<PAGE>
As filed with the Securities and Exchange Commission on May 5, 1999
Registration No. 333-75771
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------
AMENDMENT NO. 2
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------
EARTHWEB INC.
(Exact Name of Registrant as Specified in its Charter)
--------------
Delaware 7310 13-3899472
(State of other jurisdiction of
(Primary Standard Industrial (I.R.S. Employer
incorporation or organization)
Classification Code Number)
Identification Number)
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 to:
John R. Hempill, Esq. Bruce K. Dallas, Esq.
Morrison & Foerster LLP Davis Polk & Wardwell
1290 Avenue of the Americas 450 Lexington Avenue
New York, New York 10104-0050 New York, New York 10017
(212) 468-8000 (212) 450-4000
--------------
Approximate date of commencement of 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 pursu-
ant 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,
please 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 Secu-
rities 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 de-
termine.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus is not complete and may be changed. We may +
+not sell these securities until the registration statement filed with the +
+Securities and Exchange Commission is effective. This prospectus is not an +
+offer to sell these securities and we are not soliciting offers to buy these +
+securities in any state where the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Subject to Completion
Prospectus Dated May 5, 1999
1,300,000 Shares
[logo]Earthweb
EarthWeb Inc.
Common Stock
EarthWeb Inc. is offering 750,000 shares of its common stock and the selling
stockholders identified in this prospectus are offering 550,000 shares of
common stock.
The common stock is quoted on the Nasdaq National Market under the symbol
"EWBX." On May 3, 1999, the reported last sale price for the common stock on
Nasdaq was $50.00 per share.
Investing in our common stock involves risks. See "Risk Factors" beginning on
page 5.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
adequacy or accuracy of this prospectus. Any representation to the contrary is
a criminal offense.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Proceeds to
Price to Underwriting Proceeds to Selling
Public Discount EarthWeb Stockholders
- ---------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share $ $ $ $
- ---------------------------------------------------------
Total $ $ $ $
</TABLE>
- --------------------------------------------------------------------------------
The selling stockholders have granted the underwriters the right to purchase up
to an additional 195,000 shares of common stock to cover over-allotments.
J.P. Morgan & Co.
Bear, Stearns & Co. Inc.
Volpe Brown Whelan & Company
Wit Capital Corporation
as e-Manager(TM)
, 1999
<PAGE>
Forecasted Industry Spending 1998-2001 (in billions)
[An elliptical chart appears here depicting forecasted spending in the
information technology industry growing from $834 billion in 1998 to $920
billion in 1999, $1,012 billion in 2000 and $1,105 billion in 2001.]
Source: International Data Corporation
EarthWeb's mission is to be the business-to-business hub of the trillion-dollar
IT marketplace.
EarthWeb leverages the Internet to connect buyers to sellers, employees to
employers, vendors to customers and professionals to a wealth of focused
technical intelligence.
Through its targeted online services, EarthWeb provides online job boards,
online software stores,and extensive databases of reference material and other
technical content to serve the mission-critical needs of the IT industry.
<PAGE>
[An elliptical chart appears in the upper left hand corner depicting EarthWeb
Site Network Page Views growing from 15.7 million in the first quarter of 1998,
to 31.4 million in the second quarter of 1998, to 37.3 million in the third
quarter of 1998 and to 50.4 million in the fourth quarter of 1998.]
New content, new services and an end-of-year marketing campaign all contributed
to a significant increase in EarthWeb's site-wide page views and unique visits
in 1998. The final quarter of 1998 saw 50.4 million page views across EarthWeb's
online services, a 515% increase over those in the fourth quarter of 1997.
[An elliptical chart appears in the upper right hand corner depicting Unique
Visits to EarthWeb Network increasing from 4.3 million in the second quarter of
1998, to 6.3 million in the third quarter of 1998 and to 8.4 million in the
fourth quarter of 1998.]
We also experienced a surge in unique visits, which grew from 4.3 million in the
second quarter of 1998 to 8.4 million in the fourth quarter of the same year.
As we continue to launch content targeted at additional segments of the IT
industry and expand our existing offerings, we anticipate continued traffic
growth in 1999.
[An elliptical chart appears in the lower left hand corner depicting 1998
EarthWeb Revenues growing from $308,000 in the first quarter of 1998, to
$666,000 in the second quarter of 1998, to $944,000 in the third quarter of 1998
to $1,431,000 in the fourth quarter.]
EarthWeb increased Q4 1998 revenues 310% over revenues for the same period in
1997. EarthWeb's 1998 revenues of $3,349,000 represent an increase of 195% over
1997 revenues of $1,135,000. The majority of these revenues resulted from
advertising sales with additional revenues coming from EarthWeb's e-commerce
software and book sales as well as from subscriptions for its new service,
ITKnowledge.
[An elliptical chart appears in the lower right hand corner depicting new
Advertisers on EarthWeb's Site Network for the first quarter of 1998 of 21, for
the second quarter of 1998 of 51, for the third quarter of 1998 of 79 and for
the fourth quarter of 1998 of 90.]
As a powerful testament to our skilled sales team, EarthWeb brought in 154 new
unique advertisers for a total of 168 in 1998 representing a significant
increase from 23 in 1997. The Company's roster of advertisers now includes IBM,
Lucent Technologies, Sun Microsystems, Symantec, Microsoft, Fujitsu, and many
other product and service companies looking to target IT professionals seeking
mission-critical workplace solutions.
<PAGE>
[An elliptical chart captioned "Business Model" depicting the EarthWeb logo in
the center of a circle with arrows pointing to a smaller circle (1) to the upper
left captioned "Systems Engineers and Developers," (2) to the upper right
captioned "IT Product and Service Vendors," (3) to the lower left captioned "IT
Managers" and (4) to the lower right captioned "Technical Recruiters."]
EARTHWEB MAINTAINS MARKET LEADERSHIP BY SERVING AS THE CENTRAL
BUSINESS-TO-BUSINESS DESTINATION FOR IT MANAGERS, DEVELOPERS, TECHNICAL
RECRUITERS AND IT VENDORS.
System Engineers and Developers
System engineers, developers and other IT professionals require a wide array
of resources to speed through application creation and development. Earthweb
provides the following for these professionals:
ONLINE TRAINING
CODE AND TECHNICAL INFORMATION
A MARKETPLACE FOR IT PRODUCTS AND SERVICES
CAREER ENHANCEMENT AND JOB LOCATION SERVICES
ACCESS TO TECHNICAL EXPERTS AND COMMUNITY
IT Product and Service Vendors
IT vendors strive to deliver their message at the moment their audience is
seeking technical solutions. Our services enable this growing marketplace to:
ADVERTISE A PRODUCT OR SERVICE
CONDUCT ONE-TO-ONE MARKET RESEARCH WITH A TECHNICAL AUDIENCE
SELL PRODUCTS THROUGH EARTHWEB DIRECT
DISTRIBUTE PRODUCTS THROUGH TECHNOLOGY DIRECTORIES
RESEARCH PRODUCTS AND TECHNOLOGIES
RECRUIT SKILLED TECHNICAL PROFESSIONALS
IT Managers
IT managers cite extensive workplace challenges relating to recruitment,
training and project deployment. To solve these and other mission-critical
needs that they face every day, Earthweb provides the following for these
professionals:
PROJECT PLANNING, MANAGEMENT AND IMPLEMENTATION RESOURCES
CURRENT INDUSTRY AND TECHNOLOGY TREND DATA
INFORMATION, TRAINING, AND TOOLS FOR DEVELOPMENT TEAMS
PRACTICAL CASE STUDIES OF IT PROJECTS
RECRUITMENT SERVICES FOR TECHNICAL PROFESSIONALS
Technical Recruiters
With recruitment of skilled technical professionals topping the list of global
IT challenges, recruiters have increasingly directed their attention and
resources online to locate qualified candidates. Our services enable technical
recruiter to:
LOCATE SKILLED TECHNICAL PROFESSIONALS
LOCATE COMPANIES WITH RECRUITMENT NEEDS
KEEP UP WITH TECHNOLOGY TRENDS
<PAGE>
Table of Contents
<TABLE>
<CAPTION>
Page
<S> <C>
Prospectus Summary..................... 1
Risk Factors........................... 5
Use of Proceeds........................ 14
Price Range of Common Stock............ 14
Dividend Policy........................ 14
Capitalization......................... 15
Dilution............................... 16
Selected Financial Data................ 17
Management's Discussion and Analysis of
Financial Condition and Results of
Operations............................ 18
</TABLE>
<TABLE>
<CAPTION>
Page
<S> <C>
Business.............................................................. 25
Management............................................................ 34
Principal and Selling Stockholders.................................... 42
Certain Transactions.................................................. 44
Description of Capital Stock.......................................... 45
Underwriting.......................................................... 48
Legal Matters......................................................... 49
Experts............................................................... 49
Where You Can Find More Information................................... 50
Index to Financial Statements......................................... F-1
</TABLE>
---------------
You should rely only on the information contained in this prospectus. To under-
stand this offering fully, you should read this entire prospectus carefully,
including the financial statements and notes. We have included a brief overview
of the most significant aspects of the offering itself in the Prospectus Summa-
ry. However, individual sections of the prospectus are not complete and do not
contain all of the information that you should consider before investing in
EarthWeb's common stock. We have not authorized anyone to provide you with in-
formation different from that contained in this prospectus. We are offering to
sell, and seeking offers to buy, shares of common stock only in jurisdictions
where offers and sales are permitted. The information contained in this pro-
spectus is accurate only as of the date of this prospectus, regardless of the
time of delivery of this prospectus or of any sale of the common stock.
---------------
Unless otherwise indicated, all references to "EarthWeb" and "we" for the pe-
riod prior to October 25, 1996 are to EarthWeb Inc.'s predecessors and, for
later periods, refer to EarthWeb Inc. and, subsequent to their acquisition or
formation, its subsidiaries, including EW Career Solutions, Inc. (a/k/a D&L On-
line, Inc., which owns the dice.com job board) and MicroHouse International,
Inc.
EarthWeb and the EarthWeb symbol are service marks and in some jurisdictions
(including the United States) registered service marks of EarthWeb. Other
trademarks appearing in this prospectus are the property of their respective
owners.
---------------
We included information in this prospectus about (1) the number of Internet us-
ers, (2) the size of Internet commerce, (3) the worldwide market for informa-
tion technology products and services, (4) the size of business-to-business
Internet advertising, (5) the size of the consumer related Internet advertis-
ing, (6) the worldwide market for IT education and training and (7) the world-
wide market for IT recruiting. This information is based on studies prepared by
the Internet market research firms International Data Corporation and Jupiter
Communications. These studies include projections based on a number of assump-
tions including:
. no catastrophic failure of the Internet;
. the resumed expansion of the worldwide economy;
. Internet security will be adequately addressed;
. the number of people online and the total number of hours spent online will
increase significantly over the next five years;
. the use of the Internet will increase significantly in major foreign coun-
tries and some of these foreign countries will adopt the U.S. style of ad-
vertising on the Internet;
. media advertising will continue to grow in all categories and online adver-
tising will comprise an increased percentage of all media advertising;
. the value of online advertising dollars spent per online user hour will in-
crease;
. non-technology industry Internet advertising will increase;
. the download speed of content will increase dramatically; and
. a proliferation of Internet access devices other than the PC (for example,
PC/television sets).
If any one or more of these assumptions are incorrect, the projections based on
these assumptions may be materially different from actual results. Internet-re-
lated markets and products may not grow over the next three to four years at
the rates projected by International Data Corporation or Jupiter Communica-
tions, or at all. If Internet-related markets or products do not grow at the
assumed projected rates, our business, results of operations and financial con-
dition could be materially and adversely affected.
<PAGE>
Prospectus Summary
This prospectus contains forward-looking statements. The outcome of the events
described in these forward-looking statements is subject to risks and actual
results could differ materially. The sections entitled "Risk Factors," "Manage-
ment's Discussion and Analysis of Financial Condition and Results of Opera-
tions" and "Business" contain a discussion of some of the factors that could
contribute to those differences.
EarthWeb
Our Business
We are the leading provider of business-to-business online services for the
global information technology industry. International Data Corporation fore-
casts that the worldwide market for information technology, or IT, products and
services will grow from approximately $800 billion in 1998 to over $1.0 tril-
lion in 2001. Our network of sites is a central hub for various constituents of
the IT industry, including:
<TABLE>
<S> <C> <C>
. Programmers and
engineers . Recruiters . Hardware manufacturers
. IT managers . Corporate IT purchasers . Value-added resellers
. Technical
consultants . Software publishers . IT services firms
</TABLE>
Our integrated online services address the needs of these constituents for con-
tent, career management and recruiting, commerce and community:
. Content. Members of the IT industry need independent, in-depth and up-to-
date content such as reference and training materials, source code, IT prod-
uct information and other technical data. EarthWeb's online services each
focus on a particular segment of the IT industry. Developer.com, one of our
flagship services, focuses primarily on the software and Internet develop-
ment segments. Datamation.com, another of our flagship services, is a lead-
ing resource for IT enterprise managers. We also offer premium subscription
services through ITknowledge.com and the MicroHouse product line, which to-
gether provide extensive electronic reference libraries and online training
materials.
. Career Management and Recruiting. Companies and other organizations depend
on a qualified pool of IT professionals. EarthWeb connects IT professionals,
such as programmers, engineers and consultants, with part and full-time em-
ployment through a variety of online job resources. These resources include
our online job board, dice.com, which is a leading service for IT profes-
sionals seeking employment as well as companies and other organizations re-
cruiting technical personnel. IDC estimated that the total amount spent on
IT recruiting was $18 billion in 1998, a 20% increase over 1997.
. Commerce. The IT industry needs a marketplace to buy and sell IT products
and services. EarthWeb provides an online marketplace where vendors can pro-
mote and advertise their goods and services, and purchasers can identify,
evaluate and buy the products and services that meet their needs.
Earthwebdirect.com, which focuses on software products for IT professionals,
is one of the leading e-commerce sites within the EarthWeb network.
. Community. Members of the IT industry need a neutral third-party environment
to share information. EarthWeb's online discussion area
(discussions.earthweb.com) indexes hundreds of online technology forums
where users can contribute material and communicate with each other. Our
other community areas, such as question and answer services and user sur-
veys, allow users to help one another solve technical problems.
As a global intermediary for the IT industry, we are positioned as the trusted
third party that offers an integrated environment where various constituents
can share information, manage their careers, recruit personnel, transact busi-
ness and interact with one another. We believe that we offer the most in-depth
content and comprehensive range of business-to-business online services for the
IT industry.
We have broadened our online content and services since our initial public of-
fering in November 1998 to address the needs of the various constituents within
the IT industry. We have added content in such areas as security, networking,
hardware and Linux to address a wider range of IT industry segments. We have
also expanded our online business-to-business services, in part through the ac-
quisition of dice.com. In addition, our acquisition of MicroHouse added an im-
portant line of subscription-based products. We intend to continue expanding
the content we offer our users, the segments of the IT industry we address and
the business-to-business services we provide.
Our business has grown substantially, as measured by revenues, advertising cus-
tomers and the size of our sales force. Our revenues increased from $1.1 mil-
lion in 1997 to $11.1 million in 1998 on a pro forma basis to include our ac-
quisition of dice.com. We have increased the number of our unique advertisers
on our content areas to 168 in 1998 from 23 in 1997, and have broadened this
advertiser base to include both technology and non-technology companies. Addi-
tionally, dice.com had over 2,000 advertisers on its job board, more than dou-
bling its advertising base since the beginning of 1998. Our subscription reve-
nue stream has also grown rapidly. We have increased our subscriber base to
over 12,000 paying customers. To support our growth, we have increased our ad-
vertising sales force to 29 and our subscription sales force to 20.
1
<PAGE>
Our Market Opportunity
The role of information technology in companies and other organizations has ex-
panded and has become even more critical to the successful implementation of
business strategy. While IT traditionally has focused on internal systems, in-
cluding accounting and human resources, IT is expanding its role by changing
the way in which organizations interact with their suppliers, market and de-
liver their products and services and support their customers. IDC forecasts
that the worldwide market for IT products and services will grow from approxi-
mately $800 billion in 1998 to over $1.0 trillion in 2001.
The growth of the IT industry has generated significant market opportunities.
For example:
. Vendors of IT products and services spent over $5 billion in 1997 in product
advertising, with an increasing amount being spent online, according to Ad
Age.
. Expenditures on IT recruiting increased from an estimated $15 billion in
1997 to $18 billion in 1998, according to IDC.
. The IT education and training market is forecasted to grow from an estimated
$16.5 billion in 1998 to $25.3 billion in 2002, according to IDC.
. Expenditures on computer reference books totalled approximately $1 billion
in 1998, according to Simba Information.
. Based on industry sources, we believe expenditures on IT industry reports
and analysis totalled an estimated $1 billion in 1998.
Increasingly companies are using the Internet to purchase goods and services.
Internet commerce is forecasted to grow from an estimated $50.4 billion in 1998
to $733.6 billion in 2002, with the business-to-business component growing from
an estimated $27.4 billion to $526.2 billion in the same period, according to
IDC.
Our Strategy
We seek to strengthen our position as the leading provider of business-to-busi-
ness online services for the global IT industry by:
. broadening and enhancing business-to-business services for the IT industry;
. promoting EarthWeb and our other brands;
.cultivating multiple revenue streams;
. pursuing strategic acquisitions; and
. expanding internationally.
--------------
Our principal executive office is located at 3 Park Avenue, New York, New York
10016, and our telephone number at this location is (212) 725-6550. Our corpo-
rate Web site address is http://www.earthweb.com. Information contained on our
Web site is not part of this prospectus.
2
<PAGE>
The Offering
<TABLE>
<C> <S>
Shares Offered
By EarthWeb............................... 750,000 shares of common stock
By selling stockholders................... 550,000 shares of common stock
Total offering............................ 1,300,000 shares of common stock
Over-Allotment Option........................ 195,000 shares of common stock
from selling stockholders
Shares to be Outstanding After the Offering.. 9,293,736 shares of common
stock, including 33,874 shares
issuable upon the exercise of
options held by certain selling
stockholders
Use of Proceeds by EarthWeb.................. General corporate purposes,
including expansion of sales and
marketing capabilities, possible
strategic acquisitions or
investments, international
expansion, technical upgrade of
internal systems and working
capital requirements.
Nasdaq National Market Symbol................ "EWBX"
</TABLE>
The table is based on 8,509,862 shares of common stock outstanding as of March
1, 1999 and excludes (a) 140,622 shares of common stock issuable upon exercise
of options outstanding on March 1, 1999 and exercisable within 60 days at a
weighted average exercise price of $5.60 per share; and (b) 666,488 additional
shares of common stock reserved as of March 1, 1999 for future issuance upon
exercise of other options outstanding under EarthWeb's 1998 and 1996 stock
incentive plans or for future grants under such plans and 159,000 shares of
common stock reserved as of March 1, 1999 for issuance under the 1998 employee
stock purchase plan and other unexercisable options granted outside of these
plans. We have approved amendments to our 1998 stock incentive plan that would,
once approved by our stockholders, increase the number of shares available for
grant under the plan by 1,700,000 shares. See "Capitalization" and
"Management--Benefit Plans."
3
<PAGE>
Summary Historical and Pro Forma Financial Data Information
The following table presents summary historical and pro forma financial infor-
mation about EarthWeb. The historical financial information is derived from the
audited financial statements of EarthWeb for the three years ended December 31,
1998 included elsewhere in this prospectus and from unaudited financial state-
ments for the three months ended March 31, 1999 and 1998. The 1998 pro forma
financial statement of operations data is derived from the unaudited pro forma
financial statements included elsewhere in this prospectus that give effect to
the acquisition of dice.com in February 1999 as if it had occurred on January
1, 1998. The as adjusted balance sheet data as of March 31, 1999 gives effect
to the sale of 750,000 shares of common stock being offered by EarthWeb in this
offering. You should read this information together with "Management's Discus-
sion and Analysis of Financial Condition and Results of Operations" and the au-
dited and pro forma financial statements and the notes thereto.
<TABLE>
<CAPTION>
----------------------------------------------------------------------
Three months
Year ended December 31, ended March 31,
---------------------------------------------- ----------------------
Dollars in thousands,
except per share data Pro forma
Statement of Operations 1996 1997 1998 1998 1998 1999
Data: ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Revenues................ $ 472 $ 1,135 $ 3,349 $ 11,086 $ 308 $ 3,732
Gross profit (deficit).. 158 (223) 1,218 7,882 (87) 2,253
Depreciation and
amortization(1)........ 101 893 1,116 8,905 233 1,778
Loss from continuing
operations(2).......... (2,004) (5,437) (8,970) (14,834) (1,457) (6,812)
Net loss................ (2,046) (7,821) (8,970) (14,834) (1,457) (6,812)
Basic and diluted net
loss per share from
continuing
operations(3).......... $ (0.69) $ (1.86) $ (2.37) $ (3.40) $ (0.50) $ (0.82)
Basic and diluted net
loss per share(3)...... (0.70) (2.67) (2.37) (3.40) (0.50) (0.82)
Weighted average shares
outstanding used in
computing basic and
diluted net loss per
share(3)............... 2,925,000 2,925,000 3,782,575 4,360,353 2,925,000 8,289,587
Other Data:
EBITA(4)................ $ (1,965) $ (5,198) $ (8,873) $ (6,045) $ (1,434) $ (5,515)
</TABLE>
<TABLE>
<CAPTION>
--------------------------
As of March 31, 1999
--------------------------
<S> <C> <C>
Dollars in thousands
<CAPTION>
As
Actual Adjusted
Balance Sheet Data: ---------- -----------
<S> <C> <C>
Cash and cash
equivalents............ $ 15,789
Working capital......... 4,759
Total assets............ 70,412
Stockholders' equity.... 49,553
</TABLE>
(1) Pro forma 1998 includes amortization of goodwill and intangible assets of
approximately $7.6 million relating to the acquisition of dice.com.
(2) From EarthWeb's inception in 1994 until mid-1997, we primarily developed
and maintained Web sites and online commerce infrastructures for our customers.
During this period, substantially all of our revenues were derived from devel-
opment contracts, maintenance fees and software license fees. During 1996, we
began generating revenues from our business of online services for IT profes-
sionals. EarthWeb software products and professional services divisions were
discontinued in 1997 and have been recorded as discontinued operations for all
periods.
(3) Common equivalent shares have been excluded from the weighted average
shares outstanding for all periods as their effect is antidilutive. As of March
1, 1999: (a) 174,496 shares of common stock were issuable upon exercise of op-
tions outstanding on March 1, 1999 and exercisable within 60 days at a weighted
average exercise price of $5.60 per share; and (b) 666,488 additional shares of
common stock were reserved for future issuance upon exercise of other options
outstanding under the 1998 and 1996 stock incentive plans or for future grant
under such plans and 159,000 shares of common stock were reserved for future
issuance under the 1998 stock purchase plan and other unexercisable options
granted outside of these plans. Giving effect to the conversion of all out-
standing preferred stock into common stock in November 1998 as if it had been
converted on January 1, 1998, the net loss per share for the year ended Decem-
ber 31, 1998 would have been $1.53. See "Management--Benefit Plans" and "De-
scription of Capital Stock."
(4) "EBITA" is defined as income (loss) from operations before provision for
income taxes, interest income, net, depreciation and amortization of goodwill
and other intangible assets related to acquisitions. EBITA is not intended to
represent cash flows from operations and should not be considered as an alter-
native to net income (loss) as an indicator of EarthWeb's operating performance
or to cash flows as a measure of liquidity. Although EarthWeb believes that
EBITA is a standard measure commonly reported and widely used by analysts, in-
vestors and other interested parties in the internet industry, the EBITA pre-
sented for EarthWeb may not be comparable to similarly titled measures reported
by other companies.
4
<PAGE>
Risk Factors
This offering involves a high degree of risk. You should carefully consider the
risks and uncertainties described below and the other information in this pro-
spectus before deciding whether to invest in shares of our common stock. If any
of the following risks actually occur, our business, financial condition and
results of operations could be materially adversely affected. This could cause
the trading price of our common stock to decline, and you may lose part or all
of your investment.
Risks Particular to EarthWeb
You cannot predict our future success based on our limited operating history
Although we commenced operations in October 1994, we did not begin our business
of providing online services to IT professionals until October 1995, and only
recently broadened our online services to address the needs of other constitu-
ents of the IT industry. We did not begin generating advertising revenues until
June 1996. The limited amount of information about us makes it difficult for
you to predict whether we will be successful.
EarthWeb competes in the relatively new markets for Internet services and prod-
ucts. Thus, you should also evaluate our chances of financial and operational
success in light of the risks, uncertainties, expenses, delays and difficulties
associated with operating a business in a relatively new and unproven market,
many of which may be beyond our control. Some of the risks that we face are de-
scribed in the following paragraphs. Our failure to address these risks could
have a material adverse effect on our business, results of operations and fi-
nancial condition.
We have a history of losses and may need additional funds
We had an accumulated deficit of $17.3 million at December 31, 1998. We have
also experienced operating losses as well as net losses for all of the fiscal
years during which we have operated. We expect that we will continue to operate
at a loss for the foreseeable future. Although our revenues have increased in
recent quarters, we cannot assure you that such growth will be maintained or
increased in the future. You should not rely on our recent revenue growth as
indicative of our future results of operations. We cannot predict with accuracy
our future results of operations and believe that any period-to-period compari-
sons of our results of operations are not meaningful.
We expect to increase our operating expenses significantly, expand our sales
and marketing operations and continue to develop and extend our online servic-
es. In the future, we may not generate sufficient revenues to pay for all of
these operating or other expenses. If we fail to generate sufficient cash to
pay these expenses, we will need to identify other sources of financing. We may
not be able to borrow money or issue more shares of common stock or other secu-
rities to meet our cash needs, and even if we can complete such transactions,
the terms may seem to us to be unfavorable. See "Management's Discussion and
Analysis of Financial Conditions and Results of Operations" for a more complete
description of our historical financial condition, results of operation and li-
quidity.
We compete in a highly competitive developing market without certainty of
future growth
The market for EarthWeb's online services has only recently begun to develop,
is rapidly evolving and is characterized by an increasing number of market en-
trants. As is typical of a new and rapidly evolving industry, demand and market
acceptance for recently introduced services is uncertain and we cannot accu-
rately predict the future growth, if any, and size of this market. The market
for our online services may not continue to develop or become sustainable. If
use of our online services fails to grow, our ability to establish other online
services would be materially adversely affected. In addition, we may not be
successful in our business strategy of extending our online services model to
additional segments of the IT industry.
EarthWeb competes with other companies that direct portions of their Web sites
towards certain segments or sub-segments of the IT industry. Some of EarthWeb's
competitors include:
. Ziff-Davis (DevHead)
. CNET (builder.com and activex.com)
. CMP Media (cmpnet)
. Internet.com (webdeveloper.com)
. Wired Digital (Webmonkey)
. IDG (Javaworld)
5
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In addition, we compete for advertising revenues with general interest portal
and destination sites, as well as traditional media. Our competitors for sales
of products are book, software and online retailers that sell products similar
to ours. Many of our competitors have longer operating histories, larger client
bases, longer relationships with clients, greater brand or name recognition and
significantly greater financial, technical, marketing and public relations re-
sources than we do. As a result, they may be in a position to respond more
quickly to new or emerging technologies and changes in customer requirements
and to develop and promote their products and services more effectively. We may
not be able to compete successfully against present or future competitors.
There are relatively low barriers to entry in the online services market. We do
not own any patent technology that precludes or inhibits competitors from en-
tering the IT online market. Existing or future competitors may develop or of-
fer services that are comparable or superior to ours at a lower price, which
could have a material adverse effect on our business, results of operations and
financial condition.
Our future revenues are dependent on the adoption and effectiveness of the
Internet as an advertising medium
Our future success is highly dependent on an increase in the use of the
Internet as an advertising medium. The Internet advertising market is new and
rapidly evolving, and it cannot yet be compared with traditional advertising
media to gauge its effectiveness. As a result, demand and market acceptance for
Internet advertising solutions is uncertain. Most of our current or potential
advertising customers have little or no experience using the Internet for ad-
vertising purposes and they have allocated only a limited portion of their ad-
vertising budgets to Internet advertising. The adoption of Internet advertis-
ing, particularly by those entities that have historically relied upon tradi-
tional media for advertising, requires the acceptance of a new way of con-
ducting business, exchanging information and advertising products and services.
Such customers may find Internet advertising to be less effective for promoting
their products and services relative to traditional advertising media. If the
market for Internet advertising fails to develop or develops more slowly than
we expect, then our business, results of operations and financial condition
could be materially adversely affected.
There are currently no standards for the measurement of the effectiveness of
Internet advertising and standard measurements may need to be developed to sup-
port and promote Internet advertising as a significant advertising medium. Our
advertising customers may challenge or refuse to accept our or third-party mea-
surements of advertisement delivery, and our customers may not accept any er-
rors in such measurements. In addition, the accuracy of database information
used to target advertisements is essential to the effectiveness of Internet ad-
vertising that may be developed in the future. The information in our database,
like any database, may contain inaccuracies that our customers may not accept.
If advertisers determine that banner advertising is an ineffective or unattrac-
tive advertising medium, we may not be able to maintain our revenues with other
forms of advertising that we offer. Also, "filter" software programs limit or
prevent advertising from being delivered to a user's computer. The commercial
viability of Internet advertising, and our business, results of operations and
financial condition, would be materially adversely affected by Web users' wide-
spread adoption of such software.
We rely heavily on advertising revenues
To date, substantially all of our revenues are derived from banner advertise-
ments, paid listings, as well as sponsorships. We rely primarily on our in-
house advertising sales force for domestic advertising sales. Our success de-
pends, in part, on hiring, retaining, managing, training and motivating our
sales force. If a significant portion of our advertising sales force leaves, we
may not be able to compete for or retain advertisers and we may not be able to
sustain or increase our current advertising sales level. The reduction in the
amount of revenue from advertising sales could have a material adverse effect
on our business, results of operations and financial condition.
In addition, the competition in the sale of advertising on the Internet, in-
cluding competition from Internet portals and other high-traffic sites is in-
tense. This competition has resulted in a wide range of rates quoted by differ-
ent vendors for a variety of advertising services. As a result, we cannot accu-
rately predict the future levels of Internet advertising revenues that we will
realize. The prices for Internet advertising may also be affected by competi-
tion among current and future suppliers of Internet navigational services or
Web sites and advertising networks. This, together with competition with other
traditional media for advertising placements, could result in significant price
competition, reduced pricing for Internet advertising and reductions in
EarthWeb's advertising revenues.
See "Management Discussion and Analysis of Financial Condition and Results of
Operations" for a more complete description of our sources of revenues and the
impact of the nature of our business on our financial condition.
6
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A significant portion of our revenue comes from a limited number of advertisers
Our revenues to date have been derived from a limited number of advertising
customers and we expect that a limited number of advertisers will continue to
account for a significant portion of our revenues. In particular, IBM accounted
for approximately 11% and Microsoft accounted for approximately 10% of our rev-
enues for the year ended December 31, 1998 and our top 20 advertisers accounted
for an aggregate of approximately 52% of our revenues during 1998. 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
EarthWeb's revenues during 1997. Moreover, we generally use purchase order
agreements that are subject to cancellation in order to sell advertising. Cur-
rent advertisers may not continue to purchase advertising from us or we may not
be able to attract additional advertisers. The loss of one or more of the ad-
vertisers that represent a material portion of our revenues could have a mate-
rial adverse effect on our business, results of operations and financial condi-
tion. In addition, the non-payment or late payment of amounts due by a signifi-
cant advertiser could have a material adverse effect on our business, results
of operations and financial condition. See "Management's Discussion and Analy-
sis of Financial Condition and Results of Operations" for more information re-
lating to our clients.
We engage in barter transactions which do not generate cash revenue
We engage in barter transactions, which reduce cash expenditures in marketing
and other areas, and leverage our advertising inventory. During 1998, revenues
from barter transactions represented approximately 25% of total revenue and
less than 10% of total revenue on a pro forma basis after giving effect to the
acquisition of dice.com. Barter revenues may continue to represent a signifi-
cant portion of our total revenues in future periods. See "Management's Discus-
sion and Analysis of Financial Condition and Results of Operations" for a more
complete description of our barter transactions.
We must continue to maintain and develop our reputation and brand recognition
We believe that establishing and maintaining the identity of our several brands
is critical in attracting and expanding our audience, and that the importance
of brand recognition will increase due to the growing number of Internet online
services. Promotion and enhancement of our brands will depend largely on our
success in continuing to provide high quality online services. If users do not
perceive EarthWeb's existing online services to be of high quality, or if we
introduce new online services or enter into new business ventures that are not
favorably received by users, the uniqueness of our brands could be diminished
and the attractiveness of our audiences to advertisers could be reduced. We may
also find it necessary to increase substantially our financial commitment to
creating and maintaining a distinct brand loyalty among users. If we (1) cannot
provide high quality online services, (2) fail to promote and maintain our
brands, or (3) incur excessive expenses in an attempt to improve our online
services or promote and maintain our brands, our business, results of opera-
tions and financial condition could be materially adversely affected.
We must retain key executives and personnel
Our performance is substantially dependent on the performance of our senior
management and key technical personnel. In particular, our success depends sub-
stantially on the continued efforts of our senior management. EarthWeb has em-
ployment agreements, which include non-compete provisions, with members of se-
nior management. However, these key personnel and others may leave EarthWeb or
compete with us, which could have a material adverse effect on our business,
results of operations and financial condition. In addition, we have not pur-
chased key person life insurance on all members of our senior management.
Our future success also depends upon our continuing ability to identify, at-
tract, hire and retain highly qualified personnel. There is currently a short-
age of qualified personnel in the online services market, and this shortage is
likely to continue. We compete intensely for qualified personnel with other
companies. If we cannot attract, motivate and retain qualified professionals,
our business and results of operations could be materially adversely affected.
Our continued future growth may strain our resources
A key part of our strategy is to grow, which may strain our managerial, opera-
tional and financial resources.
To manage recent acquisitions and future growth, our management must continue
to improve our operational and financial systems and expand, train, retain and
manage our employee base. Our management may not be successful in managing
EarthWeb's growth effectively. If our systems, procedures and controls are in-
adequate to support our operations, our expansion would be halted and we could
lose our opportunity to gain significant market share. Any inability to manage
growth effectively could have a material adverse effect on our business, re-
sults of operations and financial condition.
7
<PAGE>
We may be unable to consummate potential acquisitions or integrate the
operations of companies we acquire
Our strategy includes the acquisition of assets of online service providers
that enhance our current services. As part of this strategy, we recently ac-
quired both dice.com and MicroHouse, as well as the businesses of GoCertify
and The Perl Journal. Our continued growth will depend in part on our ability
to continue to identify suitable acquisition candidates and to acquire them on
appropriate terms. In addition, the anticipated results of any acquisitions
may not be realized. Some of the risks that we may encounter in acquiring
other companies include the following:
. expenses, delays and difficulties of integrating the acquired company into
EarthWeb's existing organization;
. potential disruption of our ongoing business;
. diversion of management's attention;
. the amortization of the acquired company's intangible assets;
. impact on our financial condition due to the timing of the acquisition;
. failure to retain key personnel;
. difficulties of integrating the personnel and cultures of the acquired com-
pany into our organization; and
. potential legal liabilities.
If any of these risks materialize, they could have a material adverse effect
on our business, results of operations and financial condition.
We rely on a number of content providers
Our success depends upon our ability to provide a wide range of in-depth con-
tent. The markets for our online services are characterized by rapidly chang-
ing technology, emerging industry standards and the rapidly changing needs of
our audience. We rely on a number of publishers of technical materials, our
vendors and the users of our online services for the continuing provision of
up-to-date content. No single content provider is material to EarthWeb's oper-
ations. However, publishers of technical materials with which we currently
have a relationship, our current vendors or the current users of our online
services, may not continue to provide us with a similar flow of content or may
not continue to do so on the same terms and conditions. If the flow of content
for our online services decreases either in terms of quality or quantity, or
ceases completely, our business, results of operations and financial condition
could be materially adversely affected.
We rely on a number of strategic alliances
We rely on strategic alliances with Sun Microsystems, CMP Media, Ziff-Davis,
Macmillan and beyond.com, among others, to attract users and paid advertising
to our online services. These relationships may not continue or we may not be
able to develop any additional third party alliances on acceptable commercial
terms. No one of these strategic alliances is individually material to our op-
erations. However, our inability to maintain current strategic relationships
generally or develop new strategic relationships could have a material adverse
effect on our business, results of operation and financial condition.
Our quarterly results may fluctuate significantly
Because of our limited operating history, we plan our expenses based in part
upon our expectations concerning future revenue. Our expenses, to a large ex-
tent, are fixed. Our quarterly revenues and operating results depend substan-
tially upon the advertising revenues we receive within that quarter, which are
difficult to forecast accurately. The cancellation or deferral of a small num-
ber of advertising contracts could have a material adverse effect on our busi-
ness, results of operations and financial condition. We may be unable to ad-
just spending in a timely manner to compensate for any unexpected revenue
shortfall, and any significant shortfall could have a material adverse effect
on our business, results of operation and financial condition.
Our quarterly results have historically been affected by variations in the
following:
. 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.
8
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We also believe that our revenues are subject to seasonal fluctuations because
advertisers generally place fewer advertisements during the first and third
calendar quarters of each year. As a strategic response to this, we have and
may continue to make pricing, service or marketing decisions. We also may con-
summate business combinations to reduce our exposure to seasonality. Any fail-
ure of one or more of these strategies could have a material adverse effect on
our business, results of operations and financial condition. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations" for
additional information or factors that may cause variations in our quarterly
results.
We may have difficulty in expanding and managing our international operations
A key part of our strategy is to develop our online services in international
markets. To date, we have had limited experience in developing localized ver-
sions of our online services and in marketing and operating our online services
internationally. We intend to enter into relationships with foreign business
partners. If the international revenues are not adequate to offset our invest-
ments in international activities, our business, results of operations and fi-
nancial condition could be materially and adversely affected.
