<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 9, 1998
REGISTRATION NO. 333-60837
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
AMENDMENT NO. 4 TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
EARTHWEB INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
---------------
DELAWARE 7310 13-3899472
(STATE OR OTHER (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
JURISDICTION OF CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
INCORPORATION OR
ORGANIZATION)
3 PARK AVENUE
NEW YORK, NEW YORK 10016
(212) 725-6550
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
JACK D. HIDARY
PRESIDENT AND CHIEF EXECUTIVE OFFICER
EARTHWEB INC.
3 PARK AVENUE
NEW YORK, NEW YORK 10016
(212) 725-6550
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
---------------
WITH COPIES SENT TO:
JOSEPH W. BARTLETT, ESQ. WINTHROP B. CONRAD, JR., ESQ.
MORRISON & FOERSTER LLP DAVIS POLK & WARDWELL
1290 AVENUE OF THE AMERICAS 450 LEXINGTON AVENUE
NEW YORK, NEW YORK 10104-0012 NEW YORK, NEW YORK 10017
(212) 468-8000 (212) 450-4000
---------------
APPROXIMATE DATE OF COMMENCEMENT OF THE PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If this form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. [_]
---------------
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.
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- --------------------------------------------------------------------------------
<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 November 9, 1998
2,100,000 Shares
EARTHWEB INC.
Common Stock
(par value, $0.01 per share)
The shares of Common Stock offered hereby are being sold by EarthWeb Inc.
("EarthWeb" or the "Company"). Prior to this offering (the "Offering"), there
has been no public market for the Common Stock. It is currently estimated that
the initial public offering price will be between $12.00 and $14.00 per share.
See "Underwriting" for a discussion of the factors to be considered in
determining the initial public offering price.
The Common Stock has been approved for quotation on the Nasdaq National Market
("Nasdaq") under the symbol "EWBX," subject to the official notice of issue.
The Underwriters have reserved for sale, at the initial public offering price,
shares of Common Stock for certain directors, officers, employees, friends and
family of the Company who have expressed an interest in purchasing such shares
of Common Stock in the Offering. See "Underwriting." Such persons are expected
to purchase, in the aggregate, not more than 5% of the Common Stock offered in
the Offering.
SEE "RISK FACTORS" BEGINNING ON PAGE 7 FOR CERTAIN INFORMATION THAT SHOULD BE
CONSIDERED BY PROSPECTIVE INVESTORS.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
- --------------------------------------------------------------
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNT (1) COMPANY (2)
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<S> <C> <C> <C>
Per Share $ $ $
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Total (3) $ $ $
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</TABLE>
(1)The Company and the Selling Stockholders have agreed to indemnify the
several Underwriters against certain liabilities, including liabilities under
the Securities Act of 1933, as amended (the "Securities Act"). See
"Underwriting."
(2)Before deducting expenses of the Offering payable by the Company estimated
at $1,200,000.
(3)The Selling Stockholders have granted the Underwriters an option,
exercisable within 30 days after the date of this Prospectus, to purchase up to
an additional 315,000 shares of Common Stock on the same terms and conditions
as set forth above, solely to cover over-allotments, if any. If such over-
allotment option is exercised in full, the total Price to Public and
Underwriting Discount will be $ and $ , respectively, and the proceeds to
the Selling Stockholders will be $ . See "Underwriting" and "Principal and
Selling Stockholders."
The shares of Common Stock are offered by the Underwriters subject to prior
sale, when, as and if delivered to and accepted by the Underwriters, and
subject to approval of certain legal matters by Davis Polk & Wardwell, counsel
for the Underwriters. It is expected that delivery of the shares of Common
Stock will be made against payment therefor on or about , 1998, at the
offices of J.P. Morgan Securities Inc., 60 Wall Street, New York, New York.
J.P. MORGAN & CO.
BEAR, STEARNS & CO. INC.
VOLPE BROWN WHELAN & COMPANY
WIT CAPITAL CORPORATION
as e-Manager
, 1998
<PAGE>
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."
<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 and Selling Stockholders..... 42
Certain Transactions................... 44
Description of Capital Stock........... 45
Shares Eligible for Future Sale........ 48
Underwriting........................... 50
Legal Matters.......................... 52
Experts................................ 52
Available Information.................. 52
Index to Financial Statements.......... F-1
</TABLE>
UNTIL , 1998 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
EFFECTING TRANSACTIONS IN THE COMMON STOCK OFFERED HEREBY, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
---------------
This Prospectus contains various data related to the number of Internet users,
the size of Internet commerce, the worldwide market for information technology
products and services, the size of business-to-business Internet advertising
and the size of the consumer related Internet advertising, all of which have
been included in the studies prepared by the Internet market research firms of
International Data Corporation, Forrester Research and Jupiter Communications.
Such market data includes projections that are based on a number of
assumptions. The assumptions include the following: (i) no catastrophic failure
of the Internet; (ii) the worldwide economy will resume its expansion; (iii)
Internet security will be adequately addressed; (iv) the number of people
online and the total number of hours spent online will increase significantly
over the next five years; (v) the use of the Internet will increase
significantly in major foreign countries and some of such countries will adopt
the U.S. style of advertising on the Internet; (vi) media advertising will
continue to grow in all categories and online advertising will comprise an
increased percentage of all media advertising; (vii) the value of online
advertising dollars spent per online user hour will increase; (ix) non-
technology industry Internet advertising will increase; (x) the download speed
of content will increase dramatically; and (xi) a proliferation of Internet
access devices other than the PC (e.g., PC/television sets). If any one or more
of the foregoing assumptions turns out to be incorrect, the projections based
on such assumptions may be materially different from actual results. There can
be no assurance that the actual size of the Internet-related markets and
products will grow over the next three to four years at the rates projected by
International Data Corporation, Forrester Research or Jupiter Communications,
or at all, and lack of growth at such projected rates may have a material
adverse effect on the Company's business, results of operations and financial
condition.
3
<PAGE>
PROSPECTUS SUMMARY
The following summary should be read in conjunction with, and is qualified in
its entirety by, the more detailed information and financial statements
(including the notes thereto) appearing elsewhere in this Prospectus. Unless
otherwise indicated, all information in this Prospectus assumes (i) the
conversion (the "Preferred Stock Conversion") of 653,111 shares of the
Company's Series A Convertible Preferred Stock, par value $.01 per share
("Series A Preferred Stock") into 1,273,566 shares of Common Stock and 598,086
shares of the Company's Series B Convertible Preferred Stock, par value $.01
per share ("Series B Preferred Stock") (collectively, the "Preferred Stock")
into 1,166,267 shares of Common Stock, (ii) a 0.65 for 1.00 reverse stock split
(the "Reverse Stock Split") of the Company's Common Stock to be effected prior
to the effectiveness of the Registration Statement of which this Prospectus
forms a part, and (iii) no exercise of the over-allotment option for 315,000
shares of Common Stock granted to the Underwriters by certain stockholders of
the Company. See "Underwriting."
THE COMPANY
EarthWeb Inc. ("EarthWeb" or the "Company") is the leading provider of
Internet-based online services to the information technology ("IT") community
worldwide. The Company's integrated business-to-business online services
address the needs of IT professionals for content, community and commerce.
EarthWeb's content offerings include a wide range of technical materials, such
as resource directories, tutorials and a reference library, which enhance the
ability of IT professionals to perform their job functions. Its community
areas, such as bulletin boards and question and answer services, allow users
to help one another solve technical problems and share information. Its
commerce services provide a single online source for IT professionals to
purchase specialized software and other products. EarthWeb's online services
also offer a channel through which advertisers and vendors can efficiently and
effectively target what the Company believes to be the largest aggregation of
IT professionals worldwide. As a global intermediary for IT professionals,
advertisers and vendors, EarthWeb is positioned as a trusted third party that
offers an integrated environment where these constituencies can share
information, interact with one another and transact business. EarthWeb believes
that none of the companies which it considers its competitors offer the depth
and range of online services provided by the Company.
EarthWeb's online services address the needs of IT professionals across various
segments of the IT industry. EarthWeb's flagship service, developer.com,
focuses primarily on the software development and Internet segments.
Developer.com features a vast collection of online resources, including the
full text of more than 150 technical books, over 300 exclusive technical
articles, over 375 proprietary tutorials, and access to over 150,000 technical
resources. EarthWeb has also obtained the online rights to over 3,000
additional technical books that are expected to be added to its online
reference library. Developer.com's Gamelan directory is the industry-recognized
site for Java resources. The Company recently acquired datamation.com
("Datamation"), a leading resource for IT enterprise managers providing case
studies, technical articles and technology assessment tools, substantially all
of which are proprietary assets of the Company. EarthWeb's online services also
include intranetjournal.com, a site for intranet managers, javascripts.com, a
resource for JavaScript developers, and jars.com, a site providing ratings and
reviews of Java and other code. EarthWeb's unique blend of online services
currently attracts an average of over 1.4 million users a month to its online
services and the email version of EarthWeb's Journal, featuring highlights from
the Company's online services, currently has over 305,000 subscribers.
IT professionals have become more specialized and have grown in number as the
pace and complexity of technological change has increased. IT professionals
today play a central role in many organizations because their ability to deploy
and integrate new information technologies is essential to executing business
strategy and maintaining competitiveness. Organizations are increasingly
adopting technologies such as client/server architectures, data warehousing,
Internet/intranet applications and object-oriented software development. These
and other technologies have continued to fuel the growth in the worldwide
market for IT products and services, which is forecasted to grow from an
estimated $717 billion in 1997 to $1.1 trillion in 2001, according to
International Data Corporation ("IDC"). IT spending in 1997 in North America,
Western Europe and Japan is estimated by IDC to be 41%, 28% and 14%,
respectively, of total global IT spending. EarthWeb believes, based on industry
estimates, that the number of IT professionals worldwide is approximately 15
million and will continue to grow.
EarthWeb leverages the interactive nature of the Internet to serve as an
intermediary between IT professionals, business and consumer advertisers and
vendors. Business-to-business Internet advertising is forecasted by Forrester
Research, Inc. ("Forrester") to increase from an estimated $290 million in 1998
to $2.6 billion in 2002 and consumer-oriented Internet advertising is
forecasted by Jupiter Communications to increase from an estimated $1.9 billion
to $7.7 billion in the same period. Internet commerce is forecasted by IDC to
grow from an estimated $12.4 billion in 1997 to $239.5 billion in 2001, with
the business-to-business component growing from an estimated $7.3 billion to
$179.4 billion in the same period. The Company uses advanced Internet
technologies to enable its advertisers to target their advertisements to
specific user groups
4
<PAGE>
and to measure the effectiveness of their advertisements. EarthWeb also
provides an online channel for large and small vendors to sell specialized
software and other products. This online channel offers IT professionals a wide
selection of products which they can purchase via secure online transactions,
many of which can be downloaded directly.
EarthWeb seeks to maintain and strengthen its position as the leading provider
of online services to IT professionals worldwide. The Company intends to extend
its online services model across various segments of the IT industry, promote
EarthWeb and its other online brands, grow existing revenue streams, add new
revenue streams, pursue strategic acquisitions and expand internationally. In
implementing its growth strategy, the Company has launched ITknowledge.com, a
new subscription-based online service offering premium content for IT
professionals.
EarthWeb was incorporated in New York in April 1996, commenced operations on
October 25, 1996 and was reincorporated in Delaware in June 1997. The Company
was formerly known as IdentiNet, Inc., which was incorporated in October 1994.
IdentiNet, Inc. was merged into IdentiNet LLC, a newly formed LLC, on May 31,
1995. IdentiNet LLC changed its name to EarthWeb LLC effective November 24,
1995. EarthWeb LLC transferred substantially all of its assets and liabilities
to EarthWeb on October 25, 1996 in exchange for 2,925,000 shares of Common
Stock, which at such time represented all of the issued and outstanding Common
Stock. References to "EarthWeb" or the "Company" in this Prospectus which refer
to the period prior to October 25, 1996 are to the Company's predecessors. From
its inception in 1994 until mid-1997, EarthWeb primarily developed and
maintained Web sites and online commerce infrastructures for its customers. The
Company's principal executive office is located at 3 Park Avenue, New York, New
York 10016 and its telephone number at such location is (212) 725-6550. The
Company's corporate Web site address is http://www.earthweb.com. Information
contained on the Company's Web site is not part of this Prospectus.
THE OFFERING
<TABLE>
<S> <C>
COMMON STOCK OFFERED BY THE
COMPANY(1).................... 2,100,000 shares
COMMON STOCK TO BE OUTSTANDING
AFTER THE OFFERING(2)......... 7,903,761 shares
USE OF PROCEEDS................ General corporate purposes, including expansion
of sales and marketing capabilities, possible
strategic acquisitions or investments,
international expansion and working capital
requirements. See "Use of Proceeds."
PROPOSED NASDAQ SYMBOL......... "EWBX"
</TABLE>
- -------
(1) Assumes no exercise of the Underwriters' over-allotment option granted by
the Selling Stockholders.
(2) Based on shares of Common Stock outstanding as of November 9, 1998,
including the shares issued as a result of the Preferred Stock Conversion. Does
not include 795,000 (subject to an annual increase) and 159,000 (subject to an
annual increase) shares of Common Stock reserved for issuance pursuant to the
Company's stock plans, of which options to purchase 500,592 shares were
outstanding and 27,560 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>
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NINE MONTHS
YEARS ENDED DECEMBER 31, ENDED SEPTEMBER 30,
---------------------------------- -----------------------
1995 1996 1997 1997 1998
------ ------ ------- ------ -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Dollars in thousands,
except share and per
share data
STATEMENT OF OPERATIONS
DATA:
Revenues................ $ -- $ 472 $ 1,135 $ 786 $ 1,918
Gross profit (deficit).. -- 158 (223) (161) 524
Loss from continuing
operations(1).......... (705) (2,004) (5,437) (3,829) (5,272)
Net loss................ (640) (2,046) (7,821) (5,009) (5,272)
Basic and diluted net
loss per share from
continuing operations.. (0.24) (0.69) (1.86) (1.31) (1.72)
Basic and diluted net
loss per share......... $ (0.22) $ (0.70) $ (2.67) $ (1.71) $ (1.72)
Weighted average shares
outstanding used in
computing basic and
diluted net loss per
share.................. 2,925,000 2,925,000 2,925,000 2,925,000 3,072,387
Pro forma basic and
diluted net loss per
share from continuing
operations(2).......... $ (1.13) $ (0.96)
Pro forma basic and
diluted net loss per
share(2)............... $ (1.63) $ (0.96)
Shares used in computing
pro forma basic and
diluted net loss per
share(2)............... 4,812,055 5,513,819
</TABLE>
<TABLE>
<CAPTION>
--------------------------
AS OF SEPTEMBER 30, 1998
ACTUAL AS ADJUSTED (3)
---------- ---------------
(UNAUDITED)
<S> <C> <C>
Dollars in thousands
BALANCE SHEET DATA:
Cash and cash equivalents............................ $2,643 $26,832
Working capital...................................... 1,460 25,649
Total assets......................................... 7,536 31,725
Stockholders' equity................................. 4,957 29,146
</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 September 30, 1998, which includes the
conversion of 1,251,197 shares of Preferred Stock into 2,439,833 shares of
Common Stock and gives effect to the sale of 2,100,000 shares of Common Stock
offered hereby (assuming an initial offering price of $13.00), but excludes:
(i) 500,592 shares of Common Stock issuable upon exercise of options
outstanding under the Stock Plan, as of November 9, 1998, at a weighted average
exercise price of $4.45 per share; and (ii) 294,408 (subject to an annual
increase) and 159,000 (subject to an annual increase) shares of Common Stock
reserved for future issuance under the 1998 Stock Incentive Plan and the Stock
Purchase Plan, respectively, each of which will become effective upon the
Offering. See "Management--Benefit Plans" and "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 September 30, 1998, EarthWeb had an accumulated deficit of $13.6 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,
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could result in significant price competition, reduced pricing for Internet
advertising and reductions in the Company's advertising revenues.
DEPENDENCE ON A LIMITED NUMBER OF ADVERTISERS
EarthWeb's revenues to date have been derived from a limited number of
customers which advertise on EarthWeb's services and the Company expects that a
limited number of advertisers will continue to account for a significant
portion of the Company's revenues. In particular, Microsoft and IBM accounted
for approximately 14% and 10%, respectively, of the Company's revenues for the
nine months ended September 30, 1998 and the Company's top 20 advertisers
accounted for an aggregate of approximately 59% of the Company's revenues
during the same period. Both Microsoft and IBM advertised on EarthWeb's online
services during the year ended December 31, 1997, but revenues from each
accounted for less than 10% of the Company's revenues during such period.
Moreover, advertisements delivered by the Company are typically sold pursuant
to purchase order agreements which are subject to cancellation. There can be no
assurance that current advertisers will continue to purchase advertising from
the Company or that the Company will be able to successfully attract additional
advertisers. The loss of one or more of the advertisers that represent a
material portion of the revenues generated could have a material adverse effect
on the Company's business, results of operations and financial condition. In
addition, the non-payment or late payment of amounts due by a significant
advertiser could have a material adverse effect on the Company's business,
results of operations and financial condition. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
COMPETITION
The market for Internet-based online services is relatively new, intensely
competitive and rapidly changing. Since the advent of commercial services on
the Internet, the number of online services competing for users' attention and
spending has proliferated because of, among other reasons, the absence of
substantial barriers to entry, and the Company expects that competition will
continue to intensify. The Company competes with other companies who have
particular sections of their Web sites directed at certain segments or sub-
segments of the IT professional community, such as Ziff-Davis (InternetUser),
CNET (builder.com and activex.com), CMP (TechWeb), Mecklermedia
(webdeveloper.com), Wired Digital (Webmonkey) and IDG (Javaworld). The Company
also competes for circulation and advertising impressions with general interest
portal and destination sites as well as traditional media. With respect to
sales of products, the Company competes with traditional retailers of such
products, such as book, software and online retail stores.
Many of the Company's current and potential competitors have longer operating
histories, larger customer bases, greater brand recognition and significantly
greater financial, marketing and other resources than the Company. These
competitors may be able to respond more quickly to new or emerging technologies
and changes in customer requirements and to devote greater resources to the
development, promotion and sale of their products and services than the
Company. There can be no assurance that the Company will be able to compete
successfully against its current or future competitors.
FLUCTUATIONS IN QUARTERLY RESULTS OF OPERATIONS; SEASONALITY
As a result of the Company's extremely limited operating history, the Company
does not have historical financial data for a significant number of periods on
which to base planned operating expenses. The Company's expense levels are
based in part upon its expectations concerning future revenue and, to a large
extent, are fixed. Quarterly revenues and operating results depend
substantially upon the advertising revenues received within the quarter, which
are difficult to forecast accurately. Accordingly, the cancellation or deferral
of a small number of advertising contracts could have a material adverse effect
on the Company's business, results of operations and financial condition. The
Company may be unable to adjust spending in a timely manner to compensate for
any unexpected revenue shortfall, and any significant shortfall in revenue in
relation to the Company's expectations would have an immediate adverse effect
on the Company's business, results of operations and financial condition.
The Company's results of operations may fluctuate significantly in the future
as a result of a variety of factors, many of which are outside the Company's
control. These factors include, without limitation, the level of usage of the
Internet, demand for Internet advertising, the addition or loss of advertisers,
the level of user traffic on EarthWeb's online services, economic conditions
specific to the Internet industry and online media and economic conditions
generally. Management believes that its revenues are also subject to seasonal
fluctuations because advertisers generally place fewer advertisements during
the first and third calendar quarter of each year. As a strategic response to
the foregoing, the Company may from time to time make certain pricing, service
or marketing decisions or business combinations that could have a material
adverse effect on the Company's business, results of operations and financial
condition.
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Due to the foregoing factors, among others, the Company's quarterly operating
results may fall below the expectations of securities analysts and investors in
the future. In such event, the trading price of the Company's Common Stock
would likely be materially and adversely affected.
RISKS ASSOCIATED WITH BRAND DEVELOPMENT
EarthWeb believes that establishing and maintaining brand identity of its
several brands is a critical aspect for attracting and expanding its targeted
Internet-based audience and that the importance of brand recognition will
increase due to the growing number of Internet online services. Promotion and
enhancement of EarthWeb's brands will depend largely on the Company's success
in continuing to provide high quality online services, which cannot be assured.
If users do not perceive the Company's existing online services to be of high
quality, or if the Company introduces new online services or enters into new
business ventures that are not favorably received by users, the Company will
risk diluting its brands and decreasing the attractiveness of its audiences to
advertisers. Furthermore, in order to attract and retain Internet users and to
promote and maintain its brands in response to competitive pressures, the
Company may find it necessary to increase substantially its financial
commitment to creating and maintaining a distinct brand loyalty among users. If
the Company is unable to provide high quality online services, or otherwise
fails to promote and maintain its brands, or if the Company incurs excessive
expenses in an attempt to improve its online services, or promote and maintain
its brands, the Company's business, results of operations and financial
condition could be materially and adversely affected.
DEPENDENCE ON KEY PERSONNEL
EarthWeb's performance is substantially dependent on the performance of its
senior management and key technical personnel. In particular, the Company's
success depends substantially on the continued efforts of Jack D. Hidary and
William Gollan. The Company has acquired key person life insurance on only
certain members of its senior management personnel. The loss of the services of
any of its executive officers or other key employees could have a material
adverse effect on the business, results of operations and financial condition
of the Company.
The Company's future success also depends upon its continuing ability to
attract and retain highly qualified technical and managerial personnel.
Competition for such personnel is intense and there can be no assurance that
the Company will be able to attract and retain highly qualified technical and
managerial personnel either currently or in the future. The inability to
attract and retain the necessary technical and managerial personnel could have
a material and adverse effect upon the Company's business, results of
operations and financial condition.
MANAGEMENT OF GROWTH
The Company's recent growth has placed, and is expected to continue to place, a
significant strain on its managerial, operational and financial resources. To
manage its future growth, the Company must continue to implement and improve
its operational and financial systems and to expand, train and manage its
employee base. The Company also currently intends to establish or acquire
additional services which will create additional operational and management
complexities. In addition, the Company expects that its operational and
management systems will face increased strain as a result of the expansion of
its services into new segments of the IT industry. There can be no assurance
that the Company will be able to manage effectively the expansion of its
operations, that the Company's systems, procedures and controls will be
adequate to support the Company's operations or that Company management will be
able to achieve the rapid execution necessary to fully exploit market
opportunities for the expansion of the Company's online services. Any inability
to manage growth effectively could have a material adverse effect on the
Company's business, results of operations and financial condition.
RISKS ASSOCIATED WITH POTENTIAL ACQUISITIONS
Since EarthWeb commenced its current business in 1996, its strategy has
included the acquisition of certain assets of Internet-based content providers
to enhance its current online services and the Company expects to continue this
strategy in the future. The continued growth of EarthWeb will depend in part on
its ability to identify suitable acquisition candidates and to acquire them on
appropriate terms. Any such acquisitions would be accompanied by the risks
commonly encountered in such transactions, including the difficulty of
assimilating the technology, operations and personnel of the acquired
companies, the potential disruption of the Company's ongoing business,
additional expenses associated with amortization of acquired intangible assets,
the maintenance of uniform standards, controls, procedures and policies, and
the potential
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unknown liabilities associated with acquired businesses. There can be no
assurance that the Company will be able to identify candidates that it deems
suitable for acquisition or that the Company will be able to consummate desired
acquisitions on terms acceptable to it or that it will be successful in
integrating the acquired companies. If realized, any of these risks could have
a material and adverse effect upon the Company's business, results of
operations and financial condition.
RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS AND EXPANSION
A key part of the Company's strategy is to develop its online service brands in
international markets. To date, the Company has only limited experience in
developing localized versions of its online services and in marketing and
operating its online services internationally. The Company intends to enter
into relationships with foreign business partners. If the international
revenues are not adequate to offset investments in international activities,
the Company's business, results of operations and financial condition could be
materially adversely affected. The Company may experience difficulty in
managing international operations because of distance, as well as language and
cultural differences, and there can be no assurance that the Company or its
future foreign business associates will be able to successfully market and
operate its online services in foreign markets. The Company also believes that,
in light of substantial anticipated competition, it will be necessary to
implement its business strategy quickly in international markets to obtain a
significant share of the market, and there can be no assurance that the Company
will be able to do so. In addition to the uncertainty of the Company's ability
to continue to generate revenues from its foreign operations and expand its
international presence, certain risks are inherent in transacting business on
an international level, such as unexpected changes in regulatory requirements,
export restrictions, trade barriers, difficulties in staffing and managing
foreign operations, political instability, fluctuations in currency exchange
and adverse tax consequences. The occurrence of any of these risks could
adversely impact the success of the Company's international operations and, as
a result, have a material adverse effect on the Company's future international
operations and, consequently, on the Company's overall business, results of
operations and financial condition.
DEPENDENCE ON CONTENT PROVIDERS
EarthWeb's success depends upon its ability to provide a wide range of in-depth
content. The markets for EarthWeb's online services are characterized by
rapidly changing technology, emerging industry standards and the rapidly
changing needs of EarthWeb's targeted audience. EarthWeb relies on a number of
publishers of technical materials, its vendors and the users of its online
services for the continuing provision of up-to-date content. No single content
provider is material to the Company's operations. However, there can be no
assurance that the publishers of technical materials with which the Company
currently maintains relationships, EarthWeb's current vendors or the current
users of EarthWeb's online services will continue to provide the Company with a
similar flow of content in terms of quality or quantity, or at all, or that
they will continue to do it on the same terms as before. If the flow of content
for EarthWeb's online services decreases either in terms of quality or
quantity, or ceases completely, the Company's business, results of operations
and financial condition could be materially adversely affected.
DEPENDENCE ON STRATEGIC ALLIANCES
The Company relies on strategic alliances with, among others, Sun Microsystems,
IBM, Microsoft, CMP, Ziff-Davis, MacMillan and Netscape to attract users to its
online services and to attract paid advertising to its online services. There
can be no assurance that these relationships will continue beyond their initial
terms or that the Company will develop additional third party alliances on
acceptable commercial terms, if at all. No one of these strategic alliances is
individually material to the Company's operations. However, the inability of
the Company to maintain current strategic relationships generally or develop
new strategic relationships could have a material adverse affect on the
Company's business, results of operation and financial condition.
RISK OF CAPACITY CONSTRAINTS AND SYSTEMS FAILURES
The performance of EarthWeb's online services is critical to the Company's
reputation, its ability to attract advertisers to the Company's services and
achieving market acceptance of its online services. Any system failure,
including network, software or hardware failure, that causes interruption or an
increase in response time of the Company's online services could result in
decreased usage of the Company's services and, if sustained or repeated, could
reduce the attractiveness of the Company's online services to its users,
vendors and advertisers. An increase in the volume of queries conducted through
the Company's online services could strain the capacity of the software or
hardware employed by the Company, which could lead to slower response time or
system failures, and adversely affect the Company's advertising revenues. The
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Company also faces technical challenges associated with higher levels of
personalization and localization of content delivered to users of its online
services.
The process of managing advertising within large, high traffic Internet online
services such as the Company's is an increasingly important and complex task.
The Company relies on both internal and licensed third party advertising
inventory management and analysis systems. To the extent that any extended
failure of the Company's advertising management system results in incorrect
advertising insertions, the Company may be exposed to "make good" obligations
to its advertising customers. By displacing advertising inventory, such
obligations could defer advertising revenues and thereby have a material
adverse effect on the Company's business, results of operations and financial
condition. The Company's operations are dependent in part upon its ability to
protect its operating systems against physical damage from acts of God, power
loss, telecommunications failures, physical break-ins and similar events. The
occurrence of any of these events could result in interruptions, delays or
cessations in service to users of the Company's online services, which could
have a material adverse effect on the Company's business, results of operations
and financial condition.
ONLINE SECURITY RISKS
The Company is potentially vulnerable to attempts by unauthorized computer
users ("hackers") to penetrate the Company's network security. If successful,
such individuals could misappropriate proprietary information or cause
interruptions in the Company's online services. The Company may be required to
expend significant capital and resources to protect against the threat of such
security breaches or to alleviate problems caused by such breaches. In addition
to security breaches, inadvertent transmission of computer viruses could expose
the Company to risk of loss or litigation and possible liability. Continued
concerns over the security of Internet transactions and the privacy of the
users may also inhibit the growth of the Internet generally as a means of
conducting commercial transactions.
INTELLECTUAL PROPERTY
Legal standards relating to the validity, enforceability and scope of
protection of certain intellectual property rights in Internet-related
industries are uncertain and still evolving, and no assurance can be given as
to the future viability or value of any intellectual property rights of the
Company or other companies within the IT industry. There can be no assurance
that the steps taken by the Company to protect its intellectual property rights
will be adequate or that third parties will not infringe or misappropriate the
Company's proprietary rights. Any such infringement or misappropriation, should
it occur, could have a material adverse effect on the Company's business,
results of operations and financial condition. Furthermore, there can be no
assurance that the Company's business activities will not infringe upon the
proprietary rights of others, or that other parties will not assert
infringement claims against the Company. The Company anticipates that it may be
subject to claims in the ordinary course of its business, including claims of
alleged infringement by the Company of the trademarks and other intellectual
property rights of third parties due to the dissemination of the Company's
content or the provision of access by the Company's online services to content
made available by third parties. Such claims and any resultant litigation,
should it occur, could subject the Company to significant liability for damages
and could result in invalidation of the Company's proprietary rights and, even
if not meritorious, could be time-consuming and expensive to defend, and could
result in the diversion of management time and attention, any of which could
have a material adverse effect on the Company's business, results of operations
and financial condition.
EarthWeb regards substantial elements of its online services as proprietary and
attempts to protect them by relying on trademark, service mark, trade dress,
copyright and trade secret laws and restrictions on disclosure and transferring
title. The Company currently has no patents or patents pending for its online
services and does not anticipate that patents will become a significant part of
the Company's intellectual property in the foreseeable future. The Company also
enters into confidentiality agreements with its employees, consultants, vendors
and customers, license agreements with third parties and generally seeks to
control access to and distribution of its technology, documentation and other
proprietary information. The Company pursues the registration of its trademarks
in the United States and internationally, and has obtained the United States
trademark for "EarthWeb" and its related logo, "Plugin Datamation" and
"Datamation" and has applied for the registration of certain additional
trademarks and service marks, including developer.com and developerdirect.com.
Effective trademark, copyright and trade secret protection may not be available
in every country in which the Company's online services are distributed or made
available through the Internet. There can be no assurance that the steps taken
by the Company to protect its proprietary rights will be adequate or that third
parties will not infringe or misappropriate the Company's copyrights,
trademarks, service marks, trade dress and similar proprietary rights.
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The Company has licensed in the past, and it expects that it may license in the
future, certain elements of its distinctive trademarks, service marks, trade
dress, trade secrets and similar proprietary rights to third parties, including
in connection with the Company's online services that may be operated by third
parties. While the Company attempts to ensure that the quality of its several
brands is maintained by such licensees, no assurance can be given that such
licensees will not take actions that could materially and adversely affect the
value of the Company's proprietary rights or the reputation of its online
services, either of which could have a material adverse effect on the Company's
business, results of operation and financial condition. Also, the Company is
aware that third parties have from time to time copied significant portions of
developer.com directory listings for use in competitive Internet navigational
tools and services, and there can be no assurance that the distinctive elements
of developer.com can be protected under copyright law.
YEAR 2000 COMPLIANCE
The Year 2000 issue involves the potential for system and processing failures
of date-related data resulting from computer-controlled systems using two
digits rather than four to define the applicable year. For example, computer
programs that contain time-sensitive software may recognize a date using two
digits of "00" as the year 1900 rather than the year 2000. This could result in
system failure or miscalculations causing disruptions of operations, including,
among other things, a temporary inability to process transactions, send
invoices or engage in similar ordinary business activities.
EarthWeb believes that its internal software and hardware systems will function
properly with respect to dates in the year 2000 and thereafter and has
completed its internal IT and non-IT assessment. The Company expects to incur
no significant costs in the future for Year 2000 problems. Nonetheless, there
can be no assurance in this regard until such systems are operational in the
Year 2000. The Company has contacted all of its significant suppliers to
determine the extent to which the Company's systems are vulnerable to those
third parties' failure to make their own systems Year 2000 compliant. The
Company was informed by such suppliers that their systems are Year 2000
compliant. Additionally, any Year 2000 problems experienced by the Company's
advertising customers could affect the placement of advertisements on the
Company's online services. In the event any of the Company's suppliers or
vendors prove not to be Year 2000 compliant, the Company believes that it could
find a replacement vendor or supplier which is Year 2000 compliant without
significant delay or expense. However, if substantially all of the Company's
suppliers and vendors prove not to be Year 2000 compliant and if the Company
experiences difficulties in finding replacement vendors, then, as a result, the
Company's business could be materially adversely affected. The failures to
correct material Year 2000 problems by the Company's suppliers and vendors
could result in an interruption in, or a failure of, certain normal business
activities or operations of the Company. Such failures could materially and
adversely affect the Company's results of operations, liquidity and financial
condition. Due to the general uncertainty inherent in the Year 2000 problem,
resulting from the uncertainty of the Year 2000 readiness of third-party
suppliers and vendors, the Company is unable to determine at this time whether
the consequences of Year 2000 failures will have a material impact on the
Company's results of operations, liquidity or financial condition.
LIABILITY FOR INFORMATION SERVICES
Because content made available by third parties may be downloaded by the online
services operated or facilitated by the Company and may be subsequently
distributed to others, there is a potential that claims will be asserted
against the Company for defamation, negligence or personal injury, or based on
other theories due to the nature of such content. Such claims have been
brought, and sometimes successfully asserted, against online service providers
in the past. In addition, the Company could be exposed to liability with
respect to the selection of listings that may be accessible through the
Company's online services or through content and materials that may be posted
by users in classifieds, bulletin board or chat room services offered by the
Company. Such claims may include, among others, claims that by providing
hypertext links to Internet sites operated by third parties, the Company is
liable for wrongful actions by such third parties through such Internet sites.
It is also possible that users could make claims against the Company for losses
incurred in reliance on information provided on the Company's online services.
Although the Company carries general liability insurance, the Company's
insurance may not cover potential claims of this type or may not be adequate to
fully indemnify the Company. Any imposition of liability or legal defense
expenses that are not covered by insurance or are in excess of insurance
coverage could have a material adverse effect on the Company's business,
results of operations and financial condition.
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GOVERNMENT REGULATION AND LEGAL UNCERTAINTIES
Since few laws or regulations currently are directly applicable to access or
commerce on the Internet, the Company is not subject to direct government
regulation, other than regulations applicable to businesses generally. However,
a number of legislative and regulatory proposals are under consideration by
federal, state, local and foreign governmental organizations and, as a result,
a number of laws or regulations may be adopted with respect to Internet user
privacy, taxation, infringement, pricing, quality of products and services and
intellectual property ownership. It is also uncertain as to how existing laws
will be applied to the Internet in areas such as property ownership, copyright,
trademark, trade secret, obscenity and defamation. The adoption of new laws or
the adaptation of existing laws to the Internet may decrease the growth in the
use of the Internet, which could in turn decrease the demand for the Company's
online services, increase the cost of the Company doing business or otherwise
have a material adverse effect on the Company's business, results of operations
and financial condition.
BROAD DISCRETION IN USE OF PROCEEDS
The Company intends to use the net proceeds from the sale offered hereby for
general corporate purposes, including expanding its sales and marketing
capabilities, possible strategic acquisitions, international expansion and
working capital requirements. Accordingly, management will have significant
flexibility in applying the net proceeds of this Offering. The failure of
management to apply such funds effectively could have a material adverse effect
on the Company's business, results of operations and financial condition. See
"Use of Proceeds."
CONCENTRATION OF STOCK OWNERSHIP
As of November 9, 1998, the present directors, executive officers, greater than
5% stockholders and their respective affiliates beneficially owned
approximately 74% of the outstanding Common Stock of the Company, after giving
effect to the Offering and the Preferred Stock Conversion. As of November 9,
1998, Warburg, Pincus Ventures, L.P. ("Warburg") beneficially owned
approximately 31% of the outstanding Common Stock of the Company, after giving
effect to the Offering and the Preferred Stock Conversion. As a result of their
ownership, the directors, executive officers, greater than 5% stockholders
(including Warburg) and their respective affiliates collectively are able to
control all matters requiring stockholder approval, including the election of
directors and approval of significant corporate transactions. Such
concentration of ownership may also have the effect of delaying or preventing a
change in control of the Company. See "Principal and Selling Stockholders."
