counsel is of the opinion that the Registration Statement, as of
the effective date thereof, and the Prospectus, as amended and supplemented,
complied as to form in all material respects with the requirements of the Act
(except as to the financial statements (including footnotes), supporting
schedules, and other financial and statistical information included therein, as
to which such counsel need express no opinion);
(x) the Company is not, nor with the giving of notice or lapse of time or
both would be, in violation of or in default under, its Amended and Restated
Certificate of Incorporation or Amended and Restated By-Laws or any indenture,
mortgage, deed of trust, lease, loan agreement or other agreement or instrument
known to such counsel to which the Company is a party or by which it or any of
its properties is bound, except for violations and defaults which individually
and in the aggregate are not material to the Company; the issue and sale of the
Shares, the execution and delivery of this Agreement and the performance by the
Company of its terms do not violate or result in a violation of the Company's
Amended and Restated Certificate of Incorporation or Amended and Restated By-
Laws, any applicable law, statute, rule or regulation or any judgment, order or
decree, known to such counsel, of any court, governmental agency or body or
arbiter having jurisdiction over the Company or its properties, and, to such
counsel's knowledge, will not constitute a material breach of the terms,
conditions or provisions of or constitute a default under any contracts,
undertakings, indentures or other agreements to which the Company is a party or
by which any of its properties are bound;
(xi) no authorization, approval, consent, order, license, registration or
qualification of any court or governmental authority or agency or body is
required for the issue and sale of the Shares or the consummation of the other
transactions contemplated by this Agreement, except such as have been obtained
under the Securities Act, those that the Underwriters need to obtain from the
NASD
22
<PAGE>
and as may be required under state securities or Blue Sky laws in connection
with the purchase and distribution of the Shares by the Underwriters;
(xii) the Company is not and, after giving effect to the offering and sale
of the Shares and the application of the proceeds thereof as described in the
Prospectus, will not be an "investment company" as such term is defined in the
Investment Company Act;
(xiii) to such counsel's knowledge, the Company owns, possesses or has
obtained all licenses, permits, certificates, consents, orders, approvals and
other authorizations from, and has made all declarations and filings with, all
federal, state, local and other governmental authorities (including foreign
regulatory agencies), all self-regulatory organizations and all courts and other
tribunals, domestic or foreign, necessary to own or lease, as the case may be,
and to operate its properties and to carry on its business as conducted as of
the date hereof, and, to such counsel's knowledge, the Company has not received
any actual notice of any proceeding relating to revocation or modification of
any such license, permit, certificate, consent, order, approval or other
authorization, except as described in the Registration Statement and the
Prospectus; and, to such counsel's knowledge, the Company is in compliance with
all laws and regulations relating to the conduct of its business as conducted as
of the date of the Prospectus;
(xiv) to such counsel's knowledge, the Company owns, possesses or has the
right to use the Intellectual Property employed by it in connection with the
business conducted by it as of the date hereof;
(xv) except as disclosed in the Prospectus, to such counsel's knowledge,
the Company owns no real property and has good and marketable title to all
personal property owned by it, in each case free and clear of all liens,
encumbrances and defects except such as do not materially affect the value of
such property and do not interfere with the use made and proposed to be made of
such property by the Company; and any real property and buildings held under
lease by the Company is held by it under valid, existing and enforceable leases
with such exceptions as are not material and do not interfere with the use made
or proposed to be made of such property and buildings by the Company; and
23
<PAGE>
(xvi) upon completion of the offering of the Shares, the Shareholders
Agreement shall cease to have any legal effect, except for the registration
rights set forth in Sections ____ thereof.
In addition to the matters set forth above, such opinion shall also include
a statement to the effect that, nothing has come to such counsel's attention
that leads them to believe that the Registration Statement, at the time it
became effective, contained an 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, or that the Prospectus, as amended or
supplemental, if applicable, at the time it was filed with the Commission
pursuant to Rule 424(b) under the Securities Act or as of the date hereof,
contained or contains an untrue statement of a material fact or omitted or omits
to state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading (it being understood that such counsel has not been requested to
and does not make any comment in this paragraph with respect to the financial
statements (including footnotes), supporting schedules, and other financial and
statistical information contained in the Registration Statement or Prospectus).
With respect to the foregoing opinion, such counsel may state their opinion and
belief is based upon their participation in the preparation of the Registration
Statement and the Prospectus and any amendment or supplement thereto but is
without independent check or verification except as specified.
In rendering such opinions, such counsel may rely (A) as to matters
involving the application of laws other than the laws of the United States and
the States of Delaware and New York, to the extent such counsel deems proper and
to the extent specified in such opinion, if at all, upon an opinion or opinions
(in form and substance reasonably satisfactory to Underwriters' counsel) of
other counsel reasonably acceptable to the Underwriters' counsel, familiar with
the applicable laws and (B) as to matters of fact, to the extent such counsel
deems proper, on certificates of responsible officers of the Company and
certificates or other written statements of officials of jurisdictions having
custody of documents respecting the corporate existence or good standing of the
Company. The opinion of such counsel for the Company shall state that the
opinion of any such other counsel upon which they relied is in form satisfactory
to such counsel and, in such counsel's opinion, the Underwriters and they are
justified in relying thereon.
The opinion of Morrison & Foerster LLP described above shall be rendered to
the Underwriters at the request of the Company and shall so state therein.
24
<PAGE>
(g) Morrison & Foerster LLP, counsel for the Selling Stockholders, shall
have furnished to the Representatives their written opinion, dated the
Additional Closing Date, in form and substance satisfactory to the
Representatives, to the effect that:
(i) this Agreement has been duly authorized, executed and delivered by or
on behalf of each of the Selling Stockholders;
(ii) a Power of Attorney and a Custody Agreement have been duly
authorized, executed and delivered by each Selling Stockholder and constitute
valid and binding agreements of each Selling Stockholder in accordance with
their terms;
(iii) each Selling Stockholder is the record, beneficial and lawful owner
of all of the Shares to be sold by such Selling Stockholder and has valid and
marketable title to such Shares, and upon delivery of and payment for the
Shares, the Underwriters will acquire valid and marketable title to the shares,
free and clear of any mortgage, pledge, security interest, lien, claim or other
encumbrance or restriction on transferability or any adverse claim; and
(iv) the sale of the Shares and the execution and delivery by the Selling
Shareholder of, and the performance by the Selling Shareholder of its
obligations under, this Agreement, and the consummation of the transactions
contemplated herein, (A) have been duly authorized on the part of each of the
Selling Stockholders, and (B) will not conflict with or result in a breach of
any of the terms or provisions of, or constitute a default under, any indenture,
mortgage, deed of trust, loan agreement or other material agreement or
instrument to which any Selling Stockholder is a party or by which any Selling
Stockholder is bound or to which any of the property or assets of any Selling
Stockholder is subject, nor will any such action result in any violation of [the
provisions of the Certificate of Incorporation or the By-Laws of any Selling
Stockholder if such Selling Stockholder is a corporation,]/2/ the partnership
agreement if such Selling Stockholder is a partnership or any applicable law or
statute or any order, rule or regulation of any court or governmental agency or
body having jurisdiction over such Selling Stockholder or any of
- ------------
/2/ Please confirm
25
<PAGE>
its properties; and no consent, approval, authorization, order, registration or
qualification of or with any such court or governmental agency or body is
required for the sale of the Shares or the consummation by the Selling
Stockholders of the transactions contemplated by this Agreement, except such
consents, approvals, authorizations, registrations or qualifications as have
been obtained under the Securities Act and as may be required under state
securities or Blue Sky laws in connection with the purchase and distribution of
the Shares by the Underwriters.
(h) on the effective date of the Registration Statement and the effective
date of the most recently filed post-effective amendment to the Registration
Statement and also on the Closing Date or Additional Closing Date, as the case
may be, PricewaterhouseCoopers LLP shall have furnished to you letters, dated
the respective dates of delivery thereof, in form and substance satisfactory to
you, containing statements and information of the type customarily included in
accountants' "comfort letters" to underwriters with respect to the financial
statements and certain financial information contained in the Registration
Statement and the Prospectus;
(i) the Representatives shall have received on and as of the Closing Date
or Additional Closing Date, as the case may be, an opinion of Davis Polk &
Wardwell, counsel to the Underwriters, with respect to the due authorization and
valid issuance of the Shares, the Registration Statement, the Prospectus and
other related matters as the Representatives may reasonably request, and such
counsel shall have received such papers and information as they may reasonably
request to enable them to pass upon such matters;
(j) the Shares to be delivered on the Closing Date or Additional Closing
Date, as the case may be, shall have been approved for listing on the Nasdaq
National Market, subject to official notice of issuance;
(k) on or prior to the Closing Date or Additional Closing Date, as the
case may be, the Company and the Selling Stockholders shall have furnished to
the Representatives such further certificates and documents as the
Representatives shall reasonably request; and
(l) the "lock-up" agreements, each substantially in the form of Exhibit A
hereto, between you and all the shareholders, officers and directors of the
Company relating to sales and certain other dispositions of shares of Common
Stock or certain other securities, delivered to you on or
26
<PAGE>
before the date hereof, shall be in full force and effect on the Closing Date or
Additional Closing Date, as the case may be.
7. The Company agrees to indemnify and hold harmless each Underwriter and
each person, if any, who controls any Underwriter within the meaning of either
Section 15 of the Securities Act or Section 20 of the Exchange Act, and the
Selling Stockholders and each person, if any, who controls any Selling
Stockholders within the meaning of either Section 15 of the Securities Act or
Section 20 of the Exchange Act, from and against any and all losses, claims,
damages and liabilities (including, without limitation, the legal fees and other
expenses incurred in connection with any suit, action or proceeding or any claim
asserted) caused by any untrue statement or alleged untrue statement of a
material fact contained in the Registration Statement or the Prospectus (as
amended or supplemented if the Company shall have furnished any amendments or
supplements thereto) or any preliminary prospectus, or caused by any omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, except insofar as
such losses, claims, damages or liabilities are caused by any untrue statement
or omission or alleged untrue statement or omission made in reliance upon and in
conformity with information relating to any Underwriter furnished to the Company
in writing by such Underwriter through the Representatives expressly for use
therein, provided, however, that the foregoing indemnity agreement with respect
to any preliminary prospectus shall not inure to the benefit of any Underwriter
from whom the person asserting any such losses, claims, damages or liabilities
purchased Shares, or any person controlling such Underwriter, if a copy of the
Prospectus was not sent to or given by or on behalf of such Underwriter to such
person, if required by law so to have delivered, at or prior to the written
confirmation of the sale of the Shares to such person, and if the Prospectus
would have cured the defect giving rise to such loss, claim, damage or
liability.
Each of the Selling Stockholders severally in proportion to the number of
Shares to be sold by such Selling Stockholder hereunder agrees to indemnify and
hold harmless each Underwriter and each person, if any, who controls any
Underwriter within the meaning of either Section 15 of the Securities Act or
Section 20 of the Exchange Act, from and against any and all losses, claims,
damages and liabilities (including, without limitation, the legal fees and other
expenses incurred in connection with any suit, action or proceeding or any claim
asserted) caused by any untrue statement or alleged untrue statement of a
material fact furnished by such Selling Stockholder to the Company in writing
contained in the Registration Statement or the Prospectus (as amended or
supplemented if the Company shall have furnished any amendments or supplements
thereto) or any preliminary prospectus, or caused by any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the
27
<PAGE>
statements therein not misleading, except insofar as such losses, claims,
damages or liabilities are caused by any untrue statement or omission or alleged
untrue statement or omission made in reliance upon and in conformity with
information relating to any Underwriter furnished to the Company in writing by
such Underwriter through the Representatives expressly for use therein;
provided, however, that the foregoing indemnity agreement with respect to any
preliminary prospectus shall not inure to the benefit of any Underwriter from
whom the person asserting any such losses, claims, damages or liabilities
purchased Shares, or any person controlling such Underwriter, if a copy of the
Prospectus was not sent or given by or on behalf of such Underwriter to such
person, if required by law so to have delivered, at or prior to the written
confirmation of the sale of the Shares to such person, and if the Prospectus
would have cured the defect giving rise to such loss, claim, damage or
liability.
Each Underwriter agrees, severally and not jointly, to indemnify and hold
harmless the Company, its directors, its officers who sign the Registration
Statement and each person who controls the Company within the meaning of Section
15 of the Securities Act and Section 20 of the Exchange Act and each of the
Selling Stockholders to the same extent as the foregoing indemnity from the
Company and the Selling Stockholders to each Underwriter, but only with
reference to information relating to such Underwriter furnished to the Company
in writing by such Underwriter through the Representatives expressly for use in
the Registration Statement, the Prospectus, any amendment or supplement thereto,
or any preliminary prospectus.
If any suit, action, proceeding (including any governmental or regulatory
investigation), claim or demand shall be brought or asserted against any person
in respect of which indemnity may be sought pursuant to the preceding paragraphs
of this Section 7, such person (the "INDEMNIFIED PERSON") shall promptly notify
the person or persons against whom such indemnity may be sought (the
"INDEMNIFYING PERSON") in writing, and such Indemnifying Persons, upon request
of the Indemnified Person, shall retain counsel reasonably satisfactory to the
Indemnified Person to represent the Indemnified Person and any others the
Indemnifying Persons may designate in such proceeding and shall pay the fees and
expenses of such counsel related to such proceeding. In any such proceeding, any
Indemnified Person shall have the right to retain its own counsel, but the fees
and expenses of such counsel shall be at the expense of such Indemnified Person
unless (i) the Indemnifying Persons and the Indemnified Person shall have
mutually agreed to the contrary, (ii) the Indemnifying Persons have failed
within a reasonable time to retain counsel reasonably satisfactory to the
Indemnified Person or (iii) the named parties in any such proceeding (including
any impleaded parties) include both an Indemnifying Person and the Indemnified
Person and representation of both parties by the same counsel would be
inappropriate due to
28
<PAGE>
actual or potential differing interests between them. It is understood that no
Indemnifying Person shall, in connection with any proceeding or related
proceeding in the same jurisdiction, be liable for the fees and expenses of more
than one separate firm (in addition to any local counsel) for all Indemnified
Persons, and that all such fees and expenses shall be reimbursed as they are
incurred. Any such separate firm for the Underwriters and such control persons
of Underwriters shall be designated in writing by J.P. Morgan Securities Inc.
and any such separate firm for the Company, its directors, its officers who sign
the Registration Statement and such control persons of the Company shall be
designated in writing by the Company and any such separate firm for the Selling
Stockholders shall be designated in writing by the Attorney-in-Fact. No
Indemnifying Person shall be liable for any settlement of any proceeding
effected without its written consent, but if settled with such consent or if
there be a final judgment for the plaintiff, each Indemnifying Person agrees to
indemnify any Indemnified Person from and against any loss or liability by
reason of such settlement or judgment. Notwithstanding the foregoing sentence,
if at any time an Indemnified Person shall have requested an Indemnifying Person
to reimburse the Indemnified Person for fees and expenses of counsel as
contemplated by the second and third sentences of this paragraph, such
Indemnifying Person agrees that it shall be liable for any settlement of any
proceeding effected without its written consent if (i) such settlement is
entered into more than 30 days after receipt by such Indemnifying Person of the
aforesaid request and (ii) such Indemnifying Person shall not have reimbursed
the Indemnified Person in accordance with such request prior to the date of such
settlement. No Indemnifying Person shall, without the prior written consent of
the Indemnified Person, effect any settlement of any pending or threatened
proceeding in respect of which any Indemnified Person is or could have been a
party and indemnity could have been sought hereunder by such Indemnified Person,
unless such settlement includes an unconditional release of such Indemnified
Person from all liability on claims that are the subject matter of such
proceeding and does not include a statement as to or an admission of fault,
culpability or a failure to act, by or on behalf of any Indemnified Party.
If the indemnification provided for in the first four paragraphs of this
Section 7 is unavailable to an Indemnified Person or insufficient in respect of
-
any losses, claims, damages or liabilities referred to therein, then each
Indemnifying Person under such paragraph, in lieu of indemnifying such
Indemnified Person thereunder, shall contribute to the amount paid or payable by
such Indemnified Person as a result of such losses, claims, damages or
liabilities (i) in such proportion as is appropriate to reflect the relative
benefits received by the Company and the Selling Stockholders on the one hand
and the Underwriters on the other hand from the offering of the Shares or (ii)
if the allocation provided by clause (i) above is not permitted by applicable
law, in such proportion as is appro-
29
<PAGE>
priate to reflect not only the relative benefits referred to in clause (i) above
but also the relative fault of the Company and the Selling Stockholders on the
one hand and the Underwriters on the other hand in connection with the
statements or omissions that resulted in such losses, claims, damages or
liabilities, as well as any other relevant equitable considerations. The
relative benefits received by the Company and the Selling Stockholders on the
one hand and the Underwriters on the other hand shall be deemed to be in the
same respective proportions as the net proceeds from the offering of the Shares
(before deducting expenses) received by the Company and the Selling Stockholders
and the total underwriting discounts and the commissions received by the
Underwriters, in each case as set forth in the table on the cover of the
Prospectus, bear to the aggregate public offering price of the Shares. The
relative fault of the Company and the Selling Stockholders on the one hand and
the Underwriters on the other hand 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 and the Selling Stockholders or by the
Underwriters and the parties' relative intent, knowledge, access to information
and opportunity to correct or prevent such statement or omission.
The Company, the Selling Stockholders and the Underwriters agree that it
would not be just and equitable if contribution pursuant to this Section 7 were
-
determined by pro rata allocation (even if the Selling Stockholders or the
Underwriters were treated as one entity for such purposes) or by any other
method of allocation that does not take account of the equitable considerations
referred to in the immediately preceding paragraph. The amount paid or payable
by an Indemnified Person as a result of the losses, claims, damages and
liabilities referred to in the immediately preceding paragraph shall be deemed
to include, subject to the limitations set forth above, any legal or other
expenses incurred by such Indemnified Person in connection with investigating or
defending any such action or claim. Notwithstanding the provisions of this
Section 7, in no event shall an Underwriter be required to contribute any amount
-
in excess of the amount by which the total price at which the Shares
underwritten by it and distributed to the public were offered to the public
exceeds the amount of any damages that 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 Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. The Underwriters' obligations to con tribute pursuant to
this Section 7 are several in proportion to the respective number of Shares set
-
forth opposite their names in Schedule I hereto, and not joint.
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<PAGE>
The remedies provided for in this Section 7 are not exclusive and shall not
-
limit any rights or remedies which may otherwise be available to any indemnified
party at law or in equity.
The indemnity and contribution agreements contained in this Section 7 and
-
the representations and warranties of the Company and the Selling Stockholders
set forth in this Agreement shall remain operative and in full force and effect
regardless of (i) any termination of this Agreement, (ii) any investigation made
by or on behalf of any Underwriter or any person controlling any Underwriter or
by or on behalf of the Company, its officers or directors or any other person
controlling the Company or the Selling Stockholders and (iii) acceptance of and
payment for any of the Shares.
8. Notwithstanding anything herein contained, this Agreement (or the
obligations of the several Underwriters with respect to the Option Shares) may
be terminated in the absolute discretion of the Representatives, by notice given
to the Company and the Selling Stockholders, if after the execution and delivery
of this Agreement and prior to the Closing Date (or, in the case of the Option
Shares, prior to the Additional Closing Date) (i) trading generally shall have
been suspended or materially limited on or by, as the case may be, any of the
New York Stock Exchange or the American Stock Exchange, the National Association
of Securities Dealers, Inc., the Chicago Board Options Exchange, the Chicago
Mercantile Exchange or the Chicago Board of Trade, (ii) trading of any
securities of or guaranteed by the Company shall have been suspended on any
exchange or in any over-the-counter market, (iii) a general moratorium on
commercial banking activities in New York shall have been declared by either
Federal or New York State authorities, or (iv) there shall have occurred any
outbreak or escalation of hostilities or any change in financial markets or any
calamity or crisis that, in the judgment of the Representatives, is material and
adverse and which, in the judgment of the Representatives, makes it
impracticable to market the Shares being delivered at the Closing Date or the
Additional Closing Date, as the case may be, on the terms and in the manner
contemplated in the Prospectus.
9. This Agreement shall become effective upon the later of (x) execution
and delivery hereof by the parties hereto and (y) release of notification of the
effectiveness of the Registration Statement (or, if applicable, any post-
effective amendment) by the Commission.
If on the Closing Date or the Additional Closing Date, as the case may be,
any one or more of the Underwriters shall fail or refuse to purchase Shares
which it or they have agreed to purchase hereunder on such date, and the
aggregate number of Shares which such defaulting Underwriter or Underwriters
agreed but failed or refused to purchase is not more than one-tenth of the
aggregate number
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<PAGE>
of Shares to be purchased on such date, the other Underwriters shall be
obligated severally in the proportions that the number of Shares set forth
opposite their respective names in Schedule I bears to the aggregate number of
underwritten Shares set forth opposite the names of all such non-defaulting
Underwriters, or in such other proportions as the Representatives may specify,
to purchase the Shares which such defaulting Underwriter or Underwriters agreed
but failed or refused to purchase on such date; provided that in no event shall
the number of Shares that any Underwriter has agreed to purchase pursuant to
Section 1 be increased pursuant to this Section 9 by an amount in excess of one-
- -
tenth of such number of Shares without the written consent of such Underwriter.
If on the Closing Date or the Additional Closing Date, as the case may be, any
Underwriter or Underwriters shall fail or refuse to purchase Shares which it or
they have agreed to purchase hereunder on such date, and the aggregate number of
Shares with respect to which such default occurs is more than one-tenth of the
aggregate number of Shares to be purchased on such date, and arrangements
satisfactory to the Representatives, the Company and, with respect to the Option
Shares, the Selling Stockholders for the purchase of such Shares are not made
within 36 hours after such default, this Agreement (or the obligations of the
several Underwriters to purchase the Option Shares, as the case may be) shall
terminate without liability on the part of any non-defaulting Underwriter or the
Company or the Selling Stockholder. In any such case either the Representative
or the Company (and, in the case of the Option Shares, the Selling Stockholders)
shall have the right to postpone the Closing Date (or, in the case of the Option
Shares, the Additional Closing Date), but in no event for longer than seven
days, in order that the required changes, if any, in the Registration Statement
and in the Prospectus or in any other documents or arrangements may be effected.
Any action taken under this paragraph shall not relieve any defaulting
Underwriter from liability in respect of any default of such Underwriter under
this Agreement. If this Agreement shall be terminated pursuant to this Section
9, the Company shall not then be liable to any Underwriter except as provided in
Sections 5(a)(xii) and 7 hereof.
10. If this Agreement shall be terminated by the Underwriters, or any of
them, because of any failure or refusal on the part of the Company or the
Selling Stockholders to comply with the terms or to fulfill any of the
conditions of this Agreement, or if for any reason any of the Company or the
Selling Stockholders shall be unable to perform its obligations under this
Agreement or any condition of the Underwriters' obligations cannot be fulfilled,
the Company and the Selling Stockholders agree to reimburse the Underwriters or
such Underwriters as have so terminated this Agreement with respect to
themselves, severally, for all out-of-pocket expenses (including the fees and
expenses of its counsel) reasonably incurred by the Underwriter in connection
with this Agreement or the offering contemplated hereunder.
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<PAGE>
11. This Agreement shall inure to the benefit of and be binding upon the
Company, the Selling Stockholders and the Underwriters, any controlling persons
referred to herein and their respective successors and assigns. Nothing
expressed or mentioned in this Agreement is intended or shall be construed to
give any other person, firm or corporation any legal or equitable right, remedy
or claim under or in respect of this Agreement or any provision herein
contained. No purchaser of Shares from any Underwriter shall be deemed to be a
successor by reason merely of such purchase.
12. Any action by the Underwriters hereunder may be taken by the
Representatives jointly or by J.P. Morgan Securities Inc. on behalf of the
Underwriters, and any such action taken by the Representatives jointly or by
J.P. Morgan Securities Inc. alone shall be binding upon the Underwriters. All
notices and other communications hereunder shall be in writing and shall be
deemed to have been duly given if mailed or transmitted by any standard form of
telecommunication. Notices to the Underwriters shall be given to the
Representatives, c/o J.P. Morgan Securities Inc., 60 Wall Street, New York, New
York 10260 (telefax:______); Attention: Syndicate Department. Notices to the
Company shall be given to it at EarthWeb, Inc., 3 Park Avenue, New York, New
York 10016, (telefax: 212-725-6559); Attention: Irene Math. Notices to the
Selling Stockholders shall be given to the Attorneys-in-Fact at ____________,
_________, (telefax:____________); Attention: ____________.
13. This Agreement may be signed in counterparts, each of which shall be
an original and all of which together shall constitute one and the same
instrument.
14. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH
THE LAWS OF THE STATE OF NEW YORK, WITHOUT GIVING EFFECT TO THE CONFLICTS OF
LAWS PROVISIONS THEREOF.
33
<PAGE>
If the foregoing is in accordance with your understanding, please sign and
return four counterparts hereof.
Very truly yours,
EARTHWEB, INC.
By:
-----------------------------------
Name:
Title:
[Selling Stockholders]
By:
-----------------------------------
Name:
Title:
Accepted: September __, 1998
J.P. Morgan Securities Inc.
Bear Stearns & Co. Inc.
Volpe Brown Whelan & Co.
Acting severally on behalf of themselves
and the several Underwriters listed
in Schedule I hereto.
By: J.P. Morgan Securities Inc.
Acting on behalf of itself and the several
Underwriters listed in Schedule I
hereto.
By:
-----------------------------------
Title:
34
<PAGE>
SCHEDULE I
<TABLE>
<CAPTION>
NUMBER OF SHARES
UNDERWRITER TO BE PURCHASED
----------- ----------------
<S> <C>
J.P. Morgan Securities Inc. .........................
Bear Stearns & Co. Inc. .............................
Volpe Brown Whelan & Co. ............................
Total
</TABLE>
<PAGE>
SCHEDULE II
SELLING STOCKHOLDERS
--------------------
2
<PAGE>
EXHIBIT 10.6
AGREEMENT
---------
THIS AGREEMENT (this "Agreement"), dated as of August 1, 1998 (the
"Effective Date"), is made between EarthWeb Inc., a Delaware corporation
("EarthWeb"), and Nova Spivack ("Consultant").
WHEREAS, the Consultant is a party to an Employment Agreement dated
January 1, 1995 with Global Network Partners LLC ("GNP"), as successor to
EarthWeb Ltd., as amended by the Intercompany Services Agreement (the
"Intercompany Services Agreement") dated as of October 25, 1996 among the
Consultant, GNP and certain other parties named therein (such employment
agreement, as so amended, the "Employment Agreement"); and
WHEREAS, the Consultant hereby resigns as an employee of EarthWeb
pursuant to Section 10 of the Employment Agreement and Jack D. Hidary and Murray
Hidary hereby waive their rights under said Section 10 to purchase the
Membership Interests (as defined therein) held by the Consultant; and
WHEREAS, the parties hereto desire that Consultant enter into this
Agreement and perform certain consulting services to EarthWeb as provided
herein.
NOW, THEREFORE, in consideration of the foregoing premises, the mutual
covenants contained herein and for other good and valuable consideration the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agrees as follows:
Section 1. Services. (a) Throughout the term of this Agreement,
--------
Consultant agrees to provide services and to consult with EarthWeb executives
regarding strategic and other matters relating to the company and its operations
on an as requested basis (the "Services") at times and places of reasonable
mutual convenience. EarthWeb acknowledges that Consultant may have other
business commitments in addition to those imposed hereunder and the parties
shall endeavor to enable Consultant to perform the Services hereunder without
conflicting with such other commitments; provided, however, the parties
-------- -------
acknowledge and agree that in the event of such a conflict, the Services to be
provided hereunder shall take precedence over such other commitments. It is
expected that during the term of this Agreement Consultant shall, if requested
by EarthWeb, devote up to 20 hours of business time per month to the performance
of the Services hereunder. In no event shall any unused hours carryover to any
subsequent month. Consultant agrees to provide the Services in a professional
and timely manner and, in performing such services, Consultant shall report to
EarthWeb's Chief Executive Officer ("CEO") and work with such other EarthWeb
employees and consultants as may be designated by the CEO.