We may experience difficulty in managing international operations because of
distance, as well as language and cultural differences. We and any of our fu-
ture foreign business associates may not be able to successfully market and op-
erate our online services in foreign markets. Furthermore, in light of substan-
tial anticipated competition, we believe that it will be necessary to implement
our business strategy quickly in international markets to obtain a significant
share of the market. We cannot give you any assurance that we will be able to
do so. Other risks that could affect EarthWeb's potential international opera-
tions include:
. fluctuations in currency exchange rates;
. difficulties arising from staffing and managing foreign operations;
. unexpected changes in the legal and regulatory requirements of different
countries;
. potential political and economic instability; and
. overlapping or differing tax laws.
If any of these risks materialize, EarthWeb's domestic and international busi-
nesses, results of operations and financial condition could be materially ad-
versely affected.
Risks Typical of the Internet Industry
Our success is tied to the continued growth in the use of the Internet and the
adequacy of the Internet infrastructure
Our future success is substantially dependent upon continued growth in the use
of the Internet. The number of users and advertisers on the Internet may not
increase and commerce over the Internet may not become more accepted and wide-
spread for a number of reasons, including:
. actual or perceived lack of security of information, including credit card
numbers;
. lack of access and ease of use;
. congestion of traffic on the Internet;
. inconsistent quality of service and lack of availability of cost-effective,
high speed service;
. possible disruptions due to Year 2000 difficulties, computer viruses or
other damage to the Internet servers or to users' computers;
. excessive governmental regulation;
. uncertainty regarding intellectual property ownership; and
. lack of high-speed modems and other communications equipment.
Published reports have also indicated that growth in the use of the Internet
has resulted in users experiencing delays, transmission errors and other diffi-
culties. As currently configured, the Internet may not support an increase in
the number or requirements of our users. In addition, there have been outages
and delays on the Internet as a result of damage to the current infrastructure.
The amount of traffic on EarthWeb's online services could be materially af-
fected if there are outages or delays in the future. The use of the Internet
may also decline if there are delays in the development or adoption of modifi-
cations by third parties that are required to support increased levels of ac-
tivity on the Internet. If none of the foregoing changes occur, or if the
Internet does not become a viable commercial medium, our business, results of
operations and financial condition could be materially adversely affected. In
addition, even if those changes occur, we may be required to spend significant
amounts to adapt our online services to any new or emerging technologies relat-
ing to the Internet.
9
<PAGE>
Capacity constraints or systems failures could materially and adversely affect
our business
The performance of our online services is critical to:
. our reputation;
. our ability to attract advertisers to our services; and
. achieving market acceptance of our online services.
Any system failure, including network, software or hardware failure, that
causes interruption or an increase in response time of our online services
could result in decreased usage of our services. If these failures are sus-
tained or repeated, they could reduce the attractiveness of our online services
to our users, vendors and advertisers. An increase in the volume of queries
conducted through our online services could strain the capacity of the software
or hardware we employ, which could lead to slower response time or system fail-
ures, that could adversely affect our advertising revenues. We also face tech-
nical challenges associated with higher levels of personalization and localiza-
tion of content delivered to users of our online services. The process of man-
aging advertising within our large, high traffic Internet online service is an
increasingly important and complex task. EarthWeb relies on both internal and
licensed third party advertising, inventory management and analysis systems. We
could incur so-called "make good" obligations to our advertising customers if
an extended failure of our advertising system results in incorrect advertising
insertions. By displacing advertising inventory, these obligations could defer
advertising revenues and thereby have a material adverse effect on our busi-
ness, results of operations and financial condition.
Our operations are dependent in part upon our ability to protect our operating
systems against:
. physical damage from acts of God;
. power loss;
. telecommunications failures;
. physical and electronic break-ins;
. computer viruses; and
. similar events.
The occurrence of any of these events could result in interruptions, delays or
cessations in service to users of our online services, which could have a mate-
rial adverse effect on our business, results of operations and financial condi-
tion.
We may face liability for the services that we provide
Because content made available by third parties may be downloaded by the online
services operated or facilitated by us and may be subsequently distributed to
others, there is a potential that claims will be asserted against EarthWeb for
defamation, negligence or personal injury, or based on other theories due to
the nature of the content. These claims have been brought, and sometimes suc-
cessfully asserted, against other online service providers. In addition, we
could be exposed to liability with respect to the selection of listings that
may be accessible through our online services or through content and materials
that may be posted by users in our classifieds, bulletin board or chat room
services. By providing hypertext links to Internet sites operated by other
providers, third parties may attempt to assert claims or liability for wrongful
actions by these other providers through these Internet sites. It is also pos-
sible that users could claim that we were responsible for losses incurred in
reliance on information provided on EarthWeb's online services. Although we
carry general liability insurance, our insurance may not cover potential claims
of this type or may not be adequate to provide full indemnification. Any impo-
sition 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
our business, results of operations and financial condition. Consumers may sue
us if any of the products that we sell online are defective, fail to perform
properly or injure the user. To date, we have had very limited experience in
the sale of products online and the development of relationships with manufac-
turers or suppliers of such products. Liability claims could require us to
spend significant time and money in litigation or to pay significant damages.
As a result, any such claims, whether or not successful, could seriously damage
our reputation and our business.
Misappropriation of our intellectual property could harm our reputation, affect
our competitive position and cost us money
We believe that our service marks and other proprietary rights are important to
our success and competitive position. We have registered some of our service
marks in the United States and abroad. We also limit access to and distribution
of our proprietary information, as well as proprietary information licensed
from third parties. Our management cannot ensure that these strategies will be
adequate to deter misappropriation of our proprietary information and material.
10
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Despite our efforts to protect our intellectual property, we face the follow-
ing risks:
. non-recognition or inadequate protection of our proprietary rights in vari-
ous foreign countries;
. undetected misappropriation of our proprietary information or materials;
. development of similar technologies by competitors;
. unenforceablity of the non-competition agreements entered into by our em-
ployees; and
. infringement claims, even if not meritorious.
If any of these risks materialize, we could be required to pay significant
amounts to defend our rights and our managerial resources could be diverted.
Legal standards relating to the validity, enforceability and scope of protec-
tion of various intellectual property rights in Internet-related industries
are uncertain and still evolving, and no assurance can be given as to the fu-
ture viability or value of any intellectual property rights of EarthWeb or
other companies within the IT industry. We generally enter into confidential-
ity agreements with our employees, consultants, vendors and customers, license
agreements with third parties and generally seek to control access to and dis-
tribution of our technology, documentation and other proprietary information.
EarthWeb pursues the registration of its service marks in the United States
and internationally. We have obtained United States service mark registrations
for EarthWeb and its related logo (the "Fang Logo Design"), have been assigned
Plugin Datamation and Datamation and have applied for the registration of ad-
ditional service marks, including developer.com. Effective trademark, copy-
right and trade secret protection may not be available in every country in
which EarthWeb's online services are distributed or made available through the
Internet. The steps we have taken to protect our proprietary rights may not be
adequate, and third parties could infringe or misappropriate our copyrights,
service marks, trade dress and similar proprietary rights.
We have licensed in the past, and expect to license in the future, various el-
ements of our distinctive trademarks, service marks, trade dress, trade se-
crets and similar proprietary rights to third parties. While we attempt to en-
sure that the quality of our several brands is maintained by these licensees,
no assurance can be given that these licensees will not take actions that
could materially and adversely affect the value of proprietary rights or the
reputation of our online services, either of which could have a material ad-
verse effect on business, results of operation and financial condition. Also,
we are aware that third parties have from time to time copied significant por-
tions of developer.com directory listings for use in competitive Internet
navigational tools and services, and we cannot guaranty that the distinctive
elements of developer.com can be protected under copyright law. See "Busi-
ness--Intellectual Property" for more information concerning our intellectual
property.
We may be liable if third parties misappropriate our users' personal
information
If third parties were able to penetrate our network security or otherwise mis-
appropriate our users' personal information or credit card information, we
could be subject to liability. This liability could include claims for unau-
thorized purchases with credit card information, impersonation or other simi-
lar fraud claims. They could also include claims for other misuses of personal
information, including unauthorized marketing purposes. These claims could re-
sult in litigation. In addition, the Federal Trade Commission and state agen-
cies have been investigating various Internet companies regarding their use of
personal information. We could incur additional expenses if new regulations
regarding the use of personal information are introduced or if our privacy
practices are investigated.
Our business is subject to U.S. and foreign government regulation of the
Internet and taxation
Congress and various state and local governments, as well as the European
Union, have recently passed legislation that regulates various aspects of the
Internet, including online content, copyright infringement, user privacy, tax-
ation, access charges, liability for third-party activities and jurisdiction.
In addition, federal, state, local and foreign governmental organizations are
also considering legislative and regulatory proposals that would regulate the
Internet. Areas of potential regulation include libel, pricing, quality of
products and services and intellectual property ownership. A number of propos-
als have been made at the state and local level that would impose taxes on the
sale of goods and services through the Internet. Such proposals, if adopted,
could substantially impair the growth of e-commerce and could adversely affect
our future results of operation and financial condition.
A law imposing a three-year moratorium on new taxes on Internet-based transac-
tions has recently been enacted in the US. This moratorium relates to new
taxes on Internet access fees and state taxes on e-commerce that discriminate
against out-of-state Web sites. Sales or use taxes imposed by those buying or
selling products or services over the Internet will not be
11
<PAGE>
affected by this moratorium. We have not yet been able to determine how we will
be affected by this moratorium. To the extent that the moratorium provides a
material benefit, its expiration after three years could have a material ad-
verse effect on our financial condition and results of operations.
Because these laws are relatively new and still in the process of being imple-
mented, it is not known how courts will interpret both existing and new laws.
Therefore, EarthWeb's management is uncertain as to how new laws or the appli-
cation of existing laws will affect our business. Increased regulation of the
Internet may reduce the use of the Internet, which could decrease the demand
for our services, increase our cost of doing business or otherwise have a mate-
rial adverse effect on our business, results of operations and financial condi-
tion. See "Business--Regulation" for a more complete description of the regula-
tions that govern our industry.
Risks Relating to the Offering
Our stock price, like that of other Internet companies, is volatile
EarthWeb's common stock began trading on the Nasdaq National Market on November
11, 1998 and its market price has been highly volatile. The price range for our
common stock has ranged from a low of $31 to a high of $85 since it began trad-
ing on the Nasdaq National Market. In addition, the overall market for the eq-
uity securities issued by Internet-related companies has been volatile. This
volatility may continue. Factors that may materially adversely affect the mar-
ket price of our common stock include:
. variations in our financial results and earnings;
. failure to meet or exceed estimates by securities analysts;
. fluctuations in the stock prices of our competitors;
. any loss of key management;
. adverse regulatory actions or decisions;
. announcements of extraordinary events, including material litigation or ac-
quisitions or changes in pricing policies by us or our competitors;
. changes in the market for our online services; and
. general economic, political and market conditions.
Our business could be hurt if management uses our proceeds from this offering
ineffectively
Our management will have significant flexibility in applying the net proceeds
of this offering that we receive. We intend to use the proceeds of this offer-
ing that we receive for general corporate purposes. These purposes could in-
clude strategic acquisitions or investments, international expansion, technical
upgrades of internal systems and working capital requirements. The failure of
our management to apply these proceeds effectively could have a material ad-
verse effect on our business, results of operations and financial condition.
See "Use of Proceeds" for a more detailed description of how management intends
to apply the proceeds of this offering that we receive. We will not receive any
of the proceeds from the sale of shares by the selling stockholders.
We are controlled by a small number of investors
Immediately following this offering, the stockholders set forth below (and
their affiliates) collectively will beneficially own approximately 48.16% of
the outstanding shares of common stock and will individually own the percentage
set forth opposite their respective names:
<TABLE>
<S> <C>
Directors 44.88%
Executive officers 20.65%
Warburg, Pincus Ventures, L.P. 22.20%
</TABLE>
If the stockholders listed above choose to act or vote in concert, they will
have the power to influence the election of EarthWeb's directors, the appoint-
ment of new management and the approval of any other action requiring the ap-
proval of EarthWeb's stockholders, including any amendments to our certificate
of incorporation and mergers or sales of all of its assets. In addition, with-
out the consent of these stockholders, EarthWeb could be prevented from enter-
ing into potentially beneficial transactions. Conversely, third parties could
be discouraged from making a tender offer or bid to acquire EarthWeb at a price
per share that is above the price at which the common stock trades on the
Nasdaq National Market.
12
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Substantial sales of our common stock could adversely affect our stock price
In connection with our acquisition of dice.com and MicroHouse, we issued
577,778 shares of common stock to the former owners of dice.com and issued
50,856 shares of common stock and a note convertible into 126,475 shares of
common stock to the former shareholders of MicroHouse. These shareholders have
agreed to restrict their sales of these shares of common stock to a limited
number of shares per quarter. However, in the event that all of these shares
available for sale in any quarter are all sold on one day, such sales may have
an adverse effect in the market price of our common stock. See "Description of
Capital Stock--Registration Rights" for a description of the registration
rights granted to holders of such shares.
Our charter documents could make it more difficult for a third party to acquire
us
Various provisions of our certificate of incorporation and by-laws are designed
to discourage or prevent a third party from acquiring control of EarthWeb. Our
by-laws include restrictions on who may call a special meeting of stockholders,
and either a majority of the board of directors or the holders of 66.66% of the
outstanding capital stock of EarthWeb, which are entitled to vote in the elec-
tions of the board of directors, must approve all amendments to EarthWeb's by-
laws.
EarthWeb's certificate of incorporation authorizes the board of directors to
issue up to 2,000,000 shares of "blank check" preferred stock. The board of di-
rectors will have the authority without action by EarthWeb's stockholders to
fix the rights, privileges and preferences of, and to issue shares of this pre-
ferred stock. In addition, EarthWeb's certificate of incorporation provides
that the board of directors will be divided into three classes with the direc-
tors serving staggered three-year terms. Only the holders of 66.66% of the out-
standing capital stock of EarthWeb that are entitled to vote in the elections
of the board of directors can amend this provision. See "Description of Capital
Stock--Preferred Stock," and "Description of Capital Stock--Anti-Takeover Pro-
visions" for a more complete description of the capitalization of EarthWeb and
the relevant provisions of our certificate of incorporation and by-laws.
---------------
This prospectus also contains forward-looking statements that involve risks and
uncertainties. These statements relate to our future plans, objectives, expec-
tations and intentions. These statements may be identified by the use of words
like "believes," "expects," "may", "will," "should," "seeks," "pro forma," or
"anticipates," and similar expressions. Our actual results could differ materi-
ally from those discussed in these statements. Factors that could contribute to
these differences include those discussed above and elsewhere in this prospec-
tus.
13
<PAGE>
Use of Proceeds
The net proceeds to EarthWeb from the sale of the 750,000 shares of common
stock we are offering are estimated to be approximately $1,250,000 after de-
ducting underwriting discounts and estimated offering expenses payable by
EarthWeb. This amount includes $ of underwriting discounts in connection
with the sale of shares by certain employee selling stockholders, which are be-
ing paid by EarthWeb.
We expect to use the net proceeds for general corporate purposes, including ex-
pansion of sales and marketing capabilities, possible strategic acquisitions or
investments, international expansion, technical upgrade of internal systems and
working capital requirements. We are constantly evaluating potential strategic
acquisitions or investments, but at the present time we have no understandings,
commitments or agreements with respect to any such acquisition or investment.
Pending such uses, we intend to invest the net proceeds in U.S. government se-
curities and investment-grade, interest-bearing instruments. The allocation of
the net proceeds, will depend upon developments and opportunities in EarthWeb's
business and the Internet industry in general.
The foregoing represents our intentions based upon our present plans and busi-
ness conditions. The occurrence of unforeseen events or changed business condi-
tions, 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--Our
business could be hurt if management uses our proceeds from this offering inef-
fectively." EarthWeb will not receive any proceeds from the sale of common
stock by the selling stockholders.
Price Range of Common Stock
Earthweb's common stock has been quoted on the Nasdaq National Market under the
symbol "EWBX" since November 11, 1998. The following table sets forth, for the
periods indicated, the high and low closing sales prices per share of the com-
mon stock as reported on the Nasdaq National Market:
<TABLE>
<CAPTION>
-------------
High Low
------ ------
Year Ended December 31, 1998:
<S> <C> <C>
Fourth Quarter from November 11, 1998............................ $69.25 $33.00
Year Ending December 31, 1999:
First Quarter.................................................... $54.81 $35.50
Second Quarter through May 3, 1999............................... $77.63 $44.50
</TABLE>
As of April 30, 1999, there were 108 holders of record of our common stock.
Dividend Policy
We have never declared or paid any cash dividends on our common stock and do
not expect to do so in the foreseeable future. We currently intend to retain
any earnings to finance the expansion and development of our business. Any fu-
ture determination of the payment of dividends will be made at the discretion
of the board of directors based upon various conditions, including EarthWeb's
earnings, financial condition and capital requirements as well as the economic
and other conditions that the board of directors may deem relevant.
14
<PAGE>
Capitalization
The following table sets forth the capitalization of EarthWeb as of March 31,
1999 (1) on an actual basis, and (2) as adjusted to give effect to the sale of
750,000 shares of common stock by EarthWeb. This table should be read in con-
junction with "Selected Financial Data," "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and the financial statements
of EarthWeb and notes thereto included elsewhere in this prospectus.
<TABLE>
<CAPTION>
------------------------
As of March 31, 1999
------------------------
As
Actual Adjusted
----------- -----------
<S> <C> <C>
Dollars in thousands
Total long-term obligations........................... $ 1,822 $
----------- -----------
Stockholders' equity:
Common stock, $.01 par value; 21,750,000 shares
authorized; 8,585,120 shares issued and
outstanding, actual, and shares issued and
outstanding, as adjusted (1)....................... 86
Additional paid-in capital.......................... 74,068
Unearned compensation............................... (306)
Treasury stock at cost (4,713 shares)............... (200)
Accumulated deficit................................. (24,095)
----------- -----------
Total stockholders' equity........................ 26,852
----------- -----------
Total capitalization.............................. $ 26,918 $
=========== ===========
</TABLE>
(1) Excludes: (a) 140,622 shares of common stock issuable upon exercise of op-
tions outstanding on March 1, 1999 and exercisable within 60 days at a weighted
average exercise price of $5.60 per share; and (b) 666,488 additional shares of
common stock reserved for future issuance upon exercise of other options out-
standing under the 1998 and 1996 stock incentive plans or for future grant un-
der such plans and 159,000 shares of common stock reserved as of March 1, 1999
for issuance under the 1998 employee stock purchase plan and other
unexercisable options granted outside of these plans. See "Management--Benefit
Plans" and "Description of Capital Stock."
15
<PAGE>
Dilution
The net tangible book value of EarthWeb as of March 31, 1999 was $1.5 mil-
lion, or $0.18 per share of common stock. Net tangible book value per share
represents the amount of EarthWeb's total tangible assets less total liabili-
ties, divided by the number of shares of common stock outstanding. After giving
effect to the sale of the 750,000 shares of common stock offered by EarthWeb
hereby at an assumed public offering price of $ per share and the application
of the estimated net proceeds, the net tangible book value of EarthWeb as of
March 31, 1999 would have been $ million, or $ per share of common stock.
This represents an immediate increase in the net tangible book value of $ per
share to existing stockholders and an immediate dilution in the net tangible
book value of $ per share to new investors of common stock in the this offer-
ing. The following table illustrates this per share dilution:
<TABLE>
<CAPTION>
--------------
<S> <C> <C> <C>
Assumed public offering price per share.................... $
<CAPTION>
-----
<S> <C> <C> <C>
Net tangible book value per share as of March 31, 1999..... $ 0.18
Increase in net tangible book value per share attributable
to new investors..........................................
<CAPTION>
--------
<S> <C> <C> <C>
Net tangible book value per share after the offering.......
<CAPTION>
-----
<S> <C> <C> <C>
Dilution per share to new investors........................ $
<CAPTION>
=====
</TABLE>
16
<PAGE>
Selected Financial Data
The selected financial data should be read in conjunction with EarthWeb's fi-
nancial 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,
1996, 1997 and 1998 and the balance sheet data as of December 31, 1997 and 1998
are derived from the audited financial statements of EarthWeb and are included
elsewhere in this prospectus. The balance sheet data as of December 31, 1995
and 1996 and the statement of operations data for the year ended December 31,
1995 are derived from the audited financial statements of EarthWeb not included
herein. The historical results presented here are not necessarily indicative of
future results.
<TABLE>
<CAPTION>
------------------------------------------
Year ended December 31,
------------------------------------------
1995 1996 1997 1998
Dollars in thousands, except per share data --------- --------- --------- ---------
<S> <C> <C> <C> <C>
Statement of Operations Data:
Revenues........................................... $ -- $ 472 $1,135 $ 3,349
Cost of revenues................................... -- 314 1,358 2,131
<CAPTION>
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Gross profit (deficit)............................. -- 158 (223) 1,218
<CAPTION>
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Operating expenses
Product development.............................. 36 68 1,003 1,476
Sales and marketing.............................. -- 252 1,018 4,546
General and administrative....................... 626 1,802 2,567 3,357
Depreciation and amortization.................... 42 101 893 1,116
<CAPTION>
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Total operating expenses....................... 704 2,223 5,481 10,495
<CAPTION>
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Loss from operations............................... (704) (2,065) (5,704) (9,277)
Interest and other income, net..................... (1) 61 267 307
<CAPTION>
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Loss from continuing operations.................... (705) (2,004) (5,437) (8,970)
Loss from discontinued operations.................. 65 (42) (2,384) --
<CAPTION>
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net loss........................................... $ (640) $(2,046) $(7,821) $(8,970)
<CAPTION>
========= ========= ========= =========
<S> <C> <C> <C> <C>
Basic and diluted net loss per share from
continuing operations............................. $(0.24) $ (0.69) $ (1.86) $ (2.37)
Basic and diluted net loss per share from
discontinued operations........................... 0.02 (0.01) (0.81) --
<CAPTION>
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Basic and diluted net loss per share(1)............ $(0.22) $ (0.70) $ (2.67) $ (2.37)
<CAPTION>
========= ========= ========= =========
<S> <C> <C> <C> <C>
Weighted average shares outstanding used in
computing basic and diluted net loss per share.... 2,925,000 2,925,000 2,925,000 3,782,575
<CAPTION>
========= ========= ========= =========
------------------------------------------
As of December 31,
------------------------------------------
1995 1996 1997 1998
Dollars in thousands --------- --------- --------- ---------
<S> <C> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents.......................... $ 886 $3,779 $4,775 $25,292
Working capital.................................... 865 3,315 4,317 23,705
Total assets....................................... 1,393 5,652 8,514 30,477
Long-term obligations.............................. 25 94 85 66
Stockholders' equity............................... 1,251 4,259 6,445 26,852
</TABLE>
(1) On a pro forma basis the net loss per share for 1998 was $1.53. The pro
forma per share amount is computed by using the sum of the weighted average
number of shares of common stock and the 2,439,833 shares of common stock is-
sued in November 1998 upon conversion of preferred stock as if it had been con-
verted on January 1, 1998.
17
<PAGE>
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Overview
EarthWeb is the leading provider of business-to-business online services for
the global IT industry. EarthWeb's network of sites is a central hub for vari-
ous constituents of the IT industry. EarthWeb's integrated online services ad-
dress the needs of these constituents for content, career management and re-
cruiting, commerce and community.
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 EarthWeb's revenues were derived from
development contracts, maintenance fees and software license fees. During 1996,
EarthWeb began developing online services for IT professionals. EarthWeb's op-
erations not related to providing online services to IT professionals were dis-
continued in 1997 and have been recorded as discontinued operations for all pe-
riods. In early 1999, EarthWeb continued to broaden its online services to ad-
dress the needs of other constituents of the IT industry.
Through December 31, 1998, EarthWeb purchased five Web sites to expand and ex-
tend its online service offerings. In August 1997, EarthWeb acquired jars.com,
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.com is a premier online service providing ratings and reviews of Java and
other source code. In February 1998, EarthWeb acquired the companion Web sites
htmlgoodies.com and javagoodies.com, which provide tutorials and other techni-
cal resources for Web developers. In April 1998, EarthWeb acquired
intranetjournal.com, a leading online service for Intranet managers. In May
1998, EarthWeb acquired javascripts.com, an online service that complements
EarthWeb's other offerings by providing a large repository of JavaScript source
code. In July 1998, EarthWeb acquired datamation.com, which provides online ar-
ticles, resources and product analysis for IT enterprise managers. The aggre-
gate cost of these Web site acquisitions totaled approximately $949,000. At De-
cember 31, 1998, EarthWeb had intangible assets of approximately $1.1 million,
primarily related to the acquisitions of jars.com and datamation.com. Intangi-
ble assets resulting from these acquisitions will be amortized on a straight-
line basis over a period of three years.
Subsequent to December 31, 1998, EarthWeb has completed four additional acqui-
sitions. In February 1999, EarthWeb completed the acquisition of D&L Online,
which owns dice.com, a leading online job posting service for IT professionals,
for approximately $35 million in shares of common stock and cash (of which ap-
proximately $3 million is payable through February 2000) with additional future
"earnout" payments of up to $12 million to be paid upon the achievement of
specified revenue targets. Gocertify.com, which provides users with information
on technical certification programs, was also acquired in February 1999. In
March 1999, EarthWeb acquired substantially all of the assets of The Perl Jour-
nal, a leading technical publication for developers using the Perl programming
language, and the related Web site TPJ.com. The aggregate purchase price for
gocertify.com and The Perl Journal was $980,000, of which $750,000 is payable
through March 2000 in the form of common stock or cash, with additional consid-
eration to be paid based upon future performance. In March 1999, EarthWeb ac-
quired all of the capital stock of MicroHouse International, Inc. for approxi-
mately $9 million in shares of common stock, convertible notes and cash, sub-
ject to adjustment. In addition, EarthWeb assumed $1.7 million of debt as part
of the acquisition. These acquisitions will be accounted for using the purchase
method of accounting, and accordingly, the purchase price of each will be allo-
cated to assets acquired and liabilities assumed based on their respective fair
values. Intangible assets resulting from these acquisitions will be amortized
on a straight-line basis over a period of three to five years. See Note 10 to
EarthWeb's financial statements.
EarthWeb currently derives substantially all of its revenue from advertisements
and sponsorships on its online services. EarthWeb first recognized revenues
from advertising in June 1996 and advertising revenues constituted 95%, 86% and
100% of EarthWeb's total revenues for the years ended December 31, 1998, 1997
and 1996, respectively. Prior to 1998, EarthWeb utilized third party firms to
sell and service advertisements on EarthWeb's sites. At the end of the third
quarter of 1997, EarthWeb hired its first sales employee and in the first quar-
ter of 1998, EarthWeb began relying predominantly on its in-house sales force.
EarthWeb's in-house sales force has increased the average cost per thousand
(CPM) to advertise by marketing the advantages of using EarthWeb's online serv-
ices to reach the IT industry. EarthWeb also derives revenues from online com-
merce, brand licensing and subscription fees.
Advertising revenue is recognized in the period in which the advertisement is
displayed, provided that no significant EarthWeb obligations remain and the
collection of the receivable is probable. EarthWeb obligations typically in-
clude guarantees of a minimum number of "impressions" (times that an advertise-
ment is viewed by users of EarthWeb's online services over a
18
<PAGE>
specified period of time). Typically, if the minimum number of impressions is
not achieved, EarthWeb will extend the advertising campaign until the related
guarantee is met, which would result in delayed revenue recognition. EarthWeb
records revenues and expenses for barter transactions (receipt of advertise-
ments 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, al-
though EarthWeb will continue to enter into barter advertising transactions as
appropriate.
In order to expand its online services, EarthWeb anticipates incurring addi-
tional expenses to increase its product development and sales and marketing ef-
forts, 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,
EarthWeb expects to continue to incur losses in the foreseeable future.
EarthWeb expects to experience significant fluctuations in its future quarterly
results due to a variety of factors, many of which are outside of EarthWeb'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. Manage-
ment believes that its revenues are also subject to seasonal fluctuations be-
cause advertisers generally place fewer advertisements during the first and
third calendar quarters of each year. EarthWeb believes that, as a percentage
of revenues, expenses (primarily sales commissions) may fluctuate between peri-
ods based on the growth of revenues; however, EarthWeb expects expenses to con-
tinue to grow in absolute dollars for the foreseeable future.
Recent Developments
Revenues for the first quarter ended March 31, 1999 were $3.7 million compared
to $308,000 for the first quarter ended March 31, 1998, a 1,112% increase. Ad-
vertising revenues including paid listings, banners and sponsorships represent
92% of revenues for the quarter ended March 31, 1999. Barter transactions ac-
counted for approximately 13% and 23% of revenues in the quarters ended March
31, 1999 and March 31, 1998 respectively. For both periods barter advertising
revenues were related to the exchange of advertisements, trade show booths, and
other promotional activities with other companies.
Net Loss for the first quarter ended March 31, 1999 was $6.8 million, or basic
and diluted net loss of $0.82 per share, as compared to $1.5 million for the
first quarter ended March 31, 1998, or a basic and diluted net loss of $0.50
per share. Earnings before interest, taxes and amortization of goodwill and in-
tangible assets related to acquisitions (EBITA) for the first quarter ended
March 31, 1999 were a negative $5.5 million, or $0.67 per share, compared to a
negative $1.4 million, or $0.27 per share on a pro forma basis, for the first
quarter ended March 31, 1998. Although EarthWeb believes that EBITA is a stan-
dard measure commonly reported and widely used by analysts, investors and other
interested parties in the internet industry, the EBITA presented for EarthWeb
may not be comparable to similarly titled measures reported by other companies.
The EBITA pro forma net loss per share assumes the conversion of all shares of
convertible preferred stock as of January 1, 1998.
Results for the quarter include the operating results of dice.com, from
February 2, 1999, and the operating results of MicroHouse, from March 19, 1999,
which are the respective dates each company was acquired by EarthWeb. All
transactions were accounted for as purchases.
EarthWeb's customer base increased to over 2,700 advertisers in the first
quarter ended March 31, 1999. This includes classified advertisers on dice.com
which increased to more than 2,500 in the first quarter ended March 31, 1999 up
140% from the end of March 31, 1998. EarthWeb's sales force increased to 29 in
the first quarter ended March 31, 1999. With the Microhouse acquisition
EarthWeb now also has a separate tele-salesforce of 20 individuals dedicated to
selling corporate licenses to EarthWeb's subscription products.
Aggregate page views of EarthWeb's online services increased to 73.3 million in
the first quarter ended March 31, 1999 from 50.4 million in the fourth quarter
ended December 31, 1998, an increase of 45%. With the addition of dice.com,
aggregate page views totaled approximately 92.0 million during the first
quarter of 1999. The number of unique visits recorded on EarthWeb's sites
increased to 13.3 million in the first quarter ended March 31, 1999 from 8.4
million in the fourth quarter ended December 31, 1998, a 58% increase. The
first quarter 1999 figure excludes visits to the dice.com site.
Paying subscribers to the EarthWeb subscription services increased to over
12,000 in the first quarter ended March 31, 1999. In the first quarter of 1998,
EarthWeb did not receive revenues from subscription services. This increase was
attributable to the 8,500 paying subscribers EarthWeb acquired as part of the
MicroHouse acquisition as well as over 3,800 paying subscribers to ITKnowledge,
a premium service launched by EarthWeb late in the fourth quarter of 1998.
Subscribers to EarthWeb's e-mail journal exceeded 450,000 at the end of the
first quarter ended March 31, 1999 compared to approximately 375,000 in the
fourth quarter ended December 31, 1998.
19
<PAGE>
Results of Operations
Year ended December 31, 1998 compared to year ended December 31, 1997
Revenues. Revenues for the year ended December 31, 1998 increased 195% to $3.3
million from $1.1 million for the year ended December 31, 1997. The increase in
revenues was due to an increase in advertising revenues of $2.2 million. Ap-
proximately 62% 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 EarthWeb's in-house sales force to
sell advertising at a higher price. Management does not expect significant
price increases in the future and expects to derive growth in revenues primar-
ily through increased volume of advertising sold.
Barter transactions accounted for approximately 25% and 16% of revenues for the
years ended December 31, 1998 and 1997, respectively. For both periods barter
advertising revenues primarily related to the exchange of advertisements with
other companies.
Cost of Revenues. EarthWeb's cost of revenues consists primarily of employee
salaries and related expenses (including payroll taxes and benefits), consult-
ing fees, freelance writing costs, Internet access and hosting fees, computer
related expenses and content licensing fees required to support and deliver
EarthWeb's online services. Cost of revenues for the year ended December 31,
1998 increased 57% to $2.1 million or 63.6% of net revenues from $1.4 million
or 120% of net revenues for the year ended December 31, 1997. The increase in
cost of revenues was primarily attributable to increased employee salaries and
related expenses, consulting fees, and freelance writing costs due to the ex-
pansion of EarthWeb's online service offerings.
Product Development Expenses. EarthWeb'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
year ended December 31, 1998 increased 47% to $1.5 million from $1.0 million
for the year ended December 31, 1997. The increase in product development ex-
penses was primarily attributable to the expansion of EarthWeb's online service
offerings, which included the production of the ITKnowledge.com subscription
service, which was launched in October 1998.
Sales and Marketing Expenses. Sales and marketing expenses consist primarily of
advertising (including expenses recorded for barter transactions), employee
salaries, commissions and related expenses (including payroll taxes and bene-
fits) of EarthWeb's sales force and marketing personnel, promotional materials
and trade show exhibition expenses. Sales and marketing expenses for the year
ended December 31, 1998 increased 347% to $4.5 million from $1.0 million for
the year ended December 31, 1997. The increase was primarily attributable to an
increase in advertising expenses of $2.0 million and salaries, commissions and
related costs of $1.6 million for the in-house advertising sales force, which
did not exist during 1997. Barter transactions accounted for approximately 19%
and 18% of sales and marketing expenses for 1998 and 1997, respectively. Man-
agement expects sales and marketing expenses to increase due to the growth of
its sales force and its planned increase in advertising and promotional activi-
ties.
General and Administrative Expenses. General and administrative expenses con-
sist 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 year ended December 31, 1998 increased 31%
to $3.4 million from $2.6 million for the year ended December 31, 1997. The in-
crease in general and administrative expenses was primarily attributable to in-
creased consulting fees, 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.
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 year ended De-
cember 31, 1998 increased 25% to $1.1 million from $893,000 for the year ended
December 31, 1997. The increase was primarily a result of additional deprecia-
tion on property and equipment and amortization of intangible assets from ac-
quisitions. Management expects depreciation and amortization to increase due to
the amortization of goodwill from several acquisitions in 1999.
Interest and Other Income, Net. Interest and other income, net consists primar-
ily of interest earned on cash and cash equivalents. Interest and other income,
net for the year ended December 31, 1998 increased 15% to $307,000 from
$267,000 for the year ended December 31, 1997. The increase was primarily the
result of higher average cash balances during 1998, primarily from the proceeds
of EarthWeb's initial public offering.
20
<PAGE>
Income Taxes. No provision for federal and state income taxes has been re-
corded as EarthWeb has incurred net operating losses through December 31,
1998. As of December 31, 1998, EarthWeb had approximately $16.3 million of net
operating loss carryforwards for federal income tax purposes, that begin to
expire in 2011, available to offset future taxable income. Given EarthWeb's
limited operating history, losses incurred to date and the difficulty in accu-
rately forecasting EarthWeb'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
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 impres-
sions 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 av-
erage selling price for advertising did not change substantially compared to
1996 levels. Barter transactions accounted for approximately 16% and 55% of
revenues for the years ended 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,
EarthWeb 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 re-
lated to the growth of EarthWeb's online business, which included hiring addi-
tional content and productions personnel resulting in increased employee sala-
ries 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 develop-
ment expenses was primarily the result of increased salaries and related ex-
penses (including payroll taxes and benefits) of $580,000, and consultant fees
of $252,000 to support the development of EarthWeb'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 market-
ing expenses was 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 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 EarthWeb's additional office space and recruiting costs.
Depreciation and Amortization. Depreciation and amortization for 1997 in-
creased 785% to $893,000 from $101,000 for 1996. This increase was primarily
the result of additional depreciation on property and equipment and amortiza-
tion of intangible assets from the jars.com acquisition. In addition, depreci-
ation and amortization expense for 1997 included a write-off of intangible as-
sets of $337,000 related to the jars.com acquisition.
Interest and Other Income, Net. Interest and other income, net for 1997 in-
creased 334% to $267,000 from $61,000 for 1996. The increase was the result of
higher average cash balances during 1997.
21
<PAGE>
Quarterly Results of Operations
The following table sets forth unaudited quarterly statement of operations data
for each of the four quarters during the years ended December 31, 1997 and
1998. In the opinion of management, this information has been prepared substan-
tially on the same basis as the audited financial statements appearing else-
where 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 EarthWeb 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 fu-
ture period.