SHARES ELIGIBLE FOR FUTURE SALE; REGISTRATION RIGHTS
No prediction can be made as to the effect, if any, that future sales of Common
Stock, or the availability of shares for future sales, will have on the market
price of the Common Stock prevailing from time to time. Sales of substantial
amounts of Common Stock in the public market after the closing of the Offering,
or the perception that such sales could occur, could adversely affect the
prevailing market price of the Common Stock. Upon completion of the Offering,
there will be 7,903,761 shares of Common Stock outstanding (regardless of
whether or not the Underwriters' over-allotment option is exercised but
assuming no exercise of outstanding options). Of these shares, the 2,100,000
shares sold in the Offering (2,415,000 shares, if the Underwriters' over-
allotment option is exercised in full) will be freely tradable without
restriction or further registration under the Securities Act by persons other
than "affiliates" of the Company, as that term is defined in Rule 144 under the
Securities Act ("Rule 144"). The remaining shares will be "restricted
securities" (the "Restricted Shares") as that term is defined under Rule 144,
and may not be publicly resold except in compliance with the registration
requirements of the Securities Act or pursuant to an exemption from such
registration requirements, including that provided by Rule 144. The Company and
the stockholders, officers and directors of the Company have agreed that during
the period beginning from the date of this Prospectus and continuing to and
including the date 180 days after the date of this Prospectus they will not (i)
offer, sell, contract to sell or otherwise dispose of Common Stock or any
securities of the Company which are substantially similar to the Common Stock,
including but not limited to any securities that are convertible into or
exchangeable for, or that represent the right to receive Common Stock or any
such substantially similar securities or (ii) enter into any swap, option,
future, forward or other agreement that transfers, in whole or in part, the
economic consequences of ownership of Common Stock or any securities
substantially similar to the Common Stock (other than pursuant to employee
stock option plans existing on, or upon the conversion or exchange of
convertible or exchangeable securities outstanding as of, the date of this
Prospectus and the issuance of Common Stock in connection with the transactions
described in this Prospectus), without the prior written consent of J.P. Morgan
Securities Inc. See "Underwriting." After giving effect to these contractual
restrictions, an aggregate of 2,444,796 shares of Common Stock (including 2,481
shares previously issued upon exercise of vested stock options), will be
eligible for sale in the public
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market, subject to Rule 144. Additionally, following such period, 5,798,798
shares of Common Stock may be sold in the public market through the exercise of
demand and piggyback registration rights held by certain of the Company's
current stockholders. See "Shares Eligible for Future Sale" and "Description of
Capital Stock--Registration Rights."
The Company intends to register on a Form S-8 registration statement under the
Securities Act, during the 180-day lock-up period, a total of 795,000 and
159,000 shares of Common Stock reserved for issuance under the Company's stock
plans, none of which may be sold for a period of 180 days subsequent to the
completion of the Offering. As of November 9, 1998, there were outstanding
options to purchase 500,592 shares of Common Stock, of which 27,560 were
exercisable under the Stock Plan. Future substantial sales of Common Stock in
the public market following this Offering, the expectation of such sales or the
availability of shares for sale, could adversely affect the market price of the
Common Stock. See "Shares Eligible for Future Sale" and "Management--Benefit
Plans."
NO PRIOR TRADING MARKET; POTENTIAL VOLATILITY OF STOCK PRICE
Prior to the Offering, there has been no public market for the Common Stock,
and there can be no assurance that an active trading market will develop or, if
one does develop, that it will be maintained. The initial public offering price
of the Common Stock has been determined through negotiations between the
Company and the Representatives (as hereinafter defined), and may not be
indicative of future market prices. See "Underwriting." There can be no
assurance that the market price of the Common Stock will not be highly volatile
or that it will not decline below the initial public offering price. Factors
such as variations in the Company's financial results, earnings, estimates by
securities analysts, fluctuations in the stock prices of the Company's
competitors, any loss of key management, adverse regulatory actions or
decisions, announcements of extraordinary events such as litigation or
acquisitions or changes in pricing policies by the Company or its competitors,
as well as changes in the market for the Company's online services and general
economic, political and market conditions, may have a significant effect on the
market price for the Common Stock.
Upon commencement of the Offering, the Common Stock will be quoted on Nasdaq
which has experienced extreme price and volume trading volatility in recent
years. This volatility has had a substantial effect on the market prices of
companies for reasons frequently unrelated or disproportionate to the operating
performance of the specific companies. These broad market fluctuations may
adversely affect the market price of the Common Stock.
DILUTION
The public offering price is substantially higher than the pro forma net
tangible book value per share of the Common Stock. Assuming a public offering
price of $13.00 per share, investors purchasing shares of Common Stock in the
Offering, based upon the pro forma net tangible book value per share of Common
Stock as of September 30, 1998 of $3.54, will incur immediate and substantial
dilution in the amount of $9.46 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") and the
Company's Amended and Restated Certificate of Incorporation and Amended and
Restated By-Laws may delay, discourage or prevent a change in control of the
Company unless such takeover or change in control is approved by the Company's
Board of Directors. Such provisions also may render the removal of directors
and management more difficult, 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. The Company's Amended
and Restated By-Laws place certain restrictions on who may call a special
meeting of stockholders, and all amendments to the Amended and Restated By-Laws
must be approved by either the holders of 66.66% of the outstanding capital
stock of the Company entitled to vote in the elections to the Board of
Directors or by a majority of the Board of Directors. In addition to the Common
Stock, the Company's Amended and Restated Certificate of Incorporation
authorizes the issuance of up to 2,000,000 shares of preferred stock without
designation. The Board of Directors will have the authority without action by
the Company's stockholders to fix the rights, privileges and preferences of,
and to issue shares of, such preferred stock, which may have the effect of
delaying, deterring or preventing a change in control of the Company. Further,
the Company's Amended and Restated Certificate of Incorporation provides that
the Board of Directors will be divided into three classes of directors serving
staggered 3 year terms. This classification provision could have the effect of
discouraging a third party from attempting to gain control of the Company and
it may only be amended by holders of 66.66% of the outstanding capital stock of
the Company entitled to vote in the elections to the Board of Directors. See
"Description of Capital Stock--Undesignated Preferred Stock," "--Delaware Law"
and "--Anti-Takeover Provisions."
15
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 2,100,000 shares of Common
Stock being offered hereby (at an assumed initial public offering price of
$13.00 per share) are estimated to be approximately $24,189,000 (regardless of
whether or not the Underwriters' over-allotment option is exercised), after
deducting underwriting discounts and commissions and estimated Offering
expenses payable by the Company.
The Company expects to use such net proceeds for general corporate purposes,
including expansion of its sales and marketing capabilities, possible strategic
acquisitions or investments and working capital requirements. The Company
evaluates potential strategic acquisitions or investments, but at the present
time the Company has no understandings, commitments or agreements with respect
to any such acquisition or investment. Pending such uses, the Company intends
to invest the net proceeds from the Offering in United States government
securities and investment-grade, interest-bearing instruments. The Company has
made no material commitments or allocations for the net proceeds, and the use
of the proceeds will depend upon developments and opportunities in the
Company's business and the Internet industry in general.
The foregoing represents the Company's present intentions based upon its
present plans and business conditions. The occurrence of certain unforeseen
events or changed business conditions, however, could result in the application
of the proceeds of the Offering in a manner other than as described in this
Prospectus. See "Risk Factors--Broad Discretion in Use of Proceeds."
The Company will not receive any of the proceeds from the sale of shares of
Common Stock by the Selling Stockholders.
DIVIDEND POLICY
The Company has never declared or paid any cash dividends on its Common Stock
and does not expect to do so in the foreseeable future. The Company currently
intends to retain any earnings to finance the expansion and development of the
business. Any future determination of the payment of dividends will be made at
the discretion of the Board of Directors of the Company based upon conditions
then existing, including the Company's earnings, financial condition and
capital requirements as well as such economic and other conditions as the Board
of Directors may deem relevant.
16
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company (i) on an
actual basis as of September 30, 1998, and (ii) adjusted to reflect the
Preferred Stock Conversion and to give effect to the sale of 2,100,000 shares
of Common Stock offered hereby (assuming an initial offering price of $13.00).
This table should be read in conjunction with "Selected Financial Data,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the financial statements of the Company and notes thereto
included elsewhere in this Prospectus.
<TABLE>
----------------------------
<CAPTION>
AS OF SEPTEMBER 30, 1998
ACTUAL AS ADJUSTED
------------ --------------
<S> <C> <C>
Dollars in thousands, except share data
Total long-term obligations....................... $ 107 $ 107
------------ ------------
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).... 7 --
Series B Convertible Preferred Stock, $.01 par
value; 600,000 shares authorized; 598,086
shares issued and outstanding, actual (no
shares issued and outstanding, as adjusted).... 6 --
Common Stock, $.01 par value; 21,750,000 shares
authorized; 3,361,446 shares issued and
outstanding, actual (7,901,279 shares issued
and outstanding, as adjusted) (1).............. 34 79
Additional paid-in capital...................... 18,779 42,936
Unearned compensation........................... (284) (284)
Accumulated deficit............................. (13,585) (13,585)
------------ ------------
Total stockholders' equity.................... 4,957 29,146
------------ ------------
Total capitalization.......................... $ 5,064 $ 29,253
============ ============
</TABLE>
- -------
(1)Does not include 795,000 (subject to an annual increase) and 159,000
(subject to an annual increase) shares of Common Stock reserved for issuance
pursuant to the Company's stock plans, of which options to purchase 500,592
shares were outstanding and 27,560 were exercisable at November 9, 1998. See
"Management--Benefit Plans."
17
<PAGE>
DILUTION
The Company's net tangible book value as of September 30, 1998 was
approximately $3.8 million, or $0.65 per share of Common Stock. Net tangible
book value per share is equal to the total tangible assets of the Company minus
total liabilities divided by the number of shares of Common Stock outstanding
(after giving effect to the Preferred Stock Conversion). After giving effect to
the sale of the 2,100,000 shares of Common Stock offered hereby (at an assumed
initial public offering price of $13.00 per share), deducting underwriting
discounts and commissions and estimated Offering expenses payable by the
Company, the pro forma net tangible book value of the Company would have been
approximately $28.0 million, or $3.54 per share of Common Stock. This
represents an immediate increase in net tangible book value of $2.89 per share
to existing stockholders and an immediate dilution of $9.46 per share to new
investors. Dilution is determined by subtracting pro forma net tangible book
value per share after the Offering from the amount of cash paid by a new
investor for a share of Common Stock. The following table illustrates such
dilution:
<TABLE>
<CAPTION>
--------------------
<S> <C> <C>
Assumed initial public offering price per share.......... $13.00
---------
Net tangible book value per share as of September 30,
1998.................................................... $0.65
Increase in net tangible book value per share attribut-
able to new investors................................... 2.89
---------
Pro forma net tangible book value per share after the Of-
fering.................................................. 3.54
---------
Dilution per share to new investors...................... $ 9.46
=========
</TABLE>
The following table sets forth as of September 30, 1998 the number of shares of
Common Stock purchased from the Company, the total consideration paid and the
average price per share paid by existing stockholders and by new investors:
<TABLE>
<CAPTION>
-------------------------------------------------------------
SHARES PURCHASED TOTAL CONSIDERATION
--------------------- --------------------------------------
AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- --------- ----------- --------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders... 5,801,279 73.42% $20,553,272 42.95% $ 3.54
New investors........... 2,100,000 26.58 27,300,000 57.05 13.00
--------- --------- ----------- ---------
Total................... 7,901,279 100% $47,853,272 100%
========= ========= =========== =========
</TABLE>
The foregoing tables assume (i) the completion of the Preferred Stock
Conversion and (ii) no exercise of the Underwriters' over-allotment option. If
the Underwriters' over-allotment is exercised in full, the pro forma net
tangible book value per share of Common Stock as of September 30, 1998 would
have been $3.54 per share, which would result in dilution to the new investors
of $9.46 per share, and the number of shares held by the new investors will
increase to 2,415,000, or 31% of the total number of shares to be outstanding
after the Offering, and the number of shares held by the existing stockholders
will be 5,486,279 shares, or 69% of the total number of shares to be
outstanding after the Offering. As of November 9, 1998, there were outstanding
options under the Stock Plan to purchase an aggregate of 500,592 shares of
Common Stock, 27,560 of which were then exercisable, and the Company had also
reserved up to an additional 294,408 (subject to an annual increase) and
159,000 (subject to an annual increase) shares of Common Stock for issuance
upon the exercise of options which had not yet been granted under the 1998
Stock Incentive Plan and the Stock Purchase Plan, respectively. The 1998 Stock
Incentive Plan and the Stock Purchase Plan will become effective upon the
Offering. See "Management-- Benefit Plans." 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 September 30,
1998, and for the nine months ended September 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>
----------------------------------------------------------
NINE MONTHS
YEAR ENDED DECEMBER 31, ENDED SEPTEMBER 30,
---------------------------------- ----------------------
1995 1996 1997 1997 1998
---------- --------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Dollars in thousands,
except share and
per share data
STATEMENT OF OPERATIONS
DATA:
Revenues................ $ -- $ 472 $ 1,135 $ 786 $ 1,918
Cost of revenues........ -- 314 1,358 947 1,395
---------- --------- --------- ---------- ----------
Gross profit (deficit).. -- 158 (223) (161) 523
---------- --------- --------- ---------- ----------
Operating expenses
Product development... 36 68 1,003 767 990
Sales and marketing... -- 252 1,018 752 1,892
General and
administrative....... 626 1,802 2,567 2,002 2,246
Depreciation and
amortization......... 42 101 893 339 787
---------- --------- --------- ---------- ----------
Total operating
expenses........... 704 2,223 5,481 3,860 5,915
---------- --------- --------- ---------- ----------
Loss from operations.... (704) (2,065) (5,704) (4,021) (5,392)
Interest and other
income (expense), net.. (1) 61 267 192 120
---------- --------- --------- ---------- ----------
Loss from continuing
operations............. (705) (2,004) (5,437) (3,829) (5,272)
Income (loss) from
discontinued
operations............. 65 (42) (2,384) (1,180) --
---------- --------- --------- ---------- ----------
Net loss................ $ (640) $ (2,046) $ (7,821) $ (5,009) $ (5,272)
========== ========= ========== ========== ==========
Basic and diluted net
loss per share from
continuing operations.. $ (0.24) $ (0.69) $ (1.86) $ (1.31) $ (1.72)
Basic and diluted net
income (loss) per share
from discontinued
operations............. 0.02 (0.01) (0.81) (0.40) --
---------- --------- --------- ---------- ----------
Basic and diluted net
loss per share......... $ (0.22) $ (0.70) $ (2.67) $ (1.71) $ (1.72)
========== ========= ========== ========== ==========
Weighted average shares
outstanding used in
computing basic and
diluted net income
(loss) per share....... 2,925,000 2,925,000 2,925,000 2,925,000 3,072,387
========== ========= ========== ========== ==========
Pro forma basic and
diluted net loss per
share from continuing
operations(1).......... $ (1.13) $ (0.96)
Pro forma basic and
diluted net loss per
share from discontinued
operations(1).......... (0.50) --
---------- ----------
Pro forma basic and
diluted net loss per
share(1)............... $ (1.63) $ (0.96)
========== ==========
Shares used in computing
basic and diluted net
loss per share(1)...... 4,812,055 5,513,819
========== ==========
</TABLE>
- -------
(1) The pro forma per share amounts are computed by using the sum of the
weighted average number of shares of Common Stock and the shares issued as a
result of the Preferred Stock Conversion.
19
<PAGE>
<TABLE>
<CAPTION>
-----------------------------------------------
AS OF DECEMBER 31, AS OF
----------------------------- SEPTEMBER 30,
1995 1996 1997 1998
------- -------- -------- -------------
<S> <C> <C> <C> <C>
Dollars in thousands
BALANCE SHEET DATA:
Cash and cash equivalents....... $ 886 $ 3,779 $ 4,775 $ 2,643
Working capital................. 865 3,315 4,317 1,460
Total assets.................... 1,393 5,652 8,514 7,536
Long-term obligations........... 25 94 85 107
Stockholders' equity............ 1,251 4,259 6,445 4,957
</TABLE>
20
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
EarthWeb is the leading provider of Internet-based online services to the IT
community worldwide. The Company's integrated business-to-business online
services address the needs of IT professionals for content, community and
commerce. EarthWeb's content offerings include a wide range of technical
materials, such as resource directories, tutorials and a reference library,
which enhance the ability of IT professionals to perform their job functions.
Its community areas, such as bulletin boards and question and answer services,
allow users to help one another solve technical problems and share information.
Its commerce services provide a single online source for IT professionals to
purchase specialized software and other products. EarthWeb's online services
also offer a channel through which advertisers and vendors can efficiently and
effectively target what the Company believes to be the largest aggregation of
IT professionals worldwide.
From its inception in 1994 until mid-1997, EarthWeb primarily developed and
maintained Web sites and online commerce infrastructures for its customers.
During this period, substantially all of the Company's revenues were derived
from development contracts, maintenance fees and software license fees. During
1996, the Company began developing online services for IT professionals. The
Company's operations not related to providing online services to IT
professionals were discontinued in 1997 and have been recorded as discontinued
operations for all periods.
To date, the Company has purchased five Websites to expand and extend its
online service offerings. In August 1997, the Company acquired jars.com
("JARS"), the Web site of the Java Applet Rating Service, for $1.1 million
consisting of a $500,000 cash payment at closing and four quarterly payments of
$150,000. JARS is a premier online service providing ratings and reviews of
Java and other source code. In February 1998, the Company acquired the
companion Web sites, htmlgoodies.com and javagoodies.com, which provide
tutorials and other technical resources for Web developers. In April 1998, the
Company acquired intranetjournal.com, a leading online service for intranet
managers. In May 1998, the Company acquired javascripts.com, an online service
which complements EarthWeb's other offerings by providing a large repository of
JavaScript source code. The aggregate cost of the htmlgoodies.com,
javagoodies.com, intranetjournal.com and javascripts.com Web site purchases
totaled approximately $370,000, of which approximately $168,000 is payable over
the next 33 months. In July 1998, the Company acquired Datamation, which
provides online articles, resources and product analysis for IT enterprise
managers. The purchase price for Datamation was approximately $600,000 all of
which has been paid. Datamation has served the IT enterprise management
community as an industry recognized brand for over 40 years; in December 1997,
it moved its operations from print to online. At September 30, 1998, the
Company had intangible assets of approximately $1.2 million, primarily related
to the acquisitions of JARS and Datamation. Intangible assets 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 94% of the Company's total revenues for the years
ended December 31, 1996 and December 31, 1997 and the nine months ended
September 30, 1998, respectively. The Company has historically utilized third
party firms to sell and serve advertisements on EarthWeb's sites. At the end of
the third quarter of 1997, the Company hired its first sales employee and in
the first quarter of 1998, the Company began relying predominantly on its in-
house sales force. The Company's in-house sales force has increased EarthWeb's
average cost per thousand ("CPM") by marketing to advertisers the advantages of
using EarthWeb's online services to reach the IT professional community.
EarthWeb also derives revenues from online commerce and brand licensing. In the
future, EarthWeb expects to derive additional revenues from membership
subscription fees for ITknowledge.com and other premium service offerings.
Advertising revenue is recognized in the period in which the advertisement is
displayed, provided that no significant Company obligations remain and the
collection of the receivable is probable. The Company obligations typically
include guarantees of a minimum number of "impressions" (times that an
advertisement is viewed by users of the Company's online services over a
specified period of time). Typically, if the minimum number of impressions are
not achieved, the Company will extend the advertising campaign until the
related guarantee is met, which would result in delayed revenue recognition. To
date, the Company has never been required to provide a cash refund in the event
the minimum number of impressions has not been achieved. The Company records
revenues and expenses for barter transactions (receipt of advertisements or
other goods or services in exchange for advertisements on its online services)
at the lesser of the estimated fair value of the advertisements, goods or
services received or the fair value of the advertisements given. In future
periods, management intends to maximize cash advertising revenues, although the
Company will continue to enter into barter advertising transactions as
appropriate.
21
<PAGE>
In order to expand its online services, the Company anticipates incurring
additional expenses to increase its product development and sales and marketing
efforts, pursue additional strategic acquisitions and support the growth of the
organization. The sales and marketing expenses will primarily include expenses
related to hiring additional employees and increasing advertising and brand
promotion activities. As a result of these expenditures and other factors, the
Company expects to continue to incur losses in the near future.
The Company expects to experience significant fluctuations in its future
quarterly results due to a variety of factors, many of which are outside of the
Company's control. These factors include the level of usage on the Internet,
demand for Internet advertising, the addition or loss of advertisers, the level
of user traffic on EarthWeb's online services, economic conditions specific to
the Internet industry and online media and economic conditions generally.
Management believes that its revenues are also subject to seasonal fluctuations
because advertisers generally place fewer advertisements during the first and
third calendar quarter of each year. The Company believes that certain expenses
as a percentage of revenues may fluctuate between periods based on the growth
of revenues; however, the Company expects expenses to continue to grow in
absolute dollars for the forseeable future.
RESULTS OF OPERATIONS
Nine Months Ended September 30, 1998 Compared to Nine Months Ended September
30, 1997
Revenues. Revenues for the nine months ended September 30, 1998 increased 144%
to $1.9 million from $786,000 for the nine months ended September 30, 1997. The
increase in revenues was due to an increase in advertising revenues of $1.1
million. Approximately 60% of the growth in advertising revenues was
attributable to an increase in the volume of advertising sold. A secondary
reason for the increase in advertising revenue was the ability of the Company's
in house sales force to sell advertising at a higher price (CPM). Management
does not expect significant price increases in the future and expects to derive
growth in revenues primarily through increased volume of advertising sold.
Barter transactions accounted for approximately 25% and 18% of revenues for the
nine months ended September 30, 1998 and 1997, respectively. For both periods
barter advertising revenues primarily related to the exchange of advertisements
with other companies.
Cost of Revenues. The Company's cost of revenues consists primarily of employee
salaries and related expenses (including payroll taxes and benefits),
consulting fees, Internet access and hosting fees, computer related expenses
and content licensing fees required to support and deliver the Company's online
services. Cost of revenues for the nine months ended September 30, 1998
increased 47% to $1.4 million from $948,000 for the nine months ended September
30, 1997. The increase in cost of revenues was primarily attributable to
increased consulting fees, employee salaries and related expenses and content
licensing fees due to the expansion of the Company's online service offerings.
Product Development Expenses. The Company's product development expenses
consist primarily of employee salaries and related expenses (including payroll
taxes and benefits), consulting fees and computer leasing costs required to
support the development of new service offerings. Product development expenses
for the nine months ended September 30, 1998 increased 29% to $990,000 from
$767,000 for the nine months ended September 30, 1997. The increase in product
development expenses was primarily attributable to the expansion of the
Company's online service offerings.
Sales and Marketing Expenses. Sales and marketing expenses consist primarily of
employee salaries and commissions of the Company's sales force and marketing
personnel and related expenses (including payroll taxes and benefits),
advertising (including expenses recorded for barter transactions), promotional
materials and trade show exhibition expenses. Sales and marketing expenses for
the nine months ended September 30, 1998 increased 152% to $1.9 million from
$752,000 for the nine months ended September 30, 1997. The increase was
primarily attributable to an increase in salaries and related expenses
(including payroll taxes and benefits) and related costs of $840,000 for the
in-house sales force which did not exist during the nine months ended September
30, 1997. Barter transactions accounted for approximately 26% and 18% of sales
and marketing expenses for the nine months ended September 30, 1998 and 1997,
respectively. Management expects sales and marketing expenses to increase due
to the growth of its sales force and increase in advertising and promotional
activities.
General and Administrative Expenses. General and administrative expenses
consist primarily of employee salaries and related expenses (including payroll
taxes and benefits) for executive, administrative, and accounting personnel,
facility costs, recruiting fees, insurance costs and professional fees. General
and administrative expenses for the nine months ended September 30, 1998
increased 12% to $2.2 million from $2.0 million for the nine months ended
September 30, 1997. The increase in general and administrative expenses was
primarily attributable to increased professional fees and employee salaries and
related expenses (including payroll taxes & benefits). Management expects
general and administrative expenses to increase in future periods due to the
growth of the business.
22
<PAGE>
Depreciation and Amortization. Depreciation and amortization consists primarily
of depreciation of property and equipment and amortization of intangible assets
related to acquisitions. Depreciation and amortization for the nine months
ended September 30, 1998 increased 133% to $787,000 from $339,000 for the nine
months ended September 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 nine months ended September 30, 1998 decreased 38% to
$120,000 from $192,000 for the nine months ended September 30, 1997. The
decrease was primarily the result of lower average cash balances during the
nine months ended September 30, 1998.
Income Taxes. No provision for federal and state income taxes has been recorded
as the Company incurred net operating losses through September 30, 1998. As of
December 31, 1997, the Company had approximately $7.4 million of net operating
loss carryforwards for federal income tax purposes, expiring in 2012, available
to offset future taxable income. Given the Company's limited operating history,
losses incurred to date and the difficulty in accurately forecasting the
Company's future results, management does not believe that the realization of
the related deferred income tax assets meets the criteria required by generally
accepted accounting principles and, accordingly, a full 100% valuation
allowance has been recorded.
Year Ended December 31, 1997 Compared to Year Ended December 31, 1996
Revenues. Revenues for 1997 increased 140% to $1.1 million from $472,000 for
1996. The increase resulted from growth in the volume of advertising
impressions sold and a full year of advertising sales activity in 1997 compared
to only seven months of advertising sales activity in 1996. During 1997, the
average selling price (CPM) for advertising did not change substantially
compared to 1996 levels. Barter transactions accounted for approximately 16%
and 55% of revenues for the years ended December 31, 1997 and 1996,
respectively. During 1997, barter advertising revenues primarily related to the
exchange of advertisements with other companies. In 1996, as a result of the
contribution by Sun Microsystems of server equipment with a value of $257,000
in exchange for advertising, the Company recorded a one-time barter
transaction.
Cost of Revenues. The cost of revenues for 1997 increased 332% to $1.4 million
from $314,000 for 1996. This increase was primarily the result of costs related
to the growth of the Company's online business which included hiring additional
content and productions personnel resulting in increased employee salaries and
related expenses (including payroll taxes and benefits) of $821,000.
Product Development Expenses. Product development expenses for 1997 increased
1,367% to $1.0 million from $68,000 in 1996. The increase in product
development expenses was primarily the result of increased salaries and related
expenses (including payroll taxes and benefits) of $580,000, and consultant
fees of $252,000 to support the development of the Company's online services.
Sales and Marketing Expenses. Sales and marketing expenses for 1997 increased
304% to $1.0 million from $252,000 in 1996. The increase in sales and marketing
expenses is primarily the result of an increase in marketing activities,
including advertising, trade show exhibitions, and promotional activities which
increased $493,000 and employee salaries and related costs (including payroll
taxes and benefits), which increased $163,000. Expenses from barter
transactions were 18% and 0% of sales and marketing expenses for the years
ended December 31, 1997 and 1996, respectively.
General and Administrative Expenses. General and administrative expenses for
1997 increased 42% to $2.6 million from $1.8 million in 1996. The increase in
general and administrative expenses was predominantly the result of increased
salaries and related expenses (including payroll taxes and benefits) of
$550,000, with the balance of the increase primarily due to increases in rent
expense for the Company's additional office space and recruiting costs.
Depreciation and Amortization. Depreciation and amortization for 1997 increased
785% to $893,000 from $101,000 for 1996. This increase was primarily the result
of additional depreciation on property and equipment and amortization of
intangible assets from the JARS acquisition. In addition, depreciation and
amortization expense for 1997 included a write-off of intangible assets of
$337,000 related to the JARS acquisition.
Interest and Other Income, net. Interest and other income, net for 1997
increased 334% to $267,000 from $61,000 for 1996. The increase was the result
of higher average cash balances during 1997.
Year Ended December 31, 1996 Compared to Year Ended December 31, 1995
During the year ended December 31, 1995, EarthWeb did not generate any revenues
from its online services business and operating expenses increased
approximately $1.5 million due primarily to increases in sales and marketing
expenses and the growth of the Company's infrastructure. The Company does not
believe that a comparison of its results of operations for these two periods
would be meaningful.
23
<PAGE>
QUARTERLY RESULTS OF OPERATION
The following table sets forth certain unaudited quarterly statement of
operations data for each of the four quarters during the year ended December
31, 1997 as well as the three quarters in the nine months ended September 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, SEPT. 30,
1997 1997 1997 1997 1998 1998 1998
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Dollars in thousands
Revenues:
Advertising............ $ 261 $ 239 $ 177 $ 294 $ 284 $ 640 $ 885
Other.................. 69 23 17 55 24 26 59
--------- --------- --------- --------- --------- --------- ---------
Total revenues........ 330 262 194 349 308 666 944
Cost of revenues........ 258 343 346 411 395 398 601
--------- --------- --------- --------- --------- --------- ---------
Gross profit (deficit).. 72 (81) (152) (62) (87) 268 343
--------- --------- --------- --------- --------- --------- ---------
Operating expenses:
Product development.... 237 239 291 236 246 310 434
Sales and marketing.... 159 265 328 266 333 477 1,082
General and
administrative........ 610 686 706 565 605 727 914
Depreciation and
amortization.......... 63 77 199 554 233 244 311
--------- --------- --------- --------- --------- --------- ---------
Total operating
expenses............. 1,069 1,267 1,524 1,621 1,417 1,758 2,741
--------- --------- --------- --------- --------- --------- ---------
Loss from operations.... (997) (1,348) (1,676) (1,683) (1,504) (1,490) (2,398)
Interest and other
income, net............ 41 26 125 75 47 31 42
--------- --------- --------- --------- --------- --------- ---------
Loss from continuing
operations............. (956) (1,322) (1,551) (1,608) (1,457) (1,459) (2,356)
Loss from discontinued
operations............. (172) (377) (631) (1,204) -- -- --
--------- --------- --------- --------- --------- --------- ---------
Net loss................ $ (1,128) $(1,699) $ (2,182) $(2,812) $ (1,457) $(1,459) $ (2,356)
========= ========= ========= ========= ========= ========= =========
</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.
24
<PAGE>
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.
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 $3.9 million for the nine months ended September 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 nine months of 1998
resulted primarily from a net loss of $5.3 million and an increase in accounts
payable and accrued expenses of $1.1 million, offset by depreciation and
amortization of $788,000.
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 nine months of 1998 of $1.9 million was attributable
to purchases of fixed assets of $843,000, payments on obligations related to
acquisitions of Web sites of $1.3 million, offset by the release of restricted
cash of $225,000.
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 $3.7
million for the first nine months ended September 30, 1998 related to the
issuance of Common Stock.
The Company currently believes that the cash proceeds from the Offering,
together with existing cash balances, will be sufficient to meet anticipated
cash requirements until such time as the Company generates positive cash flow
from operations. There can be no assurance that additional capital beyond the
amounts currently forecasted by the Company will not be required nor that any
such required additional capital will be available on reasonable terms, if at
all, at such time as required by the Company.
YEAR 2000
The Year 2000 issue involves the potential for system and processing failures
of date-related data resulting from computer-controlled systems using two
digits rather than four to define the applicable year. For example, computer
programs that contain time-sensitive software may recognize a date using two
digits of "00" as the year 1900 rather than the year 2000. This could result in
system failure or miscalculations causing disruptions of operations, including,
among other things, a temporary inability to process transactions, send
invoices or engage in similar ordinary business activities.
EarthWeb believes that its internal software and hardware systems will function
properly with respect to dates in the year 2000 and thereafter and has
completed its internal IT and non-IT assessment. The Company expects to incur
no significant costs in the future for Year 2000 problems. Nonetheless, there
can be no assurance in this regard until such systems are operational in the
year 2000. The Company has contacted all of its significant suppliers to
determine the extent to which the Company's systems are vulnerable to those
third parties' failure to make their own systems Year 2000 compliant. The
Company was informed by such suppliers that their systems are Year 2000
compliant. Additionally, any Year 2000 problems experienced by the Company's
advertising customers could affect the placement of advertisements on the
Company's online services. In the event any of the Company's suppliers or
vendors prove not to be Year 2000 compliant, the Company believes that it could
find a replacement vendor or supplier which is Year 2000 compliant without
significant delay or expense. However, if substantially all of the Company's
suppliers and vendors prove not to be Year 2000 compliant and if the Company
experiences difficulties in finding replacement vendors, then, as a result, the
Company's business could be materially adversely affected. The failures to
correct material Year 2000 problems by the Company's suppliers and vendors
could result in an interruption in, or a failure of, certain normal business
activities or operations of the Company. Such failures could materially and
adversely affect the Company's results of operations, liquidity and financial
condition. Due to the general uncertainty inherent in the Year 2000 problem,
resulting from the uncertainty of the Year 2000 readiness of third-party
suppliers and vendors, the Company is unable to determine at this time whether
the consequences of Year 2000 failures will have a material impact on the
Company's results of operations, liquidity or financial condition.
25
<PAGE>
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, FASB issued Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income" ("SFAS No. 130"), which establishes standards
for reporting and display of comprehensive income and its components in the
financial statements. SFAS No. 130 is effective for fiscal years beginning
after December 15, 1997. Reclassification of financial statements for earlier
periods provided for comparative purposes is required. SFAS No. 130 offers
alternatives for presentation of disclosures required by the standard. The
adoption of SFAS No. 130 is not expected to have an impact on the Company's
results of operations, financial position or cash flows.
In June 1997, FASB issued Statement of Financial Accounting Standards No. 131,
"Disclosures about Segments of an Enterprise and Related Information" ("SFAS
No. 131"), which establishes standards for reporting information about
operating segments in annual financial statements. It also establishes
standards for related disclosures about products and services, geographic areas
and major customers. SFAS No. 131 is effective for fiscal years beginning after
December 15, 1997. The adoption of SFAS No. 131 is not expected to have an
impact on the Company's results of operations, financial position or cash
flows.
In February 1998, FASB issued SFAS No. 132, "Employers' Disclosures about
Pension and Other Postretirement Benefits" ("SFAS No. 132"), which requires
disclosures about pension and postretirement benefits. SFAS No. 132 is
effective for fiscal years beginning after December 15, 1997. The adoption of
SFAS No. 132 is not expected to have an impact on the Company's results of
operations, financial position or cash flows.
In March 1998, the American Institute of Certified Public Accountants ("AICPA")
issued Statement of Position 98-1, "Accounting for the Cost of Computer
Software Developed or Obtained for Internal Use" ("SOP 98-1"). SOP 98-1 is
effective for financial statements for years beginning after December 15, 1998.
SOP 98-1 provides guidance over accounting for computer software developed or
obtained for internal use including the requirement to capitalize specified
costs and amortization of such costs. The Company does not expect the adoption
of this standard to have a material effect on the Company's capitalization
policy.
In March 1998, AIPCA issued Statement of Position 98-4, "Deferral of the
Effective Date of a provision of SOP 97-2" ("SOP 98-4"). SOP 98-4 defers for
one year the application of certain provisions of Statement of Position 97-2
"Software Revenue Recognition" ("SOP 97-2"). Different informal and
unauthoritative interpretations of certain provisions of SOP 97-2 have arisen
and, as a result, the AICPA is considering amendments to SOP 97-2, so they can
issue interpretations regarding the applicability and the method of application
of those provisions. The adoption of SOP 97-2 has not had a material impact on
the Company's results of operations, financial position or cash flows. However,
due to the uncertainties related to the outcome of these amendments, the impact
on the future financial results of the Company is not currently determinable.
In April 1998, the AICPA issued Statement of Position 98-5, "Reporting on the
Costs of Start-Up Activities" ("SOP 98-5"). SOP 98-5, which is effective for
fiscal years beginning after December 15, 1998, provides guidance on the
financial reporting of start-up costs and organization costs. It requires costs
of start-up activities and organization costs to be expensed as incurred. As
the Company has expensed these costs historically, the adoption of this
standard is not expected to have a significant impact on the Company's results
of operations, financial position or cash flows.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivatives and
Hedging Activities" ("SFAS 133"), which establishes accounting and reporting
standards of derivative instruments, including certain derivative instruments
embedded in other contracts, and for hedging activities. The adoption of SFAS
No. 133 is not expected to have an impact on the Company's results of
operations, financial position or cash flows upon the adoption of this
standard.
26
<PAGE>
BUSINESS
The following Business section contains forward-looking statements which
involve risks and uncertainties. The Company's actual results could differ
materially from those anticipated in these forward-looking statements as a
result of certain factors, including those set forth under "Risk Factors" and
elsewhere in this Prospectus.
EarthWeb is the leading provider of Internet-based online services to the IT
community worldwide. The Company's integrated business-to-business online
services address the needs of IT professionals for content, community and
commerce. EarthWeb's content offerings include a wide range of technical
materials, such as resource directories, tutorials and a reference library,
which enhance the ability of IT professionals to perform their job functions.
Its community areas, such as bulletin boards and question and answer services,
allow users to help one another solve technical problems and share information.