<PAGE>
(b) The Services may be performed off-site as practicable, but the
Consultant shall make himself available to company executives and perform
Services at specified company locations, including EarthWeb's corporate
headquarters, as shall be necessary to adequately perform the Services.
Section 2. Term. (a) Subject to Section 2(b), Consultant's obligation
----
to provide services under this Agreement shall be for a term of eighteen (18)
months, commencing on the date set forth above, unless this Agreement is
terminated sooner pursuant to the terms and conditions set forth in Schedule A
hereto. Schedule A attached hereto is incorporated herein in its entirety as if
the terms and conditions therein were set forth directly herein.
Notwithstanding anything in this Agreement to the contrary, Consultant hereby
agrees that he will not terminate this Agreement without cause during the period
commencing on the date hereof and ending three (3) months from the date of this
Agreement, and in the event Consultant so terminates this Agreement without
cause during such three (3) month period, he shall not be entitled, and
Consultant hereby agrees that he shall not be entitled, to any additional
compensation (in any form, including noncompete payments) or to exercise any
rights (including the right to put his common stock of EarthWeb to EarthWeb as
provided in this Section 2) under this Agreement from and after the date of such
termination.
(b) If, during the term of this Agreement, EarthWeb either completes an
underwritten public offering of its capital stock ("IPO"), directly or
indirectly, i.e., an acquisition of EarthWeb by or other combination with a
----
public company or an acquisition of EarthWeb by or other combination with a
company that goes public during the term of this Agreement (with the first
public date of availability of stock of the acquirer being the "IPO Date" for
purposes of this Agreement), EarthWeb shall grant to Consultant a put option
exercisable after the first thirty (30) days following the IPO Date and prior to
the first 181 days following the IPO Date to sell to EarthWeb for $200,000 in
cash shares of EarthWeb common stock equal to $200,000 divided by the average
closing price (over the ten business days immediately preceding Consultant's
notice of exercise of such option) for such shares on the public market or
quotation system on which such shares are traded or listed. The option shall be
exercisable in one or more installments with the exercise price determined
separately as provided above for each installment. Such option grant, if not
otherwise made as provided above, shall be granted in case of a private
investment during such nine (9) month period of at least ten million dollars
($10,000,000) in a single transaction or a series of related transactions, the
option to be granted ten (10) days after the single closing date of a single
transaction or after the first closing date of a series of related transactions.
(c) If there is no IPO Date or triggering private investment, as provided
above, within the first nine (9) months after the Effective Date, EarthWeb shall
grant to Consultant a put option exercisable for the next immediately subsequent
60 day period to sell to EarthWeb for $100,000 in cash shares of EarthWeb common
stock equal to $100,000 (as determined by the Board of Directors of EarthWeb
exercising their good
2
<PAGE>
faith discretion) or, if higher, the highest valuation established by EarthWeb
within three (3) months prior in a public or private offering of equity which
has been consummated.
(d) The compensation obligations of subsections (b) and (c) above are
independent of Consultant's status as a consultant or director of EarthWeb.
Section 3. Payment for Services. As full compensation for the Services
--------------------
to be provided by Consultant hereunder, EarthWeb agrees to pay Consultant in
accordance with the terms and conditions set forth in Schedule A hereto.
Section 4. Independent Contractor. It is understood and agreed that
----------------------
Consultant shall perform the Services as an independent contractor and
consultant. Consultant shall not be deemed to be an employee of EarthWeb.
Consultant shall not be entitled to any benefits provided by EarthWeb to its
employees, and EarthWeb will make no deductions from any of the payments due to
Consultant hereunder for state or federal tax purposes. Consultant agrees that
he shall be personally responsible for any and all taxes and other payments due
on payments received by him from EarthWeb hereunder.
Section 5. Consultant Inventions.
---------------------
(a) Consultant agrees that all Inventions (as herein defined) shall be and
remain the property of EarthWeb. "Inventions" shall mean all ideas, inventions,
research, plans for products or services, marketing plans, computer software
(including, without limitation, source code), computer programs, original works
of authorship, copyrightable expression, characters, know-how, trade secrets,
information, data, developments, discoveries, improvements, modifications,
technology, algorithms and designs, whether or not subject to patent or
copyright protection, made, conceived, expressed, developed, or actually or
constructively reduced to practice, either during the term of Consultant's
employment with EarthWeb or his service as a Consultant hereunder, by Consultant
solely or jointly with others in connection with such employment or any Services
under this Agreement. The parties acknowledge that any of the foregoing items
made, conceived, expressed, developed, or actually or constructively reduced to
practice by Consultant solely and exclusively outside of the scope or
performance of such employment or the Services under this Agreement shall not be
considered Inventions for purposes of this Agreement.
(b) Consultant acknowledges that all of said Inventions shall be
assignable, and hereby are assigned, by Consultant to EarthWeb and that and that
any works of authorship capable of protection under copyright law and within
categories so treatable under copyright law, shall be considered as "work made
for hire" belonging to EarthWeb. To the extent that any such Inventions, under
applicable law, may not be considered work made for hire by Consultant for
EarthWeb, Consultant agrees to assign and, upon its creation, automatically
assigns to EarthWeb the ownership of such material,
3
<PAGE>
including any copyright or other intellectual property rights in such materials,
without the necessity of any further consideration. EarthWeb shall have the
exclusive right to use the Inventions, whether original or derivative, for all
purposes. At EarthWeb's expense, including compensation for Consultant's
services at the rates established in this Agreement, as well as reimbursement of
approved out-of-pocket expenses, Consultant will assist EarthWeb (or its
designees) in every proper way to protect the Inventions throughout the world,
including, without limitation, executing in favor of EarthWeb or any designee of
EarthWeb patent, copyright, and other applications and assignments relating to
the Inventions. Consultant agrees not to challenge EarthWeb's ownership of the
Inventions.
Section 6. Proprietary Information.
-----------------------
(a) Consultant will not disclose or use, at any time either during or after
the period of Services, except for the benefit of EarthWeb or an affiliate of
EarthWeb, any Confidential Information (as herein defined). "Confidential
Information" shall mean all EarthWeb proprietary information, technical data,
trade secrets, and know-how, including, without limitation, research
(proprietary or otherwise), product plans, customer lists, computer software,
computer programs, developments, inventions, discoveries, processes, formulas,
algorithms, technology, designs, drawings, marketing and other plans, business
strategies and financial data and information, including but not limited to
Inventions, whether or not marked as "Confidential." "Confidential Information"
shall also mean information received by EarthWeb from customers of EarthWeb or
other third parties subject to a duty to keep confidential, but shall not
include any information if and to the extent the information is or becomes
publicly known through lawful means or is received by or made available to
Consultant without confidential or proprietary restriction by a third party who
rightfully possesses the information (without confidential or proprietary
restriction) and did not learn of it, directly or indirectly, from EarthWeb.
(b) Consultant hereby acknowledges and agrees that all personal property,
including, without limitation, all books, manuals, records, reports, notes,
contracts, lists, blueprints, and other documents, or materials, or copies
thereof, Confidential Information, and equipment furnished to or prepared by
Consultant in the course of or incident to his Services, including, without
limitation, records and any other materials pertaining to Inventions, belong to
EarthWeb and shall be promptly returned to EarthWeb upon termination of
Services. Following termination, the Consultant will not retain any written or
other tangible or electronic material containing any Confidential Information or
information pertaining to any Invention.
4
<PAGE>
Section 7. Limited Agreement Not to Compete.
--------------------------------
(a) During the term of this Agreement and for a period of twelve (12)
months after the termination of Consultant's Services with EarthWeb, Consultant
shall not, directly or indirectly, solicit for employment or employ any employee
or consultant to EarthWeb or any person who was employed by or acted as a
consultant to EarthWeb while this Agreement was in effect, except that
Consultant may solicit for employment or employ (i) any consultant to or part-
time employee of EarthWeb so long as such relationship does not, in the sole
opinion of EarthWeb, materially infringe upon the services provided or to be
provided to EarthWeb by such persons, or (ii) any employee of EarthWeb who was
terminated by EarthWeb without cause or who ceased to serve in such capacity of
his or her own volition without any solicitation by or on behalf of Consultant
and provided that in the case of either of the foregoing a period of four (4)
months has expired since the termination of his or her relationship with
EarthWeb.
(b)(1) During the term of this Agreement and for a period of two (2)
years after the termination of this Agreement (subject to extension as provided
in clause (2) of this subsection (b)), Consultant shall not, directly or
indirectly:
(A) act on his own behalf (or for any entity which he, directly or
indirectly, controls) as a direct competitor of EarthWeb or work as an employee,
employer, consultant, agent, principal, partner, manager, officer, director, or
in any other individual or representative capacity, for any person or entity who
or which is a direct competitor of EarthWeb; except that, with the written
consent of EarthWeb, which can be withheld at EarthWeb's sole discretion in the
event the direct competitor is listed in the last sentence of this subparagraph
(A) and, otherwise, can be withheld at EarthWeb's reasonable discretion,
Consultant shall be permitted to work for a separate and distinct division or
subsidiary of a direct competitor (other than the direct competitors enumerated
below) provided such division or subsidiary does not develop, market, sell,
license, own or operate an on-line service for software developers, internet
site developers and/or information technology ("IT") professionals
(collectively, "IT professionals") or any software relating thereto and
Consultant has no involvement with any of the foregoing. A "direct competitor"
includes any person or entity who or which develops, markets, sells, licenses,
owns or operates a public and/or commercial internet or extranet site which can
be accessed by the public generally (as opposed to an intranet or an extranet
which can only be accessed by employees of a specific company) on-line service
for software developers, internet site developers and/or IT professionals or any
software relating thereto, in which one of the primary purposes of such on-line
service (or software) is to provide such IT professionals with technical
resources, software development resources and/or IT professional resources,
including, but not limited to, on-line reference books, training materials and
tutorials, technical articles, on-line bulletin boards, a question and answer
facility for IT experts and/or white papers and source code libraries. The
parties acknowledge and agree that for purpose of this Agreement the term
"direct competitors" shall include, but shall not be limited to, the following
entities and their affiliates: Ziff-
5
<PAGE>
Davis; CMP Media; Miller Freeman; C|Net; Fawcette Publications and IDG; or
(B) solicit or take away for Consultant or for any other person or entity
to the exclusion or detriment of EarthWeb any person or entity who or which is
or was during the prior six months a customer of EarthWeb.
(2) The two year noncompetition period specified in subsection (b)(1) of
this Section shall be extended, at the option of EarthWeb exercised not more
than fifteen (15) months from the date of this Agreement, for up to two
additional one year periods provided EarthWeb gives notice by the end of such
fifteenth month of its acting, irrevocably, on the option for the selected one
or two years and in such notice comments to pay, as a binding contract
obligation, and in fact pays to Consultant $130,000 for each additional year of
requested noncompetition, such payments to be made monthly throughout each such
twelve month period of noncompetition.
(c) (1) In addition to Section 7(b), during the noncompetition period set
forth in Section 7(b) Consultant shall not, other than for the benefit of
EarthWeb, create, develop or otherwise work in any capacity on any general not
directly competitive with EarthWeb on-line service, except that Consultant may
create, develop or otherwise work in any capacity on a general on-line service
after the earlier of the IPO Date and six months from the date of this
Agreement; provided, that (i) no more than 5% of either the topics or content of
-------- ----
such service relate to IT professionals or IT professional topics and (ii) none
of the primary or principal offerings of such service is IT professional topics
(either individually or in the aggregate); and provided, further, that prior to
-------- -------
launching any general on-line service containing any topics or content relating
---
to IT professionals or IT professional topics during the noncompetition term,
Consultant shall notify EarthWeb, provide a working demonstration of such on-
line service (and the list of intended IT topics) and enter into and conduct
good faith negotiations with EarthWeb to partner on the IT topics portion of
such service. If, after a period of sixty (60) days after Consultant provides
such working demonstration and the parties conduct such negotiations (the
"Negotiation Period"), Consultant and EarthWeb cannot reach a good faith mutual
agreement relating to such partnering Consultant shall, upon notice to EarthWeb,
be permitted to launch such service (subject to the restrictions contained in
clauses (i) and (ii) of this subsection (c)) provided that Consultant shall pay
to EarthWeb quarterly during the first post-launch year 50% (and 35% for each
year thereafter within the noncompetition period) of the revenues (net of
advertising agency fees, if any) derived from such service (to the extent
attributable to IT professionals and IT professional topics or content) for the
duration of the noncompetition period set forth in Section 7(b) and provide
EarthWeb with exclusive co-branding on such portions of the on-line service
related to IT professionals or IT professional topics or content for such period
(provided that such service may have nonexclusive non-technical brands
throughout the site). In the event Consultant after the termination of this
Agreement and during the continuing noncompetition period creates, develops or
works on any general on-line service that does not contain any topics or content
---
relating to IT professionals or IT professional
6
<PAGE>
topics and such service later develops or adds any such content or topics, the
provisions of this Section shall again become applicable.
(2) Notwithstanding the foregoing clause (1), following receipt by EarthWeb
of the notice of intent to launch such service (or any such additional content
or topics, if applicable) and after the expiration of the Negotiation Period,
Consultant shall nonetheless not launch (or thereafter for a period of one year
become involved in any manner with) any such on-line service if it contains any
---
topics or content relating to IT professionals or IT professional topics if
EarthWeb pays to Consultant $75,000; provided, however, that restraint from
-------- -------
launch or other involvement shall not extend beyond any otherwise applicable
obligation of noncompetition duly elected by EarthWeb under this Agreement and
if such remaining noncompetition period is less than a year, EarthWeb shall only
be obligated to pay a pro-rated portion of the $75,000.
(d) Nothing in Sections 7(b) or 7(c) shall restrict Consultant from, or
impose a royalty on Consultant for, (i) creating a software program and/or
online service that enables, locates and/or aggregates people and/or companies
and enables them to interact with one another online or licensing such software
and/or service to companies for intranet only applications or for extranet
applications which do not involve a developer or for extranet applications which
do not involve a computer hardware and/or software developer program, including,
without limitation, a developer relations program which provides such a
developer with technical resources; however, if the content generated by the use
of such software or service relates to information technology, such exception
shall apply only if such software or service and the related content will not be
used or made available on a commercial online service or on that company's (or
any related company's) public internet site, or (ii) pursue independent work on
collaboration tools, expert systems and knowledge bases, e-mail products and
related software or concepts created by Consultant relating to EarthWeb's so
called "Tesla project" (but not including any code from that project) so long
Consultant, as a result of such work, would not be deemed a direct competitor
(as defined in Section 7(b)(1) above) of EarthWeb.
(e) This Section supersedes in all respects Section 15 of the Employment
Agreement but does not supercede Section 14 of the Employment Agreement.
Section 8. Injunctive Relief. Consultant agrees that the remedy at law
-----------------
for any breach of the provisions of Sections 2, 5, 6 or 7 of this Agreement
shall be inadequate and EarthWeb shall be entitled to injunctive relief in
addition to any other remedy at law which EarthWeb may have.
Section 9. Severability. In the event any of the provisions of this
------------
Agreement shall be held by a court or other tribunal of competent jurisdiction
to be unenforceable, the other provisions of this Agreement shall remain in full
force and effect.
7
<PAGE>
Section 10. Survival. All terms and conditions of this Agreement which
--------
by their terms survive the termination of this Agreement (including Sections 5,
6, 7 and 8) shall so survive.
Section 11. Representations and Warranties. Consultant represents and
------------------------------
warrants that: Consultant is not under any obligations to any third party which
could interfere with the Consultant's performance under this Agreement;
Consultant's performance of his/her obligations to EarthWeb during the term of
his/her service with EarthWeb will not breach any agreement by which Consultant
is bound not to disclose any proprietary information including, without
limitation, that of former employers; Consultant's Services will be of a
professional quality; and, in performing Services, Consultant will obey all
applicable laws and will not knowingly violate or infringe any proprietary or
other right of any third party.
Section 12. Successors and Assigns. This Agreement shall be binding
----------------------
upon and inure to the benefit of both Consultant and EarthWeb and their
respective successors, heirs, and legal representatives, but neither this
Agreement nor any rights hereunder may be assigned by Consultant without prior
written consent of EarthWeb.
Section 13. Governing Law. The validity, interpretation,
-------------
enforceability, and performance of this Agreement shall be governed by and
construed in accordance with the law of the State of New York, exclusive of its
choice-of-law rules.
8
<PAGE>
Section 14. Dispute Resolution. Any dispute relating to or arising out
------------------
of Consultant's relationship with EarthWeb, which cannot be resolved by
negotiation, shall be settled by binding arbitration in accordance with the
American Arbitration Association Commercial Arbitration Rules and Procedures, as
amended by this Agreement. The costs of arbitration, including the fees and
expenses of the arbitrator, shall be shared equally by the parties. Each party
shall bear the cost of preparing and presenting its case. The arbitration shall
take place in the Borough of Manhattan, in the City of New York, in the State of
New York. The arbitration shall be conducted in strict confidence. The
arbitrator's decision shall be based upon the substantive law of the State of
New York or applicable federal law. The arbitrator's decision shall follow the
plain meaning of the relevant documents, and shall be final and binding. The
award may be confirmed and enforced in any court of competent jurisdiction. The
parties hereby agree that any federal or state court sitting in New York City in
the State of New York is a court of competent jurisdiction. Consultant hereby
waives his right to a jury trial. This paragraph shall not limit in any way any
party's right to seek injunctive or other equitable relief in any state or
federal court sitting in the Borough of Manhattan in the City of New York City
in the State of New York (jurisdictional, venue and inconvenient forum
objections to which are hereby waived by both parties), including recovery of
fees and costs, in the event that a dispute relates to or arises under this
Agreement. Should any litigation be commenced in connection with the matters
described in this Section, the prevailing party shall be entitled, in addition
to such other relief as may be granted, to a reasonable sum for such party's
attorney's fees and expenses determined by the court in such litigation or in a
separate action brought for that purpose.
Section 15. Modification. Neither this Agreement nor any of the terms
------------
hereof shall be amended or modified without the prior written consent of the
parties hereto.
Section 16. General.
-------
(a) This Agreement is not an employment contract. Except as set forth
on Schedule A hereto under the heading "Termination", neither party hereto shall
terminate this Agreement.
(b) This Agreement supersedes and replaces any existing agreement
entered into by Consultant and EarthWeb relating generally to the same subject
matter, including the Employment Agreement, except that all of the provisions of
Sections 8, 9.2 and 11 of the Employment Agreement shall remain in full force
and effect, except that (A) the Agreed Value for purposes of Section 11 thereof
shall be based on the public market price of EarthWeb, without discount for
relative illiquidity of a particular one percent (1%), and in the absence of a
public market price, on the value ascribed to EarthWeb in the most recent public
or private sale of more than 10% of EarthWeb's equity and failing that the most
recent bona fide offer) until the later of the completion of the IPO or the
distribution by GNP to Consultant of his pro-rata interest in GNP's holdings of
EarthWeb common stock (the "Distribution"), and (B) the terms Consultant and
consulting shall be substituted in place of the terms Employee and employment
9
<PAGE>
therein mutatis mutandis; provided, however, that if the buy-out price is
determined in the absence of a public market price and EarthWeb does in fact
make and close a public offering within six (6) months after the buy-out, then
twenty (20) days thereafter, EarthWeb shall pay to Consultant an adjusted buy-
out differential (if and only if the initial public offering price is greater
than the buy-out price actually paid on a per share basis) equal to the
difference between the per share price in such public offering and the per share
buy out price.
(c) Notwithstanding the foregoing, the Intercompany Services Agreement
shall remain in full force and effect until terminated in accordance with its
terms. In addition, immediately upon the Distribution, Consultant shall
relinquish his ownership interest in GNP for no additional consideration and
resign as a member of GNP.
(d) Failure to enforce any provision of the Agreement shall not
constitute a waiver of any term herein.
(e) This Agreement (including Schedule A, which is incorporated by
reference) contains the entire agreement between the parties with respect to the
subject matter herein.
(f) Each party hereto agrees from time to time upon the reasonable
request of any other party hereto to execute all documents and take all such
action as shall be reasonably necessary to effectuate the terms hereof and to
carry out the purposes and intent of this Agreement.
(g) The parties hereby agree that upon the Distribution all voting
trust agreements and all other arrangements or agreements between or among
Consultant, EarthWeb, GNP, Jack Hidary and/or Murray Hidary, except for this
Agreement, shall terminate.
10
<PAGE>
AGREED TO BY:
EARTHWEB INC.
By: /s/Jack D. Hidary /s/Nova Spivack
----------------- ---------------
Name: Jack D. Hidary NOVA SPIVACK
Title: President and Chief
Executive Officer
Acknowledged and Agreed:
GLOBAL NETWORK PARTNERS LLC
By: /s/Jack D. Hidary
-----------------
Name:Jack D. Hidary
Title:Managing Member
/s/ Jack D. Hidary /s/ Murray Hidary
- ------------------ -----------------
JACK HIDARY MURRAY HIDARY
11
<PAGE>
SCHEDULE A
- ----------
1. Compensation.
------------
During the term of this Agreement, in consideration for Consultant's Services
hereunder, and subject to the terms and conditions of this Agreement, EarthWeb
shall pay Consultant a consulting fee at a monthly rate of Six Thousand Dollars
(US $6,000), payable in equal installments on a semi-monthly basis. The annual
consulting fee shall be adjusted annually to match any increase in the Consumer
Price Index published by the U.S. Department of Labor for the Greater New York
Metropolitan Area (or its equivalent).
In addition, Consultant shall receive a one-time cash bonus of (i) $100,000 upon
the execution of this Agreement by all the parties hereto and (ii) $100,000 upon
the earlier to occur of the IPO Date or the date which is six (6) months from
the date of this Agreement; provided, that if such $100,000 would be payable
prior to January 1, 1999, notwithstanding the foregoing, such $100,000 shall be
paid on January 2, 1999.
The parties acknowledge that Consultant shall be entitled to COBRA benefits
under applicable law and EarthWeb and Consultant shall, for up to eighteen (18)
months after the date hereof (or the earlier termination of this Agreement),
share the cost of Consultant's monthly COBRA premium in the same proportion as
EarthWeb and Consultant would have shared the cost of health care coverage had
Consultant been an employee of EarthWeb. Thereafter, during the remaining term
of this Agreement, EarthWeb shall, at its option, (i) provide the Consultant
with health care coverage comparable to that provided pursuant to the terms of
COBRA with Consultant and EarthWeb to split the premiums in respect thereof in
the same manner as provided above, or (ii) reimburse the Consultant monthly, in
the same manner as provided above, for premiums paid by the Consultant to obtain
coverage comparable to that provided pursuant to the terms of COBRA.
2. Termination.
-----------
(a) Death or Disablement. If Consultant shall die or be "considered to be
--------------------
disabled" (as hereinafter defined) during the term of this Agreement, EarthWeb
shall have the right to terminate this Agreement upon written notice to
Consultant or Consultant's legal representative or estate. For purposes of this
Agreement, Consultant will be "considered to be disabled" when he has been
unable to carry out his Services because of physical or mental impairment for a
period of 120 consecutive days or 180 days within any 360-day period.
(b) For Cause. EarthWeb shall have "cause" to terminate this Agreement upon:
---------
(i) the commission by Consultant of an act of (x) criminal misconduct, or (y)
fraud against EarthWeb, or (ii) the commission by Consultant of an act of
malfeasance, recklessness or gross negligence against EarthWeb that is injurious
to EarthWeb or its customers; or (iii) a material breach by Consultant of the
terms of this Agreement; in which case EarthWeb
12
<PAGE>
may at any time thereafter by written notice to Consultant immediately terminate
this Agreement.
(c) Without Cause. Subject to Section 3 of this Schedule, EarthWeb may, by
-------------
written notice to Consultant, immediately terminate this Agreement without
cause. A termination shall be "without cause" if it is for any reason other than
a termination for death or disablement pursuant to subsection (a) above or a
termination for cause pursuant to subsection (b)(i) above.
3. Severance.
---------
In the event that EarthWeb terminates this Agreement prior to the 15th
month anniversary of the effective date of this Agreement (an "EarthWeb
Termination"), then:
(a) if such termination is without cause, EarthWeb shall (i) pay
Consultant all compensation accrued through the date of such termination,
(ii) continue to pay Consultant his consulting fee hereunder until the 18
month anniversary of this Agreement, as and when due; (iii) make the
payments as, if and when due under Sections 2(b) and 2(c) of the Agreement
and (iv) make the noncompetition payments as, if and when due under the
terms of the Agreement;
(b) if such termination is for cause, EarthWeb shall (i) pay
Consultant all compensation accrued through the date of such termination,
(ii) if such termination is prior to the 12th month anniversary of this
Agreement, continue to pay Consultant his consulting fee hereunder until
such 12th month anniversary as if no such termination occurred and (iii)
make the payments as, if and when due, under Section 2(b) of the Agreement;
and
If such termination is by Consultant from and after the date which is three
(3) months after the date of this Agreement, EarthWeb shall (i) pay
Consultant all compensation accrued through the date of such termination,
(ii)(x) if such termination is prior to the 15th month anniversary of this
Agreement and is for "cause" (as defined in the next sentence), continue to
pay Consultant his consulting fee hereunder until such 15th month
anniversary as if no such termination occurred or (y) if such termination
is prior to the 12th month anniversary of this Agreement and is not for
"cause", continue to pay Consultant his consulting fee hereunder until such
12th month anniversary as if no such termination occurred and (iii) make
the payments as, if and when due under Sections 2(b) and 2(c) of the
Agreement including the cash bonus payments of paragraph 1 of this Schedule
A above. For purposes of the foregoing sentence, "cause" shall mean a
material breach by EarthWeb of the terms of this Agreement.
13
<PAGE>
4. Transfer of Shares.
------------------
All of the transfer restrictions (including, without limitation,
rights-of-first refusal and tag-along rights) applicable to shares of capital
stock of EarthWeb now held or hereafter acquired by the Consultant pursuant to
the Intercompany Services Agreement or otherwise shall remain in full force of
effect. In addition, if prior to the 18 month anniversary hereof EarthWeb shall
not have completed an underwritten public offering of its capital stock, the
Consultant, after complying with any other transfer restrictions (including,
without limitation, rights-of-first refusal) applicable to shares of capital
stock of EarthWeb now held or hereafter acquired by him, shall not transfer or
otherwise dispose of any such shares without the prior written approval of GNP
and Warburg Pincus Ventures, L.P., such approval not to be unreasonably withheld
(it being acknowledged that such consent may be withheld if such proposed
transfer is to a competitor of EarthWeb). Furthermore, in the event that
EarthWeb registers shares of its capital stock under the Securities Act of 1933
for parties other than EarthWeb within twelve months from the date of this
Agreement (the "Secondary Offering") and either Jack D. or Murray Hidary
participate in the Secondary Offering (either or both, the "Participating
Founder"), Consultant shall have the right to also participate ratably (based on
his then current shareholding as compared to the then current shareholdings of
the Participating Founder) in the Secondary Offering.
5. Board Seat.
----------
The parties acknowledge that Consultant is a member of the Board of
Directors of EarthWeb and that GNP has the right to designate the members of
such board of directors. Upon the later to occur of (i) Consultant's ownership
interest in EarthWeb equaling less than 5% of EarthWeb's then outstanding
capital stock or (ii) the one (1) year anniversary of this Agreement,
Consultant, on the request of GNP, shall resign from the EarthWeb Board (or, if
such request is made after the termination of the Intercompany Services
Agreement, on the request of the Company); provided, however, that in the event
Consultant is not an active member of the Board of Directors, as evidenced by,
among other events, a continued failure to attend meetings of the Board of
Directors, then Consultant hereby agrees to resign as a member of the Board of
Directors upon the request of GNP at any time.