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------
Quarter ended
----------------------------------------------------------------------------------
March 31, June 30, Sept. 30, Dec. 31, March 31, June 30, Sept. 30, Dec. 31,
1997 1997 1997 1997 1998 1998 1998 1998
Dollars in thousands --------- -------- --------- -------- --------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Advertising............ $ 261 $ 239 $ 177 $ 294 $ 284 $ 640 $ 885 $ 1,357
Other.................. 69 23 17 55 24 26 59 74
<CAPTION>
--------- -------- --------- -------- --------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total revenues......... 330 262 194 349 308 666 944 1,431
Cost of revenues........ 258 343 346 411 395 398 601 737
<CAPTION>
--------- -------- --------- -------- --------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Gross Profit (deficit).. 72 (81) (152) (62) (87) 268 343 694
<CAPTION>
--------- -------- --------- -------- --------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Operating expenses:
Product development.... 237 239 291 236 246 310 434 485
Sales and marketing.... 159 265 328 266 333 477 1,082 2,655
General and
administrative........ 610 686 706 565 605 727 914 1,111
Depreciation and
amortization.......... 63 77 199 554 233 244 311 328
<CAPTION>
--------- -------- --------- -------- --------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total operating
expenses.............. 1,069 1,267 1,524 1,621 1,417 1,758 2,741 4,579
<CAPTION>
--------- -------- --------- -------- --------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Loss from operations.... (997) (1,348) (1,676) (1,683) (1,504) (1,489) (2,398) (3,885)
Interest and other
income, net............ 41 26 125 75 47 30 42 187
<CAPTION>
--------- -------- --------- -------- --------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Loss from continuing
operations............. (956) (1,322) (1,551) (1,608) (1,457) (1,459) (2,356) (3,698)
Loss from discontinued
operations............. (172) (377) (631) (1,204) -- -- -- --
<CAPTION>
--------- -------- --------- -------- --------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net loss................ $(1,128) $(1,699) $(2,182) $(2,812) $(1,457) $(1,459) $(2,356) $(3,698)
<CAPTION>
========= ======== ========= ======== ========= ======== ========= ========
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Basic and diluted net
loss per share from
continuing operations.. $ (0.33) $ (0.45) $ (0.53) $ (0.55) $ (0.50) $ (0.50) $ (0.70) $ (0.62)
Basic and diluted net
loss per share from
discontinued
operations............. (0.06) (0.13) (0.22) (0.41) -- -- -- --
<CAPTION>
--------- -------- --------- -------- --------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Basic and diluted net
loss per share......... $ (0.39) $ (0.58) $ (0.75) $ (0.96) $ (0.50) $ (0.50) $ (0.70) $ (0.62)
<CAPTION>
========= ======== ========= ======== ========= ======== ========= ========
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Pro forma basic and
diluted net loss per
share(1)............... $ (0.27) $ (0.27) $ (0.41) $ (0.53)
<CAPTION>
========= ======== ========= ========
</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 in No-
vember 1998 upon conversion of 2,439,833 shares of preferred stock as if it had
been converted on January 1, 1998.
As a result of EarthWeb's limited operating history, EarthWeb does not have
historical financial data for a significant number of periods on which to base
planned operating expenses. EarthWeb'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
EarthWeb's business, results of operations and financial condition. EarthWeb
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 EarthWeb's expectations would have an immediate adverse effect on
EarthWeb's business, results of operations and financial condition.
22
<PAGE>
Due to the foregoing factors, quarterly revenues and results of operations are
difficult to forecast, and EarthWeb 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 EarthWeb'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.
EarthWeb 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 EarthWeb's online service
brands, the rejection of EarthWeb's services by Internet consumers, vendors
and/or advertisers, the inability of EarthWeb to maintain and increase the
levels of traffic on its online services, as well as other risks and
uncertainties.
In connection with the April 1999 grant of stock options to MicroHouse employ-
ees and the May 1999 public offering, in which EarthWeb has agreed to pay cer-
tain underwriting discounts incurred in connection with the sale of shares by
certain employee selling stockholders, EarthWeb will record a one-time operat-
ing expense of approximately $ in the second quarter 1999.
Liquidity and Capital Resources
EarthWeb historically has satisfied its cash requirements primarily through of-
ferings of convertible preferred stock and common stock and lease financings.
Net cash used in operating activities was $6.5 million for the year ended De-
cember 31, 1998 and $6.7 million for the year ended December 31, 1997. Cash
used in operating activities for 1998 resulted primarily from a net loss of
$9.0 million offset by an increase in accounts payable and accrued expenses of
$2.3 million and depreciation and amortization of $1.1 million. 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.
Net cash used in investing activities for the year ended December 31, 1998 of
$2.2 million was primarily attributable to purchases of fixed assets of $1.1
million and acquisitions of $1.3 million. Net cash used in investing activities
of $2.3 million for 1997 was primarily attributable to cash used for the pur-
chase of fixed assets of $954,000, acquisitions of $812,000 and a restricted
cash deposit of $512,000 collateralizing letters of credit.
Net cash from financing activities was $29.3 million for the year ended
December 31, 1998 and $10 million for the year ended December 31, 1997. In
November 1998, EarthWeb completed its initial public offering of common stock
in which 2,100,000 shares were issued at a price of $14.00 per share. Proceeds
from the offering net of offering costs were approximately $25.8 million. In
June 1998, EarthWeb issued 436,446 shares of common stock to EarthWeb LLC
through a private placement, in consideration of net proceeds of $3.7 million.
In June 1997, EarthWeb issued shares of Series B Convertible Preferred Stock
through a private placement in consideration of net proceeds of $10 million.
In May 1999, EarthWeb completed an additional public offering of common stock
in which 750,000 shares were issued at a price of $ per share. Proceeds from
the offering net of offering costs and commissions of selling stockholders paid
by EarthWeb were approximately $ million.
EarthWeb will continue to evaluate possible acquisitions of, or investments in,
business products and technologies that are complementary to those of EarthWeb,
which may require the use of cash. Management believes that existing cash bal-
ances, together with anticipated proceeds from this offering, will be suffi-
cient to meet anticipated cash requirements for at least the next twelve
months; however, EarthWeb may sell additional equity or debt securities or ob-
tain credit facilities. The sale of additional securities could result in dilu-
tion to EarthWeb's stockholders.
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 di-
gits rather than four to define the applicable year. For example, computer pro-
grams that contain time-sensitive software may recognize a date using two di-
gits 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 in-
voices 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 com-
pleted its internal IT and non-IT assessment. Nonetheless, there can be no as-
surance in this regard until such systems are operational in the year 2000.
EarthWeb is currently creating contingency plans in the event of Year 2000
failures. EarthWeb has contacted all of its significant suppliers to determine
the extent to which EarthWeb's systems are vulnerable to those third parties'
failure to make their own systems Year 2000 compliant.
23
<PAGE>
EarthWeb was informed by such suppliers that their systems are Year 2000 com-
pliant. Additionally, any Year 2000 problems experienced by EarthWeb's adver-
tising customers could affect the placement of advertisements on EarthWeb's on-
line services. In the event any of EarthWeb's suppliers or vendors prove not to
be Year 2000 compliant, EarthWeb believes that it could find a replacement ven-
dor or supplier which is Year 2000 compliant without significant delay or ex-
pense. However, if substantially all of EarthWeb's suppliers and vendors prove
not to be Year 2000 compliant and if EarthWeb experiences difficulties in find-
ing replacement vendors, then, as a result, EarthWeb's business could be mate-
rially adversely affected. The failure to correct material Year 2000 problems
by EarthWeb's suppliers and vendors could result in an interruption in, or a
failure of, certain normal business activities or operations of EarthWeb. Such
failure could materially and adversely affect EarthWeb'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 readi-
ness of third-party suppliers and vendors, EarthWeb is unable to determine at
this time whether the consequences of Year 2000 failures will have a material
impact on EarthWeb's results of operations, liquidity or financial condition.
To date, EarthWeb has spent an immaterial amount on Year 2000 compliance issues
and expects to incur no significant costs in the future for Year 2000 problems.
Recent Accounting Pronouncements
In March 1998, the American Institute of Certified Public Accountants ("AICPA")
issued Statement of Position 98-1, "Accounting for the Cost of Computer Soft-
ware Developed or Obtained for Internal Use" ("SOP 98-1"). SOP 98-1 is effec-
tive for financial statements for years beginning after December 15, 1998. SOP
98-1 provides guidance on accounting for computer software developed or ob-
tained for internal use including the requirement to capitalize specified costs
and amortization of such costs. EarthWeb does not expect the adoption of this
standard to have a material effect on EarthWeb's capitalization policy.
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
financial statements for 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 EarthWeb has expensed these costs historically, the adoption of
this standard is not expected to have a significant impact on EarthWeb's re-
sults of operations, financial position or cash flows.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivatives and
Hedging Activities" ("SFAS No. 133"), which establishes accounting and report-
ing standards of derivative instruments, including certain derivative instru-
ments 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 EarthWeb does not currently en-
gage or plan to engage in derivative or hedging activities, there will be no
impact on EarthWeb's results of operations, financial position or cash flows
upon the adoption of this standard.
24
<PAGE>
Business
This section contains forward-looking statements which involve risks and uncer-
tainties. EarthWeb's actual results could differ materially from those antici-
pated in these forward-looking statements as a result of various factors, in-
cluding those set forth under "Risk Factors" and elsewhere in this prospectus.
We are the leading provider of business-to-business online services for the
global IT industry. International Data Corporation forecasts that the worldwide
market for products and services will grow from approximately $800 billion in
1998 to over $1.0 trillion in 2001. Our network of sites is a central hub for
various constituents of the IT industry, including:
<TABLE>
<S> <C> <C>
. Programmers and
engineers . Recruiters . Hardware manufacturers
. IT managers . Corporate IT purchasers . Value-added resellers
. Technical
consultants . Software publishers . IT services firms
</TABLE>
As a global intermediary for the IT industry, we are positioned as the trusted
third party that offers an integrated environment where various constituents
can share information, manage their careers, recruit personnel, transact busi-
ness and interact with one another. We believe that we offer the most in-depth
content and comprehensive range of business-to-business online services for the
IT industry.
We have broadened our online content and services since our initial public of-
fering in November 1998 to address the needs of the various constituents within
the IT industry. We have added content in such areas as security, networking,
hardware and Linux to address a wider range of IT industry segments. We have
also expanded our online business-to-business services, in part through the ac-
quisition of dice.com. In addition, our acquisition of MicroHouse added an im-
portant line of subscription-based products. We intend to continue expanding
the content we offer our users, the segments of the IT industry we address and
the business-to-business services we provide.
Our business has grown substantially as measured by revenues, advertising cus-
tomers and the size of our sales force. Our revenues increased from $1.1 mil-
lion in 1997 to $11.1 million in 1998 on a pro forma basis to include our ac-
quisition of dice.com. We have increased the number of our unique advertisers
on our content areas to 168 in 1998 from 23 in 1997, and have broadened this
advertiser base to include both technology and non-technology companies. Addi-
tionally, dice.com had over 2,000 advertisers on its job board, more than dou-
bling its advertising base since the beginning of 1998. Our subscription reve-
nue stream has also grown rapidly. We have increased our subscriber base to
over 12,000 paying customers. To support our growth, we have increased our ad-
vertising sales force to 29 and our subscription sales force to 20.
Industry Overview
IT Industry
The role of information technology in companies and other organizations has ex-
panded and has become even more critical to the successful implementation of
business strategy. While IT traditionally has focused on internal systems, in-
cluding accounting and human resources, IT is expanding its role by changing
the way in which organizations interact with their suppliers, market and de-
liver their products and services and support their customers. Companies in a
broad range of businesses, including financial services, publishing, and com-
puter hardware and software, have re-engineered their operations over the past
several years to reach a greater variety of customers through the expanded use
of technology. This expanded role of technology has continued to fuel the
growth in the worldwide market for IT products and services, which IDC fore-
casts will grow from approximately $800 billion in 1998 to over $1.0 trillion
in 2001.
25
<PAGE>
The IT industry is composed of a number of constituents, including:
<TABLE>
<CAPTION>
Constituents Role
------------------------- ----------------------------------------------------
<C> <S>
Programmers and engineers Design, create and maintain technical infrastructure
within an organization
IT managers Manage projects, engineers, programmers and
consultants and oversee the execution of their
organization's IT strategy
Technical consultants Work on an IT project on a contract basis
Recruiters Identify and place qualified technical professionals
in full and part-time positions
Corporate IT purchasers Buy hardware, software and technical services for
their organizations
Software publishers Create and license software programs
Hardware manufacturers Manufacture computer, hardware components and
peripherals
Value-added resellers Resell products of hardware manufacturers and
software publishers, and provide value-added
technical services
IT services firms Design, code, implement and maintain IT enterprise
applications and systems on a contract basis
</TABLE>
Due to the rapid change in and the expansion of the IT industry, each of these
constituents have the following needs for:
. Content. Members of the IT industry need independent, in-depth and up-to-
date content, such as reference and training material, source code, IT
product information and other technical data. For example, IT purchasers
need access to neutral, third-party reviews and surveys of hardware and
software to inform their purchasing decisions. Engineers and programmers
need access to source code, technical articles and skills training.
. Career Management and Recruiting. Companies and other organizations depend
on a qualified pool of IT professionals. Programmers, engineers and IT con-
sultants use various career services for training, skill certifications and
identifying employment and contract opportunities. Companies and other or-
ganizations and their IT managers use these services to post job listings
and hire IT personnel. IDC estimated that the total amount spent on IT re-
cruiting was $18 billion in 1998, a 20% increase over 1997. IDC forecasts
that the IT education and training market alone will grow from an estimated
$16.5 billion in 1998 to $25.3 billion in 2002.
. Commerce. The IT industry needs a marketplace to buy and sell IT products
and services. For example, hardware manufacturers and software publishers
need efficient ways to reach IT purchasers, and IT purchasers need special-
ized stores that provide the products they require for their organization's
technical infrastructure. According to Simba Information, expenditures on
computer reference books totalled approximately $1 billion in 1998 and,
based on industry sources, EarthWeb believes expenditures on IT industry
reports and analysis totalled an estimated $1 billion in 1998.
. Community. Members of the IT industry need a neutral third-party environ-
ment to share information. For example, IT programmers, engineers and man-
agers need a forum to discuss technical issues, and resolve technical prob-
lems. In addition, the various constituents of the IT industry need updated
calendars of IT industry conferences and events.
The IT industry devotes considerable time, effort and financial resources re-
searching new technologies, seeking answers to technical questions, managing
career development, identifying and recruiting qualified personnel, buying and
selling products and services, and developing and implementing IT solutions.
They have had to rely on fragmented and disparate sources to meet these needs,
none of which have provided a comprehensive solution for content, career man-
agement and recruiting, commerce and community.
26
<PAGE>
Segments of the IT Industry
The IT industry is organized into particular segments and sub-segments as a re-
sult of the growing complexity of the IT industry and the increasing need for
specialization.
<TABLE>
<CAPTION>
Segments Description Major Sub-segments
- ------------------ ------------------------------------ --------------------------------------
<S> <C> <C>
Software Creation of software applications C/C++, Java, Visual Basic and other
Development using various programming languages, programming languages, object-oriented
tools and environments technology and visual development
environments
Internet Use of technologies based on Internet, intranet, extranet, Web
Technologies and Internet protocols for communication sites, Internet commerce, Internet
Web Development and commerce both within and between security and Internet Protocols
organizations
Enterprise Deployment of sophisticated, large- Systems management software, financial
Management scale software applications and management systems, enterprise
systems to manage and support resource planning, Year 2000,
functions within businesses and middleware, server operating systems
other organizations such Linux and NT, data warehousing
and supply chain management
Networking and Design, installation and management Network and directory services, data
Telecommunications of infrastructure for data and voice and voice communications technologies,
communications wireless and mobile communications and
Internet
service provider network
infrastructure
Hardware Design, manufacture, purchase and Personal, midrange and mainframe
maintenance of computers, hardware systems; computer chip, PC display,
components and peripherals multimedia and disk storage
technologies
Services, Support Services that support the Systems integration, outsourced custom
and Consulting development, implementation and development, systems design and
maintenance of enterprise computing maintenance, outsourced network
systems management
and technical support
</TABLE>
The Internet
The Internet enables millions of people worldwide to access current news and
information, find and post job opportunities, conduct business electronically
and create community among individuals with similar professional or personal
interests. The number of Internet users worldwide is projected to grow from an
estimated 142 million at the end of 1998 to 399 million by the year 2002, ac-
cording to IDC. With this growth in the number of users, the Internet is emerg-
ing as a mass communication and commerce medium, which offers advertisers and
vendors distinct advantages over conventional media. The Internet permits ad-
vertisers to target specific demographic groups, measure the effectiveness of
their advertising campaigns and revise them in response to real-time feedback.
Jupiter forecasts consumer-oriented Internet advertising will increase from an
estimated $1.9 billion to $7.7 billion in the same period. The Internet pro-
vides online merchants with the ability to reach a global audience and to oper-
ate with minimal infrastructure, reduced overhead and greater economies of
scale, while providing customers with broad selection, increased pricing infor-
mation and unparalleled convenience. IDC forecasts that total commerce on the
Internet will grow from an estimated $50.4 billion in 1998 to $733.6 billion in
2002, with the business-to-business component growing from an estimated $27.4
billion to $526.2 billion in the same period.
The EarthWeb Solution
Through its network of online services, EarthWeb provides a business-to-busi-
ness hub to meet the needs of the IT industry for content, career management
and recruiting, commerce and community. As a global intermediary for the IT in-
dustry, EarthWeb is positioned as the trusted third party that offers an inte-
grated environment where the various constituents can share information, manage
their careers, recruit personnel, transact business and interact with one an-
other.
27
<PAGE>
Content. EarthWeb's online services each focus on a particular segment of the
IT industry. EarthWeb provides technical resources including full-text refer-
ence books, training materials and tutorials, technical articles and source
code libraries to IT professionals to enable them to solve challenging techni-
cal problems. EarthWeb also provides product surveys to enable IT professionals
to make informed purchase decisions. EarthWeb's content is searchable using a
uniform search engine, as well as by browsing a series of categories.
Career Management and Recruiting. EarthWeb connects IT professionals, such as
programmers, engineers and consultants with part and full-time employment
through a variety of online job resources. EarthWeb provides thousands of on-
line listings of available positions and enables companies and other organiza-
tions to efficiently recruit from a central database of potential candidates.
Our compensation surveys assist with career management and recruitment of per-
sonnel. EarthWeb also provides guides to skills certification programs as well
as links to related training material.
Commerce. EarthWeb provides an online marketplace where vendors can promote and
advertise their goods and services, and purchasers can identify, evaluate and
buy the products and services that meet their needs. These online stores in-
clude a training store, a software store and a technical bookstore. Many of the
products in the online stores are difficult to find through traditional chan-
nels. Our vendors include major software developers, such as Microsoft, Lotus
and Symantec, as well as small and mid-sized specialized software vendors. We
have an electronic software delivery mechanism that enables users to download a
variety of software immediately after purchase. We also provide a classified
advertising service for the purchase and sale of specialized hardware.
Community. EarthWeb provides a forum in which users can contribute material and
communicate with each other. Users are encouraged to submit source code, object
code, development tools and other materials that are then archived in our di-
rectories. Our online services also include a number of bulletin boards for
technical discussions that allow users to solve problems together. These bulle-
tin boards are managed by experienced IT professionals to maintain the quality
of content. These discussions are then archived, creating an online knowledge
repository for future reference. We also provide the IT industry with a cen-
tralized calendar of upcoming conferences and events, which enables its members
to identify events relevant to them.
Business Strategy
We seek to maintain and strengthen our position as the leading provider of
business-to-business online services for the global IT industry. We intend to
achieve this objective by implementing the following key strategies:
Broaden and Enhance Business-to-Business Services for the IT Industry. EarthWeb
will continue to expand the range of content and breadth of services it offers
the IT industry. We continue to add, through internal development and acquisi-
tions, content relevant to the various segments of the IT industry. For exam-
ple, the datamation.com and MicroHouse acquisitions supplemented our content in
the enterprise management, networking and hardware segments. We also will con-
tinue to add services needed by various constituents of the IT industry. For
example, the acquisition of dice.com significantly added to our career manage-
ment and recruiting services available to IT professionals and employers.
EarthWeb also intends to continue adding commerce services to its current com-
merce offerings to create the leading online marketplace for IT products and
services.
Strengthen Worldwide Brand Recognition. EarthWeb will continue to promote the
EarthWeb brand as the leading provider of business-to-business online services
for the IT industry. In addition, EarthWeb plans to promote its primary and
secondary brands through online and offline advertising, strategic alliances
and other promotional activities. EarthWeb seeks to reinforce for users, adver-
tisers, and vendors that the EarthWeb brands represent technical competence,
comprehensiveness, timeliness and a trusted third-party source. EarthWeb be-
lieves that the extension of its online model to encompass additional content
and services will attract additional users and further enhance awareness of its
brands.
Cultivate Multiple Revenue Streams. EarthWeb believes its business-to-business
online services model has positioned it to continue growing its multiple reve-
nue streams of advertising, subscription fees and commerce. EarthWeb intends to
continue to increase its advertising revenues by growing its sales force, ex-
panding its base of both technology and non-technology advertisers, and in-
creasing employment-related advertising. EarthWeb will also continue to expand
its premium subscription services. We launched our first subscription service,
ITknowledge.com, in October 1998 and in March 1999 acquired MicroHouse which
has several established premium subscription services. EarthWeb intends to con-
tinue increasing its commerce revenue from its various online stores through
product promotions and superior online customer service.
28
<PAGE>
Grow Through Targeted Acquisitions. EarthWeb will continue to pursue acquisi-
tions to fulfill a number of objectives. The most important objective is to
strengthen EarthWeb's existing online services, extend its offerings into addi-
tional IT industry segments and expand the number of business-to-business serv-
ices it offers the various constituents of the IT industry. Another objective
is to obtain valuable brands, expertise and access to new advertisers and us-
ers. An additional objective is to increase overall page views; EarthWeb has
found that the addition of new sites generally increases traffic on its exist-
ing sites as well as on the acquired sites.
Expand Internationally. Many IT professionals reside outside the United States
and approximately one-third of EarthWeb's traffic originates internationally.
Due to its focus on the IT industry, EarthWeb is able to leverage its content
and online services to a wide range of international markets with minimal
translation requirements. EarthWeb has successfully localized and translated
portions of its content for French, Spanish, German and Japanese speakers, and
has additional localization efforts underway.
Online Services
EarthWeb offers a broad range of online services to meet the IT industry's
needs for content, career management and recruiting, commerce and community.
EarthWeb utilizes both Web sites and email to provide its online services.
Content
The content on EarthWeb's sites includes technical resources, reference materi-
als, 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 that are categorized using its proprietary cate-
gorization system and contain links to over 17,000 technical resources.
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 in-
dustry recognition for this system.
Reference Materials. EarthWeb believes its reference library is the largest on-
line library of technical books for the IT industry. Over 400 technical refer-
ence, how-to and training books are provided in full text. Drawing on a base of
more than 3,000 technical books, comprising over 2 million pages of content,
EarthWeb will continue to add to its online reference products. These books are
provided by leading publishers, including Macmillan Computer Publishing, the
Coriolis Group, IDG Books, CRC Press, 29th Street Press, Wordware Publishing
and ASP Publishing, among others. EarthWeb also provides in-depth product anal-
ysis, benchmarks and other product reference information that facilitate prod-
uct evaluation. Reference materials can be browsed by their table of contents
or searched using a search engine. Most of the online books can also be pur-
chased in physical form through EarthWeb's online technical bookstore.
EarthWeb provides access to many of these materials through its premium sub-
scription services, including ITknowledge.com. Through its acquisition of
MicroHouse, EarthWeb added over 400,000 documents to its content base, includ-
ing technical diagrams, multi-vendor technical information and other reference
material, which are also offered on a subscription basis.
Technical News, Articles and Information. EarthWeb provides a range of original
articles, aggregated news and case studies on various technical subjects.
EarthWeb's online Journal features highlights from EarthWeb's online services
as well as industry news, research, analysis and feature articles. As of Decem-
ber 31, 1998, the email version of the Journal had over 375,000 subscribers and
is growing at an average rate of more than 3,000 new subscribers each week.
EarthWeb also provides news of interest to the IT industry, which is aggregated
daily from various media sources, including CMP Media and Ziff-Davis.
Career Management and Recruiting
EarthWeb provides IT professionals with skill assessment tools, certification
program guides, training materials, and job postings. At the same time,
EarthWeb offers companies and other organizations and their IT managers a forum
where they can recruit and hire personnel.
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Certification and Assessment. EarthWeb provides resources to IT professionals
who seek to identify specific capabilities which will broaden their skill sets.
IT professionals can use the resources of the recently acquired gocertify.com,
the leading guide to certification programs, as well as other EarthWeb online
reference materials, to assess their skills and determine which certification
programs will help them advance their careers and enhance their knowledge. In
addition, EarthWeb's MicroHouse content is included in certification programs
offered by leading training centers.
Training Materials and Tutorials. EarthWeb features over 375 original, proprie-
tary, in-depth technical tutorials for IT industry constituents. 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, and the balance comes from a variety of third-party publishers.
EarthWeb believes it offers one of the largest collections of training materi-
als and tutorials for IT professionals on the Web, and adds new training mate-
rials on a weekly basis.
Job Postings. EarthWeb provides a variety of online job boards, enabling em-
ployers to post and users to search a large database of full-time and contract
positions. EarthWeb's recent acquisition of dice.com significantly strengthened
its current offerings for career management and recruiting.
Commerce
Earthweb provides an online marketplace where vendors can promote and advertise
their goods and services, and purchasers can identify, evaluate and buy the
products and services that meet their needs.
Online Shopping. EarthWeb's online storefronts provide the IT industry access
to software, books and other technical products from thousands of vendors, in-
cluding Microsoft, Lotus, Symantec and other leading IT vendors. EarthWeb has
enhanced its online shopping offerings through alliances with, among others,
barnesandnoble.com and beyond.com. EarthWeb provides a browsable online cata-
log, secure transactions and physical or secure electronic delivery of software
products and fulfillment through its alliances with barnesandnoble.com and
beyond.com.
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 rang-
ing from desktop computers, modems and printers to hubs/repeaters, routers,
servers and switches.
Community
EarthWeb provides interactive forums for IT professionals, including technical
bulletin boards and question and answer services.
Technical Bulletin Boards. EarthWeb's online services include more than 30
technical bulletin boards containing more than 25,000 postings, which are fo-
cused and managed by experienced IT professionals. These online bulletin boards
enable users to help each other solve technical problems. These bulletin boards
are then archived, creating an online knowledge repository for future refer-
ence. EarthWeb has also archived the electronic full text of Usenet computer
discussions. EarthWeb provides a single search interface for both EarthWeb and
Usenet discussions, allowing users to easily locate the information they need.
Technical Question and Answer Services. EarthWeb encourages users to submit
questions or problems that are selected to be answered by EarthWeb's network of
experienced IT professionals. Detailed answers are published online in a
searchable format.
Other Services. EarthWeb also provides a comprehensive calendar of upcoming IT
conferences and other industry events, and hosts online conference proceedings.
Marketing and Sales
Marketing
EarthWeb employs a combination of online and offline advertising campaigns to
promote use of its online services by users, advertisers and vendors. EarthWeb
utilizes a variety of media to market its online services, including Web sites,
print, direct mail and radio. EarthWeb is promoted by over 90,000 links from
other Web sites and links on major distribution portals and search engines.
EarthWeb further markets its online services through its Journal, which as of
December 31, 1998 was emailed to more than 375,000 subscribers. EarthWeb has an
ongoing public relations program, and participates in tradeshows, conferences,
speaking engagements and promotional contests.
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EarthWeb pursues strategic relationships with key marketing partners to enhance
brand awareness. Developer.com's Gamelan directory has been exclusively desig-
nated by Sun Microsystems as "The Official Directory for Java" since 1996.
Developer.com was also 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. In 1998, a sampler of MicroHouse's library of content was
included in an estimated over 500,000 volumes distributed by Macmillan Computer
Publishing and IDG Books. EarthWeb promotes its dice.com career board through
strategic relationships with a range of online services, including
Classifieds2000, Yahoo! Classified and Excite.
Advertising Sales
EarthWeb enables advertisers to efficiently and effectively reach targeted seg-
ments of the IT industry. EarthWeb's advertiser base includes non-technology as
well as technology based advertisers. Based on independent research commis-
sioned by EarthWeb, 80% of EarthWeb's users are the primary or co-primary deci-
sion-makers for purchases of Internet and Web applications in their enter-
prises. EarthWeb has been able since the beginning of 1997 to sell advertising
space at rates that are higher than the average rates charged by online serv-
ices aimed at more general audiences. Based upon publicly available banner ad-
vertisement rate cards, EarthWeb's rates are approximately 2.5 to 4.0 times
higher than the rates of Lycos, Excite, Yahoo! and Infoseek, which EarthWeb be-
lieves to be a representative group of online services aimed at more general
audiences. Independent research has also shown that 91% of users have some col-
lege education, 34% have at least some graduate level education and 82% are be-
tween 18 and 39 years old.
EarthWeb has built a nationwide sales force with sales representatives in vari-
ous cities, including New York, San Francisco, Boston, Des Moines, Dallas and
Atlanta. As of April 1, 1999, EarthWeb had an advertising sales force consist-
ing of 29 representatives, which includes two overseas independent sales repre-
sentatives.
During the year ended December 31, 1998, 168 individual advertisers, an in-
crease of over 600% from the prior year, placed advertisements on EarthWeb's
online services. IBM accounted for approximately 11% and Microsoft accounted
for approximately 10% of EarthWeb's revenues for the year ended December 31,
1998. The following is a partial list of EarthWeb's advertisers:
.3Com .Microsoft
.Allaire .Net Bank
.Apple Computer .Nokia Telecommunications
.Bell Atlantic .Nortel Networks
.Compaq and Tandem .Novell
.Eastman Kodak .Oracle
.IBM .Seagate
.Intel .Silicon Graphics
.Lotus .Sun Microsystems
.MCI Worldcom .ZD Expo/JavaOne
Furthermore, at the end of 1998, dice.com had over 2,000 job listing advertis-
ers, including major recruiting and consulting firms such as Manpower Technical
Services, Volt Services Group, and Modis Professional Services.
Subscription Sales
EarthWeb generates revenue from subscription fees paid to access its premium
content services, including ITknowledge.com and the MicroHouse product line.
EarthWeb sells subscriptions online as well as through a subscription
sales force. This 20 person sales force multi-user enterprise licenses to
EarthWeb's wide range of subscription services.
Competition
EarthWeb believes it competes on the basis of brand recognition, exclusivity of
content and services, quality and quantity of content, product and resource se-
lection, convenience and reliability. EarthWeb believes that it is differenti-
ated and well positioned against its competitors because it provides a full
range of business-to-business online services leveraging content, career man-
agement and recruiting resources, commerce and community to facilitate informa-
tion transfer and transactions in the IT sector.
The market for Internet-based online services is relatively new, intensely com-
petitive 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, and EarthWeb expects that competition will continue
to intensify. EarthWeb competes with other
31
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companies who have particular sections of their Web sites directed at segments
or sub-segments of the professional community, including Ziff-Davis (DevHead),
CNET (builder.com and activex.com), CMP Media (CMPnet), Internet.com
(webdeveloper.com), Wired Digital (Webmonkey) and IDG (Javaworld). However,
EarthWeb believes that it offers the most comprehensive content and online
business-to-business services for the IT industry. EarthWeb also competes for
circulation and advertising impressions with general interest portal and des-
tination sites as well as traditional media. With respect to career services,
EarthWeb competes with online job boards. With respect to sales of products,
EarthWeb competes with traditional retailers of these products, including
book, software and online retail stores.
Many of EarthWeb's current and potential competitors have longer operating
histories, larger customer bases, greater brand recognition and significantly
greater financial, marketing and other resources than EarthWeb. These competi-
tors may be able to respond more quickly to new or emerging technologies and
changes in customer requirements and to devote greater resources to the devel-
opment, promotion and sale of their products and services than EarthWeb. There
can be no assurance that EarthWeb will be able to compete successfully against
its current or future competitors.
Infrastructure, Operations and Technology
EarthWeb makes its Web sites available using multiple Sun Microsystems, Digi-
tal Equipment and Wintel-based servers that run on Sun Solaris Digital UNIX
and Microsoft NT operating systems. For disk storage, EarthWeb partially re-
lies on a high performance and fully redundant central storage system from EMC
and NetAppliance. The full implementation of this central storage system will
significantly enhance the scalability of EarthWeb's online services. EarthWeb
licenses software from the following vendors: Apache, Netscape and Microsoft
(Web servers); Engage (advertising management system); Netscape (subscriptions
system); CyberSource (secure credit card capture and billing); Verity (search
and retrieval); Net. Genesis (Web traffic analysis); SalesLogix (sales force
automation); and Solomon (financials).
EarthWeb maintains four data centers. EarthWeb is expanding its network of
fully redundant connectivity to all its data centers. EarthWeb's primary pro-
duction and development systems are copied to backup tapes each night and reg-
ularly stored at an off site facility. EarthWeb maintains a quality assurance
program consisting of both internal and external controls to constantly moni-
tor its servers, processes and network connectivity. EarthWeb has implemented
these various redundancies, backup systems and monitoring systems in order to
minimize the risk associated with damage from fires, power loss, telecommuni-
cations failure, break-ins, computer viruses and other events beyond
EarthWeb's control.
Intellectual Property
EarthWeb seeks to protect its intellectual property through a combination of
license agreements, service mark, copyright, trade secret laws and other meth-
ods of restricting disclosure and transferring title. EarthWeb obtains the ma-
jority of its content under license agreements with publishers, through work
for hire arrangements with third parties and from internal staff development.
EarthWeb has no patents or patents pending for its current online services and
does not anticipate that patents will become a significant part of EarthWeb's
intellectual property in the foreseeable future. Where appropriate, EarthWeb
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. EarthWeb pursues the registration of its
service marks in the United States and internationally, and has obtained
United States service mark registration for its EarthWeb service mark and the
Fang Logo Design, has been assigned the Plugin Datamation and Datamation serv-
ice marks and has applied for registration of certain of its other service
marks, such as developer.com.
U.S. and Foreign Government Regulation
Congress has recently passed legislation that regulates certain aspects of the
Internet, including online content, copyright infringement, user privacy, tax-
ation, access charges, liability for third-party activities and jurisdiction.
In addition, federal, state, local and foreign governmental organizations have
enacted and also are considering, and may consider in the future, other legis-
lative and regulatory proposals that would regulate the Internet. Areas of po-
tential regulation include, but are not limited to, libel, electronic con-
tracting, pricing, quality of products and services and intellectual property
ownership.
The European Union also has enacted several directives relating to the
Internet. In order to safeguard against the spread of certain illegal and so-
cially harmful materials on the Internet, the European Commission has drafted
the "Action Plan on Promoting the Safe Use of the Internet." Other European
Commission directives address the regulation of privacy, e-commerce, security,
commercial piracy, consumer protection and taxation of transactions completed
over the Internet.
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It is not known how courts and administrative agencies will interpret and apply
both existing and new laws. Therefore, we are uncertain as to how new laws or
the application of existing and new laws will affect our business. In addition,
our business may be indirectly affected by our vendors and customers who may be
subject to such legislation. Increased regulation of the Internet may decrease
the growth in the use of the Internet, which could decrease the demand for our
services, increase our cost of doing business or otherwise have a material ad-
verse effect on our business, results of operations and financial condition.
Employees
As of April 30, 1999 EarthWeb had 197 full-time employees, including 73 in
sales and marketing. EarthWeb'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 EarthWeb will be able
to retain its senior management or other key personnel in the future.
EarthWeb's employees are not represented by any union, and EarthWeb considers
its relations with its employees to be good.
Facilities
EarthWeb'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. Dice.com has an office located
in Des Moines, Iowa, consisting of approximately 13,530 square feet under
leases expiring beginning on October 31, 2001. MicroHouse, located in Boulder,
Colorado, has an office consisting of approximately 10,000 square feet under a
lease expiring February 28, 2001.
Legal Proceedings
EarthWeb is party to claims and litigation that arise in the normal course of
business. Management believes that the ultimate outcome of those claims and
litigation will not have a material impact on its financial position or results
of operations.
33
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Management
Directors and Executive Officers
The following sets forth certain information with respect to the directors and
executive officers of EarthWeb as of April 30, 1999.
- --------------------------------------------------------------------------------
<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
Lloyd Linn 41 Vice President and President of EW Career Solutions, Inc., a subsidiary of EarthWeb
Irene Math 37 Senior Vice President, Finance
Kevin McPherson 40 Vice President, Worldwide Advertising Sales
John Kleine 45 Vice President, Systems and Operations
Scott Anderson 45 Vice President, Worldwide Marketing
Mark Schlack 46 Vice President, Content
Cary Davis(1)(2) 32 Director
Henry Kressel(1)(2) 65 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 di-
rector of EarthWeb since April 1996 and has co-managed its predecessors since
January 1995. Mr. Hidary is a co-founder of EarthWeb. 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, Sec-
retary, Treasurer and a director of EarthWeb since April 1996 and has co-man-
aged its predecessors since January 1995. Mr. Hidary is a co-founder of
EarthWeb. Mr. Hidary studied Music and Composition at New York University.
Nova Spivack has been the Strategic Planning Adviser of EarthWeb since August
1998 and has been a director of EarthWeb since April 1996. From April 1996 un-
til July 1998, Mr. Spivack served as Executive Vice President, Strategic Plan-
ning of EarthWeb and since January 1995 has co-managed its predecessors. Mr.
Spivack is a co-founder of EarthWeb. 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. de-
gree from the International Space University.
William Gollan has been the Senior Vice President of EarthWeb since November
1997. Prior to joining EarthWeb, Mr. Gollan was a Senior Vice President of
LitleNet beginning in February 1996 focusing on electronic software distribu-
tion. 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 at-
tended Northeastern University.
Lloyd Linn has been the Vice President of EarthWeb and President of EW Career
Solutions, Inc., a subsidiary of EarthWeb that operates the dice.com business,
since February 1999. Mr. Linn was the co-founder of dice.com and co-managed
dice.com since its inception in 1990. Mr. Linn has worked as a contract pro-
grammer and consultant at various technical consulting companies including Cap
Gemini Group. Mr. Linn studied Computer Sciences at Des Moines Area Community
College.
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<PAGE>
Irene Math is the Senior Vice President, Finance of EarthWeb, and was the Vice
President, Finance from November 1996 to March 1999. 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
EarthWeb 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 re-
ceived a B.A. from the University of Richmond and an M.B.A. from the University
of Connecticut.
John Kleine has been the Vice President, Systems and Operations of EarthWeb
since January 1998. Prior to joining EarthWeb, Mr. Kleine served as Vice Presi-
dent, Director of Business Systems from 1983 to 1997 at True North Communica-
tions 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 EarthWeb 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 the west coast advertising agen-
cy, 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 Associa-
tion's Effie award for marketing effectiveness for both the Crayola and IBM
software launches. Mr. Anderson received a B.S. from Rutgers University.
Mark Schlack has been the Vice President, Content for EarthWeb since November
1998. From December 1995 to May 1998, Mr. Schlack served as Editor and later as
Editor-in-Chief of BYTE Magazine, published by McGraw Hill. From June 1990 to
November 1995, he held various positions at Cahners Publishing including Editor
of Datamation and Editor In Chief of Systems Integration Business. Mr. Schlack
graduated from the University of Michigan with a B.A. in Creative Writing.