Its commerce services provide a single online source for IT professionals to
purchase specialized software and other products. EarthWeb's online services
also offer a channel through which advertisers and vendors can efficiently and
effectively target what the Company believes to be the largest aggregation of
IT professionals worldwide. As a global intermediary for IT professionals,
advertisers and vendors, EarthWeb is positioned as a trusted third party that
offers an integrated environment where these constituencies can share
information, interact with one another and transact business. EarthWeb believes
that none of the companies which it considers its competitors offer the depth
and range of online services provided by the Company.
EarthWeb's online services address the needs of IT professionals across various
segments of the IT industry. EarthWeb's flagship service, developer.com,
focuses primarily on the software development and Internet segments.
Developer.com features a vast collection of online resources, including the
full text of more than 150 technical books, over 375 proprietary tutorials, and
access to over 150,000 technical resources. EarthWeb has also obtained the
online rights to over 3,000 additional technical books that are expected to be
added to its online reference library. Developer.com's Gamelan directory is the
industry-recognized site for Java resources. The Company recently acquired
datamation.com, a leading resource for IT enterprise managers providing case
studies, technical articles and technology assessment tools. EarthWeb's online
services also include intranetjournal.com, a site for intranet managers,
javascripts.com, a resource for JavaScript developers, and jars.com, a site
providing ratings and reviews of Java and other code. Since March 1998 (the
first month in which the Company was afforded reliable data to make such a
calculation) EarthWeb's unique blend of online services has attracted an
average of over 1.4 million users a month to its online services (based on the
number of distinct Internet Protocol addresses which log onto the Company's
services). The email version of EarthWeb's Journal, featuring highlights from
the Company's online services, currently has over 305,000 subscribers.
INDUSTRY OVERVIEW
IT Industry
Professionals in the IT industry have become more specialized and have grown in
number as the pace and complexity of technological change has increased. IT
professionals today play a central role in many organizations because their
ability to deploy and integrate new information technologies is essential to
executing business strategy and maintaining competitiveness. Organizations are
increasingly adopting technologies such as client/server architectures, data
warehousing, Internet/intranet applications and object-oriented software
development. These and other technologies have continued to fuel the growth in
the worldwide market for IT products and services, which is forecasted to grow
from an estimated $717 billion in 1997 to $1.1 trillion in 2001, according to
IDC. IT spending in 1997 in North America, Western Europe and Japan is
estimated by IDC to be 41%, 28% and 14%, respectively, of total global IT
spending. EarthWeb believes, based on industry estimates, that the number of IT
professionals worldwide is approximately 15 million and will continue to grow.
27
<PAGE>
With the increasing complexity of information technology, professionals tend to
develop specialized knowledge and skill bases relevant to a particular segment
or sub-segment of the IT industry. These segments can be categorized into six
broad areas, each with major subsegments:
<TABLE>
<CAPTION>
SEGMENT DESCRIPTION MAJOR SUB-SEGMENTS
--------------------- ------------------------------- ------------------------
<C> <C> <S>
Software Development Creation of software C/C++, Java, Visual
applications using various Basic and other
programming languages, tools programming languages,
and environments object-oriented
technology and visual
development environments
Internet Technologies Use of technologies based on Internet, intranet,
and Web Development Internet protocols for extranet, Web sites,
communication and commerce both Internet commerce,
within and between Internet security and
organizations Internet protocols
Enterprise Management Deployment of sophisticated, Systems management
large-scale software software, financial
applications and systems to management systems,
manage and support functions enterprise resource
within businesses and other planning, Year 2000,
organizations middleware, field sales
automation, data
warehousing and supply
chain management
Networking and Design, installation and Network and directory
Telecommunications management of infrastructure services, data and voice
for data and voice communications
communications technologies, wireless
and mobile
communications and
Internet service
provider network
infrastructure
Hardware Design, manufacture, purchase Personal, midrange and
and maintenance of hardware mainframe systems;
components and peripherals computer chip, PC
display, multimedia and
disk storage
technologies
Services, Support and Services that support the Systems integration,
Consulting development, implementation and outsourced custom
maintenance of enterprise development, systems
computing systems design and maintenance,
outsourced network
management and technical
support
</TABLE>
IT professionals need to stay abreast of rapid technological developments in a
marketplace where vendors continually introduce new products with a variety of
standards and short life cycles. They have historically relied on resources
provided by IT publishers, software and hardware vendors, training service
providers and fellow professionals to follow the latest trends in the industry.
IDC forecasts that the IT education and training market alone will grow from an
estimated $16.7 billion in 1997 to $25.8 billion in 2001. Due to the fast rate
of change, however, technical information, training materials, and software
tools become quickly dated and obsolete. This environment creates the following
common needs among IT professionals:
Content. IT professionals require a wide range of independent, in-depth
and up-to-date content including technical resources, such as source
code, technical articles and white papers; market information about
emerging products and technologies; expert technical advice; training
and skills development; IT related research; and specialized reference
materials.
Community. IT professionals need an environment in which they can share
technical information with one another, work together to find solutions
to common technical problems, learn about upcoming IT conferences
and other industry events and seek employment and hire personnel.
Commerce. IT professionals increasingly need a centralized channel
through which they can purchase specialized IT products. In particular,
IT professionals need a source for obtaining hard-to-find technologies,
including software produced by small and mid-sized vendors that is not
widely available through existing channels.
IT professionals devote considerable time, effort and financial resources
researching new technologies, seeking answers to technical questions and
developing and implementing IT solutions. They have had to rely on fragmented
and disparate sources, such as technical books and print magazines, training
materials provided by service providers and traditional software retailers.
None of these sources has provided a comprehensive solution for IT
professionals' need for content, community and commerce.
The Internet
The Internet enables millions of people worldwide to have access to current
news and information, create community among individuals with similar
professional or personal interests and conduct business electronically. The
number of Internet users worldwide is projected to grow from an estimated 82
million at the end of 1997 to 329 million by the year 2002, according to IDC.
With this growth in the number of Internet users, the Internet is emerging as a
mass
28
<PAGE>
communication and commerce medium, which offers advertisers and vendors certain
advantages. The Internet permits advertisers to target specific demographic
groups, measure the effectiveness of their advertising campaigns and revise
them in response to real-time feedback. Business-to-business Internet
advertising is forecasted by Forrester to increase from an estimated $290
million in 1998 to $2.6 billion in 2002 and consumer-oriented Internet
advertising is forecasted by Jupiter Communications to increase from an
estimated $1.9 billion to $7.7 billion in the same period. The Internet
provides online merchants with the ability to reach a global audience and to
operate with minimal infrastructure, reduced overhead and greater economies of
scale, while providing customers with broad selection, increased pricing
information and unparalleled convenience. IDC forecasts that total commerce on
the Internet will grow from an estimated $12.4 billion in 1997 to $239.5
billion in 2001, with the business-to-business component growing from an
estimated $7.3 billion to $179.4 billion in the same period.
THE EARTHWEB SOLUTION
EarthWeb provides online services to IT professionals in an integrated
business-to-business environment that addresses their needs for content,
community and commerce. The Company provides comprehensive online services for
IT professionals and offers channels through which advertisers and IT vendors
can target potential buyers. As a global intermediary for IT professionals,
advertisers and vendors, EarthWeb is positioned as a trusted third party that
offers a forum for these constituencies to share information, interact with one
another and transact business.
Content. EarthWeb's online services provide access to technical resources that
enhance IT professionals' ability to perform their daily job functions. These
resources contain up-to-date information and allow IT professionals to keep
pace with the rapidly changing IT industry. EarthWeb's technical resources
include a library of full-text reference books, training materials and
tutorials, technical articles, white papers and source code libraries. IT
professionals can easily browse these technical resources using EarthWeb's
proprietary categorization system as well as search across EarthWeb's wide
range of content using a single semantic search engine.
Community. EarthWeb provides various means by which users can contribute
materials to its sites and communicate with each other. Users are encouraged to
submit source code, object code, development tools and other materials that are
then archived in EarthWeb's directories. EarthWeb's online services also
include a number of bulletin boards for technical discussion that allow users
to solve problems together, and which are managed by experienced IT
professionals to maintain the quality of content. These discussion threads are
then archived creating an online knowledge repository for future reference.
EarthWeb also provides IT professionals with a centralized calendar of upcoming
conferences and other industry events and online technical job listings. The
Company believes that nurturing a sense of community fosters loyalty and
affinity among its users and increases the amount of time they spend using its
online services.
Commerce. EarthWeb provides IT professionals with a centralized online location
to purchase products, including specialized software and technical books. Many
of the products in the online store are difficult to find through existing
channels. Vendors include major software developers, such as Microsoft, Lotus
and Symantec, as well as small and mid-sized specialized software vendors.
EarthWeb also provides a classified advertising service that allows IT
professionals to buy and sell specialized hardware. The Company has implemented
an electronic software delivery mechanism that enables users to download
directly a variety of software immediately after purchase.
Benefits for Advertisers and Vendors. EarthWeb provides IT advertisers and
vendors with a channel to target what it believes to be the world's largest
aggregation of IT professionals. Many of these professionals either make or
influence purchasing decisions. EarthWeb's advertisers and vendors generally
can enhance the effectiveness of their advertising or merchandising by
customizing or refining advertisements, and by placing them on either a
targeted area on EarthWeb's sites or across EarthWeb's entire network of online
services. EarthWeb also provides small to mid-size vendors with a much needed
distribution channel and the ability to focus their marketing efforts cost
effectively.
BUSINESS STRATEGY
EarthWeb seeks to maintain and strengthen its position as the leading provider
of online services to IT professionals worldwide. The Company intends to
achieve this objective by implementing the following key strategies:
Extend Online Services to Additional IT Segments. EarthWeb intends to extend
its online services model across additional segments of the IT industry.
Specifically, the Company seeks to replicate, through internal development and
acquisitions, its integrated service offerings to address the needs of IT
professionals in segments of the IT industry beyond its current
29
<PAGE>
offerings in the software development, Internet and enterprise management
segments. The recent acquisition of datamation.com, for instance, provides
EarthWeb with a strong service offering for the enterprise management segment.
EarthWeb also intends to continue strengthening its existing online offerings
by maintaining what it believes to be the most in-depth, independent and up-to-
date content available for IT professionals and enhancing its interactive
community-building and commerce services.
Enhance Worldwide Brand Recognition. The Company will continue to promote the
EarthWeb brand as the leading integrated source of content, community, and
commerce for all segments of the IT industry. In addition, EarthWeb plans to
promote its branded online services, such as developer.com and datamation.com,
under the EarthWeb umbrella through online and offline advertising, strategic
alliances and other promotional activities. The Company seeks to reinforce for
users, advertisers, and vendors that the EarthWeb brands represent technical
competence, comprehensiveness, timeliness, and neutrality. The Company believes
that the extension of the EarthWeb's online services model to additional IT
segments will attract additional users and further enhance awareness of its
brands.
Cultivate Multiple Revenue Streams. EarthWeb believes its business-to-business
model has strongly positioned it to grow its existing revenue streams and
develop new sources of revenue. The Company currently derives most of its
revenues from advertising and sponsorships. With regard to advertising revenue,
the Company will seek to maintain or increase the premium CPM rates it commands
for its targeted user base and to attract non-technology advertisers by
marketing the attractive demographics of its IT professional user base. With
regard to the Company's other current revenue streams, EarthWeb seeks to
attract more merchandisers to its online store and enter into additional brand
licensing arrangements. Future sources of revenue include the sale of
subscriptions to premium services. The Company launched its first subscription
service, ITknowledge.com, in October, 1998. The Company has the rights to the
content used in launching ITknowledge.com. Although the Company has migrated
some content from its existing sites, the Company expects that most of the
content in the subscription service will be content that does not exist on its
other sites. EarthWeb believes that many IT professionals or their employers
will be willing to pay for access to an increased volume of enhanced content.
The Company believes it can grow its current and future revenue streams with
minimal incremental costs by leveraging its existing sales, marketing and
technology infrastructure.
Grow Through Targeted Acquisitions. EarthWeb will continue to pursue
acquisitions to fulfill a number of objectives. The first, and most important,
is to strengthen EarthWeb's existing online services and extend its offerings
into additional IT industry segments. The second is to obtain valuable brands,
expertise and access to new advertisers and users. The third is to increase
traffic on EarthWeb's online services. Based on the Company's five acquisitions
since August 1997, EarthWeb has found that the addition of new sites generally
increases traffic on its existing sites as well as on the acquired sites.
EarthWeb believes it will continue to be able to find attractive candidates for
acquisition.
Expand Internationally. Many IT professionals reside outside the United States
and approximately one-third of the Company's traffic originates
internationally. EarthWeb believes that the number of IT professionals
worldwide will grow significantly in the future. The Company intends to
capitalize on these international market opportunities through localization and
translation of selected content into foreign languages and the creation of
regional business ventures to increase EarthWeb's audience worldwide. EarthWeb
has successfully localized and translated portions of its content for the
Japanese market and has other language translation efforts underway.
ONLINE SERVICES
EarthWeb offers a broad range of online services to meet IT professionals'
needs for content, community and commerce.
Content
The content on EarthWeb's sites includes technical resources, reference
materials, decision support tools, training materials and tutorials, technical
news, articles and information.
Technical Resources. EarthWeb's online services provide IT professionals with
access to over 150,000 resources and examples for use in their work, including
reusable source code and software interface components. EarthWeb also provides
online decision support tools including a regular technology survey of more
than 1,000 IT professionals and online assessment tools enabling IT managers to
evaluate their technology infrastructure. EarthWeb further provides extensive
technical resource directories which are categorized using its proprietary
categorization system and contain links to over 17,000 technical resources
related to topics such as Active Server Pages, ActiveX, C/C++, Cold Fusion,
CGI, databases,
30
<PAGE>
distributed objects, HTML/DHTML, intranets, Java, JavaScript, middleware, Perl,
push technology, Visual Basic, XML, VRML, data warehousing, networks, Year
2000, datamining and storage systems. Most of these technical resources are
submitted by users and include links to Web sites that contain technical
articles, training materials and source code. Most of the interface components
are provided through licenses with various aggregators of content. EarthWeb has
expended considerable time and effort in developing its proprietary
categorization system which enables users to quickly identify and locate
relevant technical resources, and has received industry recognition for this
system.
Reference Materials. EarthWeb believes its reference library is the largest
online library of technical books for IT professionals. Its more than 150
technical reference, how-to and training books for IT professionals are
provided in full text in HTML and address areas such as ActiveX, APIs,
browsers, C/C++, CGI, Perl, databases, HTML, Intranets, Java, Java Beans,
JavaScript, Linux, middleware, office suites, operating systems and utilities,
push technologies, servers and networks, SQL, TCP/IP, Unix, Visual Basic,
Visual InterDev, VRML, Web graphics and Web site management. EarthWeb is in the
process of adding more than 3,000 additional books to its online reference
library, which will comprise over 1.5 million pages of text. These books are
provided by leading publishers, such as Macmillan Computer Publishing and the
Coriolis Group, a division of International Thompson Publishing. EarthWeb also
provides in-depth product analysis, benchmarks and other product reference
information that facilitate product evaluation. Reference materials can be
browsed by their table of contents or searched using a semantic search engine.
Most of the online books can also be purchased in physical form through
EarthWeb's online store.
Training Materials and Tutorials. EarthWeb features over 375 original,
proprietary, in-depth technical tutorials for IT professionals on subjects such
as Active Server Pages, ActiveX, CGI, databases, distributed objects, emerging
technologies, Internet, HTML/DHTML, intranets, Java, JavaScript, multimedia,
Perl, general programming, Visual Basic, VRML and XML. The tutorials include
workshops on specific technical issues, online textbooks, source code, tests
and quizzes. The vast majority of these tutorials are owned exclusively by
EarthWeb; the others come from a variety of third-party publishers. EarthWeb
believes it offers one of the largest collections of training materials and
tutorials for IT professionals on the Web, and adds new training materials on a
weekly basis.
Technical News, Articles and Information. EarthWeb provides a range of original
articles, aggregated news and case studies. EarthWeb provides a vast collection
of articles on various technical subjects, including software development,
Internet technologies and Web development and enterprise management. EarthWeb
owns the articles which it has commissioned to be written. EarthWeb's online
Journal features highlights from EarthWeb's online services as well as original
news, research, analysis and feature articles. The Journal is published in HTML
and email formats. Currently, the email version has over 305,000 subscribers
and is growing at an average rate of more than 3,000 new subscribers each week.
EarthWeb also provides news of most interest to IT professionals, which is
aggregated daily from various media sources, including CMP and Ziff-Davis.
Community
EarthWeb provides useful interactive forums for IT professionals, such as
technical bulletin boards, question and answer services and job listings.
Technical Bulletin Boards. EarthWeb's online services include more than 20
technical bulletin boards containing more than 3,000 interactive technical
discussion threads, which are focused and managed by experienced IT
professionals. There are currently over 15,000 postings on the Company's Web
sites. These online bulletin boards enable users to help each other solve
technical problems. These bulletin boards are then archived, creating an online
knowledge repository for future reference. EarthWeb enables users to locate
relevant discussion threads through its search engine.
Technical Question and Answer Services. EarthWeb encourages users to submit
questions or problems that are answered by EarthWeb's network of experienced IT
professionals. Detailed answers are published online in a searchable format.
Technical Job Listings; Other Services. EarthWeb has entered into arrangements
with CareerBuilder and Junglee to provide its users with thousands of IT job
listings that can be searched by a number of parameters such as job type,
salary range and geographic location. Currently, companies that have job
listings posted with EarthWeb include Microsoft, Yahoo!, Intel, USWeb and
others. EarthWeb also provides a comprehensive calendar of upcoming IT
conferences and other industry events, and hosts online conference proceedings.
Commerce
EarthWeb provides a channel for IT professionals to shop online for specialized
IT products.
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Online Shopping. EarthWeb's online store provides IT professionals access to
over 700 products from over 100 vendors, including Microsoft, Lotus, Symantec
and other leading IT vendors. EarthWeb also offers products from small and mid-
size specialized software vendors. Many of such products are not available in
stores or catalogs. EarthWeb provides a browsable online catalog, secure
transactions and secure electronic delivery of software products. Books
purchased online are delivered directly from the vendor. EarthWeb intends to
contract with third parties for physical product fulfillment for books and
software. The Company has various agreements with product manufacturers whose
publications and software are sold on the Company's Web sites. The Company
records the gross revenue earned and the related royalty due to the vendor as a
cost of revenue when the products are sent electronically to the customers.
Classified Ads. EarthWeb provides technical classified advertising services for
the IT professional through a contractual arrangement with Classifieds2000. The
classified advertising section includes listings for technical equipment
ranging from desktop computers, modems and printers to hubs/repeaters, routers,
servers and switches.
MARKETING AND SALES
Marketing
The Company employs a combination of online and offline advertising and
promotional campaigns to promote use of its online services by users,
advertisers and vendors. The Company purchases advertising on search engines
and directories such as HotBot, Excite, NetCenter, AltaVista and Lycos and on
selected technical Web sites such as TechWeb and ZDNet. As part of these
arrangements with search engines, the Company buys advertising which appears
when certain keywords or topics are entered. EarthWeb is promoted by over
30,000 links from other Web sites and links on major distribution portals and
search engines. Additionally, EarthWeb's Java directory has a permanent
bookmark on Netscape's Communicator 4.0, and EarthWeb's developer.com was
chosen as one of 21 "gold channels" in the channel directory of Microsoft
Internet Explorers 4.0. EarthWeb further markets its online services through
its Journal, which is currently emailed to more than 305,000 subscribers.
EarthWeb also promotes its online services through traditional print media. The
Company has an ongoing public relations program, participates in tradeshows,
conferences, speaking engagements and promotional contests and publishes
articles in technical publications.
The Company pursues strategic relationships with key marketing partners to
enhance brand awareness. Developer.com's Gamelan directory has been exclusively
designated by Sun Microsystems as "The Official Directory for Java" since 1996.
EarthWeb's developer.com was designated by Apple as the exclusive online
location for the proceedings of the 1998 Apple Worldwide Developers Conference.
EarthWeb also licenses its brands to strategic third parties such as Macmillan
Computer Publishing which established the EarthWeb Press to publish books and
software for IT professionals.
Advertising Sales
EarthWeb historically has derived substantially all of its revenues from the
sale of advertisements. The Company believes it has been able to achieve its
advertising revenues to date primarily through its ability to enable
advertisers to efficiently and effectively reach targeted segments of the IT
community. Based on independent research commissioned by the Company, 81% of
EarthWeb's users are the primary or co-primary decision makers for purchases of
Internet and Web applications in their enterprises. EarthWeb believes that
targeting this audience has enabled it to sell advertising space at rates that
are higher than the average rates charged by online services aimed at more
general audiences since the beginning of 1997. Based upon publicly available
banner advertisement rate cards, EarthWeb's rates are approximately 2.5 to 4.0
times higher than the rates of Lycos, Excite, Yahoo! and Infoseek, which the
Company believes to be a representative group of online services aimed at more
general audiences. Independent research has also shown that 89% of users have
some college education, 30% have at least some graduate level education and 62%
are between 18 and 34 years old. EarthWeb believes these demographics will be
attractive to non-technology advertisers.
The Company offers advertisers two main advertising options: run-of-site and
premium placement. Run-of-site advertisements rotate on a random basis
throughout EarthWeb's online services, offering advertisers the broadest reach
of EarthWeb users. Run-of-site advertisements are typically sold in blocks of
50,000 impressions, currently at a CPM of $68, before volume discounts and
advertising agency commissions, for banner advertising. Advertisements can also
be displayed in specific sections in EarthWeb's service, which target specific
IT professional subsegments, at a CPM of $78, before volume discounts and
advertising agency commissions, for banner advertising. EarthWeb also offers
advertisers the opportunity to sponsor its weekly electronic newsletter, which
reaches over 305,000 users, at a CPM of $100.
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EarthWeb organizes its sales force by geographic regions as follows: New
England/Eastern Canada; Mid-Atlantic; Southeast/Midwest; Southwest and two
territories within the Northwest. As of October 31, 1998, EarthWeb had an
advertising sales force consisting of 14 representatives, including three
independent sales representatives. The Company plans to add several additional
sales personnel by the end of 1998.
During the nine months ended September 30, 1998, 109 unique advertisers, an
increase of 808% over the nine months ended September 30, 1997, placed
advertisements on EarthWeb's online services. Microsoft and IBM accounted for
approximately 14% and 10%, respectively, of the Company's revenues for the nine
months ended September 30, 1998. The following is a partial list of the
Company's significant advertisers:
Allaire Novell
Apple Computer Object Design
CyberCash Oracle
IBM O'Reilly Software
Intel Seagate
Lotus Silicon Graphics
Microsoft Stingray
Miller Freeman Sun Microsystems
Net Objects Tandem
Netscape ZD Expo/JavaOne
COMPETITION
EarthWeb believes it competes on the basis of brand recognition, exclusivity of
content and services, quality and quantity of content, product and resource
selection, convenience, reliability and speed of fulfillment. The Company
believes that it is differentiated and well positioned against its competitors
because of its unique focus on providing a combination of content, community
and commerce, including training materials, technical directories, a reference
library, a knowledge repository of technical questions and answers and
specialized technical products, for its users.
The market for Internet-based online services is relatively new, intensely
competitive and rapidly changing. Since the advent of commercial services on
the Internet, the number of online services competing for users' attention and
spending has proliferated because of, among other reasons, the absence of
substantial barriers to entry, and the Company expects that competition will
continue to intensify. The Company competes with other companies who have
particular sections of their Web sites directed at certain segments or sub-
segments of the professional community, such as Ziff-Davis (InternetUser), CNET
(builder.com and activex.com), CMP (TechWeb), Mecklermedia (webdeveloper.com),
Wired Digital (Webmonkey) and IDG (Javaworld). The Company also competes for
circulation and advertising impressions with general interest portal and
destination sites as well as traditional media. With respect to sales of
products, the Company competes with traditional retailers of such products,
such as book, software and online retail stores.
Many of the Company's current and potential competitors have longer operating
histories, larger customer bases, greater brand recognition and significantly
greater financial, marketing and other resources than the Company. These
competitors may be able to respond more quickly to new or emerging technologies
and changes in customer requirements and to devote greater resources to the
development, promotion and sale of their products and services than the
Company. There can be no assurance that the Company will be able to compete
successfully against its current or future competitors.
INFRASTRUCTURE, OPERATIONS AND TECHNOLOGY
The Company makes its Web sites available using multiple Sun Microsystems and
Wintel-based servers that run on Sun Solaris and Microsoft NT operating
systems. For disk storage, the Company partially relies on a high performance
and fully redundant central storage system from EMC. The full implementation of
this central storage system will significantly enhance the scalability of
EarthWeb's online services. The Company licenses software from the following
vendors: Apache and Netscape (Web servers); Accipiter (advertising management
system); BroadVision (commerce system); Netscape (subscriptions system) and
CyberSource (secure credit card capture and billing).
The Company maintains two data centers, one for production and one for
development and staging. In the event of an outage at the production facility,
the systems in the development and staging center are capable of supporting the
Company's online services. The Company's Internet connections are fully
redundant, so that if a failure in the network or equipment of one service
provider occurs, traffic is automatically routed through the other provider.
All of the Company's
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production servers are powered by an uninterruptible power supply with a diesel
generator designed to provide back-up power to the power supply at the
production facility within seconds of a power outage. In addition, all of the
Company's production systems are copied to backup tapes each night and
regularly stored at an off-site storage facility. The Company maintains a
quality assurance process to constantly monitor its servers, processes and
network connectivity. The Company has implemented these various redundancies
and backup systems in order to minimize the risk associated with damage from
fire, power loss, telecommunications failure, break-ins, computer viruses and
other events beyond the Company's control. See "Risk Factors--Risk of Capacity
Constraints and System Failures."
INTELLECTUAL PROPERTY
The Company protects its intellectual property through a combination of license
agreements, trademark, service mark, copyright, trade secret laws and other
methods of restricting disclosure and transferring title. The Company obtains
the majority of its content under license agreements with publishers, through
work for hire arrangements with third parties and from internal staff
development. The Company currently has no patents or patents pending for its
current online services and does not anticipate that patents will become a
significant part of the Company's intellectual property in the foreseeable
future. The Company also enters into confidentiality agreements with its
employees, consultants, vendors and customers, license agreements with third
parties and generally seeks to control access to and distribution of its
technology, documentation and other proprietary information. The Company
pursues the registration of its trademarks in the United States and
internationally, and has obtained a United States registration for its
"EarthWeb" trademark and the related logo, "Plugin Datamation" and "Datamation"
and has applied for registration of certain of its other trademarks and
servicemarks, such as "developer.com" and "developerdirect.com." The legal
status of intellectual property on the Internet is currently subject to various
uncertainties. See "Risk Factors--Intellectual Property."
EMPLOYEES
As of October 31, 1998 the Company had 63 full time employees, including 19 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 November 9, 1998.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
NAME AGE POSITION
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
Jack D. Hidary(1) 30 President, Chief Executive Officer and Director
Murray Hidary 27 Executive Vice President, Business Development, Secretary, Treasurer
and Director
Nova Spivack 29 Strategic Planning Advisor and Director
William Gollan 51 Senior Vice President
Irene Math 36 Vice President, Finance
Kevin McPherson 40 Vice President, Worldwide Advertising Sales
John Kleine 44 Vice President, Systems and Operations
Scott Anderson 43 Vice President, Marketing
Cary Davis(1)(2) 32 Director
Henry Kressel(1)(2) 64 Director
</TABLE>
- -------
(1) Member of the Compensation Committee of the Board of Directors
(2) Member of the Audit Committee of the Board of Directors
Messrs. Jack D. Hidary and Murray Hidary are brothers.
JACK D. HIDARY has served as the President, Chief Executive Officer and a
director of the Company since April 1996 and has co-managed its predecessors
since January 1995. Mr. Hidary is a co-founder of the Company. From November
1991 to July 1994, Mr. Hidary served as a Stanley Fellow in Clinical
Neuroscience at the National Institutes of Health, where he helped establish a
digital brain imaging laboratory making use of Internet, neural network and
other advanced technologies. Prior to this fellowship, Mr. Hidary helped build
ColumbiaNet, the online service of Columbia University, where he also studied
Philosophy and Neuroscience.
MURRAY HIDARY has been the Executive Vice President, Business Development and a
director of the Company since April 1996 and has co-managed its predecessors
since January 1995. Mr. Hidary is a co-founder of the Company. Mr. Hidary
studied Music and Composition at New York University.
NOVA SPIVACK has been the Strategic Planning Adviser of the Company since
August 1998 and has been a director of the Company since April 1996. From April
1996 until July 1998, Mr. Spivack served as Executive Vice President, Strategic
Planning of the Company and since January 1995 has co-managed its predecessors.
Mr. Spivack is a co-founder of the Company. Prior to 1994, Mr. Spivack was the
Editor/Reviewer of Interactive and Multimedia News at Individual, Inc. Mr.
Spivack received his B.A. in Philosophy from Oberlin College and a C.S.S.
degree from the International Space University.
WILLIAM GOLLAN has been the Senior Vice President of the Company since November
1997. Prior to joining the Company, Mr. Gollan was a Senior Vice President of
LitleNet beginning in February 1996 focusing on electronic software
distribution. From March 1994 to April 1996, Mr. Gollan was a Vice President,
Sales and Marketing for Kurzweil Applied Intelligence. From December 1987 to
March 1994, Mr. Gollan was a Managing Director of Weathervane Management
Consultants. In 1990, Mr. Gollan co-founded Computer Buying World Magazine, an
IDG monthly trade magazine focused on the computer distribution channel. Mr.
Gollan attended Northeastern University.
IRENE MATH has been the Vice President, Finance of the Company since November
1996. From June 1995 to May 1996, Ms. Math served as Corporate Controller for
MCI/News Corp.'s Internet Ventures. From July 1992 to May 1995, she was a Vice
President in Banking and Corporate Finance at Chemical Bank. From September
1984 to June 1992, Ms. Math held various positions at Arthur Andersen & Co. Ms.
Math graduated from Lehigh University with a B.S. in Accounting and is a
Certified Public Accountant.
KEVIN MCPHERSON has been the Vice President, Worldwide Advertising Sales of the
Company since July 1998. From 1997 through June 1998, Mr. McPherson served as
Vice President and Publisher of BYTE Magazine. From September 1996 to January
1997, Mr. McPherson served as Senior Vice President of Network Sales for IDG.
From 1981 through September 1996, Mr. McPherson served in various capacities at
Computerworld including Senior Vice President and Publisher. Mr. McPherson
received a B.A. from the University of Richmond and an M.B.A from the
University of Connecticut.
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JOHN KLEINE has been the Vice President, Systems and Operations of the Company
since January 1998. Prior to joining the Company, Mr. Kleine served as Vice
President, Director of Business Systems from 1983 to 1997 at True North
Communications where he was responsible for all desktop systems, voice and data
networking, data center operations and graphics design computing. Prior to
1983, Mr. Kleine held various financial positions at Warner Communications,
Inc. and Viacom International, Inc. Mr. Kleine received his B.A. in Accounting
and Mathematics from Queens College.
SCOTT ANDERSON has been the Vice President, Marketing of the Company since
August 1998. From 1994 to July 1998, Mr. Anderson served as a Partner and
Worldwide Management Supervisor at Ogilvy & Mather where he ran the global IBM
Software Group account. In 1994, Mr. Anderson worked at west coast advertising
agency, Suissa Miller, where he launched Crayola's software family. Prior to
that, he worked at Drew Advertising where, among other accomplishments, he
built the Peter Norton software brand franchise. He won the American Marketing
Association's Effie award for marketing effectiveness for both the Crayola and
IBM software launches. Mr. Anderson received a B.S. from Rutgers University.
CARY DAVIS has been a director of the Company since February 1998. Mr. Davis
has served with E.M. Warburg, Pincus & Co., LLC, since October 1994 and has
been a Vice President since January 1998. From August 1992 to September 1994,
Mr. Davis was employed by Dell Computer Corporation, where his last position
was Manager of Worldwide Desktop Marketing. Mr. Davis also serves as a director
of BEA Systems, Inc. Mr. Davis holds a B.A. from Yale University and an M.B.A.
from Harvard University.
HENRY KRESSEL has been a director of the Company since October 1996. Dr.
Kressel has served with E.M. Warburg, Pincus & Co., LLC, an investment firm,
since 1983 and has been a Managing Director since 1985. Prior to 1983, Dr.
Kressel was Staff Vice President for research and development in solid state
technology at the RCA Corporation. Dr. Kressel also serves as a director of
Level One Communications, Inc., a semi-conductor company, IA Corporation, a
software development company and Nova Corporation, a credit card processing
company. Dr. Kressel received a B.A from Yeshiva University, a Masters in
Applied Physics from Harvard University, a Ph.D. in Engineering from the
University of Pennsylvania and an M.B.A. from The Wharton School of Business at
the University of Pennsylvania.
BOARD OF DIRECTORS
The Company currently has five directors serving on its Board of Directors.
Each of the current members of the Board of Directors has been elected pursuant
to the terms of the Amended and Restated Shareholders Agreement entered into in
June 1997 by and among Global Network Partners LLC ("GNP"), EarthWeb LLC and
Warburg, which provisions will terminate upon the consummation of the Offering.
Under the terms of the Amended and Restated Certificate of Incorporation and
By-Laws, Nova Spivack's term as director shall expire at the first succeeding
annual meeting of the stockholders following the Offering; Murray Hidary's and
Cary Davis' terms as directors shall expire at the second succeeding annual
meeting of the stockholders following the Offering and Jack D. Hidary's and
Henry Kressel's terms as directors shall expire at the third succeeding annual
meeting of the stockholders following 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 Amended and
Restated Certificate of Incorporation and Amended and Restated By-laws 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
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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
Intercompany Services Agreement), each of the Managers agreed to serve as an
officer and employee of the Company as if the Company were "the Company" under
their respective Employment Agreement. In connection therewith, the Company
agreed to assume all of the obligations of GNP under the Employment Agreements,
including payments of salary and other compensation. Mr. Jack D. Hidary
receives an annual base salary of $160,000 per annum, subject to cost of living
increases, and Mr. Murray Hidary receives an annual base salary of $130,000 per
annum, subject to cost of living increases. Each Manager is also entitled to
receive bonuses as may from time-to-time be awarded by the Board of Directors
to such Manager.
In the event either Mr. Jack D. Hidary or Mr. Murray Hidary is terminated
without "cause" (as such term is defined in the respective Employment
Agreement), each may continue to receive their respective base salary for a
period of up to two years following such termination. The continued payment of
such Manager's base salary is contingent upon such Manager's not disclosing the
Company's confidential information or competing with the business of the
Company.
The Company entered into a consulting agreement with Nova Spivack, effective
August 1, 1998, pursuant to which Mr. Spivack will provide advisory services to
the CEO and senior management. Under this agreement, Mr. Spivack receives
compensation in the amount of $6,000 per month, subject to cost of living
increases, and a separation payment of $200,000 in cash, of which $100,000 was
paid upon execution of the agreement and the remainder will be paid upon the
earlier to occur of the consummation of this Offering and February 1, 1999. The
term of the agreement is 18 months. For the period commencing on the date which
is 30 days after the consummation of this Offering, and terminating on the
181st day after the consummation of this Offering, Mr. Spivack has the option
to sell to the Company shares of Common Stock in an amount up to $200,000,
calculated based on the average daily closing price during the period preceding
exercise of the option. However, this option cannot be exercised without a
prior written consent of J.P. Morgan Securities Inc. If EarthWeb terminates the
agreement for "cause", as defined in the agreement, Mr. Spivack will be
entitled to up to 12 months compensation plus bonuses. If EarthWeb terminates
the agreement without "cause", Mr. Spivack will be entitled to up to 18 months
compensation plus bonuses. If Mr. Spivack terminates the agreement for "cause",
as defined in the agreement, he may be entitled to up to 15 months compensation
plus bonuses. If Mr. Spivack terminates the agreement without "cause", he may
be entitled to up to 12 months compensation plus bonuses. The agreement
prohibits Mr. Spivack from competing with the Company during the term of the
agreement and for two years thereafter, subject to an additional two-year
extension.
The Company entered into an employment agreement with Irene Math dated November
4, 1996, pursuant to which Ms. Math serves as Vice President, Finance of the
Company. The agreement provides for an initial annual base salary of $115,000,
subject to cost of living increases. Ms. Math is also entitled to receive
bonuses payable in accordance with management bonus programs established by the
Company. The agreement is terminable at any time by either party. In the event
of (i) the involuntary termination of Ms. Math by the Company for reasons set
forth in the agreement, or (ii) a change of control, Ms. Math is entitled to
receive (a) up to six months salary and benefits, and (b) the vesting of an
additional 15% of any unvested stock options. The agreement prohibits Ms. Math
from competing with the Company during the term of the agreement and for one
year thereafter.
The Company entered into an employment agreement with William Gollan dated
November 3, 1997, pursuant to which Mr. Gollan serves as Senior Vice President
of the Company. Mr. Gollan was paid a one-time signing bonus of $42,500.