6. Miscellaneous.
-------------
(a) During each year of the term of this Agreement, the Consultant
shall, upon reasonable prior notice to EarthWeb, not be required to render
Services hereunder during any four weeks designated by the Consultant. Such
four weeks need not be consecutive but shall be taken in not less than one week
intervals and Consultant shall continue to be paid hereunder during such weeks
in the same manner as if he were providing Services during such time.
14
<PAGE>
(b) The Company agrees to use all reasonable efforts to ensure that
any written public document or press release produced by the Company listing
either or both of Jack Hidary and Murray Hidary as the (co-)founder(s) of the
Company shall also list (within reasonable proximity thereto) the Consultant as
a co-founder until such time as the Board of Directors of EarthWeb (or its
successor) reasonably determines, based upon events subsequent hereto,
including, but not limited to, any mergers or acquisitions or dispositions of
assets, that it would no longer be accurate to list Messrs. Jack Hidary, Murray
Hidary and Consultant as the co-founders of EarthWeb. In any event, Consultant
shall be and hereby is acknowledged as the original principal architect of
Gamelan, Developer. Com and DeveloperDirect in public communications where such
subjects are disclosed. Consultant hereby agrees that, from and after the date
of this Agreement, he shall not issue any statements in any form by or on behalf
of EarthWeb, and shall not represent that he is authorized to issue such
statements by or on behalf of EarthWeb, without the prior written approval of
EarthWeb, which may be withheld in its sole discretion. Any statement which
Consultant is so authorized by EarthWeb to issue shall, in each and every case,
conform with EarthWeb's standard processes for any issuance of a public
statement on behalf of EarthWeb.
(c) Upon execution and delivery of this Agreement by the parties
hereto, EarthWeb shall transfer to Consultant all of its rights in and to the
domain name whoknows.com and shall take all steps necessary to transfer such
name to Consultant.
(d) The parties acknowledge that EarthWeb shall transfer ownership to
Consultant of the approximately 75 commercial books purchased by Consultant (and
previously reimbursed by EarthWeb) during the term of his employment with
EarthWeb. Such transfer shall not be deemed to imply the transfer to Consultant
of any intellectual property rights arising out of the use of such books or
otherwise.
(e) So long as Consultant shall be providing either Services hereunder
or be a member of EarthWeb's Board of Directors, he shall be entitled to a free
single-user subscription to all of EarthWeb's on-line services.
(f) Unless this Agreement shall have been earlier terminated, it is
the intent of EarthWeb, to the extent practicable, to notify Consultant in
advance of the effective date of EarthWeb's initial public offering of its
capital stock.
(g) Upon the mutual written agreement of the parties, based on
Consultant's written request and EarthWeb's consent, which may not be
unreasonably withheld or delayed but which may include such terms and conditions
as are consistent with Consultant's duties under this Agreement, Consultant may
take one or more unpaid leaves of absence hereunder for a period not to exceed
60 days in the aggregate on such terms as they shall agree.
15
<PAGE>
(h) EarthWeb shall provide the Consultant with reasonable work space
and a computer at EarthWeb's corporate headquarters on an "as requested" basis
when the Consultant performs Services at such facility. In addition, upon
request in connection with the Services to be provided hereunder, EarthWeb shall
provide Consultant with reasonable access to a laptop computer to be used on or
off-site and Consultant shall be responsible for and shall reimburse EarthWeb
for the loss, theft or any damage to such computer while such computer is on
loan to Consultant. EarthWeb shall reimburse the Consultant in accordance with
its company policies for reasonable travel expenses incurred by the Consultant
in performing the Services, except that no reimbursement shall be made for local
travel expenses within New York City and, if the Consultant relocates
temporarily or permanently outside of the continental United States, such
reimbursement shall be limited to an amount not to exceed that which would have
been incurred had the Consultant remained in the continental United States (such
limitation to be calculated from the nearest major airport of entry or the
actual airport of entry into the continental United States closest to EarthWeb's
corporate headquarters, whichever is closer).
(i) Until the earlier of (x) the IPO Date and (y) six (6) months from
the date of this Agreement, Consultant shall be entitled, pro rata based on
Consultant's interest in GNP, to the same stock options and stock bonuses or
related stock grants as EarthWeb awards, grants or pays to any present or former
GNP member(s).
(j) Until twelve months from the date of this Agreement, following an
IPO, Consultant shall be entitled pro rata based on the Consultant's interest in
GNP to the same benefits of any private sales made by any present or former GNP
member to any of the managing underwriters for the IPO or to Warburg, Pincus
Ventures, L.P.
(k) Until seven (7) months from the date of this Agreement, Consultant
shall be entitled, in the event any present or former member of GNP receives a
cash bonus during such period in excess of $80,000, to receive a ratable amount
(based on the Consultant's interest in GNP) of the amount by which such bonus
exceeded $80,000.
(l) From and after the date of termination of that certain Amended and
Restated Operating Agreement of Global Network Partners LLC (the "GNP
Agreement"), until the earlier to occur of the consummation of the IPO or 18
months from the date of this Agreement, Consultant shall be entitled pro rata
based on the Consultant's interest in GNP, to the continuing benefit of the drag
along, tag along and anti-dilution rights provided by the following Sections of
the GNP Agreement, to the extent not amended by the terms of this Agreement:
Section 9.1 and Rider X. In the event there is no IPO by the date which is 18
months from the date of this Agreement, the provisions of Section 4 of this
Schedule A shall control. Furthermore, until such time as the date of the
consummation of the IPO, in the event any member of GNP sells any interest in
GNP or EarthWeb stock to any third party, Consultant shall have the right to
sell the same ratable portion of such security then owned by Consultant to such
other third party as the Consultant chooses; provided, that Consultant has no
right in connection therewith to require his securities be sold to the third
party buying such other member's securities (i.e.,
16
<PAGE>
no tag along right); and provided further that EarthWeb shall have the right to
veto any sale to a direct competitor (as such term is defined in Section 7
Agreement).
(m) Within thirty (30) days after the Effective Date and subject to
prior receipt of adequate supporting documentation, EarthWeb shall pay to
Consultant 50% of Consultant's reasonable legal and accounting expenses of
examining proposals for this Agreement and other agreements between Consultant
and EarthWeb and its affiliates and predecessors, and of negotiating and
executing this Agreement, up to a maximum reimbursement of $10,000.
17
<PAGE>
EXHIBIT 10.8
- --------------------------------------------------------------------------------
THREE PARK AVENUE CO.,
Landlord,
MJN ENTERPRISES, INC.,
Tenant.
----------------
LEASE
----------------
- --------------------------------------------------------------------------------
Premises: 3 Park Avenue
New York, New York 10022
Part of the 38th Floor
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
ARTICLE PAGE
- ------- ----
<S> <C>
1 Premises; Term........................................... 1
2 Commencement of Term..................................... 1
3 Rent..................................................... 2
4 Use...................................................... 3
5 Alterations, Fixtures.................................... 4
6 Repairs.................................................. 6
7 Floor Load; Noise........................................ 7
8 Laws, Ordinances, Requirements of Public Authorities..... 7
9 Insurance................................................ 8
10 Damage by Fire or Other Cause............................ 10
11 Assignment, Subletting, Mortgaging....................... 11
12 No Liability of Landlord and Indemnity by Tenant......... 17
13 Moving of Heavy Equipment................................ 18
14 Condemnation............................................. 18
15 Entry, Right to Change Public Portions of the Building... 19
16 Conditional Limitations, Etc............................. 20
17 Mechanic's Liens......................................... 24
18 Landlord's Right to Perform Obligations.................. 25
19 Covenant of Quiet Enjoyment.............................. 25
20 Excavation............................................... 25
21 Services and Equipment................................... 26
22 Escalation............................................... 27
23 Electric Inclusion....................................... 31
24 Broker................................................... 33
25 Subordination and Ground Lease........................... 33
26 Estoppel Certificate..................................... 36
27 Waiver of Jury Trial..................................... 36
28 Surrender of Premises.................................... 36
29 Rules-and Regulations.................................... 37
30 Successors and Assigns and Definitions................... 37
31 Notices.................................................. 38
32 No Waiver; Entire Agreement.............................. 38
33 Captions................................................. 39
34 Inability to Perform..................................... 40
35 No Representations by Landlord........................... 40
36 Rent Control............................................. 40
37 Security Deposit......................................... 41
38 Late Payment Charges..................................... 43
</TABLE>
<PAGE>
Testimonium and Signatures
Acknowledgments
<PAGE>
INDENTURE OF LEASE ("Lease") made this 28th day of April, 1995, between
THREE PARK AVENUE CO., a New York limited partnership, having an office at 750
Lexington Avenue, New York, New York 10022 ("Landlord") and MJN ENTERPRISES,
INC., a New York corporation, having an office at 100 Park Avenue, New York, New
York 10017 ("Tenant").
W I T N E S S E T H :
---------------------
ARTICLE 1
Premises; Term
Landlord hereby leases to Tenant and Tenant hereby hires from Landlord the
following space ("Demised Premises") : part of the 38th floor, as shown on the
floor plan (Schedule A) attached hereto, in the office building known as and by
the street number 3 Park Avenue, in the Borough of Manhattan, City and State of
New York ("Building"), located on the land more particularly described on
Schedule C attached hereto, upon and subject to the terms, covenants and
conditions hereafter set forth.
TO HAVE AND TO HOLD the Demised Premises unto Tenant for a term commencing
on the Commencement Date (as defined in Article 2 hereof) and ending on a date
(the "Expiration Date") which shall be five (5) years after the Commencement
Date, plus the number of days required, if any, to have such term expire on the
last day of the calendar month, or on such earlier date upon which said term may
expire or terminate pursuant to the conditions of this Lease or pursuant to law.
IT IS MUTUALLY COVENANTED AND AGREED between Landlord and Tenant as
follows:
ARTICLE 2
Commencement of Term
Section 2.01. The term of this Lease and the payment of minimum rent
hereunder shall commence on the date that Landlord's work set forth on Schedule
B shall be substantially completed and Landlord shall deliver possession of the
Demised Premises on the Commencement Date. Landlord shall give Tenant at least
fifteen (15) days' prior written notice of the anticipated date of substantial
completion, provided Landlord shall have no liability or responsibility to
Tenant: if the Demised Premises have not been substantially completed on the
date set forth in Landlord's notice. Except as set forth on Schedule B, Landlord
shall have no obligation to perform any other work in connection with preparing
the Demised Premises for Tenant's occupancy. Landlord's work shall be deemed to
be substantially completed even though minor details or adjustments, none of
which materially interfere with Tenant's use of the Demised Premises, may not
then have been completed, but Landlord agrees, at its sole cost and expense, to
promptly thereafter complete all unfinished work. However, if Tenant shall enter
into
<PAGE>
possession of the Demised Premises and commence the conduct of its business, the
Commencement Date shall be the date of such entry regardless of whether the
foregoing events shall have occurred. Upon Tenant obtaining the building permit
referred to in Schedule B, Landlord shall promptly thereafter commence its work
and diligently perform the same at Landlord's sole cost and expense. If Landlord
has not substantially completed its work within one hundred eighty (180) days
after such building permit has been obtained (subject, however, to the
provisions of Article 34), then Tenant shall be entitled to an abatement of the
minimum rent only, in addition to the abatement provided in Section 3.02, equal
to one (1) business day for each one (1) business day thereafter that the
Demised Premises have not been substantially completed to the date of
substantial completion; and if Landlord has not substantially completed its work
within two hundred seventy (270) days after such building permit has been
obtained (subject, however, to the provisions of Article 34), the Tenant shall
be entitled to an abatement of the minimum rent only, in addition to the
abatement provided in Section 3.02, equal to two (2) business days for each one
(1) business day thereafter that the Demised Premises have not been
substantially completed to the date of substantial completion; and if Landlord
has not substantially completed its work within three hundred sixty-five (365)
days after such building permit has been obtained, then Tenant, as its sole
remedy, shall thereafter have the right to terminate this Lease upon not less
than ten (10) days, prior written notice to Landlord in which event this Lease
shall terminate on the date set forth in such notice unless Landlord, prior to
such date, substantially completes its work. Upon such termination, Landlord
shall return to Tenant the moneys paid to Landlord upon the execution of this
Lease and neither party shall have any further rights or obligations hereunder.
Section 2.02. Tenant has fully inspected the Demised Premises, is familiar
with the condition thereof and agrees to accept possession of the same on the
Commencement Date in their present "As Is" condition, except for Landlord's work
as set forth in Schedule B.
Section 2.03. If, prior to the Commencement Date, Tenant shall enter the
Demised Premises to make any installations, Landlord shall have no liability or
obligation for the care or preservation of Tenant's property.
Section 2.04. Promptly after the Commencement Date, Landlord and Tenant
will execute a statement in recordable form confirming the Commencement and
Expiration Dates of this Lease, in accordance with the foregoing provisions.
ARTICLE 3
Rent
Section 3.01. Tenant shall pay, as rent for the Demised Premises, the
following:
(a) a fixed minimum rent (the "minimum rent") at the annual rate of
$114,000.00 per annum (or $9,500.00 per month), plus the period from the
Commencement Date to the end of the month in which the same occurs if the
<PAGE>
Commencement Date is other than the first day of a month calculated on a
pro rata basis; and
(b) all other sums and charges required to be paid by Tenant under
the terms of this Lease (including without limitation, the payments
required to be made under Article 22), which shall be deemed to be and are
sometimes referred to hereafter as additional rent.
Section 3.02. Notwithstanding the provisions of Section 3.01 hereof, and
provided Tenant is not then in default hereunder, Tenant shall be entitled to an
abatement of part of the minimum rent only in the amount of $8,400.00 per month
for each of the 1st, 2nd, 3rd, 16th and 17th months following the Commencement
Date; provided that the balance of minimum rent of $1,100.00 for each of said
months shall be due and payable. Tenant acknowledges that the consideration for
the aforesaid abatement of minimum rent is Tenant's agreement to perform all of
the terms, covenants and conditions of this Lease on its part to be performed.
Therefore, if Tenant shall default under any of such terms, covenants and
conditions, the aggregate amount of all minimum rent that was abated shall
immediately thereafter become due and payable by Tenant to Landlord. In the
event of Tenant's failure to pay such aggregate amount to Landlord, Landlord
shall be entitled to the same rights and remedies as in the event of Tenant's
default in the payment of minimum rent. Except as otherwise expressly set forth
herein, Tenant shall be required to pay additional rent and all other sums from
and after the Commencement Date.
Section 3.03. The minimum rent shall be payable in equal monthly
installments in advance on the first day of each and every month during the term
of this Lease, except that the first full month's rent installment shall be paid
upon the execution of this Lease and be credited against minimum rent becoming
due on the fourth (4th) month of the term hereof.
Section 3.04. Tenant shall pay the minimum rent and additional rent in
lawful money of the United States which shall be legal tender for the payment of
all debts, public and private, at the time of payment and such portion thereof
which is payable directly to Landlord shall be paid at the principal place of
business of Landlord, to wit: 750 Lexington Avenue, New York, New York 10022, or
at such other place as Landlord may designate by notice to Tenant.
Section 3.05. The minimum rent and additional rent shall be payable by
Tenant without any set-off, abatement or deduction whatsoever and without notice
or demand, except as otherwise expressly provided herein.
ARTICLE 4
Use
Section 4.01. Tenant shall use and occupy the Demised Premises only for
administrative, executive and general office purposes and for a computer-based
telecommunications business related thereto.
<PAGE>
Section 4.02. Notwithstanding the provisions of Section 4.01, Tenant shall
not use or allow the use of the Demised Premises or any part thereof (1) for the
cooking and/or sale of food; (2) for storage for sale of any alcoholic beverage
in the Demised Premises; (3) for storage for and/or sale of any product or
material from the Demised Premises; (4) for manufacturing or printing purposes
(other than such incidental printing as Tenant may perform in connection with
the conduct of its usual operations); (5) for the conduct of a school or
training facility or similar type of business which results in the presence of
the general public in the Demised Premises; (6) for the conduct of the business
of an employment agency or personnel agency; (7) for the conduct of any public
auction or exhibition; (8) for occupancy by a foreign, United States, state,
municipal or other governmental or quasi-governmental body, agency or department
or any authority or other entity which is affiliated therewith or controlled
thereby and which has diplomatic or sovereign immunity or the like with respect
to a commercial lease; (9) for messenger or delivery service (excluding Tenant's
own employees or outside services); (10) as a public stenographer or typist;
(11) as a telephone or telegraph agency; (12) as a company engaged in the
business of renting office(s) or desk space; (13) as medical offices or a
laboratory; (14) as a travel agency; (15) as a dating service; (16) as a
restaurant.
Section 4.03. If any governmental license or permit, other than a
Certificate of occupancy, shall be required for the proper and lawful conduct of
Tenant's business in the Demised Premises, or any part thereof, and if failure
to secure such license or permit would in any way affect Landlord, Tenant, at
its expense, shall duly procure and thereafter maintain such license or permit
and submit the same for inspection by Landlord. Tenant shall at all times comply
with the terms and conditions of each such license or permit.
Section 4.04. Tenant shall not at any time use or occupy, or suffer or
permit anyone to use or occupy, the Demised Premises, or do or permit anything
to be done in the Demised Premises, in violation of the Certificate of occupancy
for the Demised Premises or for the Building, and will not permit or cause any
act to be done or any condition to exist on the Demised Premises which may be
dangerous unless safeguarded as required by law, or which in law constitutes a
nuisance, public or private, or which may make void or voidable any insurance
then in force covering the Building and building equipment. Landlord represents
that Tenant's proposed uses set forth in Section 4.01 are permitted under the
current valid and subsistent Certificate of Occupancy.
ARTICLE 5
Alterations, Fixtures
Section 5.01. Tenant, without Landlord's prior consent, shall make no
alterations, installations, additions, or structural improvements affixed in or
to the Demised Premises ("work") including, but not limited to a water cooler,
an air-conditioning or cooling system, or any unit or part thereof or other
apparatus of like or other nature, paneling, partitions, railings, mezzanine
floors, galleries and the like. If any contractor, other than Landlord, shall
perform work, such contractor shall first be approved by Landlord, and as a
condition of such approval,
<PAGE>
Tenant shall pay to Landlord ten (10k) per cent of the cost of such work for
supervision, coordination and other expenses incurred by Landlord in connection
therewith. Notwithstanding the foregoing, such ten (10k) percent charge shall
not be applicable to the following work performed by Tenant: painting, floor
covering, wall covering, light fixtures and furnishings. Worker's Compensation
and public liability insurance and property damage insurance, all in amounts and
with companies and/or forms reasonably satisfactory to Landlord, shall be
provided and at all times maintained by Tenant's contractors engaged in the
performance of the work, and before proceeding with the work, certificates of
such insurance shall be furnished to Landlord. All such work shall be done at
Tenant's sole expense and at such times and in such manner as Landlord may from
time to time reasonably designate and in full compliance with all governmental
authorities having jurisdiction thereover. Upon completion of the work, Tenant
shall deliver to Landlord full scale "as built" plans for the same. All work
affixed to the realty or if not so affixed but for which Tenant shall have
received a credit (other than Tenant's trade fixtures), shall become the
property of Landlord and shall remain upon, and be surrendered with, the Demised
Premises as a part thereof at the end of the term or any renewal or extension
term, as the case may be, without allowance to Tenant or charge to Landlord,
unless Landlord elects otherwise on notice to Tenant given at any time prior to
or on any termination of this Lease. If Landlord shall elect otherwise, then all
such work or such portion thereof as Landlord shall elect, shall be removed by
Tenant and Tenant shall restore the Demised Premises, at Tenant's expense to
such condition that it shall blend in and harmonize with the surrounding area.
If any Building facilities or services, including but not limited to air-
conditioning and ventilating equipment installed by Landlord, are adversely
affected or damaged by reason of the work by Tenant, Tenant, at its expense,
shall repair such damage and shall correct the work so as to prevent any further
damage or adverse effect on such facilities or services.
Section 5.02. Prior to commencing any work pursuant to the provisions of
Section 5.01, Tenant shall furnish to Landlord:
(a) Copies of all governmental permits and authorizations which may
be required in connection with such work.
(b) A certificate evidencing that Tenant (or Tenant's contractor) has
procured worker's compensation insurance covering all persons employed in
connection with the work who might assert claims for death or bodily injury
against Overlandlord, as defined in Article 25, Landlord, Tenant or the
Building.
(c) Such additional personal injury and property damage insurance
(over and above the insurance required to be carried by Tenant pursuant to
the provisions of Section 9.03) as Landlord may reasonably require because
of the nature of the work to be done by Tenant.
Section 5.03. Where furnished by or at the expense of Tenant (except the
replacement of an item theretofore furnished and paid for by Landlord or for
which Tenant has received a credit), all movable property, furniture,
furnishings and trade fixtures ("personalty") other than those affixed to the
realty shall remain the property of and shall be removed by Tenant on or
<PAGE>
prior to any termination or expiration of this Lease, and, in the case of damage
by reason of such removal, Tenant, at Tenant's expense, promptly shall repair
the damage. If Tenant does not remove any such personalty, Landlord, at its
election, and upon notice to Tenant, (a) may cause the personalty to be removed
and placed in storage at Tenant's expense or (b) may treat the personalty as
abandoned and may dispose of the personalty as it sees fit without accounting to
Tenant for any proceeds realized upon such disposal.
Section 5.04. Tenant agrees that the exercise of its rights pursuant to
the provisions of this Article 5 shall not be done in a manner which would
create any work stoppage, picketing, labor disruption or dispute or violate
Landlord's union contracts affecting the Building or interfere with the business
of Landlord or any Tenant or occupant of the Building. In the event of the
occurrence of any condition described above arising from the exercise by Tenant
of its right pursuant to the provisions of this Article 5, Tenant shall,
immediately upon notice from Landlord, cease the manner of exercise of such
right giving rise to such condition. In the event Tenant fails to cease such
manner of exercise of its rights as aforesaid, Landlord, in addition to any
rights available to it under this Lease and pursuant to law, shall have the
right to injunction without notice. With respect to Tenant's work, Tenant shall
make all arrangements for, and pay all expenses incurred in connection with, use
of the freight elevators servicing the Demised Premises during those hours other
than as provided in Section 21.01 (a).
ARTICLE 6
Repairs
Section 6.01. Tenant shall take good care of the Demised Premises and the
fixtures and appurtenances therein and at its sole cost and expense make all
repairs thereto as and when needed to preserve them in good working order and
condition. All damage or injury to the Demised Premises or the Building or to
any building equipment caused by Tenant moving property in or out of the
Building or by installation or removal of personalty or resulting from
negligence or improper conduct of Tenant, its employees, agents, contractors,
customers, invitees and visitors, shall be repaired, promptly by Tenant at
Tenant's expense, and whether or not involving structural changes or
alterations, to the reasonable satisfaction of Landlord. All repairs shall
include replacements or substitutions where necessary and shall be at least
equal to the quality, class and value of the property repaired, replaced or
substituted and shall be done in a good and workmanlike manner.
Section 6.02. Landlord, at its expense, shall perform all maintenance,
repairs and replacements, structural and otherwise, to the exterior and public
portions of the Building, and the Building systems within the Demised Premises,
including but not limited to the HVAC, mechanical, plumbing and electrical
systems, unless Tenant is required to make them under the provisions of Section
6.01 or unless required as a result of the performance or existence of
alterations performed by Tenant or on Tenant's behalf, in which event Tenant at
its expense shall perform such maintenance, repairs and replacements. Tenant
shall notify Landlord of the necessity for any repairs for which Landlord may be
responsible under the provisions of this
<PAGE>
Section and, following such notice, Landlord, upon prior reasonable notice
(except no notice in an emergency) shall remedy the condition with reasonable
diligence. Landlord shall have no liability to Tenant by reason of any
inconvenience, annoyance, interruption or injury to business arising from
Landlord's making any repairs or changes which Landlord is required or permitted
by this Lease, or required by law, to make in or to any portion of the Building
or the Demised Premises, or in or to the fixtures, equipment or appurtenances of
the Building or the Demised Premises. However, Landlord shall use reasonable
efforts to perform such repairs or changes in a manner to minimize interference
with the conduct of Tenant's business, except Landlord shall not be obligated to
employ overtime or premium labor.
Section 6.03. Tenant shall not store or place any materials or other
obstructions in the lobby or other public portions of the Building, or on the
sidewalk abutting the Building.
ARTICLE 7
Floor Load; Noise
Section 7.01. Tenant shall not place a load upon any floor of the Demised
Premises which exceeds the load per square foot which such floor was designed to
carry (50 lbs. per square foot) and which is allowed by law.
Section 7.02. Business machines and mechanical equipment belonging to
Tenant which cause noise, vibration or any other nuisance that may be
transmitted to the structure or other portions of the Building or to the Demised
Premises, to such a degree as to be objectionable to Landlord or which interfere
with the use or enjoyment by other tenants of their premises or the public
portions of the Building, shall be placed and maintained by Tenant, at Tenant's
expense, in settings of cork, rubber or spring type vibration eliminators
sufficient to eliminate such objectionable or interfering noise or vibration.
ARTICLE 8
Laws, Ordinances, Requirements of Public Authorities
Section 8.01.
(a) Tenant, at its expense, shall comply with all laws, orders,
ordinances, rules and regulations and directions of Federal, State, County
and Municipal authorities and departments thereof having applicability over
the Demised Premises and the Building ("Governmental Requirements")
referable to Tenant or the Demised Premises, whether or not arising by
reason of (i) Tenant's occupancy, use or manner of use of the Demised
Premises or any installations made therein by or at Tenant's request, or
(ii) any default by Tenant under this Lease. Notwithstanding the foregoing,
Tenant shall not be obligated to remove any violations affecting the
Demised Premises prior to the Commencement Date.
<PAGE>
(b) Landlord, at its expense, shall comply with all Governmental
Requirements relating to the public portions of the Building, that Tenant
is not obligated to comply with them under the provisions of subdivision
(a) of this Section. Landlord, at its expense, may contest the validity of
any Governmental Requirements and postpone compliance therewith pending
such contest, provided such contest will not subject Tenant to civil or
criminal liability.
Section 8.02. If Tenant receives written notice of any violation of any
Governmental Requirements applicable to the Demised Premises, it shall give
prompt notice thereof to Landlord.
Section 8.03. Tenant will not clean, nor allow any window in the Demised
Premises to be cleaned, from the outside in violation of Section 202 of the
Labor Law or the rules of the Board of Standards and Appeals or of any other
board or body having or asserting jurisdiction.
ARTICLE 9
Insurance
Section 9.01. Tenant shall not do or permit to be done any act or thing in
or upon the Demised Premises which will invalidate or be in conflict with the
Certificate of Occupancy for the Building or the terms of the insurance policies
covering the Building and the property and equipment therein; and Tenant, at its
expense, shall comply with all rules, orders, regulations and requirements of
the New York Board of Fire Underwriters or any other similar body having
jurisdiction, and of the insurance carriers, and shall not knowingly do or
permit anything to be done in or upon the Demised Premises in a manner which
increases the rate of insurance for the Building or any property or equipment
therein over the rate in effect on the Commencement Date.
Section 9.02. If, by reason of Tenant's failure to comply with the
provisions of Section 9.01 or any of the other provisions of this Lease, the
rate of insurance for the Building or the property and equipment of Landlord
shall be increased to an amount higher than on the Commencement Date, Tenant
shall pay to Landlord any additional or increased insurance premiums to the
extent resulting therefrom thereafter paid by Landlord, and Tenant shall make
such payment within ten (10) days after demand of Landlord. In any action or
proceeding wherein Landlord and Tenant are parties, a schedule or "make up" of
any insurance rate for the Building or Demised Premises issued by the New York
Fire Insurance Exchange, or other body establishing fire insurance rates for the
Building, shall be conclusive evidence of the facts therein stated and of the
several items and charges in the insurance rates then applicable to the Building
or Demised Premises.