Cary Davis has been a director of EarthWeb since February 1998. Mr. Davis has
served with E.M. Warburg, Pincus & Co., LLC, since October 1994 and has been a
Managing Director since January 1999. 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 EarthWeb 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 Commu-
nications, Inc., a semi-conductor company, IA Corporation, a software develop-
ment company, Nova Corporation, a credit card processing company and Covad Com-
munications, an XDSL service provider. 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
EarthWeb has five directors serving on its Board of Directors. Under the terms
of the certificate of incorporation and By-Laws, Nova Spivack's term as direc-
tor shall expire at the 1999 annual meeting of the stockholders, Murray
Hidary's and Cary Davis' terms as directors shall expire at the 2000 annual
meeting of the stockholders, and Jack D. Hidary's and Henry Kressel's terms as
directors shall expire at the 2001 annual meeting of the stockholders.
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 Compen-
sation 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 EarthWeb and reviewing with the
independent auditors the scope and results of the audits, the internal account-
ing controls of EarthWeb, audit practices and the professional services fur-
nished by the independent auditors.
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<PAGE>
The Compensation committee is responsible for reviewing and approving all com-
pensation arrangements for officers of EarthWeb, and is also responsible for
administering, or making recommendations with respect to, EarthWeb's stock
plans. A subcommittee of the Compensation committee consisting of Dr. Kressel
and Mr. Davis administers the 1998 Stock Incentive Plan with respect to
EarthWeb's officers subject to Section 162(m) of the Internal Revenue Code of
1986, as amended.
The Delaware General Corporation Law provides that a company may indemnify its
directors and officers as to certain liabilities. EarthWeb's certificate of in-
corporation and 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 EarthWeb against all costs, ex-
penses and liabilities incurred by them in connection with any action, suit or
proceeding in which they are involved by reason of their affiliation with
EarthWeb. EarthWeb maintains directors and officers liability insurance.
EarthWeb does not currently pay any directors' fees.
Employment and Consulting Agreements
Jack D. Hidary and Murray Hidary entered into employment agreements with GNP
effective January 1, 1995. Each of these employment agreements provided for an
initial two-year term, which will extend automatically for additional one-year
terms unless terminated by 60 days prior notice from the respective
counterparty. Through an Intercompany Services Agreement dated as of October
25, 1996 among Jack D. Hidary, Murray Hidary, Nova Spivack, EarthWeb, GNP and
EarthWeb LLC, which amends certain provisions of each of the employment agree-
ments, each of Jack and Murray Hidary agreed to serve as an officer and em-
ployee of EarthWeb as if EarthWeb were "the Company" under his employment
agreement. In connection therewith, EarthWeb agreed to assume all of the obli-
gations 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 $160,000 per annum, subject to cost of living
increases. Jack and Murray Hidary are also entitled to receive bonuses as may,
from time-to-time, be awarded by the Board of Directors.
In the event either Mr. Jack D. Hidary or Mr. Murray Hidary is terminated with-
out "cause" (as such term is defined in his 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 his base salary is
contingent upon his not disclosing EarthWeb's confidential information or com-
peting with the business of EarthWeb.
EarthWeb entered into a consulting agreement with Nova Spivack, effective Au-
gust 1, 1998, pursuant to which Mr. Spivack provides advisory services to the
chief executive officer and senior management. Under this agreement, Mr.
Spivack receives compensation in the amount of $6,000 per month, subject to
cost of living increases. The term of the agreement is 18 months. If EarthWeb
terminates the agreement for "cause" (as defined in the agreement), Mr. Spivack
will be entitled to up to 12 months compensation plus bonuses. If EarthWeb ter-
minates 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 EarthWeb during the term of
the agreement and for two years thereafter, subject to an additional two-year
extension.
EarthWeb has entered into employment agreements with William Gollan, Senior
Vice President, Lloyd Linn, Vice President and President of EW Career Solu-
tions, Inc., Irene Math, Senior Vice President, Finance, Kevin McPherson, Vice
President, Worldwide Advertising Sales, John Kleine, Vice President, Systems
and Operations, Scott Anderson, Vice President, Worldwide Marketing and Mark
Schlack, Vice President of Content. These employment contracts provide for base
salaries ranging from $125,000 to $175,000 and commissions and bonuses based on
both individual and overall EarthWeb performance measures.
The material terms of these employment agreements are:
(1) any dispute or controversy arising under or in connection with the em-
ployment agreement (other than injunctive relief) shall be settled ex-
clusively by arbitration;
(2) if an executive is terminated without cause, she/he will receive sever-
ance pay between 3 and 12 months; and
(3) during the agreement and between to 3 months to 3 years after, the ex-
ecutive is prohibited from competing with EarthWeb.
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<PAGE>
Benefit Plans
Stock Option Plan
EarthWeb's 1996 amended and restated stock plan was adopted by the board of di-
rectors of EarthWeb in October 1996 and was subsequently ratified by the stock-
holders of EarthWeb. 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, employ-
ees and consultants of EarthWeb are eligible to receive grants under the stock
plan. The stock plan authorizes 525,000 shares of common stock for issuance,
subject to adjustment as set forth in the stock plan. As of March 1, 1999, op-
tions relating to 465,984 shares of common stock were outstanding.
1998 Stock Incentive Plan
EarthWeb's 1998 stock incentive plan was adopted by the board of directors in
November 1998 and has been approved by EarthWeb's stockholders. 375,000 shares
of common stock were initially reserved for issuance under the 1998 stock in-
centive plan, plus an annual increase to be added on the first day of
EarthWeb's fiscal year beginning in 2000 equal to two percent (2%) of the num-
ber of shares outstanding as of such date or a lesser number of shares deter-
mined by the board of directors. Up to 159,000 shares have been reserved for
issuance as incentive stock options, plus an annual increase to be added on the
first day of EarthWeb's fiscal year beginning in 2000 equal to the least of (1)
400,000 shares, (2) four tenths of one percent (.4%) of the number of shares
outstanding as of such date or (3) a lesser number of shares determined by the
board of directors. As of March 1, 1999 options relating to 279,717 shares of
common stock were outstanding and 95,283 remained available for future grants.
On April 8, 1999, the board of directors approved amendments to the 1998 stock
incentive plan, conditioned upon and not to take effect until approved by
EarthWeb's stockholders, to (i) increase the number of shares of common stock
reserved for issuance thereunder by an additional 1,700,000 shares, and (ii)
limit the maximum number of options and stock appreciation rights that may be
awarded to an employee in any one fiscal year of EarthWeb in order to ensure
compliance with the requirements of Section 162(m) of the Internal Revenue Code
of 1986, as amended. EarthWeb's stockholders will vote on these amendments at
EarthWeb's annual meeting which is scheduled for May 20, 1999.
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 EarthWeb and to promote the success of EarthWeb's business.
The 1998 stock incentive plan provides for the granting to employees of options
to purchase common stock that qualify under Section 422 of the Internal Revenue
Code of 1986, as amended, as "incentive stock options" and for the granting of
nonstatutory stock options, stock appreciation rights, dividend equivalent
rights, restricted stock, performance units, performance shares, and other eq-
uity-based rights (including incentive stock options) to employees, directors
and consultants of EarthWeb.
The 1998 stock incentive plan is administered by the board of directors, which
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 upon exercise of the
award, payment contingencies and satisfaction of any performance criteria. The
Compensation committee may make recommendations to the board of directors with
respect to awards under the 1998 stock incentive plan. A subcommittee of the
Compensation committee will administer the 1998 stock incentive plan for
EarthWeb's officers subject to Section 162(m) of the Internal Revenue Code of
1986, as amended.
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 ex-
ercisable during the lifetime of the optionee only by such optionee. Other
awards shall be transferable to the extent provided in the agreement evidencing
the 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 EarthWeb's out-
standing 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
awards will be determined by the administrator of the award. The exercise price
or purchase price of nonstatutory stock options will be determined by the ad-
ministrator of the award, but will not be less than 100% of the fair market
value of the stock unless determined by the administrator of the award, and the
exercise price or purchase price, if any, of other awards will also be deter-
mined by the compensation committee. The consideration to be paid for the
shares of common stock upon exercise or purchase of an award will be determined
by the administrator of the award 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 award.
37
<PAGE>
Where the award agreement permits the exercise or purchase of an award for a
certain period of time following the recipient's termination of service with
EarthWeb, disability, or death, such award will terminate to the extent not ex-
ercised or purchased on the last day of the specified period or the last day of
the original term of such award, whichever occurs first.
Unless terminated sooner, the 1998 stock incentive plan will terminate automat-
ically 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 awards previously granted under the 1998
stock incentive plan unless agreed to by the affected grantees.
1998 Employee Stock Purchase Plan
EarthWeb's 1998 employee stock purchase plan was approved by the board of di-
rectors in November 1998 and has been approved by EarthWeb's stockholders. 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 EarthWeb with an
opportunity to purchase common stock through payroll deductions. An aggregate
of 159,000 shares of 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 EarthWeb's fiscal year beginning in
2000 equal to the least of (1) 400,000 shares, (2) two percent (2%) of the out-
standing shares on such date or (3) 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 EarthWeb. Except for any employees (a) 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 EarthWeb's outstanding common stock,
(b) whose rights under all of EarthWeb's stock purchase plans accrue at a rate
exceeding $25,000 per year, (c) whose customary employment is 20 or fewer hours
per week or 5 or fewer months per year or (d) who are subject to laws of a for-
eign jurisdiction that prohibit or make impracticable such employee's partici-
pation in the stock purchase plan, all employees of EarthWeb are eligible to
participate in the stock purchase plan.
Offer periods under the stock purchase plan are generally overlapping periods
of 24 months. The initial offer period commenced on the closing date of the
initial public offering. Additional offer periods will commence each February 1
and August 1. Purchase periods under the stock purchase plan are generally six
month periods. The initial purchase period commenced on the closing date of the
initial public offering. Additional purchase periods will commence each August
1 and February 1. Exercise dates under the stock purchase plan are the last day
of each purchase period. An offer period may be shortened in the event of a
merger of EarthWeb with or into another corporation, the sale of all or sub-
stantially all of the assets of EarthWeb, or certain other transactions.
On the first day of each offer period, a participating employee is granted a
purchase right that is a form of option to be automatically exercised on the
forthcoming exercise dates within the offer period. During the offer period de-
ductions are made from the pay of participants (in accordance with their autho-
rizations) 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 EarthWeb. The price per share at which
shares are to be purchased under the stock purchase plan during any purchase
period is the lesser of the fair market value of the common stock (as defined
in the stock purchase plan) on (a) the date of the grant of the option (the
commencement of the offer period) or (b) 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 termi-
nated, 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 and, in certain cases, commissions, exclusive
of overtime, bonuses or shift-premiums, 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 that any employee may purchase under the stock
purchase plan during a purchase period is determined by dividing 15% of the em-
ployee's regular base pay by the applicable purchase price. Certain additional
limitations on the amount of common stock that may be purchased during any cal-
endar year are imposed by the Internal Revenue Code of 1986, as amended.
The stock purchase plan is administered by the compensation committee, which
has 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.
38
<PAGE>
401(k) Plan
EarthWeb maintains a 401(k) retirement savings plan. All employees of EarthWeb
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 statu-
torily prescribed annual limit). The 401(k) plan permits, but does not require,
additional contributions to the 401(k) plan by EarthWeb. All amounts contrib-
uted by the employee participants in conformity with plan requirements and
earnings on such contributions are fully vested at all times. For the year
ended December 31, 1998, EarthWeb did not contribute to the 401(k) plan.
EarthWeb's wholly-owned subsidiaries, EW Career Solutions and MicroHouse, also
maintain 401(k) retirement plans.
Summary of Executive Compensation
The table below sets forth information concerning the annual and long-term com-
pensation for services rendered in all capacities to EarthWeb during the years
ended December 31, 1997 and 1998 for: (1) the chief executive officer of
EarthWeb and (2) the four other highest paid executive officers of EarthWeb in
1998.
Summary Compensation Table
<TABLE>
<CAPTION>
---------------------------------------------------------
Long-Term
Compensation
Awards
------------
Securities
Name and Other annual Underlying
Principal Position Year Salary Bonus compensation Options
- ------------------ ---- --------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Jack D. Hidary.......... 1998 $ 160,000 $ 41,000(2) -- --
Chief Executive Officer 1997 160,000 10,000(1) -- --
and President
Murray Hidary........... 1998 130,000 36,000(2) -- --
Executive Vice 1997 130,000 10,000(1) -- --
President, Business
Development, Secretary
and Treasurer
Irene Math.............. 1998 132,000 38,000(2) -- 46,150
Senior Vice President, 1997 118,000 10,000(1) 29,249
Finance
William Gollan.......... 1998 151,000 37,000(2) $53,000(3) 74,750
Senior Vice President
John Kleine............. 1998 128,292 19,600(2) -- 19,500
Vice President, Systems
and Operations
</TABLE>
(1) Represents bonuses earned in 1997, one-half of which were paid in 1998.
(2) Represents bonuses earned in 1998, a portion of which were paid in 1999.
(3) Represents corporate apartment rental paid in 1998.
39
<PAGE>
Option Grants in Fiscal Year Ended December 31, 1998
The following table sets forth information regarding stock options granted pur-
suant to the stock plan during the fiscal year ended December 31, 1998 to each
of the named executive officers. EarthWeb has never granted stock appreciation
rights.
<TABLE>
<CAPTION>
-------------------------------------------------------------------------
Potential Realizable
Value at Assumed
Annual Rates
of Stock Price
Option Grants in Last Fiscal Year Appreciation for
Individual Grants Option Term(4)
--------------------------------------------------- ---------------------
Percent of
Total Options
Granted to
Employees (net
Number of of forfeitures)
Securities in Fiscal Year Exercise or
Underlying Ended Base Price
Options December 31, Per Share Expiration
Name Granted(1) 1998(2) ($/Share)(3) Date 5% 10%
- ---- ---------- --------------- ------------ ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Jack D. Hidary.......... -- -- -- -- -- --
Murray Hidary........... -- -- -- -- -- --
William Gollan.......... 74,750 21.44% $3.08 1/29/05 $1,172,180 $1,623,709
Irene Math.............. 46,150 13.24% $3.08 1/29/05 $ 723,694 $1,002,464
John Kleine............. 19,500 5.59% $3.08 1/29/05 $ 305,786 $ 423,576
</TABLE>
(1) The options were granted under the stock plan. See "Management--Benefit
plans--Stock Option Plan."
(2) Based on an aggregate of 348,650 options granted (net of forfeitures) to
employees in the year ended December 31, 1998, 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. EarthWeb determined the 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 EarthWeb's then outstanding convertible preferred stock with an appropriate
discount as a result of the convertible preferred stock having a liquidation
preference, the right to board representation and a cumulative preferred divi-
dend.
(4) Potential realizable values are computed by (a) multiplying the number of
shares of common stock subject to a given option by the initial public offering
price of $14.00 per share, which represents the price per share offered in
EarthWeb's initial public offering on November 11, 1998 (b) assuming that the
aggregate stock value derived from that calculation compounds at the annual 5%
or 10% rate shown in the table for the remaining six-year term of the option
and (c) 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 EarthWeb's
estimate or projection of future common stock prices. Actual gains, if any, re-
sulting 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 EarthWeb through the vesting pe-
riod. There can be no assurance that the amounts reflected in this table will
be achieved.
40
<PAGE>
Options Exercised During 1998 and Options Values at December 31, 1998
The following table sets forth information concerning options exercised by any
named executive officer during the fiscal year ended December 31, 1998 and un-
exercised options held by the named executive officers as of December 31, 1998.
The values of unexercised in-the-money options represent the positive spread
between the respective exercise prices of outstanding stock options and the
last reported sale price of the common stock on December 31, 1998 of $38.88.
<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
Shares Fiscal Year End Fiscal Year End
Acquired Value ------------------------- -------------------------
Name on Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
- ------------- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Jack D. Hidary.......... -- -- -- -- -- --
Murray Hidary........... -- -- -- -- -- --
William Gollan.......... -- -- 28,530 93,995 $1,021,319 $3,364,840
Irene Math.............. 2,200 $13,865 15,324 57,876 $ 544,948 $2,089,015
John Kleine............. -- -- 2,925 16,575 $ 104,709 $ 593,353
</TABLE>
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. A subcommittee of the Com-
pensation committee consisting of Dr. Kressel and Mr. Davis will administer the
1998 Stock Incentive Plan with respect to EarthWeb's officers subject to Sec-
tion 162(m) of the Internal Revenue Code of 1986, as amended. Mr. Hidary has
served as President and Chief Executive Officer of EarthWeb since April 1996.
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 Managing Director since January 1999. Dr. Kressel
has served with E.M. Warburg, Pincus & Co., LLC since 1983 and has been a Man-
aging Director since 1985. In October 1996, EarthWeb 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, EarthWeb issued 433,965 shares of common stock to EarthWeb LLC for an ag-
gregate purchase price of $3.7 million. Immediately prior to the initial public
offering, EarthWeb LLC distributed substantially all shares of EarthWeb common
stock that it held to its members. In October 1996, EarthWeb issued 653,111
shares of Series A Convertible Preferred stock to Warburg in a private place-
ment for an aggregate purchase price of approximately $6.7 million, of which
$4.9 million was received by EarthWeb and the remainder was used to repay cer-
tain investors and cover the transaction costs. In June 1997, EarthWeb issued
598,086 shares of Series B Convertible Preferred stock to Warburg for an aggre-
gate purchase price of $10.0 million. All of the Series A Convertible Preferred
stock and Series B Convertible Preferred stock were converted into 2,439,833
shares of common stock upon completion of EarthWeb's initial public offering in
November 1998.
41
<PAGE>
Principal and Selling Stockholders
The following table sets forth information regarding the beneficial ownership
of common stock as of March 1, 1999 for (1) each person (or group within the
meaning of Section 13(d)(3) of the Securities Exchange Act of 1934) known by
EarthWeb to own beneficially more than 5% of the common stock, (2) EarthWeb's
directors and named executive officers, (3) all directors and executive offi-
cers of EarthWeb as a group and (4) the selling stockholders.
<TABLE>
<CAPTION>
---------------------------------------------------------
Beneficial Ownership Beneficial Ownership
Prior to Offering(2) After Offering(2)(3)
----------------------- -----------------------
Shares to
Name and Address of be
Beneficial Owners(1)(2) Number Percent sold(3) Number Percent
- ----------------------- ------------ ---------- --------- ------------ ----------
<S> <C> <C> <C> <C> <C>
Warburg, Pincus Ventures,
L.P.(4).................. 2,250,833 26.45 317,889 1,932,944 20.80
Jack D. Hidary(5)(6) ..... 1,055,753 12.11 40,000 1,015,753 10.77
Murray Hidary(5)(6)....... 1,055,753 12.11 40,000 1,015,753 10.77
Nova Spivack.............. 523,809 6.16 10,000 513,809 5.53
Cary Davis(7)............. 2,250,833 26.45 317,889 1,932,944 20.80
Henry Kressel(7).......... 2,250,833 26.45 317,889 1,932,944 20.80
Irene Math(8)............. 34,751 * 9,000 25,751 *
William Gollan(9)......... 50,974 * 15,000 35,974 *
John Kleine(10)........... 8,103 * 2,400 5,703 *
Lloyd Linn................ 288,889 3.39 25,134 263,755 2.84
Diane Rickert............. 288,889 3.39 25,134 263,755 2.84
Kevin McPherson........... 2,437 * 200 2,237 *
Scott Anderson............ 975 * 500 475 *
Steve Anderson............ 23,674 * 14,337 9,337 *
Doug Anderson............. 23,674 * 14,337 9,337 *
Mark Schlack.............. 487 * 300 187 *
Former EarthWeb LLC mem-
bers as a group(11)...... 757,276 8.90 35,769 721,507 7.76
All directors and execu-
tive officers as a group
(12 per-
sons)(5)(6)(7)(8)(9)(10).. 5,114,976 59.49 460,423 4,581,225 48.97
</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. For purposes of this table, a person is deemed to be the benefi-
cial owner of securities that can be acquired within 60 days from March 1, 1999
through the exercise of any option, warrant or right. Shares of common stock
subject to options, warrants or rights that are currently exercisable or exer-
cisable within 60 days are deemed outstanding for computing the ownership per-
centage of the person holding these 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 8,509,862 shares of common stock
outstanding as of March 1, 1999 and, in the case of Steve Anderson, Doug Ander-
son and Robert Anderson, includes shares issued in connection with the
MicroHouse acquisition on March 19, 1999.
(3) An additional 195,000 shares have been reserved for sale by the selling
stockholders to the underwriters in the event the underwriters choose to exer-
cise their over-allotment option. Only certain of the selling stockholders will
participate in such sale. The composition of those participating in the sale
will be allocated on a pro rata basis based on the amount sold by the partici-
pating selling stockholder in the sale described in the table above, with all
remaining shares (representing shares that would otherwise be sold by selling
stockholders not participating in the sale pursuant to the over-allotment op-
tion) to be sold by Warburg, Pincus Ventures, L.P.
(4) The sole general partner of Warburg, Pincus Ventures, L.P. ("Warburg") is
Warburg, Pincus & Co., a New York general partnership ("WP"). E.M. Warburg,
Pincus & Co., LLC, a New York limited liability company ("EMWP"), manages
Warburg. The members of EMWP are substantially the same as the partners of WP.
Lionel I. Pincus is the managing partner of WP and the managing member of EMWP
and may be deemed to control both WP and EMWP. WP has a 15% interest in the
profits of Warburg as the general partner and also owns approximately 1.5% of
the limited partnership interests in Warburg. Henry Kressel and Cary Davis, di-
rectors of EarthWeb, are also Managing Directors 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 indeterminate portion of the shares benefi-
cially owned by Warburg and WP. The address for Warburg is 466 Lexington Ave-
nue, New York, New York 10017.
42
<PAGE>
(5) Jack D. Hidary and Murray Hidary equally own Global Network Partners LLC
("GNP"). GNP is the managing member of EarthWeb LLC and, as a result, is a con-
trolling member of EarthWeb LLC and thus may be deemed to beneficially own the
110,994 shares of common stock owned by EarthWeb LLC. Jack D. Hidary and Murray
Hidary, the sole owners of GNP, each disclaim beneficial ownership of these
shares except to the extent of their pecuniary interest therein.
(6) Includes (a) 161,787 shares subject to stock options that are exercisable
within 60 days of March 1, 1999 and shares issued upon the exercise of those
stock options and (b) the 2,200 and 7,068 shares beneficially owned by Ms. Math
and Mr. Kleine, respectively, that are the subject of certain Voting Trust
Agreements between EarthWeb, GNP and various optionholders and stockholders of
EarthWeb. Pursuant to these agreements, GNP has the right to vote shares re-
ceived upon the exercise of these options, and thus may be deemed to benefi-
cially own the shares of stock subject to these options. Jack D. Hidary and
Murray Hidary, the sole owners of GNP, each disclaim beneficial ownership of
these shares. These shares are subject to a voting trust agreement that will
expire on May 10, 1999.
(7) All of the shares indicated as owned by Dr. Kressel and Mr. Davis are owned
directly by Warburg and are included because of Dr. Kressel's and Mr. Davis'
affiliation with Warburg. Dr. Kressel and Mr. Davis disclaim beneficial owner-
ship of these shares within the meaning of Rule 13d-3 under the Exchange Act.
(8) Includes 32,551 shares subject to stock options that are exercisable within
60 days of March 1, 1999 of a total of 85,400 options granted to Ms. Math.
(9) Includes 50,974 shares subject to stock options that are exercisable within
60 days of March 1, 1999 of a total of 132,525 options granted to Mr. Gollan.
(10) Includes 1,035 shares subject to stock options that are exercisable within
60 days of March 1, 1999.
(11) This group is comprised of 10 former members each of whom owns less than
1% of EarthWeb's outstanding common stock and none of whom are members of man-
agement.
43
<PAGE>
Certain Transactions
In October 1996, EarthWeb issued 2,925,000 shares of common stock to EarthWeb
LLC and assumed substantially all of the liabilities of EarthWeb LLC in ex-
change for substantially all of the assets of EarthWeb LLC. At the time of this
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 that
time) retained their proportionate interests in EarthWeb through the ownership
by EarthWeb LLC of this common stock.
In October 1996, EarthWeb issued 653,111 shares of Series A Convertible Pre-
ferred 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 EarthWeb
and the remainder was used to repay various investors and cover the transaction
costs. In June 1997, EarthWeb issued 598,086 shares of Series B Convertible
Preferred Stock to Warburg for an aggregate purchase price of $10.0 million.
All of the Series A Convertible Preferred Stock and Series B Convertible Pre-
ferred Stock were converted into 2,439,833 shares of common stock upon the con-
summation of the initial public offering in November 1998.
In June 1998, EarthWeb issued 433,965 shares of 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 and Murray Hidary, directors and officers of EarthWeb. Warburg, EarthWeb
LLC, GNP and the GNP members are entitled to demand and piggyback registration
rights with respect to their respective shares of common stock, which, with re-
spect to EarthWeb LLC, include the former members. See "Description of Capital
Stock--Registration Rights."
Under the Shareholders Agreement, Warburg granted GNP an option to purchase up
to 10% of the shares that Warburg received upon conversion of its preferred
stock, subject to Warburg realizing a return of at least five times on its in-
vestment. The rights become conditionally exercisable after the expiration of
any restrictions on resale of these 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 these parties, EarthWeb 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 EarthWeb the right to purchase these shares upon the oc-
currence of the events specified in this agreement. The Voting Trust Agreement
terminates on May 10, 1999.
EarthWeb has entered into a consulting agreement with Nova Spivack dated as of
August 1, 1998. See "Management-- Employment and Consulting Agreements." Under
the consulting agreement, various repurchase rights with respect to
Mr. Spivack's interests in GNP were waived. In December 1998, Mr. Spivack exer-
cised the option in his consulting argument that gave him the right to sell
4,713 shares of common stock to EarthWeb at a price of $42.43 per share, for an
aggregate purchase price of approximately $200,000.
44
<PAGE>
Description of Capital Stock
General
EarthWeb's authorized capital stock consists of 21,750,000 shares of common
stock, $.01 par value, and 2,000,000 shares of preferred stock, $.01 par value,
which have not been designated. As of March 1, 1999, there were 8,509,862
shares of common stock outstanding. Upon completion of the offering, there will
be 9,293,736 shares of common stock outstanding (assuming no exercise of out-
standing options and no exercise of the underwriters' over-allotment option).
The following summary of the terms and provisions of EarthWeb'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.
Common Stock
The holders of common stock are entitled to one vote for each share on all mat-
ters 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 dis-
cretion 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 EarthWeb upon liquidation after payment or provision for all lia-
bilities 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 EarthWeb. Shares of common stock are not subject to any re-
demption provisions and are not convertible into any other securities of
EarthWeb. All outstanding shares of common stock are, and the shares of common
stock to be sold by EarthWeb in the Offering when payment is received therefor
will be, fully paid and non assessable.
Preferred Stock
The Board of Directors of EarthWeb has the authority, without further action by
EarthWeb's stockholders, to issue shares of 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 re-
spect to dividend rates, amounts payable on liquidation, voting rights, conver-
sion rights, redemption provisions, sinking fund provisions, and other matters.
The issuance of such preferred stock could:
. decrease the amount of earnings and assets available for distribution to
holders of common stock;
. adversely affect the rights and powers, including voting rights, of holders
of common stock; and
. have the effect of delaying, deferring, or preventing a change in control of
EarthWeb.
EarthWeb has no present plans to issue any shares of preferred stock.
Registration Rights
From and after May 16, 1999, Warburg and the holders of a majority of the com-
mon stock held by the GNP Members, GNP and the members holding a majority in-
terest in EarthWeb LLC are entitled to demand registration rights with respect
to an aggregate of 5,798,798 shares of common stock, or the registrable securi-
ties. Pursuant to these rights, such stockholders may require that EarthWeb
file up to an aggregate of six registration statements under the Securities
Act, subject to certain minimum size and other conditions. In addition, if
EarthWeb proposes to register any of its securities under the Securities Act,
whether for its own account or for any of its stockholders, holders of the reg-
istrable securities are entitled, subject to certain restrictions and limita-
tions, to include their registrable securities in such registration. EarthWeb
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 EarthWeb and a specified number of holders of registra-
ble securities.
In connection with the acquisition of D&L Online, on February 2, 1999, EarthWeb
agreed to file a shelf registration statement with respect to the shares of
common stock issued to the stockholders of D&L Online as consideration for the
acquisition within 75 days after the acquisition date. Sales by these stock-
holders under the shelf registration statement are subject to limitations as
described in the registration rights agreement between EarthWeb and the stock-
holders of D&L Online. In addition, if EarthWeb proposes to register any of its
securities under the Securities Act, whether for its own account or for any of
its stockholders, the former stockholders of D&L Online also have limited
rights to include their
45
<PAGE>
shares of common stock in this registration. EarthWeb is required to bear sub-
stantially all registration and selling expenses (except for underwriting dis-
counts, selling expenses and the fees and expenses of more than one counsel for
the former stockholders) in connection with the above-described registrations.
These registration rights are transferable in limited circumstances. The regis-
tration rights agreement terminates on March 31, 2001.
In connection with the acquisition of MicroHouse International, in March 1999,
EarthWeb agreed to file a shelf registration statement with respect to the
shares of common stock issued to the stockholders of MicroHouse International
as consideration for the acquisition within 60 days after the acquisition date.
Sales by these stockholders under the shelf registration statement are subject
to limitations as described in the registration rights agreement between
EarthWeb and the stockholders of MicroHouse International. EarthWeb is required
to bear substantially all registration and selling expenses (except for under-
writing discounts, selling expenses and the fees and expenses of more than one
counsel for the former stockholders) in connection with the above-described
registration. These registration rights are transferable in limited circum-
stances. The registration rights agreement terminates on March 18, 2001.
Limitation on Directors' Liabilities
EarthWeb's certificate of incorporation limits, to the maximum extent permitted
by the Delaware General Corporation Law, or the DGCL, the personal liability of
directors and officers for monetary damages for breach of their fiduciary du-
ties as directors and officers, except in various circumstances involving vari-
ous wrongful acts, including 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 DGCL permits EarthWeb 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 rea-
sonably believed to be in, or not opposed to the best interests of the corpora-
tion, and, with respect to any criminal act or proceeding, had no reasonable
cause to believe his conduct was unlawful," provided that with respect to ac-
tions by, or in the right of the corporation against, these individuals, indem-
nification is not permitted as to any matter as to which this 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 this action are entitled to indemnification against expenses reason-
ably incurred in connection therewith.
EarthWeb's by-laws require EarthWeb to indemnify directors and officers against
liabilities that they may incur under the circumstances set forth in the pre-
ceding paragraph.
EarthWeb 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 EarthWeb
with respect to payments which may be made by EarthWeb to these officers and
directors pursuant to the above indemnification provision or otherwise as a
matter of law.
Anti-Takeover Provisions
Various provisions of the DGCL and EarthWeb's certificate of incorporation and
By-Laws may delay, discourage or prevent a change in control of EarthWeb unless
this takeover or change in control is approved by EarthWeb's Board of Direc-
tors. These provisions also may render the removal of directors and management
more difficult. These provisions may discourage bids for common stock at a pre-
mium 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--Our charter
documents could make it more difficult for a third party to acquire us."
Certificate of Incorporation and By-Laws
The certificate of incorporation provides that the Board of Directors will be
divided into three classes of directors, as nearly equal in number as is rea-
sonably possible, serving staggered terms. The existing directors' current
terms will expire as follows: Nova Spivack's term shall expire at the 1999 an-
nual meeting of the stockholders; Murray Hidary's and Cary Davis' terms shall
expire at the 2000 annual meeting of the stockholders; and Jack D. Hidary's and
Henry Kressel's terms shall expire at the 2001 annual meeting of the stockhold-
ers. At each succeeding annual meeting of stockholders, directors elected to
succeed those directors whose terms are expiring at this meeting shall be
elected for a term of office to expire at
46
<PAGE>
the third succeeding annual meeting of stockholders following such election.
EarthWeb believes that a classified Board of Directors will help to assure the
continuity and stability of the Board of Directors and EarthWeb's business
strategies and policies as determined by the Board of Directors, since a major-
ity of the directors at any given time will have had prior experience as direc-
tors of EarthWeb. EarthWeb 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 EarthWeb's 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 this provision could operate to prevent ob-
taining control of EarthWeb 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
EarthWeb. No director may be removed by the stockholders from office, except
for cause with the affirmative vote of not less than two-thirds of the total
voting power of all outstanding securities of EarthWeb.
The by-laws provide that special meetings of the stockholders of EarthWeb may
be called only by the Chairman of the Board of Directors, the President or the
Board of Directors of EarthWeb. The by-laws require advance written notice,
which generally must be received by the Secretary of EarthWeb not less than 30
days nor more than 60 days prior to a meeting of stockholders (subject to spec-
ified exceptions) of a proposal or director nomination that a stockholder de-
sires to present at this meeting.
The certificate of incorporation allows EarthWeb to issue up to 2,000,000
shares of preferred stock, which could adversely affect the interests of hold-
ers 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
"Preferred Stock" above. In specified circumstances, an issuance of preferred
stock could have the effect of decreasing the market price of the common stock,
as well as having the anti-takeover effect discussed above.
All amendments to the provisions of EarthWeb's certificate of incorporation re-
lating 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 EarthWeb's
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 sta-
bility in the composition of the Board of Directors and in the policies formu-
lated by the Board of Directors and to discourage various types of transactions
that may involve an actual or threatened change of control of EarthWeb. These
provisions are designed to reduce the vulnerability of EarthWeb to an unsolic-
ited acquisition proposal and to discourage various tactics that may be used in
proxy fights. However, these provisions could have the effect of discouraging
others from making tender offers for the shares of common stock, and, as a con-
sequence, they also may inhibit fluctuations in the market price of the shares
of common stock that could result from actual or rumored takeover attempts.
These provisions also may have the effect of preventing changes in the manage-
ment of EarthWeb.
Delaware Law
EarthWeb is subject to the provisions of Section 203 of the DGCL. Subject to
certain exceptions, Section 203 prohibits a publicly held Delaware corporation
from engaging in a "business combination" with an "interested stockholder" for
a certain period of time. That period is three years after the date of the
transaction in which the person became an interested stockholder, unless the
interested stockholder attained that status with the approval of the board of
directors or unless the business combination is approved in a prescribed man-
ner. A "business combination" includes certain mergers, asset sales and other
transactions resulting in a financial benefit to the interested stockholder.
Subject to certain exceptions, an "interested stockholder" is a person who, to-
gether with his or her affiliates and associates, owns, or owned within three
years prior, 15% or more of the corporation's voting stock.
Transfer Agent and Registrar
The Transfer Agent and Registrar for the common stock is American Stock Trans-
fer and Trust Company.
47
<PAGE>
Underwriting
The underwriters named below, for whom J.P. Morgan Securities Inc., Bear,
Stearns & Co. Inc., Volpe Brown Whelan & Company, LLC and Wit Capital Corpora-
tion are acting as representatives (the "Representatives") have severally
agreed, subject to the terms and conditions set forth in the underwriting
agreement among us, the selling stockholders and the underwriters, to purchase
from us and the selling stockholders, and we and the selling stockholders have
agreed to sell to the underwriters, the respective number of shares of common
stock set forth opposite their names below:
<TABLE>
<CAPTION>
---------
Number
of Shares
Underwriters ---------
<S> <C>
J.P. Morgan Securities Inc............................................
Bear, Stearns & Co. Inc...............................................
Volpe Brown Whelan & Company, LLC.....................................
Wit Capital Corporation...............................................
<CAPTION>
---------
<S> <C>
Total............................................................... 1,300,000
<CAPTION>
=========
</TABLE>
The nature of the underwriters' obligations under the underwriting agreement is
such that all of the common stock being offered, excluding shares covered by
the over-allotment option granted to the underwriters, must be purchased if any
are purchased.
The representatives of the underwriters have advised us and the selling stock-
holders that the several underwriters propose to offer the common stock to the
public initially at the public offering price set forth on the cover page of
this prospectus and may offer the common stock to selected dealers at such
price less a concession not to exceed $ per share. The underwriters may al-
low, and such dealers may reallow, a concession to other dealers not to exceed
$ per share. After the initial public offering of the common stock, the pub-
lic offering price and other selling terms may be changed by the representa-
tives.
Some of the selling stockholders have granted the underwriters an option, exer-
cisable for 30 days from the date of this prospectus, to purchase up to 195,000
additional shares of common stock at the same price per share to be paid by the
underwriters for the other shares offered hereby. If the underwriters purchase
any such additional shares pursuant to the option, each of the underwriters
will be committed to purchase such additional shares in approximately the same
proportion as set forth in the above table. The underwriters may exercise the
option only to cover over-allotments, if any, made in connection with the dis-
tribution of the common stock offered hereby.
The following table shows the per share and total underwriting discounts to be
paid to the underwriters by us and the selling stockholders assuming both no
exercise and full exercise of the underwriters' over-allotment option. EarthWeb
has agreed to pay $ of underwriting discounts in connection with the sale of
shares by certain employee selling stockholders.
<TABLE>
<CAPTION>
-----------------
No Full
Exercise Exercise
-------- --------
<S> <C> <C>
By EarthWeb
Per share................................................... $ $
Total....................................................... $ $
By the Selling Stockholders
Per share................................................... $ $
Total....................................................... $ $
</TABLE>
48
<PAGE>
A prospectus in electronic format is being made available on an Internet Web
site maintained by Wit Capital. In addition, all dealers purchasing shares from
Wit Capital in this offering have agreed to make a prospectus in electronic
format available on Web sites maintained by each of these dealers.
We and the selling stockholders have agreed to indemnify the underwriters
against certain liabilities, including liabilities under the Securities Act, or
to contribute to payments the underwriters may be required to make in respect
thereof.
We estimate that the total expenses of this offering, excluding underwriting
discounts, will be approximately $1.3 million. The selling stockholders will
not be responsible for any of these expenses.
In connection with this offering, the underwriters may engage in transactions
that stabilize, maintain or otherwise affect the price of the common stock.