The agreement provides for an initial annual base salary of $137,500, subject
to increase upon certain specified business results being achieved, plus
bonuses. If Mr. Gollan is terminated "without cause" as defined in the
agreement, he is entitled to up to nine months salary and benefits. Pursuant to
the terms of his stock option agreement, upon a termination of Mr. Gollan
without cause or the occurrence of certain significant events, the vesting of
certain of Mr. Gollan's stock options will accelerate. The agreement prohibits
Mr. Gollan from competing with the Company during the term of the agreement and
one year thereafter.
BENEFIT PLANS
Stock Option Plan
The Company's 1996 Amended and Restated Stock Plan, (as amended to date, the
"Stock Plan") was adopted by the Board of Directors of the Company in October
1996 and was subsequently ratified by the stockholders of the Company. The
Stock Plan provides for the grant of incentive stock options and non-qualified
stock options. The Stock Plan also provides for the issuance of stock
appreciation rights and restricted stock. Directors, employees and consultants
of the Company are eligible to receive grants under the Stock Plan. The Stock
Plan is administered by the Compensation Committee. The Stock Plan authorizes
646,857 shares of Common Stock for issuance, subject to adjustment as set forth
in the Stock Plan. As of December 31, 1997, options relating to 201,489 shares
of Common Stock were outstanding and approximately 445,368
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remained available for future grants. No stock appreciation rights of
restricted stock have been granted under the Stock Plan. Twenty six thousand
options to purchase Common Stock at the exercise price equal to the initial
public offering price were granted under the Stock Plan in November 1998 to
certain new employees of the Company. Following the consummation of the
Offering no additional options shall be granted under the Stock Plan.
1998 Stock Incentive Plan
The Company's 1998 Stock Incentive Plan (the "1998 Stock Incentive Plan") was
adopted by the Board of Directors in November 1998 and has been approved by the
Company's stockholders. 795,000 shares of Common Stock have been reserved for
issuance under the 1998 Stock Incentive Plan, plus an annual increase to be
added on the first day of the Company's fiscal year beginning in 2000 equal to
two percent (2%) of the number of shares outstanding as of such date or a
lesser number of shares determined by the Compensation Committee (of which up
to 159,000 shares have been reserved for issuance as Incentive Stock Options
(as defined below)), plus an annual increase to be added on the first day of
the Company's fiscal year beginning in 2000 equal to the lesser of (i) 400,000
shares, (ii) four tenths of one percent (.4%) of the number of shares
outstanding as of such date or (iii) a lesser number of shares determined by
the Compensation Committee , subject to adjustment in the event of stock split,
stock dividend or other similar change in the Company's capital structure, as
set forth in the 1998 Stock Incentive Plan. The 1998 Stock Incentive Plan will
become effective upon the closing of the Offering and will serve as a successor
to the Stock Plan.
The purpose of the 1998 Stock Incentive Plan is to attract and retain the best
available personnel, to provide additional incentive to employees, directors
and consultants of the Company and to promote the success of the Company's
business. The 1998 Stock Incentive Plan provides for the granting to the
Company's employees of options to purchase Common Stock that are designated to
qualify under Section 422 of the Internal Revenue Code of 1986, as amended (the
"Code"), as "incentive stock options" ("Incentive Stock Options") and the
granting of nonstatutory stock options, stock appreciation rights, dividend
equivalent rights, restricted stock, performance units, performance shares, and
other equity-based rights ("1998 Awards") to employees, directors and
consultants of the Company.
The 1998 Stock Incentive Plan is administered by the Compensation Committee,
which shall determine the provisions, terms and conditions of each 1998 Award,
including, but not limited to, the 1998 Award vesting schedule, repurchase
provisions, rights of first refusal, forfeiture provisions, form of payment
upon exercise of the 1998 Award, payment contingencies and satisfaction of any
performance criteria.
Incentive Stock Options are not transferable by the optionee other than by will
or the laws of descent and distribution, and each Incentive Stock Option is
exercisable during the lifetime of the optionee only by such optionee. Other
1998 Awards shall be transferable to the extent provided in the agreement
evidencing the 1998 Award.
The exercise price of Incentive Stock Options must be at least equal to the
fair market value of the Common Stock on the date of grant, and the term of the
option must not exceed ten years. With respect to an employee who owns stock
possessing more than 10% of the voting power of all classes of the Company's
outstanding capital stock, the exercise price of any Incentive Stock Option
must equal at least 110% of the fair market value of the Common Stock on the
grant date and the term of the option must not exceed five years. The term of
other 1998 Awards will be determined by the Compensation Committee. The
exercise price or purchase price of nonstatutory stock options will be such
price as determined by the Compensation Committee, but will not be less than
85% of the fair market value of the stock, and the exercise price or purchase
price, if any, of other 1998 Awards will be such price as determined by the
Compensation Committee. The consideration to be paid for the shares of Common
Stock upon exercise or purchase of a 1998 Award will be determined by the
Compensation Committee and may include cash, check, promissory note, shares of
Common Stock, or the assignment of part of the proceeds from the sale of shares
acquired upon exercise or purchase of the 1998 Award.
Where the 1998 Award agreement permits the exercise or purchase of a 1998 Award
for a certain period of time following the recipient's termination of service
with the Company, disability, or death, such 1998 Award will terminate to the
extent not exercised or purchased on the last day of the specified period or
the last day of the original term of such 1998 Award, whichever occurs first.
Unless terminated sooner, the 1998 Stock Incentive Plan will terminate
automatically in 2008. The Board has the authority to amend, suspend or
terminate the 1998 Stock Incentive Plan subject to stockholder approval of
certain amendments and provided no such action may affect 1998 Awards
previously granted under the 1998 Stock Incentive Plan unless agreed to by the
affected grantees.
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1998 Employee Stock Purchase Plan
The Company's 1998 Employee Stock Purchase Plan (the "Stock Purchase Plan") was
approved by the Board of Directors in November 1998 and has been approved by
the Company's stockholders and will become effective upon the closing of the
Offering. The Stock Purchase Plan is intended to qualify as an "employee stock
purchase plan" under Section 423 of the Code in order to provide employees of
the Company with an opportunity to purchase Common Stock through payroll
deductions. An aggregate of 159,000 shares of the Company's Common Stock has
been reserved for issuance under the Stock Purchase Plan and is available for
purchase thereunder, plus an annual increase to be added on the first day of
the Company's fiscal year beginning in 2000 equal to the lesser of (i) 400,000
shares, (ii) two percent (2%) of the outstanding shares on such date or (iii) a
lesser number of shares determined by the Compensation Committee, subject to
adjustment in the event of a stock split, stock dividend or other similar
change in the Common Stock or the capital structure of the Company. Except for
any employees (i) who, after giving effect to the grant under the Stock
Purchase Plan, would own shares and options equal to 5% or more of the total
voting power of the Company's outstanding Common Stock, (ii) whose rights under
all of the Company's stock purchase plans accrue at a rate exceeding $25,000
per year, (iii) whose customary employment is 20 or fewer hours per week or 5
or fewer months per year or (iv) who are subject to laws of a foreign
jurisdiction that prohibit or make impracticable such employees participation
in the Stock Purchase Plan, all employees of the Company are eligible to
participate in the Stock Purchase Plan.
Offer periods under the Stock Purchase Plan ("Offer Periods") are generally
overlapping periods of 24 months. The initial Offer Period commences on the
closing date of the Offering. Additional Offer Periods will commence each
August 1 and February 1. Purchase periods under the Stock Purchase Plan
("Purchase Periods") are generally six month periods, with the initial Purchase
Period commencing on the closing date of the Offering. Thereafter, Purchase
Periods will commence each August 1 and February 1. Exercise dates under the
Stock Purchase Plan ("Exercise Dates") are the last day of each Purchase
Period. An Offer Period may be shortened in the event of a merger of the
Company with or into another corporation, the sale of all or substantially all
of the assets of the Company, or certain other transactions.
On the first day of each Offer Period, a participating employee is granted a
purchase right which is a form of option to be automatically exercised on the
forthcoming Exercise Dates within the Offer Period during which deductions are
to be made from the pay of participants (in accordance with their
authorizations) and credited to their accounts under the Stock Purchase Plan.
When the purchase right is exercised, the participant's withheld salary is used
to purchase shares of Common Stock of the Company. The price per share at which
shares of Common Stock are to be purchased under the Stock Purchase Plan during
any Purchase Period is the lesser of (a) the fair market value of the Common
Stock (as defined in the Stock Purchase Plan) on the date of the grant of the
option (the commencement of the Offer Period) or (b) the fair market value of
the Common Stock (as defined in the Stock Purchase Plan) on the Exercise Date
(the last day of a Purchase Period). The participant's purchase right is
exercised in this manner on both Exercise Dates arising in the Offer Period
unless, on the first day of any Purchase Period, the fair market value of the
Common Stock is lower than the fair market value of the Common Stock on the
first day of the Offer Period. If so, the participant's participation in the
original Offer Period is terminated, and the participant is automatically
enrolled in the new Offer Period effective the same date.
Payroll deductions may range from 1% to 15% (in whole percentage increments) of
a participant's regular base pay, exclusive of overtime, bonuses, shift-
premiums or commissions, but not more than $21,250 per year. Participants may
not make additional payments to their accounts. The maximum number of shares of
Common Stock which any employee may purchase under the Stock Purchase Plan
during a Purchase Period is determined by dividing 15% of the employee's
regular base pay by the applicable purchase price. Certain additional
limitations on the amount of Common Stock which may be purchased during any
calendar year are imposed by the Code.
The Stock Purchase Plan will be administered by the Compensation Committee,
which will have the authority to terminate or amend the Stock Purchase Plan
(subject to specified restrictions) and otherwise to administer the Stock
Purchase Plan and to resolve all questions relating to the administration of
the Stock Purchase 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.
39
<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 $10,000 -- --
Nova Spivack(2)
Executive Vice President,
Strategic Planning 130,000 10,000 -- --
Murray Hidary
Executive Vice President,
Business Development 130,000 10,000 -- --
Irene Math
Vice President, Finance 118,000 10,000 -- 29,249
</TABLE>
- -------
(1) Represents bonuses earned in 1997, one-half of which was paid in 1998.
(2) Mr. Spivack was Executive Vice President, Strategic Planning through July
1998.
OPTION GRANTS IN FISCAL YEAR ENDED DECEMBER 31, 1997
The following table sets forth information regarding stock options granted
pursuant to the Stock Plan during the fiscal year ended December 31, 1997 to
each of the Named Executive Officers. The Company has never granted stock
appreciation rights.
<TABLE>
<CAPTION>
---------------------------------------------------------------------------
OPTION GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS
-----------------------------------------------------
PERCENT OF
TOTAL OPTIONS POTENTIAL REALIZABLE
GRANTED TO VALUE AT ASSUMED
EMPLOYEES (NET ANNUAL RATES
NUMBER OF OF FORFEITURES) IN OF
SECURITIES FISCAL YEAR EXERCISE OR STOCK PRICE
UNDERLYING ENDED BASE APPRECIATION FOR
OPTIONS DECEMBER 31, PRICE PER EXPIRATION OPTION TERM(4)
NAME GRANTED(1) 1997(2) ($/SHARE)(3) DATE 5% 10%
- ---- ---------- ------------------ ------------ ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Jack D. Hidary.......... -- -- $ -- -- -- --
Nova Spivack............ -- -- -- -- -- --
Murray Hidary........... -- -- -- -- -- --
Irene Math.............. 17,518 8.7% $1.54 2/18/04 $293,469 $416,813
11,731 5.8% $3.08 9/30/04 $178,456 $261,054
</TABLE>
- -------
(1) Such options were granted pursuant to and in accordance with the Stock
Plan. See "Benefit Plans--Stock Option Plan."
(2) Based on an aggregate of 201,489 options granted (net of forfeitures) to
employees in the year ended December 31, 1997, including options granted to
Named Executive Officers.
(3) The exercise price per share of each option was equal to the fair market
value of the Common Stock on the date of the grant as determined by the Board
of Directors. The Company determined fair market value of the Common Stock on
the date of the grant based upon the most recent price paid by a third party
for the Company's Preferred Stock with an appropriate discount as a result of
the Preferred Stock having a liquidation preference, the right to board
representation and a cumulative preferred dividend.
(4) Potential realizable values are computed by (i) multiplying the number of
shares of Common Stock subject to a given option by an assumed initial public
offering price of $13.00 per share, (ii) assuming that the aggregate stock
value derived
40
<PAGE>
from that calculation compounds at the annual 5% or 10% rate shown in the table
for the entire seven-year term of the option and (iii) subtracting from that
result the aggregate option exercise price. The 5% and 10% assumed annual rates
of stock price appreciation are mandated by the rules of the Securities and
Exchange Commission and do not represent the Company's estimate or projection
of future Common Stock prices. Actual gains, if any, resulting from stock
option exercises and Common Stock holdings are dependent on the future
performance of the Common Stock, overall stock market conditions and the option
holder's continued employment with the Company through the vesting period.
There can be no assurance that the amounts reflected in this table will be
achieved.
DECEMBER 31, 1997 -- FISCAL YEAR END OPTION VALUES
The following table sets forth information concerning unexercised options held
by the Named Executive Officers as of December 31, 1997. The values of
unexercised in-the-money options represent the positive spread between the
respective exercise prices of outstanding stock options and an assumed initial
public offering price of $13.00 per share.
<TABLE>
<CAPTION>
---------------------------------------------------
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS AT
FISCAL YEAR END FISCAL YEAR END(1)
------------------------- -------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Jack D. Hidary.............. -- -- -- --
Nova Spivack................ -- -- -- --
Murray Hidary............... -- -- -- --
Irene Math.................. -- 29,249 -- $317,128
</TABLE>
- -------
(1) Based on the value of $13.00, the assumed initial public offering price per
share, minus the per share exercise price, multiplied by the number of shares
issuable upon exercise of the option.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
On August 1, 1998, Messrs. Jack D. Hidary, Cary Davis and Henry Kressel were
appointed as members of the Compensation Committee. Mr. Hidary has served as
President and Chief Executive Officer of the Company since April 1996. Mr.
Hidary is also a member of GNP, which is the controlling member of EarthWeb
LLC. Mr. Hidary will abstain from Compensation Committee decisions regarding
his own compensation. Mr. Davis has served with E.M. Warburg, Pincus & Co., LLC
since October 1994 and has been a Vice President since January 1998. Dr.
Kressel has served with E.M. Warburg, Pincus & Co., LLC since 1983 and has been
a Managing Director since 1985. In October 1996, the Company issued 2,925,000
shares of Common Stock to EarthWeb LLC and assumed substantially all of the
liabilities of EarthWeb LLC in exchange for substantially all of the assets of
EarthWeb LLC. At the time of such transaction, EarthWeb LLC was the sole owner
of Common Stock then outstanding and, consequently, the members of EarthWeb LLC
(which included GNP, of which Messrs. Jack D. Hidary, Murray Hidary and Nova
Spivack were the members at such time) retained their proportionate interests
in EarthWeb through the ownership by EarthWeb LLC of such Common Stock. In June
1998, the Company issued 433,965 shares of its Common Stock to EarthWeb LLC for
an aggregate purchase price of $3.7 million. In October 1996, the Company
issued 653,111 shares of Series A Preferred Stock to Warburg in a private
placement for an aggregate purchase price of approximately $6.7 million, of
which $4.9 million was received by the Company and the remainder was used to
repay certain investors and cover the transaction costs. In June 1997, the
Company issued 598,086 shares of Series B Preferred Stock to Warburg for an
aggregate purchase price of $10.0 million. All of the Series A Preferred Stock
and Series B Preferred Stock are convertible into Common Stock at the ratio of
1.95 shares of Common Stock for each share of Preferred Stock and will be
converted into 2,439,833 shares of Common Stock upon the consummation of the
Offering by Warburg in accordance with its agreement with the Company.
41
<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of Common Stock as of November 9, 1998 (assuming the Preferred Stock
Conversion) and as adjusted to reflect the sale of the Common Stock offered
hereby by (i) each person (or group within the meaning of Section 13(d)(3) of
the Securities Exchange Act of 1934) known by the Company to own beneficially
5% or more of the Common Stock, (ii) the Company's directors and Named
Executive Officers, (iii) all directors and executive officers of the Company
as a group. In addition, in connection with the Offering, certain members of
EarthWeb LLC will redeem all or a portion of their interest in EarthWeb LLC for
a pro rata distribution of shares of Common Stock held by EarthWeb LLC (the
"Redemption"). Immediately following the Redemption, GNP will ratably
distribute the shares of Common Stock which it received in the Redemption to
its members, Jack D. Hidary, Murray Hidary and Nova Spivack (collectively, the
"GNP Members"). Immediately after that distribution, Nova Spivack will resign
from GNP. Warburg, Pincus Ventures, L.P. and the GNP Members (the "Selling
Stockholders") will be selling shares in the Offering, if and to the extent
that the Underwriters exercise the overallotment option.
<TABLE>
<CAPTION>
-----------------------------------------------
BENEFICIAL OWNERSHIP BENEFICIAL OWNERSHIP
PRIOR TO OFFERING(2) AFTER OFFERING(2)(3)
NAME AND ADDRESS OF
BENEFICIAL OWNERS(1)(2) NUMBER PERCENT NUMBER PERCENT
- ----------------------- ----------- ---------- ------ -------
<S> <C> <C> <C> <C> <C>
EarthWeb LLC(3)................ 3,358,965 57.88% 110,958 *
Warburg, Pincus Ventures,
L.P.(5)....................... 2,439,833 42.04% 2,439,833 30.87%
Jack D. Hidary(6)(7)........... 3,468,888 58.68% 1,154,137 14.41%
Murray Hidary(6)(7)............ 3,468,888 58.68% 1,154,137 14.41%
Nova Spivack(6)(7)............. 3,468,888 58.68% 557,509 6.96%
Global Network Partners
LLC(3)(7)..................... 3,468,888 58.68% 220,915 *
Cary Davis(8).................. 2,439,833 42.04% 2,439,833 30.87%
Henry Kressel(8)............... 2,439,833 42.04% 2,439,833 30.87%
Irene Math(9).................. 17,525 * 17,525 *
All Directors and executive
officers as a group (10
persons)(6)(7)(8)(10)......... 5,911,203 100.00% 5,911,203 73.79%
</TABLE>
- -------
* Less than 1%
(1) Unless otherwise noted, the address of each of the persons listed is 3 Park
Avenue, New York, New York 10016.
(2) As used in this table, "beneficial ownership" means the sole or shared
power to vote or direct the voting or to dispose or direct the disposition of
any security. A person is deemed to be the beneficial owner of securities that
can be acquired within 60 days from the date of this Prospectus through the
exercise of any option, warrant or right. Shares of Common Stock subject to
options, warrants or rights which are currently exercisable or exercisable
within 60 days are deemed outstanding for computing the ownership percentage of
the person holding such options, warrants or rights, but are not deemed
outstanding for computing the ownership percentage of any other person. The
amounts and percentages are based upon 5,911,203 shares of Common Stock
outstanding as of November 9, 1998, and 8,011,203 shares of Common Stock
outstanding as of the close of the Offering, respectively.
(3) In connection with this Offering, EarthWeb LLC is distributing a portion of
its interest, and GNP, upon such distribution by EarthWeb LLC, is distributing
a portion of its interest, in the Common Stock on a pro rata basis to its
respective partners, as described above.
(4) Assumes no exercise of the Underwriters' over-allotment option. If the
over-allotment option is exercised in full, the Selling Stockholders will sell
an aggregate of 315,000 additional shares of Common Stock. Specifically,
Warburg, Pincus Ventures, L.P. will sell 189,000 shares, Jack D. Hidary will
sell 48,510 shares, Murray Hidary will sell 48,510 shares, and Nova Spivack
will sell 28,980 shares, and will beneficially own 2,250,833 and 1,105,627,
1,105,627 and 528,529 shares, or 28.48%, 13.80%, 13.80% and 6.60% of the
Company's outstanding Common Stock, respectively, after completion of the
Offering.
(5) 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.
42
<PAGE>
(6) Jack D. Hidary, Murray Hidary and Nova Spivack are members of GNP, which is
owned 38.5% by Jack D. Hidary, 38.5% by Murray Hidary and 23% by Nova Spivack.
GNP is the managing member of 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.
(7) Includes 109,923 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
17,525 shares beneficially owned by Ms. Math and 52,882 shares beneficially
owned by all directors and officers as a group. Pursuant to such agreement,
Global Network Partners LLC (which is owned by Jack D. Hidary, Murray Hidary
and Nova Spivack) has the right to vote shares received upon the exercise of
such options, and thus may be deemed to beneficially own the shares of stock
subject to such options. Jack D. Hidary, Murray Hidary and Nova Spivack each
disclaim beneficial ownership of such shares.
(8) 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.
(9) Includes 15,575 shares subject to stock options that are exercisable within
60 days (includes options which vest upon the completion of the Offering).
(10) Includes 50,932 shares subject to stock options that are exercisable
within 60 days (includes options which vest upon the completion of the
Offering).
As of November 9, 1998, the Company had 41 holders of its Common Stock.
43
<PAGE>
CERTAIN TRANSACTIONS
In October 1996, the Company issued 2,925,000 shares of Common Stock to
EarthWeb LLC and assumed substantially all of the liabilities of EarthWeb LLC
in exchange for substantially all of the assets of EarthWeb LLC. At the time of
such transaction, EarthWeb LLC was the sole owner of Common Stock then
outstanding and, consequently, the members of EarthWeb LLC (which included GNP,
of which Messrs. Jack D. Hidary, Murray Hidary and Nova Spivack were the
members at such time) retained their proportionate interests in EarthWeb
through the ownership by EarthWeb LLC of such Common Stock.
In October 1996, the Company issued 653,111 shares of Series A Preferred Stock
to Warburg in a private placement for an aggregate purchase price of
approximately $6.7 million, of which $4.9 million was received by the Company
and the remainder was used to repay certain investors and cover the transaction
costs. In June 1997, the Company issued 598,086 shares of Series B Preferred
Stock to Warburg for an aggregate purchase price of $10.0 million. All of the
Series A Preferred Stock and Series B Preferred Stock is convertible into
Common Stock at the ratio of 1.95 shares of Common Stock for each share of
Preferred Stock and will be converted into 2,439,833 shares of Common Stock
upon the consummation of the Offering by Warburg pursuant to its agreement with
the Company. In June 1998, the Company issued 433,965 shares of its Common
Stock to EarthWeb LLC for an aggregate purchase price of $3.7 million.
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
November 9, 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, GNP, and
the GNP Members have the same registration rights with respect to any Common
Stock held by them. See "Description of Capital Stock--Registration Rights."
Pursuant to certain provisions of the Shareholders Agreement, Warburg granted
GNP an option to purchase up to 10% of the shares that Warburg receives upon
conversion of its Preferred Stock, subject to Warburg realizing a return of at
least five times on its investment. The rights become conditionally exercisable
upon the consummation of certain sales of the Company and upon the closing of
certain public offerings (including the Offering) after the expiration of any
restrictions on resale of such shares.
Holders of stock options under the Stock Plan and stock issued upon exercise of
stock options (collectively, "Optionees") have entered into a Voting Trust
Agreement among such parties, the Company and GNP (the "Voting Trust
Agreement"). Under the Voting Trust Agreement, Optionees have provided GNP with
voting power with respect to all shares of Common Stock issued upon the
exercise of their options and have given the Company the right to purchase such
shares in certain events. The Voting Trust Agreement terminates six months
after the Company completes an underwritten public offering in which it
realizes proceeds in excess of $10,000,000.
The Company has entered into a consulting agreement with Nova Spivack dated as
of August 1, 1998. See "Management--Employment and Consulting Agreements."
Pursuant to the above-referenced consulting agreement, certain repurchase
rights with respect to Mr. Spivack's interests in GNP were waived.
44
<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 4,750,000 shares of preferred stock (the "Preferred
Stock"), $.01 par value, of which 2,000,000 shares have not been designated
("Undesignated Preferred Stock") and 2,750,000 shares have been designated as
follows: (i) 1,000,000 shares are designated as Series A Convertible Preferred
Stock (the "Series A Preferred"), (ii) 600,000 shares are designated as Series
B Convertible Preferred Stock (the "Series B Preferred"), and (iii) 1,150,000
shares are designated as Series C Convertible Preferred Stock (the "Series C
Preferred"). Immediately prior to the completion of the Offering, there will be
5,803,761 shares of Common Stock outstanding (assuming no exercise of
outstanding options and giving effect to the issuance of 2,439,833 shares of
Common Stock upon the Preferred Stock Conversion) and the shares of Series A
Preferred, Series B Preferred, and Series C Preferred will cease to be
authorized upon the Preferred Stock Conversion. 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.
UNDESIGNATED PREFERRED STOCK
The Board of Directors of the Company has the authority, without further action
by the Company's stockholders, to issue shares of Undesignated Preferred Stock
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 shares of Undesignated Preferred
Stock.
REGISTRATION RIGHTS
Six months after the consummation of this Offering, Warburg and the holders of
a majority of the Common Stock held by the GNP Members, GNP and the members
holding a majority interest in EarthWeb LLC are entitled to demand registration
rights with respect to an aggregate of 5,798,798 shares of Common Stock
(assuming the Preferred Stock Conversion) (the "Registrable Securities").
Pursuant to these rights, such shareholders may require that the Company file
up to an aggregate of six registration statements under the Securities Act,
subject to certain minimum size and other conditions. In addition, if the
Company proposes to register any of its securities under the Securities Act,
whether for its own account or for any of its shareholders, holders of the
Registrable Securities are entitled, subject to certain restrictions and
limitations, to include their Registrable Securities in such registration. The
Company is required to bear substantially all registration and selling expenses
(except for underwriting discounts, selling expenses and the fees and expenses
of more than one counsel representing holders of Registrable Securities) in
connection with the above-described registrations. The foregoing registration
rights are transferable in certain circumstances and may be amended or waived
only with the written consent of the Company and a specified number of holders
of Registrable Securities.
45
<PAGE>
LIMITATION ON DIRECTORS' LIABILITIES
The Amended and Restated 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 Amended and Restated 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.
ANTI-TAKEOVER PROVISIONS
General
Certain provisions of the DGCL and the Company's Amended and Restated
Certificate of Incorporation and Amended and Restated By-Laws may delay,
discourage or prevent a change in control of the Company unless such takeover
or change in control is approved by the Company's Board of Directors. Such
provisions also may render the removal of directors and management more
difficult. Such provisions may discourage bids for Common Stock at a premium
over the market price and may adversely affect the market price and voting and
other rights of the holders of Common Stock. See "Risk Factors--Anti-Takeover
Provisions."
Amended and Restated Certificate of Incorporation and Amended and Restated By-
Laws
Certain provisions of the DGCL and the Company's Amended and Restated
Certificate of Incorporation and Amended and Restated By-Laws may delay,
discourage or prevent a change in control of the Company. In particular, the
Amended and Restated Certificate of Incorporation provides that the Board of
Directors will be divided into three classes of directors, as nearly equal in
number as is reasonably possible, serving staggered terms. The existing
directors' current terms will expire as follows: Nova Spivack's term shall
expire at the first succeeding annual meeting of the stockholders following the
Offering; Murray Hidary's and Cary Davis' terms shall expire at the second
succeeding annual meeting of the stockholders following the Offering and Jack
D. Hidary's and Henry Kressel's terms shall expire at the third succeeding
annual meeting of the stockholders following the Offering. At each such
succeeding annual meeting of stockholders, directors elected to succeed those
directors whose terms are expiring at such meeting shall be elected for a term
of office to expire at the third succeeding annual meeting of stockholders
following such election. The Company believes that a classified Board of
Directors will help to assure the continuity and stability of the Board of
Directors and the Company's business strategies and policies as determined by
the Board of Directors, since a majority of the directors at any given time
will have had prior experience as directors of the Company. The Company
believes that this, in turn, will permit the Board of Directors to more
effectively represent the interest of stockholders. With a classified Board of
Directors, at least two annual meetings of stockholders, instead of one, will
generally be required to effect a change in the majority of the Board of
Directors. As a result, a provision of the Amended and Restated Certificate of
Incorporation relating to a classified Board of Directors may discourage proxy
contests for the election of directors or purchases of a substantial block of
the Common Stock because such provision could operate to prevent obtaining
control of the Company in a relatively short period of time. The Board
classification provision also could have the effect of discouraging a third
party from making a tender offer or otherwise attempting to obtain control of
the Company. No director may be removed by the stockholders from office, except
with the affirmative vote of not less than two-thirds of the total voting power
of all outstanding securities of the Company for cause.
46
<PAGE>
The Amended and Restated By-Laws provide that special meetings of the
stockholders of the Company may be called only by the Chairman of the Board of
Directors, the President or the Board of Directors of the Company. The Amended
and Restated By-Laws require advance written notice, which generally must be
received by the Secretary of the Company not less than 30 days nor more than 60
days prior to a meeting of stockholders (subject to certain exceptions) of a
proposal or director nomination which a stockholder desires to present at such
a meeting.
The Amended and Restated Certificate of Incorporation allows the Company to
issue up to 2,000,000 shares of Undesignated Preferred Stock, which could
adversely affect the interests of holders of Common Stock, could decrease the
amount of earnings or assets available for distribution to the holders of
Common Stock or could adversely affect the rights and powers, including voting
rights, of the holders of Common Stock. See "--Undesignated Preferred Stock"
above. In certain circumstances, such issuance could have the effect of
decreasing the market price of the Common Stock, as well as having the anti-
takeover effect discussed above.
Upon consummation of the Offering, all amendments to the provisions of the
Amended and Restated Certificate of Incorporation relating to the classified
Board must be approved by the holders of 66 2/3% of the outstanding capital
stock entitled to vote and all amendments to the Amended and Restated By-Laws
must be approved by either the holders of 66 2/3% of the outstanding capital
stock entitled to vote or by a majority of the Board of Directors.
These provisions are intended to enhance the likelihood of continuity and
stability in the composition of the Board of Directors and in the policies
formulated by the Board of Directors and to discourage certain types of
transactions that may involve an actual or threatened change of control of the
Company. These provisions are designed to reduce the vulnerability of the
Company to an unsolicited acquisition proposal and to discourage certain
tactics that may be used in proxy fights. However, such provisions could have
the effect of discouraging others from making tender offers for the shares of
Common Stock, and, as a consequence, they also may inhibit fluctuations in the
market price of the shares of Common Stock that could result from actual or
rumored takeover attempts. Such provisions also may have the effect of
preventing changes in the management of the Company. See "Risk Factors--Anti-
Takeover Provisions."
DELAWARE LAW
The Company is a Delaware corporation and is subject to Section 203 of the
Delaware General Corporation Laws, an anti-takeover law. In general, Section
203 prohibits a publicly held Delaware corporation from engaging in a "business
combination" with an "interested stockholder" for a period of three years
following the date the person became an interested stockholder, unless (with
certain exceptions) the "business combination" or the transaction in which the
person became an interested stockholder is approved in a prescribed manner.
Generally, a "business combination" includes a merger, asset or stock sale, or
other transaction resulting in a financial benefit to the interested
stockholder. An "interested stockholder" is a person who, together with
affiliates and associates, owns (or within three years prior to the
determination of interested stockholder status, did own) 15% or more of a
corporation's voting stock, other than "interested stockholders" prior to the
time the Common Stock of the Company is quoted on Nasdaq. The existence of this
provision would be expected to have an anti-takeover effect with respect to
transactions not approved in advance by the Board of Directors, including
discouraging takeover attempts that might result in a premium over the market
price for the shares of Common Stock held by stockholders.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Common Stock is American Stock
Transfer and Trust Company.
47
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon consummation of the Offering approximately 7,903,761 shares of Common
Stock will be outstanding (assuming no exercise of the Underwriters' over-
allotment option and no exercise of outstanding options). Of these shares, the
2,100,000 shares of Common Stock sold in the Offering (assuming no exercise of
the Underwriters' over-allotment option) will be freely tradable without
restriction or further registration under the Securities Act, except for
certain manner of sale, volume limitations and other restrictions with respect
to any shares held by an affiliate of the Company within the meaning of Rule
144 (a "Company Affiliate"), which will be subject to the resale limitations of
Rule 144 (excluding the holding period requirement). Under Rule 144 a person is
an affiliate of an entity if such person directly or indirectly controls or is
controlled by or is under common control with such entity and may include
certain officers and directors, principal stockholders and certain other
stockholders with special relationships. This Prospectus may not be used in
connection with any resale of shares of Common Stock acquired in the Offering
by Company Affiliates.
In general, under Rule 144 as currently in effect, if a minimum of one year has
elapsed since the later of the date of acquisition of the restricted securities
from the issuer or from an affiliate of the issuer, a person (or persons whose
shares of Common Stock are aggregated), including persons who may be deemed
Company Affiliates, would be entitled to sell within any three-month period a
number of shares of Common Stock that does not exceed the greater of (i) one
percent of the then-outstanding shares of Common Stock (i.e., approximately
79,038 shares immediately after consummation of the Offering (assuming no
exercise of the Underwriters' over-allotment option)) or (ii) the average
weekly trading volume during the four calendar weeks preceding the date on
which notice of the sale is filed with the Commission. Sales under Rule 144 are
also subject to certain restrictions as to the manner of sale (which
restrictions are proposed to be eliminated), notice requirements and the
availability of current public information about the Company. In addition,
under Rule 144(k), if a period of at least two years has elapsed since the
later of the date restricted securities were acquired from the Company or the
date they were acquired from a Company Affiliate, a shareholder who is not a
Company Affiliate at the time of sale and who has not been a Company Affiliate
for at least three months prior to the sale would be entitled to sell shares of
Common Stock in the public market immediately without compliance with the
foregoing requirements under Rule 144. Rule 144 does not require the same
person to have held the securities for the applicable periods. The foregoing
summary of Rule 144 is not intended to be a complete description thereof. In
addition, any employee, director or officer of, or consultant to, the Company
who purchased shares pursuant to a written compensatory plan or contract may be
entitled to rely on the resale provisions of Rule 701 of the Securities Act,
which permits non-affiliates to sell their Rule 701 shares without having to
comply with the public information, holding period, volume limitation or notice
provisions of Rule 144, and permits affiliates to sell their Rule 701 shares
without having to comply with the holding period restrictions of Rule 144, in
each case, commencing 90 days after the date of this Prospectus.
Following the Offering, the Company intends to file a registration statement on
Form S-8 under the Securities Act to register 795,000 and 159,000 shares of
Common Stock reserved or to be available for issuance pursuant to the Company's
stock plans. Shares of Common Stock issued pursuant to such plans generally
will be available for sale in the open market by holders who are not Company
Affiliates and, subject to the volume and other applicable limitations of Rule
144, by holders who are Company Affiliates, unless such shares are subject to
vesting restrictions or the contractual restrictions described below.
On the date of this Prospectus (assuming no exercise of the Underwriters' over-
allotment option), 5,803,761 shares are "restricted securities" as defined in
Rule 144 and may not be publicly resold, except in compliance with the
registration requirements of the Securities Act or pursuant to an exemption
from registration, including that provided by Rule 144. Of the 5,803,761
"restricted securities," and without consideration of the contractual
restrictions described below, none of the shares would be available for
immediate sale in the public market without restriction pursuant to Rule
144(k). Beginning 90 days after the date of this Prospectus, and without
consideration of the contractual restrictions described below, approximately
4,963 shares would be eligible for sale in reliance upon Rule 701. The holders
of the remaining approximately 5,798,798 restricted securities will not be able
to sell such shares pursuant to Rule 144 until a one-year period has elapsed
since the shares were acquired from the Company or an "affiliate" of the
Company, all of which such periods will end in November 1999. Furthermore,
holders of an aggregate of 5,798,798 shares are entitled to piggyback
registration rights, and demand registration rights. To date, none of these
holders has indicated an intention to exercise such demand registration rights.
See "Description of Capital Stock--Registration Rights."
The Company and the shareholders, officers and directors of the Company have
agreed that during the period beginning from the date of this Prospectus and
continuing to and including the date 180 days after the date of this Prospectus
they will not (i) offer, sell, contract to sell or otherwise dispose of any
securities of the Company which are substantially similar to the Common Stock,
including but not limited to any securities that are convertible into or
exchangeable for, or that
48
<PAGE>
represent the right to receive Common Stock or any such substantially similar
securities or (ii) enter into any swap, option, future, forward or other
agreement that transfers, in whole or in part, the economic consequences of
ownership of Common Stock or any securities substantially similar to the Common
Stock (other than (x) pursuant to employee stock option plans existing on, or
upon the conversion or exchange of convertible or exchangeable securities
outstanding as of, the date of this Prospectus and (y) the issuance of Common
Stock in connection with the transactions described in this Prospectus),
without the prior written consent of J.P. Morgan Securities Inc. See
"Underwriting."
