<PAGE>
FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 19, 1999
REGISTRATION NO. 333-76331
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------------------
INTERNET.COM CORPORATION
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 7319 06-1542480
(State or other jurisdiction (Primary Standard Industrial (IRS Employer
of Classification Code Number) Identification
incorporation or organization) No.)
</TABLE>
------------------------------------
20 KETCHUM STREET
WESTPORT, CONNECTICUT 06880
(203) 226-6967
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
---------------------------------------------
ALAN M. MECKLER
CHAIRMAN & CHIEF EXECUTIVE OFFICER
INTERNET.COM CORPORATION
20 KETCHUM STREET
WESTPORT, CONNECTICUT 06880
(203) 226-6967
Name, address, including zip code, and telephone number, including area code, of
agent for service)
COPIES TO:
<TABLE>
<S> <C>
WILLIAM J. GRANT, JR. MICHAEL J. SULLIVAN
WILLKIE FARR & GALLAGHER COOLEY GODWARD LLP
787 SEVENTH AVENUE ONE MARITIME PLAZA
NEW YORK, NEW YORK 10019 SAN FRANCISCO, CALIFORNIA 94111
(212) 728-8000 (415) 693-2000
</TABLE>
------------------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this registration statement.
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, 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 THIS 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 THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE SECURITIES AND EXCHANGE COMMISSION DECLARES
OUR REGISTRATION STATEMENT EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER TO SELL
THESE SECURITIES AND IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY
STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
<PAGE>
SUBJECT TO COMPLETION, DATED MAY 19, 1999
3,400,000 SHARES
INTERNET.COM CORPORATION [LOGO]
THE E-BUSINESS AND INTERNET TECHNOLOGY NETWORK
COMMON STOCK
$ PER SHARE
- ----------------------------------------------------------------------
- - This is our initial public offering and no public market currently exists for
our shares.
- - We anticipate that the initial public offering price will be between $ and
$ per share.
- - Proposed trading symbol: Nasdaq National Market--INTM.
-------------------
THIS INVESTMENT INVOLVES RISKS. SEE "RISK FACTORS" BEGINNING ON PAGE 8.
<TABLE>
<S> <C> <C>
- -------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------
<CAPTION>
PER SHARE TOTAL
----------- -----------
<S> <C> <C>
Public Offering Price.................................................. $ $
Underwriting Discounts................................................. $ $
Proceeds to internet.com Corporation................................... $ $
- -------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------
</TABLE>
THE UNDERWRITERS HAVE A 30-DAY OPTION TO PURCHASE UP TO 510,000 ADDITIONAL
SHARES OF COMMON STOCK FROM A SELLING STOCKHOLDER TO COVER OVER-ALLOTMENTS, IF
ANY.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OF ANYONE'S INVESTMENT IN THESE SECURITIES OR DETERMINED
IF THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
U.S. BANCORP PIPER JAFFRAY
WILLIAM BLAIR & COMPANY
DLJDIRECT Inc.
THE DATE OF THIS PROSPECTUS IS , 1999.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Summary................................................................................ 4
Risk Factors........................................................................... 8
Use of Proceeds........................................................................ 17
Dividend Policy........................................................................ 17
Capitalization......................................................................... 18
Dilution............................................................................... 19
Selected Financial Data................................................................ 20
Management's Discussion and Analysis of Financial Condition
and Results of Operations............................................................ 21
Business............................................................................... 32
Management............................................................................. 51
Certain Transactions................................................................... 57
Principal Stockholders................................................................. 60
Description of Capital Stock........................................................... 61
Shares Eligible for Future Sale........................................................ 64
Underwriting........................................................................... 66
Legal Matters.......................................................................... 68
Experts................................................................................ 68
Where You Can Find More Information.................................................... 69
Index to Financial Statements.......................................................... F-1
</TABLE>
------------------------------------
You should rely only on the information contained in this prospectus. We have
not, and the underwriters have not, authorized any other person to provide you
with different information. This prospectus is not an offer to sell, nor is it
seeking an offer to buy, these securities in any state where the offer or sale
is not permitted. The information in this prospectus is complete and accurate as
of the date on the front cover, but the information may have changed since that
date.
<PAGE>
SUMMARY
THE ITEMS IN THE FOLLOWING SUMMARY ARE DESCRIBED IN MORE DETAIL LATER IN THIS
PROSPECTUS. THIS SUMMARY PROVIDES AN OVERVIEW OF SELECTED INFORMATION AND DOES
NOT CONTAIN ALL THE INFORMATION YOU SHOULD CONSIDER. THEREFORE, YOU SHOULD ALSO
READ THE MORE DETAILED INFORMATION SET OUT IN THIS PROSPECTUS, THE FINANCIAL
STATEMENTS AND THE OTHER INFORMATION INCORPORATED BY REFERENCE INTO THIS
PROSPECTUS. UNLESS OTHERWISE INDICATED, ALL REFERENCES IN THIS PROSPECTUS TO
"INTERNET.COM," "WE," "US" OR "OUR" ARE TO INTERNET.COM CORPORATION OR
INTERNET.COM LLC, OUR PREDECESSOR ENTITY.