Specifically, the underwriters may overallot this offering, creating a syndi-
cate short position. In addition, the underwriters may bid for, and purchase,
shares of common stock in the open market to cover syndicate shorts or to sta-
bilize the price of the common stock. Finally, the underwriting syndicate may
reclaim selling concessions allowed for distributing shares of common stock in
this 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
shares of 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.
EarthWeb, the selling stockholders and certain of our officers and directors
have agreed, with limited exceptions, that, during the period beginning from
the date of this prospectus and continuing and including the date 90 days after
the date of this prospectus, they will not, directly or indirectly offer, sell,
offer to sell, contract to sell or otherwise dispose of any shares of common
sock or any of our securities 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 enter into any swap, option, future,
forward or other agreement that transfers, in whole or in part, the economic
consequence of ownership of common stock or any securities substantially simi-
lar to the common sock, other than pursuant to employee stock option and re-
stricted stock plans existing on the date of this prospectus, without the prior
written consent of J.P. Morgan Securities Inc.
The common stock is traded on the Nasdaq National Market under the symbol
"EWBX."
From time to time in the ordinary course of their respective businesses, cer-
tain of the underwriters and their affiliates have engaged in and may in the
future engage in commercial and/or investment banking transactions with
EarthWeb and its affiliates. J.P. Morgan Securities Inc., Bear, Stearns & Co.
Inc. and Volpe Brown Whelan & Company, LLC acted as representatives and Wit
Capital Corporation acted as e-manager in connection with our initial pubic of-
fering which was consummated in November 1998.
Wit Capital, a member of the National Association of Securities Dealers, Inc.
will participate as one of the Representatives of the underwriters and e-Man-
ager of the offering. The National Association of Securities Dealers, Inc. ap-
proved the membership of Wit Capital on September 4, 1997. Since that time, Wit
Capital has acted as an underwriter, e-Manager or selected dealer in 55 public
offerings. Robert Lessin is the Chairman, Chief Executive Officer and a sub-
stantial shareholder of Wit Capital. Mr. Lessin is the sole shareholder of RHL
Ventures, LLC ("RHL"). RHL purchased certain interests in EarthWeb LLC that
were subsequently converted into 29,173 shares of common stock of EarthWeb.
Legal Matters
The validity of the common stock offered hereby will be passed upon for
EarthWeb by Morrison & Foerster LLP, New York, New York. Various 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, 1998 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, 1998, and the balance sheets
of D&L Online, Inc. as of December 31, 1998 and 1997 and the statements of
earnings, stockholders' equity and cash flows for the two years ended 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.
49
<PAGE>
Where You Can Find More Information
EarthWeb has filed with the Securities and Exchange Commission a Registration
Statement on Form S-1 for the common stock being offered by this prospectus.
This prospectus does not contain all of the information set forth in the regis-
tration statement and the exhibits and schedules thereto. For further informa-
tion with respect to EarthWeb 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 in this prospectus are not neces-
sarily complete and, where this contract is an exhibit to the registration
statement, each statement is qualified in all respects by the provisions of
this exhibit. Copies of the registration statement, including the exhibits and
schedules thereto, may be examined without charge at the Public Reference Sec-
tion of the Securities and Exchange Commission, 450 Fifth Street, N.W. Room
1024, Washington, D.C. 20549, and the Securities and Exchange Commission's Re-
gional 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. Please call the SEC at
800-SEC-0330 for further information about the public reference room.
EarthWeb is subject to the information and reporting requirements of the Secu-
rities Exchange Act of 1934, as amended, under which it files periodic reports,
proxy statements and other information with the Securities and Exchange Commis-
sion. These 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.
50
<PAGE>
EarthWeb Inc.
Index to Financial Statements
<TABLE>
<CAPTION>
----
Page
----
<S> <C>
EarthWeb Inc.
Report of Independent Accountants........................................ F-2
Balance Sheets at December 31, 1998 and 1997............................. F-3
Statements of Operations for the years ended December 31, 1998, 1997 and
1996.................................................................... F-4
Statements of Cash Flows for the years ended December 31, 1998, 1997 and
1996.................................................................... F-5
Statements of Stockholders' Equity for the years ended December 31, 1996,
1997 and 1998........................................................... F-6
Notes to Financial Statements............................................ F-7
D&L Online, Inc.
Report of Independent Accountants........................................ F-16
Balance Sheets at December 31, 1998 and 1997............................. F-17
Statements of Earnings for the years ended December 31, 1998 and 1997.... F-18
Statements of Cash Flows for the years ended December 31, 1998 and 1997.. F-19
Statements of Stockholders' Equity for the years ended December 31, 1997
and 1998................................................................ F-20
Notes to Financial Statements............................................ F-21
Unaudited Pro Forma Condensed Consolidated Financial Information
Overview................................................................. F-24
Unaudited Pro Forma Condensed Consolidated Balance Sheet at December 31,
1998.................................................................... F-25
Unaudited Pro Forma Condensed Consolidated Statement of Operations for
the year ended December 31, 1998........................................ F-26
Notes to Unaudited Pro Forma Condensed Consolidated Financial
Information............................................................. F-27
</TABLE>
F-1
<PAGE>
Report of Independent Accountants
To the Board of Directors and Stockholders of
EarthWeb Inc.:
In our opinion, the accompanying balance sheets and the related statements of
operations, stockholders' equity, and cash flows present fairly, in all mate-
rial respects, the financial position of EarthWeb Inc. at December 31, 1998 and
1997 and the results of its operations and cash flows for the three years in
the period ended December 31, 1998 in conformity with generally accepted ac-
counting principles. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these fi-
nancial statements based on our audits. We conducted our audits in accordance
with generally accepted auditing standards, which require that we plan and per-
form 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, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presenta-
tion. We believe that our audits provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
New York, New York
January 21, 1999
F-2
<PAGE>
EarthWeb Inc.
Balance Sheets
<TABLE>
<CAPTION>
-------------------------
As of December 31,
1998 1997
------------ -----------
<S> <C> <C>
ASSETS:
Current assets:
Cash and cash equivalents........................... $ 25,292,229 $ 4,775,153
Restricted cash..................................... 287,000 512,000
Accounts receivable, net............................ 1,143,681 375,961
Prepaid expenses and other current assets........... 541,686 235,242
Discontinued operations (accounts receivable)....... -- 403,052
<CAPTION>
------------ -----------
<S> <C> <C>
Total current assets................................ 27,264,596 6,301,408
Fixed assets, net................................... 2,068,752 1,650,828
Intangible assets, net.............................. 1,069,220 505,938
Other assets........................................ 74,816 55,674
<CAPTION>
------------ -----------
<S> <C> <C>
Total assets........................................ $ 30,477,384 $ 8,513,848
<CAPTION>
============ ===========
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities:
Accounts payable.................................... $ 1,805,076 $ 574,006
Accrued expenses.................................... 1,519,807 414,239
Other current liabilities........................... 157,714 552,179
Discontinued operations (accrued expenses).......... 76,696 443,527
<CAPTION>
------------ -----------
<S> <C> <C>
Total current liabilities........................... 3,559,293 1,983,951
Other liabilities................................... 65,686 85,311
<CAPTION>
------------ -----------
<S> <C> <C>
Total liabilities................................... 3,624,979 2,069,262
Commitments and contingencies
Stockholders' equity:
Preferred stock, par value $.01; 2,000,000
authorized; none issued............................ -- --
Series A Convertible Preferred Stock, par value
$.01; none and 1,000,000 authorized, none and
653,111 issued and outstanding..................... -- 6,531
Series B Convertible Preferred Stock, par value
$.01; none and 600,000 authorized, none and 598,086
issued and outstanding............................. -- 5,981
Common stock, par value $.01; 21,750,000 authorized,
7,903,761 and 2,925,000 issued and outstanding..... 79,038 29,250
Additional paid in capital.......................... 44,582,477 14,715,614
Unearned compensation............................... (326,562) --
Treasury stock at cost, 4,713 shares................ (199,970) --
Accumulated deficit................................. (17,282,578) (8,312,790)
<CAPTION>
------------ -----------
<S> <C> <C>
Total stockholders' equity.......................... 26,852,405 6,444,586
<CAPTION>
------------ -----------
<S> <C> <C>
Total liabilities and stockholders' equity.......... $ 30,477,384 $ 8,513,848
<CAPTION>
============ ===========
</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,
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Revenues................................ $ 3,349,165 $ 1,135,141 $ 472,109
Cost of revenues........................ 2,131,593 1,358,293 314,332
<CAPTION>
----------- ----------- -----------
<S> <C> <C> <C>
Gross profit (deficit).................. 1,217,572 (223,152) 157,777
<CAPTION>
----------- ----------- -----------
<S> <C> <C> <C>
Operating expenses:
Product development..................... 1,475,665 1,003,422 68,410
Sales and marketing..................... 4,546,839 1,018,313 252,287
General and administrative.............. 3,356,567 2,566,670 1,801,744
Depreciation and amortization........... 1,115,698 892,600 100,859
<CAPTION>
----------- ----------- -----------
<S> <C> <C> <C>
Total operating expenses................ 10,494,769 5,481,005 2,223,300
<CAPTION>
----------- ----------- -----------
<S> <C> <C> <C>
Loss from operations.................... (9,277,197) (5,704,157) (2,065,523)
Interest and other income, net.......... 307,409 267,139 61,497
<CAPTION>
----------- ----------- -----------
<S> <C> <C> <C>
Loss from continuing operations......... (8,969,788) (5,437,018) (2,004,026)
Discontinued operations:
Loss from discontinued operations....... -- (2,142,934) (42,255)
Loss on disposal of discontinued
operations............................. -- (240,585) --
<CAPTION>
----------- ----------- -----------
<S> <C> <C> <C>
Net loss................................ $(8,969,788) $(7,820,537) $(2,046,281)
<CAPTION>
=========== =========== ===========
<S> <C> <C> <C>
Basic and diluted net loss per share
from continuing operations............. $ (2.37) $ (1.86) $ (0.69)
Basic and diluted net loss per share
from discontinued operations........... -- (0.81) (0.01)
<CAPTION>
----------- ----------- -----------
<S> <C> <C> <C>
Basic and diluted net loss per share.... $ (2.37) $ (2.67) $ (0.70)
<CAPTION>
=========== =========== ===========
<S> <C> <C> <C>
Weighted average shares of common stock
outstanding used in computing basic and
diluted net loss per share............. 3,782,575 2,925,000 2,925,000
<CAPTION>
=========== =========== ===========
</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,
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss............................... $(8,969,788) $(7,820,537) $(2,046,281)
Adjustments to reconcile net loss to
net cash
used in operating activities:
Depreciation and amortization.......... 1,115,698 892,600 100,859
Charge related to issuance of stock
options............................... 82,878 5,948 --
Barter transaction..................... -- -- (257,398)
Reduction of members' receivable....... -- -- 114,389
Provision for doubtful accounts........ 42,650 10,505 --
Reserve for discontinued operations.... -- 443,527 --
Changes in operating assets and
liabilities:
Accounts receivable.................... (810,370) (285,287) (101,179)
Prepaid expenses and other current
assets................................ (306,444) (159,321) (72,571)
Other assets........................... (19,142) (32,080) 76,725
Accounts payable and accrued expenses.. 2,294,223 364,877 531,815
Other current liabilities.............. (10,767) 89,389 --
Discontinued operations................ 36,221 (235,526) 206,409
<CAPTION>
----------- ----------- -----------
<S> <C> <C> <C>
Net cash used in operating activities.. (6,544,841) (6,725,905) (1,447,232)
<CAPTION>
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from investing activities:
Purchase of fixed assets............... (1,147,512) (954,432) (598,543)
Acquisitions........................... (1,310,300) (811,876) --
Restricted cash........................ 225,000 (512,000) --
<CAPTION>
----------- ----------- -----------
<S> <C> <C> <C>
Net cash used in investing activities.. (2,232,812) (2,278,308) (598,543)
<CAPTION>
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from financing activities:
Proceeds from bridge financing......... -- 500,000 500,000
Proceeds from issuance of preferred
stock, net............................ -- 9,499,998 4,381,096
Proceeds from issuance of common stock,
net................................... 29,494,699 -- --
Purchase of treasury stock............. (199,970) -- --
Contribution from members.............. -- -- 58,100
<CAPTION>
----------- ----------- -----------
<S> <C> <C> <C>
Net cash provided by financing
activities............................ 29,294,729 9,999,998 4,939,196
<CAPTION>
----------- ----------- -----------
<S> <C> <C> <C>
Net increase in cash for the period.... 20,517,076 995,785 2,893,421
Cash and cash equivalents, beginning of
period................................ 4,775,153 3,779,368 885,947
<CAPTION>
----------- ----------- -----------
<S> <C> <C> <C>
Cash and cash equivalents, end of
period................................ $25,292,229 $ 4,775,153 $ 3,779,368
<CAPTION>
=========== =========== ===========
</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 mem-
bers' 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 Unearned Receivable
Members -------------------- ---------------- Paid in Compen- from Accumulated
Contributions Shares Amount Shares Amount Capital sation Member Deficit
------------- ---------- -------- --------- ------ ----------- --------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
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)
<CAPTION>
------------- ---------- -------- --------- ------ ----------- --------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
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)
<CAPTION>
------------- ---------- -------- --------- ------ ----------- --------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
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.... 2,536,446 25,364 29,465,517
Exercise of
stock options... 2,482 26 3,792
Issuance of non-
qualified stock
options 41,430
Issuance of
stock options
below deemed
fair value for
accounting
purposes........ 368,010 (368,010)
Amortization of
deferred
compensation.... 41,448
Conversion of
preferred
stock........... (1,251,197) (12,512) 2,439,833 24,398 (11,886)
Purchase of
treasury stock..
Net loss........ (8,969,788)
<CAPTION>
------------- ---------- -------- --------- ------ ----------- --------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at
December 31,
1998............ $ -- -- $ -- 7,903,761 79,038 $44,582,477 $(326,562) $ -- $(17,282,578)
<CAPTION>
============= ========== ======== ========= ====== =========== ========= ========== ============
-----------------------------------------------------------------------------------------------------------
<CAPTION>
Treasury Stock
-----------------
Shares Amount Total
------ ---------- ------------
<S> <C> <C> <C>
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)
<CAPTION>
------ ---------- ------------
<S> <C> <C> <C>
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)
<CAPTION>
------ ---------- ------------
<S> <C> <C> <C>
Balance at
December 31,
1997............ -- -- 6,444,586
Issuance of
common stock.... 29,490,881
Exercise of
stock options... 3,818
Issuance of non-
qualified stock
options 41,430
Issuance of
stock options
below deemed
fair value for
accounting
purposes........ --
Amortization of
deferred
compensation.... 41,448
Conversion of
preferred
stock........... --
Purchase of
treasury stock.. 4,713 (199,970) (199,970)
Net loss........ (8,969,788)
<CAPTION>
------ ---------- ------------
<S> <C> <C> <C>
Balance at
December 31,
1998............ 4,713 $(199,970) $26,852,405
<CAPTION>
====== ========== ============
</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 re-incorporated 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.
Business
The Company is a leading provider of Internet-based online services to the in-
formation technology ("IT") industry worldwide. Its integrated business-to-
business online services address the needs of IT professionals for content,
community and commerce.
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 or-
dinary course of business is dependent upon its ability to establish profit-
able operations or raise additional financing through public or private equity
financings, collaborative or other arrangements with corporate sources, or
other sources of financings to fund operations. During 1998, the Company re-
ceived financing of approximately $29,500,000, primarily through an initial
public offering of common stock in November 1998.
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 signif-
icant Company obligations remain and collection of the receivable is reasona-
bly assured. 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 corresponding revenues until the guaranteed impressions are achieved. For
the years ended December 31, 1998, 1997 and 1996, advertising revenues repre-
sented approximately 95%, 86% and 100% of gross revenues from continuing oper-
ations, 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 (rep-
resenting advertisements given) is recognized as income when advertisements
are delivered on the Company's Web sites. Barter expense (representing adver-
tisements received) is recognized when the Company's advertisements are run on
other companies' Web sites, which is typically in the same period when the re-
lated barter revenue is recognized. For the years ended December 31, 1998,
1997 and 1996, barter transactions represented 25%, 16% and 55% of total reve-
nues from continuing operations, respectively.
Online Product Sales
The Company has various agreements with product manufacturers where publica-
tions 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 reasonably assured.
Subscription Revenue
The Company offers monthly and yearly subscriptions for ITknowledge.com. Sub-
scription revenue is recognized ratably over the life of the subscription.
Amounts received for services which have not yet been provided are reflected
as deferred revenue in the accompanying balance sheets.
F-7
<PAGE>
EarthWeb Inc.
Notes to Financial Statements--(Continued)
Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with original ma-
turities 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 6).
Concentration of Credit Risk
Substantially all of the Company's excess cash has been invested in highly liq-
uid investments. The Company performs ongoing credit evaluations of its custom-
ers' financial condition 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 ap-
proximately $53,000 and $11,000 as of December 31, 1998 and 1997, respectively.
Two customers accounted for 31% and 52% of the accounts receivable balance at
December 31, 1998 and 1997, respectively. Two customers accounted for 21% of
revenues for the year ended December 31, 1998 and one customer accounted for
12% of revenues from continuing operations for the year ended December 31,
1997.
Financial Instruments
The recorded amounts of financial instruments approximate their fair values.
Fixed Assets
Depreciation of equipment, furniture and fixtures and computer software is pro-
vided for by the straight-line method over estimated useful lives 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 in-
curred.
Intangible Assets
Intangible assets, resulting from acquisitions of Web sites and other 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 ac-
counting for income taxes. Under the asset and liability method, deferred in-
come 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. 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 estab-
lished 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 uncertain-
ties. In the event that the Company does not successfully implement its busi-
ness 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 con-
tingent assets and liabilities at the date of the financial statements and re-
ported amounts of revenues and expenses during the reporting period. Actual re-
sults could differ from these estimates. The Company's significant estimates
include the useful lives of fixed assets and intangibles and the accounts re-
ceivable allowance for doubtful accounts.
F-8
<PAGE>
EarthWeb Inc.
Notes to Financial Statements--(Continued)
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 impair-
ment. 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 im-
paired based on anticipated undiscounted cash flows before interest. In the
event of impairment, a loss is recognized based on the amount by which the car-
rying amount exceeds fair value of the asset. Fair value is determined primar-
ily using the anticipated cash flows before interest, discounted at a rate com-
mensurate 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 earn-
ings per share excludes any dilutive effect of options, warrants and convert-
ible securities. Diluted earnings per share is very similar to fully diluted
earnings per share. Basic earnings per share is computed using the weighted-av-
erage 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
have been excluded from the computation as their effect is antidilutive for all
years. Net loss per share amounts for all periods have been restated to conform
to SFAS No. 128 requirements. There were 200,090 and 498,692 options outstand-
ing as of December 31, 1997 and 1998 that could potentially dilute earnings per
share in the future. Such options were not included in the computation of di-
luted loss per share because to do so would have been antidilutive for all pe-
riods presented.
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 including the
shares issued as a result of the assumed conversion of all outstanding shares
of Convertible Preferred Stock.
<TABLE>
<CAPTION>
---------
1998
---------
<S> <C>
Pro forma basic and diluted net loss per share.............. $(1.53)
Shares used in computing pro forma basic and diluted net
loss per share............................................. 5,880,467
</TABLE>
Stock Split
The company authorized and implemented a 0.65-for-one reverse stock split in
connection with the initial public offering of the Company's common stock on
November 10, 1998. All references to the number of shares of common stock have
been retroactively restated in the financial statements to reflect the effect
of this transaction.
Comprehensive Income
The Company adopted the provisions of SFAS No. 130, "Reporting Comprehensive
Income" in 1998. SFAS No. 130 establishes standards for reporting comprehensive
income and its components in financial statements. Comprehensive income, as de-
fined, includes all changes in equity (net assets) during a period from non-
owner sources. To date, the Company has not had any transactions that are re-
quired to be reported in comprehensive income.
Segments
The Company adopted the provisions of SFAS No. 131, "Disclosures about Segments
of an Enterprise and Related Information" in 1998. This statement establishes
standards for the way companies report information about operating segments in
annual financial statements. It also establishes standards for related disclo-
sures about products and services, geographic areas and major customers. The
Company has determined that it does not have any separately reportable business
segments as of December 31, 1998.
Recent Accounting Pronouncements
In March 1998, the American Institute of Certified Public Accountants ("AICPA")
issued Statement of Position 98-1, "Accounting for the Cost of Computer Soft-
ware Developed or Obtained for Internal Use" ("SOP 98-1"). SOP 98-1 is effec-
tive for financial statements for years beginning after December 15, 1998. SOP
98-1 provides guidance over accounting for computer software developed or ob-
tained 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.
F-9
<PAGE>
EarthWeb Inc.
Notes to Financial Statements--(Continued)
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 finan-
cial 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 opera-
tions, financial position or cash flows.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivatives and
Hedging Activities" ("SFAS 133"), which establishes accounting and reporting
standards for derivative instruments, including certain derivative instruments
embedded in other contracts, (collectively referred to as derivatives) and for
hedging activities. SFAS No. 133 is effective for all fiscal quarters of fiscal
years beginning after June 15, 1999. As the Company does not currently engage
or plan to engage in derivative or hedging activities there will be no impact
to the Company's results of operations, financial position or cash flows upon
the adoption of this standard.
3. Acquisitions
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 was a payable of $450,000 related to this acquisition that was paid
by August 1998. The Company has also entered into a four year consulting agree-
ment 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>
<CAPTION>
----------
<S> <C>
Intangible assets.............................................. $1,011,876
Capitalized software........................................... 230,000
Fixed assets................................................... 20,000
<CAPTION>
----------
<S> <C>
$1,261,876
<CAPTION>
==========
</TABLE>
At December 31, 1997 the Company recorded a charge of approximately $337,000
related to an impairment of the intangible assets acquired in the JARS acquisi-
tion to reflect the fair value of the remaining asset.
During 1998, the Company acquired several Web sites. In February 1998, the Com-
pany 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. In July 1998, the Company acquired substantially all
of the assets and properties of the Web site datamation.com. In conjunction
with the acquisition of datamation.com, 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
aggregate cost of these Web site acquisitions totaled approximately $949,000,
approximately $89,000 of which is payable over the next year.
Amortization expense of intangible assets resulting from acquisitions totaled
$404,000 and $506,000 in the years ended December 31, 1998 and 1997, respec-
tively.
4. Discontinued Operations
In November 1997, the Company formalized its plan to discontinue its profes-
sional services and software products divisions. Accordingly, operating results
have been reclassified and reported in discontinued operations.
F-10
<PAGE>
EarthWeb Inc.
Notes to Financial Statements--(Continued)
Operating results of the discontinued operations are as follows:
<TABLE>
<CAPTION>
--------------------------------------------------------------
Professional Software
Total Services Products Total Total
1998 1997 1997 1997 1996
--------- ------------ ----------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Revenues................ -- $2,303,813 $ 476,170 $ 2,779,983 $1,192,378
Expenses................ -- 1,361,046 3,802,456 5,163,502 1,234,633
<CAPTION>
------------ ----------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Net income (loss)....... -- $ 942,767 $(3,326,286) $(2,383,519) $ (42,255)
<CAPTION>
============ =========== =========== ==========
</TABLE>
Assets and liabilities of the discontinued operations are as follows at Decem-
ber 31:
<TABLE>
<S> <C> <C> <C> <C> <C>
Accounts receivable..... $ -- $253,052 $ 150,000 $403,052
Accrued expenses........ 76,696 103,585 339,942 443,527
<CAPTION>
--------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Net assets
(liabilities).......... $(76,696) $149,467 $(189,942) $ (40,475)
<CAPTION>
========= ========= ========= =========
</TABLE>
5. Fixed Assets
Property and equipment consist of the following:
<TABLE>
<CAPTION>
-------------------------
December 31, December 31,
1998 1997
------------ ------------
<S> <C> <C>
Computer equipment and software................... $2,348,249 $1,753,627
Furniture and fixtures............................ 499,425 321,818
Leasehold improvements............................ 635,627 291,311
<CAPTION>
------------ ------------
<S> <C> <C>
3,483,301 2,366,756
Less, accumulated depreciation and amortization... 1,414,549 715,928
<CAPTION>
------------ ------------
<S> <C> <C>
$2,068,752 $1,650,828
<CAPTION>
============ ============
</TABLE>
Depreciation and amortization for the years ended December 31, 1998, 1997 and
1996 totaled approximately $699,000, $529,000 and $101,000, 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. Future minimum lease
payments under non-cancelable operating leases as of December 31, 1998 are as
follows:
<TABLE>
<CAPTION>
----------
Operating
Leases
----------
<S> <C>
1999........................................................... $1,018,000
2000........................................................... 961,000
2001........................................................... 859,000
2002........................................................... 744,000
2003 and thereafter............................................ 4,095,000
<CAPTION>
----------
<S> <C>
Total........................................................ $7,677,000
<CAPTION>
==========
</TABLE>
Rent expense was approximately $323,000, $278,000 and $183,000 for the years
ended December 31, 1998, 1997 and 1996, respectively.
F-11
<PAGE>
EarthWeb Inc.
Notes to Financial Statements--(Continued)
Letter of Credit
As of December 31, 1998, the Company has a $287,000 standby letter of credit to
collateralize its principal facility lease agreement. Restricted cash
collateralizes such standby letter of credit.
Litigation
The Company is subject to legal proceedings and claims which arise in the ordi-
nary course of its business. The Company does not believe that an adverse out-
come of any proceeding would have a material effect on the Company's financial
position or results of operations.
7. Stockholders' Equity
Common Stock
In June 1998, the Company issued 436,446 shares of Common Stock to EarthWeb LLC
through a private placement, in consideration of net proceeds of $3,719,000. In
November 1998, the Company completed its initial public offering of 2,100,000
shares of common stock at a price of $14.00 a share. The total net proceeds to
the Company from the IPO were approximately $25,770,000.
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 Pre-
ferred 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.
As of the closing date of the initial public offering, all shares of Convert-
ible Preferred Stock were converted into 2,439,833 shares of common stock.
Stock Option Plan
During October 1996, the Company adopted the 1996 Amended and Restated Stock
Option Plan (the "1996 Plan") under which incentive stock options or non-quali-
fied stock options to purchase common stock may be granted to eligible employ-
ees.
F-12
<PAGE>
EarthWeb Inc.
Notes to Financial Statements--(Continued)
In November 1998, the Board of Directors adopted the Company's 1998 Plan (the
"1998 Plan"). The Company has reserved 375,000 shares of Common Stock for issu-
ance under the 1998 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 de-
termined by the Compensation Committee. A summary of the status of the
Company's Plans, as amended, as of December 31, 1997 and 1998, and changes dur-
ing the years ended December 31, 1997 and 1998 are presented below:
<TABLE>
<CAPTION>
--------------------------
Weighted
Option Average
Shares Exercise Price
--------- --------------
<S> <C> <C>
Options outstanding--January 1, 1997
Opening balance................................. --
Granted......................................... 217,568 $2.40
Cancelled....................................... (17,478) 1.54
<CAPTION>
---------
<S> <C> <C>
Options outstanding--December 31, 1997.......... 200,090 2.49
Granted......................................... 363,925 5.14
Exercised....................................... (2,732) 1.54
Cancelled....................................... (58,120) 2.51
Expired......................................... (4,201) 1.64
<CAPTION>
---------
<S> <C> <C>
Options outstanding--December 31, 1998.......... 498,962 4.43
<CAPTION>
=========
<S> <C> <C>
Options exercisable at December 31, 1998........ 108,813
Options exercisable at December 31, 1997........ --
Weighted average fair value of options granted
during 1998.................................... $ 0.97
Weighted average fair value of options granted
during 1997.................................... $ 0.75
</TABLE>
The following table summarizes information about stock options outstanding at
December 31, 1998:
<TABLE>
<CAPTION>
---------------------------------------------------------
Options Outstanding Options Exercisable
--------------------- ---------------------
Weighted
Average Weighted Weighted
Remaining Average Average
Range of Shares Contractual Exercise Shares Exercise
Exercise Prices Outstanding Life Price Exercisable Price
- --------------- ----------- ----------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C>
$1.54-1.54.......... 45,840 5.1 1.54 20,179 1.54
2.77-3.23.......... 361,472 6.0 3.08 75,385 3.07
6.15-8.57.......... 10,400 6.3 7.74 1,559 7.74
10.00-13.00........ 81,250 6.7 11.62 11,690 11.63
<CAPTION>
----------- -----------
<S> <C> <C> <C> <C> <C>
498,962 108,813
<CAPTION>
=========== ===========
</TABLE>
Options generally vest over a period of four years, however, 15% of all
unvested options automatically vested at the date of the initial public offer-
ing. At December 31, 1998, the Company had reserved 900,000 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 el-
igible employees. No such awards have been made.
F-13
<PAGE>
EarthWeb Inc.
Notes to Financial Statements--(Continued)
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 option issuances been determined based on the fair
value at the grant date for awards in 1998 and 1997 consistent with the provi-
sions of SFAS No. 123, the Company's net loss would have been adjusted to the
pro forma amounts indicated below.
<TABLE>
<CAPTION>
---------------------------
December 31, December 31,
1998 1997
------------ ------------
<S> <C> <C>
Net loss--as reported.......................... $(8,969,788) $(7,820,537)
Net loss--pro forma............................ $(9,022,961) $(7,860,720)
Basic net loss per share--as reported.......... $ (2.37) $ (2.67)
Basic net loss per share--pro forma............ $ (2.39) $ (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 years ended December 31, 1998 and 1997;
zero dividend yield; no volatility (all options were issued prior to the effec-
tiveness of the IPO); a weighted average risk-free interest rate of 5.34% and
6.90%, respectively; and expected lives of 4 and 5 years, respectively.
During the year ended December 31, 1998, the Company issued stock options with
strike prices below the then fair market value and, as a result, recorded de-
ferred compensation of approximately $368,000. Deferred compensation is amor-
tized over the four-year vesting period of the options. As of December 31,
1998, compensation cost of approximately $41,000 has been recognized.
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. 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. At December 31, 1998, employee contributions to
the Plan were approximately $66,000, which will purchase shares of common stock
on July 31, 1999.
8. Income Taxes
The components of the net deferred tax asset as of December 31, 1998 and 1997
consists of the following:
<TABLE>
<CAPTION>
-------------------------
1998 1997
----------- -----------
<S> <C> <C>
Operating loss carryforward.................... $ 7,328,880 $ 3,325,050
Depreciation of fixed assets and amortization
of intangibles................................ 13,856 254,250
<CAPTION>
----------- -----------
<S> <C> <C>
Net deferred tax asset......................... 7,342,736 3,579,300
Less, Valuation allowance...................... (7,342,736) (3,579,300)
<CAPTION>
----------- -----------
<S> <C> <C>
Deferred tax asset............................. $ -- $ --
<CAPTION>
=========== ===========
</TABLE>
The difference between the Company's U.S. federal statutory rate of 35%, as
well as its state and local rate, net of a federal benefit of 7%, when compared
to its effective rate of 0% is principally comprised of its valuation allow-
ance.
As of December 31, 1998, the Company has a net operating loss carryforward for
Federal income tax purposes of approximately $16,300,000. The carryforwards
will begin to expire in 2011 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>
9. Employee Savings Plan
The Company has a savings plan (the "Savings Plan") that qualifies as a de-
ferred 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 years ended December 31, 1998 and 1997, the Company did not contribute
to the Savings Plan.
10. Subsequent Events (unaudited)
In February 1999, the Company completed the acquisition of D&L Online, Inc.
which operates dice.com, a leading online job posting service for information
technology professionals. The total purchase price was approximately $35.0 mil-
lion. The consideration paid by EarthWeb to acquire D&L Online consisted of (a)
$7.0 million in cash, $4.0 million of which was paid at closing, with the bal-
ance payable over the next year in two installments, (b) 577,778 shares of
EarthWeb common stock, valued at $26.0 million, based upon the average stock
price of approximately $45.00 from January 26, 1999 through February 9, 1999
and (c) additional future "earnout" payments, based on the performance of the
surviving entity in the merger and related businesses, in the form of EarthWeb
common stock and/or cash with an aggregate value of up to $12.0 million, of
which such amounts are payable over a period of 3 years based on achievement of
certain revenue targets. Under the terms of the agreement and a related escrow
agreement, an aggregate of 57,778 shares of such EarthWeb common stock will be
held in escrow for 18 months for the purpose of indemnifying the Company
against certain liabilities of dice.com and its stockholders. The amount of
consideration paid by EarthWeb was reached through arm's length negotiations
and was funded through the issuance of EarthWeb common stock and from the pro-
ceeds of EarthWeb's initial public offering. The fair value of the options of
approximately $733,000 was determined using the Black-Scholes options pricing
model. The following assumptions were used in the options pricing model: stock
price of $45.00, exercise price of $32.05, term of 3 years, risk free rate of
interest of 5%, 50% volatility and a dividend yield of 0%.
In February 1999, the Company acquired gocertify.com, which provides users with
information on technical certification programs. In March 1999, the Company ac-
quired substantially all the assets of The Perl Journal, a leading technical
publication for developers using the Perl programming language, and the related
Web site TPJ.com. The aggregate purchase price of both acquisitions was
$980,000, of which $750,000 is payable through March 2000 in the form of common
stock or cash. The consideration paid also consists of additional future pay-
ments, based on performance, in the form of cash or stock, with an aggregate
value of up to $500,000.
In March 1999, the Company acquired all of the capital stock of MicroHouse In-
ternational, Inc. for approximately $9 million, subject to purchase price ad-
justments. The consideration paid by EarthWeb to acquire all of the capital
stock of MicroHouse consisted of (a) $1.6 million in cash, $1.0 million of
which was paid at closing, with $500,000 and $95,000 of the balance payable on
July 19, 1999 and April 1, 2000, respectively, (b) 50,856 shares of EarthWeb
common stock delivered at closing, valued at $2.2 million, based upon a stock
price of $43.14 of which 48,314 shares were delivered to the sellers and the
balance were delivered to Ascent Partners, Inc. as a fee in connection with the
acquisition and (c) promissory notes in an aggregate amount of $4,973,719 con-
vertible into 126,475 shares of common stock on March 20, 2000 (collectively,
the "Promissory Notes"). The beneficial conversion feature related to the note
payable of approximately $482,000 will be amortized over the one year life of
the note payable. In addition, EarthWeb assumed $1.7 million in debt as part of
the acquisition. The foregoing purchase price is subject to future downward ad-
justments, not to exceed $611,349, based on EarthWeb's calculation of
Microhouse's net revenue from continuing operations for the year ended December
31, 1998, following a financial audit to be conducted on the operations of
Microhouse for that year. Such purchase price was reached through arm's length
negotiations and was funded through the issuance of EarthWeb common stock and
the Promissory Notes, and from the proceeds of EarthWeb's initial public offer-
ing.
These acquisitions will be accounted for using the purchase method of account-
ing. The results of operations for each will be included with those of the Com-
pany for periods subsequent to the date of each acquisition.
F-15
<PAGE>
Report of Independent Accountants
To the Board of Directors of
D&L Online, Inc.:
In our opinion, the accompanying balance sheets present fairly, in all material
respects, the financial position of D&L Online, Inc. as of December 31, 1998
and 1997, and the related statements of earnings, stockholders' equity and cash
flows for each of the years then ended, in conformity with generally accepted
accounting principles. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these fi-
nancial statements based on our audits. We conducted our audits of these state-
ments in accordance with generally accepted auditing standards which 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, assessing the accounting principles used and signifi-
cant estimates made by management, and evaluating the overall financial state-
ment presentation. We believe that our audits provide a reasonable basis for
our opinion.
PricewaterhouseCoopers LLP
Omaha, Nebraska
January 22, 1999
F-16
<PAGE>
D&L Online, Inc.
Balance Sheets
<TABLE>
<CAPTION>
---------------------
As of December 31,
1998 1997
---------- ----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.............................. $ 319,870 $ 268,213
Accounts receivable, net of allowance for bad debts of
$48,664 in 1998....................................... 592,968 348,593
<CAPTION>
---------- ----------
<S> <C> <C>
Total current assets................................. 912,838 616,806
Fixed assets, net...................................... 504,534 435,967
Other assets........................................... 45,751 25,598
<CAPTION>
---------- ----------
<S> <C> <C>
Total assets......................................... $1,463,123 $1,078,371
<CAPTION>
========== ==========
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accrued expenses and accounts payable.................. $ 427,077 $ 518,292
Deferred revenue....................................... 329,029 82,527
Notes payable.......................................... 470,000 276,940
<CAPTION>
---------- ----------
<S> <C> <C>
Total current liabilities............................ 1,226,106 877,759
Commitments and contingencies
Stockholders' equity:
Common stock, par value $1 per share; 3,000,000 shares
authorized, 1,000 shares issued and outstanding....... 1,000 1,000
Additional paid-in capital............................. 7,433 7,433
Retained earnings...................................... 228,584 192,179
<CAPTION>
---------- ----------
<S> <C> <C>
Total stockholders' equity........................... 237,017 200,612
<CAPTION>
---------- ----------
<S> <C> <C>
Total liabilities and stockholders' equity........... $1,463,123 $1,078,371
<CAPTION>
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-17
<PAGE>
D&L Online, Inc.
Statements of Earnings
<TABLE>
<CAPTION>
-----------------------
Year ended December 31,
1998 1997
----------- -----------
<S> <C> <C>
Revenues.............................................. $ 7,736,921 $ 3,673,107
Cost of revenues...................................... 1,072,537 781,490
<CAPTION>
----------- -----------
<S> <C> <C>
Gross profit...................................... 6,664,384 2,891,617
Operating expenses:
Sales and marketing................................. 2,287,447 926,197
General and administrative.......................... 4,140,265 1,762,129
Depreciation and amortization....................... 208,297 156,162
<CAPTION>
----------- -----------
<S> <C> <C>
Total operating expenses.......................... 6,636,009 2,844,488
<CAPTION>
----------- -----------
<S> <C> <C>
Operating income...................................... 28,375 47,129
Interest and other income (expense), net.............. 8,030 (17,929)
<CAPTION>
----------- -----------
<S> <C> <C>
Net earnings.......................................... $ 36,405 $ 29,200
<CAPTION>
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-18
<PAGE>
D&L Online, Inc.
