<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 6, 1998
REGISTRATION NO. 333- .
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
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>
TITLE OF EACH CLASS OF SECURITIES TO PROPOSED MAXIMUM AMOUNT OF
BE REGISTERED AGGREGATE OFFERING PRICE(1)(2)(3) REGISTRATION FEE
- ----------------------------------------------------------------------------------------
<S> <C> <C>
Common Stock, $.01 par value $34,500,000 $10,177.50
</TABLE>
- --------------------------------------------------------------------------------
(1) In accordance with Rule 457(o) under the Securities Act of 1933, the number
of shares of Common Stock being registered and the proposed maximum offering
price per share are not included in this table.
(2) Includes shares of Common Stock which the Underwriters have the right to
purchase upon exercise of the over-allotment option.
(3) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(o) under the Securities Act of 1933.
---------------
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 , 1998
Shares
(COMPANY LOGO) EARTHWEB INC.
Common Stock
(par value, $0.01 per share)
All of 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 $ and $ per share.
See "Underwriting" for a discussion of the factors to be considered in
determining the initial public offering price.
The Company intends to qualify the Common Stock for quotation on the Nasdaq Na-
tional 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 % 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 has 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 Company has granted the Underwriters an option, exercisable within 30
days after the date of this Prospectus, to purchase up to an additional
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, Underwriting Discount and
Proceeds to Company will be $ , $ and $ , respectively. See
"Underwriting."
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>
[INSERT PHOTO OR GRAPHICS]
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 Op-
erations.............................. 21
Business............................... 27
</TABLE>
<TABLE>
<CAPTION>
PAGE
<S> <C>
Management........................ 35
Principal 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.
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 shares of the Company's
Series A Convertible Preferred Stock, par value $.01 per share ("Series A
Preferred Stock") into shares of Common Stock and shares of the
Company's Series B Convertible Preferred Stock, par value $.01 per share
("Series B Preferred Stock") (collectively, the "Preferred Stock") into
shares of Common Stock and (ii) no exercise of the Underwriters' over-allotment
option. 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'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. 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
240,000 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 $755 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 45%, 28% and 15%,
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 ("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 $10.6 billion in 1997 to $223.1 billion in 2001, with the
business-to-business component growing from an estimated $5.5 billion to $149.5
billion in the same period. The Company uses advanced Internet technologies to
enable its advertisers to target their advertisements to specific user groups
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.
4
<PAGE>
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 (including fee-based premium services), pursue strategic
acquisitions and expand internationally.
EarthWeb was incorporated in New York in April 1996, commenced operations on
October 25, 1996 and was reincorporated in Delaware in June 1997. 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. The Company's principle
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(1)........ shares
COMMON STOCK TO BE OUTSTANDING
AFTER THE OFFERING(1)(2)...... 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.
(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 shares of Common Stock reserved for issuance pursuant to the Stock
Plan (as hereinafter defined) of which options to purchase shares were
outstanding and 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)
Dollars in thousands,
except per share data
<S> <C> <C> <C> <C> <C>
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..
Basic and diluted net
loss per share.........
Weighted average shares
outstanding used in
computing basic and
diluted net loss per
share..................
Pro forma basic and
diluted net loss per
share from continuing
operations(2)..........
Pro forma basic and
diluted net loss per
share(2)...............
Shares used in computing
pro forma basic and
diluted net loss per
share..................
</TABLE>
-----------------------
<TABLE><CAPTION>
AS OF JUNE 30, 1998
ACTUAL AS ADJUSTED (3)
-------- ---------------
(UNAUDITED)
Dollars in thousands
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents............................. $4,762 $
Working capital....................................... 5,024
Total assets.......................................... 8,920
Stockholders' equity.................................. 7,269
</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 into of shares of Preferred Stock into shares of Common
Stock and gives effect to the sale of shares of Common Stock offered hereby
(assuming an initial offering price of $ ), but excludes: (i) shares of
Common Stock issuable upon exercise of options outstanding under the Stock
Plan, at a weighted average exercise price of $ per share; and (ii)
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
7
<PAGE>
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,
8
<PAGE>
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. 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
10
<PAGE>
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. 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 certain strategic alliances 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. The inability of the Company to
maintain its current strategic relationships 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. Nonetheless,
there can be no assurance in this regard until such systems are operational in
the Year 2000. The Company is in the process of contacting all of its
significant suppliers to determine the extent to which the Company's interface
systems are vulnerable to those third parties' failure to make their own
systems 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. Accordingly, to the extent the
systems of the Company's suppliers and advertising customers are not fully Year
2000 compliant, there can be no assurance that potential system interruptions
or the cost necessary to update software will not have a material adverse
affect on the Company's business, results of operation 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.
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.
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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 June 30, 1998, the present directors, executive officers, greater than 5%
stockholders and their respective affiliates beneficially owned approximately
% of the outstanding Common Stock of the Company, after giving effect to the
Offering and the Preferred Stock Conversion. As of June 30, 1998, Warburg,
Pincus Ventures, L.P. ("Warburg") beneficially owned approximately % 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 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 shares of Common Stock outstanding ( shares, if the
Underwriters' over-allotment option is exercised in full and assuming no
exercise of outstanding options). Of these shares, the shares sold in the
Offering ( 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 shares of Common Stock
(including 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, 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 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 the date of this Prospectus, there were outstanding options to
purchase shares of Common Stock, of which 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."
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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 $ 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 $ , will incur immediate and substantial
dilution in the amount of $ 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 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."
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USE OF PROCEEDS
The net proceeds to the Company from the sale of the shares of Common Stock
being offered hereby (at an assumed initial public offering price of $ per
share) are estimated to be approximately $ million ($ million if the
Underwriters' over-allotment option is exercised in full), 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, international expansion and working capital
requirements. The Company evaluates potential strategic acquisitions or
investments, but at the present time the Company has no present 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 foregoing represents the Company's present intentions with respect to the
allocation of proceeds of the Offering 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."
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.
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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 shares of Common Stock
offered hereby (assuming an initial offering price of $ ) 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 --
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; 5,171,456 shares issued and outstanding,
actual ( shares issued and outstanding, as
adjusted) (1)......................................... 52 $
Additional paid-in capital............................. 18,451
Unearned compensation.................................. (18)
Accumulated deficit.................................... (11,228)
-------- ----
Total stockholders' equity........................... 7,269
-------- ----
Total capitalization................................. $ 7,401 $
======== ====
</TABLE>
- -------
(1)Does not include shares of Common Stock reserved for issuance pursuant
to the Stock Plan of which options to purchase shares were outstanding and
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 $ 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 shares of Common Stock offered hereby (at an assumed initial
public offering price of $ 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
$ , or $ per share of Common Stock. This represents an immediate increase
in net tangible book value of $ per share to existing stockholders and an
immediate dilution of $ 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.......... $
---------
Net tangible book value per share as of June 30, 1998.... $
Increase in net tangible book value per share attribut-
able to new investors...................................
---------
Pro forma net tangible book value per share after the Of-
fering..................................................
---------
Dilution per share to new investors...................... $
=========
</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... % $ % $
New investors...........
--------- --------- --------- ---------
Total................... 100% $ 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 $ per share, which would result in dilution to the new investors of
$ per share, and the number of shares held by the new investors will
increase to , or % of the total number of shares to be outstanding after the
Offering, and the number of shares held by the existing stockholders will be
shares, or % 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 shares of Common Stock, of which were then exercisable,
and the Company had also reserved for issuance up to an additional 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
ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------- ------------
1995 1996 1997 1997 1998
------ ------ ------ ------- ------
<S> <C> <C> <C> <C> <C>
Dollars in thousands,
except 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...
Basic and diluted net
income (loss) per share
from discontinued
operations..............
Basic and diluted net
loss per share..........
Weighted average shares
outstanding used in
computing basic and
diluted net income
(loss) per share........
Pro forma basic and
diluted net loss per
share from continuing
operations(1)...........
Pro forma basic and
diluted net loss per
share from discontinued
operations(1)...........
Pro forma basic and
diluted net loss per
share(1)................
Shares used in computing
basic and diluted net
loss per share(1).......
</TABLE>
- -------
(1) The pro forma per share amounts are computed by using 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 Preferred Stock Conversion.
19
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
------------------------------------------
<CAPTION>
AS OF DECEMBER 31,
------------------------------- AS OF
1995 1996 1997 JUNE 30, 1998
Dollars in thousands ------ -------- --------- -------------
<S> <C> <C> <C> <C>
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 made five acquisitions to expand and extend its online
service offerings. In August 1997, the Company acquired substantially all the
assets of the Java Applet Rating Service ("JARS"), including the Web site,
jars.com. 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. In July 1998, the Company acquired substantially all
the assets comprising datamation.com, which provides online articles, resources
and product analysis for IT enterprise managers. 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.com will lead to
additional goodwill and other intangibles, the exact amount of which will be
based on the final allocation of the purchase price. Goodwill and 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 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. 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). 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.
In order to expand its online services, the Company anticipates incurring
additional expenses to increase its sales and marketing efforts, pursue
additional strategic acquisitions and support the growth of the organization.
21
<PAGE>
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 resulted primarily from significant growth in page views because of
the Company's expanded and enhanced content offerings and the ability of
EarthWeb's in-house sales force to sell a larger number of advertising
impressions at a higher CPM. Barter transactions accounted for approximately
25% and 21% of revenues for the six months ended June 30, 1998 and 1997,
respectively.
Cost of Revenues. The Company's cost of revenues consists primarily of employee
compensation and related expenses, 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 employee compensation 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 compensation and related expenses, 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 compensation and related expenses, 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 employee
compensation and related costs for its in-house sales force which did not exist
during the six months ended June 30, 1997. Barter transactions accounted for
approximately 27% and 35% of sales and marketing expenses for the six months
ended June 30, 1998 and 1997, respectively.
General and Administrative Expenses. General and administrative expenses
consist primarily of employee compensation and related expenses 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.
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.
22
<PAGE>
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 year ended December 31, 1997 represents a full year of advertising
sales activity compared to only six months of advertising sales in 1996. In
1996, the Company recorded a one-time barter transaction in which Sun
Microsystems contributed server equipment with a value of $257,000 in exchange
for advertising.
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 operations personnel and consultants and expanding the Company's
Internet access and hosting facilities.
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 employee
compensation and related expenses, consultant fees and equipment lease payments
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, public relations efforts and
establishment of an in-house sales force. 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 primarily the result of increased
employee compensation and related expenses, recruiting costs and rent expense
for its additional office space.
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 includes 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 then 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. Nonetheless,
there can be no assurance in this regard until such systems are operational in
the year 2000. The Company is in the process of contacting all of its
significant suppliers to determine the extent to which the Company's interface
systems are vulnerable to those third parties' failure to make their own
systems 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. Accordingly, to the extent the
systems of the Company's suppliers and advertising customers are not fully Year
2000 compliant, there can be no assurance that potential system interruptions
or the cost necessary to update software will not have a material adverse
affect on the Company's business, results of operation or financial condition.
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 operat-
25
<PAGE>
ing 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.
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. Because of 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.
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<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'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. 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
240,000 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 $755 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 45%, 28% and 15%, 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.
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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 69
million at the end of 1997 to 320 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 $10.6 billion in 1997 to $223.1
billion in 2001, with the business-to-business component growing from an
estimated $5.5 billion to $149.5 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 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.
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<PAGE>
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. 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, 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. 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
30
<PAGE>
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. 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'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. 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.
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.
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.
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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 240,000 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. 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 240,000 users, at a CPM of $100.
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
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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 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."
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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, neutral 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. Prior to February 1996, Mr. Gollan served as a consultant to a
range of companies in the technology publishing and software distribution
industries focusing on distribution channel development, customer loyalty and
enrichment programs and advertising sales development programs. These companies
included Ziff-Davis, IDG and Stream International. 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.
35
<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 and an M.B.A. from Bernard M. Baruch
College.
SCOTT ANDERSON has been the Vice President, Marketing of the Company since
August 1998. From 1994 through June 1998, Mr. Anderson served as a Partner and
Worldwide Management Supervisor at Ogilvy and Mather. Prior to Ogilvy and
Mather, Mr. Anderson worked at various agencies including Suissa Miller and
Drew Advertising. 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
36
<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 Member'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 $130,000 per year, subject to cost of living
increases. The term of the agreement is three years. Mr. Spivack is under a
non-disclosure obligation for a period of five years, commencing upon
termination of his consulting agreement. Mr. Spivack is under a non-compete
obligation for a period of three years thereafter.
The Company entered into an employment agreement with Irene Math dated November
6, 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,
plus 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 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
995,166 shares of Common Stock for issuance, subject to adjustment as set forth
in the Stock Plan. As of December 31, 1997, options relating to shares of
Common Stock were outstanding and approximately remained available for
future grants. No stock appreciation rights of restricted stock have been
granted under the Stock Plan.
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.
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<PAGE>
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 $10,000 -- --
Nova Spivack(2)
Executive Vice President,
Strategic Planning 130,000 10,000 -- --
Murray Hidary
Executive Vice President,
Business Development 130,000 10,000 -- --
Irene Math
Vice President, Finance 118,000 10,000 -- 45,000
</TABLE>
- -------
(1) Represents bonuses earned in 1997, one-half of which was paid in 1998.
(2) Mr. Spivack was Executive Vice President, Strategic Planning through July
1998.
OPTION GRANTS IN FISCAL YEAR ENDED DECEMBER 31, 1997
The following table sets forth information regarding stock options granted
pursuant to the Stock Plan during the fiscal year ended December 31, 1997 to
each of the Named Executive Officers. The Company has never granted stock
appreciation rights.
<TABLE>
<CAPTION>
----------------------------------------------------------------------
OPTION GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS
------------------------------------------------
PERCENT OF POTENTIAL REALIZABLE
TOTAL OPTIONS VALUE AT ASSUMED
GRANTED TO ANNUAL RATES
NUMBER OF EMPLOYEES IN OF
SECURITIES FISCAL YEAR EXERCISE OR STOCK PRICE
UNDERLYING ENDED BASE APPRECIATION FOR
OPTIONS DECEMBER 31, PRICE PER EXPIRATION OPTION TERM(3)
NAME GRANTED(1) 1997(2) ($/SHARE)(3) DATE 5% 10%
- ---- ---------- ------------- ------------ ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Jack D. Hidary.......... -- -- $ -- -- -- --
Nova Spivack............ -- -- -- -- -- --
Murray Hidary........... -- -- -- -- -- --
Irene Math.............. 26,952 7.6% $1.00 2/18/04 10,969 25,577
18,048 5.1% $2.00 9/30/04 14,691 34,255
</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 354,879 options granted to employees in the year
ended December 31, 1997, including options granted to Named Executive Officers.
(3) The exercise price per share of each option was equal to the for market
value of the Common Stock on the date of grant as determined by the Board of
Directors.
(4) Potential gains are reported net of the option exercise price, but before
taxes associated with exercise. These amounts represent certain assumed rates
of appreciation. Actual gains, if any, on stock option exercises are dependent
on the future performance of the Common Stock and overall stock market
conditions, as well as the option holder's continued employment with the
Company throughout the vesting period. The amounts reflected in this table will
not necessarily be achieved.
38
<PAGE>
DECEMBER 31, 1997 -- FISCAL YEAR END OPTION VALUES
The following table sets forth information concerning the value of unexercised
in-the-money options held by the Named Executive Officers as of December 31,
1997.
<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.................. -- 45,000 -- $
</TABLE>
- -------
(1) There was no public trading market for the Common Stock at December 31,
1997. Accordingly, these values have been calculated on the basis of the fair
market value of the Common Stock at December 31, 1997 ($ ) as determined by
the Board of Directors of the Company, less the applicable exercise price per
share, multiplied by the number of shares underlying such options.
39
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of Common Stock as of July 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, and (iii) all directors and executive officers of the
Company as a group.
<TABLE>
<CAPTION>
--------------------------------------
PERCENT
NUMBER OF SHARES -----------------
NAME AND ADDRESS OF BENEFICIALLY OWNED PRIOR TO AFTER
BENEFICIAL OWNERS(1)(2) PRIOR TO OFFERING(2) OFFERING OFFERING
- ----------------------- ------------------- -------- --------
<S> <C> <C> <C>
EarthWeb LLC............................ 5,167,639 57.90%
Warburg, Pincus Ventures, L.P.(3)....... 3,753,591 42.06%
Jack D. Hidary(4)(5).................... 5,324,559 58.65% --
Murray Hidary(4)(5)..................... 5,324,559 58.65% --
Nova Spivack(4)(5)...................... 5,324,559 58.65% --
Cary Davis(6)........................... 3,753,591 42.06% --
Henry Kressel(6)........................ 3,753,591 42.06% --
Irene Math(7)........................... 26,963 * *
All Directors and executive officers as
a group (10 persons)(4)(5)(6)(8)....... 9,078,150 100.00%
</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 shares of Common Stock outstanding
as of July 31, 1998, and shares of Common Stock outstanding as of the close
of the Offering, respectively.
(3) 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.
(4) 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.
(5) Includes 156,920 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 Company, including the
26,963 shares beneficially owned by Ms. Math and 83,381 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.
(6) 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.
40
<PAGE>
(7) Includes 23,963 shares subject to stock options that are exercisable within
60 days (includes options which vest upon the completion of the Offering).
(8) Includes 80,381 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, 1997, the Company had six holders of its Common Stock.
41
<PAGE>
CERTAIN TRANSACTIONS
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 will convert into
shares of Common Stock upon the consummation of the Offering. In June 1998, the
Company issued 667,639 shares of its Common Stock to EarthWeb LLC for an
aggregate purchase price of $3.7 million.
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 July
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.
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 shares
of Common Stock outstanding (assuming no exercise of outstanding options and
giving effect to the issuance of 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 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 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.
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<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 .
44
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon consummation of the Offering approximately 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 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
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 required 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 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), 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 "restricted
securities," and without consideration of the contractual restrictions
described below, approximately 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 shares would be
eligible for sale in reliance upon Rule 701. The holders of the remaining
approximately 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, which one year
period will end in June 1999. Furthermore, holders of an aggregate of
shares are entitled to piggyback registration rights, of which shares are
also entitled to 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 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 June 30, 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........................................................
====
</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 Company has granted to the
Underwriters an option, exercisable for 30 days from the dated hereof, to
purchase up to 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 % 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 has 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.
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>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors ofEarthWeb 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 PricewaterhouseCoopers LLP
March 31, 1998
F-2
<PAGE>
EARTHWEB INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
-------------------------------------
AS OF
DECEMBER 31, AS OF
----------------------- JUNE 30,
1996 1997 1998
---------- ----------- ------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS:
Current assets:
Cash and cash equivalents............. $3,779,368 $ 4,775,153 $ 4,762,084
Restricted cash....................... -- 512,000 362,000
Stockholder receivable................ -- -- 637,500
Accounts receivable, net.............. 101,179 375,961 573,994
Prepaid expenses and other current
assets............................... 75,921 235,242 157,470
Assets of discontinued operations
(accounts receivable and deferred
costs)............................... 657,631 403,052 50,000
---------- ----------- ------------
Total current assets.............. 4,614,099 6,301,408 6,543,048
Fixed assets, net....................... 819,261 1,650,828 1,553,129
Intangible assets, net.................. -- 505,938 778,676
Other assets............................ 63,016 55,674 44,997
Assets of discontinued operations (fixed
assets, net)........................... 156,000 -- --
---------- ----------- ------------
Total assets...................... $5,652,376 $ 8,513,848 $ 8,919,850
========== =========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities:
Accounts payable...................... $ 387,527 $ 574,006 $ 381,200
Accrued expenses...................... 234,945 414,239 581,073
Deferred revenue...................... -- 89,389 70,996
Other current liabilities............. 13,698 462,790 295,566
Liabilities of discontinued operations
(accrued expenses and deferred
revenue)............................. 663,171 443,527 190,181
---------- ----------- ------------
Total current liabilities......... 1,299,341 1,983,951 1,519,016
Other liabilities, including capital
lease obligations.................... 93,858 85,311 131,599
---------- ----------- ------------
Total liabilities................. 1,393,199 2,069,262 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 $6,766,510,
$7,000,722 and $7,209,130 (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,
$10,466,786 and $10,778,378
(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);
5,171,456 (unaudited) shares issued
and outstanding (1997 and 1996:
4,500,000 shares) 45,000 45,000 51,714
Additional paid in capital............ 4,699,899 14,699,864 18,451,692
Unearned compensation................. -- -- (18,200)
Accumulated deficit................... (492,253) (8,312,790) (11,228,483)
---------- ----------- ------------
Total stockholders' equity........ 4,259,177 6,444,586 7,269,235
---------- ----------- ------------
Total liabilities and
stockholders' equity............. $5,652,376 $ 8,513,848 $ 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.. $ (0.16) $ (0.45) $ (1.21) $ (0.51) $ (0.65)
Basic and diluted net
income (loss) per share
from discontinued
operations............. 0.02 (0.01) (0.53) (0.12) --
---------- ----------- ----------- ------------ ------------
Basic and diluted net
loss per share......... $ (0.14) $ (0.46) $ (1.74) $ (0.63) $ (0.65)
========== =========== =========== ============ ============
Weighted average shares
of common stock
outstanding used in
computing basic and
diluted net loss per
share.................. 4,500,000 4,500,000 4,500,000 4,500,000 4,504,570
========== =========== =========== ============ ============
Pro forma basic and
diluted net loss per
share from continuing
operations.............
Pro forma basic and
diluted net loss per
share from discontinued
operations.............
Pro forma basic and
diluted net loss per
share..................
Shares used in computing
pro forma basic and
diluted net loss per
share..................
</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) 4,500,000 $45,000 $ (174,666) 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 4,500,000 45,000 4,699,899 -- -- (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 4,500,000 45,000 14,699,864 -- -- (8,312,790)
Issuance of
common stock
(unaudited).... 667,639 6,676 3,712,074
Exercise of
options
(unaudited).... 3,817 38 3,779
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 5,171,456 $51,714 $18,451,692 $(18,200) -- $(11,228,483)
============= ========= ======= ========= ======= =========== ============ ========== ============
TOTAL
------------
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 4,500,000 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 working capital deficiencies, if any,
through August 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. Barter is recognized when both the
Company's advertisements and the reciprocal advertisements are run or goods and
services are received. 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.
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 value 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 for as
disclosed in Note 3. Should there be a further impairment in the future, the
Company will determine the impairment based on a comparison of recorded amounts
to the expected future cash flows from the impaired assets. The cash flow
estimates will contain management's best estimates, using appropriate and
customary assumptions and projections at the time.
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.
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
F-9
<PAGE>
EARTHWEB INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
2. SIGNIFICANT ACCOUNTING POLICIES AND PROCEDURES--(CONTINUED)
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. Because of 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.
3. ACQUISITION
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.
F-10
<PAGE>
EARTHWEB INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
3. ACQUISITION--(CONTINUED)
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:
<S> <C> <C> <C> <C> <C> <C>
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 $78,000
and $779,000, 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..................................................... 131,181 $1.00
Granted..................................................... 223,698 2.00
Exercised................................................... -- --
Forfeited................................................... (26,895) 1.00
<CAPTION>
--------
<S> <C> <C>
Options outstanding at December 31, 1997.................... 327,984 1.68
Granted (unaudited)......................................... 376,239 2.00
Granted (unaudited)......................................... 19,160 5.57
Granted (unaudited)......................................... 13,000 7.00
Exercised (unaudited)....................................... (3,817) 1.00
Forfeited (unaudited)....................................... (84,864) 1.52
<CAPTION>
--------
<S> <C> <C>
Options outstanding at June 30, 1998 (unaudited)............ 647,702 2.11
Options exercisable at December 31, 1997.................... --
Options exercisable at June 30, 1998 (unaudited)............ 15,499
Weighted average fair value of options granted during 1997.. $ 0.49
</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>
$1.00....................................... 104,286 6.2 years $1.00
$2.00....................................... 223,698 6.8 years $2.00
</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 995,166 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>
<S> <C>
-----------
<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.......................... $ (1.74)
Basic net loss per share--pro forma............................ $ (1.75)
</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
<CAPTION>
----------- -----------
<S> <C> <C>
Net deferred tax asset............................ 184,049 3,579,300
Less, Valuation allowance......................... (184,049) (3,579,300)
<CAPTION>
----------- -----------
<S> <C> <C>
Deferred tax asset................................ $ -- $ --
<CAPTION>
=========== ===========
</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 made three
acquisitions of certain assets of 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 $376,000, a portion of which is payable over a period of
11 to 36 months, as defined in the acquisition agreements.
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 certain rights from the seller. 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 667,639 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 3,753,591
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.
F-15
<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) 1,500,000 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 Venture Fund IV, 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 667,639 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.
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*
10.1 1996 Amended and Restated Stock Plan, as amended.
10.2 Employment Agreement dated July 1, 1995 between GNP (formerly
EarthWeb Ltd.) and Jack D. Hidary
10.3 Employment Agreement dated July 1, 1995 between GNP (formerly
EarthWeb Ltd.) and Murray Hidary
10.4 Employment Agreement dated November 1, 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
Lease Agreement dated April 28, 1995 between 3 Park Avenue Co. and
10.8 MJN Enterprises, Inc., as amended*
23.1 Consent of PricewaterhouseCoopers LLP
23.2 Consent of Morrison & Foerster LLP (set forth in Exhibit 5)*
Powers of Attorney (set forth on the signature page to this
24 Registration Statement)
27 Financial Data Schedule
</TABLE>
- -------
* To be filed by amendment.
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-2
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF NEW YORK, STATE OF NEW
YORK, ON AUGUST 5, 1998.
EarthWeb Inc.
/s/ Jack D. Hidary
By: ____________________________________
JACK D. HIDARY,
President and Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, THAT EACH PERSON WHOSE SIGNATURE APPEARS
BELOW CONSTITUTES AND APPOINTS AND HEREBY AUTHORIZES JACK D. HIDARY AND IRENE
MATH, SEVERALLY, SUCH PERSON'S TRUE AND LAWFUL ATTORNEYS-IN-FACT, WITH FULL
POWER OF SUBSTITUTION OR RESUBSTITUTION, FOR SUCH PERSON AND IN SUCH PERSON'S
NAME, PLACE AND STEAD, IN ANY AND ALL CAPACITIES, TO SIGN ON SUCH PERSON'S
BEHALF, INDIVIDUALLY AND IN EACH CAPACITY STATED BELOW, ANY AND ALL AMENDMENTS,
INCLUDING POST-EFFECTIVE AMENDMENTS TO THIS REGISTRATION STATEMENT AND TO SIGN
ANY AND ALL ADDITIONAL REGISTRATION STATEMENTS RELATING TO THE SAME OFFERING OF
SECURITIES AS THIS REGISTRATION STATEMENT THAT ARE FILED PURSUANT TO RULE
462(B) OF THE SECURITIES ACT OF 1933, AND TO FILE THE SAME, WITH ALL EXHIBITS
THERETO, AND OTHER DOCUMENTS IN CONNECTION THEREWITH, WITH THE SECURITIES AND
EXCHANGE COMMISSION, GRANTING UNTO SAID ATTORNEYS-IN-FACT, FULL POWER AND
AUTHORITY TO DO AND PERFORM EACH AND EVERY ACT AND THING REQUISITE OR NECESSARY
TO BE DONE IN AND ABOUT THE PREMISES, AS FULLY TO ALL INTENTS AND PURPOSES AS
SUCH PERSON MIGHT OR COULD DO IN PERSON, HEREBY RATIFYING AND CONFIRMING ALL
THAT SAID ATTORNEYS-IN-FACT, OR THEIR SUBSTITUTE OR SUBSTITUTES, MAY LAWFULLY
DO OR CAUSE TO BE DONE BY VIRTUE HEREOF.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS REGISTRATION
STATEMENT 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 August 5, 1998
______________________________________ Officer and Director
JACK D. HIDARY
/s/ Murray Hidary Executive Vice President, August 5, 1998
______________________________________ Secretary, Treasurer and
MURRAY HIDARY Director
/s/ Nova Spivack Director August 5, 1998
______________________________________
NOVA SPIVACK
/s/ Henry Kressel Director August 5, 1998
______________________________________
HENRY KRESSEL
/s/ Cary Davis Director August 5, 1998
______________________________________
CARY DAVIS
/s/ Irene Math Vice President, Finance August 5, 1998
______________________________________ (Principal Financial and
IRENE MATH Accounting Officer)
</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
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*
10.1 1996 Amended and Restated Stock Plan, as amended.
10.2 Employment Agreement dated July 1, 1995 between GNP
(formerly EarthWeb Ltd.) and Jack D. Hidary
10.3 Employment Agreement dated July 1, 1995 between GNP
(formerly EarthWeb Ltd.) and Murray Hidary
10.4 Employment Agreement dated November 1, 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
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)*
24 Powers of Attorney (set forth on the signature page to this
Registration Statement)
27 Financial Data Schedule
</TABLE>
- -------
* To be filed by amendment.
<PAGE>
EXHIBIT 3.1
CERTIFICATE OF INCORPORATION
OF
EARTHWEB INC.
---------------------------------
ARTICLE I
NAME
----
The name of the corporation is EarthWeb Inc. (the "Company").
-------
ARTICLE II
PURPOSE
-------
The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of the State of Delaware.
ARTICLE III
INCORPORATOR
------------
The name and mailing address of the incorporator is as follows:
Name Mailing Address
---- ---------------
Jack D. Hidary c/o EarthWeb Inc.
3 Park Avenue, 38th Floor
New York, NY 10016
ARTICLE IV
BOARD OF DIRECTORS
------------------
The number of directors of the Corporation shall be such as from time
to time shall be fixed in the manner provided
<PAGE>
in the By-Laws of the Corporation. The election of directors of the Corporation
need not be by ballot unless the By-Laws so require.
ARTICLE V
REGISTERED AGENT
----------------
The address of the registered office of the Corporation in the State of
Delaware is 9 East Loockerman Street, City of Dover, County of Kent, 19901. The
name of the registered agent of the Corporation at such address is National
Registered Agents, Inc.
ARTICLE VI
CAPITAL STOCK
-------------
6.1. Authorized Shares.
-----------------
(a) The total number of shares of capital stock which the
Company is authorized to issue is 10,000,000 shares, consisting of 7,250,000
shares of common stock, $0.01 par value (the "Common Stock"), and 2,750,000
------------
shares of preferred stock, $0.01 par value (the "Preferred Stock"). The shares
---------------
of Preferred Stock are hereby designated as follows:
(i) 1,000,000 shares are designated as Series A Convertible
Preferred Stock (the "Series A Preferred Stock");
------------------------
(ii) 600,000 shares are designated as Series B Convertible
Preferred Stock (the "Series B Preferred Stock"); and
------------------------
(iii) 1,150,000 shares are designated as Series C Convertible
Preferred Stock (the "Series C Preferred Stock").
------------------------
(b) The designations, powers, preferences and relative,
participating, optional and other special rights, and the qualifications,
limitations and restrictions thereof, with respect to the Preferred Stock and
the Common Stock are as set forth in this Article VI.
----------
6.2. Definitions.
-----------
For purposes of this Certificate of Incorporation of the Company, the
following terms shall have the meanings given to them below:
-2-
<PAGE>
"Accruing Dividends" has the meaning given to it in Section 6.3(a) of
------------------ --------------
this Article VI.
----------
"Affiliate" means, with respect to any specified Person, (1) any other
---------
Person who, directly or indirectly, owns or controls, is under common ownership
or control with, or is owned or controlled by, such specified Person, (2) any
other Person who is a director, officer or partner, or is, directly or
indirectly, the beneficial owner of ten percent (10%) or more of any class of
equity securities, of the specified Person or a Person described in clause (1)
----------
above, (3) any other Person of whom the specified Person is a director, officer
or partner or is, directly or indirectly, the beneficial owner of ten percent
(10%) or more of any class of equity securities, (4) any other Person in whom
the specified Person has a substantial beneficial interest or as to whom the
specified Person serves as trustee or in a similar capacity, or (5) any relative
or spouse of the specified Person or any of the foregoing Persons, any relative
of such spouse or any spouse of any such relative. As used in this definition,
the term "control" means the possession, directly or indirectly, of the power to
-------
direct the management and policies of a Person, whether through the ownership of
voting securities, by contract or otherwise.
"Arbitration Procedure" means the following procedure to determine the
---------------------
Market Value of a security (the "valuation amount"). The valuation amount shall
----------------
be determined by an investment banking firm of national recognition, which firm
shall be reasonably acceptable to the Company and the Requisite Convertible
Preferred Holders. If the Company and the Requisite Convertible Preferred
Holders are unable to agree upon an acceptable investment banking firm within
ten (10) days after the date on which either the Company or the Requisite
Convertible Preferred Holders proposed that one be selected, the investment
banking firm will be selected by an arbitrator located in the City of New York,
New York, selected by the American Arbitration Association (or if such
organization ceases to exist, the arbitrator shall be chosen by a court of
competent jurisdiction). The arbitrator shall select the investment banking
firm (within ten (10) days of his appointment) from a list, jointly prepared by
the Company and the Requisite Convertible Preferred Holders, of not more than
six investment banking firms of national standing in the United States, of which
no more than three may be named by the Company and no more than three may be
named by the Requisite Convertible Preferred Holders. The arbitrator may
consider, within the ten-day period allotted, arguments from the Company and the
Requisite Convertible Preferred Holders regarding which investment banking firm
to choose, but the selection by the arbitrator shall be made in its sole
discretion from the list of six. The determination by such investment banking
firm of the valuation amount shall be final and binding upon the Company and the
Convertible Preferred Holders. The Company shall pay one-
-3-
<PAGE>
half the fees and expenses of the investment banking firms and arbitrators (if
any) used to determine the valuation amount, and the Convertible Preferred
Holders shall, ratably based on the number of shares of Common Stock and Common
Stock Equivalents held by each of them, pay the other half of such fees and
expenses. If required by any such investment banking firm or arbitrator, the
Company shall execute a retainer and engagement letter containing reasonable
terms and conditions, including customary provisions concerning the rights of
indemnification and contribution by the Company in favor of such investment
banking firm or arbitrator and its officers, directors, partners, employees,
agents and Affiliates (other than for claims resulting from such firm's or
arbitrator's gross negligence, bad faith, or willful misconduct), and each of
the Company and the Convertible Preferred Holders shall, if reasonably requested
by any such investment banking firm or arbitrator, waive all claims each of them
may have against such firm or arbitrator (other than any such claim arising out
of such firm's or arbitrator's gross negligence, bad faith or willful
misconduct).
"Board" means the board of directors of the Company.
-----
"Common Stock" has the meaning set forth in Section 6.1(a) of this
------------ --------------
Article VI.
- ----------
"Common Stock Equivalent" means the right to acquire, whether or not
-----------------------
immediately exercisable, one share of Common Stock, whether evidenced by an
option, warrant, convertible security or other instrument or agreement.
"Company" has the meaning set forth in Article I.
------- ---------
"Conversion Date" has the meaning set forth in Section 6.6(b) of this
--------------- --------------
Article VI.
- ----------
"Conversion Price" has the meaning set forth in Section 6.6(a) of this
---------------- --------------
Article VI.
- ----------
"Convertible Preferred Stock" means, collectively, the Series A
---------------------------
Preferred Stock, the Series B Preferred Stock and the Series C Preferred Stock.
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
------------
or any successor federal statute, and the rules and regulations of the
Securities and Exchange Commission thereunder, all as the same shall be in
effect from time to time.
"Excluded Securities" means options (and the shares of Common Stock
-------------------
which may be issued upon the exercise thereof) granted under the Stock Plan to
purchase up to the maximum amount of 331,722 shares of Common Stock (adjusted to
reflect stock
-4-
<PAGE>
splits, stock dividends, stock combinations, recapitalizations and like
occurrences with respect to the Common Stock).
"Fully Diluted Basis" means a calculation of the number of shares of
-------------------
Common Stock outstanding which includes, in addition to the shares of Common
Stock then issued and outstanding, the aggregate number of shares of Common
Stock then issuable upon the exercise, conversion or exchange of all options
(including all options issuable under the Stock Plan), warrants, preferred stock
and any other security of the Company exercisable, convertible or exchangeable
for or into Common Stock.
"Governmental Authority" shall mean any domestic or foreign government
----------------------
or political subdivision thereof, whether on a federal, state or local level and
whether executive, legislative or judicial in nature, including any agency,
authority, board, bureau, commission, court, department or other instrumentality
thereof.
"Junior Stock" has the meaning given to it in Section 6.4(a) of this
------------ --------------
Article VI.
- ----------
"Liquidation" means any voluntary or involuntary liquidation,
-----------
dissolution or winding up of the Company.
"Liquidation Preference" means, with respect to any share of a series
----------------------
of Convertible Preferred Stock, the price paid for such share of Convertible
Preferred Stock when it was originally issued (subject to proportionate
adjustment in the event of any stock dividend or distribution paid in shares of
such series of Convertible Preferred Stock or stock split, reverse stock split
or combination or other similar pro rata recapitalization event affecting such
series of Convertible Preferred Stock), plus an amount equal to all accrued and
unpaid dividends (whether or not declared) on such share, if any.
"Liquidity Event" means any Liquidation or Sale of the Company (other
---------------
than a Qualified Sale of the Company).
"Mandatory Conversion Event" means the first to occur of either:
--------------------------
(i) a Qualified Public Offering; or
(ii) a Qualified Sale of the Company.
"Mandatory Conversion Notice" has the meaning given to it in Section
--------------------------- -------
6.7(b) of this Article VI.
- ------ ----------
"Market Value" means as to any security, the average of the closing
------------
prices of such security's sales on the principal
-5-
<PAGE>
national securities exchange on which such security may at the time be listed,
or, if there have been no sales on such exchange on any day, the average of the
highest bid and lowest asked prices on such exchange at the end of such day, or,
if on any day such security is not so listed, the average of the representative
bid and asked prices quoted in the NASDAQ System as of 4:00 P.M., New York time,
on such day, or, if on any day such Security is not quoted in the NASDAQ System,
the average of the highest bid and lowest asked prices on such day in the
domestic over-the-counter market as reported by the National Quotation Bureau,
Incorporated ("NQBI"), or any similar or successor organization, in each such
----
case averaged over a period of 21 days consisting of the day as of which such
"Market Value" is being determined and the 20 consecutive business days prior
------------
to such day, or, if there have been no bid or asked prices in the domestic over-
the-counter market reported by NQBI, the fair market value thereof determined in
good faith jointly by the Company and the Requisite Convertible Preferred
Holders; provided, however, that if the Company and the Requisite Convertible
-------- -------
Preferred Holders are not able to agree within a reasonable period of time (not
to exceed ten (10) days) what amount constitutes the Market Value thereof, then
the Market Value thereof shall be determined pursuant to the Arbitration
Procedure.
"Optional Conversion Notice" has the meaning set forth in Section
-------------------------- -------
6.6(b) of this Article VI.
- ------ ----------
"Optional Conversion Rights" has the meaning given to it in Section
-------------------------- -------
6.6 of this Article VI.
- --- ----------
"Original Cost" means, with respect to any share of any series of
-------------
Convertible Preferred Stock, as of any particular date, the amount originally
paid for such share when it was originally issued. In the event of any change
(by way of any stock dividend or distribution payable in shares of such series
of Convertible Preferred Stock, or stock split, reverse stock split or
combination or other pro rata recapitalization event affecting such series of
--- ----
Convertible Preferred Stock) in the number or kind of shares of such series of
Convertible Preferred Stock, the Original Cost of the shares of such series of
Convertible Preferred Stock immediately prior to such change shall be ratably
adjusted among such shares of such series of Convertible Preferred Stock
immediately after such change.
"Original Issuance Date" means, with respect to a share of any series
----------------------
of Convertible Preferred Stock, the date on which such share was first issued.
"Person" shall be construed as broadly as possible and shall include
------
an individual or natural person, a partnership (including a limited liability
partnership), a corporation, an association, a joint stock company, a limited
liability company,
-6-
<PAGE>
a trust, a joint venture, an unincorporated organization and a Governmental
Authority.
"Preferred Stock" has the meaning set forth in Section 6.1(a) of this
--------------- --------------
Article VI.
- ----------
"Qualified Public Offering" means the consummation of a firm
-------------------------
commitment, underwritten public offering of Common Stock registered under the
Securities Act, other than an offering in connection with an acquisition or an
employee benefit plan, that results in proceeds to the Company (net of any and
all underwriters' discounts and commissions) of at least $15,000,000 at a price
per share of Common Stock equal to at least the minimum price per share of
Common Stock determined by the following formula:
Where
z = Minimum price per share of Common Stock;
w = The Original Cost of a share of Series A Preferred Stock;
x = The Original Cost of a share of Series B Preferred Stock;
y = The Original Cost of the initial share of Series C
Preferred Stock issued by the Company;
a = The fraction, the numerator of which is the maximum number
of Common Stock Equivalents represented by the outstanding
shares of Series A Preferred Stock and the denominator of
which is the maximum number of Common Stock Equivalents
represented by all outstanding shares of Convertible
Preferred Stock, in each case immediately before the
consummation of such underwritten public offering;
b = The fraction, the numerator of which is the maximum number
of Common Stock Equivalents represented by the outstanding
shares of Series B Preferred Stock and the denominator of
which is the maximum number of Common Stock Equivalents
represented by all outstanding shares of Convertible
Preferred Stock, in each case immediately before the
consummation of such underwritten public offering; and
-7-
<PAGE>
c = The fraction, the numerator of which is the maximum number
of Common Stock Equivalents represented by the outstanding
shares of Series C Preferred Stock and the denominator of
which is the maximum number of Common Stock Equivalents
represented by all outstanding shares of Convertible
Preferred Stock, in each case immediately before the
consummation of such underwritten public offering;
Then z = w(a) + 3(x)(b) + 3(y)(c).
"Qualified Sale of the Company" means, with respect to any series of
-----------------------------
Convertible Preferred Stock, the closing of a Sale of the Company that results
in the holders of the outstanding shares of such series of Convertible Preferred
Stock receiving on or with respect to, or in exchange for, each share of such
series of Convertible Preferred Stock (after giving effect to the conversion of
such share), cash equivalents or securities registered under the Securities Act
and the Exchange Act with an aggregate Market Value equal to at least the
product of (x) the Original Cost for a share of such series of Convertible
Preferred Stock times (y) either (A) one (1), in the case of a share of Series A
Preferred Stock, or (B) three (3), in the case of a share of Series B Preferred
Stock or Series C Preferred Stock.
"Requisite Convertible Preferred Holders" means the holders of a
---------------------------------------
majority of the outstanding shares of Convertible Preferred Stock of all series
at the time in question.
"Requisite Series A Preferred Holders" means the holders of a majority
------------------------------------
of the outstanding shares of the Series A Preferred Stock at the time in
question.
"Requisite Series B Preferred Holders" means the holders of a majority
------------------------------------
of the outstanding shares of the Series B Preferred Stock at the time in
question.
"Requisite Series C Preferred Holders" means the holders of a majority
------------------------------------
of the outstanding shares of the Series C Preferred Stock at the time in
question.
"Sale of the Company" means any sale of the Company to one or more
-------------------
Persons who or which are not Affiliates of the Company in a single transaction
or series of related transactions, whether by way of (i) the sale or other
disposition of all or substantially all of the assets of the Company, (ii) the
merger or consolidation of the Company with or into another Person or (iii) the
sale or other transfer of a majority of the capital stock of the Company.
-8-
<PAGE>
"Securities Act" means the Securities Act of 1933, as amended, or any
--------------
successor federal statute, and the rules and regulations of the Securities and
Exchange Commission thereunder, all as the same shall be in effect from time to
time.
"Series A Preferred Stock" has the meaning set forth in Section
------------------------ -------
6.1(a)(i) of this Article VI.
- --------- ----------
"Series B Preferred Stock" has the meaning set forth in Section
------------------------ -------
6.1(a)(ii) of this Article VI.
- ---------- ----------
"Series C Preferred Stock" has the meaning set forth in Section
------------------------ -------
6.1(a)(iii) of this Article VI.
- ----------- ----------
"Stock Plan" means the Company's 1996 Stock Plan as in effect on the
----------
date hereof.
6.3. Dividends.
---------
(a) The holders of the Convertible Preferred Stock shall be
entitled to receive, out of funds legally available therefor, cumulative
dividends at the following rates: (i) 7% per share per annum, compounded
annually, on the Original Cost of each share of Convertible Preferred Stock,
until October 24, 2003, (ii) commencing on October 24, 2003, 9% per annum,
compounded annually, on the Original Cost of each share of Convertible Preferred
Stock, until October 24, 2004, and (iii) commencing on October 24, 2004, 11% per
annum, compounded annually, on the Original Cost of each share of Convertible
Preferred Stock (collectively, the "Accruing Dividends"), payable in preference
------------------
and priority to any payment of any cash dividend on Common Stock or any other
shares of capital stock of the Company other than the Convertible Preferred
Stock or other class or series of stock ranking on par with, or senior to the
Convertible Preferred Stock in respect of dividends, when and as declared by the
Board; provided, however, that dividends on shares of Convertible Preferred
-------- -------
Stock will cease to accrue upon the conversion of such shares of Convertible
Preferred Stock to Common Stock. The Accruing Dividends shall accrue from day to
day, whether or not earned or declared, but shall be payable if and only (i) if,
as and when declared by the Board and (ii) upon a Liquidity Event that does not
constitute a Mandatory Conversion Event.
(b) So long as any shares of a series of Convertible Preferred
Stock are outstanding, the Company shall not pay or declare or set apart for
payment any dividend or make any other distribution on or with respect to any
shares of Common Stock or any other shares of capital stock of the Company
ranking on a parity with or junior to such series of Convertible Preferred Stock
with respect to dividends or redeem, repurchase or otherwise acquire any such
shares unless the Company has paid,
-9-
<PAGE>
or at the time pays, all accrued but unpaid dividends on such series of
Convertible Preferred Stock pursuant to this Section 6.3.