As a result of these contractual restrictions and the provisions of Rules 144
and 701, approximately 2,444,796 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 the date of this Prospectus 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.
49
<PAGE>
UNDERWRITING
Under the terms and subject to the conditions contained in an Underwriting
Agreement dated the date of this Prospectus (the "Underwriting Agreement"), the
Underwriters named below, for whom J.P. Morgan Securities Inc., Bear, Stearns &
Co. Inc. and Volpe Brown Whelan & Company, LLC are acting as representatives
(the "Representatives") and Wit Capital Corporation ("Wit Capital") is
facilitating online distribution ("e-Manager(TM)"), have severally agreed to
purchase, and the Company has agreed to sell to them, the respective number of
shares of Common Stock set forth opposite their names below.
<TABLE>
<CAPTION>
UNDERWRITERS NUMBER OF SHARES
- ------------ ----------------
<S> <C>
J.P. Morgan Securities Inc.....................................
Bear, Stearns & Co. Inc........................................
Volpe Brown Whelan & Company, LLC..............................
---------
Total........................................................ 2,100,000
=========
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters to purchase shares of Common Stock are subject to the approval of
certain legal matters by counsel and to certain other conditions. Under the
terms and conditions of the Underwriting Agreement, all of the Underwriters are
obligated to take and pay for all such shares of Common Stock, if any are
taken.
The Underwriters propose initially to offer the shares of Common Stock directly
to the public at the public offering price set forth on the cover page of this
Prospectus and to certain dealers at such price less a concession not in excess
of $ per share. The Underwriters may allow, and such dealers may reallow, a
concession not in excess of $ per share to certain other dealers. After the
initial public offering of the Common Stock, the offering price and other
selling terms may be changed from time to time by the Underwriters.
Pursuant to the Underwriting Agreement, the Selling Stockholders have granted
to the Underwriters an option, exercisable for 30 days from the date hereof, to
purchase up to 315,000 additional shares of Common Stock, on the same terms and
conditions as set forth on the cover page hereof. The Underwriters may exercise
such option solely to cover over-allotments, if any, made in connection with
the sale of shares of Common Stock offered hereby. To the extent such option is
exercised, each of the Underwriters will have a commitment, subject to certain
conditions, to purchase approximately the same percentage of such additional
shares as the number of shares of Common Stock to be purchased by it as shown
in the table above bears to the total number shares of Common Stock initially
offered hereby.
The Company and the stockholders, officers and directors of the Company have
agreed that during the period beginning from the date of this Prospectus and
continuing to and including the date 180 days after the date of this Prospectus
they will not (i) offer, pledge, announce the intention to sell, sell, contract
to sell, sell any option or contract to purchase, purchase any option or
contract to sell, grant any option, right or warrant to purchase or otherwise
transfer or dispose of, directly or indirectly, any shares of Common Stock or
any securities of the Company which are substantially similar to the Common
Stock, including but not limited to any securities that are convertible into or
exercisable or exchangeable for, or that represent the right to receive Common
Stock or any such substantially similar securities or (ii) enter into any swap,
option, future, forward or other agreement that transfers, in whole or in part,
the economic consequences of ownership of Common Stock or any securities
substantially similar to the Common Stock (other than (x) pursuant to employee
stock option plans existing on, or upon the conversion or exchange of
convertible or exchangeable securities outstanding as of, the date of this
Prospectus and (y) the issuance of Common Stock in connection with the
transactions described in this Prospectus), without the prior written consent
of J.P. Morgan Securities Inc.
The Underwriters have reserved for sale, at the initial public offering price,
shares of the Common Stock for certain directors, officers, employees, friends
and family of the Company who have expressed an interest in purchasing such
shares of Common Stock in the Offering. Such persons are expected to purchase,
in the aggregate, not more than 5% of the
50
<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 105,000 shares of Common Stock to
subscribers to EarthWeb's online services who express an interest in purchasing
such shares. The sale of such shares will be made by Wit Capital acting as e-
Manager(TM) in the Offering. Purchases of reserved shares are to be made
through an account at Wit Capital in accordance with Wit Capital's procedures
for opening an account and transacting in securities. Any reserved shares not
purchased by subscribers to EarthWeb's online services will be offered by the
Underwriters on the same basis as other shares offered hereby.
The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities, losses and expenses, including
liabilities under the Securities Act, or to contribute to payments that the
Underwriters may be required to make in respect thereof.
In connection with the Offering, the Underwriters may engage in transactions
that stabilize, maintain or otherwise affect the price of the Common Stock.
Specifically, the Underwriters may over-allot in connection with the Offering,
creating a syndicate short position. In addition, the Underwriters may bid for,
and purchase, shares of Common Stock in the open market to cover syndicate
short positions or to stabilize the price of the Common Stock. Finally, the
underwriting syndicate may reclaim selling concessions allowed for distributing
the Common Stock in the Offering, if the syndicate repurchases previously
distributed Common Stock in syndicate covering transactions, in stabilization
transactions or otherwise. Any of these activities may stabilize or maintain
the market price of the Common Stock above independent market levels. The
Underwriters are not required to engage in these activities, and may end any of
these activities at any time.
Prior to the Offering, there has been no public market for the Common Stock.
The initial public offering price for the shares of Common Stock offered hereby
has been determined by agreement between the Company and the Underwriters.
Among the factors considered in making such determination were the history of
and the prospects for the industry in which the Company competes, an assessment
of the Company's management, the present operations of the Company, the
historical results of operations of the Company and the trend of its revenues
and earnings, the prospects for future earnings of the Company, the general
condition of the securities markets at the time of the Offering and the prices
of similar securities of generally comparable companies. There can be no
assurance that an active trading market will develop for the Common Stock or
that the Common Stock will trade in the public market at or above the initial
public offering price.
Robert Lessin is the Chairman, Chief Executive Officer and a substantial
shareholder of Wit Capital, one of the Underwriters. Mr. Lessin is the sole
shareholder of RHL Ventures, LLC ("RHL"). RHL purchased certain interests in
EarthWeb LLC (the controlling shareholder of the Company) equivalent to 29,173
shares of Common Stock. Pursuant to the regulations of the National Association
of Securities Dealers, Inc. the difference between the price per share paid by
Mr. Lessin (determined based on the purchase price of the EarthWeb LLC
interests) and the public offering price per share of Common Stock is deemed to
be underwriting compensation.
51
<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.
52
<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 September 30, 1998
(unaudited).............................................................. F-3
Statements of Operations for the years ended December 31, 1995, 1996 and
1997 and the nine months ended September 30, 1997 and 1998 (unaudited)... F-4
Statements of Cash Flows for the years ended December 31, 1995, 1996 and
1997 and the nine months ended September 30, 1997 and 1998 (unaudited)... F-5
Statements of Stockholders' Equity for the years ended December 31, 1995,
1996 and 1997 and the nine months ended September 30, 1998 (unaudited)... F-6
Notes to Financial Statements............................................. F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of
EarthWeb Inc.:
We have audited the accompanying balance sheets of EarthWeb Inc. as of December
31, 1997 and 1996, and the related statements of operations, stockholders'
equity, and cash flows for each of the three years in the period ended December
31, 1997. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of EarthWeb Inc. as of December
31, 1997 and 1996, and the results of its operations and its cash flows for
each of the three years in the period ended December 31, 1997, in conformity
with generally accepted accounting principles.
New York, New York
March 31, 1998, except paragraphs 5 and 6 of
Note 11 which the date is November 4, 1998
F-2
<PAGE>
EARTHWEB INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
---------------------------------------------------
AS OF
DECEMBER 31, AS OF PRO FORMA AS
----------------------- SEPT. 30, OF SEPT. 30,
1996 1997 1998 1998
---------- ----------- ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS:
Current assets:
Cash and cash
equivalents............ $3,779,368 $ 4,775,153 $ 2,643,292 $ 2,643,292
Restricted cash......... -- 512,000 287,000 287,000
Stockholder receivable.. -- -- -- --
Accounts receivable,
net.................... 101,179 375,961 766,567 766,567
Prepaid expenses and
other current assets... 75,921 235,242 236,250 236,250
Assets of discontinued
operations (accounts
receivable and deferred
costs)................. 657,631 403,052 -- --
---------- ----------- ------------ ------------
Total current
assets............. 4,614,099 6,301,408 3,933,109 3,933,109
Fixed assets, net......... 819,261 1,650,828 1,975,036 1,975,036
Intangible assets, net.... -- 505,938 1,196,031 1,196,031
Other assets.............. 63,016 55,674 431,883 431,883
Assets of discontinued
operations (fixed assets,
net)..................... 156,000 -- -- --
---------- ----------- ------------ ------------
Total assets........ $5,652,376 $ 8,513,848 $ 7,536,059 $ 7,536,059
========== =========== ============ ============
LIABILITIES AND
STOCKHOLDERS' EQUITY:
Current liabilities:
Accounts payable........ $ 387,527 $ 574,006 $ 1,058,524 $ 1,058,524
Accrued expenses........ 234,945 414,239 1,016,217 1,016,217
Deferred revenue........ -- 89,389 45,155 45,155
Other current
liabilities............ 13,698 462,790 123,850 123,850
Liabilities of
discontinued operations
(accrued expenses and
deferred revenue)...... 663,171 443,527 229,132 229,132
---------- ----------- ------------ ------------
Total current
liabilities........ 1,299,341 1,983,951 2,472,878 2,472,878
Other liabilities,
including capital lease
obligations............ 93,858 85,311 106,560 106,560
---------- ----------- ------------ ------------
Total liabilities... 1,393,199 2,069,262 2,579,438 2,579,438
Commitments and
contingencies
Stockholders' equity:
Series A Convertible
Preferred Stock, par
value $.01 per share;
1,000,000 shares
authorized, 653,111
shares issued and
outstanding; with a
liquidation preference
of $6,768,772,
$7,236,968 and
$7,588,114 (unaudited)
at December 31, 1996
and 1997 and September
30, 1998,
respectively........... 6,531 6,531 6,531 --
Series B Convertible
Preferred Stock, par
value $.01 per share;
600,000 shares
authorized, 598,086
shares issued and
outstanding; with a
liquidation preference
of $0, $10,349,998 and
$10,874,998 (unaudited)
at December 31, 1996
and 1997 and September
30, 1998,
respectively........... -- 5,981 5,981 --
Common stock, par value
$.01 per share;
21,750,000 shares
authorized, (1996:
18,000,000 shares
authorized); 3,361,446
(unaudited) shares
issued and outstanding
(1997 and 1996:
2,925,000 shares),
5,801,279 (unaudited)
on a pro forma basis .. 29,250 29,250 33,615 58,013
Additional paid in
capital................ 4,715,649 14,715,614 18,779,278 18,767,392
Unearned compensation... -- -- (283,763) (283,763)
Accumulated deficit..... (492,253) (8,312,790) (13,585,021) (13,585,021)
---------- ----------- ------------ ------------
Total stockholders'
equity............. 4,259,177 6,444,586 4,956,621 4,956,621
---------- ----------- ------------ ------------
Total liabilities
and stockholders'
equity............. $5,652,376 $ 8,513,848 $ 7,536,059 $ 7,536,059
========== =========== ============ ============
</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, NINE MONTHS ENDED SEPTEMBER 30,
------------------------------------ --------------------------------
1995 1996 1997 1997 1998
---------- ----------- ----------- --------------- ---------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues................ $ -- $ 472,109 $ 1,135,141 $ 786,233 $ 1,918,384
Cost of revenues........ -- 314,332 1,358,293 947,664 1,394,885
---------- ----------- ----------- --------------- ---------------
Gross profit (deficit).. -- 157,777 (223,152) (161,431) 523,499
---------- ----------- ----------- --------------- ---------------
Operating expenses:
Product development.... 35,465 68,410 1,003,422 767,270 990,455
Sales and marketing.... -- 252,287 1,018,313 752,059 1,892,245
General and
administrative........ 626,441 1,801,744 2,566,670 2,001,806 2,245,591
Depreciation and
amortization.......... 41,651 100,859 892,600 338,669 787,460
---------- ----------- ----------- --------------- ---------------
Total operating
expenses........... 703,557 2,223,300 5,481,005 3,859,804 5,915,751
---------- ----------- ----------- --------------- ---------------
Loss from
operations......... (703,557) (2,065,523) (5,704,157) (4,021,235) (5,392,252)
Interest and other
income, (expense)
net................... (880) 61,497 267,139 192,203 120,020
---------- ----------- ----------- --------------- ---------------
Loss from continuing
operations......... (704,437) (2,004,026) (5,437,018) (3,829,032) (5,272,231)
---------- ----------- ----------- --------------- ---------------
Discontinued
operations:
Income (loss) from
discontinued
operations........... 64,799 (42,255) (2,142,934) (1,179,833) --
Loss on disposal of
discontinued
operations........... -- -- (240,585) -- --
---------- ----------- ----------- --------------- ---------------
Total income (loss)
from discontinued
operations........... 64,799 (42,255) (2,383,519) (1,179,833) --
---------- ----------- ----------- --------------- ---------------
Net loss............ $ (639,638) $(2,046,281) $(7,820,537) $ (5,008,865) $ (5,272,231)
========== =========== =========== =============== ===============
Basic and diluted net
loss per share from
continuing operations.. $ (0.24) $ (0.69) $ (1.86) $ (1.31) $ (1.72)
Basic and diluted net
income (loss) per share
from discontinued
operations............. 0.02 (0.01) (0.81) (0.40) --
---------- ----------- ----------- --------------- ---------------
Basic and diluted net
loss per share......... $ (0.22) $ (0.70) $ (2.67) $ (1.71) $ (1.72)
========== =========== =========== =============== ===============
Weighted average shares
of common stock
outstanding used in
computing basic and
diluted net loss per
share.................. 2,925,000 2,925,000 2,925,000 2,925,000 3,072,387
========== =========== =========== =============== ===============
Pro forma basic and
diluted net loss per
share from continuing
operations............. $ (1.13) $ (0.96)
Pro forma basic and
diluted net loss per
share from discontinued
operations............. $ (0.50) --
----------- ---------------
Pro forma basic and
diluted net loss per
share.................. $ (1.63) $ (0.96)
=========== ===============
Shares used in computing
pro forma basic and
diluted net loss per
share.................. 4,812,055 5,513,819
=========== ===============
</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, NINE MONTHS ENDED SEPT. 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) $ (5,008,865) $ (5,272,231)
Adjustments to
reconcile net loss to
net cash used in
operating activities:
Depreciation and
amortization......... 41,651 100,859 892,600 338,668 787,460
Charge related to
issuance of stock
options.............. -- -- 5,948 5,948 61,699
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 8,005 18,155
Reserve for
discontinued
operations........... -- -- 443,527 -- --
Changes in operating
assets and
liabilities:
Accounts receivable.. -- (101,179) (285,287) (220,989) (408,761)
Prepaid expenses and
other current
assets.............. (3,350) (72,571) (159,321) (16,184) (1,008)
Other assets......... (144,867) 12,330 (23,521) (69,311) (376,209)
Accounts payable and
accrued expenses.... 115,211 462,963 375,795 (137,942) 1,082,706
Deferred revenue..... -- -- 89,389 32,018 (44,234)
Other liabilities.... -- 68,852 (10,918) 1,113 21,249
Discontinued
operations.......... (59,323) 206,409 (235,526) 276,529 188,658
--------- ----------- ----------- ------------- -------------
Net cash used in
operating
activities......... (663,916) (1,447,232) (6,725,905) (4,791,011) (3,942,516)
--------- ----------- ----------- ------------- -------------
Cash flows from
investing activities:
Purchase of fixed
assets................ (341,648) (598,543) (954,432) (854,260) (843,960)
Acquisitions........... -- -- (811,876) (661,876) (1,292,952)
Restricted cash........ -- -- (512,000) (887,000) 225,000
--------- ----------- ----------- ------------- -------------
Net cash used in
investing
activities......... (341,648) (598,543) (2,278,308) (2,403,136) (1,911,912)
--------- ----------- ----------- ------------- -------------
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....... -- -- -- -- 3,722,567
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 3,722,567
--------- ----------- ----------- ------------- -------------
Net increase
(decrease) in cash
for the period..... 885,947 2,893,421 995,785 2,805,851 (2,131,861)
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 $ 6,585,219 $ 2,643,292
========= =========== =========== ============= =============
</TABLE>
Supplemental disclosure of Non-Cash Investing and Financing Activities:
During 1996, the Company received $257,398 of equipment, in lieu of cash, in a
transaction in which the Company recorded advertising revenue of the same
amount.
During 1996, certain executives of the Company paid expenses on behalf of the
Company, in the amount of $114,389, in exchange for the reduction of their
members' receivable amounts
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
EARTHWEB INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------
CONVERTIBLE
PREFERRED STOCK
-----------------
SERIES A AND B COMMON STOCK
----------------- -----------------
ADDITIONAL RECEIVABLE
MEMBERS' PAID IN UNEARNED FROM ACCUMULATED
CONTRIBUTIONS SHARES AMOUNT SHARES AMOUNT CAPITAL COMPENSATION MEMBER DEFICIT
------------- --------- ------- --------- ------- ----------- ------------ ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT JANUARY
1, 1995
Members'
subscriptions.. $2,064,000
Receivable from
member......... $(172,489)
Net loss........ $ (639,638)
---------- --------- ------- --------- ------- ----------- --------- --------- ------------
BALANCE AT
DECEMBER 31,
1995............. 2,064,000 -- -- -- -- -- -- (172,489) (639,638)
Payment of
member
receivable..... 58,100
Reduction of
member
receivable..... 114,389
Net loss for the
period January
1, 1996 to
October 25,
1996........... (1,554,028)
Effect of
reorganization
(Note 1)....... (2,064,000) 2,925,000 $29,250 $ (158,916) 2,193,666
Issuance of
Series A
convertible
preferred
stock.......... 604,288 $ 6,043 4,375,053
Conversion of
promissory note
for Series A
convertible
preferred
stock.......... 48,823 488 499,512
Net loss for the
period October
26, 1996 to
December 31,
1996........... (492,253)
---------- --------- ------- --------- ------- ----------- --------- --------- ------------
BALANCE AT
DECEMBER 31,
1996............. -- 653,111 6,531 2,925,000 29,250 4,715,649 -- -- (492,253)
Issuance of
Series B
convertible
preferred
stock.......... 568,182 5,682 9,494,316
Conversion of
promissory note
for Series B
convertible
preferred
stock.......... 29,904 299 499,701
Issuance of non-
qualified stock
options........ 5,948
Net loss........ (7,820,537)
---------- --------- ------- --------- ------- ----------- --------- --------- ------------
BALANCE AT
DECEMBER 31,
1997............. -- 1,251,197 12,512 2,925,000 29,250 14,715,614 -- -- (8,312,790)
Issuance of
common stock
(unaudited).... 433,965 4,340 3,714,410
Exercise of
options
(unaudited).... 2,481 25 3,792
Issuance of non-
qualified stock
options
(unaudited).... 41,430
Issuance of
stock options
below deemed
fair value for
accounting
purposes
(unaudited).... 304,032 $(304,032)
Amortization of
deferred
compensation... 20,269
Net loss
(unaudited).... (5,272,231)
---------- --------- ------- --------- ------- ----------- --------- --------- ------------
BALANCE AT
SEPTEMBER 30,
1998
(UNAUDITED)...... -- 1,251,197 $12,512 3,361,446 $33,615 $18,779,278 $(283,763) -- $(13,585,021)
========== ========= ======= ========= ======= =========== ========= ========= ============
<CAPTION>
TOTAL
-------------
<S> <C>
BALANCE AT JANUARY
1, 1995
Members'
subscriptions.. $ 2,064,000
Receivable from
member......... (172,489)
Net loss........ (639,638)
-------------
BALANCE AT
DECEMBER 31,
1995............. 1,251,873
Payment of
member
receivable..... 58,100
Reduction of
member
receivable..... 114,389
Net loss for the
period January
1, 1996 to
October 25,
1996........... (1,554,028)
Effect of
reorganization
(Note 1)....... --
Issuance of
Series A
convertible
preferred
stock.......... 4,381,096
Conversion of
promissory note
for Series A
convertible
preferred
stock.......... 500,000
Net loss for the
period October
26, 1996 to
December 31,
1996........... (492,253)
-------------
BALANCE AT
DECEMBER 31,
1996............. 4,259,177
Issuance of
Series B
convertible
preferred
stock.......... 9,499,998
Conversion of
promissory note
for Series B
convertible
preferred
stock.......... 500,000
Issuance of non-
qualified stock
options........ 5,948
Net loss........ (7,820,537)
-------------
BALANCE AT
DECEMBER 31,
1997............. 6,444,586
Issuance of
common stock
(unaudited).... 3,718,750
Exercise of
options
(unaudited).... 3,817
Issuance of non-
qualified stock
options
(unaudited).... 41,430
Issuance of
stock options
below deemed
fair value for
accounting
purposes
(unaudited).... --
Amortization of
deferred
compensation... 20,269
Net loss
(unaudited).... (5,272,231)
-------------
BALANCE AT
SEPTEMBER 30,
1998
(UNAUDITED)...... $ 4,956,621
=============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
EARTHWEB INC.
NOTES TO FINANCIAL STATEMENTS
1. THE COMPANY
Organization
EarthWeb Inc. (the "Company") was incorporated in the State of New York on
April 25, 1996 and subsequently reincorporated in the State of Delaware on June
17, 1997.
On October 25, 1996, all of the assets and liabilities of EarthWeb LLC were
transferred, in a tax free conversion, to EarthWeb Inc., in exchange for the
issuance of 2,925,000 shares of common stock of the Company. This transaction
was accounted for as a reorganization of entities under common control, in a
manner similar to a pooling of interest.
EarthWeb LLC was originally incorporated in the State of New York on October
29, 1994 under the name IdentiNet, Inc.
Business
The Company is a leading provider of Internet-based online services to the
information technology ("IT") community worldwide.
During 1997, the Company announced its intention to restructure its business
operations and dispose of its software products and professional services
divisions. As of December 31, 1997, these divisions were in the process of
being fully disposed and operations for the years ended December 31, 1995, 1996
and 1997 have been recorded as discontinued operations.
The Company has sustained net losses and negative cash flows from operations
since its inception. The Company's ability to meet its obligations in the
ordinary course of business is dependent upon its ability to establish
profitable operations or raise additional financing through public or private
equity financings, collaborative or other arrangements with corporate sources,
or other sources of financing to fund operations. During 1998, the Company has
received additional financing of approximately $3,719,000. Management believes
that its current funds will be sufficient to enable the Company to meet its
planned expenditures through at least December 31, 1998. If anticipated
operating results are not achieved, management has the intent and believes it
has the ability to delay or reduce expenditures so as not to require additional
financial resources, if such resources were not available on terms acceptable
to the Company. Should the need arise, the Company has received a commitment
from a preferred stockholder to finance anticipated working capital
deficiencies, if any, through September 30, 1999. In addition, should the need
arise, the Company may request additional financing from a preferred
stockholder to provide up to $11 million of additional equity financing, at
previously negotiated terms. However, the preferred stockholder is under no
obligation to provide such additional funding.
2. SIGNIFICANT ACCOUNTING POLICIES AND PROCEDURES
Revenue Recognition
The Company generates several types of revenue including the following:
Advertising
Advertising revenues are derived from the sale of advertising space on the
Company's various online services. Advertising revenues are recognized over the
period in which the advertisements are displayed, provided that no significant
Company obligations remain and collection of the receivable is reasonably as-
sured. Company obligations typically include guarantees of a minimum number of
"impressions" (times that an advertisement is viewed by users of the Company's
online services over a specified period of time). To the extent that minimum
guaranteed impressions are not met, the Company defers recognition of the cor-
responding revenues until the guaranteed impressions are achieved. For the
years ended December 31, 1996 and 1997, advertising revenues represented ap-
proximately 100% and 86% of revenues from continuing operations, respectively.
Revenues from barter transactions are recorded at the lower of the estimated
fair value of the advertisements, goods or services received or the estimated
fair value of the advertisements given. Revenue from barter transactions
(representing advertisements given) is recognized as income when advertisements
are delivered on the Company's Web sites. Barter expense (representing
advertisements received) is recognized when the Company's advertisements are
run on other companies' Web sites, which is typically in the same period when
the related barter revenue is recognized. For the years ended December 31, 1996
and 1997, barter transactions represented 55% and 16% of total revenues from
continuing operations, respectively.
F-7
<PAGE>
EARTHWEB INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
2. SIGNIFICANT ACCOUNTING POLICIES AND PROCEDURES--(CONTINUED)
Online Product Sales
The Company has various agreements with product manufacturers where
publications and software are sold on the Company's Web sites. The Company
records the gross revenue earned and the related royalty due to the vendor as
cost of revenues when the products are sent electronically to the customers and
collectibility is probable. For the year ended December 31, 1997, revenues from
the sale of products online approximated $64,000 and the related cost of sales
was approximately $46,000.
Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with original
maturities of three months or less to be cash equivalents. Cash that
collateralizes certain letters of credit is recorded as restricted cash on the
balance sheet (see Note 7).
Concentration of Credit Risk
Substantially all of the Company's excess cash has been invested in highly
liquid investments. The Company performs ongoing credit evaluations of its
customers' financial conditions and generally does not require collateral on
accounts receivable. The Company maintains allowances for credit losses and
such losses have been within management's expectations. The Company's services
are provided to customers in several industries worldwide.
Accounts receivable are stated net of allowances for doubtful accounts of
approximately $0 and $11,000 as of December 31, 1996 and 1997, respectively. At
December 31, 1996, four customers accounted for 60% of the accounts receivable
balance. At December 31, 1997, two customers accounted for 52% of the accounts
receivable balance. For the year ended December 31, 1996, two customers
accounted for 68% of revenues from continuing operations and for the year ended
December 31, 1997, one customer accounted for 12% of revenues from continuing
operations.
Financial Instruments
The recorded amounts of financial instruments approximate their fair values.
Fixed Assets
Depreciation of equipment, furniture and fixtures and computer software is
provided for by the straight-line method over estimated useful life ranging
from three to five years. Amortization of leasehold improvements is provided
for over the lesser of the term of the related lease or the estimated useful
life of the improvement. The cost of additions and betterments is capitalized
and repairs and maintenance costs are charged to operations in the periods
incurred.
Capitalized Software Development Costs
The Company has capitalized certain incurred software development costs in
connection with its online services. The costs associated with research and
development of such technology were expensed as incurred. Software development
costs incurred subsequent to establishing technological feasibility have been
capitalized. Technological feasibility is established upon the completion of a
detailed program design (in the absence of any high risk issues or
uncertainties). Capitalized software costs are being amortized over a period of
two years. Maintenance costs incurred in connection with the software are being
expensed as incurred. Capitalized software development costs, net, as of
December 31, 1996 and 1997 were approximately $31,000 and $0, respectively.
Intangible Assets
Intangible assets resulting from acquisitions of Web site assets are being
amortized using the straight-line method over three years.
Income Taxes
The Company recognizes deferred taxes by the asset and liability method of
accounting for income taxes. Under the asset and liability method, deferred
income taxes are recognized for differences between the financial-statement and
tax bases of assets and liabilities at enacted statutory tax rates in effect
for the years in which the differences are expected to reverse.
F-8
<PAGE>
EARTHWEB INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
2. SIGNIFICANT ACCOUNTING POLICIES AND PROCEDURES--(CONTINUED)
The effect on deferred taxes of a change in tax rates is recognized in income
in the period that includes the enactment date. In addition, valuation
allowances are established when necessary to reduce deferred tax assets to the
amounts expected to be realized. The primary sources of temporary differences
are depreciation and amortization of intangible assets.
Risks and Uncertainties
The Company has a limited operating history and its prospects are subject to
the risks, expenses and uncertainties frequently encountered by companies in
the new and rapidly evolving markets for Internet products and services. These
risks include the failure to develop and extend the Company's online service
brands, the rejection of the Company's services by Web consumers, vendors
and/or advertisers, the inability of the Company to maintain and increase the
levels of traffic on its online services, as well as other risks and
uncertainties. In the event that the Company does not successfully implement
its business plan, certain assets may not be recoverable.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amount of assets and liabilities, disclosure of
contingent assets and liabilities at the date of the financial statements and
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from these estimates. The Company's significant estimates
include the useful lives of fixed assets and intangibles and the accounts
receivable allowance for doubtful accounts.
Long-Lived Assets
The carrying amount of assets is reviewed on a regular basis for the existence
of facts or circumstances, both internally and externally, that suggest
impairment. To date no such impairment has been indicated except as disclosed
in Note 3. The Company determines if the carrying amount of a long-lived asset
is impaired based on anticipated undiscounted cash flows before interest. In
the event of an impairment, a loss is recognized based on the amount by which
the carrying amount exceeds fair value of the asset. Fair value is determined
primarily using the anticipated cash flows before interest, discounted at a
rate commensurate with the risk involved.
Net Loss Per Share
In 1997, the Financial Accounting Standards Board ("FASB") issued Statement of
Financial Accounting Standards No. 128, "Earnings per Share" ("SFAS No. 128").
SFAS No. 128 replaced primary and fully diluted earnings per share with basic
and diluted earnings per share. Unlike primary earnings per share, basic
earnings per share excludes any dilutive effects of options, warrants and
convertible securities. Diluted earnings per share is very similar to fully
diluted earnings per share. Basic earnings per share is computed using the
weighted-average number of common shares outstanding during the period. Diluted
earnings per share is computed using the weighted-average number of common and
common stock equivalent shares outstanding during the period. Common equivalent
shares are excluded from the computation if their effect is antidilutive. The
pro forma net loss per share is computed by dividing the net loss by the sum of
the weighted average number of shares of common stock and including the shares
issued as a result of the assumed conversion of all outstanding shares of
Convertible Preferred Stock. Net loss per share amounts for all periods have
been restated to conform to SFAS No. 128 requirements.
Unaudited Interim Financial Statements
The financial statements as of September 30, 1998 and for the nine months ended
September 30, 1997 and 1998 are unaudited but have been prepared in accordance
with generally accepted accounting principles for interim financial statements.
In the opinion of management, all adjustments (consisting of normal recurring
adjustments) considered necessary for a fair presentation have been included.
The results of operations of any interim period are not necessarily indicative
of the results of operations for the full year.
F-9
<PAGE>
EARTHWEB INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
2. SIGNIFICANT ACCOUNTING POLICIES AND PROCEDURES--(CONTINUED)
Pro Forma Balance Sheet (Unaudited)
The pro forma September 30, 1998 balance sheet assumes the conversion of
653,111 shares of Series A Convertible Preferred Stock, and 598,086 shares of
Series B Convertible Preferred Shares into 2,439,833 shares of Common Stock.
Recent Accounting Pronouncements
In June 1997, FASB issued Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income" ("SFAS No. 130"), which establishes standards
for reporting and display of comprehensive income and its components in
the financial statements. SFAS No. 130 is effective for fiscal years beginning
after December 15, 1997. Reclassification of financial statements for earlier
periods provided for comparative purposes is required. SFAS No. 130 offers
alternatives for presentation of disclosures required by the standard. The
adoption of SFAS No. 130 will have no impact on the Company's results of
operations, financial position or cash flows.
In June 1997, FASB issued Statement of Financial Accounting Standards No. 131,
"Disclosures about Segments of an Enterprise and Related Information" ("SFAS
No. 131"), which establishes standards for reporting information about
operating segments in annual financial statements. It also establishes
standards for related disclosures about products and services, geographic areas
and major customers. SFAS No. 131 is effective for fiscal years beginning after
December 15, 1997. The adoption of SFAS No. 131 is not expected to have an
impact on the Company's results of operations, financial position or cash
flows.
In February 1998, FASB issued SFAS No. 132, "Employers' Disclosures about
Pension and Other Postretirement Benefits" ("SFAS No. 132"), which revises
employers' disclosures about pension and other postretirement benefit plans.
SFAS No. 132 does not change the measurement or recognition of those plans.
SFAS No. 132 is effective for fiscal years beginning after December 15, 1997.
The adoption of SFAS No. 132 is not expected to have an impact on the Company's
results of operations, financial position or cash flows.
In March 1998, the American Institute of Certified Public Accountants ("AICPA")
issued Statement of Position 98-1, "Accounting for the Cost of Computer
Software Developed or Obtained for Internal Use" ("SOP 98-1"). SOP 98-1 is
effective for financial statements for years beginning after December 15, 1998.
SOP 98-1 provides guidance over accounting for computer software developed or
obtained for internal use including the requirement to capitalize specified
costs and amortization of such costs. The Company does not expect the adoption
of this standard to have a material effect on the Company's capitalization
policy.
In March 1998, AIPCA issued Statement of Position 98-4, "Deferral of the
Effective Date of a Provision of SOP 97-2" ("SOP 98-4"). SOP 98-4 defers for
one year the application of certain provisions of Statement of Position 97-2,
"Software Revenue Recognition" ("SOP 97-2"). Different informal and
unauthoritative interpretations of certain provisions of SOP 97-2 have arisen
and, as a result, the AICPA is deliberating amendments to SOP 97-2, so they can
issue interpretations regarding the applicability and the method of application
of those provisions. The adoption of SOP 97-2 has not had a material impact on
the Company's results of operations, financial position or cash flows. However,
due to the uncertainties related to the outcome of these amendments, the impact
on the future financial results of the Company is not currently determinable.
In April 1998, the AICPA issued Statement of Position 98-5, "Reporting on the
Costs of Start-Up Activities" ("SOP 98-5"). SOP 98-5, which is effective for
fiscal years beginning after December 15, 1998, provides guidance on the
financial reporting of start-up costs and organization costs. It requires costs
of start up activities and organization costs to be expensed as incurred. As
the Company has expensed these costs historically, the adoption of this
standard is not expected to have a significant impact on the Company's results
of operations, financial position or cash flows.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivatives and
Hedging Activities" ("SFAS 133"), which establishes accounting and reporting
standards for derivative instruments, including certain derivative instruments
embedded in other contracts, (collectively referred to as derivatives) and for
hedging activities. SFAS No. 133 is effective for all fiscal quarters of fiscal
years beginning after June 15, 1999. As the Company does not currently engage
or plan to engage in derivative or hedging activities there will be no impact
to the Company's results of operations, financial position or cash flows upon
the adoption of this standard.
F-10
<PAGE>
EARTHWEB INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
3. ACQUISITION--(CONTINUED)
In August 1997, the Company acquired certain assets related to the Java Applet
Rating Service ("JARS") Web site. The total cost of the acquisition was
$1,261,876 including legal and other professional costs. As of December 31,
1997 there is a payable of $450,000 related to this acquisition that is
collateralized by a standby letter of credit agreement with a financial
institution (see Note 7). The final payment was made in August 1998
(unaudited). The Company has also entered into a four year consulting agreement
with the seller of JARS where the Company is obligated to pay a consulting fee
of $180,000 per year.
The cost of the JARS acquisition was allocated to certain assets based upon
their estimated fair values as follows:
<TABLE>
<S> <C>
Intangible assets............................................. $1,011,876
Capitalized software.......................................... 230,000
Fixed assets.................................................. 20,000
----------
$1,261,876
==========
</TABLE>
On December 31, 1997, the Company recorded a charge of approximately $337,000
related to an impairment of the intangible assets acquired in the JARS
acquisition to reflect the fair value of the remaining asset.
4. DISCONTINUED OPERATIONS
In November 1997, the Company formalized its plan to discontinue its
professional services and software products divisions. Accordingly, operating
results have been reclassified and reported in discontinued operations.
Operating results and assets and liabilities of the discontinued operations are
as follows:
<TABLE>
<CAPTION>
------------ ---------------------------------- -------------------------------------
PROFESSIONAL PROFESSIONAL SOFTWARE PROFESSIONAL SOFTWARE
SERVICES SERVICES PRODUCTS TOTAL SERVICES PRODUCTS TOTAL
1995 1996 1996 1996 1997 1997 1997
------------ ------------ --------- ---------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues................ $578,998 $1,059,329 $ 133,049 $1,192,378 $2,303,813 $ 476,170 $ 2,779,983
Expenses (including loss
from disposal)......... 514,199 919,812 314,821 1,234,633 1,361,046 3,802,456 5,163,502
-------- ---------- --------- ---------- ---------- ----------- -----------
Net income (loss)....... $ 64,799 $ 139,517 $(181,772) $ (42,255) $ 942,767 $(3,326,286) $(2,383,519)
======== ========== ========= ========== ========== =========== ===========
At December 31:
Accounts Receivable..... $ 330,370 $ -- $ 330,370 $ 253,052 $ 150,000 $ 403,052
Deferred costs.......... 327,261 -- 327,261 -- -- --
Fixed assets, net....... 106,000 50,000 156,000 -- -- --
---------- --------- ---------- ---------- ----------- -----------
Assets.................. 763,631 50,000 813,631 253,052 150,000 403,052
Accrued expenses........ -- -- -- 103,585 339,942 443,527
Deferred revenue........ 663,171 -- 663,171 -- -- --
---------- --------- ---------- ---------- ----------- -----------
Net assets.............. $ 100,460 $ 50,000 $ 150,460 $ 149,467 $ (189,942) $ (40,475)
========== ========= ========== ========== =========== ===========
</TABLE>
5. FIXED ASSETS
Property and equipment consist of the following:
<TABLE>
<CAPTION>
---------------------------------------
DECEMBER 31, DECEMBER 31, SEPTEMBER 30,
1996 1997 1998
------------ ------------ -------------
(UNAUDITED)
<S> <C> <C> <C>
Computer equipment and software........ $581,638 $1,753,627 $2,134,416
Furniture and fixtures................. 232,478 321,818 499,425
Leasehold improvements................. 144,619 291,311 564,674
-------- ---------- ----------
958,735 2,366,756 3,198,515
Less, accumulated depreciation and
amortization........................ 139,474 715,928 (1,223,479)
-------- ---------- ----------
$819,261 $1,650,828 $1,975,036
======== ========== ==========
</TABLE>
F-11
<PAGE>
EARTHWEB INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
5. FIXED ASSETS--(CONTINUED)
Depreciation and amortization for the years ended December 31, 1995, 1996 and
1997 totaled approximately $42,000, $101,000 and $529,000, respectively.