Section 9.03
(a) Tenant covenants to provide on or before the Commencement Date
and to keep in force during the term hereof, the following insurance
coverage:
<PAGE>
(i) A comprehensive policy of liability insurance protecting
Landlord, Tenant and the Lessor (as defined in Article 25) against any and
all claims for personal injury, death or property damage occurring upon, in
or about the Demised Premises, and the public portions of the Building used
by Tenant, its employees, agents, contractors, customers, invitees and
visitors including, without limitation, personal injury, death or property
damage resulting from any work performed by or on behalf of Tenant, with
coverage of not less than $2,000,000.00 combined single limit for personal
injury, death and property damage arising out of one occurrence or
accident.
(ii) Fire and extended coverage in an amount adequate to cover
the cost of replacement of all personal property, fixtures, furnishings and
equipment, including Landlord's work pursuant to Schedule B and Tenant's
work (as referred to in Section 5.01), located in the Demised Premises.
(b) All such insurance shall (i) be effected under valid and
enforceable policies, (ii) be issued by insurers of recognized
responsibility authorized to do business in the State of New York, (iii)
contain a provision whereby the insurer agrees not to cancel the insurance
without at least thirty (30) days, prior written notice to Landlord, and
(iv) contain a provision that no act or omission of Tenant shall result in
forfeiture of the insurance as against Landlord.
On or before the Commencement Date, Tenant shall deliver to Landlord
duplicate originals of the aforesaid policies or certificates evidencing the
aforesaid insurance coverage, and renewal policies or certificates shall be
delivered to Landlord at least thirty (30) days prior to the expiration date of
each policy with proof of payment of the premiums therefor.
Section 9.04. Landlord and Tenant shall each secure an appropriate clause
in, or an endorsement upon, each fire and extended coverage policy obtained by
it and covering the Building, the Demised Premises or the personal property,
fixtures and equipment located therein or thereon, pursuant to which the
respective insurance companies waive subrogation or permit the insured, prior to
any loss, to agree with a third party to waive any claim it might have against
said third party. The waiver of subrogation or permission for waiver of any
claim herein before referred to shall extend to the agents of each party and its
employees and, in the case of Tenant, shall also extend to all other persons and
entities occupying or using the Demised Premises in accordance with the terms of
this lease. If and to the extent that such waiver or permission can be obtained
only upon payment of an additional charge, then, the party benefiting from the
waiver or permission shall pay such charge upon demand, or shall be deemed to
have agreed that the party obtaining the insurance coverage in question shall be
free of any further obligations under the provisions hereof relating to such
waiver or permission.
Subject to the foregoing provisions of this Section 9.04, and insofar as
may be permitted by the terms of the insurance policies carried by it, (i) each
party hereby releases the other with respect to any claim (including a claim for
negligence) which it might otherwise have against the other party for loss,
damages or destruction with respect to its property by fire or other casualty
(including rental value or business interruption, as the case may be) occurring
during the term of
<PAGE>
this Lease covered by insurance, and (ii) Tenant releases other tenants to the
extent that the policies of such other tenants permit a similar waiver for the
benefit of Tenant and such other tenant gives such a waiver.
ARTICLE 10
Damage by Fire or Other Cause
Section 10.01. If the Demised Premises or the Building shall be partially
damaged by fire (or other hazards included in extended coverage endorsements to
fire insurance policies covering property in the City of New York) the damage
shall be repaired by and at the expense of Landlord and the minimum rent until
such repairs shall be made, shall be apportioned according to the part of the
Demised Premises which is usable by Tenant; and if Tenant is unable to use all
of the Demised Premises although a part thereof remains undamaged, then all of
the minimum rent shall be abated until such repairs have been made. Landlord
shall have no responsibility to repair any damage to Landlord's work performed
pursuant to Schedule B or Tenant's work (as referred to in Section 5.01), the
same being the responsibility of Tenant. No penalty shall accrue for delays
which may arise by reason of adjustment of insurance by Landlord, unavoidable
delays (as hereinafter defined), or any other cause beyond Landlord's reasonable
control. Tenant shall give immediate notice to Landlord in case of fire or other
damage to the Demised Premises of which Tenant has knowledge. If the Demised
Premises are totally or substantially damaged or are rendered wholly or
substantially untenantable by fire or any such other casualty, and if Landlord
decides not to restore or rebuild the same, or if the Building shall be so
damaged that Landlord shall decide to demolish it or to rebuild it (whether or
not the Demised Premises shall have been damaged), Landlord at its election may,
within sixty (60) days after such fire or other casualty, notify Tenant of such
decision, and thereupon the term of this Lease shall expire by lapse of time
upon the third (3rd) day after such notice is given, and Tenant shall vacate and
surrender the Demised Premises to Landlord. Tenant hereby waives the provisions
of Section 227 of the Real Property Law, and the provisions of this Article
shall govern and control in lieu thereof. If the damage is due to the fault or
neglect of Tenant the debris shall be removed by, and at the expense of, Tenant.
Notwithstanding the foregoing, if Landlord does not substantially complete
such repairs within one hundred eighty (180) days following the date of such
casualty (subject to unavoidable delays as provided in Article 34), then Tenant
may elect to terminate this Lease by notice to Landlord within ten (10) days
following the expiration of such one hundred eighty (180) day period, and
thereupon the term of this Lease shall expire on the thirtieth (30th) day after
such notice is given, and Tenant shall vacate and surrender the Demised Premises
to Landlord, unless within such thirty (30) day period, Landlord substantially
completes such restoration or rebuilding in which event this Lease shall remain
in full force and effect.
Section 10.02. No damages or compensation shall be payable by Landlord nor
shall Tenant make any claim for inconvenience, loss of business or annoyance
arising from any repair or restoration of any portion of the Demised Premises or
of the Building. However, Landlord
<PAGE>
shall use reasonable efforts to restore the Demised Premises or the Building as
expeditiously as practicable and in a manner to minimize interference with
Tenant's business, provided Landlord shall not be obligated to employ overtime
or premium labor.
ARTICLE 11
Assignment, Subletting, Mortgaging
Section 11.01. Tenant will not, by operation of law or otherwise, assign,
mortgage or encumber this Lease or sublet or permit the Demised Premises or any
part thereof to be used by others, without Landlord's prior written consent in
each instance, which consent shall not be unreasonably withheld or delayed
subject to the provisions of Section 11.07. If this Lease be assigned, or if the
Demised Premises or any part thereof be underlet or occupied by anybody other
than Tenant, Landlord may, after default by Tenant, collect rent from the
assignee, undertenant or occupant, and apply the net amount collected to the
rent herein reserved, but no assignment, underletting, occupancy or collection
shall be deemed a waiver of the provisions hereof, the acceptance of the
assignee, undertenant or occupant as tenant, or a release of Tenant from the
further performance by Tenant of covenants on the part of Tenant herein
contained. The consent by Landlord to any assignment, subletting, mortgage or
encumbrance shall not in any manner be construed to relieve Tenant from
obtaining Landlord's express written consent to any other or further assignment,
subletting, mortgage or encumbrance. In no event shall any permitted sublessee
assign or encumber its sublease or further sublet all or any portion of its
sublet space, or otherwise suffer or permit the sublet space or any part thereof
to be used or occupied by others, without Landlord's prior written consent in
each instance.
Section 11.02. If Tenant shall at any time or times during the term of
this Lease desire to assign this Lease or sublet all or part of the Demised
Premises, Tenant shall give notice thereof to Landlord, which notice shall be
accompanied by (a) a conformed or photostatic copy of the proposed assignment or
sublease, the effective or commencement date of which shall be not less than 30
nor more than 180 days after the giving of such notice, (b) a statement setting
forth in reasonable detail the identity of the proposed assignee or subtenant,
the nature of its business and its proposed use of the Demised Premises, and (c)
current financial information with respect to the proposed assignee or
subtenant, including, without limitation, its most recent financial report. Such
notice shall be deemed an offer from Tenant to Landlord whereby Landlord (or
Landlord's designee) may, at its option, (i) sublease such space (hereinafter
called the "Leaseback Space") from Tenant upon the terms and conditions
hereinafter set forth (if the proposed transaction is a sublease of all or part
of the Demised Premises), (ii) terminate this Lease (if the proposed transaction
is an assignment or a sublease of all or substantially all of the Demised
Premises), or (iii) terminate this Lease with respect to the Leaseback Space (if
the proposed transaction is a sublease of part of the Demised Premises). Said
options may be exercised by Landlord by notice to Tenant at any time within
thirty (30) days after such notice has been given by Tenant to Landlord; and
during such thirty (30) day period Tenant shall not assign this Lease nor sublet
such space to any person.
<PAGE>
Section 11.03. If Landlord exercises its option to terminate this Lease in
the case where Tenant desires either to assign this Lease or sublet all or
substantially all of the Demised Premises, then, this Lease shall end and expire
on the date that such assignment or sublet was to be effective or commence, as
the case may be, and the minimum rent and additional rent shall be paid and
apportioned to such date and any payments with respect thereto made or to be
made by Tenant to such date shall be promptly returned to or paid by Tenant, as
the case may be.
Section 11.04. If Landlord exercises its option to terminate this Lease in
part in any case where Tenant desires to sublet part of the Demised Premises,
then, (a) this Lease shall end and expire with respect to such part of the
Demised Premises on the date that the proposed sublease was to commence; and (b)
from and after such date the minimum rent and additional rent shall be adjusted,
based upon the proportion that the rentable area of the Demised Premises
remaining bears to the total rentable area of the Demised Premises; and (c)
Tenant shall pay to Landlord, upon demand, the costs incurred by Landlord in
physically separating such part of the Demised Premises from the balance of the
Demised Premises and in complying with any laws and requirements of any public
authorities relating to such separation.
Section 11.05. If Landlord exercises its option to sublet the Leaseback
Space, such sublease to Landlord or its designee (as subtenant) shall be at the
lower of (i) the rental rate per rentable square foot of minimum rent and
additional rent then payable pursuant to this Lease or (ii) the rentals set
forth in the proposed sublease, and shall be for the same term as that of the
proposed subletting, and such sublease:
(a) shall be expressly subject to all of the covenants, agreements,
terms, provisions and conditions of this Lease except such as are
irrelevant or inapplicable, and except as otherwise expressly set forth to
the contrary in this Section;
(b) Such sublease shall be upon the same terms and conditions as
those contained in the proposed sublease, except such as are irrelevant or
inapplicable and except as otherwise expressly set forth to the contrary in
this Section;
(c) Such sublease shall give the sublessee the unqualified and
unrestricted right, without Tenant's permission, to assign such sublease or
any interest therein and/or to sublet the Leaseback Space or any part or
parts of the Leaseback Space and to make any and all changes, alterations,
and improvements in the space covered by such sublease at no cost or
liability to Tenant and if the proposed sublease will result in all or
substantially all of the Demised Premises being sublet, grant Landlord or
its designee the option to extend the term of such sublease for the balance
of the term of this Lease less one (1) day;
(d) Such sublease shall provide that any assignee or further
subtenant, of Landlord or its designee, may, at the election of Landlord,
be permitted to make alterations, decorations and installations in the
Leaseback Space or any part thereof and shall also provide in substance
that any such alterations, decorations and installations in the Leaseback
Space therein made by any assignee or subtenant of Landlord or its designee
may be removed, in whole or in part, by such assignee or subtenant, at its
<PAGE>
option, prior to or upon the expiration or other termination of such
sublease provided that such assignee or subtenant, at its expense, shall
repair any damage and injury to that portion of the Leaseback Space so
sublet caused by such removal; and
(e) Such sublease shall also provide that (i) the parties to such
sublease expressly negate any intention that any estate created under such
sublease be merged with any other estate held by either of said parties,
(ii) any assignment or subletting by Landlord or its designee (as the
subtenant) may be for any purpose or purposes that Landlord, in Landlord's
uncontrolled discretion, shall deem suitable or appropriate, (iii) Tenant,
at Tenant's expense, shall and will at all times provide and permit
reasonably appropriate means of ingress to and egress from the Leaseback
Space so sublet by Tenant to Landlord or its designee, (iv) Landlord, at
Tenant's expense, may make such alterations as may be required or deemed
necessary by Landlord to physically separate the Leaseback Space from the
balance of the Demised Premises and to comply with any laws and
requirements of public authorities relating to such separation, and (v)
that at the expiration of the term of such sublease, Tenant will accept the
space covered by such sublease in its then existing condition, subject to
the obligations of the sublessee to make such repairs thereto as may be
necessary to preserve the premises demised by such sublease in good order
and condition.
Section 11.06. (a) If Landlord exercises its option to sublet the
Leaseback Space, Landlord shall indemnify and save Tenant harmless from all
obligations under this Lease as to the Leaseback Space during the period of time
it is so sublet to Landlord.
b) Performance by Landlord, or its designee, under a sublease of the
Leaseback Space shall be deemed performance by Tenant of any similar
obligation under this Lease and any default under any such sublease shall
not give rise to a default under a similar obligation contained in this
Lease, nor shall Tenant be liable for any default under this Lease or
deemed to be in default hereunder if such default is occasioned by or
arises from any act or omission of the tenant under such sublease or is
occasioned by or arises from any act or omission of any occupant holding
under or pursuant to any such sublease.
(c) Tenant shall have no obligation, at the expiration or earlier
termination of the term of this Lease, to remove any alteration,
installation or improvement made in the Leaseback Space by Landlord.
Section 11.07. In the event Landlord does not exercise an option provided
to it pursuant to Section 11.02 and provided that Tenant is not in default of
any of Tenant's obligations under this Lease, Landlord's consent (which must be
in writing and in form reasonably satisfactory to Landlord) to the proposed
assignment or sublease shall not be unreasonably withheld or delayed, provided
and upon condition that:
(a) Tenant shall have complied with the provisions of Section 11.02
and Landlord shall not have exercised any of its options under said Section
11.02 within the time permitted therefor;
<PAGE>
(b) The proposed assignee or subtenant is engaged in a business and
the Demised Premises, or the relevant part thereof, will be used in a
manner which (i) is limited to the use expressly permitted under Sections
4.01 and 4.02 of this Lease, and (ii) is in keeping with the then standards
of the Building;
(c) The proposed assignee or subtenant is a reputable person or
entity with sufficient financial worth considering the responsibility
involved, and Landlord has been furnished with reasonable proof thereof;
(d) Neither (i) the proposed assignee or sublessee nor (ii) any
person which, directly or indirectly, controls, is controlled by or is
under common control with, the proposed assignee or sublessee, is then an
occupant of any part of the Building;
(e) The proposed assignee or sublessee is not a person with whom
Landlord is currently negotiating to lease space in the Building;
(f) The proposed sublease shall be in form reasonably satisfactory to
Landlord and shall comply with the provisions of this Article;
(g) At any one time there shall not be more than two (2) subtenants
(including Landlord or its designee) in the Demised Premises;
(h) Tenant shall reimburse Landlord on demand for any reasonable
costs that may be incurred by Landlord in connection with said assignment
or sublease, including costs incurred for obtaining financial and credit
reports of the proposed assignee or subtenant, and reasonable attorneys'
fees incurred in connection with the granting of any requested consent; and
(i) Tenant shall not have (i) advertised the Demised Premises for
subletting or assignment without prior notice to Landlord, nor (ii) listed
the same with a broker, agent or representative other than the then
managing agent of the Building or other agent designated by Landlord, or
otherwise, at a rental rate less than the minimum rent or additional rent
at which Landlord is then offering to lease other space in the Building.
Except for any subletting by Tenant to Landlord or its designee pursuant to
the provisions of this Article, each subletting pursuant to this Article shall
be subject to all of the covenants, agreements, terms, provisions and conditions
contained in this Lease. Notwithstanding any such subletting to Landlord or any
such subletting to any other subtenant and/or acceptance of rent or additional
rent by Landlord from any subtenant, Tenant shall and will remain fully liable
for the payment for the minimum rent and additional rent due and to become due
hereunder and for the performance of all the covenants, agreements, terms,
provisions and conditions contained in this Lease on the part of Tenant to be
performed and all acts and omissions of any subtenant or anyone claiming under
or through any subtenant which shall be in violation of any of the obligations
of this Lease, and any such violation shall be deemed to be a violation by
Tenant. Tenant further agrees that notwithstanding any such subletting, no other
and further subletting of the Demised Premises by Tenant or any person claiming
through or under Tenant (except as
<PAGE>
provided in Section 11.05) shall or will be made except upon compliance with and
subject to the provisions of this Article. If Landlord shall decline to give its
consent to any proposed assignment or sublease, unless such consent is
unreasonably withheld, or if Landlord shall exercise any of its options under
Section 11.02, Tenant shall indemnify, defend and hold harmless Landlord against
and from any and all losses, liability, damages, costs and expenses (including
reasonable counsel fees) resulting from any claims that may be made against
Landlord by the proposed assignee or sublessee or by any brokers or other
persons claiming a commission or similar compensation in connection with the
proposed assignment or sublease.
Section 11.08. In the event that (a) Landlord fails to exercise any of its
options under Section 11.02 and consents to a proposed assignment or sublease,
and (b) Tenant fails to execute and deliver the assignment or sublease to which
Landlord consented within ninety (90) days after the giving of such consent,
then, Tenant shall again comply with all of the provisions and conditions of
Section 11.02 before assigning this Lease or subletting all or part of the
Demised Premises.
Section 11.09. With respect to each and every sublease or subletting
authorized by Landlord under the provisions of this Lease, it is further agreed:
(a) No subletting shall be for a term ending later than one day prior
to the expiration date of this Lease;
(b) No sublease shall be valid, and no subtenant shall take
possession of the Premises or any part thereof, until an executed
counterpart of such sublease has been delivered to Landlord;
(c) Each sublease shall provide that it is subject and subordinate to
this Lease and to the matters to which this Lease is or shall be
subordinate, and that in the event of termination, re-entry or dispossess
by Landlord under this Lease Landlord may, at its option, take over all of
the right, title and interest of Tenant, as sublessor, under such sublease,
and such subtenant shall, at Landlord's option, attorn to Landlord pursuant
to the then executory provisions of such sublease, except that Landlord
shall not (i) be liable for any previous act or omission of Tenant under
such sublease, (ii) be subject to any offset, not expressly provided in
such sublease, which thereto accrued to such subtenant against Tenant, or
(iii) be bound by any previous modification of such sublease or by any
previous prepayment of more than one month's rent.
Section 11.10. If Landlord gives its consent to any assignment of this
Lease or to any sublease, Tenant shall, in consideration therefor, pay to
Landlord, as additional rent:
(a) in the case of an assignment, an amount equal to all sums and
other considerations paid to Tenant from the assignee for such assignment
(including, but not limited to sums paid for the sale of Tenant's fixtures
to the extent the amount allocated to such fixtures exceeds its then fair
market value, leasehold improvements, less, in case of a sale thereof, the
then net unamortized or undepreciated cost thereof determined on the basis
of Tenant's federal income tax returns). The sums payable to Landlord under
this
<PAGE>
Section 11.10 (a) shall be paid to Landlord as and when paid by the
assignee to Tenant; and
(b) in the case of a sublease, an amount equal to one-half of the
rents and charges and other consideration payable under the sublease to
Tenant by the subtenant which is in excess of the minimum rent accruing
during the term of the sublease in respect of the subleased space (at the
rate per square foot payable by Tenant hereunder) pursuant to the terms of
this Lease (including, but not limited to, sums paid for the sale or rental
of Tenant's fixtures to the extent the amount allocated to such fixtures
exceeds its then fair market value, leasehold improvements, less, in the
case of the sale thereof, the then net unamortized or undepreciated cost
thereof determined on the basis of Tenant's federal income tax returns).
The sums payable to Landlord under this Section 11.10(b) shall be paid to
Landlord as and when paid by the subtenant to Tenant.
Section 11.11. If Tenant is a corporation, partnership, or other
entity, the provisions of Section 11.01 shall apply to a transfer (by one or
more transfers) of a majority of the stock or other ownership interests in
Tenant (but excluding a transfer of stock or partnership interest to the heirs,
executors, trustees or other legal representatives of any individual stockholder
or partner of Tenant), as the case may be, as if such transfer of a majority of
the stock or ownership interests of Tenant were an assignment of this Lease; but
said provisions and the provisions of Section 11.02 shall not apply to
transactions with a corporation or partnership into or with which Tenant is
merged or consolidated or to which substantially all of Tenant's assets are
transferred or to any corporation which controls or is controlled by Tenant or
is under common control with Tenant, provided that in any of such events, (i)
the successor to Tenant has a net worth computed in accordance with generally
accepted accounting principles at least equal to the greater of (1) the net
worth of Tenant immediately prior to such merger, consolidation or transfer, or
(2) the net worth of tenant herein named on the date of this Lease, and (ii)
proof satisfactory to Landlord of such net worth shall have been delivered to
Landlord at least ten (10) days prior to the effective date of any such
transaction.
Section 11.12. Any assignment or transfer, whether made with
Landlord's consent pursuant to Section 11.01 or without Landlord's consent
pursuant to Section 11.11, shall be made only if, and shall not be effective
until, the assignee shall execute, acknowledge and deliver to Landlord an
agreement in form and substance reasonably satisfactory to Landlord whereby the
assignee shall assume the obligations of this Lease on the part of Tenant to be
performed or observed and whereby the assignee shall agree that the provisions
in Section 11.01 shall, notwithstanding such assignment or transfer, continue to
be binding upon it in respect of all future assignments and transfers. The
original named Tenant covenants that, notwithstanding any assignment or
transfer, whether or not in violation of the provisions of this Lease, and
notwithstanding the acceptance of minimum rent and/or additional rent by
Landlord from an assignee, transferee, or any other party, the original named
Tenant shall remain fully liable for the payment of the minimum rent and
additional rent and for the other obligations of this Lease on the part of
Tenant to be performed or observed.
<PAGE>
Section 11.13. The joint and several liability of Tenant and any immediate
or remote successor in interest of Tenant and the due performance of the
obligations of this Lease on Tenant's part to be performed or observed shall not
be discharged, released or impaired in any respect by any agreement or
stipulation made by Landlord extending the time of, or modifying any of the
obligations of, this Lease, or by any waiver or failure of Landlord, to enforce
any of the obligations of this Lease.
Section 11.14. The listing of any name other than that of Tenant, whether
on the doors of the Demised Premises or the Building directory, or otherwise,
shall not operate to vest any right or interest in this Lease or in the Demised
Premises, nor shall it be deemed to be the consent of Landlord to any assignment
or transfer of this Lease or to any sublease of the Demised Premises or to the
use or occupancy thereof by others.
ARTICLE 12
No Liability of Landlord and Indemnity by Tenant
Section 12.01. Tenant shall indemnify Landlord, its agents, contractors
and employees against and save Landlord, its agents, contractors and employees
harmless from any liability to and claim by or on behalf of any person, firm,
governmental authority, corporation or entity for personal injury, death or
property damage, arising: (a) from the use by Tenant of the Demised Premises or
from any work whatsoever done or omitted to be done by Tenant, its employees,
agents, contractors, customers, invitees or visitors, or from any accident
thereat, unless due solely to the negligence or willful act of Landlord, its
agents, contractors or employees; and (b) from any breach or default by Tenant
of and under any of the terms, covenants and conditions of this Lease.
Tenant shall also indemnify Landlord, its agents, contractors and employees
against and save Landlord, its agents, contractors and employees harmless from
all costs, reasonable counsel fees, expenses and penalties incurred by Landlord,
its agents, contractors and employees in connection with any such liability or
claim.
If any action or proceeding shall be brought against Landlord in connection
with any such liability or claim, Tenant, on notice from Landlord, shall defend
such action or proceeding, at Tenant's expense, by counsel reasonably
satisfactory to the Landlord. Counsel for Tenant's insurance carrier is
satisfactory.
Section 12.02. Landlord shall not be liable for any damage to property of
Tenant or of others entrusted to employees of the Building, nor for the loss of
or damage to any property of Tenant by theft or otherwise, unless due to or
caused solely by the negligence or willful act of Landlord, its agents,
contractors or employees. Landlord and its agents shall not be liable for any
injury or damage to persons or property resulting from fire, explosion, falling
plaster, steam, gas, electricity, water, rain or snow or leaks from any part of
the Building or from the pipes, appliances or plumbing works or from the roof,
street or sub-surface or from any other place or by dampness or by any other
cause of whatsoever nature, unless due to or caused solely by the
<PAGE>
negligence or willful act of Landlord, its agents, contractors or employees; nor
shall Landlord be liable for any such damage caused by other tenants or persons
in the Building or caused by operations in construction of any public or quasi-
public work; nor shall Landlord be liable for any latent defect in the Demised
Premises or in the Building. If, at any time any windows of the Demised Premises
are permanently closed, darkened or bricked up in accordance with the
requirements of law or are temporarily darkened or closed by reason of repairs,
alterations or maintenance by Landlord, Landlord shall not be liable for any
damage Tenant may sustain thereby and Tenant shall not be entitled to any
compensation therefor nor abatement of rent nor shall the same release Tenant
from its obligations hereunder nor constitute an eviction. (Reference
hereinabove to Landlord shall for all purposes be deemed to include the Lessor
as defined in Article 25.)
Tenant shall reimburse and compensate Landlord, as additional rent, within
five (5) days after rendition of a statement for all expenditures made by or
damages or fines sustained or incurred by Landlord due to any default by Tenant
under this Lease.
Tenant shall give immediate notice to Landlord upon its discovery of
accidents in the Demised Premises, the Building or the building equipment.
Section 12.03. If in this Lease it is provided that Landlord's consent or
approval as to any matter will not be unreasonably withheld, and it is
established by a court or body having final jurisdiction thereover that Landlord
has been unreasonable, the only effect of such finding shall be that Landlord
shall be deemed to have given its consent or approval; but Landlord shall not be
liable to Tenant in any respect for money damages by reason of withholding its
consent.
ARTICLE 13
Moving of Heavy Equipment
Tenant shall not move any safe, heavy equipment or bulky matter in or out
of the Building without Landlord's written consent, which shall not be
unreasonably withheld or delayed. If the movement of such items requires special
handling, Tenant agrees to employ only persons holding a Master Rigger's License
to do said work and all such work shall be done in full compliance with the
Administrative Code of the City of New York and other municipal requirements.
All such movements shall be made during hours which will least interfere with
the normal operations of the Building, and all damage caused by such movement
shall be promptly repaired by Tenant at Tenant's expense.
ARTICLE 14
Condemnation
Section 14.01. In the event that the whole of the Demised Premises shall
be condemned or taken in any manner for any public or quasi-public use, this
Lease and the term and estate
<PAGE>
hereby granted shall forthwith cease and terminate as of the date of vesting of
title. In the event that only a part of the Demised Premises shall be so
condemned or taken, then, effective as of the date of vesting of title, the
minimum rent and all additional rent hereunder for such part shall be equitably
abated and this Lease shall continue as to such part not so taken. In the event
that only a part of the Building shall be so condemned or taken, then (a) if
substantial structural alteration or reconstruction of the Building shall, in
the reasonable opinion of Landlord, be necessary or appropriate as a result of
such condemnation or taking (whether or not the Demised Premises be affected),
Landlord may, at its option, terminate this Lease and the term and estate hereby
granted as of the date of such vesting of title by notifying Tenant in writing
of such termination within ninety (90) days of following the date on which
Landlord shall have received notice of vesting of title, or (b) if Landlord does
not elect to terminate this Lease, as aforesaid, this Lease shall be and remain
unaffected by such condemnation or taking, except that the minimum rent and
additional rent shall be abated to the extent, if any, hereinbefore provided. In
the event that only a part of the Demised Premises shall be so condemned or
taken and this Lease and the term and estate hereby granted are not terminated
as hereinbefore provided, Landlord, out of the portion of the award allocated
for such purpose and to the extent such award is sufficient, will restore with
reasonable diligence the remaining portions of the Demised Premises as nearly as
practicable to the same condition as it was in prior to such condemnation or
taking.