-----------
(c) No dividend or distribution shall be paid to the holders of
a series of Convertible Preferred Stock pursuant to this Section 6.3 in any form
-----------
of consideration other than cash unless the Requisite Series A Preferred
Holders, the Requisite Series B Preferred Holders or the Requisite Series C
Preferred Holders, as applicable, at the time of the distribution, approve such
distribution (including the valuation of the consideration being distributed).
(d) Except as otherwise provided herein, if at any time the
Company pays less than the total amount of dividends then accrued with respect
to the Convertible Preferred Stock, such payment shall be distributed ratably
among the holders of the Convertible Preferred Stock based upon the aggregate
amount of accrued and unpaid dividends on the shares of Convertible Preferred
Stock of each series then held by each such holder.
(e) Whenever the Company shall declare or pay any dividends on
its Common Stock, each holder of a share of Convertible Preferred Stock shall be
entitled to participate in such dividends on a ratable basis based upon the
Common Stock Equivalents represented by such share of Convertible Preferred
Stock, but only if the amount of such dividends would be greater than any
dividends then payable pursuant to Section 6.3(a). Dividends payable pursuant to
--------------
this Section 6.3(e) on any share of Convertible Preferred Stock shall be reduced
--------------
by any dividends paid pursuant to Section 6.3(a) on such share.
--------------
6.4. Liquidity Event.
---------------
(a) Upon the occurrence of a Liquidity Event, the holders of
shares of a series of Convertible Preferred Stock then outstanding shall be
entitled to be paid out of the assets of the Company available for distribution
to its shareholders, after and subject to the payment in full of all amounts
required to be distributed to the holders of any other class or series of stock
of the Company ranking on liquidation prior and in preference to such series of
Convertible Preferred Stock, but before any payment shall be made to the holders
of Common Stock or any other class or series of stock ranking on liquidation
junior to such series of Convertible Preferred Stock (such Common Stock and
other stock being collectively referred to as "Junior Stock") by reason of their
-------------
ownership thereof, an amount per share equal to the Liquidation Preference of
such share. If upon any Liquidity Event the remaining assets of the Company
available for distribution to its shareholders shall be insufficient to pay the
holders of shares of Convertible Preferred Stock the full amount to which they
shall be entitled, the holders of shares of
-10-
<PAGE>
Convertible Preferred Stock and any class or series of stock ranking on
liquidation on a parity with the Convertible Preferred Stock shall share ratably
in any distribution of the remaining assets and funds of the Company in
proportion to the respective amounts which would otherwise be payable in respect
of the shares held by them upon such distribution if all amounts payable on or
with respect to such shares were paid in full.
(b) After the distributions described in Section 6.3 above
-----------
have been paid in full, upon a Liquidity Event, all of the remaining assets and
funds of the Company available for distribution to its shareholders shall be
distributed ratably among the holders of the Common Stock.
(c) Anything contained in this Section 6.4 to the contrary
-----------
notwithstanding, each holder of shares of a series of Convertible Preferred
Stock shall have the right to convert all or any part of the shares of such
series of Convertible Preferred Stock held by such holder into shares of Common
Stock pursuant to Section 6.6 in lieu of receiving the Liquidation Preference in
-----------
connection with any Liquidity Event.
6.5. Voting.
------
(a) Each holder of outstanding shares of a series of
Convertible Preferred Stock shall be entitled to the number of votes equal to
the number of whole shares of Common Stock into which the shares of such series
of Convertible Preferred Stock held by such holder are convertible (as adjusted
from time to time pursuant to Section 6.6), at each meeting of such shareholders
-----------
of the Company (and written actions of shareholders in lieu of meetings) with
respect to any and all matters presented to the shareholders of the Company for
their action or consideration. Except as provided by law, by the provisions of
Section 6.5(b) or by the provisions establishing any other series of Preferred
- --------------
Stock, holders of each series of Convertible Preferred Stock and holders of any
other outstanding series of Preferred Stock shall vote together with the holders
of Common Stock as a single class.
(b) The Company shall not amend, alter or repeal any of the
preferences, rights, powers or other terms, or issue any shares, of a series of
Convertible Preferred Stock so as to affect adversely such series of Convertible
Preferred Stock or the outstanding shares thereof, without the written consent
or affirmative vote of the Requisite Series A Preferred Holders, the Requisite
Series B Preferred Holders or the Requisite Series C Preferred Holders, as the
case may be, given in writing or by vote at a meeting, consenting or voting (as
the case may be) separately as a class. For this purpose, without limiting the
generality of the foregoing, the authorization or issuance of any shares of any
series of Preferred Stock, or the reclassification
-11-
<PAGE>
of any series of stock which is outstanding into any other series of stock, in
each case, which is on a parity with or has preference or priority over a series
of Convertible Preferred Stock as to the right to receive either dividends or
amounts distributable upon a Liquidity Event shall be deemed to affect adversely
such series of Convertible Preferred Stock and the outstanding shares thereof.
6.6. Optional Conversion.
-------------------
The holders of each series of Convertible Preferred Stock shall have
optional conversion rights (the "Optional Conversion Rights") as follows:
--------------------------
(a) Right to Convert. Subject to and in compliance with the
----------------
applicable provisions of this Section 6.6, each holder of shares of a series of
-----------
Convertible Preferred Stock shall have the right, at such holder's option, at
any time and from time to time to convert any such share into that number of
fully paid and nonassessable shares of Common Stock equal to the quotient
obtained by dividing (x) the Original Cost of such share of such series of
Convertible Preferred Stock by (y) the applicable Conversion Price, as last
adjusted and then in effect, by surrender of the certificate representing such
share to be converted. The conversion price per share at which shares of Common
Stock shall be issuable upon conversion of shares of Convertible Preferred Stock
(the "Conversion Price") shall initially be equal to the Original Cost of such
----------------
share of Convertible Preferred Stock, and shall be subject to adjustment from
time to time as set forth in Section 6.6(i) below. Upon any conversion pursuant
--------------
to the provisions of this Section 6.6(a), no adjustment to the Conversion Price
--------------
shall be made for any accrued and unpaid dividends on the Convertible Preferred
Stock surrendered for conversion or on the Common Stock delivered upon
conversion. The holder, upon electing to make a conversion, waives his right to
such accrued but unpaid dividends.
(b) Mechanics. The holder of any shares of Convertible
---------
Preferred Stock may exercise such holder's conversion right for such shares
pursuant to Section 6.6(a) by delivering to the Company the certificate or
--------------
certificates for the shares to be converted, duly assigned in blank or duly
endorsed to the Company (if required by it), accompanied by written notice (the
"Optional Conversion Notice") stating that the holder elects to convert such
--------------------------
shares and stating the name or names (with address) in which the certificate or
certificates for the shares of Common Stock are to be issued. Conversion shall
be deemed to have been effected on the date when such delivery is made (the
"Conversion Date"). Upon conversion, any and all accrued but unpaid dividends on
---------------
the shares so converted shall cease to exist and the holder shall have no right
thereto. As promptly as practicable thereafter, the Company shall issue and
deliver to or upon the
-12-
<PAGE>
written order of such holder, to the place designated by such holder, a
certificate or certificates for the number of full shares of Common Stock to
which such holder is entitled, and a cash amount in respect of any fractional
interest in a share of Common Stock as provided in Section 6.6(c). The person in
--------------
whose name the certificate or certificates for Common Stock are to be issued
shall be deemed to have become a shareholder of record on the applicable
Conversion Date unless the transfer books of the Company are closed on that
date, in which event such person shall be deemed to have become a shareholder of
record on the next succeeding date on which the transfer books are open, but the
Conversion Price shall be that in effect on the Conversion Date. Upon conversion
of only a portion of the number of shares covered by a certificate representing
shares of Convertible Preferred Stock surrendered for conversion, the Company
shall issue and deliver to or upon the written order of the holder of the
certificate so surrendered for conversion, at the expense of the Company, a new
certificate covering the number of shares of Convertible Preferred Stock
representing the unconverted portion of the certificate so surrendered.
(c) No Fractional Shares. The Company shall issue no fractional
--------------------
shares of Common Stock or scrip upon conversion of shares of Convertible
Preferred Stock. If more than one share of a series of Convertible Preferred
Stock shall be surrendered for conversion at any one time by the same holder,
the number of full shares of Common Stock issuable upon their conversion shall
be computed on the basis of the aggregate number of shares of such series of
Convertible Preferred Stock so surrendered. Instead of any fractional shares of
Common Stock which would otherwise be issuable upon conversion of any shares of
a series of Convertible Preferred Stock, the Company shall pay a cash adjustment
in respect of such fractional interest in an amount equal to the same fraction
of the applicable Conversion Price on the business day next preceding the day of
conversion.
(d) Taxes Incident to Conversion. The Company shall pay any and
----------------------------
all issue taxes and other similar taxes that may be payable by the Company on
its issue or delivery of shares of Common Stock on conversion of any shares of
Convertible Preferred Stock. The Company shall not be required to pay any tax
which may be payable in respect of any transfer involved in the issue and
delivery of, or any exchange, conversion or recapitalization of, shares of
Common Stock in a name other than that in which the Convertible Preferred Stock
so converted was registered. No such issue or delivery shall be made unless and
until the Person requesting such issue has paid to the Company the amount of any
such tax, or has established, to the satisfaction of the Company, that such tax
has been paid.
(e) Sufficient Reserves of Stock. The Company shall at all times
----------------------------
reserve and keep available, out of its
-13-
<PAGE>
authorized but unissued Common Stock, solely for the purpose of effecting the
conversion of the Convertible Preferred Stock, the full number of shares of
Common Stock deliverable upon the conversion of all shares of Convertible
Preferred Stock from time to time outstanding.
(f) Registration of Reserves. If any shares of Common Stock to be
------------------------
reserved for the purpose of conversion of shares of Convertible Preferred Stock
require registration, listing with, or approval of, any governmental authority,
stock exchange or other regulatory body under any federal or state law or
regulation or otherwise, before such shares may be validly issued or delivered
upon conversion to the holder immediately prior to conversion, the Company will
in good faith and as expeditiously as possible endeavor to secure such
registration, listing or approval.
(g) Valid Issue for Conversion. All shares of Common Stock which
--------------------------
may be issued upon conversion of the shares of Convertible Preferred Stock will,
upon issuance by the Company, be validly issued, fully paid, (to the extent such
Convertible Preferred Stock was fully paid) nonassessable, and free from all
taxes, liens and charges with respect to their issuance due to any act of the
Company.
(h) Cancellation of Convertible Preferred Stock on Conversion. All
---------------------------------------------------------
certificates of a series of Convertible Preferred Stock surrendered for
conversion shall be appropriately canceled on the books of the Company, and the
shares so converted represented by such certificates shall be restored to the
status of authorized but unissued shares of such series of Convertible Preferred
Stock of the Company.
(i) Adjustment of Conversion Price
------------------------------
The Conversion Price applicable to a series of Convertible Preferred
Stock shall be subject to adjustment from time to time as follows:
(i) If the Company shall, at any time or from time to time after
the Original Issuance Date, issue any Common Stock or Common Stock Equivalent,
other than any Excluded Securities, for a consideration per share on a Common
Stock Equivalent basis less than the Conversion Price in effect immediately
prior to such issuance, then the Conversion Price in effect immediately prior to
each such issuance shall forthwith be lowered to a price equal to the quotient
obtained by dividing:
(A) an amount equal to the sum of (x) the total number of
shares of Common Stock outstanding (including any shares of Common Stock deemed
to have been issued pursuant to subdivision (C) of clause (iii) below)
--------------- ------------
immediately prior to such
-14-
<PAGE>
issuance, multiplied by the Conversion Price, plus (y) the consideration
received by the Company upon such issuance; by
(B) the total number of shares of Common Stock outstanding
(including any shares of Common Stock deemed to have been issued pursuant to
subdivision (C) of clause (iii) below) immediately after the issuance of such
- --------------- ------------
Common Stock.
(ii) If the Company shall, at any time or from time to time after
the Original Issuance Date, issue any Common Stock or Common Stock Equivalent
for a consideration per share on a Common Stock Equivalent basis equal to or
greater than the Conversion Price in effect immediately prior to such issuance,
then the Conversion Price in effect at such time shall not be adjusted.
(iii) For the purposes of any adjustment of the Conversion Price
applicable to a series of Convertible Preferred Stock pursuant to Section
-------
6.6(i)(i) above, the following provisions shall be applicable:
- ---------
(A) In the case of the issuance of Common Stock for cash in
a public offering or private placement, the consideration shall be deemed to be
the amount of cash paid therefor (before deducting therefrom any discounts,
commissions or placement fees payable by the Company to any underwriter or
placement agent in connection with the issuance and sale thereof).
(B) In the case of the issuance of Common Stock for a
consideration in whole or in part other than cash, the consideration other than
cash shall be deemed to be the Market Value thereof.
(C) In the case of the issuance of options to purchase or
rights to subscribe for Common Stock, securities by their terms convertible into
or exchangeable for Common Stock, or options to purchase or rights to subscribe
for such convertible or exchangeable securities:
(I) the aggregate maximum number of shares of Common
Stock deliverable upon exercise of such options to purchase or
rights to subscribe for Common Stock shall be deemed to have been
issued at the time such options or rights were issued and for a
consideration equal to the consideration (determined in the
manner provided in subdivisions (A) and (B) above), if any,
---------------- ---
received by the Company upon the issuance of such options or
rights plus the minimum purchase price provided in such options
or rights for the Common
-15-
<PAGE>
Stock covered thereby (determined in the manner provided in
subdivisions (A) and (B) above) (and no further adjustment shall
---------------- ---
be made upon the issuance of shares of Common Stock upon the
exercise, conversion or exchange of such securities to the extent
adjustments therefor have already been made);
(II) the aggregate maximum number of shares of Common
Stock deliverable upon conversion of or in exchange for any such
convertible or exchangeable securities or upon the exercise of
options to purchase or rights to subscribe for such convertible
or exchangeable securities and subsequent conversion or exchange
thereof shall be deemed to have been issued at the time such
securities, options, or rights were issued and for a
consideration equal to the consideration received by the Company
for any such securities and related options or rights (excluding
any cash received on account of accrued interest or accrued
dividends), plus the additional consideration, if any, to be
received by the Company upon the conversion or exchange of such
securities or the exercise of any related options or rights (the
consideration in each case to be determined in the manner
provided in subdivisions (A) and (B) above) (and no further
---------------- ---
adjustment shall be made upon the issuance of shares of Common
Stock upon the exercise, conversion or exchange of such
securities to the extent adjustments therefor have already been
made);
(III) on any change in the number of shares or
exercise price of Common Stock deliverable upon exercise of any
such options or rights or conversions of or exchange for such
securities, other than a change resulting from the antidilution
provisions thereof, the Conversion Price shall forthwith be
readjusted (provided, however, that such event has not already
-------- -------
resulted in an adjustment to the Conversion Price, in which event
no such adjustment shall be made) to such Conversion Price as
would have obtained had the adjustment made upon the issuance of
such options, rights or securities not converted prior to such
change or options or rights related to such securities not
converted prior to such change been made upon the basis of such
change; and
-16-
<PAGE>
(IV) on the expiration of any such options or rights,
the termination of any such rights to convert or exchange or the
expiration of any options or rights related to such convertible
or exchangeable securities, the Conversion Price shall forthwith
be readjusted to such Conversion Price as would have obtained had
the adjustment made upon the issuance of such options, rights,
securities or options or rights related to such securities, and
any adjustment subsequent thereto under clause (III) above, been
------------
made upon the basis of the issuance of only the number of shares
of Common Stock actually issued upon the exercise of such options
or rights, upon the conversion or exchange of such securities, or
upon the exercise of the options or rights related to such
securities and subsequent conversion or exchange thereof.
(iv) If, at any time after the Original Issuance Date, the
number of shares of Common Stock outstanding is increased by a stock dividend
payable in shares of Common Stock or by a subdivision or split-up of shares of
Common Stock, then, following the record date for the determination of holders
of Common Stock entitled to receive such stock dividend, subdivision or split-up
(or if no record date is set, the date such stock dividend, subdivision of stock
split is consummated), the Conversion Price shall be appropriately decreased so
that the number of shares of Common Stock issuable on conversion of each share
of the applicable series of Convertible Preferred Stock shall be increased in
proportion to such increase in outstanding shares.
(v) If, at any time after the Original Issuance Date, the
number of shares of Common Stock outstanding is decreased by a combination or
reverse stock split of the outstanding shares of Common Stock, then, following
the record date for such combination, the Conversion Price shall be
appropriately increased so that the number of shares of Common Stock issuable on
conversion of each share of the applicable series of Convertible Preferred Stock
shall be decreased in proportion to such decrease in outstanding shares.
(vi) In the event of any capital reorganization of the Company,
any reclassification of the stock of the Company (other than a change in par
value or from no par value to par value or from par value to no par value or as
a result of a stock dividend or subdivision, split-up or combination of shares),
or any consolidation or merger of the Company, each share of the applicable
series of Convertible Preferred Stock shall after such reorganization,
reclassification, consolidation, or merger be
-17-
<PAGE>
convertible into the kind and number of shares of stock or other securities or
property of the Company or of the corporation resulting from such consolidation
or surviving such merger to which the holder of the number of shares of Common
Stock deliverable (immediately prior to the time of such reorganization,
reclassification, consolidation or merger) upon conversion of such share of the
applicable series of Convertible Preferred Stock would have been entitled upon
such reorganization, reclassification, consolidation or merger. The provisions
of this clause shall similarly apply to successive reorganizations,
reclassifications, consolidations or mergers.
(vii) If any event occurs of the type contemplated by the
provisions of this Section 6.6(i) but not expressly provided for by such
--------------
provisions (including, without limitation, the granting of stock appreciation
rights, phantom stock rights or other rights with equity features), then the
Board shall make an appropriate reduction in the Conversion Price so as to
protect the rights of the holders of the applicable series of Convertible
Preferred Stock.
(viii) All calculations under this paragraph shall be made to
the nearest one hundredth (1/100) of a cent.
(ix) In any case in which the provisions of this Section 6.6
-----------
shall require that an adjustment shall become effective immediately after a
record date of an event, the Company may defer until the occurrence of such
event (A) issuing to the holder of any share of the applicable series of
Convertible Preferred Stock converted after such record date and before the
occurrence of such event the shares of capital stock issuable upon such
conversion by reason of the adjustment required by such event in addition to the
shares of capital stock issuable upon such conversion before giving effect to
such adjustments, and (B) paying to such holder any amount in cash in lieu of a
fractional share of capital stock pursuant to Section 6.6(c) above; provided,
-------------- --------
however, that the Company shall deliver to such holder an appropriate instrument
- -------
evidencing such holder's right to receive such additional shares and such cash.
(x) Whenever the Conversion Price shall be adjusted as
provided in this Section 6.6(i), the Company shall make available for inspection
--------------
during regular business hours, at its principal executive offices or at such
other place as may be designated by the Company, a statement, signed by its
chief executive officer, showing in detail the facts requiring such adjustment
and the Conversion Price that shall be in effect after such adjustment. The
Company shall also cause a copy of such statement to be sent by first class
certified mail, return receipt requested and postage prepaid, to each holder of
the applicable series of Convertible Preferred Stock at such holder's
-18-
<PAGE>
address appearing on the Company's records. Where appropriate, such copy may be
given in advance and may be included as part of any notice required to be mailed
under the provisions of clause (xi) below.
-----------
(xi) If the Company shall propose to take any action of the
types described in clauses (iv), (v) or (vi) of this Section 6.6(i) above, the
------------ --- ---- --------------
Company shall give notice to each holder of shares of the applicable series of
Convertible Preferred Stock, in the manner set forth in clause (x) above, which
----------
notice shall specify the record date, if any, with respect to any such action
and the date on which such action is to take place. Such notice shall also set
forth such facts with respect thereto as shall be reasonably necessary to
indicate the effect of such action (to the extent such effect may be known at
the date of such notice) on the Conversion Price and the number, kind or class
of shares or other securities or property which shall be deliverable or
purchasable upon the occurrence of such action or deliverable upon conversion of
shares of the applicable series of Convertible Stock. In the case of any action
which would require the fixing of a record date, such notice shall be given at
least ten days (10) prior to the date so fixed, and in case of all other action,
such notice shall be given at least ten (10) days prior to the taking of such
proposed action. Failure to give such notice, or any defect therein, shall not
affect the legality or validity of any such action.
(xii) Waiver of Adjustment. In the event that the Requisite
--------------------
Convertible Preferred Holders shall consent to limit, or waive in its entirety,
any anti-dilution adjustment to which the holders of any series of Convertible
Preferred Stock would otherwise be entitled hereunder, the Corporation shall not
be required to make any adjustment whatsoever with respect to such series of
Convertible Preferred Stock, as appropriate, in excess of such limit, as the
terms of such consent may dictate.
6.7. Mandatory Conversion.
--------------------
(a) Events of Mandatory Conversion. The Company shall have the
------------------------------
right to require each holder of Convertible Preferred Stock to convert all (but
not less than all) of the shares of any series of Convertible Stock then held by
such holder into shares of Common Stock upon the occurrence of any Mandatory
Conversion Event with respect to such series of Convertible Preferred Stock.
Upon any such conversion pursuant to the provisions of this Section 6.7(a), no
--------------
adjustment to the Conversion Price shall be made for any accrued and unpaid
dividends on such series of Convertible Stock surrendered for conversion or on
the Common Stock delivered upon conversion; the holder, upon the occurrence of a
conversion required by the
-19-
<PAGE>
Company after the occurrence of a Mandatory Conversion Event, waives his right
to such accrued but unpaid dividends.
(b) Mechanics. The Company shall exercise its rights under
---------
Section 6.7(a) above by mailing to each holder of the applicable series of
- --------------
Convertible Preferred Stock at the address of such holder last known to the
Company, not less than ten (10) nor more than 60 days prior to the date of the
requested conversion, a notice to such effect (the "Mandatory Conversion
--------------------
Notice"). Each such conversion shall be deemed to have been effected as of the
- ------
close of business on the date specified in the Mandatory Conversion Notice, and
from and after such time, the rights of each holder of shares of the series of
Convertible Preferred Stock subject to such conversion, as a holder of shares of
such series of Convertible Preferred Stock, shall cease, any and all accrued but
unpaid dividends on the shares subject to such conversion shall cease to exist
and such holder shall have no right thereto, such holder shall be deemed to have
become the holder of the shares of Common Stock issuable upon conversion, and
the shares of such series of Convertible Preferred Stock shall represent only
the right to receive that number of shares of Common Stock into which such
shares of such series of Convertible Preferred Stock is convertible.
(c) Conversion. The number of shares of Common Stock into which a
----------
series of Convertible Stock is convertible upon the exercise by the Company of
its rights under Section 6.6(a) shall be determined in accordance with the
--------------
applicable provisions of Section 6.6, except as otherwise provided in this
-----------
Section 6.7.
- -----------
ARTICLE VII
INDEMNIFICATION AND LIMITATION OF DIRECTOR LIABILITY
----------------------------------------------------
The Company shall, to the fullest extent permitted by the Delaware
General Corporation Law, as the same may be from time to time amended and
supplemented, indemnify any and all persons whom it shall have power to
indemnify under the Delaware General Corporation Law from and against any and
all of the expenses, liabilities or other matters referred to in or covered by
the Delaware General Corporation Law, and the indemnification provided for
herein shall not be deemed exclusive of any other rights to which any person may
be entitled under any By-law, resolution of shareholders, resolution of
directors, agreement or otherwise, as permitted by the Delaware General
Corporation Law, as to action in any capacity in which he served at the request
of the Company.
-20-
<PAGE>
A director of the Company shall not be personally liable to the
Company or its shareholders for monetary damages for breach of fiduciary duty as
a director, except for liability (i) for any breach of the director's duty of
loyalty to the Corporation or its shareholders, (ii) for acts or omissions not
in good faith or which involve intentional misconduct or a knowing violation of
law, (iii) under (S)174(a) of the Delaware General Corporation Law, or (iv) for
any transaction from which the director derived any improper personal benefit.
If the Delaware General Corporation Law is amended after the date of
incorporation of the Company to authorize corporate action further eliminating
or limiting the personal liability of directors, then the liability of a
director of the Company shall be deemed to be eliminated or limited to the
fullest extent permitted by the Delaware General Corporation Law, as so amended.
Any repeal or modification of the foregoing paragraph by the
shareholders of the Company shall not adversely affect any right or protection
of a director of the Company existing at the time of such repeal or
modification.
ARTICLE VIII
AMENDMENTS
----------
This Certificate constitutes an agreement between the Company and the
holders of each series of Convertible Preferred Stock and may only be amended
with the prior written consent of the Company, the Requisite Series A Preferred
Holders, the Requisite Series B Preferred Holders and the Requisite Series C
Preferred Holders; provided, however, that any such amendment that would
-------- -------
adversely affect the rights hereunder of any holder of any series of Convertible
Preferred Stock, in its capacity as such a holder, without similarly affecting
the rights hereunder of all holders of such series of Convertible Preferred
Stock, in their capacities as such holders, shall not be effective as to such
holder of such series of Convertible Preferred Stock without its prior written
consent.
ARTICLE IX
POWERS OF THE BOARD OF DIRECTORS
--------------------------------
For the management of the business and for the conduct of the affairs of
the Corporation, and in further definition, limitation and regulation of the
powers of the Corporation and of its directors and stockholders, it is further
provided:
-21-
<PAGE>
(a) In furtherance and not in limitation of the powers conferred by
the laws of the State of Delaware, the Board of Directors is expressly
authorized and empowered:
(i) to make, alter, amend or repeal the By-laws in any manner
not inconsistent with the laws of the State of Delaware or this Certificate of
Incorporation;
(ii) without the assent or vote of the stockholders, to authorize
and issue securities and obligations of the Corporation, secured or unsecured,
and to include therein such provisions as to redemption, conversion or other
terms thereof as the Board of Directors in its sole discretion may determine,
and to authorize the mortgaging or pledging, as security therefor, of any
property of the Corporation, real or personal, including after-acquired
property;
(iii) to determine whether any, and if any, what part, of the net
profits of the Corporation or its surplus shall be declared in dividends and
paid to the stockholders, and to direct and determine the use and disposition of
any such net profits or such surplus; and
(iv) to fix from time to time the amount of net profits of the
Corporation or of its surplus to be reserved as working capital or for any other
lawful purpose.
In addition to the powers and authorities herein or by statute
expressly conferred upon it, the Board of Directors may exercise all such powers
and do all such acts and things as may be exercised or done by the Corporation,
subject, nevertheless, to the provisions of the laws of the State of Delaware,
of this Certificate of Incorporation and of the By-laws of the Corporation.
(b) Any director or any officer elected or appointed by the
stockholders or by the Board of Directors may be removed at any time in such
manner as shall be provided in the By-laws of the Corporation.
(c) From time to time any of the provisions of this Certificate of
Incorporation may be altered, amended or repealed, and other provisions
authorized by the laws of the State of Delaware at the time in force may be
added or inserted, in the manner and at the time prescribed by said laws, and
all rights at any time conferred upon the stockholders of the Corporation by
this Certificate of Incorporation are granted subject to the provisions of this
paragraph (c).
-22-
<PAGE>
ARTICLE X
---------
POWERS OF THE COURTS
--------------------
Whenever a compromise or arrangement is proposed between the
Corporation and its creditors or any class of them and/or between the
Corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of the Corporation or of any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for the Corporation under the
provisions of Section 291 of Title 8 of the Delaware Code or on the application
of trustees in dissolution or of any receiver or receivers appointed for the
Corporation under the provisions of Section 279 of Title 8 of the Delaware Code
order a meeting of the creditors or class of creditors, and/or of the
stockholders or class of stockholders of the Corporation, as the case may be, to
be summoned in such manner as the said court directs. If a majority in number
representing three-fourths in value of the creditors or class of creditors,
and/or of the stockholders or class of stockholders of the Corporation, as the
case may be, agree on any compromise or arrangement and to any reorganization of
the Corporation as a consequence of such compromise or arrangement, the said
compromise or arrangement and the said reorganization shall, if sanctioned by
the court to which the said application has been made, be binding on all the
creditors or class of creditors, and/or on all the stockholders or class of
stockholders, of the Corporation, as the case may be, and also on the
Corporation.
-23-
<PAGE>
IN WITNESS WHEREOF, I, the undersigned, being the sole incorporator
hereinabove named, for the purpose of forming a corporation pursuant to the
General Corporation Law of the State of Delaware, DO HEREBY CERTIFY, under
penalties of perjury, that this is my act and deed and that the facts
hereinabove stated are truly set forth and, accordingly, I have hereunto set my
hand as of the 16th day of June, 1997.
/s/ Jack D. Hidary
----------------------------
Jack D. Hidary
-24-
<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
EARTHWEB INC.
* * * * *
EarthWeb Inc., a corporation organized and existing under and by virtue of the
General Corporation Law of the State of Delaware,
DOES HEREBY CERTIFY:
FIRST: That at a meeting of the Board of Directors of EarthWeb Inc.
(the "Corporation"), by unanimous written consent of its members, filed with the
minutes of the board, duly adopted resolutions setting forth a proposed
amendment to Article VI of the Certificate of Incorporation of the Corporation,
declaring said amendment to be advisable and calling for the stockholders of the
Corporation to approve such amendment. The resolution setting forth the proposed
amendment is as follows:
NOW THEREFORE BE IT RESOLVED, that the Certificate of Incorporation of
this corporation be, and it hereby is, amended to restate Section 6.1(a)
to read in full as follows:
"(a) The total number of shares of capital stock that the Company is
authorized to issue 10,000,000 shares, consisting of 7,250,000 shares of
common stock, $0,03 par value per share ("Common Stock"), and 2,750,000
------------
shares of Preferred Stock, $0.01 par value (the "Preferred Stock"). The
---------------
shares of Preferred Stock are hereby designated as follows:
(i) 1,000,000 shares are designated as Series A Convertible
Preferred Stock (the "Series A Preferred Stock");
------------------------
1
<PAGE>
(ii) 600,000 shares are designated as Series B Convertible
Preferred Stock (the "Series B Preferred Stock"); and
------------------------
(iii) 1,150,000 shares are designated as Series C Convertible
Preferred Stock (the "Series C Preferred Stock");
------------------------
SECOND: That thereafter, pursuant to resolution of its Board of
Directors, the stockholders of the Corporation duly consented to such amendment
to Article VI of the Corporation's Certificate of Incorporation by written
consent in accordance with Section 228 of the General Corporation Law of the
State of Delaware.
THIRD: That the aforesaid amendment was duly adopted in accordance with
the applicable provisions of Sections 242 and 228 of the General Corporation Law
of the State of Delaware.
IN WITNESS WHEREOF, EarthWeb Inc. has caused this certificate to be
signed by Jack D. Hidary, its President, and attested by Murry Hidary, its
Secretary, this 7th day of November, 1997.
By /s/ Jack Hidary
-----------------------------
President
ATTEST:
By /s/ Murry Hidary
------------------------------
Secretary
2
<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
EARTHWEB INC.
* * * * *
EarthWeb Inc., a corporation organized and existing under and by virtue of the
General Corporation Law of the State of Delaware,
DOES HEREBY CERTIFY:
FIRST: That at a meeting of the Board of Directors of EarthWeb Inc.
(the "Corporation"), by unanimous written consent of its members, filed with the
minutes of the board, duly adopted resolutions setting forth a proposed
amendment to Article VI of the Certificate of Incorporation of the Corporation,
declaring said amendment to be advisable and calling for the stockholders of the
Corporation to approve such amendment. The resolution setting forth the proposed
amendment is as follows:
RESOLVED, that the Certificate of Incorporation of this corporation be,
and it hereby is, amended to restate Section 6.1(a) to read in full as
follows:
"(a) The total number of shares of capital stock that the Company is
authorized to issue 24,500,000 shares, consisting of 21,750,000 shares
of common stock, $0,01 par value per share (the "Common Stock"), and
------------
2,750,000 shares of Preferred Stock, $0.01 par value (the "Preferred
---------
Stock"). The shares of Preferred Stock are hereby designated as
-----
follows:
(i) 1,000,000 shares are designated as Series A Convertible
Preferred Stock (the "Series A Preferred Stock");
------------------------
1
<PAGE>
(ii) 600,000 shares are designated as Series B Convertible
Preferred Stock (the "Series B Preferred Stock"); and
------------------------
(iii) 1,150,000 shares are designated as Series C Convertible
Preferred Stock (the "Series C Preferred Stock");
------------------------
SECOND: That thereafter, pursuant to resolution of its Board of
Directors, the stockholders of the Corporation duly consented to such amendment
to Article VI of the Corporation's Certificate of Incorporation by written
consent in accordance with Section 228 of the General Corporation Law of the
State of Delaware.
THIRD: That the aforesaid amendment was duly adopted in accordance with
the applicable provisions of Sections 242 and 228 of the General Corporation Law
of the State of Delaware.
IN WITNESS WHEREOF, EarthWeb Inc. has caused this certificate to be
signed by Jack D. Hidary, its President, and attested by Murry Hidary, its
Secretary, this 7th day of November, 1997.
By /s/ Jack Hidary
-----------------------------
President
ATTEST:
By /s/ Murry Hidary
------------------------------
Secretary
2
<PAGE>
EXHIBIT 3.2
EARTHWEB INC.
Incorporated under the laws
of the State of Delaware
BY - LAWS
As adopted on June 17, 1997
<PAGE>
BY-LAWS OF
EARTHWEB INC.
-----------------------------
ARTICLE I
---------
OFFICES
-------
1.1. Registered Office.
-----------------
The registered office of EarthWeb Inc. (the "Corporation"), in the State
of Delaware shall be at 9 East Loockerman Street, City of Dover, County of Kent,
Delaware 19901, and the registered agent in charge thereof shall be National
Registered Agents, Inc.
1.2. Other Offices.
-------------
The Corporation may also have an office or offices at any other place or
places within or outside the State of Delaware.
ARTICLE II
----------
MEETING OF STOCKHOLDERS; STOCKHOLDERS'
CONSENT IN LIEU OF MEETING
--------------------------
2.1. Annual Meetings.
---------------
The annual meeting of the stockholders for the election of directors, and
for the transaction of such other business as may properly come before the
meeting, shall be held at such place, date and hour as shall be fixed by the
Board of Directors (the "Board") and designated in the notice or waiver of
notice thereof, except that no annual meeting need be held if all actions,
including the election of directors, required by the General Corporation Law of
the State of Delaware (the "Delaware Statute") to be taken at a stockholders'
annual meeting are taken by written consent in lieu of meeting pursuant to
Section 2.10 of this Article II.
2.2. Special Meetings.
----------------
A special meeting of the stockholders for any purpose or purposes may be
called by the Chairman, the President, any two directors or the record holders
of at least a majority of the issued and outstanding shares of capital stock of
the Corporation entitled to vote thereat (based on the number of votes
represented by such shares, respectively), to be held at such place, date and
hour as shall be designated in the notice or waiver of notice thereof.
<PAGE>
2.3. Notice of Meetings.
------------------
Except as otherwise required by statute, the Certificate of Incorporation
of the Corporation (the "Certificate") or these By-laws, notice of each annual
or special meeting of the stockholders shall be given to each stockholder of
record entitled to vote at such meeting not less than 10 nor more than 60 days
before the day on which the meeting is to be held, by delivering written notice
thereof to him personally, or by mailing a copy of such notice, postage prepaid,
directly to him at his address as it appears in the records of the Corporation,
or by transmitting such notice thereof to him at such address by telegraph,
cable or other telephonic transmission. Every such notice shall state the place,
the date and hour of the meeting, and, in case of a special meeting, the purpose
or purposes for which the meeting is called. Notice of any meeting of
stockholders shall not be required to be given to any stockholder who shall
attend such meeting in person or by proxy, or who shall, in person or by
attorney thereunto authorized, waive such notice in writing, either before or
after such meeting. Except as otherwise provided in these By-laws, neither the
business to be transacted at, nor the purpose of, any meeting of the
stockholders need be specified in any such notice or waiver of notice. Notice of
any adjourned meeting of stockholders shall not be required to be given, except
when expressly required by law.
2.4. Quorum.
------
At each meeting of the stockholders, except where otherwise provided by
the Certificate or these By-laws, the holders of a majority of the issued and
outstanding shares of capital stock of the Corporation entitled to vote at such
meeting (based on the number of votes represented by such shares, respectively),
present in person or represented by proxy, shall constitute a quorum for the
transaction of business. In the absence of a quorum, a majority in interest of
the stockholders present in person or represented by proxy and entitled to vote,
or, in the absence of all the stockholders entitled to vote, any officer
entitled to preside at, or act as secretary of, such meeting, shall have the
power to adjourn the meeting from time to time, until stockholders holding the
requisite amount of stock to constitute a quorum shall be present or
represented. At any such adjourned meeting at which a quorum shall be present,
any business may be transacted which might have been transacted at the meeting
as originally called.
2.5. Organization.
------------
(a) Unless otherwise determined by the Board, at each meeting of
the stockholders, one of the following shall act as chairman of the meeting and
preside thereat, in the following order of precedence:
(i) the Chairman;
(ii) the President;
(iii) any director, officer or stockholder of the Corporation
designated by the Board to act as chairman of such meeting and to preside
thereat if the Chairman or the President shall be absent from such
meeting; or
2
<PAGE>
(iv) a stockholder of record who shall be chosen chairman of
such meeting by a majority in voting interest of the stockholders present
in person or by proxy and entitled to vote thereat.
(b) The Secretary or, if he shall be presiding over such meeting in
accordance with the provisions of this Section 2.5 or if he shall be absent from
such meeting, the person (who shall be an Assistant Secretary, if an Assistant
Secretary has been appointed and is present) whom the chairman of such meeting
shall appoint, shall act as secretary of such meeting and keep the minutes
thereof.
2.6. Order of Business.
-----------------
The order of business at each meeting of the stockholders shall be
determined by the chairman of such meeting, but such order of business may be
changed by a majority in voting interest of those present in person or by proxy
at such meeting and entitled to vote thereat.
2.7. Voting.
------
(a) Except as otherwise provided by law, the Certificate or these
By-laws, at each meeting of the stockholders, every stockholder of the
Corporation shall be entitled to one vote in person or by proxy for each share
of Common Stock of the Corporation held by him (or deemed held by him pursuant
to the Certificate) and registered in his name on the books of the Corporation
on the date fixed pursuant to Section 6.7 of Article VI as the record date for
the determination of stockholders entitled to vote at such meeting. Persons
holding stock in a fiduciary capacity shall be entitled to vote the shares so
held. A person whose stock is pledged shall be entitled to vote, unless, in the
transfer by the pledgor on the books of the Corporation, he has expressly
empowered the pledgee to vote thereon, in which case only the pledgee or his
proxy may represent and vote such stock. If shares or other securities having
voting power stand in the record of two or more persons, whether fiduciaries,
members of a partnership, joint tenants, tenants in common, tenants by the
entirety or otherwise, or if two or more persons have the same fiduciary
relationship regarding the same shares, unless the Secretary shall be given
written notice to the contrary and furnished with a copy of the instrument or
order appointing them or creating the relationship wherein it is so provided,
their acts with respect to voting shall have the following effect:
(i) if only one votes, his act binds all;
(ii) if more than one votes, the act of the majority so
voting binds all; and
(iii) if more than one votes, but the vote is evenly split on
any particular matter, such shares shall be voted in the manner provided
by law.
(b) If the instrument so filed shows that any such tenancy is held
in unequal interests, a majority or even-split for the purposes of this Section
2.7 shall be a majority or even-split in interest. The Corporation shall not
vote directly or indirectly any share of its own
3
<PAGE>
capital stock. Any vote of stock may be given by the stockholder entitled
thereto in person or by his proxy appointed by an instrument in writing,
subscribed by such stockholder or by his attorney thereunto authorized,
delivered to the secretary of the meeting; provided, however, that no proxy
-------- -------
shall be voted after three years from its date, unless said proxy provides for a
longer period. At all meetings of the stockholders, all matters (except where
other provision is made by law, the Certificate or these By-laws) shall be
decided by the vote of a majority in interest of the stockholders present in
person or by proxy at such meeting and entitled to vote thereon, a quorum being
present. Unless demanded by a stockholder present in person or by proxy at any
meeting and entitled to vote thereon, the vote on any question need not be by
ballot. Upon a demand by any such stockholder for a vote by ballot upon any
question, such vote by ballot shall be taken. On a vote by ballot, each ballot
shall be signed by the stockholder voting, or by his proxy, if there be such
proxy, and shall state the number of shares voted.
2.8. Inspection.
----------
The chairman of the meeting may at any time appoint one or more inspectors
to serve at any meeting of the stockholders. Any inspector may be removed, and a
new inspector or inspectors appointed, by the Board at any time. Such inspectors
shall decide upon the qualifications of voters, accept and count votes, declare
the results of such vote, and subscribe and deliver to the secretary of the
meeting a certificate stating the number of shares of stock issued and
outstanding and entitled to vote thereon and the number of shares voted for and
against the question, respectively. The inspectors need not be stockholders of
the Corporation, and any director or officer of the Corporation may be an
inspector on any question other than a vote for or against his election to any
position with the Corporation or on any other matter in which he may be directly
interested. Before acting as herein provided, each inspector shall subscribe an
oath faithfully to execute the duties of an inspector with strict impartiality
and according to the best of his ability.
2.9. List of Stockholders.
--------------------
It shall be the duty of the Secretary or other officer of the Corporation
who shall have charge of its stock ledger to prepare and make, at least 10 days
before every meeting of the stockholders, a complete list of the stockholders
entitled to vote thereat, arranged in alphabetical order, and showing the
address of each stockholder and the number of shares registered in the name of
each stockholder. Such list shall be open to the examination of any stockholder,
for any purpose germane to any such meeting, during ordinary business hours, for
a period of at least 10 days prior to such meeting, either at a place within the
city where such meeting is to be held, which place shall be specified in the
notice of the meeting or, if not so specified, at the place where the meeting is
to be held. Such list shall also be produced and kept at the time and place of
the meeting during the whole time thereof, and may be inspected by any
stockholder who is present.
2.10. Stockholders' Consent in Lieu of Meeting.
----------------------------------------
Any action required by the Delaware Statute to be taken at any annual or
special
4
<PAGE>
meeting of the stockholders of the Corporation, or any action which may be taken
at any annual or special meeting of such stockholders, may be taken without a
meeting, without prior notice and without a vote, by a consent in writing, as
permitted by the Delaware Statute.
ARTICLE III
BOARD OF DIRECTORS
------------------
3.1. General Powers.
--------------
The business, property and affairs of the Corporation shall be managed by
or under the direction of the Board, which may exercise all such powers of the
Corporation and do all such lawful acts and things as are not by law or by the
Certificate directed or required to be exercised or done by the stockholders.
3.2. Number and Term of Office.
-------------------------
The number of directors shall be fixed from time to time by the Board.
Directors need not be stockholders. Each director shall hold office until his
successor is elected and qualified, or until his earlier death or resignation or
removal in the manner hereinafter provided.
3.3. Election of Directors.
---------------------
At each meeting of the stockholders for the election of directors at which
a quorum is present, the persons receiving the greatest number of votes, up to
the number of directors to be elected, of the stockholders present in person or
by proxy and entitled to vote thereon shall be the directors; provided, however,
-------- -------
that for purposes of such vote no stockholder shall be allowed to cumulate his
votes. Unless an election by ballot shall be demanded as provided in Section 2.7
of Article II, election of directors may be conducted in any manner approved at
such meeting.
3.4. Resignation, Removal and Vacancies.
----------------------------------
(a) Any director may resign at any time by giving written notice to
the Board, the Chairman, the President or the Secretary. Such resignation shall
take effect at the time specified therein or, if the time be not specified, upon
receipt thereof; unless otherwise specified therein, the acceptance of such
resignation shall not be necessary to make it effective.
(b) Except as provided for in the Shareholders Agreement, as defined
below (if in effect), any director or the entire Board may be removed, with or
without cause, at any time by vote of the holders of a majority of the shares
then entitled to vote at an election of directors or by written consent of the
stockholders pursuant to Section 2.10 of Article II.
(c) Except as provided for in the Shareholders Agreement, as defined
below (if in effect), vacancies occurring on the Board for any reason may be
filled by vote of the stockholders or by the stockholders' written consent
pursuant to Section 2.7 or 2.10 of Article II, or by vote of the Board or by the
directors' written consent pursuant to Section 3.6 of this Article
5
<PAGE>
III. If the number of directors then in office is less than a quorum, such
vacancies may be filled by a vote of a majority of the directors then in office.
3.5. Meetings.
--------
(a) Annual Meetings. As soon as practicable after each annual election
---------------
of directors, the Board shall meet for the purpose of organization and the
transaction of other business, unless it shall have transacted all such business
by written consent pursuant to Section 3.6 of this Article III.
(b) Other Meetings. Other meetings of the Board shall be held at such
--------------
times and places as the Board, the Chairman, the President or any director shall
from time to time determine.
(c) Notice of Meetings. Notice shall be given to each director of each
------------------
meeting, including the time, place and purpose of such meeting. Notice of each
such meeting shall be mailed to each director, addressed to him at his residence
or usual place of business, at least five days before the date on which such
meeting is to be held, or shall be sent to him at such place by telegraph,
cable, wireless or other form of recorded communication, or be delivered
personally or by telephone not later than two days before the day on which such
meeting is to be held, but notice need not be given to any director who shall
attend such meeting. A written waiver of notice, signed by the person entitled
thereto, whether before or after the time of the meeting stated therein, shall
be deemed equivalent to notice.
(d) Place of Meetings. The Board may hold its meetings at such place
or places within or outside the State of Delaware as the Board may from time to
time determine, or as shall be designated in the respective notices or waivers
of notice thereof.