Statements of Cash Flows
<TABLE>
<CAPTION>
--------------------
Year
ended
December 31,
1998 1997
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income.............................................. $ 36,405 $ 29,200
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization.......................... 208,297 156,162
Gain on sale of fixed assets........................... (6,251) --
Non cash compensation expense.......................... 300,000 110,000
Allowance for doubtful accounts........................ 48,664 --
Changes in operating assets and liabilities:
Accounts receivable................................... (293,039) (215,988)
Other assets.......................................... (20,153) (17,811)
Accounts payable and accrued expenses................. (91,215) 328,422
Deferred revenue...................................... 246,502 75,128
<CAPTION>
--------- ---------
<S> <C> <C>
Net cash provided by operating activities............ 429,210 465,113
<CAPTION>
--------- ---------
<S> <C> <C>
Cash flows from investing activities:
Purchase of fixed assets................................ (306,797) (274,482)
Proceeds from sale of fixed assets...................... 36,184 --
<CAPTION>
--------- ---------
<S> <C> <C>
Net cash used in investing activities................ (270,613) (274,482)
<CAPTION>
--------- ---------
<S> <C> <C>
Cash flows from financing activities:
Stockholder distributions............................... -- (40,000)
Payments on notes payable............................... (106,940) (97,438)
<CAPTION>
--------- ---------
<S> <C> <C>
Net cash used in financing activities................ (106,940) (137,438)
<CAPTION>
--------- ---------
<S> <C> <C>
Net increase in cash for the period.................. 51,657 53,193
Cash and cash equivalents, beginning of period........... 268,213 215,020
<CAPTION>
--------- ---------
<S> <C> <C>
Cash and cash equivalents, end of period................. $ 319,870 $ 268,213
<CAPTION>
========= =========
<S> <C> <C>
Supplemental disclosure of cash flow information:
Interest paid............................................ $ 14,173 $ 23,599
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-19
<PAGE>
D&L Online, Inc.
Statements of Stockholders' Equity
<TABLE>
<CAPTION>
------------------------------------------
Additional
Paid- Retained
Common Stock in Capital Earnings Total
------------ ---------- -------- --------
<S> <C> <C> <C> <C>
Balance at December 31, 1996....... $1,000 $7,433 $202,979 $211,412
Net earnings....................... -- -- 29,200 29,200
Stockholder distributions.......... -- -- (40,000) (40,000)
<CAPTION>
------------ ---------- -------- --------
<S> <C> <C> <C> <C>
Balance at December 31, 1997....... 1,000 7,433 192,179 200,612
Net earnings....................... -- -- 36,405 36,405
<CAPTION>
------------ ---------- -------- --------
<S> <C> <C> <C> <C>
Balance at December 31, 1998....... $1,000 $7,433 $228,584 $237,017
<CAPTION>
============ ========== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-20
<PAGE>
D&L Online, Inc.
Notes to Financial Statements
1. The Company
D&L Online, Inc. (the "Company") was incorporated in the State of Iowa on No-
vember 26, 1991. The Company maintains a job search Web site for computer pro-
fessionals. This Web site is offered to professional recruiters, who, for a
monthly fee, are given access to post job listings for programmers, software
engineers, system administrators, Web developers, hardware engineers, and oth-
ers involved in high technology industries.
2. Significant Accounting Policies and Procedures
Revenue Recognition
Advertising revenues from Web site postings are recognized over the period the
ads are displayed.
Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with original ma-
turities of three months or less to be cash equivalents.
Financial Instruments
The recorded amounts of financial instruments approximate their fair value.
Fixed Assets
Depreciation of computer equipment, furniture and fixtures and computer soft-
ware is provided for by the straight-line method over the 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 capi-
talized and repairs and maintenance costs are charged to operations in the pe-
riods incurred.
Income Taxes
The Company has elected Subchapter S corporation status and as such, substan-
tially all income tax liabilities are the responsibility of the stockholders.
Risks and Uncertainties
The Company and its prospects are subject to the risks, expenses and uncertain-
ties frequently encountered by companies in the new and rapidly evolving mar-
kets 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 Com-
pany 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 con-
tingent assets and liabilities at the date of the financial statements and re-
ported amounts of revenue and expenses during the reporting period. Actual re-
sults could differ from these estimates.
Long-Lived Assets
The carrying value of assets is reviewed on a regular basis for the existence
of facts or circumstances, both internally and externally, that suggest impair-
ment. To date, no such impairment has been indicated. Should there be an im-
pairment in the future, the Company will determine the impairment based on a
comparison of recorded amounts to the expected future cash flows from the im-
paired assets. The cash flow estimates will contain management's best esti-
mates, using appropriate and customary assumptions and projections at the time.
F-21
<PAGE>
D&L Online, Inc.
Notes to Financial Statements--(Continued)
3. Fixed Assets
Fixed assets consists of the following:
<TABLE>
<CAPTION>
---------------------
<S> <C> <C>
Computer equipment and software........................ $ 549,793 $ 470,054
Furniture and fixtures................................. 299,945 159,638
Leasehold improvements................................. 95,186 95,186
<CAPTION>
--------- ---------
<S> <C> <C>
944,924 724,878
Less accumulated depreciation and amortization......... 440,390 288,911
--------- ---------
$ 504,534 $ 435,967
<CAPTION>
========= =========
</TABLE>
Depreciation and amortization for the years ended December 31, 1998 and 1997
totaled $208,297 and $156,162, respectively.
4. Commitments and Contingencies
The Company leases office space under noncancelable operating leases expiring
at various dates through 2002. Future minimum lease payments under noncancel-
able operating leases as of December 31, 1998 are as follows:
<TABLE>
<CAPTION>
---------
<S> <C>
1999............................................................ $ 144,939
2000............................................................ 161,210
2001............................................................ 145,321
2002............................................................ 15,000
<CAPTION>
---------
<S> <C>
Total......................................................... $ 466,470
<CAPTION>
=========
</TABLE>
Rent expense was $146,018 and $112,560 for the years ended December 31, 1998
and 1997, respectively.
5. Employee Savings Plan
The Company has a savings plan (the "Savings Plan") that qualifies as a de-
ferred 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.
The Company matches 35% of the first 10% contributed by each employee. The
Company's contributions totaled $22,229 and $21,727 for the years ended Decem-
ber 31, 1998 and 1997, respectively.
6. Notes Payable
Notes payable represent amounts due under the following:
<TABLE>
<CAPTION>
---------------------
1998 1997
---------- ----------
<S> <C> <C>
Term loan payable to bank. Paid off in 1998.......... $ -- $ 106,940
8% unsecured notes payable to stockholders of the
Company............................................. 470,000 170,000
<CAPTION>
---------- ----------
<S> <C> <C>
$ 470,000 $ 276,940
<CAPTION>
========== ==========
</TABLE>
The notes payable to stockholders of the Company have no set maturity dates or
repayment provisions and as such, are reflected as current debt. These notes
represent cumulative noncash compensation payable to the stockholders of the
Company.
7. Stock Option Program
The Company has implemented a stock option program effective as of December 31,
1998. Total stock to be offered under this program will not exceed 100 shares.
On December 31, 1998, the Company granted options to purchase 50 shares of com-
mon stock. These options, which have an exercise price of $23,500 per share,
vest 25% per year beginning December
F-22
<PAGE>
D&L Online, Inc.
Notes to Financial Statements--(Continued)
31, 1999 through December 31, 2002. The unexercised portion of the options ex-
pire December 31, 2008. No options have been exercised through December 31,
1998.
The Company has adopted the disclosure-only provisions of Statement of Finan-
cial Accounting Standards No. 123, "Accounting for Stock-Based Compensation."
Accordingly, no compensation cost has been recognized for the stock option
plan. Net earnings for 1998 would have remained as reported had compensation
cost been determined based on the fair value at the grant date for the 1998
award, as the options were granted on December 31, 1998. The fair value of each
option at the date of grant was $11,690. The fair value of the stock options
was estimated using the Black-Scholes option pricing method with the following
assumptions: risk-free interest rate of 7%; zero dividend yield; and expected
option life of 10 years.
8. Related Party Transactions
Included in general and administrative expenses is compensation paid to the
stockholders of the Company. These salaries and bonuses totaled $3,200,000 and
$1,161,538 for the years ended December 31, 1998 and 1997, respectively.
9. Recent Accounting Pronouncements
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 finan-
cial reporting of start-up costs and organization costs. It requires costs of
start-up activities and organization costs to be expensed as incurred. 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 No. 133"), which establishes accounting and report-
ing standards for derivative instruments, including certain derivative instru-
ments 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-23
<PAGE>
Unaudited Pro Forma Condensed Consolidated Financial Information
In February 1999, EarthWeb acquired D&L Online, Inc., which operates dice.com.
The total purchase price was approximately $35.0 million. The consideration
paid by EarthWeb to acquire D&L Online consisted of (a) $7.0 million in cash,
$4.0 million of which was paid at closing, with the balance payable over the
next year in two installments, (b) 577,778 shares of EarthWeb common stock,
valued at $26.0 million, based upon the average stock price of $45.00 from Jan-
uary 26, 1999 through February 9, 1999 and (c) additional future "earnout" pay-
ments, based on the performance of the surviving entity in the merger and re-
lated businesses, in the form of EarthWeb common stock and/or cash with an ag-
gregate value of up to $12.0 million, of which such amounts are payable over a
period of 3 years based on achievement of certain revenue targets. Under the
terms of the agreement and a related escrow agreement, an aggregate of 57,778
shares of such EarthWeb common stock will be held in escrow for 18 months to
insure payment by certain selling shareholders of indemnification claims. The
amount of consideration paid by EarthWeb was reached through arm's length nego-
tiations and was funded through the issuance of EarthWeb common stock and from
the proceeds of EarthWeb's initial public offering. The fair value of the op-
tions of approximately $733,000 was determined using the Black-Scholes options
pricing model. The following assumptions were used in the options pricing mod-
el: stock price of approximately $45.00, exercise price of $32.05, term of 3
years, risk free rate of interest of 5%, 50% volatility and a dividend yield of
0%.
The Unaudited Pro Forma Condensed Consolidated Statement of Operations for the
year ended December 31, 1998 gives effect to the acquisition of D&L Online as
if it had occurred on January 1, 1998 and is based on the historical results of
operations of the Company and D&L Online for the year ended December 31, 1998.
The Unaudited Pro Forma Condensed Consolidated Balance Sheet gives effect to
the acquisition of D&L Online as if the acquisition had occurred on December
31, 1998. The Unaudited Pro Forma Condensed Consolidated Statement of Opera-
tions and the Unaudited Pro Forma Condensed Consolidated Balance Sheet and the
accompanying notes should be read in conjunction with the historical financial
statements of the Company and D&L Online and notes thereto.
The Unaudited Pro Forma Condensed Consolidated Financial Information is in-
tended for informational purposes only and is not necessarily indicative of the
future financial position or future results of operations of the consolidated
company after the acquisition of D&L Online or of the financial position or re-
sults of operations of the consolidated company that would have actually oc-
curred had the acquisition of D&L Online been effected on January 1, 1998.
F-24
<PAGE>
EarthWeb Inc.
Unaudited Pro Forma Condensed Consolidated Balance Sheet
<TABLE>
<CAPTION>
-------------------------------------------------------------------
As of December 31, 1998
------------------------------
Pro Forma Pro Forma
EarthWeb Inc. D&L Online, Inc. Adjustments Total
------------- ---------------- --------------- -----------
<S> <C> <C> <C> <C>
ASSETS
Cash and cash
equivalents............ $25,292,229 $ 319,870 $ (4,360,000)(1a) $21,252,099
Accounts receivable,
net.................... 1,143,681 592,968 -- 1,736,649
Other current assets.... 828,686 -- -- 828,686
<CAPTION>
------------- ---------------- --------------- -----------
<S> <C> <C> <C> <C>
Total current assets.. 27,264,596 912,838 (4,360,000) 23,817,434
Fixed assets, net....... 2,068,752 504,534 -- 2,573,286
Goodwill and intangible
assets, net............ 1,069,220 -- 34,112,337 (1b) 35,181,557
Other assets............ 74,816 45,751 -- 120,567
<CAPTION>
------------- ---------------- --------------- -----------
<S> <C> <C> <C> <C>
Total assets.......... $30,477,384 $1,463,123 $29,752,337 $61,692,844
<CAPTION>
============= ================ =============== ===========
<S> <C> <C> <C> <C>
LIABILITIES AND
STOCKHOLDERS' EQUITY
Accounts payable and
accrued expenses....... $ 3,324,883 $ 427,077 500,000 (1f) 4,251,960
Other current
liabilities............ 234,410 329,029 (243,656)(1c) 319,783
Notes payable........... -- 470,000 1,500,000 (1d) 1,970,000
<CAPTION>
------------- ---------------- --------------- -----------
<S> <C> <C> <C> <C>
Total current
liabilities.......... 3,559,293 1,226,106 1,756,344 6,541,743
Other liabilities....... 65,686 -- 1,500,000 (1d) 1,565,686
Stockholders' equity.... 26,852,405 237,017 26,495,993 (1e) 53,585,415
<CAPTION>
------------- ---------------- --------------- -----------
<S> <C> <C> <C> <C>
Total liabilities and
stockholders'
equity.............. $30,477,384 $1,463,123 $29,752,337 $61,692,844
<CAPTION>
============= ================ =============== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-25
<PAGE>
EarthWeb Inc.
Unaudited Pro Forma Condensed Consolidated Statement of Operations
<TABLE>
<CAPTION>
--------------------------------------------------------
For the year ended December 31, 1998
--------------------------------------------------------
EarthWeb D&L Pro Forma Pro Forma
Inc. Online, Inc. Adjustments Total
----------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
Revenues................ $ 3,349,165 $ 7,736,921 $ -- $ 11,086,086
Cost of revenues........ 2,131,593 1,072,537 -- 3,204,130
<CAPTION>
----------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
Gross profit............ 1,217,572 6,664,384 -- 7,881,956
<CAPTION>
----------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
Operating expenses:.....
Product development... 1,475,665 -- -- 1,475,665
Sales and marketing... 4,546,839 2,287,447 -- 6,834,286
General and
administrative....... 3,356,567 4,140,265 (2,800,000)(2a) 4,696,832
Depreciation and
amortization......... 1,115,698 208,297 7,580,519 (2b) 8,904,514
<CAPTION>
----------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
Total operating
expenses........... 10,494,769 6,636,009 4,780,519 21,911,297
<CAPTION>
----------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
Operating (loss)
income................. (9,277,197) 28,375 (4,780,519) (14,029,341)
Interest and other
income, net............ 307,409 8,030 -- 315,439
Income taxes............ -- -- 1,120,000 (2a) 1,120,000
<CAPTION>
----------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
Net (loss) income....... $(8,969,788) $ 36,405 $(5,900,519) $(14,833,902)
<CAPTION>
=========== ============ =========== ============
<S> <C> <C> <C> <C>
Basic net loss per
share.................. $ (2.37) $ (3.40)
<CAPTION>
=========== ============
<S> <C> <C> <C> <C>
Weighted average shares
used in computing basic
net loss per share..... 3,782,575 577,778 (2c) 4,360,353
<CAPTION>
=========== =========== ============
<S> <C> <C> <C> <C>
Supplemental pro forma
basic net loss per
share(2d) ............. $ (1.53) $ (2.30)
<CAPTION>
=========== ============
<S> <C> <C> <C> <C>
Weighted average shares
used in supplemental
pro forma basic net
loss per share(2d)..... 5,880,467 6,458,245
<CAPTION>
=========== ============
</TABLE>
The accompanying notes are an integral part of these financial statements
F-26
<PAGE>
EarthWeb Inc.
Notes to the Unaudited Pro Forma Condensed Consolidated Financial Information
(1) Pro Forma Adjustments and Assumptions
The pro forma adjustments to the unaudited pro forma condensed consolidated
balance sheet, assuming the acquisition occurred on December 31, 1998, are as
follows:
1(a) Adjustment to record cash payment of $4,360,000 in connection with
the D&L Online acquisition.
1(b) Adjustment to calculate goodwill and intangible assets and to allo-
cate purchase price over the estimated fair value of net assets ac-
quired of D&L Online, calculated as follows:
<TABLE>
<CAPTION>
-----------
<S> <C>
Cash portion of purchase price.............................. $ 4,360,000
Value of stock and option portion of purchase price(/1/).... 26,733,010
Payable portion of purchase price........................... 3,000,000
Transaction costs........................................... 500,000
<CAPTION>
-----------
<S> <C>
Purchase price.............................................. 34,593,010
Less: fair value of net assets to be acquired............... 480,673
<CAPTION>
-----------
<S> <C>
34,112,337
Customer list and other intangibles......................... (15,800,000)
<CAPTION>
-----------
<S> <C>
Goodwill.................................................... $18,312,337
<CAPTION>
===========
</TABLE>
(1) The value of the common stock issued to D&L Online was determined to
be $45.00 a share.
1(c) Adjustment to deferred revenue to record the balance of the future
obligation of existing subscriptions at its fair value.
1(d) Adjustment to record current and long-term portion of note payable to
D&L Online stockholders as part of the total consideration paid.
1(e) Adjustment to reflect the issuance of 577,778 shares of common stock
issued in connection with the D&L Online acquisition.
1(f) Adjustment to record approximately $500,000 of expenses incurred in
connection with the acquisition of D&L Online.
The pro forma adjustments to the unaudited pro forma condensed consolidated
statement of operations, assuming the acquisition occurred on January 1, 1998,
are as follows:
2(a) Adjustment of $2.8 million due to D&L Online's S corporation distri-
bution which was recorded as compensation expense that will not be
incurred in the future, as well as to record the associated tax
charge of $1.2 million which does not assume the utilization of
EarthWeb's net operating loss carryforwards.
2(b) Adjustment to depreciation and amortization to reflect the amortiza-
tion of goodwill and intangible assets of approximately $7.6 million
resulting from the acquisition of D&L Online, over an approximate 4.5
year period, the expected period of benefit.
2(c) Adjustment of weighted average shares of common stock outstanding of
577,778 used in computing basic and diluted net loss per share to re-
flect the issuance of 577,778 shares of common stock as of January 1,
1998.
2(d) The supplemental pro forma net loss per share amount is computed by
using the sum of the weighted average number of shares of common
stock and the 2,439,833 shares of common stock issued in November
1998 upon conversion of preferred stock as if it had been converted
on January 1, 1998
F-27
<PAGE>
EARTHWEB PROPERTIES
EarthWeb
www.earthweb.com
EarthWeb.com is the single point of access into EarthWeb's technical
business-to-business content and services. Through this hub, IT professionals
can locate thousands of resources available at EarthWeb's online services
including job boards, software and an extensive collection of reference and
technical content.
Developer.com
www.developer.com
A leading online resource for professional developers, developer.com offers
resource directories, reusable objects, discussions, training, news and more for
technologies including, C/C++, Perl, XML, ASP, Visual Basic, Middleware,
Networks, Databases and Security.
ITKnowledge
www.itknowledge.com
EarthWeb's first subscription service, ITKnowledge covers such topics as
networking, databases, programming, Linux and hardware and has an extensive
collection of technical books and source code.
Datamation
www.datamation.com
Datamation is the one-stop online resource center that provides unique
information, perspective and analysis for senior IT managers and executives at
large organizations.
Dice.com
www.dice.com
With tens of thousands of current job listings for systems engineers, developers
and other computer professionals, Dice.com is a premier job search site for IT
professionals.
Intranet Journal
www.intranetjournal.com
A resource for corporate Intranet professionals, Intranet Journal provides
targeted content, tutorials, original articles, moderated message exchange
boards and more on Intranet development and management topics.
HTML Goodies
www.htmlgoodies.com
With hundreds of HTML tutorials and extensive resources on DHTML, XML, SGML and
other mark-up languages, HTMLGoodies provides an audience of more than 300,000
Webmasters with the tools to create dynamic, functional Web sites.
Y2Kinfo
www.y2kinfo.com
Dedicated to Year 2000 tools, information and services, Y2Kinfo is a
comprehensive online service for IT professionals involved in Year 2000
solutions.
EarthWeb Direct
www.earthwebdirect.com
Formed in partnership with Beyond.com, EarthWeb Direct focuses on software
products and tools for IT professionals.
Javascripts.com
www.javascripts.com
Home to dozens of original tutorials and hundreds of active forums about,
Javascripts.com provides a comprehensive guide to scripting languages and other
Web development tools.
Road Coders
www.roadcoders.com
Offering extensive links, source code, articles and development applications for
PalmPilot and Windows CE application development. Road Coders is a site designed
for people that code for the road.
Gamelan
www.gamelan.com
Noted industry-wide as a comprehensive repository of Java resources and
endorsed by Sun Microsystems as the "Official Directory for Java," Gamelan
includes thousands of resources covering such topics as Java's impact on
security, e-commerce, and distributed computing.
<PAGE>
[logo] EarthWeb
<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 home 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 $ 21,702.66
NASD filing fee 8,306.71
Nasdaq National Market Listing Fees 15,000.00
*Accounting fees and expenses 200,000.00
*Legal fees and expenses 300,000.00
*Printing costs 250,000.00
*Blue sky fees and expenses 5,000.00
*Miscellaneous 450,000.00
-------------
*Total $1,250,009.37
=============
</TABLE>
* Estimated.
Item 14. Indemnification of Directors and Officers.
Section 145 ("Section 145") of the General Corporation Law of the State of Del-
aware (the "DGCL") provides that directors and officers of Delaware corpora-
tions may, under certain circumstances, be indemnified against expenses (in-
cluding 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 di-
rector 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 di-
rectors and officers may also be indemnified against expenses (including attor-
neys' 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 corpora-
tion.
The Company has implemented such indemnification provisions in its Amended and
Restated Certificate of Incorporation which provides that officers and direc-
tors 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 direc-
tor of the Company.
The above discussion of the Company's Amended and Restated Certificate of In-
corporation 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 Cer-
tificate of Incorporation and statutes.
The Company has agreed to indemnify the Underwriters and their controlling per-
sons, and the Underwriters have agreed to indemnify the Company and its con-
trolling 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 liabili-
ties 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.
II-1
<PAGE>
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 sophis-
ticated 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 Regis-
trant 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.
On February 2, 1999, the Registrant completed the acquisition of D&L Online,
Inc. ("D&L") for aggregate consideration of $35 million including 577,778
shares of common stock to the stockholders of D&L. Additional consideration for
the acquisition includes future payments, based on the performance of D&L, in
the form of Registrant's common stock or cash, at Registrant's option, with an
aggregate value of up to $12 million. This transaction was exempt from regis-
tration pursuant to Section 4(2) of the Securities Act of 1933, as amended, re-
garding transactions by an issuer not involving a public offering.
On March 19, 1999, the Registrant completed the acquisition of MicroHouse In-
ternational, Inc. ("MicroHouse") for aggregate consideration including 50,856
shares of common stock and a convertible promissory note in the original prin-
cipal amount of $4,973,719, which is convertible into 126,475 shares of common
stock on March 20, 2000. This transaction was exempt from registration pursuant
to Section 4(2) of the Securities Act of 1993, as amended, regarding transac-
tions by an issuer not involving a public offering.
Item 16. Exhibits and Financial Statement Schedules.
<TABLE>
- -------------------------------------------------------------------------------
<CAPTION>
Exhibit
No. Description
<C> <S> <C>
1 Form of Underwriting Agreement
+*2.1 Agreement and Plan of Merger among EarthWeb Inc., EW Acquisition
Corporation, D&L Online, Inc., Lloyd Linn, and Diane Rickert;
incorporated by reference to Exhibit 2.1 to the Registrant'
Current Report on Form 8-K dated February 2, 1999.
+2.2 Securities Purchase Agreement among the Registrant, MicroHouse
International, Inc. and Steve Anderson, Doug Anderson, Robert
Anderson and Ascent Partners; incorporated by reference to
Exhibit 2.1 to the Registrants' Current Report on Form 8-K dated
March 12, 1999.
+3.1 Form of Amended and Restated Certificate of Incorporation;
incorporated by reference to Exhibit 3.1 to Registrant's
Registration Statement on Form S-1 (SEC File No. 333-60837).
+3.2 Form of Amended and Restated By-laws; incorporated by reference
to Exhibit 3.2 to Registrant's Registration Statement on Form S-
1 (SEC File No. 333-60837).
+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; incorporated by
reference to Exhibit 4.1 to Registrant's Registration Statement
on Form S-1 (SEC File No. 333-60837).
+4.2 Specimen Common Stock Certificate of Registrant; incorporated by
reference to Exhibit 4.2 to Registrant's Registration Statement
on Form S-1 (SEC File No. 333-60837).
+4.3 Registration Rights Agreement dated as of October 25, 1996 by
and between the Registrant, Warburg, EarthWeb LLC and GNP;
incorporated by reference to Exhibit 4.3 to Registrant's
Registration Statement on Form S-1 (SEC File No. 333-60837).
+4.4 Registration Rights Agreement between EarthWeb Inc., Lloyd Linn
and Diane Rickert; incorporated by reference to Exhibit 4.1 to
the Registrant's Current Report on Form 8-K dated February 2,
1999.
+4.5 Registration Rights Agreement dated as of March 19, 1999 between
EarthWeb, Inc., Steve Anderson, Doug Anderson, Robert Anderson
and Ascent Partners; incorporated by reference to Exhibit 4.1 to
the Registrants' Current Report on Form 8-K dated March 12,
1999.
+4.6 Zero Coupon Convertible Promissory Note dated as of March 19,
1999, of Registrant in favor of Steven Anderson; incorporated by
reference to Exhibit 4.2 to the Registrant's Current Report on
Form 8-K dated March 12, 1999.
+4.7 Zero Coupon Convertible Promissory Note dated as of March 19,
1999, of Registrant in favor of Doug Anderson; incorporated by
reference to Exhibit 4.3 to the Registrant's Current Report on
Form 8-K dated March 12, 1999.
+4.8 Zero Coupon Convertible Promissory Note dated as of March 19,
1999, of Registrant in favor of Robert Anderson; incorporated by
reference to Exhibit 4.4 to the Registrant's Current Report on
Form 8-K dated March 12, 1999.
5 Opinion of Morrison & Foerster LLP
</TABLE>
II-2
<PAGE>
<TABLE>
<C> <S> <C>
+9 Form of Voting Trust Agreement, as amended; incorporated by
reference to Exhibit 9 to Registrant's Registration Statement on
Form S-1 (SEC File No. 333-60837).
+10.1 1996 Amended and Restated Stock Plan, as amended; incorporated by
reference to Exhibit 10.1 to Registrant's Registration Statement
on Form S-1 (SEC File No. 333-60837).
+10.2 Employment Agreement dated January 1, 1995 between GNP (formerly
EarthWeb Ltd.) and Jack D. Hidary; incorporated by reference to
Exhibit 10.2 to Registrant's Registration Statement on Form S-1
(SEC File No. 333-60837).
+10.3 Employment Agreement dated January 1, 1995 between GNP (formerly
EarthWeb Ltd.) and Murray Hidary; incorporated by reference to
Exhibit 10.3 to Registrant's Registration Statement on Form S-1
(SEC File No. 333-60837).
+10.4 Employment Agreement dated November 4, 1996 between the
Registrant and Irene Math; incorporated by reference to Exhibit
10.4 to Registrant's Registration Statement on Form S-1 (SEC File
No. 333-60837).
+10.5 Employment Agreement dated November 3, 1997 between the
Registrant and William Gollan; incorporated by reference to
Exhibit 10.5 to Registrant's Registration Statement on Form S-1
(SEC File No. 333-60837).
+10.6 Consulting Agreement dated as of August 1, 1998 between the
Registrant and Nova Spivack; incorporated by reference to Exhibit
10.6 to Registrant's Registration Statement on Form S-1 (SEC File
No. 333-60837).
+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; incorporated
by reference to Exhibit 10.7 to Registrant's Registration
Statement on Form S-1 (SEC File No. 333-60837).
+10.8 Lease Agreement dated April 28, 1995 between 3 Park Avenue Co.
and MJN Enterprises, Inc., as amended; incorporated by reference
to Exhibit 10.8 to Registrant's Registration Statement on Form S-
1 (SEC File No. 333-60837).
+10.9 Form of 1998 Stock Incentive Plan; incorporated by reference to
Exhibit 10.9 to Registrant's Registration Statement on Form S-1
(SEC File No. 333-60837).
+10.10 Form of 1998 Employee Stock purchase plan; incorporated by
reference to Exhibit 10.10 to Registrant's Registration Statement
on Form S-1 (SEC File No. 333-60837).
+10.11 Employment Agreement between EarthWeb Inc. and Lloyd Linn;
incorporated by reference to Exhibit 10.1 to the Registrant's
Current Report on Form 8-K dated February 2, 1999.
10.12 Employment Agreement between EarthWeb Inc. and John Kleine;
incorporated by reference to Exhibit 10.6 to Registrant's Annual
Report on Form 10K for the year ended December 31, 1998.
+21 Subsidiaries
23.1 Consents 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 Simba Information, Inc.
23.5 Consent of International Data Corporation
23.6 Consent of Advertising Age's Business Marketing
+24 Powers of Attorney
+27 Financial Data Schedule
</TABLE>
* Confidential treatment has been received with respect to certain portions of
this Exhibit. Omitted portions have been filed separately with the Commis-
sion.
+Previously filed
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 regis-
trant 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 appro-
priate 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.
II-3
<PAGE>
(2) For purposes of determining any liability under the Securities Act, the in-
formation omitted from the form of prospectus filed as part of this registra-
tion 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 de-
nominations and registered in such names as required by the underwriters to
permit prompt delivery to each purchaser.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant has
duly caused this Amendment No. 2 to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of New York, State of New York, on May
4, 1999.
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.
2 has been signed by the following persons in their capacities on May 4, 1999.
<TABLE>
<CAPTION>
Name and Signature Title
------------------ -----
<S> <C>
/s/ Jack D. Hidary President, Chief Executive
______________________________________ Officer and Director
Jack D. Hidary
/s/ Murray Hidary* Executive Vice President,
______________________________________ Secretary, Treasurer and
Murray Hidary Director
Director
______________________________________
Nova Spivack
/s/ Henry Kressel* Director
______________________________________
Henry Kressel
/s/ Cary Davis* Director
______________________________________
Cary Davis
/s/ Irene Math* Senior Vice President,
______________________________________ Finance (Principal
Irene Math Financial and Accounting
Officer)
</TABLE>
/s/ Jack D. Hidary
*By: __________________________
Jack D. Hidary
Attorney-in-fact
S-1
<PAGE>
Exhibit Index
<TABLE>
<CAPTION>
Exhibit
No.Description Page No.
------------------ --------
<C> <S> <C>
1 Form of Underwriting Agreement
+*2.1 Agreement and Plan of Merger among EarthWeb Inc., EW
Acquisition Corporation, D&L Online, Inc., Lloyd Linn, and
Diane Rickert; incorporated by reference to Exhibit 2.1 to
the Registrant' Current Report on Form 8-K dated February
2, 1999.
+2.2 Securities Purchase Agreement among the Registrant,
MicroHouse International, Inc. and Steve Anderson, Doug
Anderson, Robert Anderson and Ascent Partners; incorporated
by reference to Exhibit 2.1 to the Registrants' Current
Report on Form 8-K dated March 12, 1999.
+3.1 Form of Amended and Restated Certificate of Incorporation;
incorporated by reference to
Exhibit 3.1 to Registrant's Registration Statement on Form
S-1 (SEC File No. 333-60837).
+3.2 Form of Amended and Restated By-laws; incorporated by
reference to Exhibit 3.2 to Registrant's Registration
Statement on Form S-1 (SEC File No. 333-60837).
+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;
incorporated by reference to Exhibit 4.1 to Registrant's
Registration Statement on Form S-1 (SEC File
No. 333-60837).
+4.2 Specimen Common Stock Certificate of Registrant;
incorporated by reference to Exhibit 4.2 to Registrant's
Registration Statement on Form S-1 (SEC File No. 333-
60837).
+4.3 Registration Rights Agreement dated as of October 25, 1996
by and between the Registrant, Warburg, EarthWeb LLC and
GNP; incorporated by reference to Exhibit 4.3 to
Registrant's Registration Statement on Form S-1 (SEC File
No. 333-60837).
+4.4 Registration Rights Agreement between EarthWeb Inc., Lloyd
Linn and Diane Rickert; incorporated by reference to
Exhibit 4.1 to the Registrant's Current Report on Form 8-K
dated February 2, 1999.
+4.5 Registration Rights Agreement dated as of March 19, 1999
between EarthWeb, Inc., Steve Anderson, Doug Anderson,
Robert Anderson and Ascent Partners; incorporated by
reference to Exhibit 4.1 to the Registrants' Current Report
on Form 8-K dated March 12, 1999.
+4.6 Zero Coupon Convertible Promissory Note dated as of March
19, 1999, of Registrant in favor of Steven Anderson;
incorporated by reference to Exhibit 4.2 to the
Registrant's Current Report on Form 8-K dated March 12,
1999.
+4.7 Zero Coupon Convertible Promissory Note dated as of March
19, 1999, of Registrant in favor of Doug Anderson;
incorporated by reference to Exhibit 4.3 to the
Registrant's Current Report on Form 8-K dated March 12,
1999.
+4.8 Zero Coupon Convertible Promissory Note dated as of March
19, 1999, of Registrant in favor of Robert Anderson;
incorporated by reference to Exhibit 4.4 to the
Registrant's Current Report on Form 8-K dated March 12,
1999.
5 Opinion of Morrison & Foerster LLP
+9 Form of Voting Trust Agreement, as amended; incorporated by
reference to Exhibit 9 to Registrant's Registration
Statement on Form S-1 (SEC File No. 333-60837).
+10.1 1996 Amended and Restated Stock Plan, as amended;
incorporated by reference to Exhibit 10.1 to Registrant's
Registration Statement on Form S-1 (SEC File No. 333-
60837).
+10.2 Employment Agreement dated January 1, 1995 between GNP
(formerly EarthWeb Ltd.) and
Jack D. Hidary; incorporated by reference to Exhibit 10.2
to Registrant's Registration Statement on Form S-1 (SEC
File No. 333-60837).
+10.3 Employment Agreement dated January 1, 1995 between GNP
(formerly EarthWeb Ltd.) and Murray Hidary; incorporated by
reference to Exhibit 10.3 to Registrant's Registration
Statement on Form S-1 (SEC File No. 333-60837).
+10.4 Employment Agreement dated November 4, 1996 between the
Registrant and Irene Math; incorporated by reference to
Exhibit 10.4 to Registrant's Registration Statement on Form
S-1
(SEC File No. 333-60837).
+10.5 Employment Agreement dated November 3, 1997 between the
Registrant and William Gollan; incorporated by reference to
Exhibit 10.5 to Registrant's Registration Statement on Form
S-1
(SEC File No. 333-60837).
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit
No.Description Page No.
------------------ --------
<C> <S> <C>
+10.6 Consulting Agreement dated as of August 1, 1998 between the
Registrant and Nova Spivack; incorporated by reference to
Exhibit 10.6 to Registrant's Registration Statement on Form
S-1
(SEC File No. 333-60837).
+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; incorporated by reference to Exhibit 10.7 to
Registrant's Registration Statement on Form S-1
(SEC File No. 333-60837).
+10.8 Lease Agreement dated April 28, 1995 between 3 Park Avenue
Co. and MJN Enterprises, Inc., as amended; incorporated by
reference to Exhibit 10.8 to Registrant's Registration
Statement on Form S-1 (SEC File No. 333-60837).
+10.9 Form of 1998 Stock Incentive Plan; incorporated by
reference to Exhibit 10.9 to Registrant's Registration
Statement on Form S-1 (SEC File No. 333-60837).
+10.10 Form of 1998 Employee Stock purchase plan; incorporated by
reference to Exhibit 10.10 to Registrant's Registration
Statement on Form S-1 (SEC File No. 333-60837).
+10.11 Employment Agreement between EarthWeb Inc. and Lloyd Linn;
incorporated by reference to Exhibit 10.1 to the
Registrant's Current Report on Form 8-K dated February 2,
1999.
10.12 Employment Agreement between EarthWeb Inc. and John Kleine;
incorporated by reference to Exhibit 10.6 to Registrant's
Annual Report on Form 10K for the year ended December 31,
1998.
+21 Subsidiaries
23.1 Consents 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 Simba Information, Inc.
23.5 Consent of International Data Corporation
23.6 Consent of Advertising Age's Business Marketing
+24 Powers of Attorney
+27 Financial Data Schedule
</TABLE>
* Confidential treatment has been received with respect to certain portions of
this Exhibit. Omitted portions have been filed separately with the Commis-
sion.
+Previously filed
<PAGE>
EXHIBIT 1.1
EARTHWEB INC.
1,300,000 Shares of Common Stock, $0.01 par value
Underwriting Agreement
May [__], 1999
J.P. Morgan Securities Inc.
Bear, Stearns & Co. Inc.
Volpe Brown Whelan & Company, LLC
Wit Capital Corporation
As Representatives of several underwriters listed in Schedule I hereto
c/o J.P. Morgan Securities Inc.
60 Wall Street
New York, New York 10260
Ladies and Gentlemen:
EarthWeb Inc., a Delaware corporation (the "Company"), proposes to issue
and sell to the several Underwriters listed in Schedule I hereto (the
"Underwriters"), for whom you are acting as representatives (the
"Representatives") an aggregate of 750,000 shares of common stock, par value
$0.01 per share (the "Shares"), of the Company and the stockholders of the
Company named on Schedule II hereto (the "Selling Stockholders") propose to sell
to the Underwriters an aggregate of 550,000 shares of common stock of the
Company (the "Underwritten Shares") and the Selling Stockholders propose to sell
to the Underwriters, for the sole purpose of covering over-allotments in
connection with the sale of the Underwritten Shares, at the option of the
Underwriters, up to an additional 195,000 shares of common stock of the Company
(the "Option Shares"). The Underwritten Shares and the Option Shares are herein
referred to as the "Shares". The shares of common stock of the Company to be
outstanding after giving effect to the sale of the Shares are herein referred to
as the "Common Stock".