Section 14.02. In the event of termination in any of the cases hereinabove
provided, this Lease and the term and estate hereby granted shall expire as of
the date of such termination with the same effect as if that were the Expiration
Date and the rent hereunder shall be apportioned as of such date.
Section 14.03. In the event of any condemnation or taking hereinabove
mentioned of all or a part of the Building, Landlord shall be entitled to
receive the entire award in the condemnation proceeding, including any award
made for the value of the estate vested by this. Lease in Tenant, and Tenant
hereby expressly assigns to Landlord any and all right, title and interest of
Tenant now or hereafter arising in or to any such award or any part thereof, and
Tenant shall be entitled to receive no part of such award.
ARTICLE 15
Entry, Right to Change Public Portions of the Building
Section 15.01. Tenant shall permit Landlord, to erect, use and maintain
pipes and conduits in and through the walls, ceiling or below the floors of the
Demised Premises. Landlord, or its agents or designee, shall have the right to
enter the Demised Premises, for the purpose of making such repairs or
alterations as Landlord shall desire, shall be required or shall have the right
to make under the provisions of this Lease; and shall also have the right to
enter the Demised Premises at reasonable times upon prior reasonable notice to
Tenant (except no notice in an emergency), for the purpose of inspecting them or
exhibiting them to prospective purchasers or lessees of the Building or to
prospective mortgagees or to prospective assignees of any such mortgagees.
Landlord shall be allowed to take all material into and upon the Demised
<PAGE>
Premises that may be required for the repairs or alterations above mentioned
without the same constituting an eviction of Tenant in whole or in part and the
rent reserved shall in no wise abate, while said repairs or alterations are
being made. However, Landlord shall use reasonable efforts to perform such
repairs or alterations in a manner to cause minimum interference with the
conduct of Tenant's business, provided Landlord shall not be obligated to employ
overtime or premium labor.
Section 15.02. During the twelve (12) months prior to the expiration of
the term of this Lease, Landlord may exhibit the Demised Premises to prospective
tenants, at reasonable times upon reasonable notice.
Section 15.03. Landlord shall have the right at any time without thereby
creating an actual or constructive eviction or incurring any liability to Tenant
therefor, to change the arrangement or location of, but not limited to, such of
the following as are not contained within the Demised Premises: entrances,
passageways, doors and doorways, corridors, elevators, stairs, toilets, and
other like public service portions of the Building, provided the same shall not
materially interfere with Tenant's access to the Demised Premises.
Section 15.04. Landlord shall have the right at any time to name the
Building as it desires and to change any and all such names at any time
thereafter.
ARTICLE 16
Conditional Limitations, Etc.
Section 16.01. If at any time during the term of this Lease:
(a) Tenant shall file a petition in bankruptcy or insolvency or for
reorganization or arrangement or for the appointment of a receiver of all
or a portion of Tenant's property, and such petition shall not be vacated,
withdrawn or discharged within ninety (90) days after the date of filing
thereof; or
(b) Any petition of the kind referred to in subdivision (a) of this
Section shall be filed against Tenant and such petition shall not be
vacated or withdrawn or discharged within ninety (90) days after the date
of filing thereof, or
(c) Tenant shall be adjudicated a bankrupt by any court, or
(d) Tenant shall make an assignment for the benefit of creditors, or
(e) a permanent receiver shall be appointed for the property of
Tenant by order of a court of competent jurisdiction by reason of the
insolvency of Tenant (except where such receiver shall be appointed in an
involuntary proceeding, if he shall not be withdrawn within ninety (90)
days after the date of his appointment),
<PAGE>
then Landlord at Landlord's option, may terminate this Lease on five (5) days'
notice to Tenant, and upon such termination, Tenant shall quit and surrender the
Demised Premises to Landlord.
Section 16.02. (a) If Tenant assumes this Lease and proposes to assign the
same pursuant to the provisions of the Bankruptcy Code, 11 U.S.C. (S) 101 et
seq. (the "Bankruptcy Code") to any person or entity who shall have made a bona
fide offer to accept an assignment of this Lease on terms acceptable to Tenant,
then notice of such proposed assignment, setting forth (i) the name and address
of such person, (ii) all of the terms and conditions of such offer, and (iii)
the adequate assurance to be provided Landlord to assure such person's future
performance under the Lease, including, without limitation, the assurance
referred to in section 365(b)(3) of the Bankruptcy Code, shall be given to
Landlord by Tenant not later than twenty (20) days after receipt by Tenant but
in no event later than ten (10) days prior to the date that Tenant shall made
application to a court of competent jurisdiction for authority and approval to
enter into such assignment and assumption, and Landlord shall thereupon have the
prior right and option, to be exercised by notice to Tenant given at any time
prior to the effective date of such proposed assignment, to accept an assignment
of this Lease upon the same terms and conditions and for the same consideration,
if any, as the bona fide offer made by such person, less any brokerage,
commissions which may be payable out of the consideration to be paid by such
person for the assignment of this Lease.
(b) If this Lease is assigned to any person or entity pursuant to the
provisions of the Bankruptcy Code, any and all monies or other
considerations payable or otherwise delivered in connection with such
assignment shall be paid or delivered to Landlord, shall be and remain the
exclusive property of Landlord and shall not constitute property of Tenant
or of the estate of Tenant within the meaning of the Bankruptcy Code. Any
and all monies or other considerations constituting Landlord's Property
under the preceding sentence not paid or delivered to Landlord shall be
held in trust for the benefit of Landlord and shall be promptly paid to
Landlord.
(c) Any person or entity to which this Lease is assigned pursuant to
the provisions of the Bankruptcy Code, shall be deemed without further act
or deed to have assumed all of the obligations arising under this Lease on
and after the date of such assignment. Any such assignee shall upon demand
execute and deliver to Landlord an instrument confirming such assumption.
(d) Nothing contained in this Section shall, in any way, constitute a
waiver of the provisions of this Lease relating to assignment. Tenant shall
not, by virtue of this Section, have any further rights relating to
assignment other than those granted in the Bankruptcy Code.
(e) Notwithstanding anything in this Lease to the contrary, all
amounts payable by Tenant to or on behalf of Landlord under this Lease,
whether or not expressly denominated as rent, shall constitute rent for the
purposes of Section 502(b)(6) of the Bankruptcy Code.
<PAGE>
(f) The term "Tenant" as used in this Section includes any trustee,
debtor in possession, receiver, custodian or other similar officer.
Section 16.03. If this Lease shall terminate pursuant to the provisions
of Section 16.01:
(a) Landlord shall be entitled to recover from Tenant arrears in
minimum rent and additional rent and, in addition thereto as liquidated damages,
an amount equal to the difference between the minimum rent and additional rent
for the unexpired portion of the term of this Lease which had been in force
immediately prior to the termination effected under Section 16.01 of this
Article and the fair and the reasonable rental value of the Demised Premises, on
the date of termination, for the same period, both discounted at the rate of
eight (8%) percent per annum to the date of termination; or
(b) Landlord shall be entitled to recover from Tenant arrears in
minimum rent and additional rent and, in addition thereto as liquidated damages,
an amount equal to the maximum allowed by statute or rule of law in effect at
the time when and governing the proceedings in which such damages are to be
proved, whether or not such amount be greater or less than the amount referred
to in subdivision (a) of this Section.
Section 16.04.
(a) If Tenant shall fail to make any payment of any minimum rent or
additional rent when the same becomes due and payable, or if the Demised
Premises become vacant or deserted, or if Tenant shall fail to cancel or
discharge any mechanic's or other lien as provided in Section 17.02, and if any
such default shall continue uncured for a period of seven (7) business days
after written notice, or
(b) If Tenant shall be in default in the performance of any of the
other terms, covenants and conditions of this Lease and such default shall not
have been remedied within thirty (30) days after notice by Landlord to Tenant
specifying such default and requiring it to be remedied; or where such default
reasonably cannot be remedied within such period of thirty (30) days, if Tenant
shall not have commenced the remedying thereof within such period of time and
shall not be proceeding with reasonable diligence to remedy it,
then Landlord, at Landlord's election, may terminate this Lease on five (5)
days' notice to Tenant, and upon such termination Tenant shall quit and
surrender the Demised Premises to Landlord.
Section 16.05. If this Lease shall terminate as provided in this Article,
or if Tenant shall be in default in the payment of minimum rent or additional
rent when the same become due and payable and such default shall continue for a
period of seven (7) business days after written notice,
(a) Landlord may re-enter and resume possession of the Demised
Premises and remove all persons and property therefrom either by summary
dispossess proceedings
<PAGE>
or by a suitable action or proceeding, at law or in equity, by force or
otherwise, without being liable for any damages therefor, and
(b) Landlord may re-let the whole or any part of the Demised Premises
for a period equal to, greater or less than the remainder of the then term of
this Lease, at such rental and upon such terms and conditions as Landlord shall
deem reasonable to any tenant it may deem suitable and for any use and purpose
it may deem appropriate. Landlord shall not be liable in any respect for failure
to re-let the Demised Premises or, in the event of such re-letting, for failure
to collect the rent thereunder and any sums received by Landlord on a re-letting
in excess of the rent reserved in this Lease shall belong to Landlord.
Section 16.06. If this Lease shall terminate as provided in this Article
or by summary proceedings (except as to any termination under Section 16.01),
Landlord shall be entitled to recover from Tenant as damages, in addition to
arrears in minimum rent and additional rent,
(a) an amount equal to (i) all expenses incurred by Landlord in
recovering possession of the Demised Premises and in connection with the re-
letting of the Demised Premises, including, without limitation, the reasonable
cost of repairing, renovating or remodeling the Demised Premises, and (ii) all
reasonable brokers' commissions and legal fees incurred by Landlord in re-
letting the Demised Premises, which amounts set forth in this subdivision (a)
shall be due and payable by Tenant to Landlord at such time or times as they
shall have been incurred; and
(b) an amount equal to the deficiency between the minimum rent and
additional rent which would have become due and payable had this Lease not
terminated and the net amount, if any, of rent collected by Landlord on re-
letting the Demised Premises. The amounts specified in this subdivision shall be
due and payable by Tenant in monthly installments on the several days on which
such minimum rent and additional rent would have become due and payable had
this Lease not terminated. Tenant consents that Landlord shall be entitled to
institute separate suits or actions or proceedings for the recovery of such
amount or amounts, and Tenant hereby waives the right to enforce or assert the
rule against splitting a cause of action as a defense thereto.
Landlord, at its election, at any time after such termination of this
Lease, may collect from Tenant and Tenant shall pay, in lieu of the sums
becoming due, under the provisions of subdivision (b) of this Section, an amount
equal to the difference between the minimum rent and additional rent which would
have become due and payable had this Lease not terminated (from the date of the
service of such notice to the end of the term of this Lease which had been in
force immediately prior to any termination effected under this Article) and the
then fair and reasonable rental value of the Demised Premises for the same
period, both discounted to the date of the service of such notice at the rate of
eight (8%) percent per annum.
Section 16.07. Tenant, for itself and for all persons claiming through or
under it, hereby waives any and all rights which are or may be conferred upon
Tenant by any present or future
<PAGE>
law to redeem the Demised Premises after a warrant to dispossess shall have been
issued or after judgment in an action of ejectment shall have been made and
entered.
Section 16.08. The words "re-enter" and "re-entry", as used in this
Article, are not restricted to their technical legal meanings.
Section 16.09. Landlord shall not be required to give any notice of its
intention to re-enter, except as otherwise provided in this Lease.
Section 16.10. If this Lease shall terminate as provided in this Article
or by summary proceedings or otherwise, Landlord, in addition to any other
rights under this Article, shall be entitled to recover as damages, (a) the cost
of performing any work required to be done by Tenant under this Lease; and (b)
the cost of placing the Demised Premises in the same condition as that in which
Tenant is required to surrender them to Landlord under this Lease.
Section 16.11. In any action or proceeding brought by Landlord against
Tenant, predicated on a default in the payment of minimum rent or additional
rent, Tenant shall not have the right to and shall not interpose any set-off or
counterclaim of any kind whatsoever, except for mandatory counterclaims. Subject
to such exceptions, if Tenant has any claim, Tenant shall be entitled only to
bring an independent action therefor; and if such independent action is brought
by Tenant, Tenant shall not be entitled to and shall not consolidate it with any
pending action or proceeding brought by Landlord against Tenant for a default in
the payment of minimum rent or additional rent.
ARTICLE 17
Mechanic's Liens
Section 17.01. If, subject to and notwithstanding Landlord's consent as
required under this Lease, Tenant shall cause any changes, alterations,
additions, improvements, installations or repairs to be made to or at the
Demised Premises or shall cause any labor to be performed or material to be
furnished in connection therewith, neither Landlord nor the Demised Premises,
under any circumstances, shall be liable for the payment of any expense incurred
or for the value of any work done or material furnished, and all such changes,
alterations, additions, improvements, installations and repairs and labor and
material shall be made, furnished and performed upon Tenant's credit alone and
at Tenant's expense, and Tenant shall be solely and wholly responsible to
contractors, laborers, and materialmen furnishing and performing such labor and
material. Nothing contained in this Lease shall be deemed or construed in any
way as constituting the consent or request of Landlord, express or implied, to
any contractor, laborer or materialman to furnish to perform any such labor or
material.
Section 17.02. If, because of any act or omission (or alleged act or
omission) of Tenant, any mechanic's or other lien, charge or order for the
payment of money shall be filed against the Demised Premises or the Building or
Landlord's estate as tenant under any ground or underlying lease (whether or not
such lien, charge or order is valid or enforceable as such), Tenant, at
<PAGE>
Tenant's expense, shall cause it to be cancelled or discharged of record by
bonding or otherwise within twenty (20) days after such filing, and Tenant shall
indemnify Landlord against and save Landlord harmless from and shall pay all
costs, expenses, losses, fines and penalties, including, without limitation,
reasonable attorneys' fees, resulting therefrom.
ARTICLE 18
Landlord's Right to Perform Obligations
If Tenant shall default, after any applicable notice and expiration of any
applicable cure period, in the performance of any of the terms, covenants and
conditions of this Lease, Landlord, without being under any obligation to do so
and without hereby waiving such default, may remedy such default for the account
and at the expense of Tenant. Any reasonable payment made or reasonable expense
incurred by Landlord for such purpose (including, but not limited to, reasonable
attorneys' fees) with interest at the maximum legal rate, shall be deemed to be
additional rent hereunder and shall be paid by Tenant to Landlord on demand, or
at Landlord's election, added to any subsequent installment or installments of
minimum rent.
ARTICLE 19
Covenant of Quiet Enjoyment
Landlord covenants that upon Tenant paying the minimum rent and additional
rent and observing and performing all the terms, covenants and conditions of
this Lease on Tenant's part to be observed and performed, Tenant may peaceably
and quietly enjoy the Demised Premises, subject nevertheless to the terms and
conditions of this Lease, and provided, however, that no eviction of Tenant by
reason of the foreclosure of any mortgage now or hereafter affecting the Demised
Premises or by reason of any termination of any ground or underlying lease to
which this Lease is subject and subordinate, whether such determination is by
operation of law, by agreement or otherwise, shall be construed as a breach of
this covenant nor shall any action be brought against Landlord by reason
thereof.
ARTICLE 20
Excavation
In the event that construction is to be commenced or an excavation is made
or authorized for building or other purposes upon land adjacent to the Building,
Tenant shall, if necessary, afford to the person or persons causing or
authorized to commence construction or cause such excavation or to engage in
such other purpose, license to enter upon the Demised Premises, at reasonable
times and upon prior reasonable notice (except no notice in an emergency), for
the purpose of doing such work as shall reasonably be necessary to protect or
preserve the Building,
<PAGE>
from injury or damage and to support the Building and any new structure to be
built by proper foundations, pinning and/or underpinning, or otherwise.
ARTICLE 21
Services and Equipment
Section 21.01. So long as Tenant is in lawful possession of the Demised
Premises, Landlord shall, at its cost and expense:
(a) Provide operatorless passenger elevator service Mondays through
Fridays from 9:00 A.M. to 6:00 P.M., holidays excepted. A passenger elevator
will be available at all other times. A service elevator shall be available
Mondays through Fridays, holidays excepted, only from 8:00 A.M. to 12:00 P.M.
and 1:00 P.M. to 5:00 P.M.
(b) Maintain and keep in good order and repair the central heating,
ventilating and air-conditioning system installed by Landlord. The system will
be operated by Landlord on Mondays through Fridays, holidays excepted, from 9:00
A.M. to 6:00 P.M.
(c) Subject to the provisions of Article 23, furnish electric energy
to the Demised Premises.
(d) Provide Building standard cleaning services in the Demised
Premises and public portions of the Building, except no services shall be
performed Saturdays, Sundays and holidays, in accordance with Schedule "E"
annexed hereto and made part hereof.
(e) Furnish hot and cold water for lavatory and drinking purposes. If
Tenant requires, uses or consumes water for any other purposes, Landlord may
install a meter or meters or other means to measure Tenant's water consumption,
and Tenant shall reimburse Landlord for the cost of the meter or meters and the
installation thereof, and shall pay for the maintenance of said meter equipment
and/or pay Landlord's cost of other means of measuring such water consumption by
Tenant. Tenant shall pay to Landlord on demand the cost of all water consumed as
measured by said meter or meters or as otherwise measured, including sewer rents
in its proportionate share.
(f) If Tenant shall require and request any of the foregoing services
at times other than above provided, and if such request is made at least 48
hours prior to the time when such additional services are required, Landlord
will provide them and Tenant shall pay to Landlord promptly thereafter the
charges therefor at the then Building standard rate charged to other tenants in
the Building.
If Tenant shall request Landlord to furnish any services in addition to
those hereinabove provided or perform any work not required under this Lease,
and Landlord agrees to furnish and/or perform the same, Tenant shall pay to
Landlord promptly thereafter the charges therefor, which charges are deemed to
be additional rent and payable as such.
<PAGE>
Section 21.02. Holidays shall be deemed to mean all federal holidays,
state holidays, Building Service Employees Union Contract holidays and all other
applicable union contract holidays.
Section 21.03. Landlord reserves the right to interrupt, curtail or
suspend the services required to be furnished by Landlord under this Lease when
the necessity therefor arises by reason of accident, emergency, mechanical
breakdown, or when required by any law, order or regulation of any Federal,
State, County or Municipal authority, or for any other cause beyond the
reasonable control of Landlord. Landlord shall use due diligence to complete all
required repairs or other necessary work as quickly as possible so that Tenant's
inconvenience resulting therefrom may be for as short a period of time as
circumstances will reasonably permit. Tenant shall not be entitled to nor shall
Tenant make claim for any diminution or abatement of minimum rent or additional
rent or other compensation, nor shall this Lease or any of the obligations of
Tenant be affected or reduced by reason of such interruption, curtailment,
suspension, work or inconvenience.
Section 21.04. Tenant shall reimburse Landlord promptly upon demand for
the cost to Landlord of removal from the Demised Premises and the Building of
any refuse and rubbish of Tenant not covered by the Cleaning Specifications and
Tenant shall pay all bills therefor when rendered.
Section 21.05. If Tenant shall request Landlord to furnish any services
in addition to those hereinabove provided or perform any work not required under
this Lease, and Landlord agrees to furnish and/or perform the same, Tenant shall
pay to Landlord promptly thereafter the charges therefor, which charges are
deemed to be additional rent and payable as such.
Section 21.06. Tenant shall have access to the Building twenty-four (24)
hours per day, seven (7) days per week, subject to emergencies and requirements
of law.
ARTICLE 22
Escalation
Section 22.01. Taxes. Landlord advises Tenant that the Lessor under the
Net Lease referred to in Article 25 is exempt from real property taxes pursuant
to Section 46B of the Education Law. However, Landlord, as Lessee under the Net
Lease, is obligated to pay as additional rent in each lease year thereof a sum
equivalent to the amount of real property taxes which would have been payable in
each such lease year with respect to the premises covered by the Net Lease and
the Building if they were not exempt from such taxes. Such payments are
described in the Net Lease as "tax equivalency" and the amounts thereof are
established in accordance with a formula prescribed in the Net Lease. Tenant
shall pay to Landlord, as additional rent, tax escalation in accordance with
this Section:
(a) Definitions: For the purpose of this Section, the following
definitions shall apply:
<PAGE>
(i) The term "Tax Base Factor" shall mean the real estate taxes
for the Building Project for the period from July 1, 1995 to June 30, 1996.
(ii) The term "The Building Project" shall mean the premises
covered by the Net Lease and the entire Building thereon.
(iii) The term "comparative tax year" shall mean the New York
City real estate tax year commencing on July 1, 1996 and each subsequent
New York City real estate tax year. If the present use of July 1 - June 30
New York City real estate tax year shall hereafter be changed, then such
changed tax year shall be used with appropriate adjustment for the
transition.
(iv) The term "real estate taxes" shall mean the amount
established under the Net Lease as tax equivalency for the entire premises
covered by the Net Lease and the entire Building (including, without
limitation, the space in the Building heretofore sublet to United Medical
Service, Inc. now known as Blue Cross and Blue Shield of Greater New York
"Blue Cross"). If, due to a future change in the method of taxation or in
the taxing authority, or for any other reason, a franchise, income,
transit, profit or other tax or governmental imposition, however
designated, shall be levied against Landlord in substitution in whole or in
part for the real estate taxes, or in lieu of or additions to or increases
of said real estate taxes, then such franchise, income, transit, profit or
other tax or governmental imposition shall be deemed to be included within
the definition of "real estate taxes" for the purposes hereof.
(v) The term "the Percentage" for purposes of computing tax
escalation, shall mean 1.6%.
(b) (i) In the event that the real estate taxes payable for any
comparative tax year shall exceed the Tax Base Factor, Tenant shall pay to
Landlord, as additional rent for such comparative tax year, an amount for tax
escalation equal to the Percentage of the excess. Before or after the start of
each comparative year, Landlord shall furnish to Tenant a statement of the real
estate taxes payable for such comparative tax year together with a copy of the
tax bill. Tenant shall make its aforesaid tax escalation payment to Landlord, in
installments in the same manner that such taxes are payable by Landlord to the
governmental authority, within fifteen (15) days after rendition of such
statement. If a statement is furnished to Tenant after the commencement of the
comparative tax year in respect of which such statement is rendered, Tenant
shall, within fifteen (15) days thereafter, pay to Landlord an amount equal to
those installments of the total tax escalation payable as provided in the
preceding sentence, during the period prior to the first day of the month next
succeeding the month in which the applicable statement has been furnished. If,
during the term of this Lease, taxes are required to be paid, in full or in
monthly or other installments, on any other date or dates than as presently
required, or if Landlord shall be required to make monthly deposits of real
estate taxes to the holder of any first institutional mortgage then Tenant's tax
escalation payment(s) shall be correspondingly adjusted so that said payments
are due to Landlord in corresponding
<PAGE>
installments not later than thirty (30) days prior to the last date on which the
applicable installment of such real estate taxes shall be due and payable to the
governmental authority or such mortgagee.
(ii) If in establishing the amount of the real estate taxes
payable for any comparative tax year, Landlord has incurred expenses for
legal and/or consulting services rendered in, applying for, negotiating or
obtaining a reduction of the assessment upon which the real estate taxes
are predicated, Tenant shall pay an amount equal to the Percentage of such
expenses.
(iii) The statements of the tax escalation to be furnished by
Landlord as provided above shall be certified by Landlord as correct and
shall constitute a final determination as between Landlord and Tenant of
the tax escalation for the periods represented thereby, except for manifest
error. Exception shall also be made for other error in calculating same,
provided Tenant gives Landlord notice, within ten (10) days after the
rendition of such statement, that Tenant disputes its accuracy or
appropriateness. However, notwithstanding and pending the resolution of any
dispute, Tenant agrees to pay the amount shown on such statement.
(iv) In no event shall the fixed minimum rent under this Lease
be reduced by virtue of this Section 22.01.
(v) Upon the date of any expiration or termination of this
Lease, whether the same be the date hereinabove set forth for the
expiration of the term or any prior or subsequent date, a proportionate
share of said additional rent for the comparative tax year during which
such expiration or termination occurs shall immediately become due and
payable by Tenant to Landlord, if it was not theretofore already billed and
paid. The said proportionate share shall be based upon the length of time
that this Lease shall have been in existence during such comparative tax
year. Prior to or promptly after said expiration or termination, Landlord
shall compute the additional rent due from Tenant, as aforesaid and Tenant
shall promptly pay Landlord any amount unpaid. If Landlord shall receive a
refund of any amount of real estate taxes for any comparative tax year for
which Tenant has made a payment pursuant to this Section 22.01, Landlord
shall promptly pay to Tenant the Percentage of any such refund, less the
Percentage of any legal fees and other expenses provided for in Section
22.01(b)(ii) to the extent the same has not theretofore been paid by Tenant
to Landlord.
(vi) Tenant's obligations to make the adjustments referred to
in subdivision (v) above shall survive any expiration or termination of
this Lease.
(vii) Any delay or failure of Landlord in billing any tax
escalation hereinabove provided shall not constitute a waiver of or in any
way impair the continuing obligation of Tenant to pay such tax escalation
hereunder.
Section 22.02. Porter's Wage Rate. Tenant shall pay to the Landlord, as
additional rent, a porter's wage rate escalation in accordance with this
Section:
<PAGE>
(a) For the purpose of this Section, the following definitions shall
apply;
(i) "Wage Rate" shall mean the minimum regular hourly rate of
wages in effect as of January lst of each year (whether paid by Landlord or
any contractor employed by Landlord) computed as paid over a forty hour
week to Porters in Class A office buildings pursuant to an Agreement
between Realty Advisory Board on Labor Relations, Incorporated, or any
successor thereto, and Local 32B-32J of the Building Service Employees
International Union, AFL-CIO, or any successor thereto; and provided,
however, that if there is no such agreement in effect prescribing a wage
rate for Porters, computations and payments shall thereupon be made upon
the basis of the regular hourly wage rate actually payable in effect as of
January lst of each year, and provided, however, that if in any year during
the term, the regular employment of Porters shall occur on days or during
the hours when overtime or other premium pay rates are in effect pursuant
to such Agreement, then the term "hourly rate of wages" as used herein
shall be deemed to mean the average hourly rate for the hours in a calendar
week during which Porters are regularly employed (e.g., if pursuant to an
agreement between Realty Advisory Board and the Local the regular
employment of Porters for forty hours during a calendar week is at a
regular hourly wage rate of $3.00 for the first thirty hours, and premium
or overtime hourly wage rate of $4.50 for the remaining ten hours, then the
hourly rate of wages under this Article during such period shall be the
total weekly rate of $135.00 divided by the total number of regular hours
of employment, forty or $3.375).
(ii) "Base Wage Rate" shall mean the average of the Wage Rates
in effect on January 1, 1995 and January 1, 1996.
(iii) The term "Porters" shall mean that classification of non-
supervisory employees employed in and about the Building who devote a major
portion of their time to general cleaning, maintenance and miscellaneous
services essentially of a non-technical and non-mechanical nature and are
the type of employees who are presently included in the classification of
"Class A-Others" in the Commercial Building Agreement between the Realty
Advisory Board and the aforesaid Union.
(iv) The term "minimum regular hourly rate of wages" shall not
include any payments for fringe benefits.
(v) The term "Multiplication Factor" shall mean 4,800.