(e) Quorum and Manner of Acting. One-third of the total number of
---------------------------
directors then in office shall be present in person at any meeting of the Board
in order to constitute a quorum for the transaction of business at such meeting;
provided, however, for so long as the Shareholders Agreement dated as of October
25, 1996, among the Corporation (as the same may from time to time be amended,
modified or restated, the "Shareholders Agreement"), remains in effect, at least
one of the directors nominated pursuant to clause (i) of Section 2.1(b) of the
Shareholders Agreement must be present in order for a quorum to exist at any
meeting of the Board of Directors. The vote of a majority of those directors
present at any such meeting at which a quorum is present shall be necessary for
the passage of any resolution or act of the Board, except as otherwise expressly
required by law or these By-laws. In the absence of a quorum for any such
meeting, a majority of the directors present thereat may adjourn such meeting
from time to time until a quorum shall be present.
(f) Organization. At each meeting of the Board, one of the following
------------
shall act as chairman of the meeting and preside thereat, in the following order
of precedence:
(i) the Chairman;
6
<PAGE>
(ii) the President (if a director); or
(iii) any director designated by a majority of the directors
present.
The Secretary or, in the case of his absence, an Assistant Secretary, if an
Assistant Secretary has been appointed and is present, or any person whom the
chairman of the meeting shall appoint shall act as secretary of such meeting and
keep the minutes thereof.
3.6. Directors' Consent in Lieu of Meeting.
-------------------------------------
Any action required or permitted to be taken at any meeting of the Board
may be taken without a meeting, without prior notice and without a vote, if a
consent in writing, setting forth the action so taken, shall be signed by all
the directors then in office and such consent is filed with the minutes of the
proceedings of the Board.
3.7. Action by Means of Conference Telephone or Similar Communications
-----------------------------------------------------------------
Equipment.
- ---------
Any one or more members of the Board may participate in a meeting of the
Board by means of conference telephone or similar communications equipment by
which all persons participating in the meeting can hear each other, and
participation in a meeting by such means shall constitute presence in person at
such meeting.
3.8. Committees.
----------
The Board may, by resolution or resolutions passed by a majority of the
whole Board, designate one or more committees, each such committee to consist of
one or more directors of the Corporation, which to the extent provided in said
resolution or resolutions shall have and may exercise the powers of the Board in
the management of the business and affairs of the Corporation and may authorize
the seal of the Corporation to be affixed to all papers which may require it,
such committee or committees to have such name or names as may be determined
from time to time by resolution adopted by the Board. A majority of all the
members of any such committee may determine its action and fix the time and
place of its meetings, unless the Board shall otherwise provide. The Board shall
have power to change the members of any such committee at any time, to fill
vacancies and to discharge any such committee, either with or without cause, at
any time.
ARTICLE IV
OFFICERS
--------
4.1. Executive Officers.
------------------
The principal officers of the Corporation shall be a Chairman, if one is
appointed (and any references in these By-Laws to the Chairman shall not apply
if a Chairman has not been appointed), a President, a Secretary, and a
Treasurer, and may include such other officers as the
7
<PAGE>
Board may appoint pursuant to Section 4.3 of this Article IV. Any two or more
offices may be held by the same person.
4.2. Authority and Duties.
--------------------
All officers, as between themselves and the Corporation, shall have such
authority and perform such duties in the management of the Corporation as may be
provided in these By-laws or, to the extent so provided, by the Board.
4.3. Other Officers.
--------------
The Corporation may have such other officers, agents and employees as the
Board may deem necessary, including one or more Assistant Secretaries, one or
more Assistant Treasurers and one or more Vice Presidents, each of whom shall
hold office for such period, have such authority, and perform such duties as the
Board, the Chairman, or the President may from time to time determine. The Board
may delegate to any principal officer the power to appoint and define the
authority and duties of, or remove, any such officers, agents, or employees.
4.4. Term of Office. Resignation and Removal.
---------------------------------------
(a) All officers shall be elected or appointed by the Board and shall
hold office for such term as may be prescribed by the Board. Each officer shall
hold office until his successor has been elected or appointed and qualified or
until his earlier death or resignation or removal in the manner hereinafter
provided. The Board may require any officer to give security for the faithful
performance of his duties.
(b) Any officer may resign at any time by giving written notice to the
Board, the Chairman, the President or the Secretary. Such resignation shall take
effect at the time specified therein or, if the time be not specified, at the
time it is accepted by action of the Board. Except as aforesaid, the acceptance
of such resignation shall not be necessary to make it effective.
(c) Except as provided for in the Shareholders Agreement (if in
effect), all officers and agents elected or appointed by the Board shall be
subject to removal at any time by the Board or by the stockholders of the
Corporation with or without cause.
4.5. Vacancies.
---------
If the office of Chairman, President, Secretary or Treasurer becomes
vacant for any reason, the Board shall fill such vacancy, and if any other
office becomes vacant, the Board may fill such vacancy. Any officer so appointed
or elected by the Board shall serve only until such time as the unexpired term
of his predecessor shall have expired, unless reelected or reappointed by the
Board.
4.6. The Chairman.
------------
8
<PAGE>
The Chairman shall give counsel and advice to the Board and the officers of
the Corporation on all subjects concerning the welfare of the Corporation and
the conduct of its business and shall perform such other duties as the Board may
from time to time determine. Unless otherwise determined by the Board, he shall
preside at meetings of the Board and of the stockholders at which he is present.
4.7. The President.
-------------
The President shall be the chief executive officer of the Corporation. The
President shall have general and active management and control of the business
and affairs of the Corporation subject to the control of the Board and shall see
that all orders and resolutions of the Board are carried into effect. The
President shall from time to time make such reports of the affairs of the
Corporation as the Board of Directors may require and shall perform such other
duties as the Board may from time to time determine.
4.8. The Secretary.
-------------
The Secretary shall, to the extent practicable, attend all meetings of the
Board and all meetings of the stockholders and shall record all votes and the
minutes of all proceedings in a book to be kept for that purpose. He may give,
or cause to be given, notice of all meetings of the stockholders and of the
Board, and shall perform such other duties as may be prescribed by the Board,
the Chairman or the President, under whose supervision he shall act. He shall
keep in safe custody the seal of the Corporation and affix the same to any duly
authorized instrument requiring it and, when so affixed, it shall be attested by
his signature or by the signature of the Treasurer or, if appointed, an
Assistant Secretary or an Assistant Treasurer. He shall keep in safe custody the
certificate books and stockholder records and such other books and records as
the Board may direct, and shall perform all other duties incident to the office
of Secretary and such other duties as from time to time may be assigned to him
by the Board, the Chairman or the President.
4.9. The Treasurer.
-------------
The Treasurer shall have the care and custody of the corporate funds and
other valuable effects, including securities, shall keep full and accurate
accounts of receipts and disbursements in books belonging to the Corporation and
shall deposit all moneys and other valuable effects in the name and to the
credit of the Corporation in such depositories as may be designated by the
Board. The Treasurer shall disburse the funds of the Corporation as may be
ordered by the Board, taking proper vouchers for such disbursements, shall
render to the Chairman, President and directors, at the regular meetings of the
Board, or whenever they may require it, an account of all his transactions as
Treasurer and of the financial condition of the Corporation and shall perform
all other duties incident to the office of Treasurer and such other duties as
from time to time may be assigned to him by the Board, the Chairman or the
President.
9
<PAGE>
ARTICLE V
CONTRACTS, CHECKS, DRAFTS, BANK ACCOUNTS, ETC.
---------------------------------------------
5.1. Execution of Documents.
----------------------
The Board shall designate, by either specific or general resolution, the
officers, employees and agents of the Corporation who shall have the power to
execute and deliver deeds, contracts, mortgages, bonds, debentures, checks,
drafts and other orders for the payment of money and other documents for and in
the name of the Corporation, and may authorize such officers, employees and
agents to delegate such power (including authority to redelegate) by written
instrument to other officers, employees or agents of the Corporation; unless so
designated or expressly authorized by these By-laws, no officer, employee or
agent shall have any power or authority to bind the Corporation by any contract
or engagement, to pledge its credit or to render it liable pecuniarily for any
purpose or amount.
5.2. Deposits.
--------
All funds of the Corporation not otherwise employed shall be deposited
from time to time to the credit of the Corporation or otherwise as the Board or
Treasurer, or any other officer of the Corporation to whom power in this respect
shall have been given by the Board, shall select.
5.3. Proxies with Respect to Stock or Other Securities of Other Corporations.
-----------------------------------------------------------------------
The Board shall designate the officers of the Corporation who shall have
authority from time to time to appoint an agent or agents of the Corporation to
exercise in the name and on behalf of the Corporation the powers and rights
which the Corporation may have as the holder of stock or other securities in any
other corporation, and to vote or consent with respect to such stock or
securities. Such designated officers may instruct the person or persons so
appointed as to the manner of exercising such powers and rights, and such
designated officers may execute or cause to be executed in the name and on
behalf of the Corporation and under its corporate seal or otherwise, such
written proxies, powers of attorney or other instruments as they may deem
necessary or proper in order that the Corporation may exercise its powers and
rights.
ARTICLE VI
SHARES AND THEIR TRANSFER; FIXING RECORD DATE
---------------------------------------------
6.1. Certificates for Shares.
-----------------------
Every owner of stock of the Corporation shall be entitled to have a
certificate certifying the number and class of shares owned by him in the
Corporation, which shall be in such form as shall be prescribed by the Board.
Certificates shall be numbered and issued in consecutive order and shall be
signed by, or in the name of, the Corporation by the Chairman, the President or
any Vice President, and by the Treasurer (or an Assistant Treasurer, if
appointed) or the Secretary (or
10
<PAGE>
an Assistant Secretary, if appointed). In case any officer or officers who shall
have signed any such certificate or certificates shall cease to be such officer
or officers of the Corporation, whether because of death, resignation or
otherwise, before such certificate or certificates shall have been delivered by
the Corporation, such certificate or certificates may nevertheless be adopted by
the Corporation and be issued and delivered as though the person or persons who
signed such certificate had not ceased to be such officer or officers of the
Corporation.
6.2. Record.
------
A record in one or more counterparts shall be kept of the name of the
person, firm or corporation owning the shares represented by each certificate
for stock of the Corporation issued, the number of shares represented by each
such certificate, the date thereof and, in the case of cancellation, the date of
cancellation. Except as otherwise expressly required by law, the person in whose
name shares of stock stand on the stock record of the Corporation shall be
deemed the owner thereof for all purposes regarding the Corporation.
6.3. Transfer and Registration of Stock.
----------------------------------
(a) The transfer of stock and certificates which represent the stock
of the Corporation shall be governed by Article 8 of Subtitle 1 of Title 6 of
the Delaware Code (the Uniform Cormmercial Code), as amended from time to time.
(b) Registration of transfers of shares of the Corporation shall be
made only on the books of the Corporation upon request of the registered holder
thereof, or of his attorney thereunto authorized by power of attorney duly
executed and filed with the Secretary of the Corporation, and upon the surrender
of the certificate or certificates for such shares properly endorsed or
accompanied by a stock power duly executed.
6.4. Addresses of Stockholders.
-------------------------
Each stockholder shall designate to the Secretary an address at which
notices of meetings and all other corporate notices may be served or mailed to
him, and, if any stockholder shall fail to designate such address, corporate
notices may be served upon him by mail directed to him at his post-office
address, if any, as the same appears on the share record books of the
Corporation or at his last known post-office address.
6.5. Lost, Destroyed and Mutilated Certificates.
------------------------------------------
The holder of any shares of the Corporation shall immediately notify the
Corporation of any loss, destruction or mutilation of the certificate therefor,
and the Board may, in its discretion, cause to be issued to him a new
certificate or certificates for such shares, upon the surrender of the mutilated
certificates or, in the case of loss or destruction of the certificate, upon
satisfactory proof of such loss or destruction, and the Board may, in its
discretion, require the owner of the lost or destroyed certificate or his legal
representative to give the Corporation a bond in such sum and with such surety
or sureties as it may direct to indemnify the Corporation against any claim that
may be made against it on account of the alleged loss or destruction of any such
certificate.
11
<PAGE>
6.6. Regulations.
-----------
The Board may make such rules and regulations as it may deem expedient,
not inconsistent with these By-laws, concerning the issue, transfer and
registration of certificates for stock of the Corporation.
6.7. Fixing Date for Determination of Stockholders of Record.
-------------------------------------------------------
(a) In order that the Corporation may determine the stockholders
entitled to notice of or to vote at any meeting of stockholders or any
adjournment thereof, the Board may fix a record date, which record date shall
not precede the date upon which the resolution fixing the record date is adopted
by the Board, and which record date shall be not more than 60 nor less than 10
days before the date of such meeting. If no record date is fixed by the Board,
the record date for determining stockholders entitled to notice of or to vote at
a meeting of stockholders shall be at the close of business on the day next
preceding the day on which notice is given, or, if notice is waived, at the
close of business on the day next preceding the day on which the meeting is
held. A determination of stockholders of record entitled to notice of or to vote
at a meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the Board may fix a new record date for the adjourned
- -------- -------
meeting.
(b) In order that the Corporation may determine the stockholders
entitled to consent to corporate action in writing without a meeting, the Board
may fix a record date, which record date shall not precede the date upon which
the resolution fixing the record date is adopted by the Board, and which date
shall be not more than 10 days after the date upon which the resolution fixing
the record date is adopted by the Board. If no record date has been fixed by the
Board, the record date for determining stockholders entitled to consent to
corporate action in writing without a meeting, when no prior action by the Board
is required by the Delaware Statute, shall be the first date on which a signed
written consent setting forth the action taken or proposed to be taken is
delivered to the Corporation by delivery to its registered office in this State,
its principal place of business or an officer or agent of the Corporation having
custody of the book in which proceedings of meetings of stockholders are
recorded. Delivery made to the Corporation's registered office shall be by hand
or by certified or registered mail, return receipt requested. If no record date
has been fixed by the Board and prior action by the Board is required by the
Delaware Statute, the record date for determining stockholders entitled to
consent to corporate action in writing without a meeting shall be at the close
of business on the day on which the Board adopts the resolution taking such
prior action.
(c) In order that the Corporation may determine the stockholders
entitled to receive payment of any dividend or other distribution or allotment
of any rights or the stockholders entitled to exercise any rights in respect of
any change, conversion or exchange of stock, or for the purpose of any other
lawful action, the Board may fix a record date, which record date shall not
precede the date upon which the resolution fixing the record date is adopted,
and which record date shall be not more than 60 days prior to such action. If no
record date is fixed, the record date for determining stockholders for any such
purpose shall be at the close of business on the day on which the Board adopts
the resolution relating thereto.
12
<PAGE>
ARTICLE VII
-----------
SEAL
----
The Board may provide for a corporate seal, which shall be in the form of a
circle and shall bear the full name of the Corporation, the year of
incorporation of the Corporation and the words and figures "Corporate Seal -
1997 Delaware."
ARTICLE VIII
------------
FISCAL YEAR
-----------
The fiscal year of the Corporation shall be the calendar year unless
otherwise determined by the Board.
ARTICLE IX
----------
INDEMNIFICATION AND INSURANCE
-----------------------------
9.1. Indemnification.
---------------
(a) Each person who was or is made a party or is threatened to be made
a party to or is otherwise involved in any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative (hereinafter a "proceeding"), by reason of the fact that he or she
is or was a director, officer or employee of the Corporation or is or was
serving at the request of the Corporation as a director, officer or employee of
another corporation or of a partnership, joint venture, trust or other
enterprise, including service with respect to an employee benefit plan
(hereinafter an "indemnitee"), whether the basis of such proceeding is alleged
action in an official capacity while serving as a director, officer or employee
or in any other capacity while serving as a director, officer or employee, shall
be indemnified and held harmless by the Corporation to the fullest extent
authorized by the Delaware Statute, as the same exists or may hereafter be
amended (but, in the case of any such amendment, only to the extent that such
amendment permits the Corporation to provide broader indemnification rights than
permitted prior thereto), against all expense, liability and loss (including
attorneys' fees, judgments, fines, excise taxes or amounts paid in settlement)
reasonably incurred or suffered by such indemnitee in connection therewith and
such indemnification shall continue as to an indemnitee who has ceased to be a
director, officer or employee and shall inure to the benefit of the indemnitee's
heirs, testators, intestates, executors and administrators; provided, however,
-------- -------
that such person 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 a criminal action or proceeding, had no reasonable cause to believe
his conduct was unlawful; provided further, however, that no indemnification
-------- ------- -------
shall be made in the case of an action, suit or proceeding by or in the right of
the Corporation in relation to matters as to which it shall be adjudged in such
action, suit or proceeding that such director, officer, employee or agent
13
<PAGE>
is liable to the Corporation, unless a court having jurisdiction shall
determine that, despite such adjudication, such person is fairly and
reasonably entitled to indemnification; provided further, however, that,
-------- ------- -------
except as provided in Section 9.1(b) of this Article IX with respect to
proceedings to enforce rights to indemnification, the Corporation shall
indemnify any such indemnitee in connection with a proceeding (or part
thereof) initiated by such indemnitee only if such proceeding (or part
thereof) initiated by such indemnitee was authorized by the Board of
Directors of the Corporation. The right to indemnification conferred by
this Article IX shall be a contract right and shall include the right to be
paid by the Corporation the expenses incurred in defending any such
proceeding in advance of its final disposition (hereinafter an "advancement
of expenses"); provided, however, that, if the Delaware Statute requires,
-------- -------
an advancement of expenses incurred by an indemnitee in his or her capacity
as a director or officer (and not in any other capacity in which service
was or is rendered by such indemnitee, including, without limitation,
service to an employee benefit plan) shall be made only upon delivery to
the Corporation of an undertaking (hereinafter an "undertaking"), by or on
behalf of such indemnitee, to repay all amounts so advanced if it shall
ultimately be determined by final judicial decision from which there is no
further right to appeal (hereinafter a "final adjudication") that such
indemnitee is not entitled to be indemnified for such expenses under this
Section or otherwise.
(b) If a claim under Section 9.1(a) of this Article IX is not
paid in full by the Corporation with 60 days after a written claim has been
received by the Corporation, except in the case of a claim for an
advancement of expenses, in which case the applicable period shall be 20
days, the indemnitee may at any time thereafter bring suit against the
Corporation to recover the unpaid amount of the claim. If successful in
whole or in part in any such suit, or in a suit brought by the Corporation
to recover an advancement of expenses pursuant to the terms of any
undertaking, the indemnitee shall be entitled to be paid also the expense
of prosecuting or defending such suit. In (i) any suit brought by the
indemnitee to enforce a right to indemnification hereunder (but not in a
suit brought by the indemnitee to enforce a right to an advancement of
expenses) it shall be a defense that, and (ii) in any suit by the
Corporation to recover an advancement of expenses pursuant to the terms of
an undertaking the Corporation shall be entitled to recover such expenses
upon a final adjudication that, the indemnitee has not met the applicable
standard of conduct set forth in the Delaware Statute. Neither the failure
of the Corporation (including the Board, independent legal counsel, or the
stockholders) to have made a determination prior to the commencement of
such suit that indemnification of the indemnitee is proper in the
circumstances because the indemnitee has met the applicable standard of
conduct set forth in the Delaware Statute, nor an actual determination by
the Corporation (including the Board, independent legal counsel, or the
stockholders) that the indemnitee has not met such applicable standard of
conduct, shall create a presumption that the indemnitee has not met the
applicable standard of conduct or, in the case of such a suit brought by
the indemnitee, be a defense to such suit. In any suit brought by the
indemnitee to enforce a right to indemnification or to an advancement of
expenses hereunder, or by the Corporation to recover an advancement of
expenses pursuant to the terms of an undertaking, the burden of proving
that the indemnitee is not entitled to be indemnified, or to such
advancement of expenses, under this Section or otherwise shall be on the
Corporation.
14
<PAGE>
(c) The rights to indemnification and to the advancement of expenses
conferred by this Article IX shall not be exclusive of any other right which any
person may have or hereafter acquire under any statute, the Charter, agreement,
vote of stockholders or disinterested directors or otherwise.
9.2. Insurance.
---------
The Corporation may purchase and maintain insurance, at its expense, to
protect itself and any person who is or was a director, officer, employee or
agent of the Corporation or any person who is or was serving at the request of
the Corporation as a director, officer, employer or agent of another
corporation, partnership, joint venture, trust or other enterprise against any
expense, liability or loss, whether or not the Corporation would have the power
to indemnify such person against such expense, liability or loss under the
Delaware Statute.
ARTICLE X
---------
AMENDMENT
---------
Any by-law (including these By-laws) may be adopted, amended or repealed by
the vote of the holders of a majority of the shares then entitled to vote or by
the stockholders' written consent pursuant to Section 2.7 or 2.10 of Article II,
or by the vote of the Board or by the directors' written consent pursuant to
Section 3.6 of Article III.
15
<PAGE>
EXHIBIT 4.1
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I DEFINITIONS; RULES OF CONSTRUCTION............................. 2
1.1. Definitions...................................................... 2
1.2. Rules of Construction............................................ 10
1.3. Certain Consents, Waivers, Etc................................... 11
ARTICLE II BOARD OF DIRECTORS; ETC....................................... 11
2.1. Board of Directors; Etc.......................................... 11
2.2. Covenants of the Company......................................... 13
2.3. Covenants of the Parent and GNP.................................. 15
ARTICLE III CO-SALE RIGHTS; "CLAW-BACK" OPTIONS.......................... 16
3.1. Co-Sale Rights................................................... 16
3.2. "Claw-Back" Options to Purchase.................................. 17
ARTICLE IV PREEMPTIVE RIGHTS AND RIGHTS OF FIRST REFUSAL................. 20
4.1. Preemptive Rights for New Securities............................. 20
4.2. Rights to Purchase Securities of Parent and GNP.................. 22
ARTICLE V MANAGEMENT AND CONTROL......................................... 23
ARTICLE VI
MISCELLANEOUS............................................................ 23
6.1. Issuances of Securities.......................................... 23
6.2. Joinder Agreement; Certain Transfers............................. 24
6.3. Governing Law; Etc............................................... 24
6.4. Duration of Agreement............................................ 25
6.5. Severability..................................................... 25
6.6. Iniunctive Relief................................................ 25
6.7. Binding Effect................................................... 26
6.8. Amendment; Modification; Waiver.................................. 26
6.9. Counterparts..................................................... 26
6.10. Notices.......................................................... 26
</TABLE>
i
<PAGE>
EXHIBITS AND SCHEDULES
----------------------
Exhibit A - Charter
Exhibit B - Joinder Agreement
Schedule I - Shareholders
Schedule II - Initial Directors
<PAGE>
AMENDED AND RESTATED SHAREHOLDERS
AGREEMENT dated as of June 24,
1997, among EARTHWEB INC., a
Delaware corporation (the
"Company"), and the SHAREHOLDERS
(as defined herein).
This Amended and Restated Shareholders Agreement (this
"Agreement"), amends and restates in its entirety the Shareholders Agreement
dated as of October 25, 1996 (the "Original Shareholders Agreement"), among the
Company (as successor-by-merger to EarthWeb Inc., a New York corporation) and
the Shareholders, and is being entered into in connection with the execution and
delivery of the Purchase Agreement and Amendment (as defined below).
In connection with the foregoing, the parties are entering into
this Agreement in order to provide for the continuity of the business, policies
and affairs of the Company.
ACCORDINGLY, in consideration of the foregoing and the mutual
covenants and agreements contained herein, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto hereby agree as follows:
ARTICLE I
DEFINITIONS; RULES OF CONSTRUCTION
1.1. DEFINITIONS.
-----------
Capitalized terms used in this Agreement have the meanings
ascribed to them below or in the other locations specified below:
"Acceptance Notice" has the meaning set forth in Section 4.1(b).
----------------- --------------
"Additional Option" has the meaning set forth in Section 3.2(b).
----------------- --------------
"Additional Option Period" has the meaning set forth in Section
------------------------
3.2(b).
"Additional Preferred Shares" means, collectively, the 598,086
shares of Series B Preferred Stock purchased by Warburg pursuant to the Purchase
Agreement and Amendment (subject to proportionate adjustment in the event of any
stock dividend or distribution paid in shares of Series B Preferred Stock or
stock split, reverse stock split or combination or other similar pro rata
recapitalization event affecting the Series B Preferred Stock).
2
<PAGE>
"Affiliate" means, with respect to any specified Person, (1) any other
---------
Person who, directly or indirectly, owns or controls, is under common ownership
or control with, or is owned or controlled by, such specified Person, (2) any
other Person who is a director, officer or partner or is, directly or
indirectly, the beneficial owner of ten percent (10%) or more of any class of
equity securities, of the specified Person or a Person described in clause (1)
----------
above, (3) another Person of whom the specified Person is a director, officer or
partner or is, directly or indirectly, the beneficial owner of ten percent (10%)
or more of any class of equity securities, (4) another Person in whom the
specified Person has a substantial beneficial interest or as to whom the
specified Person serves as trustee or in a similar capacity, or (5) any relative
or spouse of the specified Person or any of the foregoing Persons, any relative
of such spouse or any spouse of any such relative. As used in this definition,
the term "control" means the possession, directly or indirectly, of the power to
-------
direct the management and policies of a Person, whether through the ownership of
voting securities, by contract or otherwise.
"Arbitration Procedure" means the following procedure to determine the
---------------------
Market Value of a security or the Fair Value of any property other than a
security (the "valuation amount"), if applicable. The valuation amount shall be
----------------
determined by an investment banking firm of national recognition, which firm
shall be reasonably acceptable to the Company and the Requisite Investors. If
the Company and the Requisite Investors are unable to agree upon an acceptable
investment banking firm within ten (10) days after the date on which either the
Company or the Requisite Investors proposed that one be selected, the investment
banking firm will be selected by an arbitrator located in the City of New York,
New York, selected by the American Arbitration Association (or if such
organization ceases to exist, the arbitrator shall be chosen by a court of
competent jurisdiction). The arbitrator shall select the investment banking
firm (within ten (10) days of his appointment) from a list, jointly prepared by
the Company and the Requisite Investors, of not more than six investment banking
firms of national standing in the United States, of which no more than three may
be named by the Company and no more than three may be named by the Requisite
Investors. The arbitrator may consider, within the ten-day period allotted,
arguments from the Company and the Requisite Investors regarding which
investment banking firm to choose, but the selection by the arbitrator shall be
made in its sole discretion from the list of six. The determination by such
investment banking firm of the valuation amount shall be final and binding upon
the Company and the Requisite Investors. The Company shall pay one-half the
fees and expenses of the investment banking firms and arbitrators (if any) used
to determine the valuation amount, and the Investors shall, ratably based on the
number of shares of Common Stock and Common Stock Equivalents held by each of
them, pay the other half of such fees and expenses. If required by any such
investment banking firm or arbitrator, the Company shall execute a retainer and
engagement letter containing reasonable terms and conditions, including
customary provisions concerning the rights of indemnification and contribution
by the Company in favor of such investment banking firm or arbitrator and its
officers, directors, partners, employees, agents and Affiliates (other than for
claims resulting from such firm's or arbitrator's gross negligence, bad faith or
willful misconduct), and each of the Company and the Investors shall, if
reasonably requested by any such investment banking firm or arbitrator, waive
all claims each of them may have against such firm or arbitrator (other than any
such claim arising out of such firm's or arbitrator's gross negligence, bad
faith or willful misconduct).
"Board" has the meaning set forth in Section 2.1(a)(i).
----- -----------------
3
<PAGE>
"Business Day" means any day that is not a Saturday, Sunday, legal
------------
holiday or other day on which banks are required to be closed in New York, New
York.
"Change of Control" means the occurrence of any fact, event or
-----------------
condition that results in the Founders and their respective Permitted
Transferees, taken together as a group, (i) ceasing to own, beneficially and of
record (and in the case of the Parent, through record ownership by GNP), at
least 51% of the outstanding Membership Interests in the Parent or GNP, (ii)
ceasing to control the Board of Managers of the Parent or GNP or (iii) otherwise
ceasing to control the Parent or GNP.
"Certificate of Incorporation" means the Certificate of Incorporation
----------------------------
of the Company as filed with the Secretary of State of Delaware, as the same may
be amended and restated and in effect from time to time, a true and complete
copy of which as in effect on the date hereof is attached hereto as Exhibit A
---------
hereto.
"Commission" means the Securities and Exchange Commission, or any
----------
other federal agency at the time administering the Securities Act.
"Common Stock" means the common stock, $.0l par value, of the Company
------------
of any class.
"Common Stock Equivalent" means the right to acquire, whether or not
-----------------------
immediately exercisable, one share of Common Stock, whether evidenced by an
option, warrant, convertible security or other instrument or agreement;
provided, however, that the rights of GNP (and its permitted assigns) to acquire
- -------- -------
securities of the Company from Warburg or its transferees pursuant to Section
-------
3.2 shall not constitute Common Stock Equivalents held by GNP (or its permitted
- ---
assigns) for purposes of this Agreement, the Stock Purchase Agreement or the
Certificate of Incorporation.
"Company" has the meaning given to it in the caption to this
-------
Agreement.
"Competitor" means any Person that owns, manages or operates any line
----------
of business that manufactures, markets or sells products or services similar to
those of the Company.
"Convertible Preferred Stock" means, collectively, the Series A
---------------------------
Preferred Stock, the Series B Preferred Stock and the Series C Preferred Stock.
"Designated Directors" has the meaning set forth in Section 2.1 (b)
-------------------- ---------------
(iii).
- -----
"Documents" means this Agreement, the Stock Purchase Agreement, the
---------
Purchase Agreement and Amendment, the Certificate of Incorporation, the
Registration Rights Agreement and the Intercompany Services Agreement.
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
------------
or any successor federal statute then in force, and the rules and regulations
promulgated thereunder, all as the same may from time to time be in effect.
4
<PAGE>
"Equivalent Price" means, with respect to any share of Convertible
----------------
Preferred Stock proposed to be sold, the Equivalent Price for a share of Common
Stock shall equal the amount payable in respect of such share of Convertible
Preferred Stock divided by the number of Common Stock Equivalents represented by
such share of Convertible Preferred Stock.
"Excluded Securities" has the meaning given to it in the Certificate
-------------------
of Incorporation.
"Excepted Securities" has the meaning given to it Section 4.1(d).
------------------- --------------
"Fair Value" means, with respect to any Security, its Market Value,
----------
and with respect to any property or assets other than cash or Securities, the
fair value thereof determined in good faith jointly by the Company and the
Requisite Investors; provided, however, that if the parties are not able to
-------- -------
agree within a reasonable period of time (not to exceed ten (10) days) what
amount constitutes Fair Value, then the Fair Value will be determined pursuant
to the Arbitration Procedure.
"Founder Directors" has the meaning set forth in Section 2. 1 (b)
----------------- ----------------
(ii).
"Founders" means Jack D. Hidary, Murray Hidary and Nova Spivack.
--------
"Fully Diluted Basis" means a calculation of the number of shares of
-------------------
Common Stock outstanding which includes, in addition to the shares of Common
Stock then issued and outstanding, the aggregate number of shares of Common
Stock issuable upon the exercise, conversion or exchange of all options
(including all options issuable under the Stock Plan), warrants, Convertible
Preferred Stock and any other Security of the Company exercisable or
exchangeable for or convertible into Common Stock.
"Fundamental Documents" means the documents by which any Person (other
---------------------
than an individual) establishes its legal existence or which govern its internal
affairs. For example, the "Fundamental Documents" of a corporation would be its
---------------------
charter (e.g. certificate or articles of incorporation) and by-laws.
----
"GNP" means Global Network Partners LLC, a New York limited liability
---
company.
"GNP Operating Agreement" means the Amended and Restated Operating
-----------------------
Agreement of GNP dated as of January 1, 1995, as amended and in effect on the
date hereof, a true and complete copy of which is attached to the Stock Purchase
Agreement as Annex III to Exhibit 3.1.
---------- -----------
"Governmental Authority" means any domestic or foreign government or
----------------------
political subdivision thereof, whether on a federal, state or local level and
whether executive, legislative or judicial in nature, including any agency,
authority, board, bureau, commission, court, department or other instrumentality
thereof.
"Identified Shareholder" means, collectively, the Parent, GNP and any
----------------------
other Person who is or becomes a holder of securities of the Company and who is
a director, officer or
5
<PAGE>
employee of, or consultant to, the Company, and any other Person who becomes a
party to this Agreement as an Identified Shareholder pursuant to Article VI, and
----------
any Transferee of Securities held by any such Person.
"Initial Option" has the meaning set forth in Section 3.2(a).
-------------- --------------
"Initial Option Period" has the meaning set forth in Section 3.2(a).
--------------------- --------------
"Initial Preferred Shares" means 488,278 shares of Series A Preferred
------------------------
Stock purchased by Warburg under the Stock Purchase Agreement on the Series A
Closing Date (as defined in the Stock Purchase Agreement) (subject to
proportionate adjustment in the event of any stock dividend or distribution paid
in shares of Series A Preferred Stock or stock split, reverse stock split or
combination or other similar pro rata recapitalization event affecting the
Series A Preferred Stock).
"Intercompany Services Agreement" means the Intercompany Services
-------------------------------
Agreement dated as of October 25, 1996, among the Company, GNP and the other
parties thereto.
"Investors" means, collectively, Warburg, and every other Person who
---------
after the date hereof becomes a party to this Agreement as an "Investor"
--------
pursuant to a Joinder Agreement executed and delivered pursuant to Article VI.
-----------
"Investor Directors" has the meaning set forth in Section 2.1(b)(i).
------------------ -----------------
"Joinder Agreement" means a joinder agreement in substantially the
-----------------
form attached hereto as Exhibit B.
---------
"Majority of the Entire Board" means a majority of the total number of
----------------------------
directors then constituting the entire Board, including vacancies.
"Market Value" means, as to any security, the average of the closing
------------
prices of such security's sales on the principal national securities exchange on
which such security may at the time be listed, or, if there have been no sales
on such exchange on any day, the average of the highest bid and lowest asked
prices on such exchange at the end of such day, or, if on any day such security
is not so listed, the average of the representative bid and asked prices quoted
in the NASDAQ System as of 4:00 P.M., New York time, on such day, or, if on any
day such security is not quoted in the NASDAQ System, the average of the highest
bid and lowest asked prices on such day in the domestic over-the-counter market
as reported by the National Quotation Bureau, Incorporated ("NQBI"), or any
--------
similar or successor organization; in each such case averaged over a period of
21 days consisting of the day as of which "Market Value" is being determined and
------------
the 20 consecutive business days prior to such day, or, if there have been no
bid or asked prices in the domestic over-the-counter market reported by NQBI,
the fair market value thereof determined in good faith jointly by the Company
and the Requisite Investors; provided, however, that if the Company and the
-------- -------
Requisite Investors are not able to agree within a reasonable period of time
(not to exceed ten (10) days) what amount constitutes the Market Value thereof,
then the Market Value thereof shall be determined pursuant to the Arbitration
Procedure.
6
<PAGE>
"Membership Interest" has the meaning ascribed to it in the Parent
-------------------
Operating Agreement, in the case of a Membership Interest in the Parent, or in
the GNP Operating Agreement, in the case of a Membership Interest in GNP.
"Notice of Transfer" has the meaning set forth in Section 4.2 (a).
------------------ ---------------
"Offer" has the meaning set forth in Section 4.2(a).
----- --------------
"Offerees" has the meaning set forth in Section 4.2(a).
-------- --------------
"Offered Securities" has the meaning set forth in Section 4.1(a).
------------------ --------------
"Original Cost" means, with respect to any share of any series of
-------------
Convertible Preferred Stock held by an Investor as of any particular date, the
amount originally paid by such Investor for such share when it was originally
issued. In the event of any change (by way of any stock dividend or
distribution payable in shares of such series of Convertible Preferred Stock, or
stock split, reverse stock split or combination or other pro rata
--- ----
recapitalization event affecting such series of Convertible Preferred Stock) in
the number or kind of shares of such series of Convertible Preferred Stock, the
Original Cost of the shares of such series of Convertible Preferred Stock
immediately prior to such change shall be ratably adjusted among such shares of
such series of Convertible Preferred Stock immediately after such change.
"Other Shareholders" has the meaning set forth in Section 3.1(a).
------------------ --------------
"Parent" means EarthWeb LLC, a New York limited liability company.
------
"Parent/GNP Agreement" means, with respect to the Parent or GNP, all
--------------------
agreements and instruments governing the organization and internal affairs of
such Person or the voting or transfer of membership interests in such Person and
any other securities issued by such Person.
"Parent Operating Agreement" means the Parent's Amended and Restated
--------------------------
Operating Agreement dated as of November 5, 1995, as amended and in effect on
the date hereof, a true and complete copy of which is attached to the Stock
Purchase Agreement as Annex II to Exhibit 3.1.
--------- -----------
"Participating Percentage" means, at any time with respect to any
------------------------
Investor to whom an offer or deemed offer to acquire or sell securities is made
hereunder and accepted by such Investor, the fraction, expressed as a
percentage, the numerator of which is the total number of shares of Common Stock
and Common Stock Equivalents held by such Investor at such time and the
denominator of which is the total number of shares of Common Stock and Common
Stock Equivalents that are held by all Investors at such time to whom such offer
is made or deemed hereunder and who have accepted such offer.
"Permitted Transfer" means any Transfer by a Shareholder (i) to the
------------------
spouse or any lineal ancestor or descendant of such Shareholder, (ii) to any
trust for the benefit of such Shareholder or the spouse or lineal ancestor or
descendant of such Shareholder, (iii) to the estate of such Shareholder or (iv)
a Transfer by a Founder of his interest in GNP to another Founder;
7
<PAGE>
provided, however, that in each case such Permitted Transfer is made in
- -------- -------
accordance with Article VI and (A) such Transferee agrees in writing to be bound
----------
by this Agreement in the same capacity and to the same extent as the Transferor
and (B) such Transfer would constitute a Permitted Transfer by the original
holder of the securities to be Transferred.
"Person" shall be construed as broadly as possible and shall include
------
an individual or natural person, a partnership (including a limited liability
partnership), a corporation, an association, a joint stock company, a limited
liability company, a trust, a joint venture, an unincorporated organization and
a Governmental Authority.
"Preemptive Offer" has the meaning set forth in Section 4. 1 (a).
---------------- ----------------
"Preemptive Period" has the meaning set forth in Section 4. 1 (a).
----------------- ----------------
"Proportionate Percentage" means, with respect to any Shareholder, the
------------------------
fraction, expressed as a percentage, the numerator of which is the total number
of shares of Common Stock and Common Stock Equivalents held by such Shareholder
and the denominator of which is the total number of shares of Common Stock and
Common Stock Equivalents existing at the time of determination that are held by
all Shareholders.
"Public Offering" means the consummation of a firm commitment public
---------------
offering of Common Stock pursuant to an effective registration statement under
the Securities Act, except that a Public Offering shall not include an offering
made in connection with a business acquisition or an employee benefit plan.
"Public Sale" means any sale, occurring simultaneously with or after a
--------------
Public Offering, of securities of the Company to the public pursuant to an
offering registered under the Securities Act or to the public through a broker,
dealer or market maker (pursuant to the provisions of Rule 144 or otherwise).
"Purchase Agreement and Amendment" means the Purchase Agreement and
--------------------------------
Amendment dated as of June 24, 1997, among the Company, the Parent and Warburg.
"Qualified Public Offering" has the meaning given to it in the
------------------------
Certificate of Incorporation.
"Refused Securities" has the meaning set forth in Section 4.1(c).
------------------ --------------
"Reincorporation" has the meaning set forth in Section 2.1(a)(ii).
--------------- ------------------
"Requisite Investors" means those Investors who or which hold in the
-------------------
aggregate in excess of 50% of the outstanding shares of Common Stock and Common
Stock Equivalents held by all Investors at the time in question.
"Requisite Shareholders" means those Shareholders who or which hold in
----------------------
the aggregate in excess of 50% of the outstanding shares of Common Stock and
Common Stock Equivalents held by all Shareholders at the time in question.
8
<PAGE>
"Rule 144" means Rule 144 under the Securities Act or any successor or
--------
similar rule as may be entered by the Commission from time to time, but shall
not include Rule 144A.
"Rule 144A" means Rule 144A under the Securities Act or any successor
---------
or similar rule as may be entered by the Commission from time to time, but shall
not include Rule 144.
"Sale Notice" has the meaning set forth in Section 3.1(a).
----------- --------------
"Sale of the Company" means any sale of the Company to one or more
-------------------
third party purchasers who or which are not Affiliates of the Company, whether
by way of (i) the sale or other disposition of all or substantially all of the
assets of the Company, (ii) the merger or consolidation of the Company with or
into another Person or (iii) the sale or other transfer of greater than a
majority of the capital stock of the Company.
"Securities Act" means the Securities Act of 1933, as amended, or any
--------------
successor federal statute, and the rules and regulations of the Securities and
Exchange Commission promulgated thereunder, all as the same shall be in effect
from time to time.
"Series A Preferred Stock" means the Company's Series A Convertible
------------------------
Preferred Stock, $.01 par value.
"Series B Preferred Stock" means the Company's Series B Convertible
------------------------
Preferred Stock, $.01 par value.
"Series C Preferred Stock" means the Company's Series C Convertible
------------------------
Preferred Stock, $.0l par value.
"Shareholders" means the holders, directly or indirectly through one
------------
or more other Persons, of either Convertible Preferred Stock, Common Stock or
Common Stock Equivalents, in each case, who or which are parties hereto, and
shall include any other Person who hereafter becomes a party to this Agreement
as a Shareholder, an Identified Shareholder or an Investor pursuant to a Joinder
Agreement executed and delivered pursuant to Article VI. For the avoidance of
----------
doubt, each of the Parent and GNP is a Shareholder for so long as it has a
direct or indirect ownership interest in the Common Stock.
"Stock" means the Convertible Preferred Stock, the Common Stock and
-----
any and all other capital stock or equity Securities (including derivative
Securities therefor) of the Company.
"Stock Plan" means the Company's 1996 Stock Plan as adopted and in
----------
effect on the date hereof.
"Stock Purchase Agreement" means the Stock Purchase Agreement dated as
------------------------
of October 25, 1996, among the Company, the Parent and Warburg, as amended by
the Purchase Agreement and Amendment and as the same may hereafter be further
amended or restated.
9
<PAGE>
"Strategic Investor" means a Person who or which, at the time in
------------------
question, has made, or is simultaneously making, a financial investment in the
Company in order to receive from the Company goods, services, technology,
expertise or other value in addition to a monetary return on such financial
investment.
"Subsidiary" means any Person (other than an individual) with respect
----------
to which a specified Person (or Subsidiary thereof) has the power to vote or
direct the voting of sufficient securities to elect a majority of the board of
directors, if a corporation, or other Persons performing similar functions.
"Tag-Along Notice" has the meaning set forth in Section 3.1(b).
----------------
"Transfer" of a security shall be construed broadly and shall include
--------
any issuance, sale, assignment, transfer, participation, gift, bequest,
distribution, or other disposition thereof, or any pledge or hypothecation
thereof, placement of a lien thereon or grant of a security interest therein or
other encumbrance thereon, in each case whether voluntary or involuntary or by
operation of law or otherwise.
"Transferee" means a Person acquiring securities through a Transfer.
----------
"Transferor" means a Person Transferring securities.
----------
"Transferring Shareholder" has the meaning set forth in Section 3. 1
------------------------ ------------
(a) .
- ----
"Warburg" means Warburg, Pincus Ventures, L.P., a Delaware limited
-------
partnership.
1.2. RULES OF CONSTRUCTION.
- ---- ---------------------
The use in this Agreement of the term "including" means "including,
--------- -----------
without limitation". The words "herein", "hereof", "hereunder" and other words
- ------------------ ------ ------ ---------
of similar import refer to this Agreement as a whole, including the schedules
and exhibits, as the same may from time to time be amended, modified,
supplemented or restated, and not to any particular section, subsection,
paragraph, subparagraph or clause contained in this Agreement. All references
to sections, schedules and exhibits mean the sections of this Agreement and the
schedules and exhibits attached to this Agreement, except where otherwise
stated. The title of and the section and subsection headings in this Agreement
are for convenience of reference only and shall not govern or affect the
interpretation of any of the terms or provisions of this Agreement. The use
herein of the masculine, feminine or neuter forms shall also denote the other
forms, as in each case the context may require. Where specific language is used
to clarify by example a general statement contained herein, such specific
language shall not be deemed to modify, limit or restrict in any manner the
construction of the general statement to which it relates. The language used in
this Agreement has been chosen by the parties to express their mutual intent,
and no rule of strict construction shall be applied against any party.
10
<PAGE>
1.3. CERTAIN CONSENTS, WAIVERS, ETC.
------------------------------
Whenever any action, event or condition relating to this Agreement
shall require or permit the consent or approval of (i) the Requisite Investors,
such consent or approval shall be deemed to have been duly given hereunder by
the Requisite Investors if such action, event or condition shall have been
consented to or approved by any Investor Director, or (ii) GNP or the Founders,
such consent or approval shall be deemed to have been duly given hereunder by
GNP or the Founders if such action, event or condition shall have been consented
to or approved by any Founder Director.
ARTICLE II
BOARD OF DIRECTORS; ETC.
2.1. BOARD OF DIRECTORS; ETC.
-----------------------
(a) Number of Directors; Etc.
-------------------------
Each Shareholder shall from time to time take such action, in his
capacity as a shareholder of the Company, including the voting, in person or by
proxy, of the securities owned or controlled by such Shareholder and entitled to
vote, as may be necessary to:
(i) cause the Company to be managed by a board of directors (the
"Board") consisting of (A) seven (7) directors nominated pursuant to
-----
this Section 2.1, unless sub-clause (B) becomes applicable, or (B)
-----------
at such time as the Investors both (1) hold in the aggregate
shares of Common Stock and Common Stock Equivalents equal to the
number of shares of Common Stock and Common Stock Equivalents held by
the Parent, and (2) have invested additional funds in the purchase of
equity of the Company in excess of the funds invested in the purchase
of shares of Series A Preferred Stock and Series B Preferred Stock
outstanding on the date of this Agreement (with such clauses (1) and
(2) being satisfied in any order), eight (8) directors nominated
pursuant to this Section 2.1; and
-----------
(ii) cause the By-laws of the Company to be amended, as soon as
possible following the date hereof, to provide for the creation of a
Compensation Committee of the Board consisting of three members, one
of whom shall be a Founder Director (as hereinafter defined), one of
whom shall be an Investor Director (as hereinafter defined), and one
of whom shall be a Designated Director (as hereinafter defined).