INTERNET.COM
internet.com owns and operates a leading network of integrated
business-to-business Web sites and related Internet media properties focused
solely on the Internet industry. Our network of Internet media properties
consists of 61 Web sites, 43 e-mail newsletters, 55 online discussion forums and
52 moderated e-mail discussion lists. Our network is organized into nine
vertical content channels to serve our Internet users, which include Internet
industry and Internet technology professionals, Web developers and experienced
Internet users. We provide our audience, or community of Internet users, with
the following resources:
- - real-time Internet industry news
- - tutorials, training and skills development
- - Internet market research
- - buyer's guides and products reviews
- - archives of definitive industry publications
- - discussion forums
- - software downloads
- - expert advice
The Internet has emerged as a global distribution network for real-time news and
information, an environment for online communities and a marketplace in which
commerce is conducted. International Data Corporation, or IDC, estimates that
the number of Uniform Resource Locators, or URLs, will grow from approximately
925 million in 1998 to 13.1 billion in 2003. This growth has created a rapidly
expanding group of Internet professionals with a critical need for timely
content, community and commerce resources to assist them in their daily work and
purchasing decisions. Our network provides a comprehensive source of the latest
Internet news and information for our community of Internet users. It also
provides the ability to share information and evaluate, compare and purchase
Internet-related products and services.
We also provide advertisers and vendors with focused channels to reach our
community of Internet industry and Internet technology professionals, many of
whom either make or influence Internet technology purchasing decisions. We have
had over 450 advertisers on our network, including Biztravel.com, Dell Computer
Corporation, International Business Machines Corporation, Lucent Technologies
Inc., Macromedia Inc., Microsoft Corporation, Nortel Networks Corporation,
Oracle Corporation, OrderTrust LLC and Surfree.com Inc.
We have rapidly built a large and focused network of Internet media properties,
through internal development and acquisitions. We have experience identifying,
evaluating, acquiring and integrating Internet media properties which are
complementary to our content, community and commerce offerings. Since July 1995,
we have made 28 acquisitions of Internet media properties, consisting of 37 Web
sites, 29 e-mail newsletters, 16 online discussion forums and four
4
<PAGE>
moderated e-mail discussion lists. We have made 17 of these 28 acquisitions
since March 1998. Our size and recent growth are illustrated by the following
statistics for the months of April 1998 and April 1999:
<TABLE>
<CAPTION>
APRIL 1998 APRIL 1999
------------ ------------
<S> <C> <C> <C>
Web site page views 13,490,000 42,100,000
Unique Web site visitors 850,000 1,660,000
E-mail newsletters distributed 300,000 8,100,000
E-mail newsletter subscribers 80,000 700,000
E-mail discussion list postings -- 31,200,000
E-mail discussion list subscribers -- 51,000
</TABLE>
Our objective is to maintain and strengthen our position as a leading provider
of integrated business-to-business vertical content focused solely on the
Internet industry. We intend to achieve this objective by continuing to execute
the following strategies:
- increase our proprietary content offerings and services;
- grow through targeted acquisitions;
- increase traffic and enhance worldwide brand recognition;
- expand revenue opportunities; and
- increase our international presence.
Prior to the acquisition of Mecklermedia Corporation by Penton Media, Inc. in
November 1998, we operated since December 1994 as one of three divisions which
comprised Mecklermedia. Our predecessor Web sites, MECKLERWEB.COM and
IWORLD.COM, were also dedicated to covering the Internet industry. In connection
with this acquisition, Penton Media determined that Mecklermedia's Internet
business was not consistent with its planned strategic direction. To address
this issue, Alan M. Meckler, Mecklermedia's Chairman and Chief Executive
Officer, purchased an 80.1% interest in internet.com LLC, a business formed by
Penton Media to hold the Internet business acquired from Mecklermedia. See
"Certain Transactions--Formation Transactions."
internet.com Corporation was incorporated on April 5, 1999 in the State of
Delaware. internet.com LLC will be merged with and into internet.com Corporation
immediately preceding the consummation of the offering. Our principal executive
offices are located at 20 Ketchum Street, Westport, Connecticut 06880 and our
telephone number is (203) 226-6967.
The information on our Web sites, e-mail newsletters, online discussion forums
and moderated e-mail discussion lists is not a part of this prospectus.
"internet.com" and the internet.com logo are two of our trademarks and service
marks. We have numerous other trademarks and service marks as well. See
"Business--Intellectual Property." This prospectus also references trademarks
and trade names of other companies.
5
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common stock offered............................ 3,400,000 shares
------
Common stock outstanding after the offering..... 23,400,000 shares (1)(2)
Offering price.................................. $ per share
Use of proceeds................................. We will receive net proceeds from this
offering of approximately $ million.