(b) If the Wage Rate for any calendar year during the term shall be
increased above the Base Wage Rate, then Tenant shall pay, as additional rent,
an amount equal to the product obtained by multiplying the Multiplication Factor
by 100% of the number of cents (including any fraction of a cent) by which the
Wage Rate is greater than the Base Wage Rate, such payment to be made in equal
one-twelfth (1/12th) monthly installments commencing with the first monthly
installment of minimum rent falling due on or after the effective date of such
increase in Wage Rate (payable retroactive from said effective date) and
continuing thereafter until a new adjustment shall have become effective in
accordance with the provisions of this Article. Landlord shall give Tenant
notice of each
<PAGE>
change in Wage Rate which will be effective to create or change Tenant's
obligation to pay additional rent pursuant to the provisions of this Section
22.02 and such notice shall contain Landlord's calculation in reasonable detail
and certified as true by an authorized partner (or officer) of Landlord or of
its managing agent, of the annual rate of additional rent payable resulting from
such increase in Wage Rate. Such amounts shall be prorated for any partial
calendar years during the term.
(c) Every notice given by Landlord pursuant to Section 22(b) hereof
shall be conclusive and binding upon Tenant, except for manifest error.
(d) The "Wage Rate" is intended to be a substitute comparative index
of economic costs and does not necessarily reflect the actual costs of wages or
other expenses of operating the Building. The Wage Rate shall be used whether or
not the Building is a Class A office building and whether or not Porters are
employed in the Building and without regard to whether such employees are
members of the Union referred to in subsection (a) hereof.
ARTICLE 23
Electric Inclusion
Section 23.01. So long as Tenant is in lawful possession of the Demised
Premises, Landlord shall furnish electric energy on a rent inclusion basis to
the Demised Premises, the charges therefor being included in the minimum rent.
The amount included in the minimum rent is based upon the normal use of such
electric energy between the hours of 9:00 A.M. to 5:30 P.M. on Mondays through
Fridays, holidays excepted, for lighting and for the normal use of lamps,
typewriters, personal computers and similar customary office machines. Landlord
shall not be liable in any way to Tenant for any failure or defect in the supply
or character of electric energy furnished to the Demised Premises by reason of
any requirement, act or omission of the public utility serving the Building with
electricity or for any other reason not attributable to the negligence or
willful act of Landlord. Tenant shall furnish and install, at its sole cost and
expense, all lighting fixtures, tubes, lamps, bulbs, ballasts and outlets
relating to Tenant's electrical equipment.
Section 23.02. Tenant's connected electrical load in the Demised
Premises, including lighting, shall not at any time exceed the capacity of any
of the electrical conductors and equipment in or servicing the Demised Premises.
In order to insure that such capacity is not exceeded and to avert possible
adverse effect upon the Building electric service, Tenant shall not, without
Landlord's prior consent in each instance, connect any additional fixtures,
appliances or equipment (other than as set forth in Section 23.01) or make any
alteration or addition to the electric system of the Demised Premises existing
on the Commencement Date. Should Landlord grant such consent, all additional
risers or other equipment required therefor shall be provided by Landlord and
the cost thereof shall be paid by Tenant upon Landlord's demand. As a condition
to granting such consent, Landlord may require Tenant to agree to an increase in
the annual minimum rent by an amount which will reflect the value to Tenant of
the additional service to be
<PAGE>
furnished by Landlord, that is the potential additional electrical energy to be
made available to Tenant based upon the estimated additional capacity of such
additional risers or other equipment. If Landlord and Tenant cannot agree
thereon, the amount of such increase shall be determined by a reputable,
independent electrical engineer or consultant, to be selected by Landlord whose
reasonable fees or charges shall be paid by Tenant. When the amount of such
increase is so determined, Tenant shall pay to Landlord within thirty (30) days
following notification to Tenant of such determination the amount. thereof
retroactive to the date of such increased usage, unless within such thirty (30)
day period Tenant disputes such determination. If Tenant disputes such
determination, it shall, at its own expense, obtain from a reputable,
independent electrical engineer or consultant, its own survey of the additional
electrical energy consumed by Tenant. Tenant's consultant and Landlord's
consultant shall then seek to agree on a finding of such determination of such
change in the consumption of electrical energy. If they cannot agree, they shall
choose a third reputable, independent electrical engineer or consultant, whose
cost shall be shared equally by Landlord and Tenant, to make a similar survey,
and the determination of such third consultant shall be controlling. If they
cannot agree on such third consultant, within ten (10) days, then either party
may apply to the Supreme Court in the County of New York, for the appointment of
such third consultant. However, pending such determination, Tenant shall pay to
Landlord the amount as determined by Landlord's engineer or consultant. If the
amount determined as aforesaid is different from that determined by Landlord's
engineer or consultant, then Landlord and Tenant shall make adjustment for any
deficiency owed by Tenant or overage paid by Tenant. Following the final
determination, the parties shall execute an agreement supplementary hereto to
reflect such increase in the annual minimum rent and in the amount set forth in
Section 23.03; but such increase shall be effective even if such supplementary
agreement is not executed.
Section 23.03. If during the term of this Lease, the public utility rate
for the supply of electric current to the Building shall be increased or if
there shall be an increase in taxes or if additional taxes shall be imposed upon
the sale or furnishing of such electric energy (hereafter collectively as the
"cost") the annual minimum rent shall be increased by an amount arrived at by
multiplying $13,200 (or the sum to which said sum may have been increased
pursuant to the provisions of Section 23.02 or this Section 23.03 prior to the
effective date of the cost increases; such sum being referred to herein as the
"Rent Inclusion Factor") by the percentage of the increase of such cost. When
the amount of such increase is so determined, Landlord and Tenant shall execute
an agreement supplementary hereto to reflect such increase in the amount of the
minimum rent payable and effective from the effective date of such increase, but
such increase shall be effective from such date whether or not such a
supplementary agreement is executed.
Section 23.04. Landlord reserves the right to discontinue furnishing
electric energy at any time, whether or not Tenant is in default under this
Lease, upon not less than thirty (30) days' notice to Tenant. If Landlord
exercises such right of discontinuance, this Lease shall continue in full force
and effect and shall be unaffected thereby, except only that, from and after the
effective date of such discontinuance, Landlord shall not be obligated to
furnish electric energy to Tenant, and the minimum rent payable under this Lease
shall be reduced by an amount per annum equal to the then prevailing Rent
Inclusion Factor. If Landlord so elects to discontinue furnishing electric
energy to Tenant, Tenant shall arrange to obtain electric energy directly from
<PAGE>
the public utility company furnishing electric service to the Building.
Notwithstanding the foregoing, Landlord shall not discontinue furnishing
electric energy until Tenant is able to obtain such electric energy directly
from said public utility. Such electric energy may be furnished to Tenant by
means of the then existing Building system feeders, risers and wiring to the
extent that they are available, suitable and safe for such purposes. All meters
and additional panel boards, feeders, risers, wiring and other conductors and
equipment which may be required to obtain electric energy directly from such
public utility company, and which are to be located within the Demised Premises,
shall be installed and maintained by Tenant at its expense.
Section 23.05. If any additional charge or tax is imposed upon Landlord
with respect to electric energy furnished to Tenant by any federal, state or
municipal authority, Tenant, unless prohibited by law or by any governmental
authority having jurisdiction thereover, shall pay to Landlord, within ten (10)
days following Landlord's demand, accompanied by copies of all relevant bills or
back-up documentation, Tenant's pro rata share of such additional charge or tax,
without mark-up to Landlord.
ARTICLE 24
Broker
Landlord and Tenant covenant and represent that the sole brokers who
negotiated and brought about this transaction were The Lansco Corporation and
Cohen Brothers Realty Corporation and Landlord agrees to pay a commission
therefor as per separate agreement. Each of Landlord and Tenant agrees to hold
the other harmless against any claims for a brokerage commission brought or
asserted by any other broker claimed to have dealt with the indemnifying party,
in connection with this transaction.
ARTICLE 25
Subordination and Ground Lease
Section 25.01. This Lease is subject and subordinate to (a) the air
rights lease, dated as of February 3, 1972, between New York City Educational
Construction Fund, as Lessor, and Three Park Avenue Co., as Lessee, (the "Net
Lease") a memorandum of which was recorded in the Office of the City Register,
New York County, in Reel 230, Page 875 and to the rights of the Lessor
thereunder, (b) any other ground and underlying lease, and (c) to all mortgages
which are now or hereafter a lien covering the premises described in the Net
Lease, upon the Lessee's estate under the Net Lease or under any ground or
underlying lease or the Building and improvements now or hereafter erected
thereon, and to all renewals, modifications, amendments, consolidations,
replacements or extensions of any of the foregoing (hereinafter collectively
called the "Mortgages"). This clause shall be self-operative and no further
instrument of subordination shall be required. However, in confirmation of such
subordination, Tenant, at any time and from time to time, shall execute promptly
and within fifteen (15) days after such request any certificate and document
that Landlord may request, which reasonably evidences such subordination, and
<PAGE>
Tenant hereby irrevocably constitutes and appoints Landlord attorney-in-fact for
Tenant to execute any such instrument for and on behalf of Tenant, if not so
executed and delivered within 15 days after such request.
Section 25.02.
(a) The Tenant covenants and agrees that if by reason of a default
under any ground or underlying lease (including an underlying lease through
which the Landlord derives its leasehold estate in the Demised Premises), or any
such ground or underlying lease or under any of the Mortgages and the leasehold
estate of the Landlord in the premises demised hereby is terminated, the Tenant
will attorn to the then holder of the reversionary interest in the premises
demised by this Lease and will recognize such holder as the Tenant's Landlord
under this Lease, unless the lessor under such ground or underlying lease or the
holder of any such Mortgage shall, in any proceeding to terminate such ground or
underlying lease or foreclosure of such Mortgage, elects to terminate this Lease
and the rights of Tenant hereunder; provided, however, the holder of the
reversionary interest shall not be: (i) liable for any act or omission or
negligence of Landlord under this Lease; (ii) subject to any counterclaim,
defense or offset, not expressly provided for in this Lease and asserted with
reasonable promptness which theretofore shall have accrued to Tenant against
Landlord; (iii) obligated to perform any work; (iv) bound by any previous
modification or amendment of this Lease or by any previous prepayment of more
than one months' rent, unless such modification or prepayment shall have been
approved in writing by the holder of such Mortgage; (v) obligated to repair the
Demised Premises, or the Building, or any part thereof, in the event of any
damage beyond such repair as can reasonably be accomplished from the net
proceeds of insurance actually made available to the then holder of the
reversionary interest; or (vi) obligated to repair the Demised Premises or the
Building, or any part thereof, in the event of partial condemnation of the
Demised Premises or the Building. Nothing contained in this subparagraph shall
be construed to impair any right otherwise exercisable by any such holder.
Tenant agrees to execute and deliver, at any time and from time to time, upon
the request of the Landlord of or the lessor under any such ground or underlying
lease or the holder of any such Mortgage any instrument which may be reasonably
necessary or appropriate to evidence such attornment. The Tenant further waives
the provisions of any statute or rule or law now or hereafter in effect which
may give or purport to give Tenant any right of election to terminate this Lease
or to surrender possession of the premises demised hereby in the event any
proceeding is brought by the lessor under any such ground or underlying lease or
the holder of any such Mortgage to terminate the same, and agrees that unless
and until any such lessor or holder, in connection with any such proceeding,
shall elect to terminate this Lease and the rights of Tenant hereunder, this
Lease shall not be affected in any way whatsoever by any such proceeding.
(b) Upon its receipt of a written notice from the lessor under any
ground or underlying lease or the holder of any such Mortgage to the effect that
(i) the lessor of said ground or underlying lease or the holder of such Mortgage
is entitled to receive the
<PAGE>
minimum rent and additional rent payable hereunder on account of a default under
such ground or underlying lease or such Mortgage (as the case may be) by the
Landlord, and (ii) the Tenant should pay the minimum rent and additional rent
thereafter due and payable under this Lease to said lessor or the holder of such
Mortgage at a place designated in such notice, and Tenant shall pay such minimum
rent and additional rent to said lessor under said ground or underlying lease or
the holder of such Mortgage at such designated place until such time as said
lessor or holder shall notify Tenant that Landlord is no longer in default under
said ground or underlying lease or said Mortgage and that Tenant may resume
paying all minimum rent and additional rent thereafter due and payable under
this Lease to Landlord. Tenant shall have no liability to Landlord for paying
any minimum rent or additional rent to said lessor under the ground or
underlying lease or holder of such Mortgage or otherwise acting in accordance
with the provisions of any notice sent to it under this paragraph and shall be
relieved of its obligations to pay Landlord any minimum rent or additional rent
under this Lease to the extent such payments are made to said lessor under the
ground or underlying lease or said holder of such Mortgage.
Section 25.03. In the event of any act or omission by Landlord which
would give Tenant the right to terminate this Lease or to claim a partial or
total eviction, pursuant to the terms of this Lease, if any, Tenant will not
exercise any such right until:
(a) it has given written notice of such act or omission to the holder
of any Mortgage and to the Lessor under the Net Lease and the landlord of any
ground or underlying lease, whose names and addresses shall previously have been
furnished to Tenant in accordance with Article 31, addressed to such holder and
Lessor or landlord at the last addresses so furnished, and
(b) a reasonable period (not to exceed the period in this Lease or the
ground lease or the Mortgage, as the case may be) for remedying such act or
omission shall have elapsed following such giving of notice during which such
parties, or any of them, with reasonable diligence, following the giving of such
notice, shall not have commenced and is or are not continuing to remedy such act
or omission or to cause the same to be remedied.
Section 25.04. If, in connection with obtaining financing for the
Building, or of Landlord's interest in any ground or underlying lease, a
banking, insurance or other recognized institutional lender shall request
modifications in this Lease as a condition to such financing, Tenant will not
unreasonably withhold, delay or defer its consent thereto and its execution and
delivery of such modification agreement, provided that such modifications do not
increase the obligations of Tenant hereunder or materially adversely affect the
leasehold interest hereby created or Tenant's rights hereunder.
<PAGE>
ARTICLE 26
Estoppel Certificate
Tenant shall at any time, and from time to time, within ten (10) days after
so requested by Landlord execute, acknowledge and deliver to Landlord, a
statement addressed to Landlord stating (a) that this Lease is unmodified and in
full force and effect (or, if there have been modifications, that the same is in
full force and effect as modified and stating the modifications), (b) stating
the dates to which the minimum rent and additional rent have been paid, (c)
stating whether or not, to the best of Tenant's knowledge, there exists any
default by Landlord under this Lease, and, if so, specifying each such default
and (d) such other information as may be required by Landlord or any mortgagee,
it being intended that any such statement may be relied upon by Landlord, by any
mortgagee or prospective mortgagee of any mortgage affecting the Building or the
Lessee's estate under the Net Lease or under any ground or underlying lease, or
may be relied upon by the Lessor under the Net Lease or under any other ground
or underlying lease covering the premises described in the Net Lease or a
purchaser of Lessee's estate under the Net Lease or under any other ground or
underlying lease covering the premises described in the Net Lease or any
interest therein.
ARTICLE 27
Waiver of Jury Trial
Landlord and Tenant hereby waive trial by jury in any proceeding, action or
counterclaim that may hereafter be instituted against it on any matter
whatsoever arising out of or in any way connected with this Lease, the
relationship of Landlord or Tenant, Tenant's use or occupancy of the Demised
Premises, including any claims for injury or damage, or any emergency or other
statutory remedy with respect thereto.
ARTICLE 28
Surrender of Premises
Section 28.01. Upon the expiration or other termination of the term of
this Lease, Tenant shall quit and surrender the Demised Premises in good order
and condition, ordinary wear and tear and damage by fire or other casualty
excepted, and shall remove all its property therefrom, except as otherwise
provided in this Lease. Tenant's obligation to observe or perform this covenant
shall survive the expiration or other termination of the term of this Lease.
Section 28.02. In the event Tenant shall remain in possession of the
Demised Premises after the expiration or other termination of the term of this
Lease, such holding over shall not constitute a renewal or extension of this
Lease. Landlord, may, at its option, elect to treat Tenant as one who is not
removed at the end of the term, and thereupon be entitled to all of the remedies
against Tenant provided by law in that situation or Landlord may elect to
construe such holding
<PAGE>
over as a tenancy from month-to month, subject to all of the terms and
conditions of this Lease, except as to the duration thereof, and the minimum
rent shall be due, in either of such events, at a monthly rental rate equal to
two (2) times the monthly installment of minimum rent which would otherwise be
payable for such month, together with any and all additional rent.
ARTICLE 29
Rules and Regulations
Section 29.01. Tenant, its servants, employees, agents, visitors and
licensees shall observe faithfully and comply with the rules and regulations set
forth in Schedule "D" attached hereto and made a part hereof and any reasonable
changes in and additions thereto, provided Tenant has received notice of such
changes and additions. Landlord shall have the right from time to time during
the term of this Lease to make reasonable changes in and additions to the rules
thus set forth provided such changes and additions are applicable to all other
office tenants in the Building.
Section 29.02. Any failure by Landlord to enforce any rules and
regulations now or hereafter in effect, either against Tenant or any other
tenant in the Building, shall not constitute a breach hereunder or waiver of any
such rules and regulations. However, Landlord agrees to enforce such rules and
regulations in a uniform and non-discriminatory manner.
ARTICLE 30
Successors and Assigns and Definitions
Section 30.01. The covenants, conditions and agreements contained in this
Lease shall bind and enure to the benefit of Landlord and Tenant and their
respective distributees, legal representatives, successors and, except as
otherwise provided herein, their assigns.
Section 30.02. The term "Landlord" as used in this Lease, so far as the
covenants and agreements on the part of Landlord are concerned shall be limited
to mean and include only the owner or owners at the time in question of the
Lessee's estate under the Net Lease or under any ground or underlying lease
covering the premises described in the Net Lease and/or the Building and
improvements thereon. In the event of any assignment or assignments of such
Lessee's estate, and regardless of whether the assignee is financially
responsible or solvent and notwithstanding that the assignor may be a
stockholder, officer or director of a corporate assignee or may be associated
directly or indirectly with the assignee, Landlord herein named (and in case of
any subsequent assignment, the then assignor) shall be automatically freed and
relieved from and after the date of such assignment and assumption, of all
personal liability as respects to performance of any of Landlord's covenants and
agreements thereafter to be performed, and such assignee shall be bound by all
of such covenants and agreements; it being intended that Landlord's covenants
and agreements shall be binding on Landlord, its successors and assigns only
during and in respect of their successive periods of such ownership.
<PAGE>
However, in any event, Landlord shall not have any personal liability or
obligation by reason of any default by Landlord under any of Landlord's
covenants and agreements in this Lease. In case of such default, Tenant will
look only to Landlord's estate, as Lessee, under the Net Lease or under any
other ground or underlying lease covering the premises described in the Net
Lease, to recover any loss or damage resulting therefrom; and Tenant shall have
no right to nor shall Tenant assert any claim against nor have recourse to
Landlord's other property or assets to recover such loss or damage.
Section 30.03. All pronouns or any variation thereof shall be deemed to
refer to masculine, feminine or neuter, singular or plural as the identity of
the person or persons may require; and if Tenant shall consist of more than one
(1) person, the obligations of such persons, as Tenant, under this Lease, shall
be joint and several.
Section 30.04. The definitions contained in Schedule F annexed hereto are
hereby made a part of this Lease.
ARTICLE 31
Notices
Any notice, statement, certificate, request, approval, consent or demand
required or permitted to be given under this Lease shall be in writing sent by
registered or certified mail (or reputable, commercial overnight courier
service), return receipt requested and postage prepaid, addressed, as the case
may be, to Landlord, at 750 Lexington Avenue, New York, New York 10022, and to
Tenant prior to the Commencement Date at 100 Park Avenue, Room 1650, New York,
New York 10017, and after the Commencement Date at the Demised Premises, or to
such other addresses as Landlord or Tenant respectively shall designate in the
manner herein provided. Such notice, statement, certificate, request, approval,
consent or demand shall be deemed to have been given on the second day after the
date when mailed, as aforesaid, or on the date of delivery by overnight courier.
ARTICLE 32
No Waiver; Entire Agreement
Section 32.01. The specific remedies to which Landlord may resort under
the provisions of this Lease are cumulative and are not intended to be exclusive
of any other remedies or means of redress to which Landlord may be lawfully
entitled in case of any breach or threatened breach by Tenant of any of the
terms, covenants and conditions of this Lease. The failure of Landlord to insist
upon the strict performance of any of the terms, covenants and conditions of
this Lease, or to exercise any right or remedy herein contained, shall not be
construed as a waiver or relinquishment for the future of such term, covenant,
condition, right or remedy. A receipt by Landlord of minimum rent or additional
rent with knowledge of the breach of any term, covenant or condition of this
Lease shall not be deemed a waiver of such breach. This Lease may not be
<PAGE>
changed or terminated orally. In addition to the other remedies in this Lease
provided, Landlord shall be entitled to restraint by injunction of the violation
or attempted or threatened violation of any of the terms, covenants and
conditions of this Lease or to a decree, any court having jurisdiction in the
matter, compelling performance of any such terms, covenants and conditions.
Section 32.02. No receipt of monies by Landlord from Tenant, after any
re-entry or after the cancellation or termination of this Lease in any lawful
manner, shall reinstate the Lease; and after the service of notice to terminate
this Lease, or after commencement of any action, proceeding or other remedy,
Landlord may demand, receive and collect any monies due, and apply them of
account of Tenant's obligations under this Lease but without in any respect
affecting such notice, action, proceeding or remedy, except that if a money
judgment is being sought in any such action or proceeding, the amount of such
judgment shall be reduced by such payment.
Section 32.03. If Tenant is in arrears in the payment of minimum rent or
additional rent, Tenant waives its right, if any, to designate the items in
arrears against which any payments made by Tenant are to be credited and
Landlord may apply any of such payments to any such items in arrears as
Landlord, in its sole discretion, shall determine, irrespective of any
designation or request by Tenant as to the items against which any such payments
shall be credited.
Section 32.04. No payment by Tenant nor receipt by Landlord of a lesser
amount than may be required to be paid hereunder shall be deemed to be other
than on account of any such payment, nor shall any endorsement or statement on
any check or any letter accompanying any check tendered as payment be deemed an
accord and satisfaction and Landlord may accept such check or payment without
prejudice to Landlord's right to recover the balance of such payment due or
pursue any other remedy in this Lease provided.
Section 32.05. This Lease and the Schedules annexed hereto constitute the
entire agreement between Landlord and Tenant referable to the Demised Premises,
and all prior negotiations and agreements are merged herein.
Section 32.06. If any term or provision of this Lease or the application
thereof to any person or circumstance shall, to any extent, be invalid or
unenforceable, the remainder of this Lease, or the application of such term or
provision to persons or circumstances, other than those as to which it is held
invalid or unenforceable, shall not be affected thereby, and each term and
provision of this Lease shall be valid and be enforced to the fullest extent
permitted by law.
ARTICLE 33
Captions
The captions of Articles in this Lease are inserted only as a matter of
convenience and for reference and they in no way define, limit or describe the
scope of this Lease or the intent of any provision thereof.
<PAGE>
ARTICLE 34
Inability to Perform
Tenant's obligation to pay minimum rent and additional rent and to perform
all of the other terms, covenants and conditions of this Lease shall not be
affected, diminished, or excused if, by reason of unavoidable delays (as
hereinafter defined), Landlord fails or is unable to supply any services or make
any repairs or perform any work which under this Lease Landlord has expressly
agreed to supply, make or perform, and the time for the performance or
observance thereof shall be extended for the period of time as Landlord shall
have been so delayed. However, Landlord shall use such reasonable efforts as
then may be practicable under the circumstances to resolve any unavoidable
delay, provided that Landlord shall have no liability to Tenant if Landlord is
unable to resolve the same.
The words "unavoidable delays", as used in this Lease shall mean (a) the
enactment of any law or issuance of any governmental order, rule or regulation
(i) prohibiting or restricting performance of work of the character required to
be performed by Landlord under this Lease, or (ii) establishing rationing or
priorities in the use of materials, or (iii) restricting the use of labor, and
(b) strikes, lockouts, acts of God, inability to obtain labor or materials,
enemy action, civil commotion, fire, unavoidable casualty or other similar types
of causes beyond the reasonable control of Landlord.
ARTICLE 35
No Representations by Landlord
Neither Landlord nor any agent or employee of Landlord has made any
representation whatsoever with respect to the Demised Premises except as
expressly set forth in this Lease.
ARTICLE 36
Rent Control
Section 36.01. In the event the minimum rent and/or additional rent or
any part thereof provided to be paid by Tenant under the provisions of this
Lease during the demised term shall become uncollectible or shall be reduced or
required to be reduced or refunded by virtue of any federal, state, county or
city law, order or regulation, or by any direction of a public officer or body
pursuant to law, or the orders, rules, code or regulations of any organization
or entity formed pursuant to law, Tenant shall enter into such agreement(s) and
take such other steps (without additional expense or liability to Tenant) as
Landlord may reasonably request and as may be legally permissible to permit
Landlord to collect the maximum rents which from time to time during the
continuance of such legal rent restriction may be legally permissible (and not
in excess of the amounts reserved therefor under this Lease). Upon the
termination of such legal rent restriction, (a) the minimum rent and/or
additional rent shall become and thereafter be
<PAGE>
payable in accordance with the amounts reserved herein for the periods following
such termination, and (b) Tenant shall pay to Landlord promptly upon being
billed, to the maximum extent legally permissible, an amount equal to (i)
minimum rent and/or additional rent which would have been paid pursuant to this
Lease but for such legal rent restriction less (ii) the rents paid by Tenant
during the period such legal rent restriction was in effect.
ARTICLE 37
Security Deposit
Section 37.01. Concurrently with the execution of this Lease, Tenant
shall deposit with Landlord the sum of $57,000.00, either in cash or by Letter
of Credit as provided in Section 37.02, as security for the faithful performance
and observance by Tenant of the terms, provisions and conditions of this Lease.
Tenant agrees that, in the event that Tenant defaults in respect of any of the
terms, provisions and conditions of this Lease (including the payment of minimum
rent and additional rent), after any applicable notice and expiration of any
applicable cure period, Landlord may use, apply, or retain the whole or any part
of the cash security so deposited or may notify the "Issuing Bank" (as such term
is defined in Section 37.02) and thereupon receive all of the monies represented
by the said Letter of Credit and use, apply, or retain the whole or any part of
such proceeds, as the case may be, to the extent required for the payment of any
rent, additional rent, or any other sum as to which Tenant is in default, or for
any sum that Landlord may expend or may be required to expend by reason of
Tenant's default, in respect of any of the terms, covenants and conditions of
this Lease (including any damages or deficiency accrued before or after summary
proceedings or other re-entry by Landlord). In the event that Landlord applies
or retains any portion or all of such cash security or proceeds of such Letter
of Credit, as the case may be, Tenant shall forthwith restore the amount so
applied or retained so that, at all times, the amount deposited shall be
$57,000.00. If Tenant shall fail or refuse to make such additional deposit,
Landlord shall have the same rights in law and in equity and under this Lease as
it has with respect to a default by Tenant in the payment of minimum rent,
except that Tenant shall have thirty (30) days to cure such default. In the
event that Tenant shall fully and faithfully comply with all of the terms,
provisions, covenants and conditions of this Lease, the cash security or Letter
of Credit, as the case may be, shall be returned to Tenant within twenty (20)
days after the expiration date and after delivery of possession of the entire
Demised Premises to Landlord in the condition provided in this Lease for such
delivery of possession.
Section 37.02. In lieu of a cash deposit, Tenant may at any time deliver
to Landlord a clean, irrevocable and unconditional Letter of Credit (the "Letter
of Credit") issued by and drawn upon any commercial bank (the "Issuing Bank")
with offices for banking purposes in the City of New York and having a net worth
of not less than $100,000,000.00, which Letter of Credit shall have an initial
term of not less than one year, be in form and content satisfactory to Landlord,
be for the account of Landlord and be in the amount of $57,000.00.