(b) Election of Directors.
---------------------
Promptly after the execution of this Agreement and at any time
and from time to time thereafter that directors of the Company are to be
elected, each Shareholder shall, in his capacity as a shareholder of the
Company, vote, in person or by proxy, all of the securities issued by the
Company and owned or controlled by such Shareholder and entitled to vote at any
annual
11
<PAGE>
or special meeting of the Shareholders of the Company called for the purpose of
voting on the election of directors, or to execute a written consent in lieu
thereof, and take all such other action as may be necessary to provide for the
election of the directors nominated as follows:
(i) two (2) directors nominated by Warburg (each, an "Investor
--------
Director," and all of them collectively, the "Investor Directors"),
------------------
or if sub-clause (B) of clause (i) of Section 2.1(a) becomes
applicable, three (3) directors nominated by Warburg (each, an
"Investor Director," and all of them collectively, the "Founder
----------------- -------
Directors");
(ii) three (3) directors nominated by GNP (each, a "Founder
-------
Director," and all of them collectively, the "Founder Directors"); and
-------- -----------------
(iii) two (2) directors nominated by GNP and Warburg jointly
(each, a "Designated Director," and all of them collectively, the
-------------------
"Designated Directors").
--------------------
(c) Removal of Directors.
--------------------
At all times, any Person or group of Persons having the right to
nominate or elect a director pursuant to this Agreement shall have the right to
require the removal, with or without cause, of such director. In the event that
any Shareholder or group of Shareholders acting as described in this Section 2.1
-----------
shall, in accordance with its or their rights specified therein, require the
removal of any director or directors with respect to whom they have such right,
then each of the other Shareholders hereby agrees to join with such acting
Shareholders in recommending such removal as described above, and in causing the
Company either to promptly hold a special meeting of shareholders and to vote,
in person or by proxy, all of its Securities issued by the Company and entitled
to vote at such meeting or to execute a written consent in lieu thereof, as the
case may be, in favor of such removal.
(d) Vacancies.
---------
If a vacancy is created on the Board by reason of the death, removal
(in accordance with Section 2.1(c)) or resignation of any director, each of the
--------------
Shareholders shall, in its capacity as a shareholder of the Company, vote, in
person or by proxy all of the Securities issued by the Company and owned or
controlled by such Shareholder and entitled to vote at any annual or special
meeting of the shareholders of the Company called for the purpose of voting on
the election of directors, or to execute a written consent in lieu thereof, and
take all such other action as may be necessary, to elect, or use its best
efforts to cause the remaining directors to elect, a person to fill such vacancy
who is nominated by the Person or Persons entitled to make such nomination, and,
if applicable, is approved by the Person or Persons entitled to approve such
nominee. Such election shall occur upon the earlier of the first meeting of the
Board, or the next presentation of a written consent of directors in lieu of a
meeting, after such vacancy occurs. In the event the remaining directors fail
to select a director to fill any such vacancy within such period or in the event
such directors fill such vacancy other than in accordance with the nomination
and selection procedures set forth in Section 2.1(b), each Shareholder shall, in
--------------
his capacity as a shareholder of the Company, use his best efforts to cause the
Company either to
12
<PAGE>
promptly hold a special meeting of shareholders or to execute a written consent
in lieu thereof and vote all of his Stock entitled to vote at such meeting, in
person or by proxy, or pursuant to such written consent of shareholders, in
favor of the individual Person or Persons nominated and selected in accordance
with Section 2.1(b) hereof to fill such vacancy and, if necessary, in favor
--------------
of removing any director elected to fill such vacancy other than in accordance
with the nomination and selection procedures of Section 2.1(b).
-------
(e) Required Removal.
----------------
Concurrently with the consummation of any sale of Securities of the
Company which would cause a Shareholder who or which has the right to nominate a
member of the Board to no longer have a direct or indirect ownership interest in
the Company, such Shareholder shall, upon the prior written request of the
Requisite Shareholders, deliver the resignations of the member(s) of the Board
who are such Shareholder's nominee or nominees.
(f) Notice of Elections, Etc.
-------------------------
The Company shall provide to each party entitled to nominate directors
hereunder 15 days prior written notice of any intended mailing of notice to
shareholders for a meeting at which directors are to be elected, and any party
entitled to nominate directors pursuant to this Section 2.1 shall notify the
-----------
Company in writing, prior to such mailing, of the individual Person(s) nominated
by it or them as its or their nominee(s) for election as director(s). If any
Shareholder entitled to nominate members of the Board hereunder fails to give
notice to the Company as set forth in this Section 2.1(f), it shall be deemed
--------------
that the nominee of such party then serving as a member of the Board shall be
its nominee for reelection.
2.2. Covenants of the Company.
- ---- ------------------------
Without the approval of the Requisite Investors and GNP (except as to
GNP in the case of clause (i) below), the Company shall not, and the Company
----------
shall not permit any of its Subsidiaries to, take any of the following actions:
(i) the dismissal or appointment of the Chief Executive Officer of the
Company or such Subsidiary (it being understood and agreed by the parties
hereto that, as of the date of this Agreement, Mr. Jack D. Hidary is the
Chief Executive officer of the Company and shall be appointed as such by
the Board at its first meeting occurring on or subsequent to the date of
this Agreement in which action is taken to appoint officers of the
Company);
(ii) except for (A) the issuance and sale of shares of Convertible
Preferred Stack to Investors pursuant to, and as expressly contemplated by,
the Documents, and (B) the issuance and sale of Excluded Securities, any
financing or series of related financings involving the sale by the Company
or any of its Subsidiaries of equity securities to any Person or Persons
other than Strategic Investors, or of debt securities to any Person or
Persons including Strategic Investors, resulting in aggregate proceeds to
the Company for all such securities (determined with respect to any such
securities at the time of their issuance) greater than $2,000,000;
provided, however, that in the event the
-------- -------
13
<PAGE>
Company requests Warburg to exercise the Series C Option under the Purchase
Agreement and Amendment and thereafter Warburg neither (A) exercises the
---
Series C Option for the full amount of Series C Preferred Stock that the
Company has requested Warburg to purchase nor (B) otherwise invests
additional funds in the purchase of equity of the Company in an amount
equal to the aggregate purchase price of the Series C Preferred Stock that
the Company has requested Warburg to purchase, then the Company shall not
be required under this clause (ii) or under clause (iii) below to obtain
the consent of the Requisite Investors for the sale or sales of equity
securities to one or more Strategic Investors in an amount up to or equal
to the difference between the amount the Company has requested from Warburg
and the amount (if any) actually invested by Warburg pursuant to such
request, on terms not materially more favorable to such Strategic Investor
than those contained in the Series C option (but nothing contained in this
proviso shall eliminate any other consent requirement under this Section
2.2);
(iii) any financing or series of related financings involving the
sale by the Company or any of its Subsidiaries to Strategic Investors of
equity securities that by their terms are directly or indirectly
exchangeable or exercisable for, or convertible into, that number of shares
of Common Stock that, when taken together with all prior financings
pursuant to this clause (iii) on a cumulative basis, exceeds ten percent
(10%) of the number of shares of Common Stock issued and outstanding on the
date of determination (determined on a Fully Diluted Basis);
(iv) any issuance, sale or transfer of any securities of any
Subsidiary of the Company to any Person other than the Company;
(v) any merger, recapitalization, reorganization, liquidation or
winding up of the Company or any of its Subsidiaries or the sale of all or
substantially all of the assets of the Company and its Subsidiaries taken
as a whole;
(vi) any sale or other disposition of assets of the Company or any of
its Subsidiaries with an aggregate Fair Value greater than $250,000 that is
outside the ordinary course of business of the Company or such Subsidiary;
(vii) any declaration or payment of (or setting aside of funds for
the payment of) dividends, distributions or other payments on or with
respect to any equity security of the Company or any of its Subsidiaries
(other than pursuant to the express terms of the Certificate of
Incorporation with respect to the redemption of the Convertible Preferred
Stock);
(viii) any amendment to the Fundamental Documents of the Company or
any of its Subsidiaries (other than any such amendment required to
consummate a financing transaction contemplated by clause (ii) or (iii)
----------- -----
above that does not require the consent or approval of the Requisite
Investors or GNP pursuant to such clause (ii) or (iii) above; provided,
----------- ----- --------
however, that nothing
-------
14
<PAGE>
contained herein shall eliminate or otherwise affect any other consent,
approval or waiver requirement for any such amendment under any such
Fundamental Document, other Document or applicable law) or to the
employment agreement for the Company's Chief Executive Officer);
(ix) an increase in the number of shares of Common Stock reserved for
issuance pursuant to the Stock Plan 15% of the aggregate number of shares
of Common Stock and outstanding on the date of determination (determined on
a Fully Diluted Basis); and
(x) make any election under Section 341(f) of the Internal Revenue
Code of 1986, as amended (or any successor statue).
2.3. COVENANTS OF THE PARENT AND GNP.
-------------------------------
(a) Without the prior approval of the Requisite Investors, neither the
Parent nor GNP shall, and the Founders shall use their best efforts to cause the
Parent and GNP not to, take any of the following actions:
(i) engage in any business or activity other than (A) owning (of
record and beneficially) securities issued by the Parent, in the case of
GNP, and by the Company, in the case of the Parent, and (B) making
investment in (i) direct obligations of the United States of America, or
obligations guaranteed as to principal and interest by the United States of
America, (ii) time deposits, bankers' acceptances and certificates of
deposit issued by any bank or trust company or, in the case of any
subsidiary bank of a bank holding company, a bank holding company, having
capital, surplus and undivided profits of at least $250,000,000, the short-
term deposits of which are given an Al or Pl rating by Standard & Poor's
Corporation or Moody's Investors Service, Inc., as applicable, (iii)
obligations of any bank or trust company or bank holding company described
in clause (ii) above, in respect of the repurchase of obligations of the
type described in clause (i) hereof, provided that such repurchase
obligations shall be fully secured by obligations of the type described in
said clause (i) and the possession of such obligations shall be transferred
to, and segregated from other obligations owned by, any such bank or trust
company or bank holding company, (iv) commercial paper given a rating of Al
or Pl by Standard & Poor's Corporation or Moody's Investors Service, Inc.,
as applicable and (v) securities of a class registered under Section 5 of
the Securities Act or Section 12 of the Exchange Act that are listed for
trading on a U.S. national securities exchange or the automated quotation
system maintained by the National Association of Securities Dealers and
that acquired in the open public market (provided, however, that the
aggregate amount of securities of any such class owned by the Parent and
GNP shall not equal or exceed 5% of the outstanding securities of such
class);
(ii) issue or sell any security of GNP to any Person who is not
already a member of GNP, or amend the Fundamental Documents of GNP to admit
any such Person as a member of GNP other than any such Person who may
15
<PAGE>
acquire a Membership Interest in GNP by transfer from an existing member of
GNP in a transaction pursuant to or in accordance with, or otherwise
expressly permitted by, the Fundamental Documents of GNP and Section 4.2
hereof; provided, however, that the consent of the Requisite Investors
-------- -------
shall not be required under this clause (ii) for the issuances and sales of
securities of GNP, or for sales of Common Stock by GNP, and the Transfer of
such shares of Common Stock by the Parent to GNP in order to enable GNP to
make any such sales, to non-Affiliates of the issuer and the Transferor in
arms length transactions during the period commencing October 25, 1996 and
ending on October 25, 1997, for aggregate consideration paid by the
purchasers and other acquirers for all such securities and shares of Common
Stock of not more than $2,000,000;
(iii) issue or sell any security of the Parent to any Person who is
not already a member of the Parent or GNP, or amend the Fundamental
Documents of the Parent to admit any such Person as a member of the Parent
other than any such Person who may acquire a Membership Interest in the
Parent by transfer from an existing member of the Parent in a transaction
pursuant to or in accordance with, or otherwise expressly permitted by, the
Fundamental Documents of the Parent and Section 4.2 hereof;
(iv) dissolve, liquidate or otherwise wind up the business or affairs
of the Parent or GNP;
(v) sell, assign, transfer or otherwise dispose of, or pledge,
encumber or otherwise hypothecate, in one or more related transactions, all
or substantially all of the assets of the Parent or GNP; or
(vi) permit any transfer of Membership Interests or any other
transaction or occurrence (including any amendment to the Fundamental
Documents of the Parent or GNP), if the effect of such Transfer or other
transaction would result in a Change of Control.
(b) Unless otherwise approved by the Requisite Investors, GNP shall cause
the Parent and the Company, and the Parent shall cause the Company, to perform
and comply with their respective obligations under the Documents in all material
respects.
ARTICLE III
CO-SALE RIGHTS; "CLAW-BACK" OPTIONS
3.1. CO-SALE RIGHTS.
--------------
(a) If at any time any Shareholder (the "Transferring Shareholder")
------------------------
proposes to Transfer any shares of Common Stock (other than Permitted
Transfers), then at least 90 days prior to the closing of such Transfer, such
Transferring Shareholder shall deliver a written notice (the "Sale Notice") to
-----------
the other Shareholders (the "Other Shareholders") offering the Investors
------------------
16
<PAGE>
the option to participate in such proposed Transfer. Such Sale Notice shall
specify in reasonable detail the identity of the prospective Transferee and the
terms and conditions of the Transfer.
(b) Any Other Shareholder may, within 15 days of the receipt of a Sale
Notice, give written notice (each, a "Tag-Along Notice") to the Transferring
----------------
Shareholder stating that such Other Shareholder wishes to participate in such
proposed Transfer and specifying the amount and class of Stock such Other
Shareholder desires to include in such proposed Transfer. Such Other Shareholder
shall include Common Stock unless such other Shareholder shall not then be
permitted to convert its Convertible Preferred Stock into Common Stock, in which
case such Other Shareholder shall be permitted to include Convertible Preferred
Stock which will be sold at the Equivalent Price.
(c) If none of the Other Shareholders gives the Transferring Shareholder a
timely Tag-Along Notice with respect to the Transfer proposed in the Sale
Notice, the Transferring Shareholder may thereafter transfer the shares
specified in the Sale Notice on substantially the same terms and conditions set
forth in the Sale Notice. If one or more Other Shareholders give the
Transferring Shareholder a timely Tag-Along Notice, then the Transferring
Shareholder shall use all reasonable efforts to cause each prospective
Transferee to agree to acquire all shares identified in all Tag-Along Notices
that are timely given to the Transferring Shareholder, upon the same terms and
conditions (or, if applicable, upon the same conditions and at the Equivalent
Price) as applicable to the Transferring Shareholder's shares. If such
prospective Transferee is unwilling or unable to acquire all shares proposed to
be included in such sale upon such terms, then the Transferring Shareholder may
elect either to cancel such proposed Transfer or to allocate the maximum number
of shares that each prospective Transferee is willing to purchase among the
Transferring Shareholder and the Other Shareholders giving timely Tag-Along
Notices in proportion to such Shareholders' (including the Transferring
Shareholder's) Proportionate Percentages. If any Other Shareholder elects to
sell any class of shares which is different from the class of shares specified
in the Sale Notice, then the Transferring Shareholder will use its best efforts
to cause the Transferee to permit the inclusion of such different class of
shares on the terms specified herein (including the Equivalent Price), and if
such Transferee is unwilling or unable to purchase such shares in accordance
with such terms, then the Transferring Shareholder shall cancel the proposed
Transfer.
(d) A proposed Transfer by a Shareholder of an interest in the Parent or
GNP shall be deemed a proposed Transfer of the shares of Common Stock indirectly
owned by virtue of the ownership of such interest and shall be subject to the
provisions of this Section 3.1, and all references in this Section 3.1 to the
shares of Common Stock proposed to be Transferred shall be deemed to be
references to shares of Common Stock indirectly owned by virtue of the ownership
of such interest (provided, however, that if such Transfer of an interest in the
Parent or GNP constitutes a Permitted Transfer, such Transfer shall be excepted
from this Section 3.1).
3.2. "CLAW-BACK" OPTIONS TO PURCHASE.
-------------------------------
(a) Warburg grants to GNP an option, subject to the terms and conditions
of the applicable provisions of this Section 3.2 (the "Initial Option"), to
----------- --------------
purchase up to that number of shares of Common Stock issued upon conversion of
the Initial Preferred Shares determined as provided below at a per share price
equal to the Original Cost paid by Warburg for an Initial
17
<PAGE>
Preferred Share. The Initial Option shall vest and become exercisable by GNP
only upon satisfaction of either of the following conditions:
(i) after the closing of a Qualified Public offering at a time when
Warburg is able to sell such shares of Common Stock free of any restriction
on resale (including, without limitation, any restrictions imposed by
federal or state securities laws, underwriters' lock ups or similar
agreements), the aggregate Market Value of such shares of Common Stock is
at least five times the aggregate Original Cost of, the Initial Preferred
Shares; or
(ii) the closing of a Sale of the Company occurs in which Warburg has
the right (through conversion of the Initial Preferred Shares or otherwise)
to receive for its Initial Preferred Shares, on a per share basis, cash,
cash equivalents, or securities registered under the Securities Act with a
Market Value of at least five times the Original Cost of an Initial
Preferred Share.
Upon the satisfaction of either of the foregoing conditions, GNP may, at any
time during the Initial Option Period (as defined below), exercise such option
(which exercise shall become effective only upon (and not before) the
consummation of such Sale of the Company in the case of the vesting of such
Initial Option pursuant to clause (ii) of the second sentence of this Section
----------- -------
3.2(a)) by delivering written notice of exercise to Warburg specifying the
- ------
number of shares of Common Stock to be purchased. The number of shares that may
be purchased by GNP upon the exercise of the Initial Option shall be that number
that, after giving effect to such exercise, results in Warburg retaining shares
of Common Stock received upon the conversion of the Initial Preferred Shares
with an aggregate Market Value, taken together with the aggregate exercise price
payable by GNP to Warburg for the shares of Common Stock to be purchased upon
such exercise, of at least five times the aggregate Effective Per Share Price
for all of the Initial Preferred Shares; provided, however, that such number of
-------- --------
shares shall in no event exceed ten percent (10%) of the shares of Common Stock
receivable by Warburg upon conversion of the Initial Preferred Shares. As used
herein, the term "Initial Option Period" means either (A) in the case of the
---------------------
vesting of the Initial Option pursuant to clause (i) of the second sentence of
-----------
this Section 3.2(a), the 30-day period commencing on the date on which the
--------------
Initial Option first vests and becomes exercisable and ending at 5:00 p.m. New
York City time on the 30th calendar day thereafter, or (B) in the case of the
vesting of the Initial Option pursuant to clause (ii) of the second sentence of
-----------
this Section 3.2(a), the period commencing on the date on which the closing date
--------------
of such Sale of the Company is determined and ending at 5:00 p.m. on the last
business day immediately preceding the date of the closing of such Sale of the
Company.
(b) Warburg grants to GNP an additional option, subject to the
terms and conditions of the applicable provisions of this Section 3.2 (the
-----------
"Additional Option"), to purchase up to that number of shares of Common
- -------------------
Stock issued upon conversion of the Additional Preferred Shares determined as
provided below at a per share price equal to the Original Cost paid by Warburg
for an Additional Preferred Share. The Additional Option shall vest and become
exercisable by GNP only upon satisfaction of either of the following conditions:
(i) after the closing of a Qualified Public Offering at a time when
Warburg is able to sell such shares of Common Stock free of any restriction
18
<PAGE>
on resale (including, without limitation, any restrictions imposed by
federal or state securities laws, underwriters, lock ups or similar
agreements), the aggregate Market Value of such shares of Common Stock is
at least five times the aggregate original Cost of the Additional Preferred
Shares; or
(ii) the closing of a Sale of the Company occurs in which Warburg has
the right (through conversion of the Additional Preferred Shares or
otherwise) to receive for its Additional Preferred Shares, on a per share
basis, cash, cash equivalents, or securities registered under the
Securities Act with a Market Value of at least five times the Original Cost
of an Additional Preferred Share.
Upon the satisfaction of either of the foregoing conditions, GNP may,
at any time during the Additional Option Period (as defined below), exercise
such option (which exercise shall become effective only upon (and not before)
the consummation of such Sale of the Company in the case of the vesting of such
Additional Option pursuant to clause (ii) of the second sentence of this Section
-------
3.2(b)) by delivering written notice of exercise to Warburg specifying the
- ------
number of shares of Common Stock to be purchased. The number of shares that may
be purchased by GNP upon the exercise of the Additional Option shall be that
number that, after giving effect to such exercise, results in Warburg retaining
shares of Common Stock received upon the conversion of the Additional Preferred
Shares with an aggregate Market Value, taken together with the aggregate
exercise price payable by GNP to Warburg for the shares of Common Stock to be
purchased upon such exercise, of at least five times the aggregate Original Cost
for all of the Additional Preferred Shares; provided, however, that such number
-------- -------
shall in no event exceed ten percent (10%) of the shares of Common Stock
received by Warburg upon conversion of the Additional Preferred Shares. As used
herein, the term "Additional Option Period" means either (A) in the case of the
------------------------
vesting of the Additional Option pursuant to clause (i) of the second sentence
----------
of this Section 3.2(b), the 30-day period commencing on the date on which the
--------------
Additional Option first vests and becomes exercisable and ending at 5:00 p.m.
New York City time on the 30th calendar day thereafter, or (B) in the case of
the vesting of the Additional Option pursuant to clause (ii) of the second
-----------
sentence of this Section 3.2(b), the period commencing on the date on which the
--------------
closing date of such Sale of the Company is determined and ending at 5:00 p.m.
on the last business day immediately preceding the date of the closing of such
Sale of the Company.
(c) The right of GNP to exercise the Initial Option and the Additional
Option and to purchase the shares of Common Stock contemplated thereby shall not
be assignable without the prior written consent of Warburg. Anything contained
herein to the contrary notwithstanding, each of the Initial Option and the
Additional Option shall terminate 30 days after the first date on which Warburg
is able to sell the shares of Common Stock covered by such option free of any
restriction on resale (including, without limitation, any restrictions imposed
by federal or state securities laws, underwriters' lock ups or similar
agreements). In the event that Warburg enters into any agreement restricting its
sale of shares of Common Stock issuable upon the conversion of the Initial
Preferred Shares or the Additional Preferred Shares, Warburg shall promptly
notify GNP thereof (including a summary of the transfer restrictions therein).
19
<PAGE>
(d) The closing of the sale of shares of Common Stock issuable upon
the conversion of Initial Preferred Shares shall take place either (i) in the
case of the vesting of the Initial Option pursuant to clause (i) of the
----------
second sentence of Section 3.2(a), on such date as shall be mutually
--------------
determined between Warburg and GNP (but in no event later than 30 days
following the exercise of such option), or (B) in the case of the vesting
of the Initial Option pursuant to clause (ii) of the second sentence of
-----------
Section 3.2(a), simultaneously with the consummation of such Sale of the
- --------------
Company at the closing thereof. At the closing, Warburg shall deliver to GNP the
certificates for the shares of Common Stock being purchased from Warburg at such
closing, duly endorsed or accompanied by a duly executed stock power
transferring such shares to GNP, against Warburg's receipt from GNP of the
aggregate purchase price therefor in U.S. dollars in cash or by wire transfer of
immediately available funds. The sale and purchase of such shares at the closing
shall be without warranty or recourse to Warburg, except that Warburg shall
warrant to GNP that Warburg has good title to such shares free and clear of any
and all liens and encumbrances other than those arising under the Documents.
(e) The closing of the sale of shares of Common Stock issuable upon
the conversion of Additional Preferred Shares shall take place either (i)
in the case of the vesting of the Additional Option pursuant to clause (i)
----------
of the second sentence of Section 3.2(b), on such date as shall be mutually
--------------
determined between Warburg and GNP (but in no event later than 30 days
following the exercise of such option), or (B) in the case of the vesting
of the Additional Option pursuant to clause (ii) of the second sentence of
-----------
Section 3.2(b), immediately prior to the consummation of such Sale of the
- --------------
Company at the closing thereof. At the closing, Warburg shall deliver to GNP the
certificates for the shares of Common Stock being purchased from Warburg at such
closing, duly endorsed or accompanied by a duly executed stock power
transferring such shares to GNP, against Warburg's receipt from GNP of the
aggregate purchase price therefor in U.S. dollars in cash or by wire transfer of
immediately available funds. The sale and purchase of such shares at the closing
shall be without warranty or recourse to Warburg, except that Warburg shall
warrant to GNP that Warburg has good title to such shares free and clear of any
and all liens and encumbrances other than those arising under the Documents.
ARTICLE IV
PREEMPTIVE RIGHTS AND RIGHTS OF FIRST REFUSAL
4.1. PREEMPTIVE RIGHTS FOR NEW SECURITIES.
------------------------------------
(a) Except in the case of Excepted Securities, the Company shall not issue
sell or exchange, agree to issue, sell or exchange, or reserve or set aside for
issuance, sale or exchange (i) any equity security of the Company, (ii) any debt
security of the Company which by its terms is convertible into or exchangeable
for any equity security of the Company, or (iii) any option, warrant or other
right to subscribe for, purchase or otherwise acquire any equity security or any
debt security referred to in clause (i) or (ii), unless in each case the Company
---------- ----
shall have first offered (the "Preemptive Offer") to sell such securities to the
----------------
Shareholders (the "Offered Securities") by delivery to such Shareholders of
------------------
written notice of such offer stating that the Company proposes to sell such
Offered Securities, the number or amount of the Offered Securities proposed to
be sold, the proposed purchase price therefor and any other terms and
20
<PAGE>
conditions of such offer. The Preemptive offer shall by its terms remain open
and irrevocable for a period of 20 days from the date it is delivered by the
Company (the "Preemptive Period").
-----------------
(b) Each Shareholder shall have the option, exercisable at any time during
the Preemptive Period by delivering written notice to the Company (an
"Acceptance Notice"), to subscribe for (i) the number or amount of such Offered
-----------------
Securities up to its Proportionate Percentage of the total number or amount of
Offered Securities proposed to be issued and (ii) up to its Proportionate
Percentage of the Offered Securities not subscribed for by other Shareholders as
specified in its Acceptance Notice. Any Offered Securities not subscribed for by
a Shareholder (or not purchased by a defaulting Shareholder at the closing under
Section 4.1(c) below) shall be deemed to be re-offered to and accepted by the
- --------------
Shareholders exercising their options specified in clause (ii) of the
-----------
immediately preceding sentence with respect to the lesser of (A) the amount
specified in their respective Acceptance Notices and (B) an amount equal to
their respective Proportionate Percentages with respect to such deemed offer.
Such deemed offer and acceptance procedures described in the immediately
preceding sentence shall be deemed to be repeated until either (x) all of the
Offered Securities are accepted by the Shareholders or (y) no Shareholder
desires to subscribe for more Offered Securities (it being understood and agreed
that the application of the foregoing clauses (x) and (y) may result in the
Shareholders, or any of them, having the right, but not any obligation, under
this Section 4.1 to accept and acquire up to and including all of the Offered
Securities on the terms contained in this Section 4.1). The Company shall notify
each Shareholder within five (5) days following the expiration of the Preemptive
Period (and as soon as possible in the case of the deemed re-offer of securities
not purchased by a defaulting Shareholder) of the number or amount of Offered
Securities which such Shareholder has subscribed to purchase.
(c) If Acceptance Notices are not given by the Shareholders for all of the
Offered Securities, the Company shall have 90 days from the expiration of the
Preemptive Period to sell all or any part of such Offered Securities as to which
Acceptance Notices have not been given by the Shareholders (the "Refused
-------
Securities") to any other Persons, but only upon terms and conditions in all
- ----------
respects, including unit price and interest rates, which are no more favorable,
in the aggregate, to such other Persons or less favorable to the Company than
those set forth in the Preemptive offer. Upon the closing, which shall include
full payment to the Company, of the sale to such other Persons of all the
Refused Securities, the Shareholders shall purchase from the Company, and the
Company shall sell to the Shareholders, the Offered Securities with respect to
which Acceptance Notices were delivered by the Shareholders, at the terms
specified in the Preemptive Offer (with all such sales and purchases occurring
simultaneously). In each case, any Offered Securities not purchased by the
Shareholders or any other Persons in accordance with this Section 4.1 may not be
-----------
sold or otherwise disposed of until they are again offered to the Shareholders
under the procedures specified in this Section 4.1.
-----------
(d) As used herein, the term "Excepted Securities" means (i) shares of
-------------------
Common Stock (or options therefor) issued, granted or sold to directors or
employees of, or consultants to, the Company under the Stock Plan, (ii) Common
Stock issued by the Company in a bona fide underwritten public offering
registered under the Securities Act, (iii) securities issued pursuant to the
conversion or exercise of convertible or exercisable securities, (iv) securities
issued in connection with a stock split or stock dividend or pursuant to a
reverse stock split or
21
<PAGE>
stock combination, and (v) all issuances of Convertible Preferred Stock pursuant
to the Stock Purchase Agreement and the Certificate of Incorporation.
4.2. RIGHTS TO PURCHASE SECURITIES OF PARENT AND GNP.
-----------------------------------------------
(a) In the event of any proposed Transfer by a Shareholder pursuant to a
bona fide offer of securities of the Parent or GNP to a Person who is not then
- ---------
a Member of or other holder of an interest in the Parent or GNP or which would
not constitute a Permitted Transfer if the Transferor were Transferring Common
Stock, such Transferor shall first deliver written notice simultaneously to the
Company and the Investors (the "Notice of Transfer"), which shall be
------------------
irrevocable for a period of 45 days after delivery thereof, offering (the
"Offer") to the Company and the Investors (the "Offerees") all of the
-----
securities proposed to be Transferred by the Transferor at the purchase price
and on the terms specified therein (which Notice of Transfer shall include all
relevant terms of the proposed Transfer). The Transferor shall also furnish to
the Company and the Investors such additional information relating to the
Transfer as they may reasonably request. The Company shall have the first right
and option, for a period of 30 days after delivery of the Notice of Transfer by
the Transferor, to accept all of the securities so offered at the purchase price
and on the terms stated in the Notice of Transfer. The Company shall, if it does
not elect to purchase all of the offered securities, immediately upon such
election deliver notice thereof to the Investors. Each Investor shall have the
right and option, for a period of 15 days after the expiration of the 30-day
period provided above, (x) to accept all or any portion of its Participating
Percentage of the securities so offered at the purchase price and on the terms
stated in the Notice of Transfer and (y) to offer, in any written notice of
acceptance, to purchase any securities not accepted by the other Investors, in
which case the securities not accepted by the other Investors shall be deemed on
the same terms and conditions to be reofferred from time to time during such 15-
day period to and accepted by the Investors who exercised their option under
this clause (y) pro rata in accordance with their respective Participating
---------- --------
Percentages (computed without including the Investors who have not
exercised their option to purchase securities under this clause (y)), until
----------
all such securities are fully subscribed or until all such Investors have
subscribed for all such offered securities which they desire to purchase.
(b) Transfers of securities under the terms of this Section 4.2 shall be
-----------
made at the offices of the Company on a mutually satisfactory Business Day
within 15 days after the expiration of the 45-day time period provided for
above. Delivery of certificates or other instruments evidencing such securities,
duly endorsed for transfer, shall be made on such date against payment of the
purchase price therefor.
(c) If the Company and the Investors shall not have accepted all of the
securities offered for sale pursuant to the Notice of Offer, then subject to
Section 4.2(f) below, the Transferor may Transfer to a third party that
- --------------
number of the securities not accepted by the Company and the Investors at a
price and on such other terms and conditions not more favorable to such third
party than those contained in the original Notice of Transfer, at any time
within 180 days after the expiration of the offers required by Section 4.2(b).
--------------
In the event the securities are not Transferred by the Transferor on such
terms during such 180-day period, the restrictions of this Section 4.2 shall
-----------
again become effective to any applicable Transfer of securities by the
Transferor.
22
<PAGE>
(d) The Transferor may specify in the Notice of Transfer that the Offer
mentioned therein is conditioned upon receipt from the Company and the
Investors, or any one of them, of written notices of binding acceptance with
respect to all securities mentioned in such Notice of Transfer, in which case
the Company and the Investors shall only have right to purchase all, and not
less than all, of the securities offered in such Notice of Transfer.
(e) In the event that the Company and/or the Investors do not purchase all
of the securities offered in the Notice of Transfer, the Transfer of such
unaccepted securities to the third-party Transferee shall be subject to the
provisions of Section 3.1 as if such Transfer were a Transfer of the Common
------------
Stock indirectly owned by virtue of the ownership of such securities to be
Transferred.
(f) In the event of purchase of any securities of or other interests in the
Parent or GNP by the Company or the Investors, effective provision shall be made
for the conversion or exchange of such securities for shares of Common Stock
indirectly owned by virtue of ownership of such securities, and the parties
hereto shall use their best efforts to provide for such conversion or exchange
on terms reasonably acceptable to the issuer of such securities, the Company,
and, if purchasing any of such securities, such Investors.
ARTICLE V
MANAGEMENT AND CONTROL
The business and affairs of the Company shall be managed, controlled
and operated in accordance with its Fundamental Documents and the Documents, as
the same may be amended from time to time, except that no Fundamental Documents
of the Company shall be amended in any manner that would conflict with, or be
inconsistent with, the provisions of any of the Documents, and, in the event of
a conflict between any of the Documents and any of the Fundamental Documents,
the provisions of the Documents shall control and the parties shall take actions
necessary to amend or modify the Fundamental Documents to eliminate or resolve
such conflict in accordance with this provision.
ARTICLE VI
MISCELLANEOUS
6.1. ISSUANCES OF SECURITIES.
------------ ----------
The Company shall not, without the prior written consent of the
Requisite Investors, issue or sell, or otherwise permit or record the Transfer
of, any security of the Company to any Person if such Person is (or as a result
of the issuance, sale or Transfer of such securities to such Person would
become) an Identified Shareholder unless, subject to the provisions of Section
-------
6.2(b), such Person (i) is already a party to this Agreement as an Identified
- ------
Shareholder hereunder or (ii) first executes and delivers to the Company a
Joinder Agreement, pursuant to which such Person will thereupon become a party
to, and be bound by and obligated
23
<PAGE>
to comply with the terms and provisions of this Agreement as an Identified
Shareholder hereunder.
6.2. JOINDER AGREEMENT; CERTAIN TRANSFERS.
------------------------------------
(a) The provisions regarding Transfers of Stock contained in this Article
-------
VI shall apply to all shares of Stock now owned or hereafter acquired by a
Shareholder, including shares of Stock acquired by reason of original issuance,
dividend, distribution, exchange, conversion and acquisition of outstanding
shares of Stock from another Person, and such provisions shall apply to any
shares of Stock obtained by a Shareholder upon the exercise, exchange or
conversion of any option, warrant or other derivative security.
(b) Except for (i) transfers that constitute Public Sales and (ii) as
otherwise expressly provided by that certain Voting Trust Agreement dated as of
October 25, 1996, relating to the Stock Plan, no Shareholder shall Transfer any
shares to a Person not already a party to this Agreement as a Shareholder unless
and until such Person executes and delivers to the Company a Joinder Agreement,
pursuant to which such Person will thereupon become a party to, and be bound by
and obligated to comply with the terms and provisions of, this Agreement, as a
Shareholder hereunder. Any Person who executes a Joinder Agreement shall (i) be
designated an Investor if the Transferor was an Investor and the Transferee was
not the Company, an Identified Shareholder or an Affiliate of an Identified
Shareholder or (ii) be designated an Identified Shareholder in all other
instances. No Person who is not a Shareholder who acquires Stock in a Public
Sale shall be permitted or required to execute a Joinder Agreement.
(c) Notwithstanding any other provision of this Agreement to the contrary,
no Transfer of Shares shall be made to any Competitor without the prior written
consent of a Majority of the Entire Board (with each Member of the Board voting
regardless of any interest in such transaction).
6.3. GOVERNING LAW; ETC.
------------------
(a) All questions concerning the construction, interpretation and validity
of this Agreement shall be governed by and construed and enforced in accordance
with the domestic laws of the State of New York, without giving effect to any
choice or conflict of law provision or rule (whether in the State of New York or
any other jurisdiction) that would cause the application of the laws of any
jurisdiction other than the State of New York. In furtherance of the foregoing,
the internal law of the State of New York will control the interpretation and
construction of this Agreement, even if under such jurisdiction's choice of law
or conflict of law analysis, the substantive law of some other jurisdiction
would ordinarily apply.
(b) The jurisdiction and venue in any action brought by any party hereto
pursuant to this Agreement shall exclusively lie in any federal or state court
located in the City of New York, New York. The parties further agree that such
exclusive jurisdiction and venue shall lie exclusively with such federal courts
if federal rules of jurisdiction permit such federal court to hear such action.
By execution and delivery of this Agreement, each party hereto irrevocably
submits to the jurisdiction of such courts for himself or itself and in respect
of his or its property with respect to such action. The parties irrevocably
agree that venue would be proper in any
24
<PAGE>
such court and hereby waive any objection that any such court is an improper or
inconvenient forum for the resolution of such action. The parties further agree
that the mailing by certified or registered mail, return receipt requested, of
any process required by any such court shall constitute valid and lawful service
of process against them, without necessity for service by any other means
provided by statute or rule of court. The parties agree that a final judgment in
any such action or proceeding shall be conclusive and may be enforced in other
jurisdiction by suit on the judgment or in any other manner provided by
applicable law.
(c) BECAUSE DISPUTES ARISING IN CONNECTION WITH COMPLEX FINANCIAL
TRANSACTIONS ARE MOST QUICKLY AND ECONOMICALLY RESOLVED BY AN EXPERIENCED AND
EXPERT PERSON AND THE PARTIES WISH APPLICABLE LAWS TO APPLY (RATHER THAN
ARBITRATION RULES), THE PARTIES DESIRE THAT THEIR DISPUTES BE RESOLVED BY A
JUDGE APPLYING SUCH APPLICABLE LAWS, EXCEPT WHERE THIS AGREEMENT EXPRESSLY
REQUIRES OTHERWISE FOR THE RESOLUTION OF ANY SUCH DISPUTE. THEREFORE, TO ACHIEVE
THE BEST COMBINATION OF THE BENEFITS OF THE JUDICIAL SYSTEM (AND OF ARBITRATION
WHERE THIS AGREEMENT EXPRESSLY REQUIRES ARBITRATION), THE PARTIES HERETO WAIVE
ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, SUIT OR PROCEEDING BROUGHT TO ENFORCE
OR DEFEND ANY RIGHTS OR REMEDIES UNDER THIS AGREEMENT OR ANY DOCUMENTS.
6.4. DURATION OF AGREEMENT.
---------------------
The rights and obligations of the Company and each Shareholder under
this Agreement (other than the provisions of Section 3.2, which shall survive
-----------
until such time as GNP fully exercises its rights under such Section or, if
earlier, the expiration of the applicable option period) shall terminate on the
earliest to occur of the following: (a) immediately prior to the consummation of
a Qualified Public Offering; (b) immediately prior to the consummation of the
sale of all, or substantially all, of the assets of the Company and its
Subsidiaries taken as a whole; or (c) the consummation of the liquidation,
dissolution or winding up of the Company, whether voluntary or involuntary.
6.5. SEVERABILITY.
------------
If any provisions of this Agreement shall be determined to be illegal or
unenforceable by any court of law, the remaining provisions shall be severable
and enforceable in accordance with their terms.
6.6. INJUNCTIVE RELIEF.
-----------------
It is acknowledged that it will be impossible to measure the damages that
would be suffered by the non-breaching party if any party fails to comply with
the provisions of this Agreement and that in the event of any such failure, the
non-breaching parties will not have an adequate remedy at law. The non-breaching
parties shall, therefore, be entitled to obtain specific performance of the
breaching party's obligations hereunder and to obtain immediate injunctive
relief. The breaching party shall not urge, as a defense to any proceeding for
such specific performance or injunctive relief, that the non-breaching parties
have an adequate remedy at law.
25
<PAGE>
If any action at law or in equity is necessary to enforce or interpret the
terms of this Agreement, the prevailing party shall be entitled to reasonable
attorneys, fees, costs and necessary disbursements in addition to any other
relief to which such party may be entitled.
6.7. BINDING EFFECT.
--------------
This Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective permitted successors and assignees, legal
representatives and heirs. Nothing in this Agreement, express or implied, is
intended to confer upon any party other than the parties hereto or their
respective successors and assigns any rights, remedies, obligations, or
liabilities under or by reason of this Agreement, except as expressly provided
in this Agreement. The administrator, executor or legal representative of any
deceased, juvenile or incapacitated Shareholder shall have the right to execute
and deliver all documents and perform all acts necessary to exercise and perform
the rights and obligations of such Shareholder under the terms of this
Agreement.
6.8. AMENDMENT; MODIFICATION; WAIVER.
-------------------------------
(a) Except as expressly set forth herein, the provisions of this Agreement
may only be amended or waived with the prior written consent of (i) the Company,
(ii) the Requisite Investors and (iii) the Requisite Shareholders; provided,
--------
however, that if any such amendment, modification, or waiver that would
- -------
adversely affect the rights hereunder of any Shareholder, in its capacity
as a Shareholder, and which either are unique to such Shareholder or do not
similarly affect the rights hereunder of all Shareholders of the same series or
class, in their capacities as Shareholders of such series or class, such
amendment, modification or waiver shall not be effective as to such Shareholder
without its prior written consent.
(b) No course of dealing between the Company and the Shareholders (or any
of them) or any delay in exercising any rights hereunder will operate as a
waiver of any rights of any party to this Agreement. The failure of any party to
enforce any of the provisions of this Agreement will in no way be construed as a
waiver of such provisions and will not affect the right of such party thereafter
to enforce each and every provision of this Agreement in accordance with its
terms.
6.9. COUNTERPARTS.
------------
This Agreement may be executed in one or more counterparts, each of which
shall be deemed to be an original, but all of which taken together shall
constitute one and the same instrument.
6.10. NOTICES.
-------
All notices, requests, consents and other communications hereunder to
any party shall be deemed to be sufficient if contained in a written instrument
and shall be deemed to have been duly given when delivered in Person, by telex,
telegram or telecopy, by overnight courier, or by first class registered or
certified mail, postage prepaid, addressed to such party at the address set
forth below or such other address as may hereafter be designated in writing by
the addressee to the sender:
26
<PAGE>
If to the Company, to:
EarthWeb Inc.
3 Park Avenue, 33rd Floor
New York, New York 10016
Attention: President
Telephone: (212) 725-6550
Telecopy: (212) 725-6559
with a copy to:
Morrison & Foerster, LLP
1290 Avenue of the Americas, 41st Floor
New York, New York 10104
Attention: Joseph W. Bartlett, Esq.
Telephone: (212) 468-8000
Telecopy: (212) 468-7900
If to any Shareholder, at his or its address set forth on Schedule I
----------
hereto or, if none, in the books of the Company.
All such notices, requests, consents and other communications shall be
deemed to have been delivered (i) in the case of personal delivery, telex,
telegram or telecopy, on the date of such delivery, (ii) in the case of
overnight courier, on the next business day, and (iii) in the case of mailing,
on the third business day following such mailing.
* * *
IN WITNESS WHEREOF, the Company and the Shareholders have executed this
Shareholders Agreement in counterparts as of the date first above specified.
EARTHWEB INC.
/s/ Jack D. Hidary
By: ________________________________
Jack D. Hidary
President
EARTHWEB LLC
/s/ Jack D. Hidary
By: ________________________________
Jack D. Hidary
Authorized Signatory
27
<PAGE>
GLOBAL NETWORK PARTNERS LLC
/s/ Jack D. Hidary
By: ________________________________
Jack D. Hidary
Authorized Signatory
WARBURG, PINCUS VENTURES, L.P.
By: Warburg, Pincus & Co., its general
partner
/s/ Henry Kressel
By: ________________________________
Name: Henry Kressel
Title: Managing Director
/s/ Jack D. Hidary
___________________________
Jack D. Hidary
/s/ Murray Hidary
___________________________
Murray Hidary
/s/ Nova Spivack
____________________________
Nova Spivack
28
<PAGE>
EXHIBIT 4.3
EARTHWEB INC.
REGISTRATION RIGHTS AGREEMENT
This Agreement is made as of October 25, 1996, by and among EarthWeb
Inc., a New York corporation (the "Company"), and the Investors (as defined
-------
herein), which shall initially include (i) Warburg, Pincus Ventures, L.P., a
Delaware limited partnership ("Warburg"), which is purchasing shares of the
-------
Company's Series A Convertible Preferred Stock, $.10 par value (the "Series A
--------
Preferred Stock"), and may purchase shares of the Company's Series B Convertible
- ---------------
Preferred Stock, $.10 par value (the "Series B Preferred Stock"), and shares of
------------------------
the Company's Series C Convertible Preferred Stock, $.10 par value (the "Series
------
C Preferred Stock"), pursuant to the Stock Purchase Agreement (as defined
- -----------------
herein), (ii) EarthWeb LLC, a New York limited liability company ("EarthWeb"),
--------
and (iii) Global Network Partners, LLC, a New York limited liability company
("GNP").
---
PREAMBLE
The Company desires to extend registration rights to the Investors.