The Company has prepared and filed with the Securities and Exchange
Commission (the "Commission") in accordance with the provisions of the
Securities Act of 1933, as amended, and the rules and regulations of the
Commission thereunder (collectively, the "Securities Act"), a registration
statement, including a prospectus, relating to the Shares. The registration
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statement as amended at the time when it shall become effective including
information (if any) deemed to be part of the registration statement at the time
of effectiveness pursuant to Rule 430A under the Securities Act, is referred to
in this Agreement as the "Registration Statement", and the prospectus in the
form first used to confirm sales of Shares is referred to in this Agreement as
the "Prospec tus". If the Company has filed an abbreviated registration
statement pursuant to Rule 462(b) under the Securities Act (the "Rule 462
Registration Statement"), then any reference herein to the term "Registration
Statement" shall be deemed to include such Rule 462 Registration Statement.
The Company and each of the Selling Stockholders hereby agree with the
Underwriters as follows:
1. The Company agrees to issue and sell the Underwritten Shares to the
several Underwriters as hereinafter provided, and each Underwriter, upon the
basis of the representations and warranties herein contained, but subject to the
conditions hereinafter stated, agrees to purchase, severally and not jointly,
from the Company the respective number of Underwritten Shares set forth opposite
such Underwriter's name in Schedule I hereto at a purchase price per share (the
"Purchase Price") of $[______].
In addition, the Selling Stockholders, as and to the extent indicated in
Schedule II hereto agree, severally and not jointly, to sell the Option Shares
to the several Underwriters and the Underwriters shall have the option to
purchase at their election up to 195,000 Option Shares for the sole purpose of
covering over-allotments in connection with the sale of the Underwritten Shares.
The Underwriters on the basis of the representations and warranties herein
contained, but subject to the conditions hereinafter stated, shall have the
option to purchase, severally and not jointly, from the Selling Stockholders at
the Purchase Price that portion of the number of Option Shares as to which such
election shall have been exercised (to be adjusted by you so as to eliminate
fractional shares) determined by multiplying such number of Option Shares by a
fraction the numerator of which is the maximum number of Option Shares which
such Underwriter is entitled to purchase and the denominator of which is the
maximum number of Option Shares that all of the Underwriters are entitled to
purchase hereunder, for the sole purpose of covering over-allotments (if any) in
connection with the sale of the Underwritten Shares by the several Underwriters.
Any such election to purchase Option Shares shall be made in proportion to the
maximum number of Option Shares to be sold by each Selling Stockholder as set
forth in Schedule II hereto.
The Underwriters may exercise the option to purchase the Option Shares at
any time (but not more than once) on or before the thirtieth day following the
date of this Agreement, by written notice from the Representatives to the
Company and the Selling Stockholders. Such notice shall set forth the aggregate
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number of Option Shares as to which the option is being exercised and the date
and time when the Option Shares are to be delivered and paid for which may be
the same date and time as the Closing Date (as hereinafter defined) but shall
not be earlier than the Closing Date nor later than the tenth full Business Day
(as hereinafter defined) after the date of such notice (unless such time and
date are postponed in accordance with the provisions of Section 9 hereof). Any
such notice shall be given at least two Business Days prior to the date and time
of delivery specified therein.
2. The Company and the Selling Stockholders understand that the
Underwriters intend (i) to make a public offering of the Shares as soon after
(A) the Registration Statement has become effective and (B) the parties hereto
have executed and delivered this Agreement, as in the judgment of the
Representatives is advisable and (ii) initially to offer the Shares upon the
terms set forth in the Prospectus.
3. Payment for the Shares shall be made by wire transfer in immediately
available funds to the account specified to the Representatives by the Company
with regard to payment to the Company and by each Selling Stockholder with
regard to payment to such Selling Stockholder, in the case of the Underwritten
Shares, on May [__], 1999, or at such other time on the same or such other date,
not later than the fifth Business Day thereafter, as the Representatives and the
Company may agree upon in writing or, in the case of the Option Shares, on the
date and time specified by the Representatives in the written notice of the
Underwriters' election to purchase such Option Shares. The time and date of
such payment for the Underwritten Shares is referred to herein as the "Closing
Date" and the time and date for such payment for the Option Shares, if other
than the Closing Date, are herein referred to as the "Additional Closing Date".
As used herein, the term "Business Day" means any day other than a day on which
banks are permitted or required to be closed in New York City.
Payment for the Shares to be purchased on the Closing Date or the
Additional Closing Date, as the case may be, shall be made against delivery to
the Representatives for the respective accounts of the several Underwriters of
the Shares to be purchased on such date registered in such names and in such
denominations as the Representatives shall request in writing not later than two
full Business Days prior to the Closing Date or the Additional Closing Date, as
the case may be, with any transfer taxes payable in connection with the transfer
to the Underwriters of the Shares duly paid by the Company or the Selling
Stockholders, as the case may be. The certificates for the Shares will be made
available for inspection and packaging by the Representatives at the office of
J.P. Morgan Securities Inc. set forth above not later than 1:00 P.M., New York
City time, on the Business Day prior to the Closing Date or the Additional
Closing Date, as the case may be.
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4. (a) The Company represents and warrants to each Underwriter and the
Selling Stockholders that:
(i) no order preventing or suspending the use of any
preliminary prospectus has been issued by the Commission, and each
preliminary prospectus filed as part of the Registration Statement as
originally filed or as part of any amendment thereto, or filed pursuant
to Rule 424 under the Securities Act, complied when so filed in all
material respects with the Securities Act, and did not contain an untrue
statement of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements therein, in the
light of the circumstances under which they were made, not misleading;
other than any such noncompliance, untrue statement or omission in a
preliminary prospectus which has been corrected in the Prospectus;
provided that this representation and warranty shall not apply to any
statements or omissions made in reliance upon and in conformity with
information relating to any Underwriter furnished to the Company
in writing by such Underwriter through the Representatives expressly for
use therein;
(ii) no stop order suspending the effectiveness of the
Registration Statement has been issued and no proceeding for that
purpose has been instituted or, to the knowledge of the Company,
threatened by the Commission; and the Registration Statement and
Prospectus (as amended or supplemented if the Company shall have
furnished any amendments or supplements thereto) comply, or will comply,
as the case may be, in all material respects with the Securities Act and
do not and will not, as of the applicable effective date as to the
Registration Statement and any amendment thereto and as of the date of
the Prospectus and any amendment or supplement thereto, contain any
untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements
therein not misleading, and the Prospectus, as amended or supplemented,
if applicable, at the Closing Date or Additional Closing Date, as the
case may be, will not contain any untrue statement of a material fact or
omit to state a material fact necessary to make the statements therein,
in light of the circumstances under which they were made, not
misleading; except that the foregoing representations and warranties
shall not apply to statements or omissions in the Registration Statement
or the Prospectus made in reliance upon and in conformity with
information relating to any Underwriter furnished to the Company
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in writing by such Underwriter through the Representatives expressly for
use therein;
(iii) the financial statements, and the related notes thereto,
included in the Registration Statement and the Prospectus present fairly
the consolidated financial position of the Company and its consolidated
subsidiaries as of the dates indicated and the results of their
operations and changes in their cash flows for the periods specified;
and said financial statements have been prepared in conformity with
generally accepted accounting principles applied on a consistent basis,
and the supporting schedules included in the Registration Statement
present fairly the information required to be stated therein; and the
pro forma financial information, and the related notes thereto, included
in the Registration Statement and the Prospectus has been prepared in
accordance with the applicable requirements of the Securities Act and is
based upon good faith estimates and assumptions believed by the Company
to be reasonable;
(iv) since the respective dates as of which information is
given in the Registration Statement and the Prospectus, there has not
been any change in the capital stock or long-term debt of the Company or
any of its subsidiaries, or any material adverse change, or any
development involving a prospective material adverse change, in or
affecting the general affairs, business, prospects, management,
financial position, stockholders' equity or results of operations of the
Company and its subsidiaries taken as a whole, otherwise than as set
forth or contemplated in the Prospectus; and except as set forth or
contemplated in the Prospectus, neither the Company nor any of its
subsidiaries has entered into any transaction or agreement (whether or
not in the ordinary course of business) material to the Company and its
subsidiaries, taken as a whole;
(v) the Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of its
jurisdiction of incorporation, with power and authority (corporate and
other) to own its properties and conduct its business as described in
the Prospectus, and has been duly qualified as a foreign corporation for
the transaction of business and is in good standing under the laws of
each other jurisdiction in which it owns or leases properties, or
conducts any business, so as to require such qualification, other than
where the failure to be so qualified or in
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good standing would not have a material adverse effect on the Company;
(vi) each of the Company's subsidiaries has been duly
incorporated and is validly existing as a corporation under the laws of
its jurisdiction of incorporation, with power and authority (corporate
and other) to own its properties and conduct its business as described
in the Prospectus, and has been duly qualified as a foreign corporation
for the transaction of business and is in good standing under the laws
of each jurisdiction in which it owns or leases properties, or conducts
any business, so as to require such qualification, other than where the
failure to be so qualified or in good standing would not have a material
adverse effect on the Company and its subsidiaries taken as a whole; and
all the outstanding shares of capital stock of each subsidiary of the
Company have been duly authorized and validly issued, are fully-paid and
non-assessable, and (except, in the case of foreign subsidiaries, for
directors' qualifying shares) are owned by the Company, directly or
indirectly, free and clear of all liens, encumbrances, security
interests and claims;
(vii) this Agreement has been duly authorized, executed and
delivered by the Company;
(viii) the Company has an authorized capitalization as set forth
in the Prospectus and such authorized capital stock conforms as to legal
matters to the description thereof set forth in the Prospectus, and all
of the outstanding shares of capital stock of the Company (including the
shares to be sold by the Selling Stockholders) have been duly authorized
and validly issued, are fully-paid and non-assessable and are not
subject to any pre-emptive or similar rights; and, except as described
in or expressly contemplated by the Prospectus, there are no outstanding
rights (including, without limitation, pre-emptive rights), warrants or
options to acquire, or instruments convertible into or exchangeable for,
any shares of capital stock or other equity interest in the Company or
any of its subsidiaries, or any contract, commitment, agreement,
understanding or arrangement of any kind, to which the Company, any of
its subsidiaries or any of its controlling stockholders is a party,
relating to the issuance of any capital stock of the Company or any of
its subsidiaries, any such convertible or exchangeable securities or any
such rights, warrants or options;
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(ix) the Shares to be issued and sold by the Company hereunder
have been duly authorized, and, when issued and delivered to and paid
for by the Underwriters in accordance with the terms of this Agreement,
will be duly issued and will be fully paid and non-assessable and will
conform to the descriptions thereof in the Prospectus; and the issuance
of the Shares is not subject to any preemptive or similar rights;
(x) neither the Company nor any of its subsidiaries is or with
the giving of notice or lapse of time or both would be, in violation of
or in default under, its Certificate of Incorporation or By-Laws or any
indenture, mortgage, deed of trust, loan agreement or other agreement or
instrument to which the Company or any of its subsidiaries is a party or
by which it or any of their properties is bound, except for violations
and defaults which individually and in the aggregate are not material to
the Company and its subsidiaries taken as a whole; the issue and sale of
the Shares and the performance by the Company of its obligations under
this Agreement and the consummation of the transactions contemplated
herein will not conflict with or result in a breach of any of the terms
or provisions of, or constitute a default under, any indenture,
mortgage, deed of trust, loan agreement or other agreement or instrument
to which the Company or any of its subsidiaries is a party or by which
the Company or any of its subsidiaries is bound or to which any of the
property or assets of the Company or any of its subsidiaries is subject,
nor will any such action result in any violation of the provisions of
the Certificate of Incorporation or the By-Laws of the Company or any of
its subsidiaries or any applicable law or statute or any order, rule or
regulation of any court or governmental agency or body having
jurisdiction over the Company, its subsidiaries or any of their
respective properties; and no consent, approval, authorization, order,
license, registration or qualification of or with any such court or
governmental agency or body is required for the issue and sale of the
Shares or the consum mation by the Company of the transactions
contemplated by this Agreement, except such consents, approvals,
authorizations, orders, licenses, registrations or qualifications as
have been obtained under the Securities Act, as may be required for the
Underwriters to obtain from the National Association of Securities
Dealers, Inc. (the "NASD") and as may be required under state securities
or Blue Sky Laws in connection with the purchase and distribution of the
Shares by the Underwriters;
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(xi) other than as set forth or contemplated in the Prospectus,
there are no legal or governmental investigations, actions, suits or
proceedings pending or, to the knowledge of the Company, threatened
against or affecting the Company or any of its subsidiaries or any of
their respective properties or to which the Company or any of its
subsidiaries is or may be a party or to which any property of the
Company or any of its subsidiaries is or may be the subject which, if
determined adversely to the Company or any of its subsidiaries, could
individually or in the aggregate have, or reasonably be expected to
have, a material adverse effect on the general affairs, business,
prospects, management, financial position, stockholders' equity or
results of operations of the Company and its subsidiaries taken as a
whole and, to the best of the Company's knowledge, no such proceedings
are threatened or contemplated by governmental authorities or threatened
by others; and there are no statutes, regulations, contracts or other
documents that are required to be described in the Registration
Statement or Prospectus or to be filed as exhibits to the Registration
Statement that are not described or filed as required;
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(xii) the Company and its subsidiaries own no real property and
have good and marketable title to all personal property owned by them,
in each case free and clear of all liens, encumbrances and defects,
except such as do not materially affect the value of such property and
do not interfere with the use made or proposed to be made of such
property by the Company and its subsidiaries; and any real property and
buildings held under lease by the Company and its subsidiaries are held
by it under valid, existing and enforceable leases with such exceptions
as are not material and do not interfere with the use made or proposed
to be made of such property and buildings by the Company or its
subsidiaries;
(xiii) no relationship, direct or indirect, exists between or
among the Company or any of its subsidiaries on the one hand, and the
directors, officers, stockholders, customers or suppliers of the Company
or any of its subsidiaries on the other hand, which is required by the
Securities Act to be described in the Registration Statement and the
Prospectus which is not so described;
(xiv) except for EarthWeb LLC, Global Network Partners LLC
Warburg, Pincus Ventures, L.P. ("Warburg"), Lloyd Linn, Diane Rickert
and certain other persons described in the Prospectus under caption
"Description of Capital Stock --Registration Rights," no person has the
right to require the Company to register any securities for offering and
sale under the Securities Act by reason of the filing of the
Registration Statement with the Commission or the issue and sale of the
Shares by the Company hereunder or, to the best knowledge of the
Company, the sale of the Shares to be sold by the Selling Stockholders
hereunder, and each of EarthWeb LLC, GNP Warburg, Lloyd Linn, Diane
Rickert and such other persons described in the Prospectus under caption
"Description of Capital Stock-- Registration Rights," has duly
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waived its registration rights with respect to the securities owned by
them that are not being sold in the offering covered by the Registration
Statement;
(xv) the Company is not and, after giving effect to the
offering and sale of the Shares and the application of the proceeds
thereof as described in the Prospectus, will not be an "investment
company" as such term is defined in the Investment Company Act of 1940,
as amended (the "Investment Company Act");
(xvi) PricewaterhouseCoopers LLP, who have certified certain
financial statements of the Company and D&L Online, Inc., are
independent public accountants as required by the Securities Act;
(xvii) the Company and its subsidiaries have filed all federal,
state, local and foreign tax returns which have been required to be
filed and have paid all taxes shown thereon and all assessments received
by it to the extent that such taxes have become due and are not being
contested in good faith; and there is no tax deficiency which has been
or might reasonably be expected to be asserted or threatened against the
Company or any subsidiary;
(xviii) the Company has not taken nor will it take, directly or
indirectly, any action designed to, or that might be reasonably expected
to, cause or result in stabilization or manipulation of the price of the
Common Stock;
(xix) the Company and its subsidiaries own, possess or have
obtained all licenses, permits, certificates, consents, orders,
approvals and other authorizations from, and have made all declarations
and filings with, all federal, state, local and other governmental
authorities (including foreign regulatory agencies), all self-regulatory
organizations and all courts and other tribunals, domestic or foreign,
necessary to own or lease, as the case may be, and to operate their
properties and to carry on their business as conducted as of the date
hereof, and neither the Company nor any of its subsidiaries has received
any actual notice of any proceeding relating to revocation or
modification of any such license, permit, certificate, consent, order,
approval or other authorization; and the Company and its subsidiaries
are in compliance with all laws and regulations relating to the conduct
of their business as conducted as of the date hereof, except to the
extent that failure to so comply
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would not, singly or in the aggregate, have a material adverse effect on
the Company's and its subsidiaries, business, results of operations and
financial condition, taken as a whole;
(xx) there are no existing or, to the best knowledge of the
Company, threatened labor disputes with the employees of the Company or
its subsidiaries which are likely to have a material adverse effect on
the Company and its subsidiaries taken as a whole;
(xxi) each employee benefit plan, within the meaning of Section
3(3) of the Employee Retirement Income Security Act of 1974, as amended,
("ERISA") that is maintained, administered or contributed to by the
Company or any of its subsidiaries for employees or former employees of
the Company or its subsidiaries and their affiliates has been maintained
in compliance with its terms and the requirements of any applicable
statutes, orders, rules and regulations, including but not limited to
ERISA and the Internal Revenue Code of 1986, as amended, ("Code"),
except to the extent that failure to so comply would not, singly or in
the aggregate, have a material adverse effect on the Company's and its
subsidiaries, business, results of operations and financial condition
taken as a whole. No prohibited transaction, within the meaning of
Section 406 of ERISA or Section 4975 of the Code has occurred with
respect to any such plan excluding transactions effected pursuant to a
statutory or administrative exemption;
(xxii) other than as set forth or contemplated in the
Prospectus, the Company and its subsidiaries own or possess adequate
licenses or other rights to use all patents, copyrights, trademarks,
trade dress, service marks, trade names, technology, trade secrets and
know-how (the "Intellectual Property") necessary to conduct their
business in the manner described in the Prospectus and neither the
Company nor any of its subsidiaries has received any notice of
infringement or conflict with (and neither the Company nor any of its
subsidiaries is aware of any infringement or conflict with) asserted
rights of others with respect to any patents, copyrights, trademarks,
trade dress, service marks, trade names, technology or know-how which
could result in any material adverse effect upon the Company and its
subsidiaries, taken as a whole; and the discoveries, inventions,
products or processes of the Company and its subsidiaries necessary to
conduct their business in the manner described in the Prospectus do not,
to the best knowledge of the Company, infringe or conflict with any
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right or patent of any third party, or any discovery, invention, product
or process which is the subject of a patent application filed by any
third party, known to the Company which could have a material adverse
effect on the Company and its subsidiaries taken as a whole;
(xxiii) the Company and its subsidiaries maintain a system of
internal accounting controls sufficient to provide reasonable assurance
that (A) transactions are executed in accordance with management's
general or specific authorizations; (B) transactions are recorded as
necessary to permit preparation of financial statements in conformity
with generally accepted accounting principles and to maintain asset
accountability; (C) access to assets is permitted only in accordance
with management's general or specific authorization; and (D) the
recorded accountability for assets is compared with the existing assets
at reasonable intervals and appropriate action is taken with respect to
any differences;
(xxiv) The unissued Shares issuable upon the exercise of options
(the "Options") to be exercised by certain of the Selling Stockholders
(the "Optionholders") have been duly and validly authorized and reserved
for issuance, and at the time of delivery to the Underwriters with
respect to such Shares, such Shares will be issued and delivered in
accordance with the provisions of the Stock Option Agreements between
the Company and such Selling Stockholders pursuant to which such Options
were granted (the "Option Agreements") and will be duly and validly
issued, fully paid and non-assessable and will conform to the
description thereof in the Prospectus;
(xxv) The Options were duly authorized and issued pursuant to
the Option Agreements and constitute valid and binding obligations of
the Company and the Optionholders are entitled to the benefits provided
by the Option Agreements; the Option Agreements were duly authorized,
executed and delivered and constitute valid and binding instruments
enforceable in accordance with their terms subject, as to enforcement,
to bankruptcy, insolvency, reorganization and other laws of general
applicability relating to or affecting creditors' rights and to general
equity principles; and the Options and the Option Agreements conform to
the descriptions thereof in the Prospectus;
(xxvi) all outstanding shares of Common Stock held by the
individuals and entities named on Schedule III hereto (except for
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those shares held by such individuals and entities named on Schedule II
hereto listed under the heading "Underwritten Shares" and, only in the
event the Underwriters' exercise their option to purchase the Option
Shares, those shares listed under the heading "Option Shares" on
Schedule II hereto), and all securities convertible into or exercisable
or exchangeable for Common Stock held by such individuals or entities,
are subject to valid, binding and enforceable agreements (collectively,
the "Lock-up Agreements") that restrict the holders thereof from
selling, making any short sale of, granting any option for the purchase
of, or otherwise transferring or disposing of, any of such shares of
Common Stock, or any such securities convertible into or exercisable or
exchangeable for Common Stock, for a period of 90 days after the date of
the Prospectus without the prior written consent of J.P. Morgan
Securities Inc.; and
(xxvii) the Common Stock is authorized for listing on the
Nasdaq National Market (as herein defined).
(b) Each of the Selling Stockholders severally represents and warrants to,
and agrees with, each of the Underwriters that:
(i) all consents, approvals, authorizations and orders necessary for the
execution and delivery by such Selling Stockholder of this Agreement and, in the
case of all Selling Stockholders other than Warburg (the "Individual Sellers"),
the Power of Attorney (the "Power of Attorney") and the Custody Agreement (the
"Custody Agreement") hereinafter referred to, and for the sale and delivery of
the Shares to be sold by such Selling Stockholder hereunder, have been obtained;
and such Selling Stockholder has full right, power and authority to enter into
this Agreement and, in the case of the Individual Sellers, the Power of Attorney
and the Custody Agreement, and to sell, assign, transfer and deliver the Shares
to be sold by such Selling Stockholder hereunder; this Agreement and, in the
case of the Individual Sellers, the Power of Attorney and the Custody Agreement
have been duly authorized, executed and delivered and are valid and binding
agreements of such Selling Stockholder, enforceable in accordance with their
terms;
(ii) the sale of the Shares to be sold by such Selling Stockholder
hereunder and the compliance by such Selling Stockholder with all of the
provisions of this Agreement and, in the case of the Individual Sellers, the
Power of Attorney and the Custody Agreement, and the consummation of the
transactions herein and therein contemplated will not conflict with or result in
a breach or violation of any of the terms or provisions of, or
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constitute a default under, any statute, any indenture, mortgage, deed of trust,
loan agreement or other agreement or instrument to which such Selling
Stockholder is a party or by which such Selling Stockholder is bound or to which
any of the property or assets of such Selling Stockholder is subject, nor will
such action result in any violation of the provisions of the partnership
agreement of such Selling Stockholder if such Selling Stockholder is a
partnership or a limited liability company agreement if such Selling Stockholder
is a limited liability company, or any statute or any order, rule or regulation
of any court or governmental agency or body having jurisdiction over such
Selling Stockholder or the property of such Selling Stockholder;
(iii) such Selling Stockholder has good and valid title to the Shares to
be sold at the Closing Date or Additional Closing Date, as the case may be, by
such Selling Stockholder hereunder (other than the Shares to be issued upon
exercise of options ("Options")), free and clear of all liens, encumbrances,
equities or adverse claims; in the case of any Shares to be issued upon exercise
of Options, such Selling Stockholder has good and valid title to such Options,
free and clear of all liens, encumbrances, equities or adverse claims; and, upon
payment for the Shares to be sold by the Selling Stockholders as provided
herein, delivery of such Shares, as directed by the Underwriters, to Cede & Co.
("Cede") or such other nominee as may be designated by Depository Trust Company
("DTC"), registration of such Shares in the name of Cede or such other nominee
and crediting of such Shares on the books of DTC to "securities accounts" (as
defined in Section 8-501 of the Uniform Commercial Code as in effect in the
State of New York (the "UCC")) of the respective Underwriters (assuming that
neither DTC nor any such Underwriter has "notice of any adverse claim" (as such
phrase is defined in Section 8-105 of the UCC) to such Shares), (A) DTC shall be
a "protected purchaser" of such Shares within the meaning of Section 8-303 of
the UCC, and (B) under Section 8-501 of the UCC, each Underwriter will acquire a
valid "security entitlement" (as defined in Section 8-102 of the UCC) to the
Shares being so purchased by or on behalf of such Underwriter, and, (c) to the
extent governed by the UCC, no action based on any "adverse claim" (as defined
in Section 8-102 of the UCC) to such Shares (or security entitlement with
respect thereto) may properly be asserted against such Underwriter with respect
to such security entitlement; it being understood that for the purpose of this
representation and warranty, when such payment, delivery, registration and
crediting occur, (x) such Shares will have been registered in the name of Cede
or another nominee designated by DTC, in each case on the Company's share
registry in accordance with its certificate of incorporation, bylaws and
applicable law, (y) appropriate entries to the securities accounts of the
several Underwriters on the records of DTC will
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have been made pursuant to the UCC, and (z) DTC is a "clearing corporation" (as
defined in Section 8-102 of the UCC);
(iv) such Selling Stockholder has not taken and will not take, directly or
indirectly, any action which is designed to or which has constituted or which
might reasonably be expected to cause or result in stabilization or manipulation
of the price of any security of the Company to facilitate the sale or resale of
the Shares;
(v) except as disclosed in the Prospectus, none of the Selling
Stockholders either has or shares the power to vote, or to direct the voting of,
or the power to dispose, or to direct the disposition of, any shares of Common
Stock, directly or indirectly, through any contract, arrangement, understanding,
relationship or otherwise;
(vi) the Registration Statement and the Prospectus (as amended or
supplemented) comply or will comply, as the case may be, in all material
respects the Securities Act and do not and will not, as of the applicable
effective date of the Registration Statement and any amendment thereto and as of
the date of the Prospectus and any amendment or supplement thereto, contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary to make the statements therein not misleading,
and the Prospectus, as amended or supplemented, if applicable, at the Closing
Date or Additional Closing Date, as the case may be, will not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements therein, in light of the circumstances under which they were
made, not misleading; except that the foregoing representations and warranties
shall not apply to statements or omissions in the Registration Statement or the
Prospectus made in reliance upon and in conformity with information relating to
any Underwriter furnished to the Company in writing by such Underwriter through
the Representatives expressly for use therein.
Each of the Individual Sellers represents and warrants that certificates in
negotiable form (other than with respect to any Shares to be issued upon the
exercise of Options), and each of the Individual Sellers who is selling Shares
upon the exercise of Options represents and warrants that duly completed and
executed irrevocable Option exercise notices in the forms specified by the
relevant Option Agreement, in each case with respect to all of the Shares to be
sold by such Selling Stockholders hereunder, have been placed in custody under a
Custody Agreement relating to such Shares or Options, as the case may be, in the
form heretofore furnished to you, duly executed and delivered by such Selling
Stockholder to Jack D. Hidary, as custodian (the "Custodian"), and that such
Individual Seller has duly executed and delivered Powers of Attorney, in the
form
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heretofore furnished to you, appointing the person or persons indicated in
Schedule II hereto, and each of them, as such Individual Seller's Attorneys-in-
fact (the "Attorneys-in-Fact" or any one of them the "Attorney-in Fact") with
authority to execute and deliver this Agreement on behalf of such Individual
Seller, to determine the purchase price to be paid by the Underwriters to the
Individual Seller as provided herein, to authorize the delivery of the Shares to
be sold by such Individual Seller hereunder, to authorize (if applicable) the
exercise of the Options to be exercised with respect to the Shares to be sold by
such Individual Seller hereunder and otherwise to act on behalf of such
Individual Seller in connection with the transactions contemplated by this
Agreement and the Custody Agreement.
Each of the Individual Sellers specifically agrees that the Shares
represented by the certificates or the irrevocable Option exercise notice, in
either case held in custody for such Individual Seller under the Custody
Agreement, are subject to the interests of the Underwriters hereunder, and that
the arrangements made by such Individual Seller for such custody, and the
appointment by such Individual Seller of the Attorney-in-Fact by the Power of
Attorney, are to that extent irrevocable. Each of the Individual Sellers
specifically agrees that the obligations of such Individual Seller hereunder
shall not be terminated by operation of law, whether by the death or incapacity
of any Individual Seller, or, in the case of an estate or trust, by the death or
incapacity of any executor or trustee or the termination of such estate or
trust, or in the case of a partnership or corporation, by the dissolution of
such partnership or corporation, or by the occurrence of any other event. If
any Individual Seller or any such executor or trustee should die or become
incapacitated, or if any such estate or trust should be terminated, or if any
such partnership or corporation should be dissolved, or if any other such event
should occur, before the delivery of the Shares hereunder, certificates
representing such Shares shall be delivered by or on behalf of such Individual
Seller in accordance with the terms and conditions of this Agreement and the
Custody Agreement, and actions taken by the Attorneys-in-Fact pursuant to the
Powers of Attorney shall be as valid as if such death, incapacity, termination,
dissolution or other event had not occurred, regardless of whether or not the
Custodian, the Attorneys-in-Fact, or any of them, shall have received notice of
such death, incapacity, termination, dissolution or other event.
Warburg represents and warrants that certificates in negotiable form
representing all of the Shares to be sold by Warburg hereunder, in the form
heretofore furnished to you, will be duly executed and delivered by Warburg to
you on the Closing Date or the Additional Closing Date, as the case may be.
Warburg specifically agrees that its obligations hereunder shall not be
terminated by operation of law, whether by the death or incapacity of any
general partner or other employee of Warburg, or, by the dissolution of such
partnership, or by the occurrence of any other event. If any executor or
trustee should die or
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become incapacitated, or if such partnership should be dissolved, or if any
other such event should occur, before the delivery of the Shares hereunder,
certificates representing such Shares shall be delivered by or on behalf of
Warburg in accordance with the terms and conditions of this Agreement, as if
such death, incapacity, termination, dissolution or other event had not
occurred.
5. (a) The Company covenants and agrees with each of the several
Underwriters as follows:
(i) to use its best efforts to cause the Registration Statement
to become effective at the earliest possible time and, if required, to
file the final Prospectus with the Commission within the time periods
specified by Rule 424(b) and Rule 430A under the Securities Act and to
furnish copies of the Prospectus to the Underwriters in New York City
prior to 10:00 a.m., New York City time, on the Business Day next
succeeding the date of this Agreement in such quantities as the
Representatives may reasonably request;
(ii) to deliver, at the expense of the Company, to the
Representatives four conformed copies of the Registration Statement (as
originally filed) and each amendment thereto, in each case including
exhibits, and to each other Underwriter a conformed copy of the
Registration Statement (as originally filed) and each amendment thereto,
in each case without exhibits and, during the period mentioned in
Section 5 below, to each of the Underwriters as many copies of the
Prospectus (including all amendments and supplements thereto) as the
Representatives may reasonably request;
(iii) before filing any amendment or supplement to the
Registration Statement or the Prospectus, whether before or after the
time the Registration Statement becomes effective, to furnish to the
Representatives a copy of the proposed amendment or supplement for
review and not to file any such proposed amendment or supplement to
which the Representatives reasonably object;
(iv) to advise the Representatives promptly, and to confirm
such advice in writing when the Registration Statement has become
effective, (A) when any amendment to the Registration Statement has been
filed or becomes effective, (B) when any supplement to the Prospectus or
any amended Prospectus has been filed and to furnish the Representatives
with copies thereof, (C) of any request by the Commission for any
amendment
17
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to the Registration Statement or any amendment or supplement to the
Prospectus or for any additional information, (D) of the issuance by the
Commission of any stop order suspending the effectiveness of the
Registration Statement or of any order preventing or suspending the use
of any preliminary prospectus or the Prospectus or the initiation or
threatening of any proceeding for that purpose, (E) of the occurrence of
any event, within the period referenced in Section 5 below, as a result
of which the Prospectus as then amended or supplemented would include an
untrue statement of a material fact or omit to state any material fact
necessary in order to make the statements therein, in the light of the
circumstances when the Prospectus is delivered to a purchaser, not
misleading, and (F) of the receipt by the Company of any notification
with respect to any suspension of the qualification of the Shares for
offer and sale in any jurisdiction or the initiation or threatening of
any proceeding for such purpose; and to use its best efforts to prevent
the issuance of any such stop order, or of any order preventing or
suspending the use of any preliminary prospectus or the Prospectus, or
of any order suspending any such qualification of the Shares, or
notification of any such order thereof and, if issued, to obtain as soon
as possible the withdrawal thereof;
(v) if, during such period of time after the first date of the
public offering of the Shares as in the opinion of counsel for the
Underwriters a prospectus relating to the Shares is required by law to
be delivered in connection with sales by the Underwriters or any dealer,
any event shall occur as a result of which it is necessary to amend or
supplement the Prospectus in order to make the statements therein, in
the light of the circumstances when the Prospectus is delivered to a
purchaser, not misleading, or if it is necessary to amend or supplement
the Prospectus to comply with law, forthwith to prepare and furnish, at
the expense of the Company, to the Underwriters and to the dealers
(whose names and addresses the Representatives will furnish to the
Company) to which Shares may have been sold by the Representatives on
behalf of the Underwriters and to any other dealers upon request, such
amendments or supplements to the Prospectus as may be necessary so that
the statements in the Prospectus as so amended or supplemented will not,
in the light of the circumstances when the Prospectus is delivered to a
purchaser, be misleading or so that the Prospectus will comply with law;
(vi) to endeavor to qualify the Shares for offer and sale under
the securities or Blue Sky laws of such jurisdictions as the
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Representatives shall reasonably request and to continue such
qualification in effect so long as reasonably required for distribution
of the Shares; provided that the Company shall not be required to file a
general consent to service of process in any jurisdiction;
(vii) to make generally available to its security holders and
to the Representatives as soon as reasonably practicable an earnings
statement covering a period of at least twelve months beginning with the
first fiscal quarter of the Company occurring after the effective date
of the Registration Statement, which shall satisfy the provisions of
Section 11(a) of the Securities Act and Rule 158 of the Commission
promulgated thereunder;
(viii) during the period of five years after the date of this
Agreement, to furnish to the Representatives copies of all reports or
other communications (financial or other) furnished to holders of the
Shares, and copies of any reports and financial statements furnished to
or filed with the Commission or any national securities exchange;
(ix) for a period of 90 days after the date of the initial
public offering of the Shares not to (A) offer, pledge, announce the
intention to sell, sell, contract to sell, sell any option or contract
to purchase, purchase any option or contract to sell, grant any option,
right or warrant to purchase or otherwise transfer or dispose of,
directly or indirectly, any shares of Common Stock or any securities of
the Company which are substantially similar to the Common Stock,
including but not limited to any securities convertible into or
exercisable or exchangeable for Common Stock, or that represent the
right to receive Common Stock or any such substantially similar
securities or (B) enter into any swap, option, future, forward or other
agreement that transfers, in whole or in part, any of the economic
consequences of ownership of the Common Stock or any securities
substantially similar to Common Stock, whether any such transaction
described in clause (A) or (B) above is to be settled by delivery of
Common Stock or such other securities, in cash or otherwise without the
prior written consent of J.P. Morgan Securities Inc., provided, however,
the foregoing shall not prohibit (w) the issuance of Shares to be sold
hereunder, (x) the issuance of stock options granted under existing
director or employee stock option or stock purchase plans, (y) the
issuance of any shares of Common Stock of the Company issued upon the
exercise of options granted under existing employee stock option
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plans, or (z) the issuance of any shares of Common Stock upon the
conversion or exchange of convertible, exercisable or exchangeable
securities outstanding on the date hereof;
(x) to use the net proceeds received by the Company from the
sale of the Shares pursuant to this Agreement in the manner specified in
the Prospectus under the caption "Use of Proceeds";
(xi) to use its best efforts to list the Shares being sold by
the Company hereunder on the National Association of Securities Dealers
Automated Quotations National Market (the "Nasdaq National Market");
(xii) whether or not the transactions contemplated in this
Agreement are consummated or this Agreement is terminated, to pay or
cause to be paid all costs and expenses incident to the performance of
its obligations hereunder, including without limiting the generality of
the foregoing, all costs and expenses (A) incident to the preparation,
issuance, reregistration, transfer, execu tion and delivery of the
Shares, (B) incident to the preparation, printing and filing under the
Securities Act of the Registration Statement, the Prospectus and any
preliminary prospectus (including in each case all exhibits, amendments
and supplements thereto), (C) incurred in connection with the
registration or qualification of the Shares under the laws of such
jurisdictions as the Representatives may designate (including fees of
counsel for the Underwriters and its disbursements), (D) in connection
with the listing of the Shares on the Nasdaq National Market, (E)
related to the filing with, and clearance of the offering by, the
National Association of Securities Dealers, Inc., (F) in connection with
the printing (including word processing and duplication costs) and
delivery of this Agreement, the Preliminary and Supplemental Blue Sky
Memoranda and the furnishing to the Underwriters and dealers of copies
of the Registration Statement and the Prospectus, including mailing and
shipping, as herein provided, (G) any expenses incurred by the Company
in connection with a "road show" presentation to potential investors,
the cost of preparing stock certificates and (H) the cost and charges of
any transfer agent and any registrar; it is understood, however, that,
except as provided in this Section, and Sections 7 and 8 hereof, the
Underwriters will pay all of their own costs and expenses, including the
fees of their counsel, stock transfer taxes on resale of
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any of the Shares by them, and any advertising expenses connected with
any offers they may make.
(b) Each of the Selling Stockholders covenants and agrees with each of the
several Underwriters as follows:
(i) to waive, and each of them hereby waives, in connection
with the offering contemplated hereby the registration rights granted to
them by the Company pursuant to the Registration Rights Agreement dated
as of October 25, 1996, the Registration Rights Agreement dated February
2, 1999 or the Registration Rights Agreement dated March 19, 1999, as
the case may be; and
(ii) to deliver to the Representatives prior to or at the
Closing Date a properly completed and executed United States Treasury
Department Form W-9 (or other applicable form or statement specified by
the Treasury Department regulations in lieu thereof) in order to
facilitate the Underwriters' documentation of their compliance with the
reporting and withholding provisions of the Tax Equity and Fiscal
Responsibility Act of 1982 with respect to the transactions herein
contemplated.