Notwithstanding the foregoing, if at any time the net worth of the Issuing Bank
is less than $100,000,000.00 or its rating is downgraded from its current
rating, and provided Tenant does not replace the existing Letter of Credit with
a Letter of Credit meeting the criteria of Section 37.02 within the sooner of
thirty
<PAGE>
(30) days following Tenant's receipt of Landlord's notice to Tenant of either of
the foregoing events or the number of days remaining until the expiration date
of the existing Letter of Credit, Landlord shall have the right, at any time
thereafter, to draw down the entire proceeds pursuant to the terms of Section
37.01 as cash security pending the replacement of such Letter of Credit. The
Letter of Credit shall provide that:
(a) the Issuing Bank shall pay to Landlord or its duly authorized
representative an amount up to the face amount of the Letter of Credit upon
presentation of the Letter of Credit and a sight draft, in the amount to be
drawn;
(b) it shall be deemed automatically renewed, without amendment, for
consecutive periods of one (1) year each thereafter during the term of this
Lease, unless Issuing Bank sends written notice (hereinafter referred to as the
Non-Renewal Notice) to Landlord by certified or registered mail, return receipt
requested, not less than sixty (60) days next preceding the expiration date of
the Letter of Credit that it elects not to have the Letter of Credit renewed,
and it being agreed that the giving of such Non-Renewal Notice shall for the
purpose of this Article 37 be deemed a default under this Lease, unless Tenant
replaces the Letter of Credit with a substitute Letter of Credit meeting the
criteria of this Section 37.02 or with a cash deposit at least thirty (30) days
prior to the expiration date of the Letter of Credit.
(c) Landlord, at any time after thirty (30) days following its receipt
of a Non-Renewal Notice, and prior to the expiration date of the Letter of
Credit, shall have the right, exercisable by means of sight draft, to receive
the monies represented by the Letter of Credit and hold such proceeds pursuant
to the terms of Section 37.01 as cash security pending the replacement of such
Letter of Credit; and
(d) upon Landlord's sale or assignment of its estate as Tenant under
any ground or underlying lease, the Letter of Credit shall be transferable by
Landlord, as provided in Section 37.03.
Section 37.03. In the event Landlord's estate as tenant under any ground
or underlying Lease is sold or assigned, Landlord shall have the right to
transfer the cash security or the Letter of Credit then held by Landlord to the
vendee or assignee, and Landlord shall thereupon be released by Tenant from all
liability for the return of such cash security or Letter of Credit. In such
event, Tenant agrees to look solely to the new Landlord for the return of said
cash security or Letter of Credit. It is agreed that the provisions hereof shall
apply to every transfer or assignment made of the cash security or Letter of
Credit to a new Landlord.
Section 37.04. Tenant covenants that it will not assign or encumber, or
attempt to assign or encumber, the monies or Letter of Credit deposited
hereunder as security, and that neither Landlord nor its successors or assigns
shall be bound by any such assignment, encumbrance, attempted assignment, or
attempted encumbrance.
Section 37.05. The use of the security, as provided in this Article,
shall not be deemed or construed as a waiver of Tenant's default or as a waiver
of any other rights and remedies to
<PAGE>
which Landlord may be entitled under the provisions of this Lease by reason of
such default, it being intended that Landlord's rights to use the whole or any
part of the security shall be in addition to but not in limitation of any such
other rights and remedies; and Landlord may exercise any of such other rights
and remedies independent of or in conjunction with its rights under this
Article.
Section 37.06. Provided Tenant is not then in default under any of the
terms, covenants and conditions of this Lease on its part to be performed, the
amount of the security deposit hereunder shall be reduced to $28,500 at the
commencement of the 36th month following the Commencement Date. In such event,
if (i) Tenant has deposited a Letter of Credit as security, Tenant shall either
deliver to Landlord a replacement Letter of Credit in the reduced amount and
Landlord will then return to Tenant the existing Letter of Credit, or Tenant
will deliver to Landlord an amendment to the existing Letter of Credit reducing
the amount thereof to the then required amount, and (ii) if Landlord holds cash
as security, then Landlord shall return to Tenant an amount sufficient to reduce
the security deposit to the then required amount.
Section 37.07. To the extent Landlord retains any cash security under
this Lease, the same shall be deposited by Landlord in a federally insured money
market account or in an interest bearing bank account, and the interest thereon,
less a one percent (1%) administrative charge, shall be paid to Tenant no less
often than annually, provided that Tenant is not then in default under the terms
of this Lease.
ARTICLE 38
Late Payment Charges
If Tenant shall fail to pay any minimum rent or additional rent within five
(5) days after its due date, Tenant shall pay a late charge of $.05 for each
$1.00 which remains unpaid after such period to compensate Landlord for
additional expense in processing such late payment. In addition, if Tenant fails
to pay any minimum rent or additional rent within ten (10) days after its due
date, Tenant shall pay interest thereon from the date due until the date paid at
the rate of one and one-half (1-1/2%) percent per month. If any check of Tenant
in payment of any sum due under this lease, including but not limited to minimum
rent and additional rent, fails to clear the bank, Tenant shall pay a charge of
$100.00.
IN WITNESS WHEREOF, Landlord and Tenant have duly executed this Lease as of
the day and year first above written.
THREE PARK AVENUE CO.
By: /s/ Charles Steven Cohen
________________________________
Landlord
<PAGE>
MJN ENTERPRISES, INC.
By: /s/ Murray Hidary
-------------------------------
Tenant
<PAGE>
FIRST AMENDMENT OF LEASE
------------------------
AGREEMENT, dated this 29 day of April, 1996, between THREE PARK AVENUE
CO., a New York limited partnership having an office at 750 Lexington Avenue,
New York, New York 10022 ("Landlord"), and MJN ENTERPRISES, INC., a New York
corporation having an office at 3 Park Avenue, New York, New York 10016
("Tenant").
WITNESSETH:
WHEREAS, Landlord and Tenant have heretofore entered into a lease dated
April 28, 1995 (the "Lease") for part of the 38th floor ("Existing Premises") in
the building known as 3 Park Avenue, New York, New York ("Building"), for the
term ending September 30, 2000; and
WHEREAS, Tenant wishes to rent additional space on the 33rd floor (the
"Additional Premises") and extend the term of the Lease, and Landlord is willing
to do so, upon the terms and conditions hereinafter provided.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants hereinafter provided, Landlord and Tenant agree as follows:
1. Except as otherwise herein defined, all terms contained in this
Agreement shall for the purposes hereof have the same meaning ascribed to them
in the Lease.
2. Tenant has examined and agrees to accept the Additional Premises
in its present "as is" condition and state of repair, subject to and upon
substantial completion by Landlord, at Landlord's own expense, of all the work
set forth in Schedule B attached hereto.
<PAGE>
3. A. Landlord shall deliver the Additional Premises to Tenant on
the date that Landlord substantially completes its work (the "Effective Date"),
and following the Effective Date, wherever the term Demised Premises is referred
to in the Lease, the same shall mean, collectively, the Additional Premises,
more particularly delineated in the plan annexed hereto as Schedule A, and the
Existing Premises. Except as set forth on Schedule B, Landlord shall have no
obligation to perform any other work in connection with preparing the Additional
Premises for Tenant's occupancy. Landlord's work shall be deemed to be
substantially completed even though minor details or adjustments, none of which
materially interferes with Tenant's use of the Additional Premises, may not then
have been completed, but Landlord agrees, at its sole cost and expense, to
promptly thereafter complete all unfinished work. However, if Tenant shall enter
into possession of the Additional Premises and commence the regular conduct of
its business, the Effective Date shall be the date of such entry regardless of
whether any of the foregoing events shall have occurred. In such event, Landlord
agrees to promptly thereafter complete all unfinished work. Landlord shall give
Tenant at least fifteen (15) days' prior written notice of the anticipated date
of substantial completion, provided Landlord shall have no liability or
responsibility to Tenant if the Additional Premises have not been substantially
completed on the date set forth in Landlord's notice. Upon Tenant obtaining the
building permit referred to in Schedule B, Landlord shall promptly thereafter
commence its work and diligently perform the same at Landlord's sole cost and
expense. If Landlord has not substantially completed its work within one hundred
eighty (180) days after such building permit has been obtained (subject,
however, to the provisions' of Article 34 of the Lease), then Tenant shall
be entitled to an abatement of the minimum rent only, in addition to the
abatement provided in Section 3.02 (as amended), equal to one (1) business day
for each one (1) business day
<PAGE>
thereafter that the Additional Premises have not been substantially completed to
the date of substantial completion.
B. If, prior to the Effective Date, Tenant shall enter the
Additional Premises to make any installations, Landlord shall have no liability
or obligation for the care or preservation of Tenant's property, except for the
negligence of Landlord, its agents, contractors and employees.
C. Promptly after the Effective Date, Landlord and Tenant will
execute a statement in recordable form confirming the Effective Date in
accordance with the foregoing provisions.
4. Notwithstanding the provisions of Article 1, the term of the
Lease shall be extended for the period commencing on the Effective Date and
ending on a date which shall be five (5) years and five (5) months after the
Effective Date (the "Extended Expiration Date"), plus the number of days
required, if any, to have such term expire on the last day of the calendar
month, or on such earlier date upon which said term may expire or terminate
pursuant to any of the conditions or covenants of the Lease or pursuant to law.
5. Commencing from and after the Effective Date, with respect only
to the Additional Premises, the Lease is amended as follows:
(a) Section 3.01 (a) is amended to read as follows:
"(a) a fixed minimum rent ("minimum rent") at the rate of $151,940.00
per annum (or $12,661.67 per month), plus the period from the Effective
Date to the end of the month in which the same occurs if the
Commencement Date is other than the first day of a month calculated on
a pro rata basis; and"
<PAGE>
(b) Section 3.02 is amended to read as follows:
"Section 3.02. Notwithstanding the provisions of Section 3.01
hereof, and provided Tenant is not then in default under any of the
provisions of this Lease after any applicable notice and expiration of
any applicable cure period, Tenant shall be entitled to an abatement of
part of the minimum rent only in the amount of $11,360.00 for each of
the 1st, 2nd, 3rd, 4th and 5th months following the Effective Date;
provided that the balance of minimum rent of $1,301.67 for each of said
months shall be due and payable. Tenant acknowledges that the
consideration for the aforesaid abatement of minimum rent is Tenant's
agreement to perform all of the terms, covenants and conditions of this
Lease on its part to be performed. Therefore, if Tenant shall default
under any of the terms, covenants and conditions beyond any applicable
cure and grace period, the aggregate amount of all minimum rent that was
abated shall immediately thereafter become due and payable by Tenant to
Landlord. In the event of Tenant's failure to pay such aggregate amount
to Landlord, Landlord shall be entitled to the same rights and remedies
as in the event of Tenant's default in the payment of minimum rent.
Except as otherwise expressly set forth herein, Tenant shall be required
to pay additional rent and all other sums from and after the Effective
Date."
(c) In Section 22.01:
(i) in subdivision (i), the `Tax Base Factor" shall
mean the period from July 1, 1996 to June 30, 1997.
(ii) in subdivision (iii), the "comparative tax year"
shall mean the tax year commencing July 1, 1997.
(iii) in subdivision (v), "the Percentage" shall mean
"1.893%".
(d) In Section 22.02:
(i) in subdivision (ii), the "Base Wage Rate" shall
mean the Wage Rate for the calendar year 1996, without fringes.
(ii) in subdivision (v), the "Multiplication Factor"
shall mean 5,680.
(e) In Section 232.03, the "Rent Inclusion Facor" shall mean
$15,620.00.
<PAGE>
6. Section 37.06 of the Lease is hereby deleted in its entirety.
7. Landlord and Tenant represent and warrant that they had no
dealings or negotiations with any broker or agent, other than Cohen Brothers
Realty Corporation, in connection with this Agreement. Landlord will pay said
broker a commission pursuant to separate agreement. Landlord and Tenant agree to
indemnify and hold harmless the other from and against any cost, expense or
liability for any compensation, commissions or charges arising out of a breach
by the other of the representations contained in this paragraph.
8. Except as modified by this Agreement, the Lease and all the
terms, covenants and conditions thereof (except those which by their terms are
no longer applicable) shall remain in full force and effect and are hereby in
all respects ratified and confirmed.
<PAGE>
IN WITNESS WHEREOF, Landlord and Tenant have executed this Agreement
on the day and year first above written.
3 PARK AVENUE CO.,
Landlord
By: /s/ Charles Steven Cohen
------------------------------------------
MJN ENTERPRISES, INC.
Tenant
By: /s/ Murray Hidary
------------------------------------------
<PAGE>
EXHIBIT 10.8
SECOND AMENDMENT OF LEASE
-------------------------
AGREEMENT, dated this 4th day of October, 1997, between THREE PARK
AVENUE CO., a New York limited liability partnership, having an office at 750
Lexington Avenue, New York, New York 10022 ("Landlord"), and EARTHWEB, INC., a
Delaware corporation having an office at 3 Park Avenue, New York, New York 10016
("Tenant").
WITNESSETH:
WHEREAS, Landlord and MJN Enterprises, Inc., Tenant's predecessor-in-
interest, have heretofore entered into a lease dated April 28, 1995 for part of
the 38th floor (the "38th Floor Premises"), as amended by agreement dated April
29, 1996 for part of the 33rd floor (the "33rd Floor Premises"), said lease and
amendment hereinafter collectively called the "Lease" and said 38th Floor
Premises and said 33rd Floor Premises hereinafter collectively called the
"Existing Premises", in the building known as 3 Park Avenue, New York, New York
("Building"), for the term ending December 31, 2001; and
WHEREAS, Tenant wishes to rent additional space consisting of the
entire 32nd floor (the "Additional Premises") and, except for the 38th Floor
Premises, extend the term of the Lease, and Landlord is willing to do so, upon
the terms and conditions hereinafter provided.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants hereinafter provided, Landlord and Tenant agree as follows:
1. Except as otherwise herein defined, all terms contained in this
Agreement shall for the purposes hereof have the same meaning ascribed to them
in the Lease.
<PAGE>
2. Tenant has examined and agrees to accept the Additional Premises in its
present "as is" condition and state of repair, subject to and upon substantial
completion by Landlord, at Landlord's own expense, of all the work set forth in
Schedule B attached hereto.
3. A. Landlord shall deliver the Additional Premises to Tenant on the date
that Landlord substantially completes its work (the "Effective Date"), and
following the Effective Date, wherever the term Demised Premises is referred to
in the Lease, the same shall mean, collectively, the Additional Premises, more
particularly delineated in the plan annexed hereto as Schedule A, and the
Existing Premises.
B. Except as set forth on Schedule B, Landlord shall have no
obligation to perform any other work in connection with preparing the Additional
Premises for Tenant's occupancy. Landlord's work shall be deemed to be
substantially completed even though minor details or adjustments, none of which
materially interferes with Tenant's use of the Additional Premises, may not then
have been completed, but Landlord agrees, at its sole cost and expense, to
promptly thereafter complete all unfinished work. However, if Tenant shall
enter into possession of the Additional Premises and commence the regular
conduct of its business, the Effective Date shall be the date of such entry
regardless of whether any of the foregoing events shall have occurred. In such
event, Landlord agrees to promptly thereafter complete all unfinished work.
Landlord shall give Tenant at least fifteen (15) days' prior written notice of
the anticipated date of substantial completion, provided Landlord shall have no
liability or responsibility to Tenant if the Additional Premises have not been
substantially completed on the date set forth in Landlord's notice. If Landlord
installs the additional risers referred to in Section 23.01, then the
installation of such risers shall be considered in determining whether Landlord
has substantially completed its work. Landlord shall, at the cost and expense of
Tenant, promptly
2
<PAGE>
obtain the building permit referred to in Schedule B, and promptly thereafter
commence its work and diligently perform the same at Landlord's sole cost and
expense. If Landlord has not substantially completed its work within one hundred
eighty (180) days after such building permit has been obtained (subject,
however, to the provisions of Article 34 of the Lease), then Tenant shall be
entitled to an abatement of the minimum rent only, in addition to the abatement
provided in Section 3.02 (as amended), equal to one (1) business day for each
one (1) business day thereafter that the Additional Premises have not been
substantially completed to the date of substantial completion.
C. If, prior to the Effective Date, Tenant shall enter the Additional
Premises to make any installations, Landlord shall have no liability or
obligation for the care or preservation of Tenant's property, except for the
negligence of Landlord, its agents, contractors and employees.
D. Promptly after the Effective Date, Landlord and Tenant will
execute a statement in recordable form confirming the Effective Date in
accordance with the foregoing provisions.
4. Notwithstanding the provisions of Article 1, the term of the Lease with
respect only to the 33rd Floor Premises and Additional Premises shall be
extended for the period commencing on the Effective Date and ending on the date
which shall be ten (10) years after the Effective Date (the "Extended Expiration
Date"), plus the number of days required, if any, to have such term expire on
the last day of the calendar month, or on such earlier date upon which said term
may expire or terminate pursuant to any of the conditions or covenants of the
Lease or pursuant to law. The term of the Lease with respect to the 38th Floor
Premises shall end on
3
<PAGE>
December 31, 2001, and Tenant shall vacate and surrender possession of the same
to Landlord on or before said date.
5. Commencing from and after the Effective Date, the Lease is amended as
follows:
A. With respect only to the 38th Floor Premises:
(i) Section 3.01(a) is amended to provide that, for the period
from the Effective Date to December 31, 2001, the minimum rent shall be at
the rate of $119,232.00 per annum (or $9,936.00 per month).
(ii) In Section 23.03, the "Rent Inclusion Factor" shall mean
$18,432.00.
B. With respect only to the 33rd Floor Premises:
(i) Section 3.01(a) is amended to read as follows:
(a) "a fixed minimum rent (the "minimum rent") at the
following annual rates:
(i) $163,811.20 per annum (or $13,650.93 per month) for the
period following the Effective Date to December 31, 2001; and
(ii) $169,491.20 per annum (or $14,124.27 per month) for the
period from January 1, 2002 to the end of the fifth (5th) year
following the Effective Date; and
(iii) $183,691.20 per annum (or $15,307.60 per month) for
the last five (5) years of the term of this Lease; and"
(ii) In Section 22.01, for the period commencing from and after
January 1, 2002:
4
<PAGE>
(a) in subdivision (i), the "Tax Base Factor" shall mean the
period from July 1, 1997 to June 30, 1998.
(b) in subdivision (iii), the "comparative tax year" shall
mean the New York City real estate tax year commencing July 1, 1998
and each subsequent New York City real estate tax year.
(iii) In subdivision (ii) of Section 22.02, for the period
commencing from and after January 1, 2002, the "Base Wage Rate" shall mean
the Wage Rate for calendar year 1997, without fringes.
(iv) In Section 23.03, for the period commencing from and after
the Effective Date, the "Rent Inclusion Factor" shall mean $27,491.20.
C. With respect only to the Additional Premises:
(i) Section 3.01(a) is amended to read as follows:
"(a) a fixed minimum rent (the "minimum rent") at the
following annual rates:
(i) $575,000.00 per annum (or $47,916.67 per month) for the
first five (5) years from the Effective Date, prorated to the end of the month
in which the same occurs if the Effective Date is other than the first day of a
month; and
(ii) $632,500.00 per annum (or $52,708.33 per month) for the
last five (5) years of the term of this Lease; and"
(ii) Section 3.02 is amended to read as follows: "Section 3.02.
Notwithstanding the provisions of Section 3.01 hereof, and provided
Tenant is not then in default under any of the monetary provisions of
this Lease after any applicable notice and expiration of any applicable
cure period,
5
<PAGE>
Tenant shall be entitled to an abatement of the minimum rent only in the
amount of $47,916.67 for each of the 1st, 2nd, 3rd, 4th, 17th, 18th and
19th and 20th months following the Effective Date. Tenant acknowledges
that the consideration for the aforesaid abatement of minimum rent is
Tenant's agreement to perform all of the terms, covenants and conditions
of this Lease on its part to be performed. Therefore, if Tenant shall
default under any of the monetary provisions of this Lease, Tenant shall
thereafter not be entitled to any further abatement and every installment
of minimum rent becoming due shall be payable without such abatement
until such monetary default has been cured, and Tenant shall thereafter
be entitled to any abatement remaining to be applied against minimum
rent. However, if by reason of Tenant's default under any of the
provisions of this Lease, this Lease shall be terminated, then the
aggregate amount of all minimum rent that was abated shall immediately
thereafter become due and payable by Tenant to Landlord in addition to
the damages referred to in Section 16.06. Except as otherwise expressly
set forth herein, Tenant shall be required to pay additional rent and all
other sums from and after the Effective Date."
(iii) In Section 22.01:
(a) in subdivision (i), the "Tax Base Factor" shall mean the
period from July 1, 1997 to June 30, 1998.
(b) in subdivision (iii), the "comparative tax year" shall
mean the New York City real estate tax year commencing July 1, 1998
and each subsequent New York City real estate tax year.
(c) in subdivision (v), "the Percentage" shall mean "4.3396%".
6
<PAGE>
(iv) In Section 22.02:
(a) in subdivision (ii), the "Base Wage Rate" shall mean the
Wage Rate for the calendar year 1997, without fringes.
(b) in subdivision (vi), the "Multiplication Factor" shall
mean 23,000.
6. With respect only to the Additional Premises, Article 23 of the Lease is
deleted in its entirety, and the following Article is substituted in its place:
"ARTICLE 23
Electricity
Section 23.01. Landlord shall provide electricity to the Demised
Premises on a submetering basis, through one or more independent time of day (or
use) submeters and risers, feeders and similar electrical equipment. Such
submetering equipment and any additional riser to accommodate the service
capacity required by Tenant, exceeding the existing capacity of six (6) watts
per usable square foot, to be installed by Landlord, at the sole expense of
Tenant. Any riser(s) shall terminate at a disconnect switch to be located at a
point designated by Landlord in electrical closet(s) on the floor of the
Additional Premises. Such disconnect switch shall be the sole source from which
Tenant is to obtain electricity. Such submeter(s) shall at all times be
maintained by Tenant, at its expense unless damaged due to the negligence by
Landlord, its agents, employees or contractors. Tenant covenants and agrees to
purchase the same from Landlord or Landlord's designated agent at charges, terms
and rates set, from time to time, during the term of this Lease by Landlord but
not more than those specified in the service classification in effect from time
to time pursuant to which Landlord then purchases electric current from the
public utility corporation serving the part of the City where the Building is
7
<PAGE>
located plus a fee equal to twelve (12%) percent of such charges, representing
agreed upon administrative and overhead costs to Landlord. Where more than one
meter measures the service of Tenant in the Building, the service rendered
through each meter may be computed and billed separately in accordance with the
rates herein. Bills therefore shall be rendered monthly or at such other times
as Landlord may elect and the amount, as computed from a meter, shall be deemed
to be, and be paid as, additional rent, within ten (10) days thereafter, without
any set-off or deduction. If any tax is imposed upon Landlord's receipt from the
sale or resale of electric energy to Tenant by any Federal, State or Municipal
Authority, Tenant covenants and agrees that, where permitted by law, Tenant's
pro rata share of such taxes shall be passed on to, and included in the bill of,
and paid by, Tenant to Landlord.
Section 23.02 Tenant agrees not to connect any electrical equipment
of any type to the Building electric distribution system, beyond that on
Tenant's approved plans for initial occupancy, other than lamps, typewriters,
personal computers, network servers and other office equipment which is used in
Tenant's business as presently conducted on the date hereof and set forth on the
electrical survey attached hereto as Schedule C, and other small office machines
which consume comparable amounts of electricity, without the Landlord's prior
written consent, which consent shall not be unreasonably withheld or delayed. In
no event shall Tenant use or install any fixtures, equipment or machines in the
Demised Premises which would result in an overload of the electrical circuits
servicing the Demised Premises.
Section 23.03. Landlord shall not be liable in any way to Tenant for
any failure or defect in the supply or character of electric energy furnished to
the Demised Premises by reason of any requirement, act or omission of the public
utility serving the Building with electricity or for any other reason not
attributable to the negligence of Landlord. Tenant shall
8
<PAGE>
furnish and install, at its sole cost and expense, all lighting fixtures, tubes,
lamps, bulbs, ballasts and outlets relating to Tenant's electrical equipment,
except in connection with the initial work as set forth in Schedule B.
Section 23.04. Tenant's connected electrical load in the Demised
Premises, including lighting, shall not at any time exceed the service capacity
initially required by Tenant as provided in Section 23.01. In order to insure
that such capacity is not exceeded and to avert possible adverse effect upon the
Building electrical service, Tenant shall not, without Landlord's prior consent
in each instance, which consent shall not be unreasonably withheld, make any
alteration or addition to the electric system of the Demised Premises existing
on the Commencement Date. Should Landlord grant such consent, all additional
risers or other equipment required therefor shall be provided by Landlord and
the cost thereof shall be paid by Tenant upon Landlord's demand.
Section 23.05. Landlord reserves the right to discontinue furnishing
electric energy at any time, whether or not Tenant is in default under this
Lease, upon not less than thirty (30) days' notice to Tenant. If Landlord
exercises such right of discontinuance, this Lease shall continue in full force
and effect and shall be unaffected thereby, except only that, from and after
the effective date of such discontinuance, Landlord shall not be obligated to
furnish electric energy to Tenant. If Landlord so elects to discontinue
furnishing electric energy to tenant, Tenant shall arrange to obtain electric
energy directly from the public utility company furnishing electric service to
the Building. Notwithstanding the foregoing, Landlord shall not discontinue
furnishing electric energy until Tenant is able to obtain such electric energy
directly from said public utility. Such electric energy may be furnished to
Tenant by means of the then existing Building system feeders, risers and wiring
to the extent that they are available, suitable and safe for such purposes.
9
<PAGE>
All meters and additional panel boards, feeders, risers, wiring and other
conductors and equipment which may be required to obtain electric energy
directly from such public utility company, and which are to be located within
the Demised Premises, shall be installed and maintained by Tenant at its
expense."
7. Provided Tenant has agreed upon the cost of the Systems (as hereinafter
defined), Landlord shall furnish and install in the Additional Premises, at the
sole cost and expense of Tenant, air-cooled supplemental air conditioning
systems (the "Systems"), as more particularly shown on Tenant's plans and
specifications referred to in Schedule B annexed hereto. Tenant, at its own
cost, shall maintain such Systems in good condition and repair and shall make
any replacements thereof as may be required. Tenant may hook said Systems on to
the existing duct work in the Additional Premises. However, in no event shall
Landlord have any liability or responsibility if the HVAC system in the
Additional Premises does not perform pursuant to its design specifications.
Landlord represents that the design CFM for the 32nd floor for both the north
and south main interior trunk takeoff is 5,500 CFM's each, with the capability
of maintaining, within tolerances normal in first-class office buildings, inside
space conditions of 78 degrees Fahrenheit dry bulb and fifty (50%) percent
relative humidity when outside conditions are 95 degrees Fahrenheit dry bulb and
75 degrees Fahrenheit wet bulb. The foregoing design conditions shall be based
on an occupancy of not more than one person per 100 square feet, and upon a
combined lighting and standard electrical load not to exceed four (4) watts per
usable square foot (excluding the Building HVAC), unless energy and or water
conservation laws or requirements of public authorities, shall mandate for any
reduction in operation below said design criteria, in which case such equipment
shall be operated in accordance therewith. Tenant, at its own expense, shall
obtain in its own name the use permits for such Systems and
10
<PAGE>
provide Landlord with copies of same. Tenant shall also obtain and pay for all
annual renewal fees in connection therewith, and provided Landlord with a copy
of such annual renewals. Tenant shall indemnify and hold Landlord harmless from
and against any loss, claims, costs and expenses (including reasonable
attorneys' fees) in connection with the repair and maintenance of said Systems.
Upon the expiration of the term of this Lease, Tenant, at its own cost, shall
remove such Systems, shall restore the Demised Premises to the extent of any
damages caused by such removal to its condition existing prior to the
installation of the Systems and repair any damage to the Demised Premises caused
by the removal of the Systems.
Landlord, following its review of Tenant's plans and specifications
for the Systems, shall notify Tenant of the proposed cost of same. Upon Tenant's
approval of such cost, Tenant shall pay the same in installments in the
percentage amounts as more particularly set forth on the Payment Completion
Schedule annexed hereto as Exhibit D.