NOW, THEREFORE, in consideration of the premises and mutual agreements
set forth herein, the Company and the Investors agree as follows:
Section 1. Definitions. As used in this Agreement, the following terms
-----------
shall have the following meanings:
(a) "Affiliate" shall mean, with respect to any specified
---------
Person, (1) any other Person who, directly or indirectly, owns or controls, is
under common ownership or control with, or is owned or controlled by, such
specified Person, (2) any other Person who is a director, officer or partner or
is, directly or indirectly, the beneficial owner of ten percent (10%) or more of
any class of equity securities, of the specified Person or a Person described in
clause (1) above, (3) another Person of whom the specified Person is a director,
- ----------
officer or partner or is, directly or indirectly, the beneficial owner of ten
percent (10%) or more of any class of equity securities, (4) another Person in
whom the specified Person has a substantial beneficial interest or as to whom
the specified Person serves as trustee or in a similar capacity, or (5) any
relative or spouse of the specified Person or any of the foregoing Persons, any
relative of such spouse or any spouse of any such relative. As used in this
definition, the term "control" means the possession, directly or indirectly, of
-------
the power to direct the management and policies of a Person, whether
<PAGE>
through the ownership of voting securities, by contract or otherwise.
(b) "Common Stock" shall mean the Common Stock, $.10 par
------------
value, of the Company of any class
(c) "Common Stock Equivalent" shall mean the right to
-----------------------
acquire, whether or not immediately exercisable, one share of Common Stock,
whether evidenced by an option, warrant, convertible security or other
instrument or agreement.
(d) "Commission" shall mean the Securities and Exchange
----------
Commission, or any other Federal agency at the time administering the Securities
Act.
(e) "Company" has the meaning set forth in the caption to
-------
this Agreement.
(f) "Convertible Preferred Stock" shall mean (i) the Series
---------------------------
A Preferred Stock, (ii) the Series B Preferred Stock, (iii) the Series C
Preferred Stock and (iv) any other series of the Company's preferred stock, $.10
par value, designated on or after the date hereof that may be convertible into
Common Stock.
(g) "EarthWeb" has the meaning set forth in the caption to
--------
this Agreement.
(h) "EarthWeb Investors" means EarthWeb and any successor
------------------
to, or assignee or transferee of Restricted Securities held by, EarthWeb who or
which agrees in writing to be treated as an EarthWeb Investor hereunder and to
be bound by and comply with all of the applicable terms and provisions hereof.
(i) "Excess Liability" has the meaning set forth in
----------------
Section 6(d).
- ------------
(j) "Exchange Act" shall mean the Securities Exchange Act
------------
of 1934, as amended, or any similar Federal statute then in force, and the rules
and regulations promulgated thereunder, all as the same may from time to time be
in effect.
(k) "GNP" has the meaning set forth in the caption to this
---
Agreement.
(l) "GNP Investors" means GNP and any successor to, or
-------------
assignee or transferee of Restricted Securities held by, GNP who or which agrees
in writing to be treated as a GNP Investor hereunder and to be bound by and
comply with all of the applicable terms and provisions hereof.
(m) "Indemnified Party" has the meaning set forth in
-----------------
Section 6(c).
- ------------
<PAGE>
(n) "Indemnifying Party" has the meaning set forth in
------------------
Section 6(c).
- ------------
(o) "Initial Public Offering" shall mean an underwritten
-----------------------
initial Public Offering for the account of the Company of shares of Common Stock
pursuant to a registration statement filed under the Securities Act.
(p) "Investor" shall mean any Warburg Investor, any GNP
--------
Investor, any EarthWeb Investor, any Permitted Optionee and any Permitted Other
Investor and shall also include any successor to, or assignee or transferee of
Registrable Shares held by, any of the foregoing Persons who or which agrees in
writing to be treated as an Investor hereunder and to be bound by and comply
with all of the applicable terms and provisions hereof.
(q) "Majority of EarthWeb Investors" shall mean those
------------------------------
EarthWeb Investors who or which hold in the aggregate in excess of 50% of the
Restricted Shares (on a Common Stock Equivalent basis) held by all of the
EarthWeb Investors.
(r) "Majority of GNP Investors" shall mean those GNP
-------------------------
Investors who or which hold in the aggregate in excess of 50% of the Restricted
Shares (on a Common Stock Equivalent basis) held by all of the GNP Investors.
(s) "Majority of Investors" shall mean those Investors who
---------------------
or which hold in the aggregate in excess of 50% of the Restricted Shares (on a
Common Stock Equivalent basis) held by all of the Investors.
(t) "Majority of Registering Investors" shall mean, with
---------------------------------
respect to any registration of Registrable Shares, those Investors who or which
hold in the aggregate in excess of 50% of the Registrable Shares held by
Investors who or which are included in such registration.
(u) "Majority of Warburg Investors" shall mean those
-----------------------------
Warburg Investors who or which hold in the aggregate in excess of 50% of the
Restricted Shares (on a Common Stock Equivalent basis) held by all of the
Warburg Investors.
(v) "Material Transaction" shall mean any material
--------------------
transaction (i) in which the Company is engaged, including a purchase or sale of
assets or securities, financing, merger, consolidation, tender offer or any
other transaction, and (ii) the disclosure of which would be required pursuant
to the Exchange Act if the Company were a reporting company thereunder.
(w) "Other Shares" shall mean those shares of the Common
------------
Stock which do not constitute Primary Shares or Registrable Shares.
<PAGE>
(x) "Permitted Other Investor" means any Person who or
------------------------
which holds Restricted Securities and, with the written consent of each of the
Majority of GNP Investors and the Majority of Warburg Investors, agrees in
writing to be treated as a Permitted Other Investor hereunder and to be bound by
and comply with all of the applicable terms and provisions hereof.
(y) "Permitted Optionee" shall mean any employee of, or
------------------
consultant to, the Company who or which is granted options exercisable for
Common Stock pursuant to the Stock Plan and who agrees in writing to be treated
as a Permitted Optionee hereunder and to be bound by and comply with all of the
applicable terms and provisions hereof. The admission of any such Person as a
Permitted Optionee under this Agreement shall not require the consent or
approval of any other party to this Agreement.
(z) "Person" shall be construed as broadly as possible and
------
shall include an individual or natural person, a partnership (including a
limited liability partnership), a corporation, an association, a joint stock
company, a limited liability company, a trust, a joint venture, an
unincorporated organization and any domestic or foreign government or political
subdivision thereof.
(aa) "Primary Shares" shall mean, at any time, the
--------------
authorized but unissued shares of Common Stock or shares of Common Stock held by
the Company in its treasury.
(ab) "Public Offering" shall mean the closing of a public
---------------
offering of Common Stock pursuant to a Registration Statement declared effective
under the Securities Act, except that a Public Offering shall not include an
offering of securities to be issued as consideration in connection with a
business acquisition or an offering of securities issuable pursuant to an
employee benefit plan.
(ac) "Register", "registered" and "registration" shall
-------- ---------- ------------
refer to a registration effected by preparing and filing a registration
statement in compliance with the Securities Act, and the declaration or ordering
of the effectiveness of such registration statement, and compliance with
applicable state securities laws of such states in which Investors notify the
Company of their intention to offer Registrable Shares.
(ad) "Registrable Shares" shall mean, at any time, and with
------------------
respect to any Investor, the shares of Common Stock held by such Investor that
constitute Restricted Securities except that, as to any particular Registrable
Shares, once issued, such Registrable Shares shall cease to be Registrable
Shares for purposes of this Agreement when such shares shall have been (i) sold
by a Person in a transaction in which his or its rights under this Agreement are
not properly assigned; or (ii) (A) sold to or through a broker or dealer or
underwriter in a
<PAGE>
public distribution or a public securities transaction, or (B) sold in a
transaction exempt from the registration and prospectus delivery requirements of
the Securities Act under Section 4(1) thereof so that all transfer restrictions,
and restrictive legends with respect thereto, if any, are removed upon the
consummation of such sale or (C) the registration rights associated with such
securities have been terminated pursuant to Section 11 of this Agreement.
----------
(ae) "Restricted Securities" shall mean, at any time and
---------------------
with respect to any Investor, the shares of Convertible Preferred Stock, the
shares of Common Stock, and any other securities which by their terms are
directly or indirectly exercisable or exchangeable for or convertible into
Common Stock, and any securities received on or with respect to any such of the
foregoing securities, in each case which are held by such Investor and which
theretofore have not been sold to the public pursuant to a registration
statement or pursuant to Rule 144.
(af) "Rule 144" shall mean Rule 144 under the Securities
--------
Act or any successor or similar rule as may be enacted by the Commission from
time to time, but shall not include Rule 144A.
(ag) "Rule 144A" shall mean Rule 144A under the Securities
---------
Act or any successor or similar rule as may be enacted by the Commission from
time to time, but shall not include Rule 144.
(ah) "Rule 145" shall mean Rule 145 under the Securities
--------
Act or any successor or similar rule as may be enacted by the Commission from
time to time.
(ai) "Securities Act" shall mean the Securities Act of
--------------
1933, as amended, or any similar Federal statute and the rules and regulations
thereunder, all as the same shall be in effect at the time.
(aj) "Series A Preferred Stock" has the meaning set forth
------------------------
in the caption to this Agreement.
(ak) "Series B Preferred Stock" has the meaning set forth
------------------------
in the caption to this Agreement.
(al) "Series C Preferred Stock" has the meaning set forth
------------------------
in the caption to this Agreement.
(am) "Stock Plan" means the Company's 1996 Stock Plan as in
----------
effect on the date hereof.
(an) "Stock Purchase Agreement" means the Stock Purchase
------------------------
Agreement dated as of the date hereof, among the Company, Warburg and EarthWeb.
<PAGE>
(ao) "Warburg" has the meaning set forth in the caption to
-------
this Agreement.
(ap) "Warburg Investors" means Warburg and any successor
-----------------
to, or assignee or transferee of Restricted Securities held by, Warburg who or
which agrees in writing to be treated as a Warburg Investor hereunder and to be
bound by and comply with all of the applicable terms and provisions hereof.
Section 2. Demand Registration.
-------------------
(a) If at any time after an Initial Public Offering the
Company shall receive from (1) a Majority of Warburg Investors, (2) a Majority
of GNP Investors or (3) a Majority of EarthWeb Investors a written request that
the Company effect any registration with respect to Registrable Shares held by
such Investors, the Company shall:
(i) promptly give written notice of the proposed
registration to all other Investors, who shall have the right, subject to the
applicable terms of this Agreement, to include in such registration Registrable
Shares held by them (exercisable by delivering to the Company written notice
specifying the number of Registrable Shares requested to be included within 20
days after receipt of such notice of such registration from the Company); and
(ii) as soon as practicable use its best efforts to
register (including, without limitation, the execution of an undertaking to file
post-effective amendments and any other governmental requirements) all of the
Registrable Shares which the Investors request to be registered within 20 days
after receipt of such written notice from the Company;
provided, however, that the Company shall not be obligated to file a
- -------- -------
registration statement pursuant to this Section 2:
---------
(A) prior to the date which is six (6) months
from the date the Company consummates its initial offering of Common Stock to
the public pursuant to a registration statement filed under the Securities Act,
which offering requires such Common Stock to become registered under the
Exchange Act;
(B) in any particular state in which the Company
would be required to execute a general consent to service of process in
effecting such registration;
(C) within 120 days following the effective date
of any registered offering of the Company's securities to the general public in
which the Investors shall have been able effectively to register all Registrable
Shares as to which registration shall have been requested;
<PAGE>
(D) that is (1) requested by a Majority of the Warburg
Investors at a time after the Company has effected two registrations requested
by a Majority of the Warburg Investors pursuant to this Section 2, (2) requested
---------
by a Majority of the GNP Investors at a time after the Company has effected two
registrations requested by a Majority of the GNP Investors pursuant to this
Section 2, or (3) requested by a Majority of the EarthWeb Investors at a time
- ---------
after the Company has effected two registrations requested by a Majority of the
EarthWeb Investors pursuant to this Section 2; or
---------
(E) if the aggregate selling price of the Registrable
Shares requested to be included in such registration by all Investors is less
than $500,000.
(b) Subject to the foregoing clauses (A) through (E) in Section
----------- --- -------
2(a), the Company shall file a registration statement covering the Registrable
- ----
Shares so requested to be registered as soon as practical, but in any event
within 90 days, after receipt of the request or requests from the Investors
pursuant to this Section 2 and shall use reasonable best efforts to have such
---------
registration statement promptly declared effective by the Commission whether or
not all Registrable Shares requested to be registered can be included; provided,
--------
however, that if the Company shall furnish to such Investors a certificate
- -------
signed by the president of the Company stating that, in the good faith judgment
of the Company's board of directors, if such registration statement were filed
within such 90-day period, it would be materially detrimental to the Company and
its shareholders and that it is therefore essential to defer the filing of such
registration statement, the Company shall have an additional period of not more
than 90 days after the expiration of the initial 90-day period within which to
file such registration statement; provided further, however, that (i) during
-------- ------- -------
such time the Company may not file any other registration statement for
securities to be issued and sold for its own account or the account of any other
Person and (ii) the Company shall not utilize this right more than once in any
12-month period.
(c) If the Majority of Registering Investors intend to
distribute the Registrable Shares covered by their request by means of an
underwriting, they shall so advise the Company as a part of their request. In
such event or if an underwriting is required by Section 2(e), the Company shall
------------
include such information in the written notice referred to in Section 2(a)(i).
---------------
In either such event, if so requested in writing by the Company, such Investors
shall negotiate with an underwriter selected by the Company and approved by the
Majority of Registering Investors with regard to the underwriting of such
requested registration. The right of any Investor to registration pursuant to
Section 2 shall be conditioned upon such Investor's participation in such
- ---------
underwriting and the inclusion
<PAGE>
of such Investor's Registrable Shares in the underwriting (unless otherwise
mutually agreed by the Majority of Registering Investors and such Investor) to
the extent provided herein. The Company shall (together with all Investors
proposing to distribute their securities through such underwriting) enter into
an underwriting agreement in customary form with the underwriter or underwriters
selected for such underwriting. Notwithstanding any other provision of this
Section 2, if the managing underwriter advises the Company that the inclusion of
- ---------
all Registrable Shares, Primary Shares and Other Shares proposed to be included
in such registration would interfere with the successful marketing (including
pricing) of all such securities, then the number of Registrable Shares, Primary
Shares and Other Shares proposed to be included in such registration shall be
included in the following order:
(A) first, the Registrable Shares held by Investors
that are requested to be included in such registration, pro rata based upon the
--- ----
number of Registrable Shares owned by each such Investor at the time of such
registration;
(B) second, the Primary Shares; and
(C) third, the Other Shares.
(d) A requested registration under this Section 2 may be
---------
rescinded prior to such registration being declared effective by the Commission
by written notice to the Company from the Majority of Registering Investors
initiating such registration pursuant to this Section 2; provided, however, that
--------- -------- -------
such rescinded registration shall not count as a registration initiated pursuant
to this Section 2 for purposes of clause (D) of Section 2(a) above if the
--------- ---------- ------------
Company shall have been reimbursed for all out-of-pocket expenses incurred by
the Company in connection with such rescinded registration.
(e) If the Company is subject to the reporting requirements of
Section 13 or 15 of the Exchange Act as a result of the registration of shares
of its Common Stock under the Exchange Act, any registration pursuant to this
Section 2 must be firmly underwritten if the registration exceeds two percent
- ---------
(2%) of the Company's outstanding Common Stock on an as-converted basis.
Section 3. "Piggyback" Registration.
------------------------
(a) If at any time or from time to time, the Company shall
determine to register any of its securities, for its own account or the account
of any of its shareholders, other than (i) a registration relating solely to
employee benefit plans, (ii) a registration relating solely to a transaction
pursuant to Rule 145, (iii) a registration pursuant to Section 2
---------
<PAGE>
("piggyback" rights regarding which are included in Section 2), (iii) a
--------- ---------
registration relating solely to the sale of debt or convertible debt instruments
or (iv) a registration on any form (other than Form S-1, S-2 or S-3, or their
successor forms) which does not include substantially the same information as
would be required to be included in a registration statement covering the sale
of Registrable Shares, the Company will:
(i) give to each Investor written notice thereof as soon as
practicable prior to filing the registration statement; and
(ii) include in such registration and in any underwriting
involved therein, all the Registrable Shares specified in a written request or
requests, made within fifteen (15) days after receipt of such written notice
from the Company, by any Investor or Investors, except as set forth in Section
-------
3(b) below.
- ----
(b) If the registration is for a registered public offering
involving an underwriting, the Company shall so advise the Investors as a part
of the written notice given pursuant to Section 3(a)(i) above. In such event,
---------------
the right of any Investor to registration pursuant to Section 3 shall be
---------
conditioned upon such Investor's participation in such underwriting and the
inclusion of such Investor's Registrable Shares in the underwriting to the
extent provided herein. All Investors proposing to distribute their securities
through such underwriting shall (together with the Company and the other holders
distributing their securities through such underwriting) enter into an
underwriting agreement in customary form with the underwriter or underwriters
selected for such underwriting by the Company. Notwithstanding any other
provision of this Section 3, if the managing underwriter advises the Company
---------
that the inclusion of all Registrable Shares or Other Shares proposed to be
included in such registration would interfere with the successful marketing
(including pricing) of the Primary Shares proposed to be registered by the
Company, then the number of Primary Shares, Registrable Shares and Other Shares
proposed to be included in such registration shall be included in the following
order:
(i) first, the Primary Shares;
(ii) second, the Registrable Shares held by such
Investors, pro rata based upon the number of Registrable Shares owned by each
such Investor at the time of such registration; and
(iii) third, the Other Shares.
Section 4. Expenses of Registration. In addition to the fees and
------------------------
expenses contemplated by Section 5 hereof, all expenses
---------
<PAGE>
incurred in connection with registrations pursuant to Sections 2 and 3,
---------- -
including without limitation all registration, filing and qualification fees,
printing expenses, fees and disbursements of counsel for the Company and
expenses of any special audits of the Company's financial statements incidental
to or required by such registration, shall be borne by the Company, except that
the Company shall not be required to pay underwriters' fees, discounts or
commissions relating to Registrable Shares or fees of more than one legal
counsel for the Investors (who shall be selected by the Majority of the
Registering Investors and shall represent all such Investors).
Section 5. Registration Procedures. In the case of each registration
-----------------------
effected by the Company pursuant to this Agreement, the Company will keep each
Investor participating therein advised in writing as to the initiation of each
registration and as to the completion thereof. At its expense the Company will:
(a) keep each registration statement referred to in Section
-------
2 or 3 continuously effective until the earlier to occur of (i) the date which
- - -
is 180 days from the date such registration statement was declared effective and
(ii) the date on which the Investor or Investors have completed the distribution
described in such registration statement;
(b) promptly prepare and file with the Commission such
amendments and supplements to each registration statement referred to in Section
-------
2 or 3 and the prospectus used in connection therewith as may be necessary to
- - -
comply with the provisions of the Securities Act; and to keep such registration
statement effective for that period of time specified in Section 5(a) above;
------------
(c) furnish such number of prospectuses and other documents
incident thereto as an Investor from time to time may reasonably request;
(d) use reasonable best efforts to obtain the withdrawal of
any order suspending the effectiveness of each registration statement referred
to in Section 2 or 3, or the lifting of any suspension of the qualification of
--------- -
any of the Registrable Shares for sale in any jurisdiction, at the earliest
possible moment;
(e) cause all Registrable Shares covered by any
registration statement referred to in Section 2 or 3 to be listed on each
--------- -
securities exchange, including NASDAQ, on which similar securities issued by the
Company are then listed;
(f) cause its accountants to issue to the underwriter, if
any, or the Investors, if there is no underwriter, comfort letters and updates
thereof, in customary
<PAGE>
form and covering matters of the type customarily covered in such letters with
respect to underwritten offerings;
(g) cause its counsel to issue to the underwriter, if any,
or to the Investors, if there is no underwriter, opinions in customary form and
covering matters of the type customarily covered in such opinions with respect
to underwritten offerings;
(h) enter into such customary agreements (including
underwriting agreements in customary form) and take all such other actions as
the holders of a majority of the Registrable Shares being sold or the
underwriters, if any, reasonably request in order to expedite or facilitate the
disposition of such Registrable Shares (including, without limitation, effecting
a stock split or a combination of shares);
(i) make available for inspection by any seller of
Registrable Shares, any underwriter participating in any disposition pursuant to
the related registration statement and any attorney, accountant or other agent
retained by any such seller or underwriter, all financial and other records,
pertinent corporate documents and properties of the Company, and cause the
Company's officers, directors, employees and independent accountants to supply
all information reasonably requested by any such seller, underwriter, attorney,
accountant or agent in connection with the related registration statement;
(j) notify each Investor, at any time a prospectus covered
by any registration statement referred to in Section 2 or 3 is required to be
--------- -
delivered under the Securities Act, of the happening of any event of which it
has knowledge as a result of which the prospectus included in such registration
statement, as then in effect, includes an untrue statement of a material fact or
omits to state a material fact required to be stated therein or necessary to
make the statements therein not misleading in the light of the circumstances
then existing; and
(k) take such other actions as shall be reasonably
requested by any Investor.
Section 6. Indemnification.
---------------
(a) In the event of a registration, qualification or
compliance of any of the Registrable Shares under the Securities Act pursuant to
Sections 2 or 3, the Company will indemnify and hold harmless each Investor
- ---------- -
holding such Registrable Shares thereunder, each underwriter of such Registrable
Shares, and each other Person, if any, who controls such Investor or underwriter
within the meaning of the Securities Act, against any losses, claims, damages or
liabilities, joint or several, to which such Investor, underwriter or
controlling Person may become subject under the Securities Act, insofar as
<PAGE>
such losses, claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon any untrue statement or alleged untrue statement
of any material fact contained in any registration statement under which such
Registrable Shares were registered under the Securities Act, any preliminary
prospectus or final prospectus contained therein, or any amendment or supplement
thereof, any offering circular or other offering document or arise out of or are
based upon the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, or any violation by the Company of any rule or regulation
promulgated under the Securities Act or any state securities law or rule or
regulation promulgated under the Securities Act or any state securities law
applicable to the Company and relating to action or inaction required of the
Company in connection with any such registration, qualification or compliance,
and will reimburse each such Investor, each of its officers, directors and
partners, and each Person controlling such Investor, each such underwriter and
each Person who controls any such underwriter, for any reasonable legal and any
other expenses incurred in connection with investigating, defending or settling
any such claim, loss, damage, liability or action, provided that the Company
will not be liable in any such case to the extent that any such claim, loss,
damage or liability arises out of or is based on any untrue statement or
omission based upon written information furnished to the Company by an
instrument duly executed by such Investor or underwriter specifically for use
therein.
(b) Each Investor will, if Registrable Shares held by or
issuable to such Investor are included in the securities as to which such
registration, qualification or compliance is being effected, indemnify and hold
harmless the Company, each of its directors and officers, each underwriter, if
any, of the Company's securities covered by such a registration statement, each
Person who controls the Company and each underwriter within the meaning of the
Securities Act, and each other Investor, each of such other Investor's officers,
directors and partners and each Person controlling such other Investor, against
all claims, losses, expenses, damages and liabilities (or actions in respect
thereof) arising out of or based on any untrue statement (or alleged untrue
statement) of a material fact contained in any such registration statement,
prospectus, offering circular or other offering document, or 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, and will reimburse
the Company, such Investors, such directors, officers, partners, Persons or
underwriters for any reasonable legal or any other expenses incurred in
connection with investigating, defending or settling any such claim, loss,
damage, liability or action, in each case to the extent, but only to the extent,
that such untrue statement (or alleged untrue statement) or omission (or alleged
omission) is made in such
<PAGE>
registration statement, prospectus, offering circular or other offering document
in reliance upon and in conformity with written information furnished to the
Company by an instrument duly executed by such Investor specifically for use
therein; provided, however, the total amount for which any Investor, its
-------- -------
officers, directors and partners, and any Person controlling such Investor,
shall be liable under this Section 6(b) shall not in any event exceed the
------------
aggregate proceeds received by such Investor from the sale of Registrable Shares
sold by such Investor in such registration, qualification or compliance.
(c) Each party entitled to indemnification under this
Section 6 (the "Indemnified Party") shall give notice to the party required to
- --------- ------------------
provide indemnification (the "Indemnifying Party") promptly after such
------------------
Indemnified Party has actual knowledge of any claims as to which indemnity may
be sought, and shall permit the Indemnifying Party to assume the defense of any
such claim or any litigation resulting therefrom, provided that counsel for the
Indemnifying Party, who shall conduct the defense of such claim or litigation,
shall be approved by the Indemnified Party (whose approval shall not be
unreasonably withheld), and the Indemnified Party may participate in such
defense at such party's expense, and provided further that the failure of any
Indemnified Party to give notice as provided herein shall not relieve the
Indemnifying Party of its obligations hereunder, unless such failure resulted in
actual detriment to the Indemnifying Party. No Indemnifying Party, in the
defense of any such claim or litigation, shall, except with the consent of each
Indemnified Party, consent to entry of any judgment or enter into any settlement
which does not include as an unconditional term thereof the giving by the
claimant or plaintiff to such Indemnified Party of a release from all liability
in respect of such claim or litigation.
(d) Notwithstanding the foregoing, to the extent that the
provisions on indemnification contained in the underwriting agreements entered
into among the selling Investors, the Company and the underwriters in connection
with the underwritten public offering are in conflict with the foregoing
provisions, the provisions in the underwriting agreement shall be controlling as
to the Registrable Shares included in the public offering; provided, however,
-------- -------
that if, as a result of this Section 6(d), any Investor,
------------
its officers, directors, and partners and any Person controlling such Investor
is held liable for an amount which exceeds the aggregate proceeds received by
such Investor from the sale of Registrable Shares included in a registration, as
provided in Section 6(b) above, pursuant to such underwriting agreement
------------
(the "Excess Liability"), the Company shall reimburse any such Investor for such
----------------
Excess Liability.
(e) If the indemnification provided for in this
Section 6 is held by a court of competent jurisdiction to be unavailable
- ---------
to an Indemnified Party with respect to any loss,
<PAGE>
liability, claim, damage or expense referred to therein, then the Indemnifying
Party, in lieu of indemnifying such Indemnified Party thereunder, shall
contribute to the amount paid or payable by such Indemnified Party as a result
of such loss, liability, claim, damage or expense in such proportion as is
appropriate to reflect the relative fault of the Indemnifying Party on the one
hand and of the Indemnified Party on the other hand in connection with the
statements or omissions which resulted in such loss, liability, claim, damage or
expense as well as any other relevant equitable considerations. The relevant
fault of the Indemnifying Party and the Indemnified Party shall be determined by
reference to, among other things, whether the untrue or alleged untrue statement
of a material fact or the omission to state a material fact relates to
information supplied by the Indemnifying Party or by the Indemnified Party and
the parties' relative intent, knowledge, access to information and opportunity
to correct or prevent such statement or omission. Notwithstanding the foregoing,
the amount any Investor shall be obligated to contribute pursuant to this
Section 6(e) shall be limited to an amount equal to the proceeds to such
- ------------
Investor of the Registrable Shares sold pursuant to the registration statement
which gives rise to such obligation to contribute (less the aggregate amount of
any damages which the Investor has otherwise been required to pay in respect of
such loss, claim, damage, liability or action or any substantially similar loss,
claim, damage, liability or action arising from the sale of such Registrable
Shares).
(f) The indemnification provided by this Section 6 shall
---------
be a continuing right to indemnification and shall survive the registration and
sale of any securities by any Person entitled to indemnification hereunder and
the expiration or termination of this Agreement.
Section 7. Lockup Agreement.
----------------
(a) In consideration for the Company agreeing to its
obligations under this Agreement, each Investor agrees in connection with any
registration of the Company's securities (whether or not such Investor is
participating in such registration) upon the request of the Company and the
underwriters managing any underwritten offering of the Company's securities, not
to sell, make any short sale of, loan, grant any option for the purchase of, or
otherwise dispose of any Registrable Shares (other than those included in the
registration) without the prior written consent of the Company or such
underwriters, as the case may be, for such period of time (not to exceed 180
days in the case of the Company's Initial Public Offering) from the effective
date of such registration as the Company and the underwriters may specify, so
long as all Investors or shareholders of the Company holding more than one
percent (1%) of the outstanding Common Stock and all officers and directors of
the Company are bound by a comparable obligation; provided, however, that
-------- -------
nothing herein shall prevent any Investor
<PAGE>
that is a partnership or corporation from making a distribution of Registrable
Shares to the partners or shareholders thereof that is otherwise in compliance
with applicable securities laws, so long as such distributees agree to be so
bound.
(b) If the Company at any time pursuant to Section 2 of
---------
this Agreement shall register under the Securities Act Registrable Shares held
by Investors for sale to the public pursuant to an underwritten offering, the
Company shall not, without the prior written consent of a Majority of
Registering Investors, effect any public sale or distribution of securities
similar to those being registered, or any securities convertible into or
exercisable or exchangeable for such securities, for such period as shall be
determined by the managing underwriters, which period shall not begin more than
ten (10) days prior to the effectiveness of the registration statement pursuant
to which such public offering shall be made and shall not last more than 180
days after the closing of the sale of shares pursuant to such registration
statement.
Section 8. Information by Investor. Each Investor included in any
-----------------------
registration shall promptly furnish to the Company such information regarding
such Investor and the distribution proposed by such Investor as the Company may
request in writing and as shall be required in connection with any registration
referred to herein.
Section 9. Rule 144 and 144A Reporting.
---------------------------
(a) With a view to making available to the Investors the
benefits of certain rules and regulations of the Commission which may permit the
sale of their respective Registrable Shares to the public without registration,
the Company agrees at all times after 90 days after the effective date of the
first registration filed by the Company for an offering of its securities to the
general public to:
(i) make and keep public information available, as
those terms are understood and defined in Rule 144 and Rule 144A;
(ii) use its best efforts to file with the Commission in
a timely manner all reports and other documents required of the Company under
the Securities Act and the Exchange Act; and
(iii) furnish to each Investor so long as such Investor
owns any Registrable Shares forthwith, upon written request, a written statement
by the Company that it has complied with the reporting requirements of Rule 144,
the Securities Act and the Exchange Act (to the extent that it is then subject
to any such reporting requirements), copies of the most recent annual and
quarterly reports of the Company, and such other
<PAGE>
reports and documents filed by the Company under the Exchange Act as may be
reasonably requested by such Investor in connection with availing such Investor
of any rule or regulation of the Commission permitting the selling of such
securities without registration.
(b) For purposes of facilitating sales pursuant to Rule
144A, so long as the Company is not subject to the reporting requirements of
Section 13 or 15(d) of the Exchange Act, each Investor and any prospective
purchaser of such Investor's securities shall have the right to obtain from the
Company, upon request of the Investor prior to the time of sale, a brief
statement of the nature of the business of the Company and the products and
services it offers; and the Company's most recent balance sheet and profit and
loss and retained earnings statements, and similar financial statements for the
two preceding fiscal years (the financial statements should be audited to the
extent reasonably available).
Section 10. Assignment. Each Investor may assign its rights hereunder
----------
to any purchaser from such Investor of Registrable Shares; provided, however,
-------- -------
that (i) the Company is given written notice by the Investor at the time of or
within a reasonable time after said assignment, stating the name and address of
said purchaser and identifying the Registrable Shares with respect to which such
rights are being assigned, and (ii) such purchaser shall, as a condition to the
effectiveness of such assignment, be required to execute a counterpart to this
Agreement agreeing to be treated as an Investor hereunder, whereupon such
purchaser shall have the benefits of, and shall be subject to the restrictions
contained in, this Agreement as an Investor.
Section 11. Termination of Rights.
---------------------
(a) The rights of any particular Investor to cause the
Company to register securities under Sections 2 and 3 shall terminate with
---------- -
respect to such Investor at such time as such Investor (i) no longer holds any
Registrable Shares or (ii) is able to dispose of all of his or its Registrable
Shares in one three-month period pursuant to the provisions of Rule 144
(provided, however, that such Investor holds not more than 1% of the outstanding
-------- -------
voting stock of the Company).
(b) Notwithstanding the provisions of Section 11(a), all
-------------
rights of any particular Investor under this Agreement shall terminate at 5:00
p.m. New York City time on the date seven (7) years after the closing date of
the Company's Initial Public Offering.
Section 12. Miscellaneous.
-------------
<PAGE>
(a) Amendments; Modifications; Waivers. The terms and
----------------------------------
provisions of this Agreement may not be modified or amended, nor may any
provision applicable to the Investors be waived, except pursuant to a writing
signed by (i) the Company and (ii) a Majority of Investors; provided, however,
-------- -------
that if any such amendment, modification, or waiver would adversely affect the
rights hereunder of any Investor or group of Investors, each in his or its
capacity as an Investor, without similarly affecting the rights hereunder of all
Investors, in their capacities as Investors, such amendment, modification or
waiver shall not be effective as to such Investor or group of Investors without
his or its prior written consent.
(b) Counterparts. This Agreement may be executed in any
------------
number of counterparts, all of which shall constitute a single instrument.
(c) Notices. All notices, requests, consents and other
-------
communications hereunder to any party shall be deemed to be sufficient if
contained in a written instrument and shall be deemed to have been duly given
when delivered in Person, by telex, telegram or telecopy, by overnight courier,
or by first class registered or certified mail, postage prepaid, addressed to
such party at the address set forth below or such other address as may hereafter
be designated in writing by the addressee to the sender:
If to the Company, to:
Earthweb Inc.
3 Park Avenue, 33rd Floor
New York, New York 10016
Attention: President
Telephone: (212) 725-6550
Telecopy: (212) 725-6559
with copy to:
Morrison & Foerster, LLP
1290 Avenue of the Americas
New York, New York 10104
Attention: Joseph W. Bartlett, Esq.
Telephone: (212) 468-8000
Telecopy: (212) 468-7900
If to any Investor,
at his or its address set forth on Schedule I hereto or, if none,
----------
in the books of the Company.
All such notices, requests, consents and other communications shall be deemed to
have been delivered (i) in the case of personal delivery, telex, telegram or
telecopy, on the date of
<PAGE>
such delivery, (ii) in the case of overnight courier, on the next business day,
and (iii) in the case of mailing, on the third business day following such
mailing.
(d) Severability. If any provision of this Agreement
------------
shall be held to be illegal, invalid or unenforceable, such illegality,
invalidity or unenforceability shall attach only to such provision and shall not
in any manner affect or render illegal, invalid or unenforceable any other
provision of this Agreement, and this Agreement shall be carried out as if any
such illegal, invalid or unenforceable provision were not contained herein.
(e) Dilution. If, and as often as, there is any change
--------
in the Common Stock or the Convertible Preferred Stock by way of a stock split,
stock dividend, combination or reclassification, or through a merger,
consolidation, reorganization or recapitalization, or by any other means,
appropriate adjustment shall be made in the provisions hereof so that the rights
and privileges granted hereby shall continue with respect to the Common Stock or
the Convertible Preferred Stock as so changed.
(f) Governing Law. All questions concerning the
-------------
construction, interpretation and validity of this Agreement shall be governed by
and construed and enforced in accordance with the domestic laws of the State of
New York, without giving effect to any choice or conflict of law provision or
rule (whether in the State of New York or any other jurisdiction) that would
cause the application of the laws of any jurisdiction other than the State of
New York. In furtherance of the foregoing, the internal law of the State of New
York will control the interpretation and construction of this Agreement, even if
under such jurisdiction's choice of law or conflict of law analysis, the
substantive law of some other jurisdiction would ordinarily apply.
(g) Jurisdiction; Venue. The jurisdiction and venue in
-------------------
any action brought by any party hereto pursuant to this Agreement shall
exclusively lie in any federal or state court located in the City of New York,
New York. The parties further agree that such exclusive jurisdiction and venue
shall lie exclusively with such federal courts if federal rules of jurisdiction
permit such federal court to hear such action. By execution and delivery of this
Agreement, each party hereto irrevocably submits to the jurisdiction of such
courts for himself or itself and in respect of his or its property with respect
to such action. The parties irrevocably agree that venue would be proper in any
such court, and hereby waive any objection that any such court is an improper or
inconvenient forum for the resolution of such action. The parties further agree
that the mailing by certified or registered mail, return receipt requested, of
any process required by any such court shall constitute valid and lawful service
of process against them,
<PAGE>
without necessity for service by any other means provided by statute or rule of
court. The parties agree that a final judgment in any such action or proceeding
shall be conclusive and may be enforced in other jurisdiction by suit on the
judgment or in any other manner provided by applicable law.
(h) Waiver of Jury Trial. THE PARTIES HERETO WAIVE ALL
--------------------
RIGHT TO TRIAL BY JURY IN ANY ACTION, SUIT OR PROCEEDING BROUGHT TO ENFORCE OR
DEFEND ANY RIGHTS OR REMEDIES UNDER THIS AGREEMENT OR ANY DOCUMENTS RELATED
HERETO.
* * *
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Registration
Rights Agreement as of the date first set forth above.
EARTHWEB INC.
By: /s/ Jack D. Hidary
---------------------------------
Jack D. Hidary
President
WARBURG, PINCUS VENTURES L.P.
By: Warburg, Pincus & Co.,
its general partner
By: /s/ Peter Stalker, III
--------------------------------
Name: Peter Stalker, III
Title: Managing Director
EARTHWEB LLC
By: /s/ Jack D. Hidary
--------------------------------
Jack D. Hidary
Authorized Secretary
GLOBAL NETWORK PARTNERS, LLC
By: /s/ Jack D. Hidary
--------------------------------
Jack D. Hidary
Authorized Secretary
<PAGE>
SCHEDULE I
INVESTORS
---------
Warburg, Pincus Ventures, L.P.
c/o Warburg Pincus Capital Co., Inc.
466 Lexington Avenue, 11th Floor
New York, New York 10017
Attention: Dr. Henry Kressel
Telephone: (212) 878-0674
Telecopy: (212) 878-9351
with a copy of notices, etc., to:
O'Sullivan Graev & Karabell, LLP
30 Rockefeller Plaza
New York, New York 10016
Attention: John J. Suydam, Esq.
Telephone: (212) 725-6550
Telecopy: (212) 725-6559
EarthWeb LLC
3 Park Avenue, 33rd Floor
New York, New York 10016
Attention: Jack D. Hidary
Telephone: (212) 725-6550
Telecopy: (212) 725-6559
with a copy of notices, etc, to:
Morrison & Foerster, LLP
1290 Avenue of the Americas
New York, New York 10104
Attention: Joseph W. Bartlett, Esq.
Telephone: (212) 468-8000
Telecopy: (212) 468-7900
Global Network Partners, LLC
3 Park Avenue, 33rd Floor
New York, New York 10116
Attention: Jack D. Hidary
Telephone: (212) 725-6550
Telecopy: (212) 725-6559
with a copy of notices, etc, to:
Morrison & Foerster, LLP
1290 Avenue of the Americas
New York, New York 10104
Attention: Joseph W. Bartlett, Esq.
Telephone: (212) 468-8000
Telecopy: (212) 468-7900
<PAGE>
EXHIBIT 10.1
EARTHWEB, INC.
1996
AMENDED AND RESTATED
STOCK PLAN
1. Purpose. The purpose of this Plan is to advance the interests of
-------
EARTHWEB, INC. (the "Company") by providing an opportunity to selected key
employees (as defined in Paragraph 2(b)) of, and consultants (as defined in
Paragraph 2(a)) to, the Company to purchase shares (the "Shares") of the Common
Stock, par value $.10 per share (the "Common Stock"), of the Company. By
encouraging stock ownership, the Company seeks to attract, retain and motivate
key employees and consultants. It is intended that this purpose will be effected
by the granting of (i) incentive stock options ("Incentive Options") as
described in Section 422A of the Internal Revenue Code of 1986, as amended (the
"Code);" (ii) nonqualified stock options ("Nonqualified Options", and, together
with the Incentive Options, the "Options") as provided herein; and (iii) rights
to purchase shares of Common Stock ("Restricted Stock") of the Company pursuant
to restricted stock agreements and subscription agreements as provided herein
("Purchase Rights" and collectively with the Options, the "Stock Incentives").
2. Definitions.
-----------
(a) The term "consultants" means those persons, other than employees
of the Company, who provide services to the Company, including members of
advisory boards of the Company and non-employee directors of the Company,
and who are determined by the Compensation Committee to be eligible for
Stock Incentives under this Plan.
(b) The term "key employees" means those executive, administrative,
operational, engineering or managerial employees who are determined by the
Compensation Committee to be eligible for Stock Incentives under this Plan.
(c) The term "optionee" means an individual to whom an Option is
granted under this Plan.
(d) The term "grantee" means an individual to whom a purchase right
is granted under this Plan.
3. Effective Date. This Plan became effective on October 25, 1996, the
--------------
date it was adopted by the Board of Directors of the Company.
<PAGE>
4. Stock Subject To The Plan. The Shares that may be purchased
-------------------------
(through the exercise of Options or the purchase of Restricted Stock) under this
Plan shall not exceed in the aggregate 239,234 Shares. If any Stock Incentives
granted under the Plan shall terminate, expire or be cancelled as to any Shares,
new Stock Incentives may thereafter be granted covering such Shares. In
addition, any Shares purchased under this Plan subsequently repurchased by the
Company pursuant to the terms hereof may again be granted under the Plan. The
Shares issued upon exercise of Stock Incentives under this Plan may, in whole or
in part, be either authorized but unissued Shares or issued Shares reacquired by
the Company. Notwithstanding any other provisions of this Plan, the aggregate
number of Shares subject to outstanding Options granted under the Plan, plus the
aggregate number of Shares issued upon the exercise of all Options granted under
the Plan, shall never be permitted to exceed the number of Shares specified in
the first sentence of section 4, except in accordance with subsection 8(a)
below.
5. Administration. The Plan shall be administered by the Board of
--------------
Directors of the Company (the "Board"), or by a committee appointed by the Board
which shall not have less than two (2) members (in either case, the
"Compensation Committee"). No Option shall be granted to a director or officer
of the Company except: (a) by the Board when, as and if all of its members are
disinterested persons, or (b) by a Compensation Committee other than the Board
when the Compensation Committee is composed of two (2) or more directors having
full authority to act in the matter and each member of the Compensation
Committee is a disinterested person. "Disinterested person" for this purpose,
shall mean a person who, at the time he exercises discretion in administering
the Plan, has not at any time within one (1) year prior thereto been a person to
whom stock may be allocated or to whom stock options or stock appreciation
rights may be granted pursuant to the Plan or any other plan of the Company or
any of its affiliates entitling the participants therein to acquire stock, stock
options or stock appreciation rights of the Company or any of its affiliates.
The Compensation Committee may delegate nondiscretionary administrative duties
to such employees of the Company as it deems proper. Subject to the provisions
of the Plan, the Compensation Committee shall have the sole authority, in its
discretion:
(a) to determine to which of the eligible individuals, and the time
or times at which, Options shall be granted;
(b) to determine the number of shares of Common Stock to be subject
to Options granted to each eligible individual;
(c) to determine the price to be paid for the shares of Common
Stock upon the exercise of each Option;
(d) to determine the term and the exercise schedule of each Option;
(e) to determine the terms and conditions of each stock option
agreement (which need not be identical) entered into between the Company
and any eligible individual to whom the Compensation Committee has granted
an Option;
2
<PAGE>
(f) to interpret the Plan; and
(g) to make all determinations deemed necessary or advisable for
the administration of the Plan.
The Compensation Committee, if any, shall be appointed by and shall
serve at the pleasure of the Board of Directors of the Company. No member of the
Compensation Committee shall be liable for any action or determination made with
respect to the Plan.
6. Eligible Employees and Consultants. Incentive Options may be
----------------------------------
granted to such key employees of the Company, including members of the Board of
Directors who are also employees of the Company, as are selected by the
Compensation Committee or Board of Directors. Nonqualified Options and purchase
rights may be granted to such key employees and consultants of the Company,
including members of the Board of Directors, as are selected by the Compensation
Committee or the Board of Directors. The term "employee" includes an officer or
director who is an employee of the Company or a parent or subsidiary of it, as
well as a non-officer, non-director employee of the Company or a parent or
subsidiary of it.
7. Duration of the Plan. This Plan shall terminate ten (10) years from
--------------------
the effective date of this Plan, unless terminated earlier pursuant to Paragraph
13 hereof, and no Stock Incentives may be granted after such termination.
8. Restrictions on Incentive Options. Incentive Options (but not
---------------------------------
Nonqualified Options) granted under this Plan shall be subject to the following
restrictions:
(a) Limitation on Number of Shares. The aggregate fair market
value, determined as of the date the Incentive Option is granted, of the
Shares with respect to which Incentive Options are exercisable for the
first time by an employee during any calendar year shall not exceed
$100,000. If an employee is eligible to participate in any other incentive
stock option plans of the Company which are also intended to comply with
the provisions of Section 422A of the Code, the applicable annual
limitation shall apply to the aggregate number of Shares for which
incentive stock options may be granted under all such plans. An Incentive
Option may be granted which exceeds the $100,000 limitation, as long as
under then applicable law the portion of such Option which is exercisable
for shares in excess of the $100,000 limitation shall be treated as a
Nonqualified Option. No Incentive Options may be exercised until and unless
the Plan is approved by the shareholders within one year of the date
hereof, such approval to be expressed in any legal way under New York law.
(b) 10% Stockholder. If any employee to whom an Incentive Option
is granted pursuant to the provisions of the Plan is on the date of grant
the owner of stock (as determined under Section 425(d) of the Code)
possessing more than 10% of the total combined voting power of all classes
of stock of the Company (or of any parent or subsidiary of the Company),
then the following special provisions shall be applicable to the Incentive
Option granted to such individual:
3
<PAGE>
(i) The Option price per Share subject to such Incentive Option
shall not be less than 110% of the fair market value of one
Share on the date of grant; and
(ii) The Incentive Option shall not have a term in excess of five
(5) years from the date of grant.
In determining stock ownership, an optionee shall be considered as owning the
voting capital stock owned, directly or indirectly, by or for his brothers and
sisters, spouse, ancestors and lineal descendants. Voting capital stock owned,
directly or indirectly, by or for a corporation, partnership, estate or trust
shall be considered as being owned proportionately by or for its shareholders,
partners or beneficiaries, as applicable. Common Stock with respect to which
any such optionee holds an Option shall not be counted. Additionally,
outstanding capital stock shall include all capital stock actually issued and
outstanding immediately after the grant of the Option to the optionee.