6. COMMITMENTS AND CONTINGENCIES
Leases:
The Company leases office space in New York, under non-cancelable operating
leases expiring at various dates through January 2008. In addition, the Company
is a lessee, under several capital lease agreements with third parties, for
certain equipment. Future minimum lease payments under non-cancelable operating
and capital leases as of December 31, 1997 are as follows:
<TABLE>
<CAPTION>
OPERATING CAPITAL
LEASES LEASES
----------- ----------
<S> <C> <C>
1998.................................................... $ 744,000 $ 15,161
1999.................................................... 1,018,000 12,541
2000.................................................... 961,000 4,700
2001.................................................... 859,000 --
2002 and Thereafter..................................... 4,839,000 --
----------- ----------
Total................................................... $ 8,421,000 32,402
===========
Less: Amounts attributable to interest.................. 3,737
----------
Present value of net minimum lease payments............. 28,665
Less: Current portion................................... 11,625
----------
Long-term portion....................................... $ 17,040
==========
</TABLE>
Rent expense was approximately $79,000, $183,000 and $278,000, for the years
ended December 31, 1995, 1996 and 1997, respectively. The cost of equipment
under capital lease included in property and equipment was approximately
$35,000 and $44,000 at December 31, 1996 and 1997, respectively.
7. FINANCING
As of December 31, 1997, the Company has the following standby letters of
credit:
<TABLE>
<C> <S>
$287,000 -- to collateralize its principal facility lease agreement. Such
standby letter of credit is collateralized by restricted cash.
$450,000 -- to collateralize the future payments related to the JARS
acquisition. Such standby letter of credit is collateralized by
restricted cash, accounts receivable and certain intangible assets.
</TABLE>
On June 2, 1997, the Company entered into a convertible promissory note
agreement whereby the Company received a $500,000 loan, payable upon demand.
The promissory note was converted into 29,904 shares of the Company's newly
issued Series B Convertible Preferred Stock on June 24, 1997.
During August 1996, the Company entered into a convertible promissory note
agreement whereby the Company received a $500,000 loan, payable upon demand.
The promissory note was converted into 48,823 shares of the Company's newly
issued Series A Convertible Preferred Stock on October 25, 1996.
8. CAPITAL STOCK
At December 31, 1997, the authorized capital stock of the Company consists of
21,750,000 shares of Common Stock, 2,750,000 shares of Convertible Preferred
Stock consisting of 1,000,000 shares of Series A, 600,000 shares of Series B
F-12
<PAGE>
EARTHWEB INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
8. CAPITAL STOCK--(CONTINUED)
and 1,150,000 shares of Series C. The authorized capital stock and the related
par values were adjusted as part of the Company's incorporation in the state of
Delaware on June 17, 1997 (see Note 1). During 1997, the Company's Board of
Directors approved a three-for-one Common Stock split. Shareholders of record
in November 1997 received two additional shares for each share held. All
references to the number of shares of common stock have been retroactively
restated in the financial statements to reflect the effect of the three-for-one
split.
Preferred Stock
On October 25, 1996, the Company issued 653,111 shares of Series A Convertible
Preferred Stock ("Series A") through a private placement, in consideration of
net proceeds to the Company of $4,881,096, inclusive of the conversion of a
$500,000 promissory note.
In June 1997, the Company issued 598,086 shares of Series B Convertible
Preferred Stock ("Series B") through a private placement, in consideration of
net proceeds of $9,999,998, inclusive of the conversion of a $500,000
promissory note.
The holders of the Convertible Preferred Stock are entitled to receive
cumulative dividends at specified rates, as defined. Such dividends are payable
only when declared by the Board of Directors or upon a liquidation event, as
defined, other than a mandatory conversion. In the event of any liquidation,
the holders of preferred stock have a liquidation preference over holders of
common stock. Such preference is equal to the cost basis of the respective
class of preferred stock, plus any cumulative unpaid dividends. At December 31,
1996 and 1997 cumulative dividends in arrears amounted to approximately $80,000
and $898,000, respectively.
All classes of preferred stock are convertible to common stock at prices and at
times subject to the provisions set forth in the Company's restated Certificate
of Incorporation. In the event of a public offering of the Company's shares
with net proceeds to the Company of at least $15 million and an offering price
per share determined by the applicable rates as defined in the Company's re-
stated Certificate of Incorporation, the preferred stock will be automatically
converted into common stock at the conversion rates, as defined. Preferred
stockholders are entitled to voting rights equal to the number of shares of
common stock into which the preferred stock is convertible.
Stock Option Plan
During October 1996, the Company adopted the 1996 Stock Option Plan (the
"Plan") under which incentive stock options or non-qualified stock options to
purchase common stock may be granted to eligible employees. A summary of the
status of the Company's plan, as amended, is presented below:
<TABLE>
<CAPTION>
-----------------------
WEIGHTED
AVERAGE
OPTION EXERCISE
SHARES PRICE
-------- -------------
<S> <C> <C>
Options outstanding at December 31, 1996
Opening balance........................................ --
Granted................................................ 95,017 $ 1.54
Granted................................................ 123,953 3.08
Exercised.............................................. -- --
Forfeited.............................................. (17,481) 1.54
--------
Options outstanding at December 31, 1997............... 201,489 2.49
Granted (unaudited).................................... 271,622 3.08 - 3.23
Granted (unaudited).................................... 10,342 8.57
Granted (unaudited).................................... 55,575 10.00 - 11.54
Exercised (unaudited).................................. (2,481) 1.54
Forfeited (unaudited).................................. (59,680) 2.40
--------
Options outstanding at September 30, 1998 (unaudited).. 476,867 3.97
========
Options exercisable at December 31, 1997............... --
Options exercisable at September 30, 1998 (unaudited).. 27,560
Weighted average fair value of options granted during
1997.................................................. $ 0.75
</TABLE>
F-13
<PAGE>
EARTHWEB INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
8. CAPITAL STOCK--(CONTINUED)
The following table summarizes information about stock options outstanding at
December 31, 1997:
<TABLE>
<CAPTION>
--------------------------------
OPTIONS OUTSTANDING
--------------------------------
WEIGHTED
AVERAGE WEIGHTED
REMAINING AVERAGE
RANGE OF SHARES CONTRACTUAL EXERCISE
EXERCISE PRICES OUTSTANDING LIFE PRICE
--------------- ----------- ----------- --------
<S> <C> <C> <C>
$1.54....................................... 77,536 6.2 years $1.54
$3.08....................................... 123,953 6.8 years $3.08
</TABLE>
Options generally vest over a period of four years, however, 15% of all
unvested options automatically vest at the date of an initial public offering
of the Company's stock in which the Company receives net proceeds of at least
$10 million. At December 31, 1997, the Company had reserved 646,857 shares of
common stock for the exercise of options.
The option plan also provides for the issuance of stock appreciation rights and
restricted stock awards under which shares of common stock may be issued to
eligible employees. No such awards have been made.
Stock-Based Compensation:
The Company applies Accounting Principles Board Opinion No. 25, "Accounting for
Stock-Issued to Employees" and related interpretations in accounting for its
stock option issuances. The Company has adopted the disclosure-only provisions
of SFAS No. 123, "Accounting for Stock-Based Compensation". Had compensation
cost for the Company's stock options issued at the fair value of the Company's
stock been determined based on the fair value of the stock options at the grant
date for awards in 1997 consistent with the provisions of SFAS No. 123, the
Company's net loss would have been adjusted to the pro forma amounts indicated
below.
<TABLE>
<CAPTION>
------------
DECEMBER 31,
1997
------------
<S> <C>
Net loss--as reported.......................................... $(7,820,537)
Net loss--pro forma............................................ $(7,860,720)
Basic net loss per share--as reported.......................... $ (2.67)
Basic net loss per share--pro forma............................ $ (2.69)
</TABLE>
The fair value of each option grant is estimated on the date of the grant using
the "Black-Scholes option-pricing model" with the following weighted average
assumptions used for grants for the year ended December 31, 1997; zero dividend
yield; no volatility; a weighted average risk-free interest rate of 6.90%; and
expected lives of 5 years.
During the nine months ended September 30, 1998, the Company issued stock
options with strike prices below the then fair market value and as a result
recorded deferred compensation of approximately $304,000 (unaudited). Deferred
compensation is amortized over the four year vesting period of the options. As
of September 30, 1998, compensation cost of approximately $20,000 (unaudited)
has been recognized.
9. INCOME TAXES
The components of the net deferred tax asset as of December 31, 1996 and 1997
consists of the following:
<TABLE>
<CAPTION>
----------------------
1996 1997
--------- -----------
<S> <C> <C>
Operating loss carryforward......................... $ 221,513 $ 3,325,050
Depreciation of fixed assets and amortization of
intangibles........................................ (37,464) 254,250
--------- -----------
Net deferred tax asset.............................. 184,049 3,579,300
Less, Valuation allowance........................... (184,049) (3,579,300)
--------- -----------
Deferred tax asset.................................. $ -- $ --
========= ===========
</TABLE>
The difference between the Company's U.S. federal statutory rate of 35%, as
well as its state and local rate, net of a federal benefit of 7%, when compared
to its effective rate of 0% is principally comprised of its valuation
allowance.
As of December 31, 1997, the Company has a net operating loss carryforward for
Federal income tax purposes of approximately $7,389,000. The carryforward will
expire in 2012 if not used. The net deferred tax asset has been fully reserved
due to the uncertainty of the Company's ability to realize this asset in the
future.
F-14
<PAGE>
EARTHWEB INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
10. EMPLOYEE SAVINGS PLAN
The Company has a savings plan (the "Savings Plan") that qualifies as a
deferred salary arrangement under Section 401(k) of the Internal Revenue Code.
Under the Savings Plan, participating employees may defer a portion of their
pretax earnings, up to the Internal Revenue Service annual contribution limit.
For the year ended December 31, 1997, the Company did not contribute to the
Savings Plan.
11. SUBSEQUENT EVENTS (UNAUDITED)
Acquisitions
During the nine months ended September 30, 1998, the Company has purchased
three Web sites. In February 1998, the Company acquired the companion Web sites
htmlgoodies.com and javagoodies.com. In April 1998, the Company acquired
intranetjournal.com. In May 1998, the Company acquired javascripts.com. The
aggregate cost of these Web site acquisitions totaled approximately $370,000,
approximately $168,000 of which is payable over the next 33 months.
In July 1998, the Company acquired substantially all of the assets and
properties of the Web site, datamation.com. In conjunction with the
acquisition, the Company also licensed on a non-exclusive, fully paid basis
from the seller, the right to use certain customer lists for the purposes of
marketing the Company's products and services. The total cost of the
acquisition and license was approximately $600,000, subject to certain purchase
price adjustments, as defined in the acquisition agreement.
Common Stock Issuance
In June 1998, the Company issued 433,965 shares of Common Stock to EarthWeb LLC
through a private placement, in consideration of net proceeds of $3,718,750.
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 653,111 shares of the Company's Series A
Preferred Stock and 598,086 shares of Series B Preferred Stock will be
converted into 2,439,833 shares of Common Stock, and all such outstanding
shares of Preferred Stock will be cancelled and retired. Upon the conversion of
the Preferred Stock, all rights to accrued and unpaid dividends are waived.
Reverse Stock Split
On November 4, 1998, the Company authorized and implemented a 0.65 for 1
reverse stock split. The share information in the accompanying financial
statements has been retroactively restated to reflect the effect of this
reverse stock split.
Stock Option Plan
As of November 4, 1998 the Company authorized its 1998 Stock Incentive Plan and
increased the number of shares reserved for issuance under this plan and the
1996 Stock Option Plan common stock from 646,857 to 795,000.
F-15
<PAGE>
[INSIDE BACK COVER]
[Text: EarthWeb Meeting the Needs of the IT Community]
[Photographs of: David Mathison, Vice President, Technical Development, Reuters
New Media; Praveen Maryala, Software Engineer, AT&T; James Rose, Director of
Worldwide Advertising, IBM Software Group; Marianne Mason, Specialist--
Intranet-Webmaster, Bell Atlantic; Chris Cooper, CEO, Quote.com; Koen Van Exem,
General Manager, DIPU; and Reg Hingley, Senior Systems Engineer, Compaq Canada]
[Quotes attributed to each of the foregoing persons, respectively]
"Reuters America had a business need to find specialized
content replication software for our Planet Reuters site.
We searched developer.com to find the technologies we
needed. Thanks to developer.com, we've now got one of the
most powerful syndication systems on the Web. We applaud
developer.com for providing such a useful service."
--IT Executive
"I think developer.com is the only Internet site made for
developers like me, giving all the latest information
that we need in one place."
--IT Professional
"The launch of IBM's VisualAge for Java professional
software development tools relied much more heavily on
the Web than most product launches. Of all the IT-focused
websites used in the ad campaign, developer.com's Gamelan
Java directory was clearly the most effective in terms of
cost per click. Developer.com was a major contributor to
the success of the launch."
--IT Advertiser
"Developer.com really saves me time by having so many
excellent resources available in one place. It is
bookmarked on my browser and is one of the few sites that
I use regularly."
--IT Professional
"Offering the most innovative products has been a
significant factor in maintaining Quote.com's position as
the leading provider of quality financial services for
the Internet community. Developer.com has consistently
proved to be one of the most useful online resources for
implementing these services by providing examples for new
product ideas and the tools for their creation."
--IT Executive
"Developer direct is a one-stop shop so we, as
developers, can focus more on our products, while
developer direct takes extra care at the customer's side.
With developer direct, EarthWeb has the right channel to
give developers exactly what they want, namely direct
access to developer tools."
--IT Vendor
"Datamation has just the right blend of business sense
and technical detail for me to use in my job. I am a
Senior Systems Engineer for Compaq Canada, and in the
course of a year, I talk to many people who ask for views
on the industry and its direction. Datamation helps me
keep in touch with what is happening, without bogging me
down in technical details or wishful fantasies."
--IT Professional
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the expenses to be borne by the registrant,
other than underwriting discount, in connection with the issuance and
distribution of the Common Stock hereunder:
<TABLE>
<CAPTION>
-------------
ITEM AMOUNT
---- -------------
<S> <C>
SEC registration fee...................................... $ 10,177.50
NASD filing fee........................................... 3,950.00
Nasdaq National Market Listing Fees....................... 64,375.00
Accounting fees and expenses.............................. 156,000.00
Legal fees and expenses................................... 350,000.00
Printing costs............................................ 200,000.00
Blue sky fees and expenses................................ 5,000.00
Miscellaneous............................................. 421,497.50
-------------
Total................................................... $1,200,000.00
=============
</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 Amended and
Restated 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 Amended and Restated 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 Amended and Restated
Certificate of Incorporation and statutes.
The Company has agreed to indemnify the Underwriters and their controlling
persons, and the Underwriters have agreed to indemnify the Company and its
controlling persons, including directors and executive officers of the Company,
against certain liabilities, including liabilities under the Securities Act.
Reference is made to the Underwriting Agreement filed as part of the Exhibits
hereto.
For information regard the Company's undertaking to submit to adjudication the
issue of indemnification for violation of the securities laws, see Item 17
hereof.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
On October 25, 1996, the Company issued (i) 2,925,000 shares of its Common
Stock to EarthWeb LLC in exchange for substantially all the assets and
liabilities of EarthWeb LLC and (ii) 653,111 shares of its Series A Preferred
Stock to Warburg, Pincus Ventures, L.P. ("Warburg") for an aggregate purchase
price of $6.7 million. On June 23, 1997, the Company issued 598,086 shares of
its Series B Preferred Stock to Warburg for an aggregate purchase price of
$10.0 million. In June 1998, the Company issued 433,965 shares of its Common
Stock to EarthWeb LLC for an aggregate purchase price of $3.7 million.
Exemption from registration for the transactions described above was claimed
pursuant to Section 4(2) of the Securities Act of 1933, as amended, regarding
transactions by the issuer not involving a public offering, in that these
transactions were made, without general solicitation or advertising, to
sophisticated investors with access to all relevant information necessary to
evaluate these investments and who represented to the Registrant that the
shares were being acquired for investment. Additionally, since February 1997,
the Registrant has granted stock options to certain of its employees and
consultants pursuant to its 1996 Amended and Restated Stock Plan. Such grants
were made in reliance on Rule 701 promulgated under the Securities Act. As of
November 9, 1998, the Registrant had granted options to purchase 500,592 shares
of Common Stock to employees and consultants pursuant to the 1996 Amended and
Restated Stock Option Plan.
II-1
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
1 Form of Underwriting Agreement*
3.1 Form of Amended and Restated Certificate of Incorporation
3.2 Form of Amended and Restated 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 Opinion of Morrison & Foerster LLP
9 Form of Voting Trust Agreement, as amended*
10.1 1996 Amended and Restated Stock Plan, as amended*
10.2 Employment Agreement dated January 1, 1995 between GNP (formerly
EarthWeb Ltd.) and Jack D. Hidary*
10.3 Employment Agreement dated January 1, 1995 between GNP (formerly
EarthWeb Ltd.) and Murray Hidary*
10.4 Employment Agreement dated November 4, 1996 between the Registrant
and Irene Math*
10.5 Employment Agreement dated November 3, 1997 between the Registrant
and William Gollan*
10.6 Consulting Agreement dated as of August 1, 1998 between the
Registrant and Nova Spivack*
10.7 Intercompany Services Agreement dated October 25, 1996 among the
Registrant, EarthWeb LLC, GNP (formerly EarthWeb Ltd.), Jack D.
Hidary, Murray Hidary and Nova Spivack, as amended*
10.8 Lease Agreement dated April 28, 1995 between 3 Park Avenue Co. and
MJN Enterprises, Inc., as amended*
10.9 Form of 1998 Stock Incentive Plan
10.10 Form 1998 Employee Stock Purchase Plan
23.1 Consent of PricewaterhouseCoopers LLP
23.2 Consent of Morrison & Foerster LLP (set forth in Exhibit 5)
23.3 Consent of Jupiter Communications*
23.4 Consent of Forrester Research, Inc.*
23.5 Consent of International Data Corporation*
23.6 Consent of Koen Van Exem*
23.7 Consent of Chris Cooper*
23.8 Consent of David Mathison
23.9 Consent of Praveen Maryala*
23.10 Consent of James Rose*
23.11 Consent of Marianne Mason*
23.12 Consent of Reg Hingley*
24 Powers of Attorney*
27 Financial Data Schedule
</TABLE>
- -------
*Previously filed.
II-2
<PAGE>
ITEM 17. UNDERTAKINGS.
The Registrant hereby undertakes the following:
(1) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than
the payment by the Registrant of expenses incurred or paid by a director,
officer or controlling person of the registrant in the successful defense
of any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
(2) For purposes of determining any liability under the Securities Act, the
information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(3) For the purpose of determining any liability under the Securities Act,
each post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
(4) The undersigned Registrant hereby undertakes to provide to the
underwriters at the closing specified in the Underwriting Agreement
certificates in such denominations and registered in such names as required
by the underwriters to permit prompt delivery to each purchaser.
II-3
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS AMENDMENT NO. 4 TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF NEW YORK, STATE OF NEW
YORK, ON NOVEMBER 9, 1998.
EarthWeb Inc.
/s/ Jack D. Hidary
By: ____________________________________
JACK D. HIDARY,
President and Chief Executive Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
NO. 4 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 November , 1998
______________________________________ Officer and Director
JACK D. HIDARY
/s/ Murray Hidary* Executive Vice President, November , 1998
______________________________________ Secretary, Treasurer and
MURRAY HIDARY Director
/s/ Nova Spivack* Director November , 1998
______________________________________
NOVA SPIVACK
/s/ Henry Kressel* Director November , 1998
______________________________________
HENRY KRESSEL
/s/ Cary Davis* Director November , 1998
______________________________________
CARY DAVIS
/s/ Irene Math* Vice President, Finance November , 1998
______________________________________ (Principal Financial and
IRENE MATH Accounting Officer)
/s/ Jack D. Hidary
*By: _________________________________
JACK D. HIDARY
Attorney-in-fact
</TABLE>
S-1
<PAGE>
EXHIBIT INDEX
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
<TABLE>
<CAPTION>
EXHIBIT NO.DESCRIPTION PAGE
---------------------- ----
<C> <S> <C>
1 Form of Underwriting Agreement*
3.1 Form of Amended and Restated Certificate of Incorporation
3.2 Form of Amended and Restated 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 Opinion of Morrison & Foerster LLP
9 Form of Voting Trust Agreement, as amended*
10.1 1996 Amended and Restated Stock Plan, as amended*
10.2 Employment Agreement dated January 1, 1995 between GNP
(formerly EarthWeb Ltd.) and Jack D. Hidary*
10.3 Employment Agreement dated January 1, 1995 between GNP
(formerly EarthWeb Ltd.) and Murray Hidary*
10.4 Employment Agreement dated November 4, 1996 between the
Registrant and Irene Math*
10.5 Employment Agreement dated November 3, 1997 between the
Registrant and William Gollan*
10.6 Consulting Agreement dated as of August 1, 1998 between the
Registrant and Nova Spivack*
10.7 Intercompany Services Agreement dated October 25, 1996
among the Registrant, EarthWeb LLC, GNP (formerly EarthWeb
Ltd.), Jack D. Hidary, Murray Hidary and Nova Spivack, as
amended*
10.8 Lease Agreement dated April 28, 1995 between 3 Park Avenue
Co. and MJN Enterprises, Inc., as amended*
10.9 Form of 1998 Stock Incentive Plan
10.10 Form of 1998 Employee Stock Purchase Plan
23.1 Consent of PricewaterhouseCoopers LLP
23.2 Consent of Morrison & Foerster LLP (set forth in Exhibit 5)
23.3 Consent of Jupiter Communications*
23.4 Consent of Forrester Research, Inc.*
23.5 Consent of International Data Corporation*
23.6 Consent of Koen Van Exem*
23.7 Consent of Chris Cooper*
23.8 Consent of David Mathison
23.9 Consent of Praveen Maryala*
23.10 Consent of James Rose*
23.11 Consent of Marianne Mason*
23.12 Consent of Reg Hingley*
24 Powers of Attorney*
27 Financial Data Schedule
</TABLE>
- -------
* Previously filed.
<PAGE>
Exhibit 3.1
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
EARTHWEB INC.
This Amended and Restated Certificate of Incorporation amends, restates and
integrates the provisions of the Certificate of Incorporation of said
corporation in their entirety and has been duly adopted in accordance with the
provisions of Section 242 and 245 of the General Corporation Law of the State of
Delaware (the "DGCL") by the written consent of the holders of the outstanding
stock entitled to vote thereon in accordance with the provisions of Section 228
of the DGCL.
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 Earth Web Inc.
3 Park Avenue, 38th Floor
New York, NY 10016
<PAGE>
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 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 that the Company is
authorized to issue 26,500,000 shares, consisting of 21,750,000 shares of common
stock, $0.01 par value per share (the "Common Stock") and 4,750,000 shares of
------------
Preferred Stock, $0.01 par value per share (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 13 Preferred Stock")
-------------------------
(iii) 1,150,000 shares are designated as Series C Convertible
Preferred Stock (the "Series C Preferred Stock"); and
------------------------
(iv) 2,000,000 shares are undesignated shares of Preferred
Stock.
(b) Any of the 2,000,000 undesignated shares of Preferred Stock
("Undesignated Preferred Stock") may be issued from time to time in one or more
series. Subject to the limitations and restrictions set forth in this paragraph
the Board of Directors or a Committee of the Board of Directors, to the extent
permitted by law and the Bylaws of the Corporation or a resolution of the Board
of Directors, by resolution or resolutions, is authorized to create or provide
for any such series, and to fix the designations, preferences and relative,
participating, optional or other special rights, and qualifications, limitations
or restrictions thereof, including, without limitation, the authority to fix or
alter the dividend rights, dividend rates,
2
<PAGE>
conversion rights, exchange rights, voting rights, rights and terms of
redemption (including sinking and purchase fund provisions), the redemption
price or prices, the dissolution preferences and the rights in respect to any
distribution of assets of any wholly unissued series of Undesignated Preferred
Stock and the number of shares constituting any such series, and the designation
thereof, or any of them and to increase or decrease the number of shares of any
series so created, subsequent to the issue of that series but not below the
number of shares of such series then outstanding. In case the number of shares
of any series shall be so decreased, the shares constituting such decrease shall
resume the status which they had prior to the adoption of the resolution
originally fixing the number of shares of such series.
(c) 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 which
is not Undesignated Preferred Stock and the Common Stock are as set forth in
this Article VI.
----------
6.2. Definitions.
-----------
For purposes of this Amended and Restated Certificate of Incorporation of
the Company, the following terms shall have the meanings given to them below:
"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
3
<PAGE>
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-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.
- -----------
"Convertible 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 13 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 splits, stock dividends, stock combinations, recapitalizations and
like occurrences with respect to the Common Stock).
4
<PAGE>
"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 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 ("NOBI"), 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
5
<PAGE>
or asked prices in the domestic over-the-counter market reported by NOBI, 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, 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;
6
<PAGE>
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
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.
7
<PAGE>
"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.
"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
8
<PAGE>
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, 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 Convertible Preferred Stock and any
class or series of stock ranking on liquidation on a parity with the Convertible
9
<PAGE>
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 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:
--------------------------
10
<PAGE>
(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 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. 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 thc certificate so surrendered.
(c) RESERVED.
(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
11
<PAGE>
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 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 alter
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 issuance,
multiplied by the
12
<PAGE>
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 an 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
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
13
<PAGE>
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 option 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
(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
14
<PAGE>
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
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.
15
<PAGE>
(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 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; provided, however, that the Company shall
-------- -------
deliver to such holder an appropriate instrument evidencing such holder's
right to receive such additional shares.
(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 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.
--------------------
16
<PAGE>
(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 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.
17
<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:
(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
18
<PAGE>
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).
(d) The directors shall be divided, with respect to the terms for
which they severally hold office, into three classes, as nearly equal in number
of directors as possible, as determined by the Board of Directors, with the term
of office of the first class to expire at the first Annual Meeting of
Stockholders to be held after the effectiveness of such registration statement,
the term of office of the second class to expire at the second Annual Meeting of
Stockholders to be held after the effectiveness of such registration statement,
and the term of office of the third class to expire at the third Annual Meeting
of Stockholders to be held after the effectiveness of such registration
statement with each class of directors to hold office until their successors are
duly elected and have qualified. At each Annual Meeting of Stockholders
following such initial classification and election, directors elected to succeed
those directors whose terms expire at such annual meeting, other than those
directors elected under particular circumstances by a separate class vote of the
holders of any class or series of stock having a preference over the Common
Stock as to dividends or upon liquidation of the Corporation, shall be elected
to hold office for a term expiring at the Annual Meeting of Stockholders in the
third year following the year of their election and until their successors are
duly elected and have qualified. When the number of directors is changed, any
newly created directorships or any decrease in directorships shall be so
apportioned among the classes as to make all classes as nearly equal in number
of directors as possible, as determined by the Board of Directors. No decrease
in the number of directors constituting the Board of Directors shall shorten the
term of any incumbent director.
19
<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.
IN WITNESS WHEREOF, EarthWeb Inc. has caused this Certificate to be signed
by Jack D. Hidary, its President, on the 6th day of November, 1998.
------------------
Jack D. Hidary
20
<PAGE>
Exhibit 3.2
EARTHWEB INC.
Incorporated under the laws
of the State of Delaware
AMENDED AND RESTATED
BY-LAWS
As adopted on November 6, 1998
<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.
----------------
Special Meetings of the stockholders of the corporation may be called, for
any purpose or purposes, by the Chairman of the Board or the President or the
Board of Directors at any time.
2.3. Notice of Meetings.
------------------
At an annual meeting of the stockholders, only such business shall be
conducted as shall have been properly brought before the meeting. To be properly
brought before an annual
<PAGE>
meeting, business must be specified in the notice of meeting (or any supplement
thereto) given by or at the direction of the Board of Directors, otherwise
properly brought before the meeting by or at the direction of the Board of
Directors or otherwise properly brought before the meeting by a stockholder. In
addition to any other applicable requirements, for business to be properly
brought before an annual meeting by a stockholder, the stockholder must have
given timely notice thereof in writing to the Secretary of the Corporation. To
be timely, a stockholder's notice must be delivered to or mailed and received at
the principal executive offices of the Corporation, not less than 30 days nor
more than 60 days prior to the meeting; provided, however, that in the event
that less than 40 days' notice or prior public disclosure of the date of the
meeting is given or made to stockholders, notice by the stockholder to be timely
must be so received not later than the close of business on the 10th day
following the day on which such notice of the date of the annual meeting was
mailed or such public such disclosure was made. A stockholder's notice to the
Secretary shall set forth as to each matter the stockholder proposes to bring
before the annual meeting, (i) a brief description of the business desired to be
brought before the annual meeting and the reasons for conducting such business
at the annual meeting, (ii) the name and record address of the stockholder
purposing such business, (iii) the class and number of shares of the Corporation
which are beneficially owned by the stockholder, (iv) any material interest of
the stockholder in such business and (v) any other information which would be
required to be disclosed in a proxy statement or other filings required to be
made in connection with the solicitation of proxies for the proposal pursuant to
Section 14 of the Securities and Exchange Act of 1934, as amended (the "Exchange
Act").
2.4 Quorum.
------
At each meeting of the stockholders, except where otherwise provided by the
Amended and Restated Certificate of Incorporation of the Corporation (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;
<PAGE>
(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
(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 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.
<PAGE>
(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 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.
<PAGE>
2.10 Stockholders' Consent in Lieu of Meeting
----------------------------------------
Any action required by the Delaware Statue to be taken at any annual or
special 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 Statue.
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 Broad.
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 a 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.
<PAGE>
(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 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.
<PAGE>
(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;
(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.
------------------
<PAGE>
The principal officers of the Corporation shall be a Chairman, if one is
appointed (and any references in those 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 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.
<PAGE>
4.6. The Chairman.
------------
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.
<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
<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 Commercial 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 bolder 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.
<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.
<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 ease 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
<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.
<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
---------
These By-laws may be altered, amended or repealed, in whole or in part, or
new By-laws may be adopted by the stockholders or by the Board of Directors,
provided, however, that notice of such alteration, amendment, repeal or adoption
of new By-laws be contained in the notice of such meeting of stockholders or
Board of Directors as the case may be. Upon the effectiveness of a registration
statement filed by the Corporation under the Exchange Act, all such amendments
must be approved by either the holders of 80% of the outstanding capital stock
entitled to vote thereon or by a majority of the entire Board of Directors then
in office. Prior to the effectiveness of such registration statement, such
amendments must be approved by either the holders of a majority of the
outstanding capital stock entitled to vote or by a majority of the Board of
Directors.
<PAGE>
Exhibit 4.2
EARTHWEB INC.
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
CUSIP 27032C 10 8
SEE REVERSE FOR CERTAIN DEFINITIONS
THIS CERTIFIES THAT
is the owner of
FULLY-PAID AND NONASSESSABLE SHARES OF THE COMMON STOCK, $.01 PAR VALUE, OF
EARTHWEB INC.
(the Corporation) transferable on the books of the Corporation by the holder
hereof in person or by duly authorized attorney, upon surrender of this
Certificate properly endorsed. This Certificate and the shares represented
hereby are subject to all of the terms and conditions contained in the
Certificate of Incorporation and all amendments thereto. Upon request, the
Corporation will furnish without charge to the holder hereof a statement of the
powers, designations, preferences and relative, participating, optional or other
special rights of each class of stock or series thereof and the qualifications,
limitations or restrictions of such preferences and/or rights as may be
established, from time to time, by the Certificate of Incorporation of the
Corporation and by any certificate of designation, the number of shares
constituting each class and series, and the designations thereof. This
Certificate is not valid unless countersigned and registered by the Transfer
Agent and Registrar.
WITNESS the facsimile seal of the Corporation and the facsimile signatures
of its duly authorized officers.
Dated:
President and
Chief Executive Officer
Executive Vice President,
Secretary and Treasurer
COUNTERSIGNED AND REGISTERED:
AMERICAN STOCK TRANSFER & TRUST COMPANY
TRANSFER AGENT AND REGISTRAR
BY
AUTHORIZED SIGNATURE
The following abbreviations, when used in the inscription on the face of this
certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM-
TEN ENT-
JT TEN-
as tenants in common
as tenants by the entireties
as joint tenants with right
of survivorship and not as
tenants in common
UNIF GIFT MIN ACT Custodian
(Cust)
(Minor)
<PAGE>
under Uniform Gifts to Minors Act
(State)
Additional abbreviations may also be used though not in the above list.
For Value Received, hereby
sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE OF ASSIGNEE)
Shares
of the common stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
Attorney
to transfer the said stock on the books of the within named Company with full
power of substitution in the premises.
Dated
NOTICE:
THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS WRITTEN UPON
THE FACE OF
THE CERTIFICATE IN EVERY PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT OR ANY
CHANGE WHATEVER.
Signature(s) Guaranteed:
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION
(BANKS, STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH
MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM), PURSUANT TO
S.E.C. RULE 17Ad-15.
<PAGE>
Exhibit 5.1
[MORRISON & FOERSTER LLP LETTERHEAD]
Morrison & Foerster LLP
1290 Avenue of the Americas
New York, NY 10104
November 9, 1998
EarthWeb Inc.
3 Park Avenue
New York, NY 10016
Ladies and Gentlemen:
At your request, we have examined the Registration Statement on
Form S-1 filed by EarthWeb Inc., a Delaware corporation (the "Company"), with
the Securities and Exchange Commission on August 6, 1998 (Registration
No. 333-60837), Amendment No. 1 thereto filed on September 21, 1998, Amendment
No. 2 thereto filed on October 16, 1998 and Amendment No. 3 thereto filed on
November 9, 1998 (the "Registration Statement"), relating to the registration
under the Securities Act of 1933, as amended, of shares of the Company's common
stock, par value $0.01 per share (the "Stock"), including authorized but
unissued shares being offered by the Company and presently issued and
outstanding shares being offered by certain selling shareholders (the "Selling
Shareholders") subject to the underwriters' over-allotment option. The Stock is
to be sold to the underwriters named in the Registration Statement for resale to
the public.
As counsel to the Company, we have examined the proceedings taken by
the Company in connection with the issuance and sale by the Company of shares of
its Stock. We have also examined the proceedings taken by the Company in
connection with the sale of shares of Stock by the Selling Shareholders.
We are of the opinion that (a) the shares of Stock to be offered and
sold by the Company have been duly authorized and, when issued and sold by the
Company in the manner described in the Registration Statement and in accordance
with the resolutions adopted by the Board of Directors of the Company, will be
legally issued, fully paid and nonassessable, and (b) the shares of
<PAGE>
EarthWebb Inc.
November 9, 1998
Page 2
Stock that may be sold by the Selling Shareholders are legally and validly
issued, fully paid and nonassessable.
We consent to the use of this opinion as an exhibit to the
Registration Statement and further consent to all references to us in the
Registration Statement, the prospectus constituting a part thereof and any
amendments thereto.
Very truly yours,
Morrison & Foerster LLP
<PAGE>
Exhibit 10.9
EARTHWEB INC.
1998 STOCK INCENTIVE PLAN
1. Purposes of the Plan. The purposes of this Stock Incentive Plan are to
--------------------
attract and retain the best available personnel, to provide additional incentive
to Employees, Directors and Consultants and to promote the success of the
Company's business.
2. Definitions. As used herein, the following definitions shall apply:
-----------
(a) "Administrator" means the Board or any of the Committees
-------------
appointed to administer the Plan.