6. The several obligations of the Underwriters hereunder to purchase the
Shares on the Closing Date or the Additional Closing Date, as the case may be,
are subject to the performance by the Company and each of the Selling
Stockholders of their respective obligations hereunder and to the following
additional conditions:
(a) the Registration Statement shall have become effective (or
if a post-effective amendment is required to be filed under the
Securities Act, such post-effective amendment shall have become
effective) not later than 5:00 P.M., New York City time, on the date
hereof; and no stop order suspending the effectiveness of the
Registration Statement or any post-effective amendment shall be in
effect, and no proceedings for such purpose shall be pending before or
threatened by the Commission; the Prospectus shall have been filed with
the Commission pursuant to Rule 424(b) within the applicable time period
prescribed for such filing by the rules and regulations under the
Securities Act and in accordance with Section 5 hereof; and all requests
for additional information shall have been complied with to the
satisfaction of the Representatives;
(b) the respective representations and warranties of the
Company and the Selling Stockholders contained herein are true and
correct on and as of the Closing Date or the Additional Closing Date, as
the case may be, as if made on and as of the Closing Date or the
Additional Closing Date, as the case may be, and each of the Company and
the Selling Stockholders
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<PAGE>
shall have complied with all agreements and all conditions on its part
to be performed or satisfied hereunder at or prior to the Closing Date
or the Additional Closing Date, as the case may be;
(c) subsequent to the execution and delivery of this Agreement
and prior to the Closing Date or the Additional Closing Date, as the
case may be, there shall not have occurred any downgrading, nor shall
any notice have been given of (i) any downgrading, (ii any intended or
potential downgrading or (ii any review or possible change that does not
indicate an improvement, in the rating accorded any securities of or
guaranteed by the Company by any "nationally recognized statistical
rating organization", as such term is defined for purposes of Rule
436(g)(2) under the Securities Act;
(d) since the respective dates as of which information is given
in the Prospectus there shall not have been any change in the capital
stock or long-term debt of the Company or any of its subsidiaries or any
material adverse change, or any development involving a prospective
material adverse change, in or affecting the general affairs, business,
prospects, management, financial position, stockholders' equity or
results of operations of the Company and its subsidiaries taken as a
whole, otherwise than as set forth or contemplated in the Prospectus,
the effect of which in the judgment of the Representatives makes it
impracticable or inadvisable to proceed with the public offering or the
delivery of the Shares on the Closing Date or the Additional Closing
Date, as the case may be, on the terms and in the manner contemplated in
the Prospectus; and neither the Company nor any of its subsidiaries has
sustained since the date of the latest audited financial statements
included in the Prospectus any material loss or interference with its
business from fire, explosion, flood or other calamity, whether or not
covered by insurance, or from any labor dispute or court or governmental
action, order or decree, otherwise than as set forth or contemplated in
the Prospectus;
(e) the Representatives shall have received on and as of the
Closing Date or the Additional Closing Date, as the case may be, (i) a
certificate of an executive officer of the Company, with specific
knowledge about the Company's financial matters, satisfactory to the
Representatives to the effect set forth in Sections 6, 6, 6 and 6 (with
respect to the respective representations, warranties, agreements and
conditions of the Company) and to the further effect that there has not
occurred any material adverse change, or any development involving a
prospective material adverse change, in or affecting the general
affairs, business, prospects, management, financial position,
stockholders' equity or results of operations of the Company and its
subsidiaries taken as a whole from that set forth or contemplated in the
Registration Statement, and
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(ii) a Certificate of the Selling Stockholders satisfactory to the
Representatives, to the effect set forth in Section 6(b) (with respect
to the representations, warranties, agreements and conditions of the
Selling Stockholders);
(f) Morrison & Foerster LLP, counsel for the Company, shall
have furnished to the Representatives their written opinion, dated the
Closing Date or the Additional Closing Date, as the case may be, in form
and substance satisfactory to the Representatives, to the effect that:
(i) the Company has been duly incorporated and is
validly existing as a corporation in good standing under the
laws of the State of Delaware, with power and authority
(corporate and other) to own its properties and conduct its
business as described in the Prospectus;
(ii) the Company has been duly qualified as a foreign
corporation for the transaction of business and is in good
standing under the laws of each other jurisdiction in which the
conduct of its business requires such qualification, other than
where the failure to be so qualified or in good standing would
not have a material adverse effect on the Company and its
subsidiaries, taken us in whole;
(iii) each of the Company's subsidiaries has been duly
incorporated and is validly existing as a corporation under the
laws of its jurisdiction of incorporation with power and
authority (corporate and other) to own its properties and
conduct its business as described in the Prospectus and has been
duly qualified as a foreign corporation for the transaction of
business and is in good standing under the laws of each other
jurisdiction in which the conduct of its business requires such
qualification, other than where the failure to be so qualified
or in good standing would not have a material adverse effect on
the Company and its subsidiaries taken as a whole; and all of
the outstanding shares of capital stock of each subsidiary have
been duly and validly authorized and issued, are fully paid and
non-assessable, and (except, in the case of foreign
subsidiaries, for directors' qualifying shares) are owned
directly or indirectly by the Company, free and clear of all
liens, claims or encumbrances;
(iv) to such counsel's knowledge after due inquiry of
officers of the Company (it being understood that for purposes
of this opinion, due inquiry does not include any search of
court or
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administrative records), there is no legal or governmental
investigation, action, suit or proceeding pending, threatened
against or affecting the Company or any of its subsidiaries or
any of their respective properties or to which the Company or
any of its subsidiaries is or may be a party or to which the
property of the Company or any of its subsidiaries is or may be
subject which is required to be described in the Registration
Statement or the Prospectus and is not so described; and there
is no statute, regulation, contract or other document known to
such counsel of a character required to be described in the
Prospectus or to be filed as an exhibit to the Registration
Statement that is not described or filed as required, and all
such contracts or other documents described in the Prospectus
have been accurately described in all material respects;
(v) this Agreement has been duly authorized, executed
and delivered by the Company;
(vi) the Company has authorized capital stock as set
forth in the Prospectus;
(vii) all outstanding shares of the Company's Common
Stock, $0.01 par value (including the Shares to be sold by the
Selling Stockholders) have been duly authorized, validly issued
and are fully paid and non-assessable;
(viii) the Shares to be sold by the Company hereunder
have been duly authorized, and upon delivery to the Underwriters
against payment therefor in accordance with the terms of this
Agreement, will be validly issued, fully paid and non-assessable
and the issuance of the Shares is not subject to any preemptive
rights;
(ix) the statements in the Prospectus (1) in the second
sentence of the first paragraph and the third paragraph under
the caption "Risk Factors --Misappropriation of our intellectual
property could harm our reputation, affect our competitive
position and cost us money" and the third and fifth sentence
under the caption "Business -- Intellectual Property" are, to
the best of such counsel's knowledge, an accurate summary of the
matters set forth therein, provided that with respect to the
second sentence in the first paragraph and the third and fourth
sentences of the third paragraph under the caption
"Risk Factors --Misappropriation of our intellectual property
could harm our reputation, affect our
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competitive position and cost us money" and the fifth sentence
under the caption "Business -- Intellectual Property," such
counsel is only aware that the Company has obtained the service
mark registrations for "EarthWeb" and its related logo (the
"Fang Logo Design") and has applied for the registration of the
service marks "developer.com" and "developerdirect", (2) under
"Management -- Employment and Consulting Agreements; and --
Benefit Plans," insofar as such statements constitute a summary
of the legal documents or agreements referred to therein, fairly
present the information called for with respect to such
documents or agreements, and (3) under "Description of Capital
Stock," insofar as such statements constitute a summary of the
terms of the Common Stock, legal matters, documents or
proceedings referred to therein, fairly present the information
called for with respect to such terms, legal matters, documents
or proceedings;
(x) the Registration Statement, as of the effective
date thereof, and the Prospectus, at the time it was filed
pursuant to Rule 424(b) under the Act and as of the date of such
opinion, complied as to form in all material respects with the
requirements of the Act (except as to the financial statements,
supporting schedules, footnotes and other financial and
statistical information included therein, as to which such
counsel need express no opinion);
(xi) the issue and sale of the Shares, the execution
and delivery of this Agreement and the performance by the
Company of its terms do not violate or result in a violation of
the Company's or any of its subsidiaries' Certificate of
Incorporation or By-Laws, any applicable law, statute, rule or
regulation or any judgment, order or decree, known to such
counsel, of any court, governmental agency or body or arbiter
having jurisdiction over the Company or any of its subsidiaries
or their respective properties, and, to such counsel's
knowledge, will not constitute a material breach of the terms,
conditions or provisions of or constitute a default under any
contract, undertaking, indenture or other agreement to which the
Company or any of its subsidiaries is a party or by which any of
their respective properties are bound;
(xii) no authorization, approval, consent, order,
license, registration or qualification of any court or
governmental authority or agency or body is required for the
issue and sale of the Shares or the consummation of the other
transactions contemplated by this Agreement, except such as have
been obtained under the Securities
25
<PAGE>
Act, those that the Underwriters need to obtain from the NASD
and as may be required under state securities or Blue Sky laws
in connection with the purchase and distribution of the Shares
by the Underwriters;
(xiii) the Company is not and, after giving effect to
the offering and sale of the Shares and the application of the
proceeds thereof as described in the Prospectus, will not be, an
"investment company" as such term is defined in the Investment
Company Act;
(xiv) to such counsel's knowledge, the Company and its
subsidiaries own, possess or have obtained all material
licenses, permits, certificates, consents, orders, approvals and
other authorizations from, and have made all material
declarations and filings with, all federal, state, local and
other governmental authorities (including foreign regulatory
agencies), all self-regulatory organizations and all courts and
other tribunals, domestic or foreign, necessary to own or lease,
as the case may be, and to operate their respective material
properties and to carry on their respective business
substantially as conducted as of the date hereof, and, to such
counsel's knowledge, neither the Company nor any of its
subsidiaries has received any actual notice of any proceeding
relating to revocation or modification of any such license,
permit, certificate, consent, order, approval or other
authorization and, to such counsel's knowledge, the Company and
its subsidiaries are in compliance with all material laws and
regulations relating to the conduct of their respective business
substantially as conducted as of the date of the Prospectus; and
(xv) any real property and buildings held under a lease
governed by New York law by the Company or any of its
subsidiaries is held by such company under valid, existing and
enforceable leases with such exceptions as are not material and
do not interfere with the use made or proposed to be made of
such property and buildings by the Company or such subsidiary,
as applicable.
In addition to the matters set forth above, such opinion shall also include
a statement to the effect that nothing has come to such counsel's attention that
leads them to believe that the Registration Statement, at the time it became
effective, contained an untrue statement of a material fact or omitted to state
a material fact required to be stated therein or necessary to make the
statements therein not misleading, or that the Prospectus, as amended or
supplemented, if applicable, at the time it was filed with the Commission
pursuant to Rule 424(b) under the
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Securities Act or as of the date of such opinion, contained or contains an
untrue statement of a material fact or omitted or omits to state a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading (it being
understood that such counsel has not been requested to and does not make any
comment in this paragraph with respect to the financial statements (including
footnotes), supporting schedules, and other financial and statistical
information contained in the Registration Statement or Prospectus). With respect
to the foregoing opinion, such counsel may state that their opinion and belief
is based upon their participation in the preparation of the Registration
Statement and the Prospectus and any amendment or supplement thereto but is
without independent check or verification except as specified.
In rendering such opinions, such counsel may rely (A) as to matters
involving the application of laws other than the laws of the United States and
the States of Delaware and New York, to the extent such counsel deems proper and
to the extent specified in such opinion, if at all, upon an opinion or opinions
(in form and substance reasonably satisfactory to Underwriters' counsel) of
other counsel reasonably acceptable to the Underwriters' counsel, familiar with
the applicable laws and (B) as to matters of fact, to the extent such counsel
deems proper, on certificates of responsible officers of the Company and
certificates or other written statements of officials of jurisdictions having
custody of documents respecting the corporate existence or good standing of the
Company. The opinion of such counsel for the Company shall state that the
opinion of any such other counsel upon which they relied is in form satisfactory
to such counsel and, in such counsel's opinion, the Underwriters and they are
justified in relying thereon.
The opinion of Morrison & Foerster LLP described above shall be rendered to
the Underwriters at the request of the Company and shall so state therein.
(g) Morrison & Foerster LLP, counsel for the Selling Stockholders shall
have furnished to the Representatives their written opinion, dated the Closing
Date or Additional Closing Date, as the case may be, in form and substance
satisfactory to the Representatives, to the effect that:
(i) this Agreement has been duly authorized, executed and
delivered by or on behalf of each of the Selling Stockholders;
(ii) the Power of Attorney and the Custody Agreement have been
duly authorized, executed and delivered by or on behalf of each of the
Individual Sellers and are the valid and binding agreements of the
Individual Sellers, enforceable in accordance with their terms;
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(iii) each of the Selling Stockholders is the sole record owner
of the number of Shares to be sold by the respective Selling
Stockholder, and upon crediting of the Shares to J.P. Morgan Securities
Inc.'s account at the Depository Trust Company and payment by J.P.
Morgan, on behalf of the Underwriters, for the Shares to be sold by each
Selling Stockholder to the Underwriters in accordance with the
Underwriting Agreement, no action based on an adverse claim (as such
term is defined in Section 8-102 of the New York UCC) to the Shares,
whether named in conversion, replevin, constructive trust, equitable
lien, or other theory, may be asserted against the Underwriters,
assuming that the Underwriters acquire such Shares without notice of any
adverse claim (as such term is used in Section 8-502 of the New York
UCC).
(iv) the sale of the Shares and the execution and delivery by
the Selling Stockholders of, and the performance by the Selling
Stockholders of their obligations under, this Agreement and, in the case
of the Individual Sellers, the Power of Attorney and the Custody
Agreement, and the consummation of the transactions contemplated herein
and therein, as the case may be, (A) have been duly authorized on the
part of each of the Selling Stockholders that is a signatory thereto and
(B) will not conflict with or result in a breach of any of the terms or
provisions of, or constitute a default under, any material indenture,
mortgage, deed of trust, loan agreement or other material agreement or
instrument to which such Selling Stockholder is a party or by which such
Selling Stockholder is bound or to which any of the material property or
assets of such Selling Stockholder is subject, nor will any such action
result in any material violation of the partnership agreement if such
Selling Stockholder is a partnership or a limited liability agreement if
such Selling Stockholder is a limited liability company or any
applicable law or statute or any order, rule or regulation of any court
or governmental agency or body having jurisdiction over such Selling
Stockholder or any of its material properties; and no consent, approval,
authorization, order, registration or qualification of or with any such
court or governmental agency or body is required for the sale of the
Shares or the consummation by the Selling Stockholders of the
transactions contemplated by this Agreement, except such consents,
approvals, authorizations, registrations or qualifications as have been
obtained under the Securities Act and as may be required under state
securities or Blue Sky laws in connection with the purchase and
distribution of the Shares by the Underwriters.
28
<PAGE>
In rendering such opinions, such counsel may rely (A) as to matters
involving the application of laws other than the laws of the United States and
the States of Delaware and New York, to the extent such counsel deems proper and
to the extent specified in such opinion, if at all, upon an opinion or opinions
(in form and substance reasonably satisfactory to Underwriters' counsel) of
other counsel reasonably acceptable to the Underwriters' counsel, familiar with
the applicable laws and (B) as to matters of fact, to the extent such counsel
deems proper, on certificates of responsible officers of a Selling Stockholder
and certificates or other written statements of officials of jurisdictions
having custody of documents respecting the corporate or other existence or good
standing of a Selling Stockholder. For the Selling Stockholders other than Jack
D. Hidary, Murray Hidary, Nova Spivack and Warburg, Pincus Ventures, L.P., such
counsel shall be entitled to rely, without further investigation, solely upon
the representations and warranties of such Selling Stockholder contained in
their respective Custody Agreement and in this Agreement, stating in such
connection that nothing has come to such counsels' attention that causes them to
believe that they and the Underwriter are not justified in relying on such
representations and warranties. The opinion of such counsel for the Selling
Stockholders shall state that the opinion of any such other counsel upon which
they relied is in form satisfactory to such counsel and, in such counsel's
opinion, the Underwriters and they are justified in relying thereon.
29
<PAGE>
(h) on the effective date of the Registration Statement and the effective
date of the most recently filed post-effective amendment to the Registration
Statement and also on the Closing Date or Additional Closing Date, as the case
may be, PricewaterhouseCoopers LLP shall have furnished to you letters, dated
the respective dates of delivery thereof, in form and substance satisfactory to
you, containing statements and information of the type customarily included in
accountants' "comfort letters" to underwriters with respect to the financial
statements and certain financial information contained in the Registration
Statement and the Prospectus;
(i) the Representatives shall have received on and as of the Closing Date
or Additional Closing Date, as the case may be, an opinion of Davis Polk &
Wardwell, counsel to the Underwriters, with respect to the due authorization and
valid issuance of the Shares, the Registration Statement, the Prospectus and
other related matters as the Representatives may reasonably request, and such
counsel shall have received such papers and information as they may reasonably
request to enable them to pass upon such matters;
(j) the Shares to be delivered on the Closing Date or Additional Closing
Date, as the case may be, shall have been approved for listing on the Nasdaq
National Market, subject to official notice of issuance;
(k) on or prior to the Closing Date or Additional Closing Date, as the
case may be, the Company and the Selling Stockholders shall have furnished to
the Representatives such further certificates and documents as the
Representatives shall reasonably request; and
(l) the "lock-up" agreements, each substantially in the form of Exhibit A
hereto, between you and each of the individuals and entities described in
Section 4(a)(xxiv) relating to sales and certain other dispositions of shares of
Common Stock or certain other securities, delivered to you on or before the date
hereof, shall be in full force and effect on the Closing Date or Additional
Closing Date, as the case may be.
7. The Company agrees to indemnify and hold harmless (i) each Underwriter
and each person, if any, who controls any Underwriter within the meaning of
either Section 15 of the Securities Act or Section 20 of the Exchange Act, and
(ii) Warburg and each person, if any, who controls Warburg within the meaning of
either Section 15 of the Securities Act or Section 20 of the Exchange
30
<PAGE>
Act, from and against any and all losses, claims, damages and liabilities
(including, without limitation, the legal fees and other expenses incurred in
connection with any suit, action or proceeding or any claim asserted) caused by
any untrue statement or alleged untrue statement of a material fact contained in
the Registration Statement or the Prospectus (as amended or supplemented if the
Company shall have furnished any amendments or supplements thereto) or any
preliminary prospectus, or caused by any omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, except insofar as such losses, claims,
damages or liabilities are caused, in the case of any Underwriter, by any untrue
statement or omission or alleged untrue statement or omission made in reliance
upon and in conformity with information relating to such Underwriter furnished
to the Company in writing by such Underwriter through the Representatives
expressly for use therein, and in the case of Warburg, by any untrue statement
or omission or alleged untrue statement or omission made in reliance upon and in
conformity with information relating to Warburg furnished to the Company in
writing by Warburg expressly for use therein; provided, however, that the
foregoing indemnity agreement with respect to any preliminary prospectus shall
not inure to the benefit of any Underwriter from whom the person asserting any
such losses, claims, damages or liabilities purchased Shares, or any person
controlling such Underwriter, if a copy of the Prospectus was not sent to or
given by or on behalf of such Underwriter to such person, if required by law so
to have delivered, at or prior to the written confirmation of the sale of the
Shares to such person, and if the Prospectus would have cured the defect giving
rise to such loss, claim, damage or liability.
Each of the Selling Stockholders severally in proportion to the number of
Shares to be sold by such Selling Stockholder hereunder agrees to indemnify and
hold harmless (i) each Underwriter and each person, if any, who controls any
Underwriter within the meaning of either Section 15 of the Securities Act or
Section 20 of the Exchange Act, and (ii) the Company and each person, if any,
who controls the Company within the meaning of either Section 15 of the
Securities Act or Section 20 of the Exchange Act, to the same extent as the
foregoing indemnity from the Company to each Underwriter and Warburg, but only
with reference to information relating to such Selling Stockholder furnished to
the Company in writing by such Selling Stockholder expressly for use in the
Registration Statement, the Prospectus, any amendment or supplement thereto, or
any preliminary prospectus.
Each Underwriter agrees, severally and not jointly, to indemnify and hold
harmless (i) the Company, its directors, its officers who sign the Registration
Statement and each person who controls the Company within the meaning of Section
15 of the Securities Act and Section 20 of the Exchange Act and (ii) each of the
Selling Stockholders and each person who controls such Selling Stockholder
within the meaning of Section 15 of the Securities Act and Section 20
31
<PAGE>
of the Exchange Act, to the same extent as the foregoing indemnity from the
Company to each Underwriter and Warburg, but only with reference to information
relating to such Underwriter furnished to the Company in writing by such
Underwriter through the Representatives expressly for use in the Registration
Statement, the Prospectus, any amendment or supplement thereto, or any
preliminary prospectus.
If any suit, action, proceeding (including any governmental or regulatory
investigation), claim or demand shall be brought or asserted against any person
in respect of which indemnity may be sought pursuant to the preceding paragraphs
of this Section 7, such person (the "Indemnified Person") shall promptly notify
the person or persons against whom such indemnity may be sought (the
"Indemnifying Person") in writing, and such Indemnifying Persons, upon request
of the Indemnified Person, shall retain counsel reasonably satisfactory to the
Indemnified Person to represent the Indemnified Person and any others the
Indemnifying Persons may designate in such proceeding and shall pay the fees and
expenses of such counsel related to such proceeding. In any such proceeding, any
Indemnified Person shall have the right to retain its own counsel, but the fees
and expenses of such counsel shall be at the expense of such Indemnified Person
unless (i) the Indemnifying Persons and the Indemnified Person shall have
mutually agreed to the contrary, (ii) the Indemnifying Persons have failed
within a reasonable time to retain counsel reasonably satisfactory to the
Indemnified Person or (iii) the named parties in any such proceeding (including
any impleaded parties) include both an Indemnifying Person and the Indemnified
Person and representation of both parties by the same counsel would be
inappropriate due to actual or potential differing interests between them. It is
understood that no Indemnifying Person shall, in connection with any proceeding
or related proceeding in the same jurisdiction, be liable for the fees and
expenses of more than one separate firm (in addition to any local counsel) for
all Indemnified Persons, and that all such fees and expenses shall be reimbursed
as they are incurred. Any such separate firm for the Underwriters and such
control persons of Underwriters shall be designated in writing by J.P. Morgan
Securities Inc. and any such separate firm for the Company, its directors, its
officers who sign the Registration Statement and such control persons of the
Company shall be designated in writing by the Company and any such separate firm
for the Selling Stockholders shall be designated in writing by such Selling
Stockholder. No Indemnifying Person shall be liable for any settlement of any
proceeding effected without its written consent, but if settled with such
consent or if there be a final judgment for the plaintiff, each Indemnifying
Person agrees to indemnify any Indemnified Person from and against any loss or
liability by reason of such settlement or judgment. Notwithstanding the
foregoing sentence, if at any time an Indemnified Person shall have requested an
Indemnifying Person to reimburse the Indemnified Person for fees and expenses of
counsel as contemplated by the second and third sentences of this paragraph,
such Indemnifying Person agrees that it shall be liable for any settlement of
any proceeding effected without its
32
<PAGE>
written consent if (i) such settlement is entered into more than 30 days after
receipt by such Indemnifying Person of the aforesaid request and (ii) such
Indemnifying Person shall not have reimbursed the Indemnified Person in
accordance with such request prior to the date of such settlement. No
Indemnifying Person shall, without the prior written consent of the Indemnified
Person, effect any settlement of any pending or threatened proceeding in respect
of which any Indemnified Person is or could have been a party and indemnity
could have been sought hereunder by such Indemnified Person, unless such
settlement includes an unconditional release of such Indemnified Person from all
liability on claims that are the subject matter of such proceeding and does not
include a statement as to or an admission of fault, culpability or a failure to
act, by or on behalf of any Indemnified Party.
If the indemnification provided for in the first four paragraphs of this
Section 7 is unavailable to an Indemnified Person or insufficient in respect of
any losses, claims, damages or liabilities referred to therein, then each
Indemnifying Person under such paragraph, in lieu of indemnifying such
Indemnified Person thereunder, shall contribute to the amount paid or payable by
such Indemnified Person as a result of such losses, claims, damages or
liabilities (i) in such proportion as is appropriate to reflect the relative
benefits received by the Company and the Selling Stockholders on the one hand
and the Underwriters on the other hand from the offering of the Shares or (ii)
if the allocation provided by clause (i) above is not permitted by applicable
law, in such proportion as is appro priate to reflect not only the relative
benefits referred to in clause (i) above but also the relative fault of the
Company and the Selling Stockholders on the one hand and the Underwriters on the
other hand in connection with the statements or omissions that resulted in such
losses, claims, damages or liabilities, as well as any other relevant equitable
considerations. The relative benefits received by the Company and the Selling
Stockholders on the one hand and the Underwriters on the other hand shall be
deemed to be in the same respective proportions as the net proceeds from the
offering of the Shares (before deducting expenses) received by the Company and
the Selling Stockholders and the total underwriting discounts and the
commissions received by the Underwriters, in each case as set forth in the table
on the cover of the Prospectus, bear to the aggregate public offering price of
the Shares. The relative fault of the Company and the Selling Stockholders on
the one hand and the Underwriters on the other hand shall be determined by
reference to, among other things, whether the untrue or alleged untrue statement
of a material fact or the omission or alleged omission to state a material fact
relates to information supplied by the Company and the Selling Stockholders or
by the Underwriters and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
The Company, the Selling Stockholders and the Underwriters agree that it
would not be just and equitable if contribution pursuant to this Section 7 were
determined by pro rata allocation (even if the Selling Stockholders or the
33
<PAGE>
Underwriters were treated as one entity for such purposes) or by any other
method of allocation that does not take account of the equitable considerations
referred to in the immediately preceding paragraph. The amount paid or payable
by an Indemnified Person as a result of the losses, claims, damages and
liabilities referred to in the immediately preceding paragraph shall be deemed
to include, subject to the limitations set forth above, any legal or other
expenses incurred by such Indemnified Person in connection with investigating or
defending any such action or claim. Notwithstanding the provisions of this
Section 7, in no event shall an Underwriter be required to contribute any amount
in excess of the amount by which the total price at which the Shares
underwritten by it and distributed to the public were offered to the public
exceeds the amount of any damages that such Underwriter has otherwise been
required to pay by reason of such untrue or alleged untrue statement or omission
or alleged omission. No person guilty of fraudulent misrepresentation (within
the meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. The Underwriters' obligations to con tribute pursuant to
this Section 7 are several in proportion to the respective number of Shares set
forth opposite their names in Schedule I hereto, and not joint.
The remedies provided for in this Section 7 are not exclusive and shall not
limit any rights or remedies which may otherwise be available to any indemnified
party at law or in equity.
The indemnity and contribution agreements contained in this Section 7 and
the representations and warranties of the Company and the Selling Stockholders
set forth in this Agreement shall remain operative and in full force and effect
regardless of (i) any termination of this Agreement, (ii) any investigation made
by or on behalf of any Underwriter or any person controlling any Underwriter or
by or on behalf of the Company, its officers or directors or any other person
controlling the Company or the Selling Stockholders and (iii) acceptance of and
payment for any of the Shares.
8. Notwithstanding anything herein contained, this Agreement (or the
obligations of the several Underwriters with respect to the Option Shares) may
be terminated in the absolute discretion of the Representatives, by notice given
to the Company and the Selling Stockholders, if after the execution and delivery
of this Agreement and prior to the Closing Date (or, in the case of the Option
Shares, prior to the Additional Closing Date) (i) trading generally shall have
been suspended or materially limited on or by, as the case may be, any of the
New York Stock Exchange or the American Stock Exchange, the National Association
of Securities Dealers, Inc., the Chicago Board Options Exchange, the Chicago
Mercantile Exchange or the Chicago Board of Trade, (ii) trading of any
securities of or guaranteed by the Company shall have been suspended on any
exchange or in any over-the-counter market, (iii) a general moratorium on
commercial banking
34
<PAGE>
activities in New York shall have been declared by either Federal or New York
State authorities, or (iv) there shall have occurred any outbreak or escalation
of hostilities or any change in financial markets or any calamity or crisis
that, in the judgment of the Representatives, is material and adverse and which,
in the judgment of the Representatives, makes it impracticable to market the
Shares being delivered at the Closing Date or the Additional Closing Date, as
the case may be, on the terms and in the manner contemplated in the Prospectus.
9. This Agreement shall become effective upon the later of (x) execution
and delivery hereof by the parties hereto and (y) release of notification of the
effectiveness of the Registration Statement (or, if applicable, any post-
effective amendment) by the Commission.
If on the Closing Date or the Additional Closing Date, as the case may be,
any one or more of the Underwriters shall fail or refuse to purchase Shares
which it or they have agreed to purchase hereunder on such date, and the
aggregate number of Shares which such defaulting Underwriter or Underwriters
agreed but failed or refused to purchase is not more than one-tenth of the
aggregate number of Shares to be purchased on such date, the other Underwriters
shall be obligated severally in the proportions that the number of Shares set
forth opposite their respective names in Schedule I bears to the aggregate
number of underwritten Shares set forth opposite the names of all such non-
defaulting Underwriters, or in such other proportions as the Representatives may
specify, to purchase the Shares which such defaulting Underwriter or
Underwriters agreed but failed or refused to purchase on such date; provided
that in no event shall the number of Shares that any Underwriter has agreed to
purchase pursuant to Section 1 be increased pursuant to this Section 9 by an
amount in excess of one-tenth of such number of Shares without the written
consent of such Underwriter. If on the Closing Date or the Additional Closing
Date, as the case may be, any Underwriter or Underwriters shall fail or refuse
to purchase Shares which it or they have agreed to purchase hereunder on such
date, and the aggregate number of Shares with respect to which such default
occurs is more than one-tenth of the aggregate number of Shares to be purchased
on such date, and arrangements satisfactory to the Representatives, the Company
and, with respect to the Option Shares, the Selling Stockholders for the
purchase of such Shares are not made within 36 hours after such default, this
Agreement (or the obligations of the several Underwriters to purchase the Option
Shares, as the case may be) shall terminate without liability on the part of any
non-defaulting Underwriter or the Company or the Selling Stockholder. In any
such case either the Representative or the Company (and, in the case of the
Option Shares, the Selling Stockholders) shall have the right to postpone the
Closing Date (or, in the case of the Option Shares, the Additional Closing
Date), but in no event for longer than seven days, in order that the required
changes, if any, in the Registration Statement and in the Prospectus or in any
other documents or arrangements may be effected. Any action taken under this
paragraph shall not
35
<PAGE>
relieve any defaulting Underwriter from liability in respect of any default of
such Underwriter under this Agreement. If this Agreement shall be terminated
pursuant to this Section 9, the Company shall not then be liable to any
Underwriter except as provided in Sections 5(a)(xii) and 7 hereof.
10. If this Agreement shall be terminated by the Underwriters, or any of
them, because of any failure or refusal on the part of the Company or the
Selling Stockholders to comply with the terms or to fulfill any of the
conditions of this Agreement, or if for any reason any of the Company or the
Selling Stockholders shall be unable to perform its obligations under this
Agreement or any condition of the Underwriters' obligations cannot be fulfilled,
the Company and the Selling Stockholders agree to reimburse the Underwriters or
such Underwriters as have so terminated this Agreement with respect to
themselves, severally, for all out-of-pocket expenses (including the fees and
expenses of its counsel) reasonably incurred by the Underwriter in connection
with this Agreement or the offering contemplated hereunder.
11. This Agreement shall inure to the benefit of and be binding upon the
Company, the Selling Stockholders and the Underwriters, any controlling persons
referred to herein and their respective successors and assigns. Nothing
expressed or mentioned in this Agreement is intended or shall be construed to
give any other person, firm or corporation any legal or equitable right, remedy
or claim under or in respect of this Agreement or any provision herein
contained. No purchaser of Shares from any Underwriter shall be deemed to be a
successor by reason merely of such purchase.
12. Any action by the Underwriters hereunder may be taken by the
Representatives jointly or by J.P. Morgan Securities Inc. on behalf of the
Underwriters, and any such action taken by the Representatives jointly or by
J.P. Morgan Securities Inc. alone shall be binding upon the Underwriters. All
notices and other communications hereunder shall be in writing and shall be
deemed to have been duly given if mailed or transmitted by any standard form of
telecommunication. Notices to the Underwriters shall be given to the
Representatives, c/o J.P. Morgan Securities Inc., 60 Wall Street, New York, New
York 10260 (telefax: 212-648-5708); Attention: Syndicate Department. Notices to
the Company shall be given to it at EarthWeb Inc., 3 Park Avenue, New York, New
York 10016, (telefax: 212-725-6559); Attention: Irene Math. Notices to the
Selling Stockholders shall be given to them c/o EarthWeb Inc. at the foregoing
address and telefax number.
13. This Agreement may be signed in counterparts, each of which shall be
an original and all of which together shall constitute one and the same
instrument.
36
<PAGE>
14. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH
THE LAWS OF THE STATE OF NEW YORK, WITHOUT GIVING EFFECT TO THE CONFLICTS OF
LAWS PROVISIONS THEREOF.
37
<PAGE>
If the foregoing is in accordance with your understanding, please sign and
return four counterparts hereof.
Very truly yours,
EARTHWEB INC.
By:
-----------------------------------
Name:
Title:
WARBURG, PINCUS VENTURES, L.P.
By: Warburg, Pincus & Co., its general
partner
By:
-----------------------------------
Name:
Title:
Selling Stockholders
By:
-----------------------------------
Name:
Title:
By:
-----------------------------------
Name:
Title:
As Attorney-in-Fact acting on behalf of each of the
indicated Selling Stockholders named in Schedule II to
this Agreement.
Accepted: ________________, 1999
J.P. Morgan Securities Inc.
Bear Stearns & Co. Inc.
38
<PAGE>
Volpe Brown Whelan & Company, LLC
Wit Capital Corporation
Acting severally on behalf of themselves and the several Underwriters listed in
Schedule I hereto.
By: J.P. Morgan Securities Inc.
Acting on behalf of itself and the several Underwriters listed in Schedule I
hereto.
By:
-----------------------------------
Title:
39
<PAGE>
SCHEDULE I
<TABLE>
<CAPTION>
Underwriter Number of Shares
To Be Purchased
<S> <C>
J.P. Morgan Securities Inc. ...........
Bear Stearns & Co. Inc. ...............
Volpe Brown Whelan & Company, LLC .....
Wit Capital Corporation................
---------
---------
Total 1,300,000
</TABLE>
<PAGE>
SCHEDULE II
<TABLE>
<CAPTION>
Number of Number of
Selling Stockholders Underwritten Shares Option Shares
-------------------- ------------------- -------------
<S> <C> <C>
</TABLE>
* Attorney-in-fact: Jack D. Hidary
<PAGE>
SCHEDULE III
LOCK-UP AGREEMENTS
--------------------------
Stockholders/Optionholders
<PAGE>
[LETTERHEAD OF MORRISON & FOERSTER LLP]
Exhibit 5
May 5, 1999
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 April 6, 1999 (Registration No. 333-
75771), Amendment No. 1 thereto filed on April 15, 1999 and Amendment No. 2
thereto filed on May 4, 1999 (the "Registration Statement"), relating to the
registration under the Securities Act of 1933, as amended, of up to 1,495,000
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, presently
issued and outstanding shares being offered by certain selling shareholders (the
"Selling Shareholders"), and 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 the
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
<PAGE>
EarthWeb Inc.
May 5, 1999
Page 2
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 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,
/s/Morrison & Foerster LLP
Morrison & Foerster LLP
<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 January 21, 1999, on our audits of the financial statements of
EarthWeb Inc. as of December 31, 1998 and 1997 and for the three years in the
period ended December 31, 1998. We also consent to the reference to our firm
under the caption "Experts."
/s/ PricewaterhouseCoopers LLP
New York, NY
May 3, 1999
<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 January 22, 1999, on our audits of the financial statements of
D&L Online, Inc. as of December 31, 1998 and 1997 and for the two years in the
period ended December 31, 1998. We also consent to the reference to our firm
under the caption "Experts."
/s/ PricewaterhouseCoopers LLP
Omaha, Nebraska
May 3, 1999
<PAGE>
[LETTERHEAD OF JUPITER COMMUNICATIONS, LLC]
EXHIBIT 23.3
April 29, 1999
Jack Hidary
Earth Web Inc.
The Undersigned consents to the references to the Undersigned in the
Registration Statement on Form S-1 of Earth Web Inc. and any amendment thereto.
Sincerely,
/s/ Marla Kammer
Marla Kammer
Director of Production
Jupiter Communications
<PAGE>
[LETTERHEAD OF SIMBA INFORMATION INC.]
EXHIBIT 23.4
April 14, 1999
Jack Hidary
EarthWeb Inc.
The Undersigned hereby consents to the references to the undersigned included in
the Registration Statement on Form S-1 of EarthWeb Inc. and any amendment
thereto.
Simba Information Inc.
/s/ Harry L. Baisden
----------------------
By: Harry L. Baisden
Title: Editorial Director
<PAGE>
EXHIBIT 23.5
[LETTERHEAD OF INTERNATIONAL DATA CORPORATION]
Jack Hidary
Earth Web, Inc.
The undersigned hereby consents to the references to the undersigned included
in the registration statement on Form S-1 of Earth Web, Inc. and any amendment
thereto.
By: /s/ Mike Melenovsky
Title: Group VP, IDC
By: /s/ Alexa McCloughan
Title: Sr. VP, IDC
<PAGE>
EXHIBIT 23.6
[LETTERHEAD OF BUSINESS MARKETING]
April 27, 1999
To: Jack Hidary
Earth Web Inc.
The undersigned hereby consents to the references to the undersigned included
in the Registration Statement on Form S-1 of Earth Web Inc. and any amendment
thereto.
Business Marketing
/s/ Peggy Myers
----------------------
By: Peggy Myers
Title: Promotion Manager