Outstanding capital stock shall not include capital stock authorized for issue
under outstanding Options held by the optionee or by any other person.
9. Terms and Conditions of Options. Incentive and Nonqualified Options
-------------------------------
granted under this Plan shall be evidenced by stock option agreements in such
form and not inconsistent with the Plan as the Compensation Committee or the
Board of Directors shall approve from time to time, which agreements shall
evidence the following terms and conditions:
(a) Price.
(i) Incentive Options. Subject to the condition of subsection
(b)(i) of Paragraph 8, if applicable, with respect to each Incentive
Option, the purchase price per Share payable upon the exercise of each
Incentive Option granted hereunder shall be determined by the
Compensation Committee or the Board of Directors and shall be not less
than 100% of the fair market value of one Share on the day the Option is
granted.
(ii) Nonqualified Options. With respect to each Nonqualified
Option, the purchase price per Share payable upon the exercise of each
Nonqualified Option granted hereunder shall be determined by the
Compensation Committee or the Board of Directors at the time the
Nonqualified Option is granted, but shall not be less than 40% of fair
market value at the time of grant.
(b) Number of Shares. Each Option agreement shall specify the
number of Shares to which it pertains.
(c) Exercise. Subject to the conditions of subsections (a) and
(b)(ii) of Paragraph 8, if applicable, each Option shall be exercisable for
the full amount or for any part thereof and at such intervals or in such
installments as the Compensation Committee or the Board of Directors may
determine at the time it grants such Option; provided, however, that no
Option shall be exercisable with respect to any Shares later than seven (7)
years after the date of the grant of such Option.
4
<PAGE>
(d) Notice of Exercise and Payment. An Option shall be exercisable
only by delivery of a written notice to the Compensation Committee or the
Board of Directors, any member of the Compensation Committee or the Board
of Directors, the Company's Treasurer, or any other officer of the Company
designated by the Compensation Committee or the Board of Directors to
accept such notices on its behalf, specifying the number of Shares for
which it is exercised. If such Shares are not at the time effectively
registered under the Securities Act of 1933, as amended, the optionee shall
include with such notice a letter, in form and substance satisfactory to
the Company, confirming that such Shares are being purchased for the
optionee's own account for investment and not with a view to the resale or
distribution thereof. Payment shall be made in full at the time of delivery
to the optionee of a certificate or certificates covering the number of
Shares for which the Option was exercised. Payment shall be made (i) by
cash or check, (ii) if permitted by the Compensation Committee or the Board
of Directors, by delivery and assignment to the Company of shares of the
Company's stock having a fair market value (as determined by the
Compensation Committee) equal to the exercise price, or (iii) by a
combination of (i) and (ii). The value of the shares of the Company's stock
for such purpose shall be its fair market value as of the date the Option
is exercised, as determined in accordance with procedures to be established
by the Compensation Committee.
(e) Withholding Taxes; Delivery of Shares. The Company's
obligation to deliver Shares upon exercise of a Nonqualified Option, in
whole or in part, shall be subject to the optionee's satisfaction of all
applicable federal, state and local income and employment tax withholding
obligations. The optionee may satisfy the obligation, in whole or in part,
by electing to have the Company withhold Shares having a value equal to the
amount required to be withheld. The value of Shares to be withheld shall be
based on the fair market value of the Shares on the date the amount of tax
to be withheld is to be determined. If Common Stock acquired by exercise of
an Incentive Option granted pursuant to this Plan is disposed of within two
(2) years from the date of grant of the Option or within one (1) year after
the transfer of the Common Stock to the optionee, the holder of the Common
Stock immediately prior to the disposition shall promptly notify the
Company in writing of the date and terms of the disposition and shall
provide such other information regarding the disposition as the Company may
reasonably require.
(f) Non-Transferability. No Option shall be transferable by the
optionee otherwise than by will or the laws of descent or distribution, and
each Option shall be exercisable during his or her lifetime only by him or
her (except as otherwise provided for in subsection (g) below).
(g) Termination of Options. Each Option shall terminate and may no
longer be exercised if the optionee ceases for any reason to be an employee
of, or consultant to, the Company, except that:
(i) if the optionee's performance of services shall have
terminated for any reason other than cause, resignation
or other voluntary action before his or her eligibility
to retire, disability (as defined below) or
5
<PAGE>
death, he or she may at any time within a period of
thirty (30) days after such termination of the
performance of services exercise his or her Option to the
extent that the Option was exercisable by him or her on
the date of termination of his or her performance of
services;
(ii) if the optionee ceases to be an employee of the Company
because of disability within the meaning of Section
22(e)(3) of the Code, the optionee may, at any time
within a period of one (1) year after the termination of
employment due to such disability, exercise his or her
Option to the extent that the Option was exercisable by
him or her on the date of termination of his or her
employment or performance of services; and
(iii) if the optionee dies at a time when the Option was
exercisable by him or her, then his or her estate,
personal representative or beneficiary to whom it has
been transferred may, at any time within a period of one
(1) year following his or her death if the optionee's
performance of services shall have been terminated by his
or her death, or for the period following the termination
of his or her performance of services during which the
Option would have remained exercisable under clauses (i)
or (ii) above if the optionee's performance of services
shall have been terminated prior to his or her death,
exercise the Option to the extent the optionee might have
exercised it at the time of his or her death; provided,
however, that no Option may be exercised to any extent by
anyone after the date of expiration of the Option.
(h) Rights as Stockholder. The optionee shall have no rights as a
shareholder with respect to any Shares covered by his or her Option until
the date of issuance of a stock certificate to him or her for such Shares.
(i) Repurchase of Shares by the Company. Any Shares purchased by
an optionee upon exercise of an Option may in the discretion of the
Compensation Committee or the Board of Directors be subject to repurchase
by the Company if and to the extent specifically set forth in the agreement
pursuant to which the Shares were purchased.
10. Terms and Conditions of Purchase Rights. Purchase rights granted
---------------------------------------
under this Plan shall be evidenced by restricted stock agreements and
subscription agreements in such form and not inconsistent with the Plan as the
Compensation Committee or Board of Directors shall approve from time to time,
which agreements shall include the following terms and conditions:
(a) Price. The purchase price of each Share purchased by key
employees or consultants pursuant to a purchase right hereunder shall be
the price determined by the Compensation Committee or the Board of
Directors at the time such purchase right is granted.
6
<PAGE>
(b) Number of Shares. Each restricted stock agreement and
subscription agreement shall specify the number of Shares to which it
pertains.
(c) Investment Intent and Payment. If the Shares purchased are not
at the time effectively registered under the Securities Act of 1933, as
amended, the restricted stock agreement and subscription agreement shall
provide that the grantee is purchasing such Shares for the grantee's own
account for investment and not with a view to the resale or distribution
thereof. Payment shall be made in full at the time of delivery to the
Company by the grantee of an executed restricted stock agreement and
subscription agreement covering the number of Shares for which the purchase
right was granted. An officer or an agent of the Company shall be entitled
to retain in escrow for the benefit of the grantee stock certificates
representing Shares which are subject to a repurchase option of the
Company, as described in subsection (f) below. Payment for Shares shall be
made (i) by cash or check, (ii) if permitted by the Compensation Committee
or the Board of Directors, by delivery and assignment to the Company of
shares of the Company's stock having a fair market value (as determined by
the Compensation Committee) equal to the purchase price, or (iii) by a
combination of (i) and (ii). The value of the shares of the Company's stock
for such purpose shall be its fair market value as of the date of the
restricted stock agreement, as determined in accordance with procedures to
be established by the Compensation Committee.
(d) Withholding Taxes; Delivery of Shares. The Company's
obligation to deliver the Shares to the grantee shall be subject to the
grantee's satisfaction of all applicable federal, state and local income
and employment tax withholding obligations. The grantee may satisfy such
withholding obligations, in whole or in part, by electing to have the
Company withhold Shares having a value equal to the amount required to be
withheld. The value of the Shares to be withheld shall be based on the fair
market value of such Shares as of the date the amount of tax is to be
determined.
(e) Non-Transferability. Any Shares purchased by a grantee
pursuant to a purchase right hereunder may, in the discretion of the
Compensation Committee or Board of Directors, be subject to transfer
restrictions if and to the extent specifically set forth in the restricted
stock agreement governing such purchase.
(f) Repurchase of Shares by the Company. Any Shares purchased by a
grantee pursuant to a purchase right hereunder may, in the discretion of
the Compensation Committee or the Board of Directors, be subject to
repurchase by the Company if and to the extent set forth in the restricted
stock agreement governing such purchase.
(g) Rights as Stockholder. Except for the limitations on
transferability and the Company's repurchase rights set forth above, the
grantee of a purchase right shall, upon purchase of Shares, possess all
rights as a holder of Common Stock of the Company.
11. Stock Dividends; Stock Splits; Stock Combinations;
--------------------------------------------------
Recapitalizations. Appropriate adjustment shall be made in the maximum number
- -----------------
of Shares of Common Stock
7
<PAGE>
subject to the Plan and in the number, kind and price of Shares covered by any
Stock Incentive granted hereunder to give effect to any stock dividends or other
distributions, stock splits, stock combinations, recapitalizations and other
similar changes in the capital structure of the Company after the effective date
of the Plan.
12. Merger; Sale Of Assets; Dissolutions. In the event of a change of
------------------------------------
the Common Stock resulting from a merger or similar reorganization as to which
the Company is the surviving corporation, the number and kind of shares which
thereafter may be subject to Stock Incentives granted under this Plan and the
number, kind and price of Shares then subject to Stock Incentives shall be
appropriately adjusted in such manner as the Compensation Committee or the Board
of Directors may deem equitable to prevent substantial dilution or enlargement
of the rights available or granted hereunder. In the event of a merger or a
similar reorganization in which the Company does not survive, or a sale of all
or substantially all of the assets of the Company, the Company shall use
commercially reasonable efforts to make adequate provisions so that each
Incentive Option and Nonqualified Option outstanding hereunder, to the extent
not then exercised, shall continue with the same vesting schedule and, subject
to such vesting schedule, represent the right to purchase that number of shares
of stock, other securities or property, if any, to which the holder of such
Option would have been entitled had the non-exercised portion of such Option
been exercised in full on the date of such corporate action.
13. No Rights. Except as hereinabove expressly provided in Sections 10
---------
and 11, no optionee shall have any rights by reason of any subdivision or
consolidation of shares of the capital stock of any class or the payment of any
stock dividend or any other increase or decrease in the number of shares of any
class or by reason of any dissolution, liquidation, merger or consolidation or
spin-off of assets or stock of another corporation, and any issue by the Company
of shares of stock of any class or of securities convertible into shares of
stock of any class shall not affect, and no adjustment by reason thereof shall
be made with respect to, the number or price of shares subject to any Option
granted hereunder. The grant of an Option pursuant to this Plan shall not affect
in any way the right or power of the Company to make adjustments,
reclassifications, reorganizations or changes of its capital or business
structure or to merge or consolidate or to dissolve, liquidate, sell or transfer
all or any part of its business or assets.
14. Compliance with Applicable Laws. Notwithstanding any other
-------------------------------
provision of the Plan, the Company shall have no liability to issue any shares
under the Plan unless such issuance would comply with all applicable laws and
the applicable requirements of any securities exchange or similar entity. Prior
to the issuance of any shares under the Plan, the Company may require a written
statement that the recipient is acquiring the shares for investment and not for
the purpose or with the intention of distributing the shares.
15. Death of a Participant. In the event of the death of an optionee,
----------------------
any Options which the optionee was entitled to exercise on the date immediately
preceding his death shall be exercisable by the person or persons to whom those
rights pass by will or by the laws of descent and distribution. Any such
exercise shall be by written notice thereof filed with the Secretary of the
Company at the Company's corporate headquarters prior to the Option's expiration
date, and
8
<PAGE>
any person exercising such an Option shall be treated as an optionee for
purposes of the provisions of this Plan.
16. Employment And Shareholder Status. The Plan does not constitute a
---------------------------------
contract of employment, and any grant of Stock Incentives will not give any
employee the right to be retained in the employ of the Company. The grant of an
Option under the Plan shall not confer upon the holder thereof any right as a
shareholder of the Company. As of the date on which an optionee exercises an
Option, the optionee shall have all rights of a shareholder of record with
respect to the number of shares of Common Stock as to which the Option is
exercised, irrespective of whether certificates to evidence the shares of stock
have been issued on such date. If the redistribution of shares is restricted
pursuant to section 13, certificates representing such shares may bear a legend
referring to such restrictions.
17. Termination or Amendment of Plan. The Board of Directors may at
--------------------------------
any time terminate this Plan or make such changes in or additions to the Plan as
it deems advisable without further action on the part of the shareholders of the
Company, provided that no such termination or amendment shall adversely affect
or impair any then outstanding Stock Incentive without the consent of the person
holding such Stock Incentive.
18. Termination. The Plan shall terminate automatically on October 25,
-----------
2006 and may be terminated at any earlier date by the Board. No Option shall be
granted hereunder after termination of the Plan, but such termination shall not
affect the validity of any Option then outstanding.
19. Time of Granting Options. The date of grant of an Option hereunder
------------------------
shall, for all purposes, be the date on which the Compensation Committee makes
the determination granting such Option.
20. Reservation of Shares. The Company, during the term of this Plan,
---------------------
will at all times reserve and keep available such number of shares of its Common
Stock as shall be sufficient to satisfy the requirements of the Plan.
21. Effective Date. This Plan was adopted by the Board of Directors
--------------
and shareholders of the Company in accordance with the requirements of the Code
and the New York Business Corporation Law on October 25, 1996, and shall be
effective on said date, provided the Plan is approved within twelve (12) months
of said date. Options may be granted, but may not be exercised, prior to the
date of such shareholder approval.
9
<PAGE>
AMENDMENT TO THE EARTHWEB, INC. 1996 STOCK PLAN
This Amendment (this "Amendment") to the EarthWeb, Inc. 1996 Stock Plan
(such plan, as originally adopted, the "Original Plan" and, as amended to the
date hereof, the "Plan") as of October 25, 1997.
WHEREAS, the Original Plan was adopted by the Board of Directors of
EarthWeb, Inc. (the "Company") on October 25, 1996 and approved by the
stockholders of the Company as of February 5, 1997;
WHEREAS, as of February 6, 1997, the Board of Directors of the Company
approved this Amendment.
NOW, THEREFORE, the Plan is hereby amended in the manner set forth
below:
1. A new clause shall be added after clause (iii) of Section 9(g) of
the Plan (as a new clause modifying all of Section 9(g) and not only clause
(iii) thereof) and shall read as follows:
";provided, however, that the Board of Directors may grant options that
are not terminated when an employee ceases to be an employee or consultant of
the Company, for any reason, provided further, that the Stock Option Agreement
granting such options shall specifically state that such options will not be
terminated when such individual ceases to be an employee or consultant of the
Company."
2. Except as amended hereby, the Plan remains unchanged and in full
force and effect and is hereby ratified, confirmed and reconfirmed.
3. All references from and after the date hereof to the Plan, whether
contained in any agreement, instrument, document, note, certificate or writing
of any kind of character, shall be deemed to mean the Plan as amended by this
Amendment.
<PAGE>
IN WITNESS WHEREOF, this amendment has been executed as of February 6,
1997.
EARTHWEB, INC.
By: /s/ Jack D. Hidary
---------------------------
<PAGE>
AMENDMENT NO. 1 TO THE EARTHWEB INC. 1996 STOCK OPTION PLAN
This Amendment No. 1 (this "Amendment") to the EarthWeb Inc. 1996 Stock
Option Plan (such plan, as originally adopted, the "Original Plan" and, as
amended to the date hereof, the "Plan") as of June 27, 1997.
WHEREAS, the Original Plan was adopted by the Board of Directors of
EarthWeb Inc. (the "Company") on October 25, 1996; and
WHEREAS, as of June 27, 1997, the Board of Directors of the Company
approved this Amendment.
NOW, THEREFORE, the Plan is hereby amended in the manner set forth
below:
1. The first sentence of Section 4(a) of the Plan shall be deleted in
its entirety and be replaced by the following:
"The shares that may be purchased (through the exercise of Options or
the purchase of Restricted Stock) under this Plan shall not exceed an aggregate
of 331,722 Shares."
2. All other references in the Plan to the number of shares subject to
the Plan shall be changed to 331,722.
3. Except as amended hereby, the Plan remains unchanged and in full
force and effect and is hereby ratified, confirmed and reconfirmed.
4. All references from and after the date hereof to the Plan, whether
contained in any agreement, instrument, document, note, certificate or writing
of any kind or character, shall be deemed to mean the Plan as amended by this
Amendment.
IN WITNESS WHEREOF, this Amendment has been executed as of the date
first set forth above.
EarthWeb Inc.
By: /s/ Jack D. Hidary
------------------------------
<PAGE>
EXHIBIT 10.2
EMPLOYMENT AGREEMENT
--------------------
THIS AGREEMENT, made effective as of the 1st day of January, 1995, by
and between EARTHWEB LTD., a Maryland Corporation having its offices located at
100 Park Avenue, Suite 1650, New York, New York 10017 (hereinafter called
"Company"), and JACK D. HIDARY, an individual (hereinafter called "Employee")
residing at 525 East 72nd Street, Apartment No. 22F, New York, New York 10021.
W I T N E S S E T H:
-------------------
Company wishes to employ Employee and Employee wishes to enter into
the employ of Company on the terms and conditions contained in this Agreement.
NOW, THEREFORE, in consideration of the facts, mutual promises and
covenants contained herein and intending to be legally bound hereby, Company and
Employee agree as follows:
1. Employment. Company hereby employs Employee and Employee hereby
----------
accepts employment by Company for the period and upon the terms and conditions
contained in this Agreement.
2. Duties; Title; Devotion of Time; Vacation; Equipment.
----------------------------------------------------
2.1. Employee shall provide and be responsible for management of
Company sales and development services and general supervisory duties consistent
with his office.
2.2. Employee shall serve Company as President and Chief Executive
Officer, and shall have such authority and responsibilities normally accorded to
the chief executive officer of the Company.
2.3.1. Throughout the term of this Agreement, Employee shall devote
such of his working time, energy, skill and best efforts to the performance of
his duties hereunder in a manner which will faithfully and diligently further
the business and interests of Company and its affiliates. Notwithstanding the
foregoing, Employee may engage in other activities including the start-up or
participation in other business entities provided the same do not compete with
the business of Company or its subsidiaries or render services to or participate
in any such business or business in the process of development by Company so
long as such activities do not interfere with the performance of his duties as
President of Company in accordance with this agreement.
2.3.2. If Employee shall start another business where the Internet is
a part of the primary mission of such business, he shall give the opportunity to
participate therein to Messrs. Nova Spivack and Murray Hidary in percentages vis
a vis the three of them which shall be the same as the percentages then held by
either of them in the Company. (For example, if Employee is the sole equity
owner of a new venture and, at that time, the Company is owned 40% by Employee,
40% by Murray Hidary and 20% by Nova Spivack, Employee shall offer a 40% share
to Murray Hidary and a 20% share to Nova Spivack. If, however, Employee's entire
share of the new venture is only 30%, then Employee shall offer 2/5 of the 30%
to Murray Hidary and 1/5 thereof to Nova Spivack.) However, any such
participation by Nova Spivack and/or Murray
<PAGE>
Hidary shall require cash contribution, together with any promissory note or
other form of contribution, to the extent of the contribution made by Employee
in such business on a pro rata basis. Employee shall use his best efforts to
advise Murray Hidary and Nova Spivack regarding such opportunity as soon as
possible after reaching a final determination to proceed. Murray Hidary and Nova
Spivack may purchase the entire share offered to each of them, respectively, or
any portion thereof. The opportunity referred to above shall be offered by
notice and the offeree shall have sixty (60) days to accept and to tender the
cash payment required and any promissory note or other form of contribution. The
provisions of this Paragraph 2.3.2 are for the benefit of Nova Spivack and
Murray Hidary.
2.4. Employee shall be primarily based in the New York, New York
area.
2.5. Employee shall be entitled to take four (4) weeks of paid
vacation and such additional unpaid vacation for such time periods and at such
time as he shall determine in his sole discretion, provided, however, that the
total amount of vacation time taken by Employee shall not jeopardize the
business of Company and Employee shall not take such vacation at time(s) when
the business of the Company reasonably requires that he be present and available
to perform his duties on a regular basis.
2.6. Company shall provide Employee with all equipment and software
reasonably necessary for Employee to carry out his duties set forth herein, and
will reimburse Employee for any software purchased by Employee for the same
purpose. All such equipment and software shall be and remain the property of
Company.
2.7. Company shall reimburse Employee for all reasonable expenses
incurred by Employee in connection with the performance of Employee's duties
hereunder upon receipt of regularly substantiated vouchers therefor and in
accordance with Company's regular reimbursement procedures and practices in
effect from time to time, including, but not limited to, expenses for telephone,
facsimile, copying, and other similar costs.
3. Term. This Agreement shall commence as of the date hereof and shall
----
continue for an original term of two (2) years (the "Original Term"), unless
sooner terminated as hereinafter provided. Unless Employee elects to terminate
this Agreement at the end of the Original Term or any Renewal Term, as defined
herein, by giving Company notice of such election at least sixty (60) days
before the expiration of the then-current Term, this Agreement shall be deemed
to have been renewed for consecutive additional terms of one (1) year each (a
"Renewal Term") commencing on the day after the expiration of the then-current
term. The word "Term" herein shall mean either the Original Term or the Renewal
Term, as the context requires.
4. Compensation.
------------
4.1. For the services rendered by Employee to Company, Company (or
one or more of its affiliates) shall pay Employee an annual salary of not less
than Sixty-Five Thousand Dollars ($65,000) (the "Salary"). Employee's Salary
shall equal or exceed the highest salary paid by Company to any employee. The
Salary is subject to increase from time to time in the sole discretion of the
Managers of Company. The Salary shall be paid semi-monthly in arrears.
<PAGE>
4.2. Throughout the term of this Agreement, Employee shall be
entitled to participate in and receive the benefits of any health, life,
accident and disability benefits, if any, which are made available to other
employees of Company.
4.3. Company acknowledges that, as of the date hereof, Company is
indebted to Employee in the amount of Twenty-five Thousand Dollars ($25,000) in
accrued but unpaid salary for the year 1994.
5. Company Capitalization
----------------------
5.1. Company currently has an authorized capitalization of 1,000
shares of Common Stock, One ($1) Dollar par value per share, all of which are
voting shares (the "Shares"). The Company has commenced a merger with a newly
formed New York Limited Liability Company. Wherever the context of the text
requires, the term "Company" shall mean the Maryland corporation or its
successor Limited Liability Company. The Limited Liability Company shall have
the authority to admit members to the Company. Members will own membership
interests, of which, at the determination of the Board of Managers (the
"Board"), some shall be Class A Membership Interests ("Class A Interests"), some
shall be Class B Membership Interests ("Class B Interests") all having voting
rights, and some shall be Class C Membership Interests ("Class C Interests")
which shall be non-voting (collectively, the "Membership Interests"). Employee
owns 50% of the Shares. Upon completion of the merger referred to above,
Employee will be the owner of 50% of the Class A Interests. Employee has made a
capital contribution of $75,000 to the Company and has agreed to accept
additional Class A Interests in lieu of a portion of unpaid compensation in the
amount of $20,000 for the first full year of Company's operations commencing in
1994. Neither the Company nor any Member shall modify the Operating Agreement of
the Company (executed simultaneously herewith and annexed as Exhibit B) so as to
change any of the terms of this Agreement, except to the extent agreed to in
writing by Employee.
5.2. Company agrees that it shall not dilute Employee's Membership
Interests to any greater degree than the Membership Interests of Murray Hidary
are diluted.
5.3. Nothing contained herein shall prohibit Employee from purchasing
Membership Interests in Company to avoid dilution of his Membership Interests in
the Company.
5.4. Employee shall transfer to Mr. Nova Spivack ("Nova Spivack")
Membership Interests sufficient to cover one half of the obligations of Employer
for delivery of such Interests to Nova Spivack.
6. Termination.
-----------
6.1. Company may terminate Employee's employment hereunder at any
time for Employee: engaging in criminal conduct which results in a conviction on
a felony charge; gross incompetence; alcohol or drug abuse which impairs
Employee's performance of his duties hereunder; continuing misconduct or
dereliction of duty or incompetence; any willful violation of any material
express direction or any reasonable material rule or regulation established by
Company's Board of Directors from time to time regarding the conduct of its
business;
<PAGE>
misrepresentation made in this Agreement; or any material violation by Employee
of the terms and conditions of this Agreement ("for cause"), in which event,
except as herein specifically set forth to the contrary, Company shall have no
further obligations or liabilities under this Agreement after the date of such
termination. If Employee shall be indicted or otherwise legally charged with a
felony, Company may place Employee on an unpaid leave of absence until he shall
be either convicted or acquitted of the charges or such charges have been
dismissed with prejudice ("dismissed" or "dismissal"). If Employee shall be
acquitted or such charges dismissed, Employee's employment shall resume on the
terms provided herein.
6.2. Resignation by Employee shall be governed by Rider X to the
Company's Operating Agreement.
6.3.1. If the employment of Employee is terminated by Company for
cause, Company shall have the option for a period of five years to buy from
Employee and the terminated Employee shall have the obligation to sell to the
Company all of Employee's interest in the Company if termination is due to
conviction of a felony, or 25% of Employee's interest in the Company if such
termination is due to gross incompetence (said 100% interest, or 25% interest"),
which Employee is required to sell, as the case may be, is hereafter called the
"Departure Interest"). In addition, if termination is due to gross incompetence,
an additional 50% of Employee's Class A Membership Interest shall be converted
to Class C. Commencing 90 days after such termination, and until such time as
Company shall either exercise its option by notice to Employee or waive its
option by like notice (either notice shall be given no later than five (5) years
from termination) Company shall pay to Employee in monthly installments a sum
equal to 1/2 the salary being paid to him immediately prior to such termination
(the "Option Payments"). If the Company timely exercises its option to purchase
the Departure Interest, all Option Payments made to Employee shall be applied in
reduction of the Buyout Price. If Company elects not to buy the Departure
Interest, any Option Payments previously made to Employee shall belong to the
Employee as additional salary. Failure to give timely notice shall be deemed a
waiver of the Company's right to exercise the Option.
6.3.2. The purchase price of the terminated Employee's Departure
Interest shall be the Buyout Amount specified in Section 8 below multiplied by
the Departure Interest percentage, and in turn multiplied by seventy five (75%)
percent (the "For Cause Buyout Price").
6.3.3. The For Cause Buyout Price of Employee's Departure Interest
payable herein shall be paid by Company to Employee in monthly installments
equal to 1/12th of 10% of the Company's net income before taxes calculated in
accordance with generally accepted accounting principles (GAAP) consistently
followed as determined by the Company's firm of independent certified public
accountants. Net income shall be estimated based upon internally prepared
quarterly statements adjusted within thirty days following receipt of the
Company's annual audited financial statements. If the remaining equity holders
in the Company shall sell all or substantially all of their interest in the
Company or the Company's interest in Identinet LLC, or if they shall sell all or
substantially all of the business of the Company or Identinet LLC, then any
balance of the Buyout Price unpaid shall be paid to Employee within five (5)
business days following the closing of such a transaction.
<PAGE>
6.3.4. The Departure Interest of Employee shall be transferred to the
remaining equity holders of the Company, pro rata. All of Employee's Departure
Interest shall be deemed transferred on the date the first installment of the
For Cause Buyout Price is paid to him. If, however, prior to Employee receiving
the entire For Cause Buyout Price, any dividend or distribution is made by the
Company to its equity holders, the amount that otherwise would have been paid to
Employee were he still an equity holder shall be paid to him but shall be
applied to the balance of the For Cause Buyout Price.
7. Death or Disability.
-------------------
7.1. If Employee dies, the payment of all compensation and
reimbursement of expenses described in Sections 2 and 4, above, shall cease at
the end of the month in which Employee's death shall occur and Company shall
have no further obligations or liabilities with respect thereto to Employee's
estate or legal representative or otherwise.
7.2. As used herein, Employee shall be considered disabled if, as a
result of a medically determinable injury, physical or mental illness or
impairment such that Employee is unable to engage in any substantial gainful
activity reasonably related to that in which he was previously engaged on behalf
of the Company. If Employee is disabled for a continuous period of six months,
the Company may, upon notice to Employee given at any time after the expiration
of such period, terminate Employee's employment hereunder. Upon such
termination, the payment of all compensation and reimbursement of expenses
described in Sections 2 and 4, above, shall cease at the end of the month in
which Employee's termination shall occur and Company shall have no further
obligations or liabilities with respect thereto to Employee, Employee's estate
or legal representative or otherwise. Except as herein specifically set forth to
the contrary, Company shall have no further obligations or liabilities under
this Agreement after the date of such termination.
8. Termination of Employment by Company Without Cause.
--------------------------------------------------
8.1. Company shall have no right to terminate Employee's employment
hereunder without cause. If Company shall breach this provision, then, in
addition to the rights specified in this Section 8, at Employee's sole option,
(1) Company shall continue to pay to Employee wages and bonuses and to provide
benefits all as in effect at the date of such breach for a period of five (5)
years, or (2) Employee may bring suit against Company for damages including,
without limitation, all legal fees, costs and disbursements incurred by Employee
in pursuit of his rights hereunder.
8.2. If Company shall terminate Employee's employment other than
for cause, Employee may, at his sole election, require Company to purchase all
or any portion of his Membership Interests in Company at any time within five
(5) years after such termination. If Employee shall so elect, Company shall buy
and Employee shall sell Employee's Class A Membership Interests for the Buyout
Amount specified in Section 9 below multiplied by the percentage of Membership
Interest determined to be sold by Employee (the "Buyout Price").
8.2.1. Payments of the Buyout Price shall begin 90 days following the
later of (i) the date of Employee's election to sell any portion or all of his
Membership Interest, or (ii) the
<PAGE>
date the Buy Out Price has been fixed and shall be made in monthly installments
as follows until the entire Buyout Price is paid in full. The amount of the
first and second monthly installments shall be $50,000 each. Thereafter, the
amount of each installment shall be the greater of: (i) 80% of the monthly
salary being paid to Employee on the date of his termination, or (ii) 1/12th of
10% of the Company's net income before taxes calculated in accordance with
generally accepted accounting principles (GAAP) consistently followed as
determined by the Company's firm of independent certified public accountants. If
the payment shall be determined under subprovision (ii), net income shall be
estimated based upon internally prepared quarterly statements adjusted within
thirty days following receipt of the Company's annual audited financial
statements. If, after a termination of Employee's employment by the Company
without cause, the Company shall close a public offering of its securities, then
the payment under provision (ii) above shall increase to 1/12th of 30% of the
Company's net income before taxes as referred to above. In addition, if Murray
Hidary shall sell all or substantially all of his interest in the Company or the
Company shall sell the Company's interest in Identinet LLC, or Identinet LLC
shall sell all of its interest in any operating subsidiary, or if the Company
shall sell all or substantially all of the business of the Company or Identinet
LLC or any operating subsidiary shall sell all or substantially all of its
respective business, then any balance of the Buyout Price unpaid shall be paid
to Employee within five (5) business days following the closing of such a
transaction.
8.2.2. If after such termination without cause the Company shall
dissolve and liquidate its business, Employee shall be paid the entire balance
of the Buyout Price prior to the payment of any distribution payable to Murray
Hidary. However, if Murray Hidary has likewise been terminated without cause,
then distributions shall be made to Murray Hidary and to Employee pro rata.
Except for the foregoing priority, obligations to Employee for Buyout payments
shall be subject and subordinate to any and all debts of the Company and to the
claims of all Members of the Company of any kind or nature other than those of
Murray Hidary and Nova Spivack; provided, however, that the obligations to
Employee for Buyout payments shall be subordinate to the pre-existing
obligations of Company to make Buyout payments to Nova Spivack if such payments
to Nova Spivack are in connection with a termination of the employment of Nova
Spivack by Company other than "for cause".
8.2.3. The Class A Membership Interest of Employee acquired hereby
shall be transferred to the remaining Members of Company, pro rata, as voting
Interests. All of Employee's Membership Interest shall be deemed transferred on
the date the first installment of the Buyout Price is paid to him. If, however,
prior to Employee receiving the entire Buyout Price, any dividend or
distribution is made by the Company to its Members, the amount that otherwise
would have been paid to Employee were he still a Member shall be paid to him but
shall be applied to the balance of the Buyout Price.
9. Buyout Amount Determination.
---------------------------
9.1. Every year within thirty (30) days after the receipt by the
Company of its annual financial statements, the Managers of the Company shall
meet and fix the Agreed Value of a one percent (1%) Membership Interest in the
Company. The term "Agreed Value" means that dollar amount last agreed upon in
writing by all of the Managers of the Company, which agreement shall be dated
and filed among the records of the Company and shall be in the form annexed as
Exhibit C hereto. The Buyout Amount shall be the Agreed Value unless Agreed
<PAGE>
Value is stale. The Agreed Value is stale if the date of Employee's election to
sell his Membership Interest (the "Calculation Date") is more than twelve (12)
months after the date of the most recent written agreement as to such valuation
by the Managers of the Company and Employee. If the Agreed Value is stale, the
Managers of the Company shall attempt to reach agreement as to "Agreed Value"
for a period of thirty (30) days following the Calculation Date.
9.2. If the Managers of the Company and Employee shall fail to agree
to an Agreed Value within thirty (30) days following the Calculation Date,
within five (5) business days following the end of such period, the parties
hereto shall submit to one another their respective values for a 1% Membership
Interest in the Company (the "Estimated Value"). Thereafter, the parties hereto
shall each within ten (10) working days select a qualified business appraiser
and forward the name to the other party. Such appraisers shall select a third
appraiser (the "Appraiser") not affiliated with either one. To secure payment of
the Appraiser's fee, each of the parties shall deposit with then Counsel to the
Company 50% of the fee quoted. The Appraiser shall evaluate the Company and the
value of a 1% Membership Interest therein, and shall certify such value to the
parties hereto in writing (the "Appraised Value"). The Appraised Value in the
absence of gross error or misconduct shall be the Buyout Amount and shall be
final and binding on the parties hereto unless adjusted as set forth in Section
9.3, below. If Employee has been terminated for cause, Employee shall pay 1/2 of
the appraisal fees, but if Employee has been terminated without cause then the
Company shall pay said 1/2. The balance of such fees shall be paid 25% by the
party whose Estimated Value is closest to the Appraised Value and 75% by the
other party.
9.3. Section 9.2 to the contrary notwithstanding, if Employee's
employment hereunder shall cease and if Employee has pursuant to this agreement
elected to require Company to purchase his Membership Interest, and if the
Company shall make a public offering of its equity securities or sell all or
substantially all of its business during the twenty four (24) month period
following the date Buyout payments are scheduled to commence, then the term
"Buyout Amount" shall mean the public offering price or private sale price for
the equivalent Membership Interest that would have been owned by Employee had
Employee's Membership Interest not been subject to the Buyout provisions hereof.
9.4. If the Buyout Amount is determined by Appraised Value, any
salaries paid to Murray Hidary or Nova Spivack by the Company or any of its
affiliates shall be disregarded to the extent that such salaries exceed $300,000
in the aggregate, i.e. such excess shall be added back to net profits as an
extraordinary income item. In addition, in determining the Company's net income
before taxes, for the purpose of determining the amount to be paid to Employee
after termination of his employment without cause under Section 8, any salaries
paid to Murray Hidary and Nova Spivack by the Company or any of its affiliates
shall be disregarded to the extent that such salaries exceed $300,000 in the
aggregate, i.e. such excess shall be added back to net profits as an
extraordinary income item.
10. Death of Employee - Disposition of Membership Interest.
------------------------------------------------------
10.1. In the event of the death of Employee, and provided that (i)
the Company is not dissolved as a result thereof, and (ii) the Employee's Class
A Membership Interest has not been transferred to a brother, sister, spouse,
child, grandchild, spouse of a child or grandchild, or
<PAGE>
trust for the benefit of any of them, as provided in the Operating Agreement,
Company shall purchase and the estate of Employee shall sell the Employee's
Class A Membership Interest at the Buyout Price.
10.2. In order to provide funds for the Company to purchase the
Employee's Class A Membership Interest hereunder, Company may purchase life
insurance on the life of Employee. The Company shall in each case be the
beneficiary of all policies and shall retain possession thereof. The policies
shall be subject to the terms and provisions of the Operating Agreement.
10.3. Company shall pay the premiums on the policies which are
subject to this Section 10. In case any premium is not paid within twenty (20)
days after its due date, Employee shall be entitled to pay such premium as agent
of the policy owner, and Company agrees to reimburse Employee promptly for any
such payment. The insurance company is authorized and directed to give Employee,
upon Employee's written request, any information about the status of any policy
on Employee's life which is subject to this Section 10.
10.4. Company shall promptly collect the proceeds of the policy of
life insurance on the life of Employee and shall hold the same as a trustee,
separate and apart from its other assets, solely for the purpose of purchasing
Employee's Class A Membership Interest, and as such trustee, shall turn over the
same to the legal representative of the estate of Employee, promptly after his
or her appointment, as payment on account for Employee's Class A Membership
Interest. The foregoing notwithstanding, if Employee has transferred all or part
of his Membership Interest to a transferee of the type set forth in Section
10.1(ii) (the "Transferred Interest"), the proceeds of such insurance shall be
at the election of the then holder or holders, individually, either (i) paid to
such holder pro rata in exchange for such holder's Transferred Interest or (ii)
contributed to the capital of the Company to be added to each remaining Member's
capital account.
10.5. Proceeds Exceed Purchase Price. In the event the purchase price
of Employee's Class A Membership Interest shall not exceed the proceeds of the
insurance, then the legal representative of Employee shall retain the amount
received from such insurance on a pro rata basis as payment in full for a
transferee's Transferred Interest.
10.6. Purchase Price Exceeds Proceeds. In the event the purchase
price of the pro rata share of Employee's Class A Membership Interest tendered
by a transferee exceeds the pro rata proceeds of insurance on Employee's life,
collected or collectible by Company, then the balance of the purchase price
shall be paid as hereinafter provided. It is the express intention of the
parties that the amount of insurance collected or collectible by Company on
Employee's life shall at all times constitute the minimum payment on account of
the purchase price to be made available for the Class A Membership Interest of
Employee. That portion of the purchase price of the tendered Class A Membership
Interest of Employee in excess of the pro rata proceeds of insurance shall be
paid by Company to the estate or party so tendering in thirty-six (36) equal
monthly installments, with interest at the prime lending rate as set forth from
time to time in The Wall Street Journal, commencing within sixty (60) days after
appointment of the legal representative of Employee's estate.
<PAGE>
11. Company Property. Except as expressly provided for in Sections 12
----------------
and 13 to the contrary, all written research, promotional advertising, and any
other written materials, articles, or data of any kind furnished to Employee by
Company or any subsidiary thereof or developed by others on behalf of Company or
any subsidiary thereof and, in each case, related to Company's, or any
subsidiary's, business from time to time actually being marketed by Company, are
and shall remain the sole and confidential property of Company; provided,
however, that the foregoing shall not apply to any material in the public domain
other than by reason of a breach of this Section 11. If Company requests the
return of such materials at any time after the termination of Employee's
employment, Employee shall immediately deliver the same to Company at Company's
expense. Employee shall make full disclosure to Company of all such writings and
materials and shall do everything necessary or desirable to vest the absolute
title thereto in Company. Employee shall not be entitled to any additional or
special compensation or reimbursement regarding any and all such writings and
materials.
12. Proprietary Nature of Certain Ideas. Employee shall have the right to
-----------------------------------
retain as his own property any creative ideas which are not used by Company.
Such ideas shall not include any business opportunities upon which Company has
made any material cash outlays. If the Company has made no such material cash
outlays on an idea but has made or prepared material 1) strategic and financial
projections, or 2) graphical treatments, or 3) program designs, then Employee
shall not use or disclose to anyone else for use any such idea during the term
of this Agreement and for a period of one (1) year thereafter.
13. Trade Secrets, Non-compete Etc.
-------------------------------
13.1. During the term of employment of Employee by Company
("Confidentiality Period") in any county in any state of the United States in
which Company now or during said term makes sales, purchases supplies or
services customers (and as to then existing customers of Company whose
operations extend beyond such territory, then to the extent of such territory
which shall include, without being limited to any physical location from which
------------------------
use of or connection with the Internet may be obtained), Employee shall hold and
keep confidential any design, method, procedure, systems, plans, specifications,
customer requirements, information or know how that is not generally known, and
that is used by Company, any of its affiliated companies or its or their
subsidiaries in connection with their respective businesses (all of the
foregoing being hereinafter collectively referred to as "Know-How," including
without limitation any such Know-How which provides to Company, as such Know-How
- ------------------
is used by Company, the opportunity to obtain an advantage over competitors who
do not have or use such Know-How) which Employee may now know or which hereafter
becomes known to him as a result of employment by Company and shall not during
the Confidentiality Period, directly or indirectly, disclose any such Know-How
to any person, firm or corporation or use the same in any way other than in
connection with the business and affairs of Company, its affiliated companies or
its or their subsidiaries.
13.2. During the term of employment of Employee by Company Employee
is expressly permitted to engage in any business which does not compete with the
business of Company or its subsidiaries or render services to or participate in
any such business, or business in the process of development by Company so long
as such activities do not interfere with the performance of his duties as
President of Company in accordance with this agreement. Provided,
<PAGE>
however, that if Employee engages in the creation of a new business venture,
Employee must offer Murray Hidary and Nova Spivack an opportunity to participate
in the manner specified in Section 2.3.
13.3. The prohibitions contained in Sections 13.1 and 13.2 are
severable and shall be so interpreted by any court, it being the intent of the
parties hereto if any prohibition in said paragraphs be found to be an
unreasonable restraint of trade or otherwise unenforceable by any court of
competent jurisdiction, that court may limit any such provision to the extent
necessary to make such provision enforceable and that the other provisions in
the paragraph shall remain unaffected. The parties hereto acknowledge that the
business of Company involves the Internet which is world wide in scope and whose
existence tends to limit the importance of physical location in the conduct of
business. It is the intention of the parties to protect the interests of Company
of which Employee is a founder, but permit Employee to work during and after his
employment by Company in a manner which is not competitive with Company at the
time that Employee commences such business activity. In evaluating each such
provision, any court shall take into consideration the scope and nature of the
Internet and the breadth of its accessibility and use. If any court shall
determine that the territory set forth above is overly broad, such territory
shall be deemed limited to the widest territory permitted by law. Employee
acknowledges that the violation of the above referred to provision would cause
irreparable injury to Company and that the remedy at law for any violation or
threatened violation thereof would be inadequate. Employee agrees that Company,
in addition to any remedy at law, may seek a temporary and permanent injunction
or other equitable relief without the necessity of proving actual damages. In
addition, the invalidity of any of the foregoing limitations when applied to
particular circumstances shall not affect the validity of such limitations under
any other dissimilar circumstances.
14. Prior Agreements. Employee represents to Company (a) that there are
----------------
no restrictions, agreements or understandings whatsoever to which Employee is a
party which would prevent or make unlawful such Employee's execution of this
Agreement or Employee's employment hereunder, (b) that Employee's execution of
this Agreement and Employee's employment hereunder shall not constitute a breach
of any contract, agreement or understanding, oral or written, to which Employee
is a party or by which Employee is bound and (c) that Employee is free and able
to execute this Agreement and enter into employment by Company.
15. Miscellaneous.
-------------
15.1. Waivers. Neither the failure nor any delay on the part of
--------
either party to exercise any right, remedy, power or privilege under this
Agreement shall operate as a waiver thereof, nor shall any single or partial
exercise of any right, remedy, power or privilege preclude any other or further
exercise of the same or of any other right, remedy, power or privilege, nor
shall any waiver of any right, remedy, power or privilege with respect to any
occurrence be construed as a waiver of such right, remedy, power or privilege
with respect to any other occurrence.
15.2. Controlling Law. This Agreement and all questions relating to
----------------
its validity, interpretation, performance and enforcement (including, without
limitation, provisions
<PAGE>
concerning limitations of actions), shall be governed by and construed in
accordance with the laws of the State of New York.
15.3. Notices. All notices, requests, demands and other
--------
communications required or permitted under this Agreement shall be in writing
and shall be deemed to have been duly given, made and received only when
delivered (personally, by courier service such as Federal Express, or by other
messenger) or when deposited in the United States mails, registered or certified
mail, postage prepaid, return receipt requested, addressed as set forth below:
If to Employee:
Mr. Jack D. Hidary
525 East 72nd Street, Apt. # 22F
New York, New York 10021
If to Company:
Global Network Partners LLC
c/o EarthWeb LLC
3 Park Avenue, 38th Floor
New York, New York 10016
Attention: Vice President
With copy to:
Robert L. Wolfe, Esq.
Cuddy & Feder & Worby
90 Maple Avenue
White Plains, New York 10601
In addition, notice by mail shall be by air mail if posted outside of
the continental United States.
Any party may alter the address to which communications or copies are
to be sent by giving notice of such change of address in conformity with the
provisions of this paragraph for the giving of notice.
15.4. Binding Nature of Agreement. This Agreement shall be binding
----------------------------
upon and inure to the benefit of Company, its affiliates, and its and their
successors and assigns and shall be binding upon Employee, his heirs and legal
representatives.
15.5. Execution in Counterparts. This Agreement may be executed in
--------------------------
any number of counterparts, each of which shall be deemed to be an original as
against any party whose signature appears thereon, and all of which shall
together constitute one and the same instrument. This Agreement shall become
binding when one or more counterparts hereof, individually or taken together,
shall bear the signatures of all of the parties reflected hereon as the
signatories.