(b) "Affiliate" and "Associate" shall have the respective meanings
--------- ---------
ascribed to such terms in Rule 12b-2 promulgated under the Exchange Act.
(c) "Applicable Laws" means the legal requirements relating to the
---------------
administration of stock incentive plans, if any, under applicable provisions of
federal securities laws, state corporate and securities laws, the Code, the
rules of any applicable stock exchange or national market system, and the rules
of any foreign jurisdiction applicable to Awards granted to residents therein.
(d) "Award" means the grant of an Option, SAR, Dividend Equivalent
-----
Right, Restricted Stock, Performance Unit, Performance Share, or other right or
benefit under the Plan.
(e) "Award Agreement" means the written agreement evidencing the
---------------
grant of an Award executed by the Company and the Grantee, including any
amendments thereto.
(f) "Board" means the Board of Directors of the Company.
-----
(g) "Cause" means, with respect to the termination by the Company or
-----
a Related Entity of the Grantee's Continuous Service, that such termination is
for "Cause" as such term is expressly defined in a then-effective written
agreement between the Grantee and the Company or such Related Entity, or in the
absence of such then-effective written agreement and definition, is based on, in
the determination of the Administrator the Grantee's: (i) refusal or failure to
act in accordance with any specific, lawful direction or order of the Company or
a Related Entity; (ii) unfitness or unavailability for service or unsatisfactory
performance (other than as a result of Disability); (iii) performance of any act
or failure to perform any act in bad faith and to the detriment of the Company
or a Related Entity; (iv) dishonesty, intentional misconduct or material breach
of any agreement with the Company or a Related Entity; or (v) commission of a
crime involving dishonesty, breach of trust, or physical or emotional harm to
any person. At least 30 days prior to the termination of the Grantee's
Continuous Service pursuant to (i) or (ii) above, the Administrator shall
provide the Grantee with notice of the Company's or such Related Entity's intent
to terminate, the reason therefor, and an opportunity for the Grantee to cure
such defects in his or her service to the Company's or such Related Entity's
satisfaction. During this
1
<PAGE>
30 day (or longer) period, no Award issued to the Grantee under the Plan may be
exercised or purchased.
(h) "Change in Control" means a change in ownership or control of the
-----------------
Company effected through either of the following transactions:
(i) the direct or indirect acquisition by any person or
related group of persons (other than an acquisition from or by the Company or by
a Company-sponsored employee benefit plan or by a person that directly or
indirectly controls, is controlled by, or is under common control with, the
Company) of beneficial ownership (within the meaning of Rule 13d-3 of the
Exchange Act) of securities possessing more than fifty percent (50%) of the
total combined voting power of the Company's outstanding securities pursuant to
a tender or exchange offer made directly to the Company's stockholders which a
majority of the Continuing Directors who are not Affiliates or Associates of the
offeror do not recommend such stockholders accept, or
(ii) a change in the composition of the Board over a period
of thirty-six (36) months or less such that a majority of the Board members
(rounded up to the next whole number) ceases, by reason of one or more contested
elections for Board membership, to be comprised of individuals who are
Continuing Directors.
(i) "Code" means the Internal Revenue Code of 1986, as amended.
----
(j) "Committee" means any committee appointed by the Board to
---------
administer the Plan.
(k) "Common Stock" means the common stock of the Company.
------------
(l) "Company" means EarthWeb Inc., a Delaware corporation.
-------
(m) "Consultant" means any person (other than an Employee or, solely
----------
with respect to rendering services in such person's capacity as a Director) who
is engaged by the Company or any Related Entity to render consulting or advisory
services to the Company or such Related Entity.
(n) "Continuing Directors" means members of the Board who either (i)
--------------------
have been Board members continuously for a period of at least thirty-six (36)
months or (ii) have been Board members for less than thirty-six (36) months and
were elected or nominated for election as Board members by at least a majority
of the Board members described in clause (i) who were still in office at the
time such election or nomination was approved by the Board.
(o) "Continuous Service" means that the provision of services to the
------------------
Company or a Related Entity in any capacity of Employee, Director or Consultant,
is not interrupted or terminated. Continuous Service shall not be considered
interrupted in the case of (i) any approved leave of absence, (ii) transfers
between locations of the Company or among the Company, any Related Entity, or
any successor, in any capacity of Employee, Director or
2
<PAGE>
Consultant, or (iii) any change in status as long as the individual remains in
the service of the Company or a Related Entity in any capacity of Employee,
Director or Consultant (except as otherwise provided in the Award Agreement). An
approved leave of absence shall include sick leave, military leave, or any other
authorized personal leave. For purposes of Incentive Stock Options, no such
leave may exceed ninety (90) days, unless reemployment upon expiration of such
leave is guaranteed by statute or contract.
(p) "Corporate Transaction" means any of the following transactions:
---------------------
(i) a merger or consolidation in which the Company is not
the surviving entity, except for a transaction the principal purpose of which is
to change the state in which the Company is incorporated;
(ii) the sale, transfer or other disposition of all or
substantially all of the assets of the Company (including the capital stock of
the Company's subsidiary corporations) in connection with the complete
liquidation or dissolution of the Company;
(iii) any reverse merger in which the Company is the
surviving entity but in which securities possessing more than fifty percent
(50%) of the total combined voting power of the Company's outstanding securities
are transferred to a person or persons different from those who held such
securities immediately prior to such merger; or
(iv) an acquisition by any person or related group of
persons (other than the Company or by a Company-sponsored employee benefit plan)
or beneficial ownership (within the meaning of Rule 13d-3 of the Exchange Act)
of securities more than fifty percent (50%) of the total combined voting power
of the Company's outstanding securities (whether or not in a transaction also
constituting a Change in Control), but excluding any such transaction that the
Administrator determines shall not be a Corporate Transaction.
(q) "Director" means a member of the Board or the board of directors
--------
of any Related Entity.
(r) "Disability" means that a Grantee is permanently unable to carry
----------
out the responsibilities and functions of the position held by the Grantee by
reason of any medically determinable physical or mental impairment. A Grantee
will not be considered to have incurred a Disability unless he or she furnishes
proof of such impairment sufficient to satisfy the Administrator in its
discretion.
(s) "Dividend Equivalent Right" means a right entitling the Grantee
-------------------------
to compensation measured by dividends paid with respect to Common Stock.
(t) "Employee" means any person, including an Officer or Director,
who is an employee of the Company or any Related Entity. The payment of a
director's fee by the Company or a Related Entity shall not be sufficient to
constitute "employment" by the Company.
(u) Exchange Act" means the Securities Exchange Act of 1934, as
------------
amended.
3
<PAGE>
(v) "Fair Market Value" means, as of any date, the value of Common
---- ------------
Stock determined as follows:
(i) Where there exists a public market for the Common Stock, the
Fair Market Value shall be (A) the closing price for a Share for the last market
trading day prior to the time of the determination (or, if no closing price was
reported on that date, an the last trading date on which a closing price was
reported) on the stock exchange determined by the Administrator to be the
primary market for the Common Stock or the Nasdaq National Market, whichever is
applicable or (B) if the Common Stock is not traded on any such exchange or
national market system, the average of the closing bid and asked prices of a
Share on the Nasdaq Small Cap Market for the day prior to the time of the
determination (or, if no such prices were reported on that date, on the last
date on which such prices were reported), in each case, as reported in The Wall
Street Journal or such other source as the Administrator deems reliable; or
(ii) In the absence of an established market for the Common Stock
of the type described in (i), above, the Fair Market Value thereof shall be
determined by the Administrator in good faith.
(w) "Grantee" means an Employee, Director or Consultant who receives
-------
an Award pursuant to an Award Agreement under the Plan.
(x) "Incentive Stock Option" means an Option intended to qualify as
----------------------
an incentive stock option within the meaning of Section 422 of the Code.
(y) "Non-Qualified Stock Option" means an Option not intended to
--------------------------
qualify as an Incentive Stock Option.
(z) "Officer" means a person who is an officer of the Company or a
-------
Related Entity within the meaning of Section 16 of the Exchange Act and the
rules and regulations promulgated thereunder.
(aa) "Option" means an option to purchase Shares pursuant to an Award
------
Agreement granted under the Plan.
(bb) "Parent" means a "parent corporation," whether now or hereafter
------
existing, as defined in Section 424(e) of the Code.
(cc) "Performance Shares" means Shares or an Award denominated in
------------------
Shares which may be earned in whole or in part upon attainment of performance
criteria established by the Administrator.
(dd) "Performance Units" means an Award which may be earned in whole
-----------------
or in part upon attainment of performance criteria established by the
Administrator and which may be settled for cash, Shares or other securities or a
combination of cash, Shares or other securities as established by the
Administrator.
4
<PAGE>
(ee) "Plan" means this 1998 Stock Incentive Plan.
----
(ff) "Registration Date" means the first to occur of (i) the
-----------------
closing of the first sale to the general public of (A) the Common Stock or (B)
the same class of securities of a successor corporation (or its Parent) issued
pursuant to a Corporate Transaction in exchange for or in substitution of the
Common Stock, pursuant to a registration statement filed with and declared
effective by the Securities and Exchange Commission under the Securities Act of
1933, as amended; and (ii) in the event of a Corporate Transaction, the date of
the consummation of the Corporate Transaction if the same class of securities of
the successor corporation (or its Parent) issuable in such Corporate Transaction
shall have been sold to the general public pursuant to a registration statement
filed with and declared effective by, on or prior to the date of consummation of
such Corporate Transaction, the Securities and Exchange Commission under the
Securities Act of 1933, as amended.
(gg) "Related Entity" means any Parent, Subsidiary and any
--------------
business, corporation, partnership, limited liability company or other entity in
which the Company, a Parent or a Subsidiary holds a substantial ownership
interest, directly or indirectly.
(hh) "Restricted Stock" means Shares issued under the Plan to the
----------------
Grantee for such consideration, if any, and subject to such restrictions on
transfer, rights of first refusal, repurchase provisions, forfeiture provisions,
and other terms and conditions as established by the Administrator.
(ii) "Rule 16b-3" means Rule 16b-3 promulgated under the Exchange
----------
Act or any successor thereto.
(jj) "SAR" means a stock appreciation right entitling the Grantee
---
to Shares or cash compensation, as established by the Administrator, measured by
appreciation in the value of Common Stock.
(kk) "Share" means a share of the Common Stock.
-----
(ll) "Subsidiary" means a "subsidiary corporation," whether now
----------
or hereafter existing, as defined in Section 424(f) of the Code.
(mm) "Related Entity Disposition" means the sale, distribution or
--------------------------
other disposition by the Company of all or substantially all of the Company's
interests in any Related Entity effected by a sale, merger or consolidation or
other transaction involving that Related Entity or the sale of all or
substantially all of the assets of that Related Entity.
3. Stock Subject to the Plan.
-------------------------
(a) Subject to the provisions of Section 10, below, the maximum
aggregate number of Shares which may be issued pursuant to Awards initially
shall be 795,000 Shares plus an annual increase to be added on the first day of
the Company's fiscal year beginning in 2000 equal to two percent (2%) of the
number of Shares outstanding as of such date or a lesser number
5
<PAGE>
of Shares determined by the Administrator. Notwithstanding the foregoing,
subject to the provisions of Section 10, below, of the number of Shares
specified above, the maximum aggregate number of Shares available for grant of
Incentive Stock Options shall be 159,000 Shares, plus an annual increase to be
added on the first day of the Company's fiscal year beginning in 2000 equal to
the lesser of (x) 400,000 Shares, (y) four tenths of one percent (.4%) of the
number of Shares outstanding as of such date, or (z) a lesser number of Shares
determined by the Administrator. The Shares to be issued pursuant to Awards may
be authorized, but unissued, or reacquired Common Stock.
(b) Any Shares covered by an Award (or portion of an Award) which
is forfeited or canceled, expires or is settled in cash, shall be deemed not to
have been issued for purposes of determining the maximum aggregate number of
Shares which may be issued under the Plan. If any unissued Shares are retained
by the Company upon exercise of an Award in order to satisfy the exercise price
for such Award or any withholding taxes due with respect to such Award, such
retained Shares subject to such Award shall become available for future issuance
under the Plan (unless the Plan has terminated). Shares that actually have been
issued under the Plan pursuant to an Award shall not be returned to the Plan and
shall not become available for future issuance under the Plan, except that if
unvested Shares are forfeited, or repurchased by the Company at their original
purchase price, such Shares shall become available for future grant under the
Plan.
4. Administration of the Plan.
--------------------------
(a) Plan Administrator.
------------------
(i) Administration with Respect to Directors and Officers.
-----------------------------------------------------
With respect to grants of Awards to Directors or Employees who are also
Officers or Directors of the Company, the Plan shall be administered by (A) the
Board or (B) a Committee designated by the Board, which Committee shall be
constituted in such a manner as to satisfy the Applicable Laws and to permit
such grants and related transactions under the Plan to be exempt from Section
16(b) of the Exchange Act in accordance with Rule 16b-3. Once appointed, such
Committee shall continue to serve in its designated capacity until otherwise
directed by the Board.
(ii) Administration With Respect to Consultants and Other
----------------------------------------------------
Employees. With respect to grants of Awards to Employees or Consultants who are
- ---------
neither Directors nor Officers of the Company, the Plan shall be administered by
(A) the Board or (B) a Committee designated by the Board, which Committee shall
be constituted in such a manner as to satisfy the Applicable Laws. Once
appointed, such Committee shall continue to serve in its designated capacity
until otherwise directed by the Board. The Board may authorized one or more
Officers to grant such Awards and may limit such authority as the Board
determines from time to time.
(iii) Administration Errors. In the event an Award is granted
---------------------
in a manner inconsistent with the provisions of this subsection (a), such Award
shall be presumptively valid as of its grant date to the extent permitted by the
Applicable Laws.
6
<PAGE>
(b) Powers of the Administrator. Subject to Applicable Laws and the
---------------------------
provisions of the Plan (including any other powers given to the Administrator
hereunder), and except as otherwise provided by the Board, the Administrator
shall have the authority, in its discretion:
(i) to select the Employees, Directors and Consultants to whom
Awards may be granted from time to time hereunder;
(ii) to determine whether and to what extent Awards are granted
hereunder;
(iii) to determine the number of Shares or the amount of other
consideration to be covered by each Award granted hereunder;
(iv) to approve forms of Award Agreements for use under the
Plan;
(v) to determine the terms and conditions of any Award granted
hereunder;
(vi) to amend the terms of any outstanding Award granted under
the Plan, provided that any amendment that would adversely affect the Grantee's
rights under an outstanding Award shall not be made without the Grantee's
written consent;
(vii) to construe and interpret the terms of the Plan and Awards
granted pursuant to the Plan, including without limitation, any notice of Award
or Award Agreement, granted pursuant to the Plan;
(viii) to establish additional terms, conditions, rules or
procedures to accommodate the rules or laws of applicable foreign jurisdictions
and to afford Grantees favorable treatment under such laws; provided, however,
that no Award shall be granted under any such additional terms, conditions,
rules or procedures with terms or conditions which are inconsistent with the
provisions of the Plan; and
(ix) to take such other action, not inconsistent with the terms
of the Plan, as the Administrator deems appropriate.
(c) Effect of Administrator's Decision. All decisions, determinations
----------------------------------
and interpretations of the Administrator shall be conclusive and binding on all
persons.
5. Eligibility. Awards other than Incentive Stock Options may be granted to
-----------
Employees, Directors and Consultants. Incentive Stock Options may be granted
only to Employees of the Company, a Parent or a Subsidiary. An Employee,
Director or Consultant who has been granted an Award may, if otherwise eligible,
be granted additional Awards. Awards may be granted to such Employees, Directors
or Consultants who are residing in foreign jurisdictions as the Administrator
may determine from time to time.
7
<PAGE>
6. Terms and Conditions of Awards.
----------------------- ------
(a) Type of Awards. The Administrator is authorized under the Plan to
--------------
award any type of arrangement to an Employee, Director or Consultant that is not
inconsistent with the provisions of the Plan and that by its terms involves or
might involve the issuance of (i) Shares, (ii) an Option, a SAR or similar right
with a fixed or variable price related to the Fair Market Value of the Shares
and with an exercise or conversion privilege related to the passage of time, the
occurrence of one or more events, or the satisfaction of performance criteria or
other conditions, or (iii) any other security with the value derived from the
value of the Shares. Such awards include, without limitation, Options, SARs,
sales or bonuses of Restricted Stock, Dividend Equivalent Rights, Performance
Units or Performance Shares, and an Award may consist of one such security or
benefit, or two (2) or more of them in any combination or alternative.
(b) Designation of Award. Each Award shall be designated in the Award
--------------------
Agreement. In the case of an Option, the Option shall be designated as either an
Incentive Stock Option or a Non-Qualified Stock Option. However, notwithstanding
such designation, to the extent that the aggregate Fair Market Value of Shares
subject to Options designated as Incentive Stock Options which become
exercisable for the first time by a Grantee during any calendar year (under all
plans of the Company or any Parent or Subsidiary) exceeds $100,000, such excess
Options, to the extent of the Shares covered thereby in excess of the foregoing
limitation, shall be treated as Non-Qualified Stock Options. For this purpose,
Incentive Stock Options shall be taken into account in the order in which they
were granted, and the Fair Market Value of the Shares shall be determined as of
the date the Option with respect to such Shares is granted.
(c) Conditions of Award. Subject to the terms of the Plan, the
-------------------
Administrator shall determine the provisions, terms, and conditions of each
Award including, but not limited to, the Award vesting schedule, repurchase
provisions, rights of first refusal, forfeiture provisions, form of payment
(cash, Shares, or other consideration) upon settlement of the Award, payment
contingencies, and satisfaction of any performance criteria. The performance
criteria established by the Administrator may be based on any one of, or
combination of, increase in share price, earnings per share, total stockholder
return, return on equity, return on assets, return on investment, net operating
income, cash flow, revenue, economic value added, personal management
objectives, or other measure of performance selected by the Administrator.
Partial achievement of the specified criteria may result in a payment or vesting
corresponding to the degree of achievement as specified in the Award Agreement.
(d) Acquisitions and Other Transactions. The Administrator may issue
-----------------------------------
Awards under the Plan in settlement, assumption or substitution for, outstanding
awards or obligations to grant future awards in connection with the Company or a
Related Entity acquiring another entity, an interest in another entity or an
additional interest in a Related Entity whether by merger, stock purchase, asset
purchase or other form of transaction.
(e) Deferral of Award Payment. The Administrator may establish one or
-------------------------
more programs under the Plan to permit selected Grantees the opportunity to
elect to defer receipt of
8
<PAGE>
consideration upon exercise of an Award, satisfaction of performance criteria,
or other event that absent the election would entitle the Grantee to payment or
receipt of Shares or other consideration under an Award. The Administrator may
establish the election procedures, the timing of such elections, the mechanisms
for payments of, and accrual of interest or other earnings, if any, on amounts,
Shares or other consideration so deferred, and such other terms, conditions,
rules and procedures that the Administrator deems advisable for the
administration of any such deferral program.
(f) Award Exchange Programs. The Administrator may establish one or
-----------------------
more programs under the Plan to permit selected Grantees to exchange an Award
under the Plan for one or more other types of Awards under the Plan on such
terms and conditions as determined by the Administrator from time to time.
(g) Separate Programs. The Administrator may establish one or more
------------------
separate programs under the Plan for the purpose of issuing particular forms of
Awards to one or more classes of Grantees on such terms and conditions as
determined by the Administrator from time to time.
(h) Early Exercise. The Award Agreement may, but need not, include a
--------------
provision whereby the Grantee may elect at any time while an Employee, Director
or Consultant to exercise any part or all of the Award prior to full vesting of
the Award. Any unvested Shares received pursuant to such exercise may be subject
to a repurchase right in favor of the Company or a Related Entity or to any
other restriction the Administrator determines to be appropriate.
(i) Term of Award. The term of each Award shall be the term stated in
-------------
the Award Agreement, provided, however, that the term of an Incentive Stock
Option shall be no more than ten (10) years from the date of grant thereof.
However, in the case of an Incentive Stock Option granted to a Grantee who, at
the time the Option is granted, owns stock representing more than ten percent
(10%) of the voting power of all classes of stock of the Company or any Parent
or Subsidiary, the term of the Incentive Stock Option shall be five (5) years
from the date of grant thereof or such shorter term as may be provided in the
Award Agreement.
(j) Transferability of Awards. Incentive Stock Options may not be
-------------------------
sold, pledged, assigned, hypothecated, transferred, or disposed of in any manner
other than by will or by the laws of descent or distribution and may be
exercised, during the lifetime of the Grantee, only by the Grantee; provided,
however, that the Grantee may designate a beneficiary of the Grantee's Incentive
Stock Option in the event of the Grantee's death on a beneficiary designation
form provided by the Administrator. Other Awards shall be transferable to the
extent provided in the Award Agreement.
(k) Time of Granting Awards. The date of grant of an Award shall for
-----------------------
all purposes be the date on which the Administrator makes the determination to
grant such Award, or such other date as is determined by the Administrator.
Notice of the grant determination shall be given to each Employee, Director or
Consultant to whom an Award is so granted within a reasonable time after the
date of such grant.
9
<PAGE>
7. Award Exercise or Purchase Price Consideration, Taxes and Reload
----------------------------------------------------------------
Options.
- -------
(a) Exercise or Purchase Price. The exercise or purchase price, if
--------------------------
any, for an Award shall be as follows:
(i) In the case of an Incentive Stock Option:
(A) granted to an Employee who, at the time of the grant
of such Incentive Stock Option owns stock representing more than ten percent
(10%) of the voting power of all classes of stock of the Company or any Parent
or Subsidiary, the per Share exercise price shall be not less than one hundred
ten percent (110%) of the Fair Market Value per Share on the date of grant; or
(B) granted to any Employee other than an Employee
described in the preceding paragraph, the per Share exercise price shall be not
less than one hundred percent (100%) of the Fair Market Value per Share on the
date of grant.
(ii) In the case of a Non-Qualified Stock Option, the per Share
exercise price shall be not less than one hundred percent (100%) of the Fair
Market Value per Share on the date of grant unless otherwise determined by the
Administrator.
(iii) In the case of other Awards, such price as is determined
by the Administrator.
(iv) Notwithstanding the foregoing provisions of this Section
7(a), in the case of an Award issued pursuant to Section 6(d), above, the
exercise or purchase price for the Award shall be determined in accordance with
the principles of Section 424(a) of the Code.
(b) Consideration. Subject to Applicable Laws, the consideration to
-------------
be paid for the Shares to be issued upon exercise or purchase of an Award
including the method of payment, shall be determined by the Administrator (and,
in the case of an Incentive Stock Option, shall be determined at the time of
grant). In addition to any other types of consideration the Administrator may
determine, the Administrator is authorized to accept as consideration for Shares
issued under the Plan the following, provided that the portion of the
consideration equal to the par value of the Shares must be paid in cash or other
legal consideration permitted by the Delaware General Corporation Law:
(i) cash;
(ii) check;
(iii) delivery of Grantee's promissory note with such recourse,
interest, security, and redemption provisions as the Administrator determines as
appropriate;
(iv) surrender of Shares or delivery of a properly executed
form of attestation of ownership of Shares as the Administrator may require
(including withholding of Shares otherwise deliverable upon exercise of the
Award) which have a Fair Market Value on the
10
<PAGE>
date of surrender or attestation equal to the aggregate exercise price of the
Shares as to which said Award shall be exercised (but only to the extent that
such exercise of the Award would not result in an accounting compensation charge
with respect to the Shares used to pay the exercise price unless otherwise
determined by the Administrator);
(v) with respect to Options, payment through a
broker-dealer sale and remittance procedure pursuant to which the Grantee (A)
shall provide written instructions to a Company designated brokerage firm to
effect the immediate sale of some or all of the purchased Shares and remit to
the Company, out of the sale proceeds available on the settlement date,
sufficient funds to cover the aggregate exercise price payable for the purchased
Shares and (B) shall provide written directives to the Company to deliver the
certificates for the purchased Shares directly to such brokerage firm in order
to complete the sale transaction; or
(vi) any combination of the foregoing methods of payment.
(c) Taxes. No Shares shall be delivered under the Plan to any
-----
Grantee or other person until such Grantee or other person has made arrangements
acceptable to the Administrator for the satisfaction of any foreign, federal,
state, or local income and employment tax withholding obligations, including,
without limitation, obligations incident to the receipt of Shares or the
disqualifying disposition of Shares received on exercise of an Incentive Stock
Option. Upon exercise of an Award, the Company shall withhold or collect from
Grantee an amount sufficient to satisfy such tax obligations.
(d) Reload Options. In the event the exercise price or tax
--------------
withholding of an Option is satisfied by the Company or the Grantee's employer
withholding Shares otherwise deliverable to the Grantee, the Administrator may
issue the Grantee an additional Option, with terms identical to the Award
Agreement under which the Option was exercised, but at an exercise price as
determined by the Administrator in accordance with the Plan.
8. Exercise of Award.
-----------------
(a) Procedure for Exercise; Rights as a Stockholder.
-----------------------------------------------
(i) Any Award granted hereunder shall be exercisable
at such times and under such conditions as determined by the Administrator under
the terms of the Plan and specified in the Award Agreement.
(ii) An Award shall be deemed to be exercised when
written notice of such exercise has been given to the Company in accordance with
the terms of the Award by the person entitled to exercise the Award and full
payment for the Shares with respect to which the Award is exercised, including,
to the extent selected, use of the broker-dealer sale and remittance procedure
to pay the purchase price as provided in Section 7(b)(v). Until the issuance (as
evidenced by the appropriate entry on the books of the Company or of a duly
authorized transfer agent of the Company) of the stock certificate evidencing
such Shares, no right to vote or receive dividends or any other rights as a
stockholder shall exist with respect to Shares subject to an Award,
notwithstanding the exercise of an Option or other Award. The Company shall
issue (or
11
<PAGE>
cause to be issued) such stock certificate promptly upon exercise of the Award.
No adjustment will be made for a dividend or other right for which the record
date is prior to the date the stock certificate is issued, except as provided in
the Award Agreement or Section 10. below.
(b) Exercise & Award Following Termination of Continuous Service.
------------------------------------------------------------
(i) An Award may not be exercised after the termination
date of such Award set forth in the Award Agreement and may be exercised
following the termination of a Grantee's Continuous Service only to the extent
provided in the Award Agreement.
(ii) Where the Award Agreement permits a Grantee to
exercise an Award following the termination of the Grantee's Continuous Service
for a specified period, the Award shall terminate to the extent not exercised on
the last day of the specified period or the last day of the original term of the
Award, whichever occurs first.
(iii) Any Award designated as an Incentive Stock Option to
the extent not exercised within the time permitted by law for the exercise of
Incentive Stock Options following the termination of a Grantee's Continuous
Service shall convert automatically to a Non-Qualified Stock Option and
thereafter shall be exercisable as such to the extent exercisable by its terms
for the period specified in the Award Agreement.
(c) Buyout Provisions. The Administrator may at any time offer to
-----------------
buy out for a payment in cash or Shares, an Award previously granted, based on
such terms and conditions as the Administrator shall establish and communicate
to the Grantee at the time that such offer is made.
9. Conditions Upon Issuance of Shares.
----------------------------------
(a) Shares shall not be issued pursuant to the exercise of an Award
unless the exercise of such Award and the issuance and delivery of such Shares
pursuant thereto shall comply with all Applicable Laws, and shall be further
subject to the approval of counsel for the Company with respect to such
compliance.
(b) As a condition to the exercise of an Award, the Company may
require the person exercising such Award to represent and warrant at the time of
any such exercise that the Shares are being purchased only for investment and
without any present intention to sell or distribute such Shares if, in the
opinion of counsel for the Company, such a representation is required by any
Applicable Laws.
10. Adjustments Upon changes in Capitalization. Subject to any required
------------------------------------------
action by the shareholders of the Company, the number of Shares covered by each
outstanding Award, and the number of Shares which have been authorized for
issuance under the Plan but as to which no Awards have yet been granted or which
have been returned to the Plan, the exercise or purchase price of each such
outstanding Award, as well as any other terms that the Administrator determines
require adjustment shall be proportionately adjusted for (i) any increase or
decrease in the number of issued Shares resulting from a stock split reverse
stock split, stock dividend,
12
<PAGE>
combination or reclassification of the Shares, (ii) any other increase or
decrease in the number of issued Shares effected without receipt of
consideration by the Company, or (iii) as the Administrator may determine in its
discretion, any other transaction with respect to Common Stock to which Section
424(a) of the Code applies; provided, however that conversion of any convertible
securities of the Company shall not be deemed to have been "effected without
receipt of consideration." Such adjustment shall be made by the Administrator
and its determination shall be final, binding and conclusive. Except as the
Administrator determines, no issuance by the Company of shares of stock of any
class, or securities convertible into shares of stock of any class, shall
affect, and no adjustment by reason hereof shall be made with respect to, the
number or price of Shares subject to an Award.
11. Corporate Transactions/Changes in Control/Related Entity Dispositions.
---------------------------------------------------------------------
Except as may be provided in an Award Agreement:
(a) The Administrator shall have the authority, exercisable either in
advance of any actual or anticipated Corporate Transaction, Change in Control or
Related Entity Disposition or at the time of an actual Corporate Transaction,
Change in Control or Related Entity Disposition and exercisable at the time of
the grant of an Award under the Plan or any time while an Award remains
outstanding, to provide for the full automatic vesting and exercisability of one
or more outstanding unvested Awards under the Plan and the release from
restrictions on transfer and repurchase or forfeiture rights of such Awards in
connection with a Corporate Transaction, Change in Control or Related Entity
Disposition, on such terms and conditions as the Administrator may specify. The
Administrator also shall have the authority to condition any such Award vesting
and exercisability or release from such limitations upon the subsequent
termination of the Continuous Service of the Grantee within a specified period
following the effective date of the Corporate Transaction, Change in Control or
Related Entity Disposition. The Administrator may provide that any Awards so
vested or released from such limitations in connection with a Change in Control
or Subsidiary Disposition, shall remain fully exercisable until the expiration
or sooner termination of the Award. Effective upon the consummation of a
Corporate Transaction, all outstanding Awards under the Plan shall terminate
unless assumed by the successor company or its parent. The Company will use
reasonable efforts to achieve such assumption as the Administrator deems
appropriate.
(b) The portion of any Incentive Stock Option accelerated under this
Section 11 in connection with a Corporate Transaction, Change in Control or
Related Entity Disposition shall remain exercisable as an Incentive Stock Option
under the Code only to the extent the $100,000 dollar limitation of Section
422(d) of the Code is not exceeded. To the extent such dollar limitation is
exceeded, the accelerated excess portion of such Option shall be exercisable as
a Non-Qualified Stock Option.
12. Effective Date and Term of Plan. The Plan shall become effective upon
-------------------------------
the earlier to occur of its adoption by the Board or its approval by the
stockholders of the Company. It shall continue in effect for a term of ten (10)
years unless sooner terminated. Subject to Section 16, below, and Applicable
Laws, Awards may be granted under the Plan upon its becoming effective.
13
<PAGE>
13. Amendment, Suspension or Termination of the Plan.
------------------------------------------------
(a) The Board may at any time amend, suspend or terminate the
Plan. To the extent necessary to comply with Applicable Laws, the Company shall
obtain stockholder approval of any Plan amendment in such a manner and to such a
degree as required.
(b) No Award may be granted during any suspension of the Plan or
after termination of the Plan.
(c) Any amendment, suspension or termination of the Plan
(including termination of the Plan under Section 12, above) shall not affect
Awards already granted, and such Awards shall remain in full force and effect as
if the Plan had not been amended, suspended or terminated, unless mutually
agreed otherwise between the Grantee and the Administrator, which agreement must
be in writing and signed by the Grantee and the Company.
14. Reservation of Shares.
---------------------
(a) The Company, during the term of the Plan, will at all times
reserve and keep available such number of Shares as shall be sufficient to
satisfy the requirements of the Plan.
(b) The inability of the Company to obtain authority from any
regulatory body having jurisdiction, which authority is deemed by the Company's
counsel to be necessary to the lawful issuance and sale of any Shares hereunder,
shall relieve the Company of any liability in respect of the failure to issue or
sell such Shares as to which such requisite authority shall not have been
obtained.
15. No Effect on Terms of Employment/Consulting Relationship. The Plan
--------------------------------------------------------
shall not confer upon any Grantee any right with respect to the Grantee's
Continuous Service, nor shall it interfere in any way with his or her right or
the Company's right to terminate the Grantee's Continuous Service at any time,
with or without cause.
16. No Effect on Retirement and Other Benefit Plans. Except as
-----------------------------------------------
specifically provided in a retirement or other benefit plan of the Company or a
Related Entity, Awards shall not be deemed compensation for purposes of
computing benefits or contributions under any retirement plan of the Company or
a Related Entity, and shall not affect any benefits under any other benefit plan
of any kind or any benefit plan subsequently instituted under which the
availability or amount of benefits is related to level of compensation. The Plan
is not a "Retirement-Plan" or "Welfare Plan" under the Employee Retirement
Income Security Act of 1974, as amended.
17. Stockholder Approval. The grant of Incentive Stock Options under the
--------------------
Plan shall be subject to approval by the stockholders of the Company within
twelve (12) months before or after the date the Plan is adopted excluding
Incentive Stock Options issued in substitution for outstanding Incentive Stock
Options pursuant to Section 424(a) of the Code. Such stockholder approval shall
be obtained in the degree and manner required under Applicable Laws. The
Administrator may grant Incentive Stock Options under the Plan prior to approval
by the stockholders, but until such approval is obtained, no such Incentive
Stock Option shall be
14
<PAGE>
exercisable. In the event that stockholder approval is not obtained within the
twelve (12) month period provided above, all Incentive Stock Options previously
granted under the Plan shall be exercisable as Non-Qualified Stock Options.
15
<PAGE>
Exhibit 10.10
EARTHWEB INC.
1998 EMPLOYEE STOCK PURCHASE PLAN
---------------------------------
The following constitute the provisions of the 1998 Employee Stock
Purchase Plan of EarthWeb Inc..
1. Purpose. The purpose of the Plan is to provide employees of the
-------
Company and its Designated Parents or Subsidiaries with an opportunity to
purchase Common Stock of the Company through accumulated payroll deductions. It
is the intention of the Company to have the Plan qualify as an "Employee Stock
Purchase Plan" under Section 423 of the Code. The provisions of the Plan,
accordingly, shall be construed so as to extend and limit participation in a
manner consistent with the requirements of that section of the Code.
2. Definitions. As used herein, the following definitions shall
-----------
apply:
(a) "Applicable Laws" means the legal requirements relating to the
---------------
administration of employee stock purchase plans, if any, under applicable
provisions of federal securities laws, state corporate and securities laws, the
Code, the rules of any applicable stock exchange or national market system, and
the rules of any foreign jurisdiction applicable to participation in the Plan by
residents therein.
(b) "Board" means the Board of Directors of the Company.
-----
(c) "Change in Control" means a change in ownership or control of the
-----------------
Company effected through the direct or indirect acquisition by any person or
related group of persons (other than an acquisition from or by the Company or by
a Company-sponsored employee benefit plan or by a person that directly or
indirectly controls, is controlled by, or is under common control with, the
Company) of beneficial ownership (within the meaning of Rule 13d-3 of the
Exchange Act) of securities possessing more than fifty percent (50%) of the
total combined voting power of the Company's outstanding securities.
(d) "Code" means the Internal Revenue Code of 1986, as amended.
----
(e) "Common Stock" means the common stock of the Company.
------------
(f) "Company" means EarthWeb Inc., a Delaware corporation.
-------
(g) "Compensation" means an Employee's base salary from the Company
------------
or one or more Designated Parents or Subsidiaries, including such amounts of
base salary as are deferred by the Employee (i) under a qualified cash or
deferred arrangement described in Section 401(k) of the Code, or (ii) to a plan
qualified under Section 125 of the Code. Compensation does not include overtime,
bonuses, annual awards, other incentive payments, reimbursements or other
expense allowances, fringe benefits (cash or noncash), moving expenses, deferred
compensation, contributions (other than contributions described in the first
sentence) made on
1
<PAGE>
the Employee's behalf by the COmpany or one or more Designated Parents or
Subsidiaries under any employee benefit or welfare plan now or hereafter
established, and any other payments not specifically referenced in the first
sentence.
(h) "Corporate Transaction" means any of the following transactions:
---------------------
(1) a merger or consolidation in which the Company is not the
surviving entity, except for a transaction the principal purpose of
which is to change the state in which the Company is incorporated;
(2) the sale, transfer or other disposition of all or
substantially all of the assets of the Company (including the capital
stock of the Company's subsidiary corporations) in connection with
complete liquidation or dissolution of the Company;
(3) any reverse merger in which the Company is the surviving
entity but in which securities possessing more than fifty percent
(50%) of the total combined voting power of the Company's outstanding
securities are transferred to a person or persons different from those
who held such securities immediately prior to such merger; or
(4) an acquisition by any person or related group of persons
(other than the Company or by a Company-sponsored employee benefit
plan) of beneficial ownership (within the meaning of Rule 13d-3 of the
Exchange Act) of securities possessing more than fifty percent (50%)
of the total combined voting power of the Company's outstanding
securities (whether or not in a transaction also constituting a Change
in Control), but excluding any such transaction that the Plan
Administrator determines shall not be a Corporate Transaction.