8. Pursuant to the provisions of Article 37 of the Lease, Landlord is
holding as security under the Lease a Letter of Credit in the amount of $57,000.
The parties hereto agree that the amount of the security deposit referred to in
said Article 37 shall be increased to $287,000, and wherever the amount of
$57,000 is referred to in said Article 37, the same shall now mean $287,000.
Concurrently with the execution of this Agreement, Tenant shall either deliver
to Landlord a replacement Letter of Credit meeting the criteria set forth in
Section 37.02 in the amount of $287,000 and Landlord will then return to Tenant
the existing Letter of Credit, or Tenant will deliver to Landlord an amendment
to the existing Letter of Credit increasing the amount thereof to $287,000.
9. The Lease is hereby further amended as follows:
11
<PAGE>
A. In Section 4.01, the words "and for a computerbased
telecommunications business related thereto" are deleted.
B. In Section 4.02, in clause (1), after the word "food", the words
"except the warming of food through a microwave" are inserted; and in clause (3)
after the word "Premises", the words "except for the sale of software systems
other than to the general public;" are inserted.
C. Section 5.01 is amended as follows:
(i) The following is inserted at the end of the last sentence:
"Notwithstanding the foregoing, subject to Landlord's prior
written consent which shall not be unreasonably withheld or
delayed, Tenant may make non-structural interior alterations,
provided the same do not adversely affect the structural
integrity of the Building or the building systems, do not
adversely affect the tenants and do not violate the provisions of
any mortgage covering the Building. Tenant shall also have the
right, at its own expense, without Landlord's consent but subject
to Landlord's approval of contractors, to furnish and install
fiber optic cable."
(ii) Tenant shall not be obligated to remove any of the initial
improvements made by Landlord in both the Existing Premises and in the
Additional Premises. Tenant shall also not be obligated to remove any
improvements thereafter made by Tenant, unless at the time that Landlord
consents to such improvements, Landlord notifies Tenant that such
improvements must be removed at the end of the term of the Lease.
(iii) Upon the request of Tenant, Landlord at Landlord's expense,
shall furnish and install a solar type film on the exterior of the windows
of the Demised Premises.
D. Section 5.02 is amended by adding at the end thereof, subdivision
(e) to read as follows:
"(e) Plans and specifications for the work. "
E. Section 8.01(a), in clause (i), the word "occupancy" is deleted
and the word "particular" is substituted in its place.
12
<PAGE>
F. In Section 9.03(a)(i), the amount of insurance therein provided
shall be increased to $3,000,000.00.
G. In Section 10.01, in the event of the abatement of minimum rent,
there shall also concurrently be an abatement of additional rent set forth in
Article 22 in the same proportion as the abatement of minimum rent.
H. In Section 11.07(d), the following words are added at the end
thereof: "provided other space in the Building is available."
I. In Section 11.10(b), on the 4th line after the word "rent" the
words "and additional rent" are inserted.
J. In Section 11.10, the following subdivision (c) is added at the
end thereof, to read as follows:
"(c) For the purposes of computing the sums payable by Tenant to
Landlord under subparagraphs (a) and M hereof, there shall be deducted
from the consideration payable to Tenant by any assignee or sublessee
any transfer taxes, reasonable attorneys' fees, brokerage commissions,
advertising costs and fix-up costs paid by Tenant with respect to such
assignment or subletting, but only to the extent any such sums are
allocable to the period of this Lease (in the case of any assignment),
or the term of any sublease, assuming the same are amortized over the
term of this Lease or sublease, as may be applicable."
K. In Section 11.11, on the 12th line, after the word "assets", the
words "or stock or other ownership interests" are added; and clause (i) is
deleted in its entirety and the following is substituted in its place:
"(i) any successor to Tenant has a net worth computed in
accordance with generally accepted accounting principles at least
equal to the net worth of Tenant herein named as of the date of this
Lease, and"
13
<PAGE>
L. Section 11.14 is amended to provide that Tenant shall be entitled
to 35 lines on the Building directory.
M. In Section 21.06, the words "police power and the provisions of
Article 34." are added at the end thereof.
N. Section 21.07 is hereby added at the end of Article 21, to read as
follows:
"Section 21.07. Landlord agrees to maintain the Building as a first-
class office building in a manner similar to other first-class office
buildings in the vicinity of the Building."
O. The following is added at the end of Section 22.02(a)(i), to read
as follows:
"Notwithstanding the foregoing, if at any time such hourly wage rate
is different for new hire and old hire Porters, then thereafter such hourly
rate shall be based on the weighted average of the wage rates for the
different classifications of Porters."
P. With respect to the Existing Premises only:
(i) Section 23.01 is deleted in its entirety and the following is
substituted in its place:
"ARTICLE 23
Electric Inclusion
Section 23.01.
(a) Landlord shall furnish electric energy on a rent inclusion
basis to the Demised Premises, the charges therefor being included in the
minimum rent. The amount included in the minimum rent is based upon the
normal use of such electric energy for lighting and for the normal use of
lamps, typewriters, personal computers, network servers and other office
equipment as presently installed in the Demised the 38th Floor Premises
and/or the 33rd Floor Premises. Tenant may, at its own
14
<PAGE>
expense, cause a survey to be made by an independent electrical consultant
selected by Tenant of the amount of the reduction in electrical energy
consumed therein by Tenant, and the minimum rent and Rent Inclusion Factor
for the applicable floor shall be reduced by the amount of such reduction
determined by such consultant. Landlord shall have the right to dispute
such determination in the manner as provided in Section 23.02 and if the
parties are unable to agree on the determination of such reduction, then
the same shall be finally determined in the manner provided in Section
23.02.
(iii) Tenant shall have the one-time right, at any time, to elect to
have Landlord provide electricity on a submetering basis to either one or
both of the 38th Floor Premises and 33rd Floor Premises, upon at least
thirty (30) days' prior written notice to Landlord. Landlord shall then
arrange for the supply of electricity on such submetering basis as promptly
as practical subject to and in accordance with the provisions of Article 23
as more particularly set forth in paragraph 6 of this Agreement, except
that submeters may be placed on the respective floors. In such event, with
respect to either or both of the 38th Floor Premises and 33rd Floor
Premises for which Tenant shall have elected submetering, (a) Article 23 of
the Lease shall be deleted and Article 23 as set forth in paragraph 6 of
this Agreement shall be substituted in its place, and (b) the minimum rent
shall be reduced by the amount of the Rent Inclusion Factor applicable
thereto.
Q. Article 26 is deleted in its entirety and the following is
substituted in its place:
"ARTICLE 26
Estoppel Certificate
Each party shall at any time, and from time to time, within ten (10)
days after so requested by the other party execute, acknowledge and deliver
to the other party, a statement addressed to the other party stating (a)
that this Lease is unmodified and in full force and effect (or, if there
have been modifications, that the same is in full force and effect as
modified and stating the modifications), (b) stating the dates to which the
minimum rent and additional rent have been paid, (c) stating whether or
not, to the best knowledge of such party, there exists any default by the
other party under this Lease, and, if so, specifying each such default, and
(d) with respect to Tenant, such other information as may be reasonably
required by Landlord or any mortgagee, it being intended that any such
statement may be relied upon by the other party, by any mortgagee or
prospective mortgagee of any mortgage affecting the Building or the
Lessee's
15
<PAGE>
estate under the Net Lease or under any ground or other underlying lease,
or may be relied upon by the Lessor under the Net Lease or under any other
ground or other underlying lease covering the premises described in the Net
Lease or a purchaser of Lessee's estate under the Net Lease or under any
other ground or underlying lease covering the premises described in the Net
Lease or any interest therein, or any permitted assignee or sublessee of
Tenant."
R. In connection with Article 38, on the second line "five (5) days"
shall be changed to "ten (10) days"; on the third line "$.05" shall be changed
to "$.03"; and on the sixth line "ten (10) days" shall be changed to "fifteen
(15) days."
S. In Schedule F, paragraph (j), on the 5th line, after the word
"question", the remainder of this paragraph is deleted and the words "the term
of the Lease has not expired or been terminated." is substituted in its place.
10. Notwithstanding the provisions of Section 25.01, within forty-five (45)
days from the date hereof, Landlord shall obtain from the holder of any mortgage
which is a lien on the Lessee's estate under the Net Lease, an agreement ("non-
disturbance and attornment agreement"), providing in substance that Tenant's
possession of and rights in the Demised Premises shall remain undisturbed, so
long as Tenant is not in default under the provisions of this Lease, after any
applicable notice and the expiration of any periods of grace, and providing that
Tenant agrees in said instrument to attorn to such mortgagee as its landlord
under this Lease. Concurrently with the execution of this Lease, Tenant has
executed a non-disturbance and attornment agreement with respect to the existing
mortgagees. Landlord further agrees that this Lease shall not be subject or
subordinate to any hereafter placed mortgage, unless and until (in all such
instances, as applicable) Landlord shall have obtained the appropriate
nondisturbance and attornment agreement for the benefit of Tenant (subject to
Tenant's obligations to execute said agreements.)
16
<PAGE>
11. Landlord represents that on the Effective Date the Additional Premises
will be in compliance with all Governmental Requirements.
12. Landlord and Tenant represent and warrant that they had no dealings or
negotiations with any broker or agent, other than Cohen Brothers Realty
Corporation, in connection with this Agreement. Landlord will pay said broker a
commission pursuant to separate agreement. Landlord and Tenant agree to
indemnify and hold harmless the other from and against any cost, expense or
liability for any compensation, commissions or charges arising out of a breach
by the other of the representations contained in this paragraph.
13. Except as modified by this Agreement, the Lease and all the terms,
covenants and conditions thereof (except those which by their terms are no
longer applicable) shall remain in full force and effect and are hereby in all
respects ratified and confirmed.
IN WITNESS WHEREOF, Landlord and Tenant have executed this Agreement
on the day and year first above written.
THREE PARK AVENUE CO.
By: /s/ Charles Steven Cohen
---------------------------
Charles Steven Cohen, Agent
Landlord
EARTHWEB, INC.
Tenant
By: /s/ Murray Hidary
---------------------------
Tenant
17
<PAGE>
EXHIBIT 23.1
After the approval by the Board of Directors of the 0.65 for 1 reverse stock
split discussed in Note 11 to the financial statements of EarthWeb Inc., we
expect to be in a position to render the following consent.
PricewaterhouseCoopers LLP
New York, New York
October 16, 1998
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-1 of our
report dated March 31, 1998, on our audit of the financial statements of
EarthWeb Inc. as of December 31, 1997 and 1996 and for the three years in the
period ended December 31, 1997. We also consent to the reference to our firm
under the caption "Experts."
New York, New York
<PAGE>
EXHIBIT 23.4
Forrester Research, Inc.
October 5, 1998
To: Jack Hidary
EarthWeb, Inc.
The undersigned hereby consents to the references to the undersigned included in
the Registration Statement on Form S-1 of EarthWeb, Inc. and any amendment
thereto.
/s/ Stuart Woodring
--------------------
By: Stuart Woodring
Title: VP, Research
<PAGE>
EXHIBIT 23.5
[LETTERHEAD OF INTERNATIONAL DATA CORPORATION]
September 25, 1998
To: Jack Hidary
EarthWeb, Inc.
The undersigned hereby consents to the references to the undersigned included in
the Registration Statement on Form S-1 of EarthWeb, Inc. and any amendment
thereto.
/s/ Michael Sullivan-Trainor
----------------------------
By: Michael Sullivan-Trainor
Title: Vice President
Internet
<PAGE>
EXHIBIT 23.6
AUTHORIZATION AND RELEASE
-------------------------
I have participated or will participate in the creation of a written
testimonial regarding EarthWeb Inc. ("EarthWeb") and/or its services (for
example, its developer.com service) (such testimonial to be hereinafter referred
to as the "Statement"). For good and valuable consideration, the sufficiency
and receipt of which are hereby acknowledged, I agree irrevocably and
perpetually as follows:
1. I authorize EarthWeb and its successors, assigns, licensees,
agents and designees (together, "Company") to make use of (i) the Statement and
(ii) my identity and likeness, in any manner as Company may choose, in any and
all media and manner throughout the world now known or later developed, for any
purpose whatsoever including (but not limited to) production, distribution,
broadcast, advertising and promotion. I acknowledge that such use may (i) be
alone or in combination with other text, sound, video or other material, (ii) be
in connection with any or all works that use, adapt, modify, are based on, or
otherwise incorporate the Statement, and (iii) include or not include use of my
name and biographical information about me. I agree that Company may, in its
sole discretion, edit, modify or excerpt the Statement. I understand that the
intent of this Authorization and Release is to convey to Company any and all
rights I may have, on a nonexclusive basis, to such Statement, or my identity
and likeness, to the maximum extent, so that Company may use those interests for
commercial and other purposes throughout the world without additional approval
from or compensation to me.
2. I understand, acknowledge and agree that Company is the owner of the
Statement. I hereby assign, and agree to assign, to Company any right, title or
interest I may have in the Statement. I acknowledge that Company has the
irrevocable, worldwide, assignable, sublicensable and perpetual right to
reproduce, distribute, perform or display, publicly or otherwise, and prepare
derivative works of the Statement and derivative works thereof. I will (whether
during or after my participation in creating the Statement) execute such written
instruments and do other such acts, at Company's expense, as may be necessary in
the opinion of Company to effect an assignment of, register, enforce or
otherwise exercise rights with respect to a copyright, trademark or other
intellectual property right relating to the Statement or the use of my identity
and likeness as set forth above.
3. I release Company from any claims that I may have as to the use of
the Statement as authorized by this Authorization and Release, including (but
not limited to) claims based on rights of publicity or privacy, defamation, or
intellectual property rights infringement.
/s/ Koen Van Exem
-------------------
[signature]
Name: Koen Van Exem
--------------
[print]
Date: 2 Oct. 1998
-------------
<PAGE>
EXHIBIT 23.7
AUTHORIZATION AND RELEASE
-------------------------
I have participated or will participate in the creation of a written
testimonial regarding EarthWeb Inc. ("EarthWeb") and/or its services (for
example, its developer.com service) (such testimonial to be hereinafter referred
to as the "Statement"). For good and valuable consideration, the sufficiency and
receipt of which are hereby acknowledged, I agree irrevocably and perpetually as
follows:
1. I authorize EarthWeb and its successors, assigns, licensees, agents
and designees (together, "Company") to make use of (i) the Statement and (ii) my
identity and likeness, in any manner as Company may choose, in any and all media
and manner throughout the world now known or later developed, for any purpose
whatsoever including (but not limited to) production, distribution, broadcast,
advertising and promotion. I acknowledge that such use may (i) be alone or in
combination with other text, sound, video or other material, (ii) be in
connection with any or all works that use, adapt, modify, are based on, or
otherwise incorporate the Statement, and (iii) include or not include use of my
name and biographical information about me. I agree that Company may, in its
sole discretion, edit, modify or excerpt the Statement. I understand that the
intent of this Authorization and Release is to convey to Company any and all
rights I may have, on a nonexclusive basis, to such Statement, or my identity
and likeness, to the maximum extent, so that Company may use those interests for
commercial and other purposes throughout the world without additional approval
from or compensation to me.
2. I understand, acknowledge and agree that Company is the owner of the
Statement. I hereby assign, and agree to assign, to Company any right, title or
interest I may have in the Statement. I acknowledge that Company has the
irrevocable, worldwide, assignable, sublicensable and perpetual right to
reproduce, distribute, perform or display, publicly or otherwise, and prepare
derivative works of the Statement and derivative works thereof. I will (whether
during or after my participation in creating the Statement) execute such
written instruments and do other such acts, at Company's expense, as may be
necessary in the opinion of Company to effect an assignment of, register,
enforce or otherwise exercise rights with respect to a copyright, trademark or
other intellectual property right relating to the Statement or the use of my
identity and likeness as set forth above.
3. I release Company from any claims that I may have as to the use of
the Statement as authorized by this Authorization and Release, including (but
not limited to) claims based on rights of publicity or privacy, defamation or
intellectual property rights infringement.
/s/ Chris Cooper
-----------------------------
[signature]
Name: Chris Cooper
------------------------
[print]
Date: 10-2-98
------------------------
<PAGE>
EXHIBIT 23.8
AUTHORIZATION AND RELEASE
-------------------------
I have participated or will participate in the creation of a written
testimonial regarding EarthWeb Inc. ("EarthWeb") and/or its services (for
example, its developer.com service) (such testimonial to be hereinafter referred
to as the "Statement"). For good and valuable consideration, the sufficiency and
receipt of which are hereby acknowledged, I agree irrevocably and perpetually as
follows:
1. I authorize EarthWeb and its successors, assigns, licensees, agents
and designees (together, "Company") to make use of (i) the Statement and (ii) my
identity and likeness, in any manner as Company may choose, in any and all media
and manner throughout the world now known or later developed, for any purpose
whatsoever including (but not limited to) production, distribution, broadcast,
advertising and promotion. I acknowledge that such use may (i) be alone or in
combination with other text, sound, video or other material, (ii) be in
connection with any or all works that use, adapt, modify, are based on, or
otherwise incorporate the Statement, and (iii) include or not include use of my
name and biographical information about me. I agree that Company may, in its
sole discretion, edit, modify or excerpt the Statement. I understand that the
intent of this Authorization and Release is to convey to Company any and all
rights I may have, on a nonexclusive basis, to such Statement, or my identity
and likeness, to the maximum extent, so that Company may use those interests for
commercial and other purposes throughout the world without additional approval
from or compensation to me.
2. I understand, acknowledge and agree that Company is the owner of the
Statement. I hereby assign, and agree to assign, to Company any right, title or
interest I may have in the Statement. I acknowledge that Company has the
irrevocable, worldwide, assignable, sublicensable and perpetual right to
reproduce, distribute, perform or display, publicly or otherwise, and prepare
derivative works of the Statement and derivative works thereof. I will (whether
during or after my participation in creating the Statement) execute such
written instruments and do other such acts, at Company's expense, as may be
necessary in the opinion of Company to effect an assignment of, register,
enforce or otherwise exercise rights with respect to a copyright, trademark or
other intellectual property right relating to the Statement or the use of my
identity and likeness as set forth above.
3. I release Company from any claims that I may have as to the use of
the Statement as authorized by this Authorization and Release, including (but
not limited to) claims based on rights of publicity or privacy, defamation or
intellectual property rights infringement.
/s/ David Mathison
-----------------------------
[signature]
Name: David Mathison
------------------------
[print]
Date: 8/28/98
------------------------
<PAGE>
EXHIBIT 23.9
AUTHORIZATION AND RELEASE
-------------------------
I have participated or will participate in the creation of a written
testimonial regarding EarthWeb Inc. ("EarthWeb") and/or its services (for
example, its developer.com service) (such testimonial to be hereinafter referred
to as the "Statement"). For good and valuable consideration, the sufficiency and
receipt of which are hereby acknowledged, I agree irrevocably and perpetually as
follows:
1. I authorize EarthWeb and its successors, assigns, licensees, agents
and designees (together, "Company") to make use of (i) the Statement and (ii) my
identity and likeness, in any manner as Company may choose, in any and all media
and manner throughout the world now known or later developed, for any purpose
whatsoever including (but not limited to) production, distribution, broadcast,
advertising and promotion. I acknowledge that such use may (i) be alone or in
combination with other text, sound, video or other material, (ii) be in
connection with any or all works that use, adapt, modify, are based on, or
otherwise incorporate the Statement, and (iii) include or not include use of my
name and biographical information about me. I agree that Company may, in its
sole discretion, edit, modify or excerpt the Statement. I understand that the
intent of this Authorization and Release is to convey to Company any and all
rights I may have, on a nonexclusive basis, to such Statement, or my identity
and likeness, to the maximum extent, so that Company may use those interests for
commercial and other purposes throughout the world without additional approval
from or compensation to me.
2. I understand, acknowledge and agree that Company is the owner of the
Statement. I hereby assign, and agree to assign, to Company any right, title or
interest I may have in the Statement. I acknowledge that Company has the
irrevocable, worldwide, assignable, sublicensable and perpetual right to
reproduce, distribute, perform or display, publicly or otherwise, and prepare
derivative works of the Statement and derivative works thereof. I will (whether
during or after my participation in creating the Statement) execute such
written instruments and do other such acts, at Company's expense, as may be
necessary in the opinion of Company to effect an assignment of, register,
enforce or otherwise exercise rights with respect to a copyright, trademark or
other intellectual property right relating to the Statement or the use of my
identity and likeness as set forth above.
3. I release Company from any claims that I may have as to the use of
the Statement as authorized by this Authorization and Release, including (but
not limited to) claims based on rights of publicity or privacy, defamation or
intellectual property rights infringement.
/s/ Praveen Maryala
-----------------------------
[signature]
Name: Praveen Maryala
------------------------
[print]
Date: 09/09/98
------------------------
<PAGE>
EXHIBIT 23.10
AUTHORIZATION AND RELEASE
-------------------------
I have participated or will participate in the creation of a written
testimonial regarding EarthWeb Inc. ("EarthWeb") and/or its services (for
example, its developer.com service) (such testimonial to be hereinafter referred
to as the "Statement"). For good and valuable consideration, the sufficiency and
receipt of which are hereby acknowledged, I agree irrevocably and perpetually as
follows:
1. I authorize EarthWeb and its successors, assigns, licensees, agents
and designees (together, "Company") to make use of (i) the Statement and (ii) my
identity and likeness, in any manner as Company may choose, in any and all media
and manner throughout the world now known or later developed, for any purpose
whatsoever including (but not limited to) production, distribution, broadcast,
advertising and promotion. I acknowledge that such use may (i) be alone or in
combination with other text, sound, video or other material, (ii) be in
connection with any or all works that use, adapt, modify, are based on, or
otherwise incorporate the Statement, and (iii) include or not include use of my
name and biographical information about me. I agree that Company may, in its
sole discretion, edit, modify or excerpt the Statement. I understand that the
intent of this Authorization and Release is to convey to Company any and all
rights I may have, on a nonexclusive basis, to such Statement, or my identity
and likeness, to the maximum extent, so that Company may use those interests for
commercial and other purposes throughout the world without additional approval
from or compensation to me.
2. I understand, acknowledge and agree that Company is the owner of the
Statement. I hereby assign, and agree to assign, to Company any right, title or
interest I may have in the Statement. I acknowledge that Company has the
irrevocable, worldwide, assignable, sublicensable and perpetual right to
reproduce, distribute, perform or display, publicly or otherwise, and prepare
derivative works of the Statement and derivative works thereof. I will (whether
during or after my participation in creating the Statement) execute such
written instruments and do other such acts, at Company's expense, as may be
necessary in the opinion of Company to effect an assignment of, register,
enforce or otherwise exercise rights with respect to a copyright, trademark or
other intellectual property right relating to the Statement or the use of my
identity and likeness as set forth above.
3. I release Company from any claims that I may have as to the use of
the Statement as authorized by this Authorization and Release, including (but
not limited to) claims based on rights of publicity or privacy, defamation or
intellectual property rights infringement.
/s/ James A. Rose
-----------------------------
[signature]
Name: James A. Rose
------------------------
[print]
Date: 10/6/98
------------------------
<PAGE>
EXHIBIT 23.11
AUTHORIZATION AND RELEASE
-------------------------
I have participated or will participate in the creation of a written
testimonial regarding EarthWeb Inc. ("EarthWeb") and/or its services (for
example, its developer.com service) (such testimonial to be hereinafter referred
to as the "Statement"). For good and valuable consideration, the sufficiency and
receipt of which are hereby acknowledged, I agree irrevocably and perpetually as
follows:
1. I authorize EarthWeb and its successors, assigns, licensees, agents
and designees (together, "Company") to make use of (i) the Statement and (ii) my
identity and likeness, in any manner as Company may choose, in any and all media
and manner throughout the world now known or later developed, for any purpose
whatsoever including (but not limited to) production, distribution, broadcast,
advertising and promotion. I acknowledge that such use may (i) be alone or in
combination with other text, sound, video or other material, (ii) be in
connection with any or all works that use, adapt, modify, are based on, or
otherwise incorporate the Statement, and (iii) include or not include use of my
name and biographical information about me. I agree that Company may, in its
sole discretion, edit, modify or excerpt the Statement. I understand that the
intent of this Authorization and Release is to convey to Company any and all
rights I may have, on a nonexclusive basis, to such Statement, or my identity
and likeness, to the maximum extent, so that Company may use those interests for
commercial and other purposes throughout the world without additional approval
from or compensation to me.
2. I understand, acknowledge and agree that Company is the owner of the
Statement. I hereby assign, and agree to assign, to Company any right, title or
interest I may have in the Statement. I acknowledge that Company has the
irrevocable, worldwide, assignable, sublicensable and perpetual right to
reproduce, distribute, perform or display, publicly or otherwise, and prepare
derivative works of the Statement and derivative works thereof. I will (whether
during or after my participation in creating the Statement) execute such
written instruments and do other such acts, at Company's expense, as may be
necessary in the opinion of Company to effect an assignment of, register,
enforce or otherwise exercise rights with respect to a copyright, trademark or
other intellectual property right relating to the Statement or the use of my
identity and likeness as set forth above.
3. I release Company from any claims that I may have as to the use of
the Statement as authorized by this Authorization and Release, including (but
not limited to) claims based on rights of publicity or privacy, defamation or
intellectual property rights infringement.
/s/ Marianne Mason
-----------------------------
[signature]
Name: Marianne Mason
------------------------
[print]
Date: 9/9/98
------------------------
<PAGE>
EXHIBIT 23.12
AUTHORIZATION AND RELEASE
-------------------------
I have participated or will participate in the creation of a written
testimonial regarding EarthWeb Inc. ("EarthWeb") and/or its services (for
example, its developer.com service) (such testimonial to be hereinafter referred
to as the "Statement"). For good and valuable consideration, the sufficiency and
receipt of which are hereby acknowledged, I agree irrevocably and perpetually as
follows:
1. I authorize EarthWeb and its successors, assigns, licensees, agents
and designees (together, "Company") to make use of (i) the Statement and (ii) my
identity and likeness, in any manner as Company may choose, in any and all media
and manner throughout the world now known or later developed, for any purpose
whatsoever including (but not limited to) production, distribution, broadcast,
advertising and promotion. I acknowledge that such use may (i) be alone or in
combination with other text, sound, video or other material, (ii) be in
connection with any or all works that use, adapt, modify, are based on, or
otherwise incorporate the Statement, and (iii) include or not include use of my
name and biographical information about me. I agree that Company may, in its
sole discretion, edit, modify or excerpt the Statement. I understand that the
intent of this Authorization and Release is to convey to Company any and all
rights I may have, on a nonexclusive basis, to such Statement, or my identity
and likeness, to the maximum extent, so that Company may use those interests for
commercial and other purposes throughout the world without additional approval
from or compensation to me.
2. I understand, acknowledge and agree that Company is the owner of the
Statement. I hereby assign, and agree to assign, to Company any right, title or
interest I may have in the Statement. I acknowledge that Company has the
irrevocable, worldwide, assignable, sublicensable and perpetual right to
reproduce, distribute, perform or display, publicly or otherwise, and prepare
derivative works of the Statement and derivative works thereof. I will (whether
during or after my participation in creating the Statement) execute such
written instruments and do other such acts, at Company's expense, as may be
necessary in the opinion of Company to effect an assignment of, register,
enforce or otherwise exercise rights with respect to a copyright, trademark or
other intellectual property right relating to the Statement or the use of my
identity and likeness as set forth above.
3. I release Company from any claims that I may have as to the use of
the Statement as authorized by this Authorization and Release, including (but
not limited to) claims based on rights of publicity or privacy, defamation or
intellectual property rights infringement.
/s/ Reg Hingley
-----------------------------
[signature]
Name: Reg Hingley
------------------------
[print]
Date: Sep 9/98
------------------------