<PAGE>
15.6. Provisions Separable. The provisions of this Agreement are
---------------------
independent of and separable from each other, and no provision shall be affected
or rendered invalid or unenforceable by virtue of the fact that for any reason
any other or others of them may be invalid or unenforceable in whole or in part.
15.7. Entire Agreement, Amendments. This Agreement contains the
-----------------------------
entire understanding among the parties hereto with respect to the subject matter
hereof, and supersedes all prior and contemporaneous agreements and
understandings, inducements or conditions, express or implied, oral or written,
except as herein contained. The express terms hereof control and supersede any
course of performance and/or usage of the trade inconsistent with any of the
terms hereof. This Agreement may not be modified or amended other than by an
agreement in writing signed by the parties hereto.
15.8. Section Headings. The paragraph headings in this Agreement
-----------------
are for convenience only; they form no part of this Agreement and shall not
affect its interpretation.
15.9. Gender, Etc. Words used herein, regardless of the number and
------------
gender specifically used, shall be deemed and construed to include any other
number, singular or plural, and any other gender, masculine, feminine or neuter,
as the context indicates is appropriate.
15.10. Number of Days. In computing the number of days for purposes
---------------
of this Agreement, all days shall be counted, including Saturdays, Sundays and
holidays; provided, however, that if the final day of any time period falls on a
Saturday, Sunday or holiday on which federal banks are or may elect to be
closed, then the final day shall be deemed to be the next day which is not a
Saturday, Sunday or such holiday.
15.11. Company Name. Between the effective date of this Agreement
-------------
and the date upon which it was formalized by the signing of this Agreement,
Company has changed its name to Global Network Partners LLC.
IN WITNESS WHEREOF, the parties have executed and delivered this
Agreement on or as of the date first above written.
EARTHWEB, LTD. , a Maryland corporation
or its Successor Limited Liability Company
By /s/ Murray Hidary
----------------------------------------
Name: Murray Hidary
Title:
/s/ Jack D. Hidary
------------------------------------------
Jack D. Hidary, Employee
<PAGE>
EXHIBIT 10.3
EMPLOYMENT AGREEMENT
--------------------
THIS AGREEMENT, made effective as of the 1st day of January, 1995, by
and between EARTHWEB LTD., a Maryland Corporation having its offices located at
100 Park Avenue, Suite 1650, New York, New York 10017 (hereinafter called
"Company"), and MURRAY HIDARY, an individual (hereinafter called "Employee")
residing at 525 East 72nd Street, Apartment No. 22F, New York, New York 10021
W I T N E S S E T H:
-------------------
Company wishes to employ Employee and Employee wishes to enter into
the employ of Company on the terms and conditions contained in this Agreement.
NOW, THEREFORE, in consideration of the facts, mutual promises and
covenants contained herein and intending to be legally bound hereby, Company and
Employee agree as follows:
1. Employment. Company hereby employs Employee and Employee hereby
----------
accepts employment by Company for the period and upon the terms and conditions
contained in this Agreement.
2. Duties; Title; Devotion of Time; Vacation; Equipment.
----------------------------------------------------
2.1. Employee shall provide and be responsible for management of
Company sales and development services and general supervisory duties consistent
with his office.
2.2. Employee shall serve Company as Executive Vice President, and
shall have such authority and responsibilities normally accorded to a senior
executive officer of the Company.
2.2.1. Throughout the term of this Agreement, Employee shall devote
such of his working time, energy, skill and best efforts to the performance of
his duties hereunder in a manner which will faithfully and diligently further
the business and interests of Company and its affiliates. Notwithstanding the
foregoing, Employee may engage in other activities including the start-up or
participation in other business entities provided the same do not compete with
the business of Company or its subsidiaries or render services to or participate
in any such business or business in the process of development by Company so
long as such activities do not interfere with the performance of his duties as
Vice President of Company in accordance with this agreement.
2.2.2. If Employee shall start another business where the Internet
is a part of the primary mission of such business, he shall give the opportunity
to participate therein to Messrs. Nova Spivack and Jack D. Hidary in percentages
vis a vis the three of them which shall be the same as the percentages - then
held by either of them in the Company. (For example, if Employee is the sole
equity owner of a new venture and, at that time, the Company is owned 40% by
Employee, 40% by Jack D. Hidary and 20% by Nova Spivack, Employee shall offer a
40% share to Jack D. Hidary and a 20% share to Nova Spivack. If, however,
Employee's entire
<PAGE>
share of the new venture is only 30%, then Employee shall offer 2/5 of the 30%
to Jack D. Hidary and 1/5 thereof to Nova Spivack.) However, any such
participation by Nova Spivack and/or Jack D. Hidary shall require cash
contribution, together with any promissory note or other form of contribution,
to the extent of the contribution made by Employee in such business on a pro
rata basis. Employee shall use his best efforts to advise Jack D. Hidary and
Nova Spivack regarding such opportunity as soon as possible after reaching a
final determination to proceed. Jack D. Hidary and Nova Spivack may purchase the
entire share offered to each of them, respectively, or any portion thereof. The
opportunity referred to above shall be offered by notice and the offeree shall
have sixty (60) days to accept and to tender the cash payment required and any
promissory note or other form of contribution. The provisions of this Paragraph
2.3.2 are for the benefit of Nova Spivack and Jack D. Hidary.
2.3. Employee shall be primarily based in the New York, New York
area.
2.4. Employee shall be entitled to take four (4) weeks of paid
vacation and such additional unpaid vacation for such time periods and at such
time as he shall determine in his sole p discretion, provided, however, that the
total amount of vacation time taken by Employee shall not jeopardize the
business of Company and Employee shall not take such vacation at time(s) when
the business of the Company reasonably requires that he be present and available
to perform his duties on a regular basis.
2.5. Company shall provide Employee with all equipment and
software reasonably necessary for Employee to carry out his duties set forth
herein, and will reimburse Employee for any software purchased by Employee for
the same purpose. All such equipment and software shall be and remain the
property of Company.
2.6. Company shall reimburse Employee for all reasonable expenses
incurred by Employee in connection with the performance of Employee's duties
hereunder upon receipt of regularly substantiated vouchers therefor and in
accordance with Company's regular reimbursement procedures and practices in
effect from time to time, including, but not limited to, expenses for telephone,
facsimile, copying, and other similar costs.
3. Term. This Agreement shall commence as of the date hereof and shall
----
continue for an original term of two (2) years (the "Original Term"), unless
sooner terminated as hereinafter provided. Unless Employee elects to terminate
this Agreement at the end of the Original Term or any Renewal Term, as defined
herein, by giving Company notice of such election at least sixty (60) days
before the expiration of the then-current Term, this Agreement shall be deemed
to have been renewed for consecutive additional terms of one (1) year each (a
"Renewal Term") commencing on the day after the expiration of the then-current
term. The word "Term" herein shall mean either the Original Term or the Renewal
Term, as the context requires.
4. Compensation.
------------
4.1. For the services rendered by Employee to Company, Company (or
one or more of its affiliates) shall pay Employee an annual salary of not less
than Sixty-Five Thousand Dollars ($65,000) (the "Salary"). The Salary is subject
to increase from time
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to time in the sole discretion of the Managers of Company. The Salary shall be
paid semi-monthly in arrears.
4.2. Throughout the term of this Agreement, Employee shall be
entitled to participate in and receive the benefits of any health, life,
accident and disability benefits, if any, which are made available to other
employees of Company.
4.3. Company acknowledges that, as of the date hereof, Company is
indebted to Employee in the amount of Twenty-seven Thousand Dollars ($27,000) in
accrued but unpaid salary for the year 1994.
5. Company Capitalization
----------------------
5.1. Company currently has an authorized capitalization of 1,000
shares of Common Stock, One ($l) Dollar par value per share, all of which are
voting shares (the "Shares"). The Company has commenced a merger with a newly
formed New York Limited Liability Company. Wherever the context of the text
requires, the term "Company" shall mean the Maryland corporation or its
successor Limited Liability Company. The Limited Liability Company shall have
the authority to admit members to the Company. Members will own membership
interests, of which, at the determination of the Board of Managers (the
"Board"), some shall be Class A Membership Interests ("Class A Interests"), some
shall be Class B Membership Interests ("Class B Interests") all having voting
rights, and some shall be Class C Membership Interests ("Class C Interests")
which shall be non-voting (collectively, the "Membership Interests"). Employee
owns 50% of the Shares. Upon completion of the merger referred to above,
Employee will be the owner of 50% of the Class A Interests. Employee has made a
capital contribution of $75,000 to the Company and has agreed to accept
additional Class A Interests in lieu of a portion of unpaid compensation in the
amount of $20,000 for the first full year of Company's operations commencing in
1994. Neither the Company nor any Member shall modify the Operating Agreement of
the Company (executed simultaneously herewith and annexed as Exhibit B) so as to
change any of the terms of this Agreement, except to the extent agreed to in
writing by Employee.
5.2. Company agrees that it shall not dilute Employee's Membership
Interests to any greater degree than the Membership Interests of Jack D. Hidary
are diluted.
5.3. Nothing contained herein shall prohibit Employee from
purchasing Membership Interests in Company to avoid dilution of his Membership
Interests in the Company.
5.4. Employee shall transfer to Mr. Nova Spivack ("Nova Spivack")
Membership Interests sufficient to cover one half of the obligations of Employer
for delivery of such Interests to Nova Spivack.
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6. Termination.
-----------
6.1. Company may terminate Employee's employment hereunder at any
time for Employee: engaging in criminal conduct which results in a conviction on
a felony charge; gross incompetence; alcohol or drug abuse which impairs
Employee's performance of his duties hereunder; continuing misconduct or
dereliction of duty or incompetence; any willful violation of any material
express direction or any reasonable material rule or regulation established by
Company's Board of Directors from time to time regarding the conduct of its
business; misrepresentation made in this Agreement; or any material violation by
Employee of the terms and conditions of this Agreement ("for cause"), in which
event, except as herein specifically set forth to the contrary, Company shall
have no further obligations or liabilities under this Agreement after the date
of such termination. If Employee shall be indicted or otherwise legally charged
with a felony, Company may place Employee on an unpaid leave of absence until he
shall be either convicted or acquitted of the charges or such charges have been
dismissed with prejudice ("dismissed " or "dismissal"). If Employee shall be
acquitted or such charges dismissed, Employee's employment shall resume on the
terms provided herein.
6.2. Resignation by Employee shall be governed by Rider X to the
Company's Operating Agreement.
6.2.1. If the employment of Employee is terminated by Company for
cause, Company shall have the option for a period of five years to buy from
Employee and the terminated Employee shall have the obligation to sell to the
Company all of Employee's interest in the Company if termination is due to
conviction of a felony, or 25% of Employee's interest in the Company if such
termination is due to gross incompetence (said 100% interest, or 25% interest,
which Employee is required to sell, as the case may be, is hereafter called the
"Departure Interest"). In addition, if termination is due to gross incompetence,
an additional 50% of Employee's Class A Membership Interest shall be converted
to Class C. Commencing 90 days after such termination, and until such time as
Company shall either exercise its option by notice to Employee or waive its
option by like notice (either notice shall be given no later than five (5) years
from termination) Company shall pay to Employee in monthly installments a sum
equal to 1/2 the salary being paid to him immediately prior to such termination
(the "Option Payments"). If the Company timely exercises its option to purchase
the Departure Interest, all Option Payments made to Employee shall be applied in
reduction of the Buyout Price. If Company elects not to buy the Departure
Interest, any Option Payments previously made to Employee shall belong to the
Employee as additional salary. Failure to give timely notice shall be deemed a
waiver of the Company's right to exercise the Option.
6.2.2. The purchase price of the terminated Employee's Departure
Interest shall be the Buyout Amount specified in Section 8 below multiplied by
the Departure Interest percentage, and in turn multiplied by seventy five (75%)
percent (the "For Cause Buyout Price").
6.2.3. The For Cause Buyout Price of Employee's Departure Interest
payable herein shall be paid by Company to Employee in monthly installments
equal to 1/12th of 10% of the Company's net income before taxes calculated in
accordance with generally accepted
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accounting principles (GAAP) consistently followed as determined by the
Company's firm of independent certified public accountants. Net income shall be
estimated based upon internally prepared quarterly statements adjusted within
thirty days following receipt of the Company's annual audited financial
statements. If the remaining equity holders in the Company shall sell all or
substantially all of their interest in the Company or the Company's interest in
Identinet LLC, or if they shall sell all or substantially all of the business of
the Company or Identinet LLC, then any balance of the Buyout Price unpaid shall
be paid to Employee within five (5) business days following the closing of such
a transaction.
6.2.4. The Departure Interest of Employee shall be transferred to
the remaining equity holders of the Company, pro rata. All of Employee's
Departure Interest shall be deemed transferred on the date the first installment
of the For Cause Buyout Price is paid to him. If, however, prior to Employee
receiving the entire For Cause Buyout Price, any dividend or distribution is
made by the Company to its equity holders, the amount that otherwise would have
been paid to Employee were he still an equity holder shall be paid to him but
shall be applied to the balance of the For Cause Buyout Price.
7. Death or Disability.
--------------------
7.1. If Employee dies, the payment of all compensation and
reimbursement of expenses described in Sections 2 and 4, above, shall cease at
the end of the month in which Employee's death shall occur and Company shall
have no further obligations or liabilities with respect thereto to Employee's
estate or legal representative or otherwise.
7.2. As used herein, Employee shall be considered disabled if, as
a result of a medically determinable injury, physical or mental illness or
impairment such that Employee is unable to engage in any substantial gainful
activity reasonably related to that in which he was previously engaged on behalf
of the Company. If Employee is disabled for a continuous period of six months,
the Company may, upon notice to Employee given at any time after the expiration
of such period, terminate Employee's employment hereunder. Upon such
termination, the payment of all compensation and reimbursement of expenses
described in Sections 2 and 4, above, shall cease at the end of the month in
which Employee's termination shall occur and Company shall have no further
obligations or liabilities with respect thereto to Employee, Employee's estate
or legal representative or otherwise. Except as herein specifically set forth to
the contrary, Company shall have no further obligations or liabilities under
this Agreement after the date of such termination.
8. Termination of Employment by Company Without Cause.
--------------------------------------------------
8.1. Company shall have no right to terminate Employee's
employment hereunder without cause. If Company shall breach this provision,
then, in addition to the rights specified in this Section 8, at Employee's sole
option, (1) Company shall continue to pay to Employee wages and bonuses and to
provide benefits all as in effect at the date of such breach for a period of
five (5) years, or (2) Employee may bring suit against Company for damages
including, without limitation, all legal fees, costs and disbursements incurred
by Employee in pursuit of his rights hereunder.
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8.2. If Company shall terminate Employee's employment other than
for cause, Employee may, at his sole election, require Company to purchase all
or any portion of his Membership Interests in Company at any time within five
(5) years after such termination. If Employee shall so elect, Company shall buy
and Employee shall sell Employee's Class A Membership Interests for the Buyout
Amount specified in Section 9 below multiplied by the percentage of Membership
Interest determined to be sold by Employee (the "Buyout Price").
8.2.1. Payments of the Buyout Price shall begin 90 days following
the later of (i) the date of Employee's election to sell any portion or all of
his Membership Interest, or (ii) the date the Buy Out Price has been fixed and
shall be made in monthly installments as follows until the entire Buyout Price
is paid in full. The amount of the first and second monthly installments shall
be $50,000 each. Thereafter, the amount of each installment shall be the greater
of: (i) 80% of the monthly salary being paid to Employee on the date of his
termination, or (ii) 1/12th of 10% of the Company's net income before taxes
calculated in accordance with generally accepted accounting principles (GAAP)
consistently followed as determined by the Company's firm of independent
certified public accountants. If the payment shall be determined under
subprovision (ii), net income shall be estimated based upon internally prepared
quarterly statements adjusted within thirty days following receipt of the
Company's annual audited financial statements. If, after a termination of
Employee's employment by the Company without cause, the Company shall close a
public offering of its securities, then the payment under provision (ii) above
shall increase to 1/12th of 30% of the Company's net income before taxes as
referred to above. In addition, if Jack D. Hidary shall sell all or
substantially all of his interest in the Company or the Company shall sell the
Company's interest in Identinet LLC, or Identinet LLC shall sell all of its
interest in any operating subsidiary, or if the Company shall sell all or
substantially all of the business of the Company or Identinet LLC or any
operating subsidiary shall sell all or substantially all of its respective
business, then any balance of the Buyout Price unpaid shall be paid to Employee
within five (5) business days following the closing of such a transaction.
8.2.2. If after such termination without cause the Company shall
dissolve and liquidate its business, Employee shall be paid the entire balance
of the Buyout Price prior to the payment of any distribution payable to Jack D.
Hidary. However, if Jack D. Hidary has likewise been terminated without cause,
then distributions shall be made to Jack D. Hidary and to Employee pro-rata.
Except for the foregoing priority, obligations to Employee for Buyout payments
shall be subject and subordinate to any and all debts of the Company and to the
claims of all Members of the Company of any kind or nature other than those of
Jack D. Hidary and Nova Spivack; provided, however, that the obligations to
Employee for Buyout payments shall be subordinate to the pre-existing
obligations of Company to make Buyout payments to Nova Spivack if such payments
to Nova Spivack are in connection with a termination of the employment of Nova
Spivack by Company other than "for cause".
8.2.3. The Class A Membership Interest of Employee acquired hereby
shall be transferred to the remaining Members of Company, pro rata, as voting
Interests. All of Employee's Membership Interest shall be deemed transferred on
the date the first installment of the Buyout Price is paid to him. if, however,
prior to Employee receiving the entire Buyout Price, any dividend or
distribution is made by the Company to its Members, the amount that otherwise
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<PAGE>
would have been paid to Employee were he still a Member shall be paid to him but
shall be applied to the balance of the Buyout Price.
9. Buyout Amount Determination.
---------------------------
9.1. Every year within thirty (30) days after the receipt by the
Company of its annual financial statements, the Managers of the Company shall
meet and fix the Agreed Value of a one percent (1%) Membership Interest in the
Company. The term "Agreed Value" means that dollar amount last agreed upon in
writing by all of the Managers of the Company, which agreement shall be dated
and filed among the records of the Company and shall be in the form annexed as
Exhibit C hereto. The Buyout Amount shall be the Agreed Value unless Agreed
Value is stale. The Agreed Value is stale if the date of Employee's election to
sell his Membership Interest (the "Calculation Date") is more than twelve (12)
months after the date of the most recent written agreement as to such valuation
by the Managers of the Company and Employee. If the Agreed Value is stale, the
Managers of the Company shall attempt to reach agreement as to "Agreed Value"
for a period of thirty (30) days following the Calculation Date.
9.2. If the Managers of the Company and Employee shall fail to
agree to an Agreed Value within thirty (30) days following the Calculation Date,
within five (5) business days following the end of such period, the parties
hereto shall submit to one another their respective values for a 1% Membership
Interest in the Company (the "Estimated Value") . Thereafter, the parties hereto
shall each within ten (10) working days select a qualified business appraiser
and forward the name to the other party. Such appraisers shall select a third
appraiser (the "Appraiser") not affiliated with either one. To secure payment of
the Appraiser's fee, each of the parties shall deposit with then Counsel to the
Company 50% of the fee quoted. The Appraiser shall evaluate the Company and the
value of a 1% Membership Interest therein, and shall certify such value to the
parties hereto in writing (the "Appraised Value") . The Appraised Value in the
absence of gross error or misconduct shall be the Buyout Amount and shall be
final and binding on the parties hereto unless adjusted as set forth in Section
9.3, below. If Employee has been terminated for cause, Employee shall pay 1/2 of
the appraisal fees, but if Employee has been terminated without cause then the
Company shall pay said 1/2. The balance of such fees shall be paid 25% by the
party whose Estimated Value is closest to the Appraised Value and 75% by the
other party.
9.3. Section 9.2 to the contrary notwithstanding, if Employee's
employment hereunder shall cease and if Employee has pursuant to this agreement
elected to require Company to purchase his membership Interest, and if the
Company shall make -a public -offering of its equity securities or sell all or
substantially all of its business during the twenty four (24) month period
following the date Buyout payments are scheduled to commence, then the term
"Buyout Amount" shall mean the public offering price or private sale price for
the equivalent Membership Interest that would have been owned by Employee had
Employee's Membership Interest not been subject to the Buyout provisions hereof.
9.4. If the Buyout Amount is determined by Appraised Value, any
salaries paid to Jack D. Hidary or Nova Spivack by the Company or any of its
affiliates shall be disregarded to
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<PAGE>
the extent that such salaries exceed $300,000 in the aggregate, i.e. such excess
shall be added back to net profits as an extraordinary income item. In addition,
in determining the Company's net income before taxes, for the purpose of
determining the amount to be paid to Employee after termination of his
employment without cause under Section 8, any salaries paid to Jack D. Hidary
and Nova Spivack by the Company or any of its affiliates shall be disregarded to
the extent that such salaries exceed $300,000 in the aggregate, i.e. such excess
shall be added back to net profits as an extraordinary income item.
10. Death of Employee - Disposition of Membership Interest.
------------------------------------------------------
10.1. In the event of the death of Employee, and provided that (i)
the Company is not dissolved as a result thereof, and (ii) the Employee's Class
A Membership Interest has not been transferred to a brother, sister, spouse,
child, grandchild, spouse of a child or grandchild, or trust for the benefit of
any of them, as provided in the operating Agreement, Company shall purchase and
the estate of Employee shall sell the Employee's Class A Membership Interest at
the Buyout Price.
10.2. In order to provide funds for the Company to purchase the
Employee's Class A Membership Interest hereunder, Company may purchase life
insurance on the life of Employee. The Company shall in each case be the
beneficiary of all policies and shall retain possession thereof. The policies
shall be subject to the terms and provisions of the Operating Agreement.
10.3. Company shall pay the premiums on the policies which are
subject to this Section 10. In case any premium is not paid within twenty (20)
days after its due date, Employee shall be entitled to pay such premium as agent
of the policy owner, and Company agrees to reimburse Employee promptly for any
such payment. The insurance company is authorized and directed to give Employee,
upon Employee's written request, any information about the status of any policy
on Employee's life which is subject to this Section 10.
10.4. Company shall promptly collect the proceeds of the policy of
life insurance on the life of Employee and shall hold the same as a trustee,
separate and apart from its other assets, solely for the purpose of purchasing
Employee's Class A Membership Interest, and as such trustee, shall turn over the
same to the legal representative of the estate of Employee, promptly after his
or her appointment, as payment on account for Employee's Class A Membership
Interest. The foregoing notwithstanding, if Employee has transferred all or part
of his membership Interest to a transferee of the type set forth in Section
10.1(ii) (the "Transferred Interest"), the proceeds of such insurance shall be
at the election of the then holder or holders, individually, either (i) paid to
such holder pro rata in exchange for such holder's Transferred Interest or (ii)
contributed to the capital of the Company to be added to each remaining Member's
capital account.
10.5. Proceeds Exceed Purchase Price. In the event the purchase
price of Employee's Class A Membership Interest shall not exceed the proceeds of
the insurance, then the legal representative of Employee shall retain the amount
received from such insurance on a pro rata basis as payment in full for a
transferee's Transferred Interest.
8
<PAGE>
10.6. Purchase Price Exceeds Proceeds. In the event the purchase
price of the pro rata share of Employee's Class A Membership Interest tendered
by a transferee exceeds the pro rata proceeds of insurance on Employee's life,
collected or collectible by Company, then the balance of the purchase price
shall be paid as hereinafter provided. It is the express intention of the
parties that the amount of insurance collected or collectible by Company on
Employee's life shall at all times constitute the minimum payment on account of
the purchase price to be made available for the Class A Membership Interest of
Employee. That portion of the purchase price of the tendered Class A Membership
Interest of Employee in excess of the pro rata proceeds of insurance shall be
paid by Company to the estate or party so tendering in thirty-six (36) equal
monthly installments, with interest at the prime lending rate as set forth from
time to time in The Wall Street Journal, commencing within sixty (60) days after
appointment of the legal representative of Employee's estate.
11. Company Property. Except as expressly provided for in Sections 12
----------------
and 13 to the contrary, all written research, promotional advertising, and any
other written materials, articles, or data of any kind furnished to Employee by
Company or any subsidiary thereof or developed by others on behalf of Company or
any subsidiary thereof and, in each case, related to Company's, or any
subsidiary's, business from time to time actually being marketed by Company, are
and shall remain the sole and confidential property of Company; provided,
however, that the foregoing shall not apply to any material in the public domain
other than by reason of a breach of this Section 11. If Company requests the
return of such materials at any time after the termination of Employee's
employment, Employee shall immediately deliver the same to Company at Company's
expense. Employee shall make full disclosure to Company of all such writings and
materials and shall do everything necessary or desirable to vest the absolute
title thereto in Company. Employee shall not be entitled to any additional or
special compensation or reimbursement regarding any and all such writings and
materials.
12. Proprietary Nature of Certain Ideas. Employee shall have the right to
-----------------------------------
retain as his own property any creative ideas which are not used by Company.
Such ideas shall not include any business opportunities upon which Company has
made any material cash outlays. If the Company has made no such material cash
outlays on an idea but has made or prepared material 1) strategic and financial
projections, or 2) graphical treatments, or 3) program designs, then Employee
shall not use or disclose to anyone else for use any such idea during the term
of this Agreement and for a period of one (1) year thereafter.
13. Trade Secrets, Non-compete Etc.
-------------------------------
13.1. During the term of employment of Employee by Company
("Confidentiality Period") in any county in any state of the United States in
which Company now or during said term makes sales, purchases supplies or
services customers (and as to then existing customers of Company whose
operations extend beyond such territory, then to the extent of such territory
which shall include, without being limited to any physical location from which
------------------------
use of or connection with the Internet may be obtained), Employee shall hold and
keep confidential any design, method, procedure, systems, plans, specifications,
customer requirements, information or know how that is not generally known, and
that is used by Company, any of its affiliated
9
<PAGE>
companies or its or their subsidiaries in connection with their respective
businesses (all of the foregoing being hereinafter collectively referred to as
"Know-How, " including without limitation any such Know-How which provides to
------------------
Company, as such Know-How is used by Company, the opportunity to obtain an
advantage over competitors who do not have or use such Know-How) which Employee
may now know or which hereafter becomes known to him as a result of employment
by Company and shall not during the Confidentiality Period, directly or
indirectly, disclose any such Know-How to any person, firm or corporation or use
the same in any way other than in connection with the business and affairs of
Company, its affiliated companies or its or their subsidiaries.
13.2. During the term of employment of Employee by Company Employee
is expressly permitted to engage in any business which does not compete with the
business of Company or its subsidiaries or render services to or participate in
any such business, or business in the process of development by Company so long
as such activities do not interfere with the performance of his duties as Vice
President of Company in accordance with this -agreement. Provided, however, that
if Employee engages in the creation of a new business venture, Employee must
offer Jack D. Hidary and Nova Spivack an opportunity to participate in the
manner specified in Section 2.3.
13.3. The prohibitions contained in Sections 13.1 and 13.2 are
severable and shall be so interpreted by any court, it being the intent of the
parties hereto if any prohibition in said paragraphs be found to be an
unreasonable restraint of trade or otherwise unenforceable by any court of
competent jurisdiction, that court may limit any such provision to the extent
necessary to make such provision enforceable and that the other provisions in
the paragraph shall remain unaffected. The parties hereto acknowledge that the
business of Company involves the Internet which is world wide in scope and whose
existence tends to limit the importance of physical location in the conduct of
business. It is the intention of the parties to protect the interests of Company
of which Employee is a founder, but permit Employee to work during and after his
employment by Company in a manner which is not competitive with Company at the
time that Employee commences such business activity. In evaluating each such
provision, any court shall take into consideration the scope and nature of the
Internet and the breadth of its accessibility and use. If any court shall
determine that the territory set forth above is overly broad, such territory
shall be deemed limited to the widest territory permitted by law. Employee
acknowledges that the violation of the above referred to provision would cause
irreparable injury to Company and that the remedy at law for any violation or
threatened violation thereof would be inadequate. Employee agrees that Company,
in addition to any remedy at law, may seek a temporary and permanent injunction
or other equitable relief without the necessity of proving actual damages. In
addition, the invalidity of any of the foregoing limitations when applied to
particular circumstances shall not affect the validity of such limitations under
any other dissimilar circumstances.
14. Prior Agreements. Employee represents to Company (a) that there are
----------------
no restrictions, agreements or understandings whatsoever to which Employee is a
party which would prevent or make unlawful such Employee's execution of this
Agreement or Employee's employment hereunder, (b) that Employee's execution of
this Agreement and Employee's
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employment hereunder shall not constitute a breach of any contract, agreement or
understanding, oral or written, to which Employee is a party or by which
Employee is bound and (c) that Employee is free and able to execute this
Agreement and enter into employment by Company.
15. Miscellaneous.
-------------
15.1. Waivers Neither the failure nor any delay on the part of
-------
either party to exercise any right, remedy, power or privilege under this
Agreement shall operate as a waiver thereof, nor shall any single or partial
exercise of any right, remedy, power or privilege preclude any other or further
exercise of the same or of any other right, remedy, power or privilege, nor
shall any waiver of any right, remedy, power or privilege with respect to any
occurrence be construed as a waiver of such right, remedy, power or privilege
with respect to any other occurrence.
15.2. Controlling Law. This Agreement and all questions relating
---------------
to its validity, interpretation, performance and enforcement (including, without
limitation, provisions concerning limitations of actions), shall be governed by
and construed in accordance with the laws of the State of New York.
15.3. Notices. All notices, requests, demands and other
-------
communications required or permitted under this Agreement shall be in writing
and shall be deemed to have been duly given, made and received only when
delivered (personally, by courier service such as Federal Express, or by other
messenger) or when deposited in the United States mails, registered or certified
mail, postage prepaid, return receipt requested, addressed as set forth below:
If to Employee:
Mr. Murray Hidary
320 East 46th Street Apt. 8A
New York, New York 10017
If to Company:
Global Network Partners LLC
c/o EarthWeb, Ltd.
3 Park Avenue 38th Floor
New York, New York 10016
Attention: President
With copy to:
Robert L. Wolfe, Esq.
Cuddy & Feder & Worby
90 Maple Avenue
White Plains, New York 10601
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In addition, notice by mail shall be by air mail if posted outside of
the continental United States.
Any party may alter the address to which communications or copies are
to be sent by giving notice of such change of address in conformity with the
provisions of this paragraph for the giving of notice.
15.4. Binding Nature of Agreement. This Agreement shall be binding
---------------------------
upon and inure to the benefit of Company, its affiliates, and its and their
successors and assigns and shall be binding upon Employee, his heirs and legal
representatives.
15.5. Execution in Counterparts. This Agreement may be executed
-------------------------
in any number of counterparts, each of which shall be deemed to be an original
as against any party whose signature appears thereon, and all of which shall
together constitute one and the same instrument. This Agreement shall become
binding when one or more counterparts hereof, individually or taken together,
shall bear the signatures of all of the parties reflected hereon as the
signatories.
15.6. Provisions Separable. The provisions of this Agreement are
--------------------
independent of and separable from each other, and no provision shall be affected
or rendered invalid or unenforceable by virtue of the fact that for any reason
any other or others of them may be invalid or unenforceable in whole or in part.
15.7. Entire Agreement, Amendments. This Agreement contains the
----------------------------
entire understanding among the parties hereto with respect to the subject matter
hereof, and supersedes all prior and contemporaneous agreements and
understandings, inducements or conditions, express or implied, oral or written,
except as herein contained. The express terms hereof control and supersede any
course of performance and/or usage of the trade inconsistent with any of the
terms hereof. This Agreement may not be modified or amended other than by an
agreement in writing signed by the parties hereto.
15.8. Section Headings. The paragraph headings in this Agreement
----------------
are for convenience only; they form no part of this Agreement and shall not
affect its interpretation.
15.9. Gender, Etc. Words used herein, regardless of the number and
-----------
gender specifically used, shall be deemed and construed to include any other
number, singular or plural, and any other gender, masculine, feminine or neuter,
as the context indicates is appropriate.
15.10. Number of Days. In computing the number of days for purposes
--------------
of this Agreement, all days shall be counted, including Saturdays, Sundays and
holidays; provided, however, that if the final day of any time period falls on a
Saturday, Sunday or holiday on which federal banks are or may elect to be
closed, then the final day shall be deemed to be the next day which is not a
Saturday, Sunday or such holiday.
12
<PAGE>
15.11. Company Name. Between the effective date of this Agreement
------------
and the date upon which it was formalized by the signing of this Agreement,
Company has changed its name to Global Network Partners LLC.
IN WITNESS WHEREOF, the parties have executed and delivered this Agreement
on or as of the date first above written.
EARTHWEB, LTD., a
Maryland corporation or its
Successor Limited Liability Company
By /s/Jack D. Hidary
----------------------------
Name: Jack D. Hidary
Title: President
/s/Murray Hidary
-------------------------------
Murray Hidary, Employee
13
<PAGE>
EXHIBIT 10.4
EMPLOYMENT AGREEMENT
THIS AGREEMENT, dated November 4, 1996 (the "Agreement"), is between
EarthWeb, Inc., a New York corporation ("EarthWeb"), and Irene Math (the
"Employee").
In consideration of Employee's employment with EarthWeb, Employee hereby
agrees to be bound by and comply with the following terms and conditions of
employment:
Section 1. At-Will Employment. Employee acknowledges and agrees that
------------------
his/her employment status is that of an employee-at-will and that Employee's
employment may be terminated by EarthWeb or Employee at any time with or without
cause subject to the conditions outlined in Schedule A.
Section 2. Compensation. In consideration of the services to be rendered
------------
hereunder, Employee shall be paid in accordance with the attached Schedule A.
Section 3. Employee Inventions and Ideas.
------------------------------
(a) Employee will disclose to EarthWeb. all Inventions (as herein
defined). "Inventions" shall mean all ideas, potential marketing and sales
relationships, inventions, copyrightable expression, research, plans for
products or services, business development strategies, marketing plans, computer
software (including, without limitation, source code), computer program,
original works of authorship, 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 by Employee solely or jointly with others during the term of
Employee's employment with EarthWeb., which refer to, are suggested by, or
result from any work which Employee may do during his/her employment, or from
any information obtained from EarthWeb or any affiliate of EarthWeb, such that
said information is obtained in the performance of duties related to employment
at EarthWeb.
(b) The Inventions shall be the exclusive property of EarthWeb-,
and Employee acknowledges that all of said Inventions 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
Employee for EarthWeb, Employee agrees to assign and, upon its creation,
automatically assigns to EarthWeb. the ownership of such material, 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 without
additional compensation to Employee. At EarthWeb's expense, Employee will assist
EarthWeb in every proper way to protect the Inventions throughout the world,
including, without limitation, executing in favor of EarthWeb or any affiliate
of EarthWeb patent, copyright, and other applications and assignments relating
to the Inventions.
<PAGE>
Section 4. Proprietary Information.
-----------------------
(a) Employee will not disclose or use, at any time either during or
after the term of employment, except at the request of EarthWeb or an affiliate
of EarthWeb, any Confidential Information (as herein defined). "Confidential
Information" shall mean all proprietary information, technical data, trade
secrets, and know-how, including, without limitation, research, product plans,
customer lists, markets, software, 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. "Confidential Information" does not include (i) information that
is or becomes publicly known through lawful means and without violation of a
confidentiality obligation owed to EarthWeb; and (ii) information that was
rightfully in Employee's possession prior to joining or working with EarthWeb.
(b) Employee 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 finished to or prepared
by Employee in the course of or incident to her employment, including, without
limitation, records and any other materials pertaining to Inventions, belong to
EarthWeb and shall be promptly returned to EarthWeb upon termination of
employment. Following termination, the Employee will not retain any written or
other tangible or electronic material containing any Confidential Information or
information pertaining to any Invention.
Section 5. Limited Agreement Not to Compete.
---------------------------------
(a) While employed by EarthWeb., Employee shall not, directly or
indirectly, as an employee, employer, consultant, agent, principal, partner,
manager, stockholder, officer, director, or in any other individual or
representative capacity, engage or participate in any business that is
competitive with the business of EarthWeb. Notwithstanding the foregoing,
Employee may own less than two percent (2%) of any class of stock or security of
any corporation which competes with EarthWeb listed on a national securities
exchange.
(b) While employed by EarthWeb and for a period of twelve (12)
months after the termination of Employee's employment with EarthWeb, Employee
shall not, directly or indirectly, solicit for employment or employ any person
who was employed by EarthWeb during Employee's employment with EarthWeb.
(c) For a period of twelve (12) months after the termination of
Employee's employment with EarthWeb, Employee shall not, directly or indirectly:
(1) 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 on a project which directly
competes with a project of EarthWeb. For the
2
<PAGE>
purpose of this section, the term "project" is defined as any formal or informal
business activity, goal, product, service, or function which is implemented or
is expected to be implemented. For the purpose of this section, the term
"directly competing" is defined as (a) any project which in its main capacity
functions as
(i) an on-line service for Internet software and site
developers, in which the primary purpose of such on-line service is
to provide such developers with a directory of third party Internet
technology and/or developer resources and/or
(ii) an on-line store in which the primary purpose of such
is to sell or distribute third party software or products used for
Internet site or software development; or
(b) a project which in its main capacity develops and/or
markets interactive community or conferencing products or services based on
technology written in Java, excluding any person, project ` or entity whose on-
line service or product merely incorporates a community or conferencing function
as a secondary feature,
(2) call on, solicit, or take away for Employee or for any
other person or entity any person or entity who or which was a customer of
EarthWeb during Employee's employment with EarthWeb; or
(3) 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 with which EarthWeb has a
formal or informal consulting agreement at the time of individual's termination
and through which such activity by individual, would impinge upon or interfere
with in any way, EarthWeb's consulting relationship with said person or entity.
Section 6. EarthWeb Resources. Employee may not use any EarthWeb equipment
------------------
for personal purposes without written permission from EarthWeb. Employee may not
give access to EarthWeb's offices or files to any person not in the employ of
EarthWeb without written permission of EarthWeb.
Section 7. Injunctive Relief. Employee agrees that the remedy at law for
-----------------
any breach of the provisions of Section 3, Section 4 or Section 5 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 8. Severability. In the event any of the provisions of this
------------
Agreement shall be held by a court, arbitrator or other tribunal of competent
jurisdiction to be unenforceable or invalid, that part will be amended to
achieve as nearly as possible the same effect and the other provisions of this
Agreement shall remain in full force and effect.
3
<PAGE>
Section 9. Survival. In the event of termination of this Agreement, the
--------
provisions of Sections 1, 3, 4, 5, 6, 7, 8, 9, 10, 11, 12, 13 and 14 shall
survive.
Section 10. Representations and Warranties. Employee represents and
------------------------------
warrants that Employee is not under any obligations to any third party which
could interfere with the Employee's performance under this Agreement, and that
Employee's performance of his/her obligations to EarthWeb during the term of
his/her employment with EarthWeb will not breach any agreement by which Employee
is bound not to disclose any proprietary information including, without
limitation, that of former employers.
Section 11. Governing Law. The validity, interpretation, enforceability,
-------------
and performance of this Agreement shall be governed by and construed in
accordance with the laws of the State of New York, exclusive of its choice of
law rules.
Section 12. Dispute Resolution. Except for disputes relating to or arising
------------------
out of Sections 3, 4, 5 and/or 7 of this Agreement, any dispute relating to or
arising out of Employee's employment at EarthWeb, which cannot be resolved by
negotiation, shall be settled by binding arbitration in accordance with the AAA
Employment Dispute Arbitration Rules and Procedures, as amended by this
Agreement. Employment disputes include, but are not limited to, all claims,
demands or actions under Title VII of the Civil Rights Act of 1964, Civil Rights
Act or 1866, Civil Rights Act of 1991 and all amendments to the aforementioned,
and any other federal, state, or local statute or regulation or common law
regarding employment discrimination in employment or the termination of
employment. 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. In no event shall the
arbitrator have the authority to make any award that provides for punitive or
exemplary damages or attorneys' fees. The arbitrator's decision shall be based
upon the substantive law of the State of New York. The arbitrator's decision
shall follow the plain meaning of the relevant documents, and shall be final and
binding. The award may be confined 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.
This paragraph does not limit EarthWeb's right to seek monetary damages and
injunctive relief in any state or federal court sitting in the New York City in
the State of New York (jurisdictional, venue and inconvenient forum objections
to which are hereby waived by both parties) in the event that a dispute relates
to or arises under Sections 3, 4 or 5 of this Agreement.
Section 13. General. This Agreement supersedes and replaces any existing
-------
agreement entered into by Employee and EarthWeb relating generally to the same
subject matter, and may be modified only in a writing signed by EarthWeb.
Failure to enforce any provision of the Agreement shall not constitute a waiver
of any term herein. This Agreement contains the entire agreement between the
parties with respect to the subject matter herein.
4
<PAGE>
/S/ Irene Math
AGREED TO BY: -------------------------
NAME OF EMPLOYEE
By: /S/ Jack D. Hidary BY: Irene Math
------------------------ ------------------------
Title: CEO Title:
------------------------ ------------------------
Date: November 4, 1996 Date: November 4, 1996
------------------------ ------------------------
5
<PAGE>
SCHEDULE A to Employment Agreement - Irene Math ("Employee")
I. Employee's title: Vice President of Finance
----------------
II. Employee's Job Description:
--------------------------
Employee will report directly to the President/CEO of EarthWeb Inc.
("EarthWeb"). Employee's primary office will be located at EarthWeb's offices in
New York City. Employee's job responsibilities will include the following:
- Supervising EarthWeb's finance/accounting, legal and human resources
departments/teams (with the understanding that legal and human resources may be
transferred to other departments at some time in the future although there are
currently no plans to do so).
- Managing/facilitating EarthWeb's relationships with banks, leasing
companies and vendors.
- Working with EarthWeb's President/CEO and others that he/she designates
to manage EarthWeb's relationship with its investors.
- Working with heads of EarthWeb's business units/dept. to maximize
profitability and control costs.
- Directing EarthWeb's budgeting/financial forecasting and financial
reporting process.
- Advising EarthWeb on mergers, acquisitions and divestitures of its
businesses.
- Overseeing EarthWeb's employee compensation and benefit plans (unless,
as mentioned above, a separate human resources area is created).
III. Employee's Compensation:
-----------------------
In consideration for the services to be rendered hereunder, Employee's
compensation shall consist of an initial base annual salary of $115,000 plus
bonuses in accordance with management bonus programs to be established annually
by EarthWeb. Employee will be entitled to annual increases in base salary based
on EarthWeb's evaluation of her performance and cost of living increases.
IV. Employee's Additional Benefits:
------------------------------
Employee shall have the option of applying the EarthWeb health club
allowance towards a health club of her choice.
V. Change in Control/Termination:
-----------------------------
1. In the event of a "Change of Control" (as defined below) and for a
period of twelve months thereafter, Employee shall be entitled, at her option,
to the severance benefits outlined in Section VI below if she is terminated. A
"Change in Control" shall be defined as:
6
<PAGE>
a. Sale of all or substantially all the assets of the company.
b. Complete merger with or acquisition of another company resulting in
which EarthWeb is not the surviving company.
Additionally, in the event of involuntary termination of Employee by
EarthWeb for reasons other than illegal or other inappropriate conduct,
negligence or failure to perform her duties, Employee shall be entitled to the
severance benefits outlined in Section VI below.
VI. Severance:
---------
Subject to and conditioned upon the terms set forth in Section V above,
Employee shall be entitled to severance benefits as follows:
- if termination is upon completion of less than one (1) year of
employment with EarthWeb, payment of four (4) months salary and benefits; if
termination is upon completion of one (1) year of employment but less than two
(2) years of employment with EarthWeb, payment of five (5) months salary and
benefits; if termination is upon completion of two (2) or more years of
employment with EarthWeb, payment of six (6) months salary and benefits; and
- additional vesting of fifteen percent (15%) of unvested granted stock
options. Pending amendment of the 1996 Stock Option Plan, Employee will be
allowed to retain her options as non-qualified options until their expiration.
Any shares bought with such options will be subject to the Voting Trust
Agreement.
VII. Modifications to Employment Agreement:
-------------------------------------
Section 6. EarthWeb Resources
Add at the beginning of the first sentence of Section 6: Other than
incidental and customary personal use,
Section 12. Dispute Resolution
Add at the end of Section 12: Notwithstanding the foregoing, the
arbitrator shall be entitled to award the successful party its reasonable
attorneys' fees and costs.
7
<PAGE>
EXHIBIT 10.5
EMPLOYMENT AGREEMENT
--------------------
THIS AGREEMENT, dated November 3, 1997 (the "Agreement"), is between
EarthWeb, Inc., a New York corporation ("EarthWeb"), and William Gollan (the
"Employee").
In consideration of Employee's employment with EarthWeb, Employee
hereby agrees to be bound by and comply with the following terms and conditions
of employment:
Section 1. At-Will Employment. Employee acknowledges and agrees that
------------------
his/her employment status is that of an employee-at-will and that Employee's
employment may be terminated by EarthWeb or Employee at any time with or without
cause subject to the conditions outlined in Schedule A.
Section 2. Compensation. In consideration of the services to be
------------
rendered hereunder, Employee shall be paid in accordance with the attached
Schedule A.
Section 3. Employee Inventions and Ideas.
-----------------------------
(a) Employee will disclose to EarthWeb all Inventions (as
herein defined). "Inventions" shall mean all ideas, potential marketing and
sales relationships, inventions, copyrightable expression, research, plans for
products or services, business development strategies, marketing plans, computer
software (including, without limitation, source code), computer program,
original works of authorship, 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 by Employee solely or jointly with others during the term of
Employee's employment with EarthWeb, which refer to, are suggested by, or result
from any work which Employee may do during his/her employment, or from any
information obtained from EarthWeb or any affiliate of EarthWeb, such that said
information is obtained in the performance of duties related to employment at
EarthWeb.