(i) "Designated Parents or Subsidiaries" means the Parents or
----------------------------------
Subsidiaries which have been designated by the Plan Administrator from time to
time as eligible to participate in the Plan.
(j) "Effective Date" means the effective date of the Registration
--------------
Statement relating to the Company's initial public offering of its Common Stock.
However, should any Designated Parent or Subsidiary become a participating
company in the Plan after such date, then such entity shall designate a separate
Effective Date with respect to its employee-participants.
(k) "Employee" means any individual, including an officer or
--------
director, who is an employee of the Company or a Designated Parent or Subsidiary
for purposes of Section 423 of the Code. For purposes of the Plan, the
employment relationship shall be treated as continuing intact while the
individual is on sick leave or other leave of absence approved by the
individual's employer. Where the period of leave exceeds ninety (90) days and
the individual's right to reemployment is not guaranteed either by statute or by
contract, the employment relationship will be deemed to have terminated on the
ninety-first (91st) day of such leave, for purposes of determining eligibility
to participate in the Plan.
2
<PAGE>
(l) "Enrollment Date" means the first day of each Offer Period.
---------------
(m) "Exchange Act" means the Securities Exchange Act of 1934, as
------------
amended.
(n) "Exercise Date" means the last day of each Purchase Period.
-------------
(o) "Fair Market Value" means, as of any date, the value of Common
-----------------
Stock determined as follows:
(1) Where there exists a public market for the Common Stock, the
Fair Market Value shall be (A) the closing price for a share of Common
Stock for the last market trading day prior to the time of the
determination (or, if no closing price was reported on that date, on
the last trading date on which a closing price was reported) on the
stock exchange determined by the Plan Administrator to be the primary
market for the Common Stock or the Nasdaq National Market, whichever
is applicable or (B) if the Common Stock is not traded on any such
exchange or national market system, the average of the closing bid and
asked prices of a share of Common Stock on the Nasdaq Small Cap Market
for the day prior to the time of the determination (or, if no such
prices were reported on that date, on the last date on which such
prices were reported), in each case, as reported in The Wall Street
Journal or such other source as the Plan Administrator deems reliable;
(2) In the absence of an established market of the type
described in (1), above, for the Common Stock, and subject to (3),
below, the Fair Market Value thereof shall be determined by the Plan
Administrator in good faith; or
(3) On the initial Effective Date of the Plan, the Fair Market
Value shall be the price at which the Board, or if applicable, the
Pricing Committee of the Board, and the underwriters agree to offer
the Common Stock to the public in the initial public offering of the
Common Stock, net of discounts and underwriting commissions.
(p) "Offer Period" means an Offer Period established pursuant to
------------
Section 4 hereof.
(q) "Parent" means a "parent corporation," whether now or hereafter
------
existing, as defined in Section 424(e) of the Code.
(r) "Participant" means an Employee of the Company or Designated
-----------
Parent or Subsidiary who is actively participating in the plan.
(s) "Plan" means this Employee Stock Purchase Plan.
----
3
<PAGE>
(t) "Plan Administrator" means either the Board or a committee of the
------------------
Board that is responsible for the administration of the Plan as is designated
from time to time by resolution of the Board.
(u) "Purchase Period" means a period of approximately six months,
---------------
commencing on February 1 and August 1 of each year and terminating on the next
following July 31 or January 31, respectively; provided, however, that the first
Purchase Period shall commence on the Effective Date and shall end on July 31,
1999.
(v) "Purchase Price" shall mean an amount equal to 85% of the Fair Market
--------------
Value of a share of Common Stock on the Enrollment Date or on the Exercise Date,
whichever is lower.
(w) "Reserves" means the sum of the number of shares of Common Stock
--------
covered by each option under the Plan which have not yet been exercised and the
number of shares of Common Stock which have been authorized for issuance under
the Plan but not yet placed under option.
(x) "Subsidiary" means a "subsidiary corporation," whether now or
----------
hereafter existing, as defined in Section 424(f) of the Code.
3. Eligibility.
-----------
(a) General. Subject to Section 5(a), below, any individual who is an
-------
Employee on a given Enrollment Date shall be eligible to participate in the Plan
for the Offer Period commencing with such Enrollment Date.
(b) Limitations on Grant and Accrual. Any provisions of the Plan to the
--------------------------------
contrary notwithstanding, no Employee shall be granted an option under the Plan
(i) if, immediately after the grant, such Employee (taking into account stock
owned by any other person whose stock would be attributed to such Employee
pursuant to Section 424(d) of the Code) would own stock and/or hold outstanding
options to purchase stock possessing five percent (5%) or more of the total
combined voting power or value of all classes of stock of the Company or of any
Parent or Subsidiary, or (ii) which permits the Employee's rights to purchase
stock under all employee stock purchase plans of the Company and its Parents or
Subsidiaries to accrue at a rate which exceeds Twenty-Five Thousand Dollars
($25,000) worth of stock (determined at the Fair Market Value of the shares at
the time such option is granted) for each calendar year in which such option is
outstanding at any time. The determination of the accrual of the right to
purchase stock shall be made in accordance with Section 423(b)(8) of the Code
and the regulations thereunder.
(c) Other Limits on Eligibility. Notwithstanding Subsection (a), above,
---------------------------
the following Employees shall not be eligible to participate in the Plan for any
relevant Offer Period:
(i) Employees whose customary employment is 20 or fewer hours or less per week;
(ii) Employees whose customary employment is for not more than 5 or fewer months
in any
4
<PAGE>
calendar year; and (iii) Employees who are subject to rules or laws of a foreign
jurisdiction that prohibit or make impractical the participation of such
Employees in the Plan.
4. Offer Periods.
-------------
(a) The Plan shall be implemented through overlapping or consecutive Offer
Periods until such time as (i) the maximum number of shares of Common Stock
available for issuance under the Plan shall have been purchased or (ii) the Plan
shall have been sooner terminated in accordance with Section 19 hereof. The
maximum duration of an Offer Period shall be twenty-seven (27) months.
Initially, the Plan shall be implemented through overlapping Offer Periods of
twenty-four (24) months' duration commencing each February 1 and August 1
following the Effective Date (except that the initial Offer Period shall
commence on the Effective Date and shall end on January 31, 2001).
(b) A Participant shall be granted a separate option for each Offer Period
in which he or she participates. The option shall be granted on the Enrollment
Date and shall be automatically exercised in successive installments on the
Exercise Dates ending within the Offer Period.
(c) An Employee may participate in only one Offer Period at a time.
Accordingly, except as provided in Section 4(d), an Employee who wishes to join
a new Offer Period must withdraw from the current Offer Period in which the
Employee is participating and must also enroll in the new Offer Period prior to
the Enrollment Date for that Offer Period.
(d) If on the first day of any Purchase Period in an Offer Period in which
a Participant is participating, the Fair Market Value of the Common Stock is
less than the Fair Market Value of the Common Stock on the Enrollment Date of
the Offer Period (after taking into account any adjustment during the Offer
Period pursuant to Section 18(a)), the Offer Period shall be terminated
automatically and the Participant shall be enrolled automatically in the new
Offer Period which has its first Purchase Period commencing on that date,
provided the Participant is eligible to participate in the Plan on that date and
has not elected to terminate participation in the Plan.
(e) Except as specifically provided herein, the acquisition of Common
Stock through participation in the Plan for any Offer Period shall neither limit
nor require the acquisition of Common Stock by a Participant in any subsequent
Offer Period.
5. Participation.
-------------
(a) An eligible Employee may become a Participant in the Plan by
completing a subscription agreement authorizing payroll deductions in the form
of Exhibit A to this Plan and filing it with the designated payroll office of
the Company at least ten (10) business days prior to the Enrollment Date for the
Offer Period in which such participation will commence, unless a later time for
filing the subscription agreement is set by the Plan Administrator for all
eligible Employees with respect to a given Offer Period.
5
<PAGE>
(b) Payroll deductions for a Participant shall commence with the
first partial or full payroll period beginning on the Enrollment Date and shall
end on the last complete payroll period during the Offer Period, unless sooner
terminated by the Participant as provided in Section 10.
6. Payroll Deductions.
------------------
(a) At the time a Participant files a subscription agreement, the
Participant shall elect to have payroll deductions made during the Offer Period
in amounts between one percent (1%) and not exceeding fifteen percent (15%) of
the Compensation which the Participant receives during the Offer Period.
(b) All payroll deductions made for a Participant shall be credited
to the Participant's account under the Plan and will be withheld in whole
percentages only. A Participant may not make any additional payments into such
account.
(c) A Participant may discontinue participation in the Plan as
provided in Section 10, or may increase or decrease the rate of payroll
deductions during the Offer Period by completing and filing with the Company a
change of status notice in the form of Exhibit B to this Plan authorizing an
increase or decrease in the payroll deduction rate. Any decrease in the rate of
a Participant's payroll deductions shall be effective with the first full
payroll period commencing ten (10) business days after the Company's receipt of
the change of status notice unless the Company elects to process a given change
in participation more quickly. Any increase in the rate of a Participant's
payroll deductions shall be effective with the next Purchase Period following
the Purchase Period in which the Company receives the change of status notice if
such notice is filed within ten (10) business days before the commencement of
the next Purchase Period. A Participant's subscription agreement (as modified by
any change of status notice) shall remain in effect for successive Offer Periods
unless terminated as provided in Section 10. The Plan Administrator shall be
authorized to limit the number of payroll deduction rate changes during any
Offer Period.
(d) Notwithstanding the foregoing, to the extent necessary to comply
with Section 423(b)(8) of the Code and Section 3(b) herein, a Participant's
payroll deductions may be decreased to 0% at such time during any Purchase
Period which is scheduled to end during the current calendar year (the "Current
Purchase Period") that the aggregate of all payroll deductions which were
previously used to purchase stock under the Plan in a prior Purchase Period
which ended during that calendar year plus all payroll deductions accumulated
with respect to the Current Purchase Period equal $21,250. Payroll deductions
shall recommence at the rate provided in such Participant's subscription
agreement, as amended, at the beginning of the first Purchase Period which is
schedule to end in the following calendar year, unless terminated by the
Participant as provided in Section 10.
7. Grant of Option. On the Enrollment Date, each Participant shall
---------------
be granted an option to purchase (at the applicable Purchase Price) up to a
number of shares of the Common Stock determined by dividing fifteen percent
(15%) of such Participant's Compensation receivable during the Offer Period by
the applicable Purchase Price; provided (i)
6
<PAGE>
that such option shall be subject to the limitations set forth in Sections 3(b)
and 12 hereof, and (ii) the maximum number of shares of Common Stock a
Participant shall be permitted to purchase in any Purchase Period shall be 5,000
shares, subject to adjustment as provided in Section 18 hereof. Exercise of the
option shall occur as provided in Section 8, unless the Participant has
withdrawn pursuant to Section 10, and the option, to the extent not exercised,
shall expire on the last day of the Offer Period.
8. Exercise of Option. Unless a Participant withdraws from the Plan
------------------
as provided in Section 10, below, the Participant's option for the purchase of
shares will be exercised automatically on each Exercise Date, by applying the
accumulated payroll deductions in the Participant's account to purchase the
maximum number of full shares subject to the option by dividing such
Participant's payroll deductions accumulated prior to such Exercise Date and
retained in the Participant's account as of the Exercise Date by the applicable
Purchase Price. No fractional shares will be purchased; any payroll deductions
accumulated in a Participant's account which are not sufficient to purchase a
full share shall be carried over to the next Purchase Period or Offer Period,
whichever applies, or returned to the Participant, if the Participant withdraws
from the Plan. Notwithstanding the foregoing, any amount remaining in a
Participant's account following the purchase of shares on the Exercise Date due
to the application of Section 423(b)(8) of the Code or Section 7, above, shall
be returned to the Participant and shall not be carried over to the next Offer
Period. During a Participant's lifetime, a Participant's option to purchase
shares hereunder is exercisable only by the Participant.
9. Delivery. Upon receipt of a request from a Participant after each
--------
Exercise Date on which a purchase of shares occurs, the Company shall arrange
the delivery to such Participant, as promptly as practicable, of a certificate
representing the shares purchased upon exercise of the Participant's option.
10. Withdrawal; Termination of Employment.
-------------------------------------
(a) A Participant may either (i) withdraw all but not less than all
the payroll deductions credited to the Participant's account and not yet used to
exercise the Participant's option under the Plan or (ii) terminate future
payroll deductions, but allow accumulated payroll deductions to be used to
exercise the Participant's option under the Plan at any time by giving written
notice to the Company in the form of Exhibit B to this Plan. If the Participant
elects withdrawal alternative (i) described above, all of the Participant's
payroll deductions credited to the Participant's account will be paid to such
Participant in the payroll period than commences thirty (30) days after receipt
of notice of withdrawal, such Participant's option for the Offer Period will be
automatically terminated, and no further payroll deductions for the purchase of
shares will be made during the Offer Period. If the Participant elects
withdrawal alternative (ii) described above, no further payroll deductions for
the purchase of shares will be made during the Offer Period, all of the
Participant's payroll deductions credited to the Participant's account will be
applied to the exercise of the Participant's option on the next Exercise Date,
and after such Exercise Date, such Participant's option for the Offer Period
will be automatically terminated. If a Participant withdraws from an Offer
Period, payroll deductions will not resume at the
7
<PAGE>
beginning of the succeeding Offer Period unless the Participant delivers to the
Company a new subscription agreement.
(b) Upon termination of a Participant's employment relationship (as
described in Section 2(k)) at a time more than three (3) months from the next
scheduled Exercise Date, the payroll deductions credited to such Participant's
account during the Offer Period but not yet used to exercise the option will be
returned to such Participant or, in the case of his/her death, to the person or
persons entitled thereto under Section 14, and such Participant's option will be
automatically terminated. Upon termination of a Participant's employment
relationship (as described in Section 2(k)) within three (3) months of the next
scheduled Exercise Date, the payroll deductions credited to such Participant's
account during the Offer Period but not yet used to exercise the option will be
applied to the purchase of Common Stock on the next Exercise Date, unless the
Participant (or in the case of the Participant's death, the person or persons
entitled to the Participant's account balance under Section 14) withdraws from
the Plan by submitting a change of status notice in accordance with subsection
(a) of this Section 10. In such a case, no further payroll deductions will be
credited to the Participant's account following the Participant's termination of
employment and the Participant's option under the Plan will be automatically
terminated after the purchase of Common Stock on the next scheduled Exercise
Date.
11. Interest. No interest shall accrue on the payroll deductions
--------
credited to a Participant's account under the Plan.
12. Stock.
-----
(a) Subject to adjustment upon changes in capitalization of the
Company as provided in Section 18, the maximum number of shares of Common Stock
which shall be made available for sale under the Plan shall be 159,000 shares,
plus an annual increase to be added on the first day of the Company's fiscal
year beginning in 2000 equal to the lesser of (i) 400,000 shares, (ii) two
percent (2%) of the outstanding shares on such date, or (iii) a lesser number of
shares determined by the Plan Administrator. If on a given Exercise Date the
number of shares with respect to which options are to be exercised exceeds the
number of shares then available under the Plan, the Plan Administrator shall
make a pro rata allocation of the shares remaining available for purchase in as
uniform a manner as shall be practicable and as it shall determine to be
equitable.
(b) A Participant will have no interest or voting right in shares
covered by the Participant's option until such shares are actually purchased on
the Participant's behalf in accordance with the applicable provisions of the
Plan. No adjustment shall be made for dividends, distributions or other rights
for which the record date is prior to the date of such purchase.
(c) Shares to be delivered to a Participant under the Plan will be
registered in the name of the Participant or in the name of the Participant and
his or her spouse.
8
<PAGE>
13. Administration. The Plan shall be administered by the Plan
--------------
Administrator which shall have full and exclusive discretionary authority to
construe, interpret and apply the terms of the Plan, to determine eligibility
and to adjudicate all disputed claims filed under the Plan. Every finding,
decision and determination made by the Plan Administrator shall, to the full
extent permitted by Applicable Law, be final and binding upon all persons.
14. Designation of Beneficiary.
--------------------------
(a) Each Participant will file a written designation of a beneficiary
who is to receive any shares and cash, if any, from the Participant's account
under the Plan in the event of such Participant's death. If a Participant is
married and the designated beneficiary is not the spouse, spousal consent shall
be required for such designation to be effective.
(b) Such designation of beneficiary may be changed by the Participant
(and the Participant's spouse, if any) at any time by written notice. In the
event of the death of a Participant and in the absence of a beneficiary validly
designated under the Plan who is living (or in existence) at the time of such
Participant's death, the Company shall deliver such shares and/or cash to the
executor or administrator of the estate of the Participant, or if no such
executor or administrator has been appointed (to the knowledge of the Plan
Administrator), the Plan Administrator shall deliver such shares and/or cash to
the spouse (or domestic partner, as determined by the Administrator) of the
Participant, or if no spouse (or domestic partner) is known to the Plan
Administrator, then to the issue of the Participant, such distribution to be
made per stirpes (by right of representation).
15. Transferability. Neither payroll deductions credited to a
---------------
Participant's account nor any rights with regard to the exercise of an option or
to receive shares under the Plan may be assigned, transferred, pledged or
otherwise disposed of in any way (other than by will, the laws of descent and
distribution or as provided in Section 14 hereof) by the Participant. Any such
attempt at assignment, transfer, pledge or other disposition shall be without
effect, except that the Plan Administrator may treat such act as an election to
withdraw funds from an Offer Period in accordance with Section 10.
16. Use of Funds. All payroll deductions received or held by the
------------
Company under the Plan may be used by the Company for any corporate purpose, and
the Company shall not be obligated to segregate such payroll deductions.
17. Reports. Individual accounts will be maintained for each
-------
Participant in the Plan. Statements of account will be given to Participants at
least annually, which statements will set forth the amounts of payroll
deductions, the Purchase Price, the number of shares purchased and the remaining
cash balance, if any.
18. Adjustments Upon Changes in Capitalization; Corporate
-----------------------------------------------------
Transactions.
- ------------
(a) Adjustments Upon Changes in Capitalization. Subject to any
------------------------------------------
required action by the stockholders of the Company, the Reserves, the Purchase
Price, as well as any other terms that the Plan Administrator determines require
adjustment shall be proportionately adjusted
9
<PAGE>
for (i) any increase or decrease in the number of issued shares of Common Stock
resulting from a stock split, reverse stock split, stock dividend, combination
or reclassification of the Common Stock, (ii) any other increase or decrease in
the number of issued shares of Common Stock effected without receipt of
consideration by the Company, or (iii) as the Plan Administrator may determine
in its discretion, any other transaction with respect to Common Stock to which
Section 424(a) of the Code applies; provided, however that conversion of any
convertible securities of the Company shall not be deemed to have been "effected
without receipt of consideration." Such adjustment shall be made by the Plan
Administrator and its determination shall be final, binding and conclusive.
Except as the Plan Administrator determines, no issuance by the Company of
shares of stock of any class, or securities convertible into shares of stock of
any class, shall affect, and no adjustment by reason hereof shall be made with
respect to, the Reserves and the Purchase Price.
(b) Corporate Transactions. In the event of a proposed Corporate
----------------------
Transaction, each option under the Plan shall be assumed by such successor
corporation or a parent or subsidiary of such successor corporation, unless the
Plan Administrator determines, in the exercise of its sole discretion and in
lieu of such assumption, to shorten the Offer Period then in progress by setting
a new Exercise Date (the "New Exercise Date"). If the Plan Administrator
shortens the Offer Period then in progress in lieu of assumption in the event of
a Corporate Transaction, the Plan Administrator shall notify each Participant in
writing, at least ten (10) days prior to the New Exercise Date, that the
Exercise Date for the Participant's option has been changed to the New Exercise
Date and that the Participant's option will be exercised automatically on the
New Exercise Date, unless prior to such date the Participant has withdrawn from
the Offer Period as provided in Section 10. For purposes of this Subsection, an
option granted under the Plan shall be deemed to be assumed if, in connection
with the Corporate Transaction, the option is replaced with a comparable option
with respect to shares of capital stock of the successor corporation or Parent
thereof. The determination of option comparability shall be made by the Plan
Administrator prior to the Corporate Transaction and its determination shall be
final, binding and conclusive on all persons.
19. Amendment or Termination.
------------------------
(a) The Plan Administrator may at any time and for any reason
terminate or amend the Plan. Except as provided in Section 18, no such
termination can affect options previously granted, provided that an Offer Period
may be terminated by the Plan Administrator on any Exercise Date if the Plan
Administrator determines that the termination of the Offer Period is in the best
interests of the Company and its stockholders. Except as provided in Section 18,
no amendment may make any change in any option theretofore granted which
adversely affects the rights of any Participant. To the extent necessary to
comply with Section 423 of the Code (or any successor rule or provision or any
other Applicable Law), the Company shall obtain stockholder approval in such a
manner and to such a degree as required
(b) Without stockholder consent and without regard to whether any
Participant rights may be considered to have been "adversely affected," the Plan
Administrator shall be entitled to limit the frequency and/or number of changes
in the amount withheld during
10
<PAGE>
Offer Periods, change the length of Purchase Periods within any Offer Period,
determine whether subsequent Offer Periods shall be consecutive or overlapping,
establish the exchange ratio applicable to amounts withheld in a currency other
than U.S. dollars, establish additional terms, conditions, rules or procedures
to accommodate the rules or laws of applicable foreign jurisdictions, permit
payroll withholding in excess of the amount designated by a Participant in order
to adjust for delays or mistakes in the Company's processing of properly
completed withholding elections, establish reasonable waiting and adjustment
periods and/or accounting and crediting procedures to ensure that amounts
applied towards the purchase of Common Stock for each Participant properly
correspond with amounts withheld from the Participant's Compensation, and
establish such other limitations or procedures as the Plan Administrator
determines in its sole discretion advisable and which are consistent with the
Plan.
20. Notices. All notices or other communications by a Participant to
-------
the Company under or in connection with the Plan shall be deemed to have been
duly given when received in the form specified by the Plan Administrator at the
location, or by the person, designated by the Plan Administrator for the receipt
thereof.
21. Conditions Upon Issuance of Shares. Shares shall not be issued
----------------------------------
with respect to an option unless the exercise of such option and the issuance
and delivery of such shares pursuant thereto shall comply with all Applicable
Laws and shall be further subject to the approval of counsel for the Company
with respect to such compliance. As a condition to the exercise of an option,
the Company may require the Participant to represent and warrant at the time of
any such exercise that the shares are being purchased only for investment and
without any present intention to sell or distribute such shares if, in the
opinion of counsel for the Company, such a representation is required by any of
the aforementioned Applicable Laws. In addition, no options shall be exercised
or shares issued hereunder before the Plan shall have been approved by
stockholders of the Company as provided in Section 23.
22. Term of Plan. The Plan shall become effective upon the earlier to
------------
occur of its adoption by the Board or its approval by the stockholders of the
Company. It shall continue in effect for a term of ten (10) years unless sooner
terminated under Section 19.
23. Stockholder Approval. Continuance of the Plan shall be subject to
--------------------
approval by the stockholders of the Company within twelve (12) months before or
after the date the Plan is adopted. Such stockholder approval shall be obtained
in the degree and manner required under Applicable Laws.
24. No Employment Rights. The Plan does not, directly or indirectly,
--------------------
create any right for the benefit of any employee or class of employees to
purchase any shares under the Plan, or create in any employee or class of
employees any right with respect to continuation of employment by the Company or
a Designated Parent or Subsidiary, and it shall not be deemed to interfere in
any way with such employer's right to terminate, or otherwise modify, an
employee's employment at any time.
25. No Effect on Retirement and Other Benefit Plans. Except as
-----------------------------------------------
specifically provided in a retirement or other benefit plan of the Company or a
Designated Parent or
11
<PAGE>
Subsidiary, participation in the Plan shall not be deemed compensation for
purposes of computing benefits or contributions under any retirement plan of the
Company or a Designated Parent or Subsidiary, and shall not affect any benefits
under any other benefit plan of any kind or any benefit plan subsequently
instituted under which the availability or amount of benefits is related to
level of compensation. The Plan is not a "Retirement-Plan" or "Welfare Plan"
under the Employee Retirement Income Security Act of 1974, as amended.
26. Effect of Plan. The provisions of the Plan shall, in accordance
--------------
with its terms, be binding upon, and inure to the benefit of, all successors of
each Participant, including, without limitation, such Participant's estate and
the executors, administrators or trustees thereof, heirs and legatees, and any
receiver, trustee in bankruptcy or representative of creditors of such
Participant.
27. Governing Law. The Plan is to be construed in accordance with and
-------------
governed by the internal laws of the State of New York without giving effect to
any choice of law rule that would cause the application of the laws of any
jurisdiction other than the internal laws of the State of New York to the rights
and duties of the parties, except to the extent the internal laws of the State
of New York are superseded by the laws of the United States. Should any
provision of the Plan be determined by a court of law to be illegal or
unenforceable, the other provisions shall nevertheless remain effective and
shall remain enforceable.
12
<PAGE>
EXHIBIT A
<TABLE>
EarthWeb Inc. 1998 Employee Stock Purchase Plan
SUBSCRIPTION AGREEMENT
Effective with the Offer Period beginning on:
[_] ESPP Effective Date [_] February 1, 1999 or [_] August 1, 1999
<S> <C> <C> <C>
1. PERSONAL INFORMATION (MODIFY DATA REQUESTED AS APPROPRIATE)
Legal Name (Please Print) _____________________________________________________ _____________________ ___________________
(Last) (First) (MI) Location Department
Street Address ________________________________________________________________ ___________________________________________
Daytime Telephone
City, Sate/Country, Zip _______________________________________________________ ___________________________________________
E-Mail Address
Social Security No._______________________________ Employee I.D. No.___________ ___________________________________________
Manager Mgr. Location
</TABLE>
2. ELIGIBILITY Any Employee whose customary employment is more than 20 hours
per week and more than (5) months per calendar year, who does not hold
(directly or indirectly five percent (5%) or more of the combined voting
power of the Company, a parent or a subsidiary whether in stock or options to
acquire stock is eligible to participate in the Earth Web Inc. 1998 Employee
Stock Purchase Plan (the "ESPP") provided, however, that Employees who are
subject to the rules or laws of a foreign jurisdiction that prohibit or make
impractical the participation of such Employees in the ESPP are not eligible
to participate.
3. DEFINITIONS Each capitalized term in this Subscription Agreement shall have
the meaning set forth in the ESPP.
4. SUBSCRIPTION I hereby elect to participate in the ESPP and subscribe to
purchase shares of the Company's Common Stock in accordance with this
Subscription Agreement and the ESPP. I have received a complete copy of the
ESPP and a prospectus describing the ESPP and understand that my
participation in the ESPP is in all respects subject to the terms of the
ESPP. The effectiveness of this Subscription Agreement is dependent on my
eligibility to participate in the ESPP.
5. PAYROLL DEDUCTION AUTHORIZATION I hereby authorize payroll deductions from
my Compensation during the Offer Period in the percentage specified below
(payroll reductions may not exceed 15% of Compensation nor $21,250 per
calendar year):
-----------------------------------------------------------------------
Percentage be Deducted (circle one) 1% 2% 3% 4% 5% 6% 7% 8% 9% 10% 11% 12%
-----------------------------------------------------------------------
-----------
13% 14% 15%
-----------
6. ESPP ACCOUNTS AND PURCHASE PRICE I understand that all payroll deductions
will be credited to my account under the ESPP. No additional payments may be
made to my account. No interest will be credited an funds held in the account
at any time including any refund of the account caused by withdrawal from the
ESPP. All payroll deductions shall be accumulated for the purchase of Company
Common Stock at the applicable Purchase Price determined in accordance with
the ESPP.
7. WITHDRAWAL AND CHANGES IN PAYROLL Deduction I understand that I may
discontinue my participation in the ESPP at any time prior to an Exercise
Date as provided in Section 10 of the ESPP, but if I do not withdraw from the
ESPP, any accumulated payroll deductions will be applied automatically to
purchase Company Common Stock. I may increase or decrease the rate of my
payroll deductions in whole percentage increments to not less than one
percent (1%) on one occasion during any Purchase Period by completing and
timely filing a Change of Status Notice. Any decrease will be effective for
the full payroll period occurring after ten (10) business days from the
Company's receipt of the Change of Status Notice. Any increase will be
effective for the next Purchase Period occurring after the Purchase Period in
which the Change of Status Notice is filed with the Company if such notice is
filed more than ten (10) business days prior to the commencement of the next
Purchase Period.
8. PERPETUAL SUBSCRIPTION I understand that this Subscription Agreement shall
remain in effect for successive Offer Periods until I withdraw from
participation in the ESPP, or termination of the ESPP.
A-1
<PAGE>
9. TAXES I have reviewed the ESPP prospectus discussion of the federal tax
consequences of participation in the ESPP and consulted with tax
consultants as I deemed advisable prior to my participation in the ESPP. I
hereby agree to notify the Company in writing within thirty (30) days of
any disposition (transfer or sale) of any shares purchased under the ESPP
if such disposition occurs within two (2) years of the Enrollment Date (the
first day of the Offer Period during which the shares were purchased) or
within one (1) year of the Exercise Date (the date I purchased such
shares), and I will make adequate provision to the Company for foreign,
federal, state or other tax withholding obligations, if any, which arise
upon the disposition of the shares. In addition, the Company may withhold
from my Compensation any amount necessary to make applicable tax
withholding obligations incident to my participation in the ESPP, including
any withholding necessary to make available to the Company any tax
deductions or benefits contingent on such withholding.
10. DESIGNATION OF BENEFICIARY In the event of my death, I hereby designate the
following person or trust as my beneficiary to receive all payments and
shares due to me under the ESPP: [_] I am single [_] I am married
Beneficiary (please print)_________________________________________________
(Last) (First) (MI)
Relationship to Beneficiary (if any)_______________________________________
Street Address_____________________________________________________________
City, State/Country, Zip___________________________________________________
11. TERMINATION OF ESPP I understand that the Company has the right,
exercisable in its sole discretion, to amend or terminate the ESPP at any
time, and a termination may be effective as early as an Exercise Date
(after purchase of shares on such date) within each outstanding Offer
Period.
Date:_____________ Employee Signature:_____________________________________
________________________________________________________
spouse's signature (if beneficiary is other than spouse)
A-2
<PAGE>
EXHIBIT B
EarthWeb Inc. 1998 Employee Stock Purchase Plan
CHANGE OF STATUS NOTICE
____________________________________________
Participant Name (Please Print)
_____________________________________________
Social Security Number
================================================================================
WITHDRAWAL FROM ESPP
I hereby withdraw from the EarthWeb Inc. 1998 Employee Stock Purchase Plan
(the "ESPP") and agree that my option under the applicable Offer Period
will be automatically terminated and all accumulated payroll deductions
credited to my account will be refunded to me or applied to the purchase of
Common Stock depending on the alternative indicated below. No further
payroll deductions will be made for the purchase of shares in the
applicable Offer Period and I shall be eligible to participate in a future
Offer Period only by timely delivery to the Company of a new Subscription
Agreement.
[_] WITHDRAWAL AND PURCHASE OF COMMON STOCK
Payroll deductions will terminate, but your account balance will be applied
to purchased Common Stock on the next Exercise Date. Any remaining balance
will be refunded.
[_] WITHDRAWAL WITHOUT PURCHASE OF COMMON STOCK
Entire account balance will be refunded to me and no Common Stock will be
purchased on the next Exercised Date provided this notice is submitted to
the Company ten (10) business days prior to the next Exercise Date.
================================================================================
[_] CHANGE IN PAYROLL DEDUCTION
I hereby elect to change my rate of payroll deduction under the ESPP as
follows (select one):
----------------------------------------------------------------------
Percentage to be Deducted (circle one) 1% 2% 3% 4% 5% 6% 7% 8% 9% 10% 11%
12% 13% 14% 15%
----------------------------------------------------------------------
The following rules under ESPP apply to changing your payroll deduction
rate:
DECREASE-- Decrease in payroll deduction will be effective for the first
--------
full payroll period commencing no fewer than ten (10) business
days following the Company's receipt of this notice, unless this
change is processed more quickly.
INCREASE-- An increase in payroll deduction will be effective for the next
--------
Purchase Period following the Purchase Period in which this
notice is received by the Company provided that this notice is
submitted to the Company no fewer than ten (10) business days
before the first day of the upcoming Purchase Period.
================================================================================
B-1
<PAGE>
================================================================================
[_] CHANGE OF BENEFICIARY [_] I am single [_] I am married
This change of beneficiary shall terminate my previous beneficiary
designation under the ESPP. In the event of my death, I hereby designate
the following person or trust as my beneficiary to receive all payments and
shares due to me under the ESPP:
Beneficiary (please print)______________________________________________________
(Last) (First) (MI)
Relationship to Beneficiary (if any)____________________________________________
Street Address__________________________________________________________________
City, State/Country, Zip________________________________________________________
================================================================================
Date:______________ Employee Signature:_____________________________________
________________________________________________________
spouse's signature (if beneficiary is other than spouse
B-1
<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."
New York, New York
November 9, 1998
<PAGE>
Exhibit 23.8
AUTHORIZATION AND RELEASE
-------------------------
I have participated or will participate in the creation of a written
testimonial regarding EarthWeb Inc. ("EarthWeb") and/or its services (for
example, its developer.com service) (such testimonial to be hereinafter referred
to as the "Statement"). For good and valuable consideration the sufficiency and
receipt of which are hereby acknowledged, I agree irrevocably and perpetually
as follows:
1. I authorize EarthWeb and its successors, assigns, licensees, agents
and designees (together, "Company") to make use of (i) the Statement and (ii) my
identity and likeness, in any manner as Company may choose, in any and all
media and manner throughout the world now known or later developed, for any
purpose whatsoever including (but not limited to) production, distribution,
broadcast, advertising and promotion. I acknowledge that such use may (i) be
alone or in combination with other text, sound, video or other material, (ii) be
in connection with any or all works that use, adapt, modify, are based on, or
otherwise incorporate the Statement and, (iii) include or not include use of
my name and biographical information about me, I agree that Company may, in its
sole discretion, edit, modify or excerpt the Statement. I understand that the
intent of this Authorization and Release is to convey to Company any and all
rights I may have, on a nonexclusive basis, to such Statement, or my identity
and likeness, to the maximum extent, so that Company may use those interests for
commercial and other purposes throughout the world without additional approval
from or compensation to me. I hereby consent to the use of the statement and
its inclusion in EarthWeb's Registration Statement in Form S-1 (file no.
333-60837).
2. I understand, acknowledge and agree that Company is the owner of the
Statement. I hereby assign, and agree to assign, to Company any right, title or
interest I may have in the Statement. I acknowledge that Company has the
irrevocable, worldwide, assignable, sublicensable and perpetual right to
reproduce, distribute, perform or display, publicly or otherwise, and prepare
derivative works of the Statement and derivative works thereof; I will (whether
during or after my participation in creating the Statement) execute such written
instruments and do other such acts, at Company's expense, as may be necessary in
the opinion of Company to effect an assignment of, register, enforce or
otherwise exercise rights with respect to a copyright, trademark or other
intellectual property right relating to the Statement or the use of my identity
and likeness as set forth above.
3. I release Company from any claims that I may have as to the use of
the Statement as authorized by this Authorization and Release, including (but
not limited to) claims based on rights of publicity or privacy, defamation, or
intellectual property rights infringement.
/s/ David Mathison
---------------------------------
[signature]
Name: David Mathison
---------------------------------
Date: 11/1/98
---------------------------------
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 2,643,292
<SECURITIES> 0
<RECEIVABLES> 784,722
<ALLOWANCES> (18,155)
<INVENTORY> 0
<CURRENT-ASSETS> 3,933,109
<PP&E> 3,198,515
<DEPRECIATION> (1,223,479)
<TOTAL-ASSETS> 7,536,059
<CURRENT-LIABILITIES> 2,472,878
<BONDS> 0
0
12,512
<COMMON> 33,615
<OTHER-SE> 4,910,494
<TOTAL-LIABILITY-AND-EQUITY> 7,536,059
<SALES> 0
<TOTAL-REVENUES> 1,918,384
<CGS> 1,394,885
<TOTAL-COSTS> 5,915,751
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (5,272,231)
<INCOME-TAX> 0
<INCOME-CONTINUING> (5,272,231)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,272,231)
<EPS-PRIMARY> 0
<EPS-DILUTED> (1.72)
</TABLE>