(b) The Inventions shall be the exclusive property of
EarthWeb, and Employee acknowledges that all of said Inventions 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 Employee for EarthWeb, Employee agrees to assign and, upon its creation,
automatically assigns to EarthWeb the ownership of such material, 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 without
additional compensation to Employee. At EarthWeb's expense, Employee will assist
EarthWeb in every proper way to protect the Inventions throughout the world,
including, without limitation, executing in favor of EarthWeb, or any affiliate
of EarthWeb, patent, copyright, and other applications and assignments relating
to the Inventions.
1
<PAGE>
Section 4. Proprietary Information.
-----------------------
(a) Employee will not disclose or use, at any time either
during or after the term of employment, except at the request of EarthWeb or an
affiliate of EarthWeb, any Confidential Information (as herein defined).
"Confidential Information" shall mean all proprietary information, technical
data, trade secrets, and know-how, including, without limitation, research,
product plans, customer lists, markets, software, 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.
(b) Employee 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 Employee in the course of or incident to his employment, including, without
limitation, records and any other materials pertaining to Inventions, belong to
EarthWeb and shall be promptly returned to EarthWeb upon termination of
employment. Following termination, the Employee will not retain any written or
other tangible or electronic material containing any Confidential Information or
information pertaining to any Invention.
Section 5. Limited Agreement Not to Compete.
--------------------------------
(a) While employed by EarthWeb, Employee shall not, directly
or indirectly, as an employee, employer, consultant, agent, principal, partner,
manager, stockholder, officer, director, or in any other individual or
representative capacity, engage or participate in any business that is
competitive with the business of EarthWeb. Notwithstanding the foregoing,
Employee may own less than two percent (2%) of any class of stock or security of
any corporation which competes with EarthWeb listed on a national securities
exchange.
(b) While employed by EarthWeb and for a period of twelve
(12) months after the termination of Employee's employment with EarthWeb,
Employee shall not, directly or indirectly, solicit for employment or employ any
person who was employed by EarthWeb during Employee's employment with EarthWeb.
(c) For a period of twelve (12) months after the termination
of Employee's employment with EarthWeb, Employee shall not, directly or
indirectly:
(1) 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 on a project which directly
competes with a project of EarthWeb. For the purpose of this section, the term
"project" is defined as any formal or informal business activity, goal, product,
service, or function which is implemented or is expected to be implemented. For
the purpose of this section, the term "directly competing" is defined as (a) any
project which in its main capacity functions as (i) an on-line service for
Internet software and site developers, in
2
<PAGE>
which the primary purpose of such on-line service is to provide such developers
with a directory of third party Internet technology and/or developer resources
and/or (ii) an on-line store in which the primary purpose of such is to sell or
distribute third party software or products used for Internet site or software
development; or (b) a project which in its main capacity develops and/or markets
interactive community or conferencing products or services based on technology
written in Java, excluding any person, project or entity whose on-line service
or product merely incorporates a community or conferencing function as a
secondary feature,
(2) call on, solicit, or take away for Employee or for
any other person or entity any person or entity who or which was a customer of
EarthWeb during Employee's employment with EarthWeb, or
(3) 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 with which EarthWeb has a
formal or informal consulting agreement at the time of individual's termination
and through which such activity by individual, would impinge upon or interfere
with in any way, EarthWeb's consulting relationship with said person or entity.
Section 6. EarthWeb Resources. Employee may not use any EarthWeb
------------------
equipment for personal purposes without written permission from EarthWeb.
Employee may not give access to EarthWeb's offices or files to any person not in
the employ of EarthWeb without written permission of EarthWeb.
Section 7. Injunctive Relief. Employee agrees that the remedy at law
-----------------
for any breach of the provisions of Section 3, Section 4 or Section 5 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 8. Severability. In the event any of the provisions of this
------------
Agreement shall be held by a court, arbitrator or other tribunal of competent
jurisdiction to be unenforceable or invalid, that part will be amended to
achieve as nearly as possible the same effect and the other provisions of this
Agreement shall remain in full force and effect.
Section 9. Survival. In the event of termination of this Agreement,
--------
the provisions of Sections 1, 3, 4, 5, 6, 7, 8, 9, 10, 11, 12, 13 and 14 shall
survive.
Section 10. Representations and Warranties. Employee represents and
------------------------------
warrants that Employee is not under any obligations to any third party which
could interfere with the Employee's performance under this Agreement, and that
Employee's performance of his/her obligations to EarthWeb during the term of
his/her employment with EarthWeb will not breach any agreement by which Employee
is bound not to disclose any proprietary information including, without
limitation, that of former employers.
Section 11. Governing Law. The validity, interpretation,
-------------
enforceability, and performance of this Agreement shall be governed by and
construed in accordance with the laws of the State of New York, exclusive of its
choice of law rules.
3
<PAGE>
Section 12. Dispute Resolution. Except for disputes relating to or
------------------
arising out of Sections 3, 4, 5 and/or 7 of this Agreement, any dispute relating
to or arising out of Employee's employment at EarthWeb, which cannot be resolved
by negotiation, shall be settled by binding arbitration in accordance with the
AAA Employment Dispute Arbitration Rules and Procedures, as amended by this
Agreement. Employment disputes include, but are not limited to, all claims,
demands or actions under Title VII of the Civil Rights Act of 1964, Civil Rights
Act or 1866, Civil Rights Act of 1991 and all amendments to the aforementioned,
and any other federal, state, or local statute or regulation or common law
regarding employment discrimination in employment or the termination of
employment. 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. In no event shall the
arbitrator have the authority to make any award that provides for punitive or
exemplary damages or attorneys' fees. The arbitrator's decision shall be based
upon the substantive law of the State of New York. 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.
This paragraph does not limit EarthWeb's right to seek monetary damages and
injunctive relief in any state or federal court sitting in the New York City in
the State of New York Jurisdictional, venue and inconvenient forum objections to
which are hereby waived by both parties) in the event that a dispute relates to
or arises under Sections 3, 4 or 5 of this Agreement.
Section 13. Modification. EarthWeb reserves the right to modify the
------------
terms of this Agreement on a quarterly basis, subject to notice and
acknowledgment by the Employee of such modifications. Notice of any such
modifications shall be presented to the Employee for acknowledgment and shall be
attached as Schedule B.
Section 14. General. This Agreement supersedes and replaces any
-------
existing agreement entered into by Employee and EarthWeb relating generally to
the same subject matter, and may be modified only in a writing signed by
EarthWeb. Failure to enforce any provision of the Agreement shall not constitute
a waiver of any term herein. This Agreement contains the entire agreement
between the parties with respect to the subject matter herein.
AGREED TO BY: /S/ WILLIAM GOLLAN
-----------------------------------
NAME OF EMPLOYEE
By: /S/ JACK D. HIDARY By: WILLIAM GOLLAN
------------------------------- -----------------------------
Title: CEO / PRESIDENT Title: SENIOR VICE PRESIDENT
------------------------------ ---------------------------
Date: 11/3/97 Date: 11/3/97
------------------------------- ----------------------------
4
<PAGE>
SCHEDULE A
1. Definitions.
------------
The Developer.com division: The Developer.com division is the operating
- --------------------------
business unit for Developer.com. This unit serves the developer community though
online and offline resources which at this time include, but are not limited to:
on ' line editorial content, an online store, an offline book series,
international versions of the Web site, push channel versions, JARS and Gamelan.
The various components of the7DFeveloper.com business may change over time.
Milestone A: The Developer.com division achieves at least sixty percent (60%)
- -----------
of projected monthly revenues (as attached to this schedule through June 30,
1998 and as provided below for beyond that date) for 3 consecutive months. If
the actual total revenue achieved for a 3 month period is sixty percent (60%) or
more of the revenue projected for that period, Milestone A shall be deemed to
have been met so long as in any one month no less than fifty percent (50%) of
the revenue projections for that month were achieved.
Milestone B: The Developer.com division achieves at least ninety percent (90%)
- -----------
of projected monthly revenues (as attached to this schedule through June 30,
1998 and as provided below for beyond that date) for 3 consecutive months. If
the actual total revenue achieved for a 3 month period is ninety percent (90%)
or more of the revenue projected for that period, Milestone B shall be deemed to
have been met so long as in any one month no less than seventy percent (70%) of
the revenue projections for that month were achieved.
Milestone C: Developer.com achieves profitability for at least 3 consecutive
- -----------
months. In calculating profitability, all expenses including overhead shall be
included with the exception of capital expenditures.
2. Compensation.
------------
(a) Annual Compensation.
--------------------
EarthWeb shall pay to Employee for the services to be rendered hereunder a base
salary at an annual rate of One Hundred and Thirty-Seven Thousand Five Hundred
Dollars (US $137,500) This salary shall increase as follows upon certain
Milestones being achieved:
Upon reaching Milestone A: increase to US $145,000
Upon reaching Milestone B: increase to US $160,000
Upon reaching Milestone C: an increase of US$25,000 in annual pay rate if
Employee's salary is below US$150,000 at the time that Milestone C is
reached; an
increase of US$15,000 in annual pay rate if Employee's salary is at or above
US$150,000 at the time that Milestone C is reached. If Milestone B is achieved
at the same time as Milestone C, the increase of US$15,000 shall apply.
5
<PAGE>
The salary increase shall be taken into account in determining whether a
particular Milestone has been reached. For example, Milestone A has not been
reached if the definition of Milestone A is no longer satisfied upon Employee's
salary increase being taken into account.
If a Milestone is reached but the performance of the Developer.com division
subsequently reverts to pre-Milestone performance, EarthWeb reserves the right
to review and adjust Employee's salary going forward so that it is at the
appropriate pre-Milestone level.
Employee's salary shall be payable in periodic installments in accordance with
EarthWeb's usual practice. Salary increases shall take effect within two pay
periods of a new Milestone having been reached and EarthWeb's Finance department
having been notified in writing by Employee that the Milestone has been reached.
Salary increases shall not be retroactive.
(b) Bonus Compensation.
-------------------
Employee will be eligible to receive bonus compensation ("Bonus") upon achieving
to EarthWeb's satisfaction certain performance goals set by EarthWeb. Any bonus
compensation shall be earned on a quarterly basis but paid to Employee on a
semi-annual basis.
November 1997 and December 1997 Plan
For November and December of 1997 only, Employee shall receive a total Bonus of
US$4,000 to be paid out to Employee in the January 15 payroll if each of the
following goals are accomplished to EarthWeb's satisfaction by December 31,
1997:
1. Develop a detailed budget and plan for 1998.
2. Ensure that a viable ad management system is in place and working.
3. Produce for each staff member on Developer.com a job description and goal
statement.
4. Roll out new site GUI
5. Implement ZD reciprocal edit agreement
6. List rental process and contracts completed
7. Hire at least one additional ad/private label sales person, to be approved
by EarthWeb, for site (or have one transferred from another EarthWeb
division with EarthWeb's approval).
A pro-rated portion of the Bonus shall be paid out if at least four of the above
goals have been met to EarthWeb's satisfaction.
First and Second Quarter 1998 Plan
For the first and second quarters of 1998 only, Employee will be eligible for a
Bonus of US$6,250 if seventy-five percent (75%) of the revenue goals (as
attached to this schedule) for Developer.com division are met for those
quarters. Employee will be eligible for an additional Bonus of US$5,000 per
quarter if the actual revenues of the Developer.com division for the first and
second quarters of 1998 are equal or greater than the projected revenue figures
for those quarters.
6
<PAGE>
Third and Fourth Quarter 1998 Plan
For the third and fourth quarters of 1998 only, Employee will be eligible for a
Bonus of US$6,250 per quarter if one hundred percent (100%) of the revenue goals
for the Developer.com division are met for those quarters. If such revenue goals
are not met for those quarters, Employee will remain eligible for a pro-rated
share of the Bonus based on revenues for those quarters so long as not less than
eighty percent (80%) of revenue goals for those quarters were met. Employee will
be eligible for an additional Bonus of US$5,000 per quarter if quarterly
revenues exceed by twenty-five percent (25%) projected revenue's for that
quarter.
Within thirty days following execution of this Agreement, EarthWeb shall
transmit to Employee the quarterly revenue goals for the first and second
quarters of 1998 as well as for November and December of 1997. Thereafter,
EarthWeb will provide Employee with the revenue goals for subsequent quarters as
such subsequent quarters approach and following discussions with Employee
(although revenue goals are to be in EarthWeb's sole discretion). In the event
that EarthWeb has failed to provide Employee with quarterly revenue goals for an
approaching quarter by the Monday before such quarter is to begin, Employee
agrees to request in writing to the CEO of EarthWeb that such goals be
established.
(c) Stock Options.
--------------
Employee shall receive an initial grant of an option to purchase 24,000 shares
of EarthWeb common stock, which option will be subject to the terms and
conditions set out in the Stock Option plan and relevant granting agreements.
An additional grant of an option to purchase 6,000 shares of EarthWeb common
stock (representing .1946 percent of the company's outstanding common stock on a
converted basis) will occur upon closing and funding of a strategic investment
deal for Developer.com, resulting in net proceeds of not less than Three Million
Five Hundred Thousand Dollars (US$3,500,000) in cash to EarthWeb and/or its
subentities by March 31, 1998, provided that Employee is determined to be the
lead negotiator and deal maker for such transaction, such determination to be
made by EarthWeb in its sole discretion.
If Developer.com is spun out of EarthWeb within and Developer.com adopts its own
stock option plan, Employee agrees that, upon such adoption, Employee's options
hereunder shall be exchanged for options in Developer.com having the terms and
conditions to be set out by the Developer.com stock option plan and relevant
granting agreements.
All grants of options are contingent upon entering into an options agreement
with EarthWeb (or Developer.com if there is a spin-out).
(d) Severance.
----------
In the event that EarthWeb terminates Employee without cause, EarthWeb shall (i)
pay Employee all compensation, benefits, and vacation, personal and sick days
accrued through the date of such termination; and (ii) accelerate Employee's
stock options in accordance with the
7
<PAGE>
terms of the Stock Option plan and relevant granting agreements. In addition, in
the event that EarthWeb terminates Employee without cause and Employee has been
employed by EarthWeb for less than eighteen months, EarthWeb shall pay Employee
for six months at the rate at which he is being paid at the time plus base
bonus. If Employee at the time of termination without cause has been employed by
EarthWeb for eighteen months or more, but less than thirty months, EarthWeb
shall pay Employee for nine months at the rate at which he is being paid at the
time plus base bonus. If Employee at the time of termination without cause has
been employed by EarthWeb for thirty months or more, Company shall pay Employee
for twelve months at the rate at which he is being paid at the time plus base
bonus. All such payments shall be made in equal installments on a twice-monthly
basis.
Termination shall be without cause if termination is for reasons other than
criminal or other inappropriate conduct, negligence or Employee's failure to
perform his responsibilities to EarthWeb's satisfaction with regard to the
operations, financing or other relevant aspects of Developer.com. If Employee
resigns, it shall be considered termination for cause and no severance payments
shall be made, provided that if (i) Employee resigns within thirty days of a
President/COO being installed to supervise Employee in a new entity that is
dedicated solely to Developer.com and (ii) someone other than Jack D. Hidary,
Murray Hidary or Nova Spivack is named as the President/COO, Employee will be
eligible to receive severance payments in accordance with the terms and
conditions of this subsection d.
(e) Title
Employee's title shall be Senior Vice-President of Online Services. Employee
shall be responsible for profit/loss, operations, financing and other relevant
aspects of Developer.com. Employee shall establish plans and budgets for the
project in coordination with senior management and shall submit such plans to
the President/CEO for approval. Employee shall prepare reports requested by
management and make presentations at the request of the President/CEO to the
Board of Directors, the financial community and the public in coordination with
senior management. Employee shall report to the President/CEO. Employee shall
also assist in other general management issues and projects as requested by the
President/CEO.
(f) Signing bonus
A one-time signing bonus of US$42,500 to be paid within thirty days of signing
of this contract or at Employee's discretion, in the first quarter of 1998. If
Employee is terminated with cause or resigns within the first year of
employment, this bonus is to be returned on a pro-rated basis.
(g) Apartment
Company shall continue to pay for Employee's New York apartment at a cost of
US$2,500 per month until a) June 30, 1998 b) the sale of Employee's New
Hampshire house, whichever is earlier. Employee shall be responsible for all
finder's fees, moving and other costs associated with such apartment.
(h) Consulting Agreement
8
<PAGE>
The parties agree that, upon execution of this Agreement, the previously-
executed Consulting Agreement between the parties shall terminate, provided that
(i) any provisions of the Consulting Agreement which, under the terms of the
Consulting Agreement, survive termination of the Consulting Agreement shall so
survive such termination and (ii) the Consulting Agreement's grant to William
Gollan of an option to purchase 500 shares of EarthWeb common stock shall
survive, subject to the terms and conditions set out in the Consulting
Agreement, the Stock Option plan and relevant granting agreements.
(i) Deadline
The terms set forth in this Schedule A are contingent upon the parties'
execution of this Agreement by Monday, November 3, 1997.
9
<PAGE>
EXHIBIT 10.7
INTERCOMPANY SERVICES AGREEMENT
dated as October 25, 1996, among EARTHWEB INC., a New York corporation (the
"Company"), GLOBAL NETWORK PARTNERS LLC, a New York limited liability company
-------
("GNP"), EARTHWEB LLC, a New York limited liability company (the "Parent"), and
---
the FOUNDERS (as hereinafter defined).
Each of Jack D. Hidary, Murray Hidary and Nova Spivack (each, a "Founder," and
-------
all of them collectively, the "Founders") and GNP are parties to an Employment
--------
Agreement dated as of January 1, 1995 (each, an "Employment Agreement," and all
--------------------
of them collectively, the "Employment Agreements"). GNP was formerly known as
---------------------
"EarthWeb LLC" and is the surviving entity of a merger with EarthWeb Ltd., a
Maryland corporation that was the original signatory to each Employment
Agreement. The Founders are all members of GNP.
Pursuant to an Intercompany Services and Loan Agreement dated as of September 1,
1995 (the "Original Agreement"), between GNP and EarthWeb LLC, a New York
------------------
limited liability company (the "Parent"), among other things, GNP agreed to
------
provide the services of the Founders under the Employment Agreements to the
Parent and the Parent agreed to assume the obligations of GNP under the
Employment Agreements.
Pursuant to the Bill of Sale and Assignment and Assumption Agreement dated the
date hereof between the Parent and the Company, (i) the Parent is transferring
to the Company substantially all of the Parent's assets, and the Company is
assuming from the Parent substantially all of its liabilities, and in connection
therewith the Company is issuing to the Parent 1,500,000 shares of common stock,
$.01 par value, of the Company, and (ii) the Company is issuing shares of its
convertible preferred stock, $.01 par value, to the Investor (the "Investor")
--------
named in the Stock Purchase Agreement dated the date hereof (the "Stock Purchase
--------------
Agreement") between the Company, the Parent and such Investor. This Agreement
- ---------
is being entered into in part pursuant to the Stock Purchase Agreement.
The parties desire to terminate the Original Agreement and to enter into this
Agreement to take the place of the Original Agreement, and the Company wishes to
employ each of the Founders, and each of the Founders wishes to enter into the
employ of the Company, on the terms and conditions contained in this Agreement
and in the Employment Agreement between GNP and such Founder, as modified by
this Agreement.
ACCORDINGLY, in consideration of the foregoing and the representations,
warranties, covenants and agreements contained herein, the sufficiency of which
is hereby acknowledged, and intending to be legally bound hereby, the parties
agree as follows:
Section 1. Affirmation of Employment Relationship.
--------------------------------------
GNP hereby reaffirms its employment of the Founders under their Employment
Agreements. Each of the Founders agrees to serve as an officer and employee of
the Company as if the Company were the "Company" under such Founder's Employment
Agreement, subject to the additional terms and conditions contained in this
Agreement. The Company hereby assumes and agrees to perform the obligations of
GNP under the Employment Agreements, and the parties acknowledge and agree that
the Company shall have all of the rights and benefits of GNP under the
Employment Agreements (in each case in GNP's capacity as the employer under the
Employment Agreements, as opposed to its capacity as the issuer of the interests
in GNP and as the holder of or obligor with respect to any option or obligation
to purchase any such interests from a Founder thereunder), in each case subject
to the terms and conditions of the Employment
<PAGE>
Agreements and the additional terms and conditions contained in this Agreement.
Without in any way limiting the foregoing, GNP shall not have any right to
terminate for any or no reason any Founder's employment with the Company (as
opposed to employment with GNP) under such Founder's Employment Agreement (as
modified herein), such right being expressly reserved to the Company.
Section 2. Amended and Restated Employment Agreements.
------------------------------------------
Each of the Founders, GNP and the Company will, if requested by the Investor,
enter into an Amended and Restated Employment Agreement and, if necessary or
applicable, an amendment to the Amended and Restated Operating Agreement of GNP
(together with all schedules, exhibits, annexes, and riders referred to therein,
the "GNP Agreement"), in each case in form and substance reasonably acceptable
-------------
to the Investor and to all parties to each such Amended and Restated Employment
Agreement and any such amendment to the GNP Operating Agreement.
Section 3. Salary.
------
(a) Anything contained herein or in the Employment Agreement of
Jack D. Hidary to the contrary notwithstanding, the Company shall have no
obligation to such Founder under Section 4.1 of such Founder's Employment
Agreement, and in lieu thereof the Company (or one or more of its affiliates)
shall pay to such Founder, in consideration of the services rendered by such
Founder to the Company during the Term of such Founder's employment with the
Company, an annual base salary of not less than $160,000, payable in arrears in
such installments as is the Company's practice from time to time with respect to
the payment of salaries to its executive officers generally, but in any event
not less often than semi-monthly. Effective as of each Adjustment Date,
commencing with January 1, 1998, such base salary shall be adjusted to an amount
equal to the original base salary stated above plus the applicable Adjustment
----
Amount (as defined below). If the calculation of any Adjustment Amount results
in a negative number, such Adjustment Amount shall be deemed to be zero.
(b) Anything contained herein or in the Employment Agreement of
Murray Hidary to the contrary notwithstanding, the Company shall have no
obligation to such Founder under Section 4.1 of such Founder's Employment
Agreement, and in lieu thereof the Company (or one or more of its affiliates)
shall pay to such Founder, in consideration of the services rendered by such
Founder to the Company during the Term of such Founder's employment with the
Company, an annual base salary of not less than $130,000, payable in arrears in
such installments as is the Company's practice from time to time with respect to
the payment of salaries to its executive officers generally, but in any event
not less often than semi-monthly. Effective as of each Adjustment Date,
commencing with January 1, 1998, such base salary shall be adjusted to an amount
equal to the original base salary stated above plus the applicable Adjustment
----
Amount (as defined below). If the calculation of any Adjustment Amount
- -2-
<PAGE>
results in a negative number, such Adjustment Amount shall be deemed to be zero.
(c) Anything contained herein or in the Employment Agreement of
Nova Spivack to the contrary notwithstanding, the Company shall have no
obligation to such Founder under Section 4.1 of such Founder's Employment
Agreement, and in lieu thereof the Company (or one or more of its affiliates)
shall pay to such Founder, in consideration of the services rendered by such
Founder to the Company during the Term of such Founder's employment with the
Company, an annual base salary of not less than $130,000, payable in arrears in
such installments as is the Company's practice from time to time with respect to
the payment of salaries to its executive officers generally, but in any event
not less often than semi-monthly. Effective as of each Adjustment Date,
commencing with January 1, 1998, such base salary shall be adjusted to an amount
equal to the original base salary stated above plus the applicable Adjustment
----
Amount (as defined below). If the calculation of any Adjustment Amount results
in a negative number, such Adjustment Amount shall be deemed to be zero.
(d) As used herein with respect to each Founder, (i) "Adjustment
----------
Date" means each January 1 occurring during the Term of such Founder's
- ----
employment with the Company, commencing with January 1, 1998; (ii) "Adjustment
----------
Amount" means, with respect to each Adjustment Date, the product of (x) the
- ------
original base salary amount stated above for such Founder (i.e. $160,000 or
$130,000) multiplied by (y) a fraction, the numerator of which is the Adjusted
Index minus the Base Index and the denominator of which is the Base Index; (iii)
"Adjusted Index" means, with respect to each Adjustment Date, the Index for the
--------------
month of September immediately preceding such Adjustment Date; (iv) "Base Index"
----------
means the Index for the month of September 1996; and (v) "Index" means the
-----
Consumer Price Index for all urban consumers (1982-1984 = 100) covering the New
York City metropolitan area, as published by the U.S. Department of Labor,
Bureau of Labor Statistics.
(e) In addition to the salary stated above, each Founder shall
also be entitled to receive such bonuses as may from time to time be awarded to
such Founder by the Board of Directors of the Company in its sole discretion.
Section 4. Termination Without Cause.
-------------------------
Anything contained in each of the Employment Agreements with Jack D. Hidary and
Murray Hidary or in the GNP Agreement to the contrary notwithstanding, the
Company may at any time terminate such Founder's employment with the Company
under such Founder's Employment Agreement without cause by giving such Founder
reasonable prior written notice thereof (but not less than 30 days prior to the
effective date of such termination, subject however to such requirements and
safeguards regarding the Founder's continued employment with the Company during
such notice period as the Company may determine), which termination shall take
effect at
- -3-
<PAGE>
the time specified in such notice (which shall not in any event be prior to the
date on which such notice is given to such Founder). A termination pursuant to
this Section 4 is called a "Termination Without Cause" in this Agreement. In the
-------------------------
event of such Founder's Termination Without Cause, neither such Founder nor his
beneficiaries or estate shall have any rights or claims against the Company
except:
to receive all accrued and unpaid Salary earned by such Founder pursuant to
Section 3 of this Agreement through the effective date of such termination;
to receive all accrued and unpaid benefits to which the Founder is entitled
pursuant to Section 4.2 of such Founder's Employment Agreement through the
effective date of such termination and to receive, during any "COBRA"
continuation period mandated by law during which the terminated Founder (x) is
not eligible for coverage under another group health insurance plan and (y)
continues coverage during such continuation period under the Company's group
health insurance plan, an amount equal to the premium payments that the Company
would have otherwise paid under such group health insurance plan to cover such
Founder had such Founder not been terminated;
to receive reimbursement for all amounts to which such Founder is entitled under
Sections 2.6 and 2.7 of the Employment Agreement; and
subject to the continued compliance by such Founder with the provisions of
Sections 11, 12, and 13 of such Founder's Employment Agreement, to continue to
receive the salary in effect pursuant to Section 3 hereof on the effective date
of such termination for a period of two years commencing on the effective date
of such termination and continuing until (but excluding) the second anniversary
thereof, paid to such Founder in such installments as is the Company's practice
from time to time during such period with respect to the payment of salaries and
wages to its executive officers generally, but in any event not less than often
than monthly; provided, however, that, subject to the continued compliance by
-------- -------
such Founder with the provisions of Sections 11, 12, and 13 of such Founder's
Employment Agreement, in the event such Founder shall be employed full-time by
another person or entity during such two-year period, such Founder shall have
the option of receiving the unpaid balance of the aggregate amount to which he
is entitled hereunder in a single lump sum, which shall be due and payable to
such Founder within 15 days after the Company's receipt of written certification
from such Founder as to such other employment.
Section 5. Purchase Options Upon Termination for Cause.
-------------------------------------------
(a) Anything contained in each of the Employment Agreements with
Jack D. Hidary and Murray Hidary or in the GNP Agreement to the contrary
notwithstanding, upon the termination of such Founder's employment with the
Company "for cause" (as defined in the Employment Agreement of such Founder),
the Other Members (as defined in Section 6 below), GNP, the Investor and the
Company shall each have the option to purchase up to (x) all of the terminated
Founder's interest in GNP if such termination "for cause" was due to a felony
conviction, or (y) 25% of such terminated Founder's interest if such termination
"for cause" was due to any "for cause" reason other than a felony conviction, in
each case subject to, and in accordance with, the following provisions:
- -4-
<PAGE>
First, the Other Members, or any of them, and GNP shall have their respective
options, if any, to purchase the terminated Founder's interest in GNP (or
portion thereof, as the case may be) in accordance with the terms and conditions
of their respective existing options under the applicable Employment Agreement
and the GNP Agreement, but such options must be exercised within one year after
the effective date of such termination.
Second, in the event the Other Members and GNP do not purchase all of the
terminated Founder's interest in GNP upon the exercise of their respective
options during such one year period, then Investor shall have the option to
purchase up to all of the terminated Founder's interest in GNP that is not so
purchased by the Other Members and GNP pursuant to subsection (i) above, which
option shall be exercisable by delivering written notice of such exercise to the
terminated Founder not later than 30 days after the first anniversary of the
effective date of such termination.
Third, in the event the Other Members, GNP and the Investor do not purchase all
of the terminated Founder's interest in GNP upon the exercise of their
respective options pursuant to subsections (i) and (ii) above, then the Company
shall have the option to purchase up to all of the terminated Founder's interest
in GNP that is not so purchased by the Other Members, GNP, and the Investor
pursuant to subsections (i) and (ii) above, which option shall be exercisable by
delivering written notice of such exercise to the terminated Founder not later
than 60 days after the first anniversary of the effective date of such
termination.
In the event that the Other Members, GNP, the Investor and the Company do not
purchase all of the terminated Founder's interest in GNP pursuant to the
exercise of their respective options under subsections (i), (ii) and (iii)
above, then the Other Members and/or GNP, as the case may be, shall be entitled
their respective options under the applicable Employment Agreement and/or the
GNP Agreement in accordance with the terms and conditions thereof.
The closing of the purchase of an interest in GNP from a terminated Founder
pursuant to the exercise of an option under subsections (i), (ii) and/or (iii)
above shall take place at such time and place in New York City as shall be
mutually agreed upon among the parties to such transaction. The purchase price
of the terminated Founder's interest in GNP purchased pursuant to the exercise
of an option under subsections (i), (ii) and/or (iii) above shall be the "For
---
Cause Buyout Price" specified in the Employment Agreement with such terminated
- ------------------
Founder and shall be payable in monthly installments equal to 1/12th of 10% of
GNP's allocable share of the Company's net income before taxes calculated in
accordance with generally accepted accounting principles (GAAP) consistently
followed as determined by the Company's firm of independent certified public
accountants. GNP's allocable share of net income shall be estimated based upon
the internally prepared quarterly statements adjusted within thirty days
following receipt of the Company's annual audited financial statements. In the
event of a Sale of the Company (as defined below), any unpaid balance of the For
Cause Buyout Price shall be paid to the terminated Founder within five (5)
business days following the closing of such transaction. All of the terminated
Founder's interest in GNP that is purchased pursuant to the exercise of one or
more of the options under subsections (i), (ii) and/or (iii) above shall be
deemed transferred on the date the first installment of the For Cause Buyout
Price is paid to him. As used herein, "Sale of the Company" means any sale of
-------------------
the Company to one or more persons or entities who or which are not affiliates
of the Company in a single transaction or series of related transactions,
whether by way of (A) the sale or other disposition of all or substantially all
of the assets of the Company,
- -5-
<PAGE>
(B) the merger or consolidation of the Company with or into another person or
entity or (C) the sale or other transfer of all or substantially all of the
capital stock of the Company.
(b) For the avoidance of doubt, the options contained in this
Section 5 shall not apply if the terminated Founder's employment is terminated
as a result of his voluntary resignation, in which case the options arising
under Section 6 shall apply.
Section 6. Other Purchase Options.
----------------------
Anything contained in the Employment Agreement of a Founder or in the GNP
Agreement to the contrary notwithstanding, in the event that, upon or following
the termination of employment with the Company of a Founder (the "Terminated
----------
Founder") (x) for any reason other than "cause" in the case of Jack D. Hidary or
- -------
Murray Hidary (which is dealt with in Section 5 above), or (y) for any reason
including "cause" in the case of Nova Spivack, one or more of the members of GNP
(collectively, the "Other Members") and/or GNP has an option, whether arising
-------------
under the Terminated Founder's Employment Agreement, the GNP Agreement or
otherwise (all such options collectively, the "Original Options"), to purchase
----------------
all or any portion of the interest in GNP (the "Offered Interest") held by the
----------------
Terminated Founder, then, notwithstanding any of the terms and conditions of the
Original Options to the contrary:
first, such Other Members, or any of them, and/or GNP shall have their
- -----
respective options (A) for one year from the effective date of such termination
if such termination is not due to disability, or (B) for one year from the first
anniversary of the effective date of such termination if such termination is due
to disability, to purchase the Offered Interest, at the same price and on the
same terms and conditions as those applicable to the Original Option held by
such Other Members (except the period for exercise thereof);
second, if such Other Members and GNP do not exercise their option under the
- ------
preceding clause (i) in full (whether by virtue of a partial exercise or by
virtue of the expiration of the applicable option periods referred to in the
preceding clause (i)), then the Investor shall have a 30-day option to purchase
that portion of the Offered Interest not purchased by such Other Members and GNP
pursuant to the exercise of their respective options under clauses (i) above, at
the same price and on the same terms and conditions as those applicable to the
Original Options (other than the period for exercise thereof);
third, if such Other Members, GNP and the Investor do not exercise their
- -----
respective options under the preceding clauses (i) and (ii) in full (whether by
virtue of a partial exercise or by virtue of the expiration of the applicable
option periods referred to in the preceding clauses (i) and (ii)), then the
Company shall have a 30-day option to purchase that portion of the Offered
Interest not purchased by such Other Members, GNP and the Investor pursuant to
the exercise of their respective options under clauses (i) and (ii) above, at
the same price and on the same terms and conditions as those applicable to the
Original Options (other than the periods for exercise thereof); and
last, if none of such Other Members, GNP, the Investor and the Company exercise
- ----
their respective options under the preceding clauses (i), (ii) and (iii) in full
(whether by virtue of a partial exercise or by virtue of the expiration of the
applicable option periods referred to in the preceding clauses (i), (ii) and
(iii)), then such Other Members and/or GNP shall be entitled to exercise their
respective Original Options to purchase that portion of the Offered Interest not
- -6-
<PAGE>
previously purchased by such Other Members, GNP, the Investor and the Company
pursuant to the exercise of their respective options under clauses (i), (ii) and
(iii) above, at the price and on the terms and conditions applicable to such
Original Options.
Section 7. Purchase Options Generally; Funding; Etc.
-----------------------------------------
(a) In the event that the Company exercises its option to buy any
Founder's interest in GNP directly, then proper provisions shall be made at the
closing of such purchase for (i) GNP's simultaneous surrender to the Parent of
interests in the Parent held by GNP that represent the same indirect equity
interest in the Company as those being repurchased from such Founder and (ii)
the Parent's simultaneous surrender to the Company of that number of shares of
common stock of the Company held by the Parent that represent the same equity
interest in the Company as those being repurchased from the terminated Founder.
In the event that the Investor exercises its option to purchase any Founder's
interest in GNP directly, proper provisions shall be made at the closing of such
purchase for the Investor's simultaneous conversion or exchange of such interest
into that number of shares of common stock of the Company represented by such
interest.
(b) Upon any sale by a Founder of an interest in GNP to the Other
Members, GNP, the Company or the Investor hereunder, such Founder shall
represent and warrant to the purchaser that such Founder has good title to such
interest and the transfer of title to, and the delivery of, such interest at the
closing of such sale shall be made by such Founder free and clear of all liens
encumbrances and other adverse claims.
(c) For the avoidance of doubt, the purchase options arising under
this Agreement shall not apply to a Founder's transferees of interests in GNP so
long as such Founder does not retain any beneficial ownership interest in such
transferred interests.
Section 8. Buyout Price Determination.
--------------------------
(a) Anything contained in each of the Employment Agreements to the
contrary notwithstanding, if the Company or the Investor is purchasing an
interest in GNP hereunder and the Company or the Investor objects to the "Agreed
------
Value" (as defined in the applicable Employment Agreement), then the Other
- -----
Members, the terminated Founder (or his Representative), and if applicable the
Company and the Investor, shall attempt to reach agreement as to the Agreed
Value within 30 days following the Calculation Date (as defined in the
applicable Employment Agreement).
(b) If the applicable parties fail to agree to an Agreed Value
within thirty (30) days following the Calculation Date, then within five (5)
business days following the end of such period, such parties shall submit to one
another their respective values for a 1% Membership Interest in GNP (the
- -7-
<PAGE>
"Estimated Value"). Thereafter, such parties shall each within ten (10) business
---------------
days select a qualified business appraiser and forward the name to the other
party or parties. Such appraisers shall select another appraiser (the
"Appraiser") not affiliated with any of those selected by such parties. To
---------
secure payment of the Appraiser's fee, each of such parties shall deposit with
counsel to the Company 50% of the fee quoted (or 33 1/3% if the Company is a
party to such procedure; or 25% if both the Company and the Investor are
parties). The Appraiser shall evaluate GNP and the value of a 1% Membership
Interest therein, and shall certify such value to such parties in writing (the
"Appraised Value"). The Appraised Value in the absence of gross error or
---------------
misconduct shall be the Buyout Price and shall be final and binding on such
parties. If such terminated Founder has been terminated for cause, such Founder
shall pay 1/2 of the appraisal fees, but if such Founder has been terminated
without cause then the Company shall pay said 1/2. The balance of such fees
shall be paid 25% by the party whose Estimated Value is closest to the Appraised
Value and 75% by the other party or parties per capita.
Section 9. Remedies.
--------
Each of the parties acknowledges that the breach or violation or threatened
breach or violation of any term or provision hereof by such party would cause
irreparable injury to the other parties hereto and the Investor and that the
remedy at law for any breach or violation or threatened breach or violation
would be inadequate. Accordingly, each party hereto agrees that such other
parties, in addition to any remedy at law, may seek a temporary and permanent
injunction or other equitable relief without the necessity of proving actual
damages. In addition, the invalidity of any of the foregoing limitations when
applied to particular circumstances shall not affect the validity of such
limitations under any other dissimilar circumstances.
Section 10. Miscellaneous.
-------------
(a) Waivers. Neither the failure nor any delay on the part of
-------
either party to exercise any right, remedy, power or privilege under this
Agreement shall operate as a waiver thereof (unless a specific time period is
expressly stated herein), nor shall any single or partial exercise of any right,
remedy, power or privilege preclude any other or further exercise of the same or
of any other right, remedy, power or privilege, nor shall any waiver of any
right, remedy, power or privilege with respect to any occurrence be construed as
a waiver of such right, remedy, power or privilege with respect to any other
occurrence.
(b) Controlling Law. All questions concerning the construction,
---------------
interpretation and validity of this Agreement shall be governed by and construed
and enforced in accordance with the domestic laws of the State of New York,
without giving effect to any choice or conflict of law provision or rule
(whether in the State of New York or any other jurisdiction) that would cause
the application of the laws of any jurisdiction other than the State of New
York. In furtherance of the foregoing, the internal law of the State of New York
will control the interpretation and
- -8-
<PAGE>
construction of this Agreement, even if under such jurisdiction's choice of law
or conflict of law analysis, the substantive law of some other jurisdiction
would ordinarily apply.
(c) Notices. All notices, requests, consents and other
-------
communications hereunder to any party shall be deemed to be sufficient if
contained in a written instrument and shall be deemed to have been duly given
when delivered in person or entity, by telex, telegram or telecopy, by overnight
courier, or by first class registered or certified mail, postage prepaid,
addressed to such party at the address set forth below or such other address as
may hereafter be designated in writing by the addressee to the sender:
if to a Founder, GNP, the Parent or the Company, to him or it at:
3 Park Avenue, 33rd Floor
New York, New York 10016
Attention: President
(or Founder, as applicable)
Telephone: (212) 725-6550
Telecopy: (212) 725-6559
if to the Investor, to it at its address in the Stock Purchase Agreement; or
or to such other address as a party hereto may designate in writing to the other
parties in accordance herewith. All such notices, requests, consents and other
communications shall be deemed to have been delivered (i) in the case of
personal delivery, telex, telegram or telecopy, on the date of such delivery,
(ii) in the case of overnight courier, on the next business day, and (iii) in
the case of mailing, on the third business day following such mailing.
(d) Binding Nature of Agreement. This Agreement shall be binding
---------------------------
upon and inure to the benefit of the parties hereto and their respective
permitted successors, assigns, legal representatives, executors, administrators
and heirs. Nothing in this Agreement, express or implied, is intended to confer
upon any party other than the parties hereto and their respective permitted
successors, assigns, legal representatives, executors, administrators and heirs
any rights, remedies, obligations, or liabilities under or by reason of this
Agreement, except as expressly provided in this Agreement. The Investor shall be
an express third party beneficiary of the representations, warranties, covenants
and agreements of the parties contained herein, subject in each case to the
terms and conditions thereof.
(e) Execution in Counterparts. This Agreement may be executed in
-------------------------
any number of counterparts, each of which shall be deemed to be an original as
against any party whose signature appears thereon, and all of which shall
together constitute one and the same instrument. This Agreement shall become
binding when one or more counterparts hereof, individually or taken
- -9-
<PAGE>
together, shall bear the signatures of all of the parties reflected hereon as
the signatories.
(f) Provisions Separable. It is the desire and intent of the
--------------------
parties hereto that the provisions of this Agreement be enforced to the fullest
extent permissible under the laws and public policies applied in each
jurisdiction in which enforcement is sought. Accordingly, if any particular
provision of this Agreement shall be adjudicated by a court of competent
jurisdiction to be invalid, prohibited or unenforceable for any reason, such
provision, as to such jurisdiction, shall be ineffective, without invalidating
the remaining provisions of this Agreement or affecting the validity or
enforceability of this Agreement or affecting the validity or enforceability of
such provision in any other jurisdiction. Notwithstanding the foregoing, if such
provision could be more narrowly drawn so as not to be invalid, prohibited or
unenforceable in such jurisdiction, it shall, as to such jurisdiction, be so
narrowly drawn, without invalidating the remaining provisions of this Agreement
or affecting the validity or enforceability of such provision in any other
jurisdiction.
(g) Entire Agreement, Amendments. This Agreement supercedes in its
----------------------------
entirety the Original Agreement, which is of no further force or effect, and
this Agreement, together with the Employment Agreements and the GNP Agreement
contains the entire understanding among the parties hereto with respect to the
subject matter hereof and thereof, and supersedes all prior and contemporaneous
agreements and understandings, inducements or conditions, express or implied,
oral or written, regarding the subject matter hereof and thereof. The express
terms hereof control and supersede any course of performance and usage of the
trade inconsistent with any of the terms hereof. This Agreement may not be
modified or amended other than by an agreement in writing signed by the party or
parties to be charged and by the Investor.
(h) Rules of Construction. The use in this Agreement of the term
---------------------
"including" means "including, without limitation". The words "herein", "hereof",
"hereunder" and other words of similar import refer to this Agreement as a
whole, including the schedules and exhibits, as the same may from time to time
be amended, modified, supplemented or restated, and not to any particular
section, subsection, paragraph, subparagraph or clause contained in this
Agreement. All references to sections, schedules and exhibits mean the sections
of this Agreement and the schedules and exhibits attached to this Agreement,
except where otherwise stated. The title of and the section and subsection
headings in this Agreement are for convenience of reference only and shall not
govern or affect the interpretation of any of the terms or provisions of this
Agreement. The use herein of the masculine, feminine or neuter forms shall also
denote the other forms, as in each case the context may require.
- -10-
<PAGE>
In computing the number of days for purposes of this Agreement, all days shall
be counted, including Saturdays, Sundays and holidays; provided, however, that
-------- -------
if the final day of any time period falls on a Saturday, Sunday or holiday on
which federal banks are or may elect to be closed, then the final day shall be
deemed to be the next day which is not a Saturday, Sunday or such holiday. The
language used in this Agreement has been chosen by the parties to express their
mutual intent, and no rule of strict construction shall be applied against any
party.
- -11-
<PAGE>
IN WITNESS WHEREOF, the parties have executed and delivered this Restated
Intercompany Services Agreement as of the date first above written.
EARTHWEB INC.
By: /s/ Jack D. Hidary
----------------------------
Name: Jack D. Hidary
Title: CEO
GLOBAL NETWORK PARTNERS LLC
By: /s/ Jack D. Hidary
----------------------------
Name: Jack D. Hidary
Title: Authorized Secretary
EARTHWEB LLC
By: /s/ Jack D. Hidary
----------------------------
Name: Jack D. Hidary
Title: Authorized Secretary
FOUNDERS:
/s/ Jack D. Hidary
- -----------------------------
Jack D. Hidary
/s/ Murray Hidary
- -----------------------------
Murray Hidary
/s/ Nova Spivack
- -----------------------------
Nova Spivack
- -12-
<PAGE>
EXHIBIT 23.1
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."
PricewaterhouseCoopers LLP
New York, New York
August 6, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> YEAR 6-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1998
<PERIOD-START> JAN-01-1997 JAN-01-1998
<PERIOD-END> DEC-31-1997 JUN-30-1998
<CASH> 4,775,153 4,762,084
<SECURITIES> 0 0
<RECEIVABLES> 386,466 580,644
<ALLOWANCES> (10,505) (6,650)
<INVENTORY> 0 0
<CURRENT-ASSETS> 6,301,408 6,543,048
<PP&E> 2,366,756 2,610,068
<DEPRECIATION> (715,928) (1,056,939)
<TOTAL-ASSETS> 8,513,848 8,919,850
<CURRENT-LIABILITIES> 1,983,951 1,519,016
<BONDS> 0 0
0 0
12,512 12,512
<COMMON> 45,000 51,714
<OTHER-SE> 6,387,074 7,205,009
<TOTAL-LIABILITY-AND-EQUITY> 8,513,848 8,919,850
<SALES> 1,135,141 974,333
<TOTAL-REVENUES> 1,135,141 974,333
<CGS> 1,358,293 793,254
<TOTAL-COSTS> 5,481,005 3,174,862
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 0 0
<INCOME-PRETAX> (7,820,537) (2,915,693)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (5,437,018) (2,915,693)
<DISCONTINUED> (2,383,519) 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (7,820,537) (2,915,693)
<EPS-PRIMARY> (1.74) (.65)
<EPS-DILUTED> 0 0
</TABLE>