We will use approximately $3.1 million of
the net proceeds to repay indebtedness
from our line of credit. We intend to use
the remaining net proceeds for potential
strategic acquisitions and general
corporate purposes, including working
capital and expansion of editorial,
marketing and sales activities. See "Use
of Proceeds."
Proposed Nasdaq National Market symbol.......... INTM
</TABLE>
- ---------------------------------------------
(1) Based on shares outstanding as of March 31, 1999, assuming the conversion
of internet.com into a corporation had been effected as of that date.
Excludes 2,000,000 shares of common stock that have been set aside for stock
options under our stock incentive plan, of which 510,500 options will be
granted to our employees immediately preceding the closing of this offering.
(2) Assumes exercise by Internet World Media of a warrant to purchase up to
2,075,634 shares.
UNLESS OTHERWISE SPECIFICALLY STATED, INFORMATION CONTAINED IN THIS PROSPECTUS
(A) DOES NOT TAKE INTO ACCOUNT THE EXERCISE OF THE UNDERWRITERS' OVER-ALLOTMENT
OPTION TO PURCHASE UP TO 510,000 SHARES OF OUR COMMON STOCK FROM INTERNET WORLD
MEDIA, INC., A WHOLLY-OWNED SUBSIDIARY OF PENTON MEDIA, INC.; (B) DOES NOT GIVE
EFFECT TO THE EXERCISE BY INTERNET WORLD MEDIA OF A WARRANT TO PURCHASE
2,075,634 SHARES OF OUR COMMON STOCK IMMEDIATELY PRIOR TO THE CLOSING OF THIS
OFFERING; AND (C) GIVES EFFECT TO THE CONVERSION OF OUR BUSINESS FORM INTO A
CORPORATION, AT THE CONVERSION RATE OF ONE MEMBERSHIP UNIT IN INTERNET.COM LLC
INTO 16,215.891 SHARES OF OUR COMMON STOCK, WHICH WILL OCCUR IMMEDIATELY PRIOR
TO THE EFFECTIVENESS OF THIS OFFERING.
6
<PAGE>
SUMMARY FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The following table summarizes the financial data for internet.com and its
predecessor business, the iWorld division of Mecklermedia. The share information
reflects the conversion of internet.com from a limited liability company into a
corporation as if such conversion had occurred at the beginning of each period
indicated. The following summary financial data should be read in conjunction
with the internet.com and iWorld audited financial statements and accompanying
notes and "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
<TABLE>
<CAPTION>
THREE
INCEPTION MONTHS
(DEC. 7, 1994) FISCAL YEAR ENDED OCT. 1 NOV. 24 ENDED
THROUGH ------------------------------------- THROUGH THROUGH -----------
SEPT. 30, SEPT. 30, SEPT. 30, SEPT. 30, NOV. 23, DEC. 31, MARCH 31,
1995(1) 1996(1) 1997(1) 1998(1) 1998(1) 1998(2) 1998(1)
--------------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues............................ $ 123 $ 498 $ 1,479 $ 3,544 $ 778 $ 772 $ 831
Gross profit........................ 84 (38) 308 1,373 322 369 264
Operating loss...................... (404) (1,244) (2,155) (2,731) (467) (2,900) (691)
Net loss............................ (404) (1,244) (2,155) (2,731) (467) (2,908) (691)
Basic and diluted net loss per
share.............................
Common shares used to compute basic
and diluted net loss per share....
<CAPTION>
MARCH 31,
1999(2)
-----------
<S> <C>
STATEMENT OF OPERATIONS DATA:
Revenues............................ $ 1,612
Gross profit........................ 495
Operating loss...................... (3,157)
Net loss............................ (3,189)
Basic and diluted net loss per
share............................. $ (0.18)
Common shares used to compute basic
and diluted net loss per share.... 17,924
</TABLE>
The following table summarizes our balance sheet (assuming the conversion of
internet.com LLC into a corporation) as of March 31, 1999, which has been
adjusted, on a pro forma basis, to reflect the sale of the 3,400,000 shares of
common stock offered hereby at an assumed offering price of $ per share,
after deducting estimated underwriting discounts and estimated offering
expenses, and the exercise by Internet World Media of its warrant to purchase
2,075,634 shares of our common stock immediately prior to the closing of this
offering. See "Use of Proceeds" and "Capitalization."
<TABLE>
<CAPTION>
MARCH 31, 1999
----------------------
PRO FORMA
ACTUAL AS ADJUSTED
--------- -----------
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents.................................................. $ 236 $
Working capital (deficit).................................................. (2,207)
Total assets............................................................... 22,682
Borrowings under line of credit............................................ 1,851
Total stockholders' equity................................................. 18,045
</TABLE>
- ---------------------------------------------
(1) Represents the financial data of the iWorld division of Mecklermedia
Corporation.
(2) Represents the financial data of internet.com.
7
<PAGE>
RISK FACTORS
YOU SHOULD CAREFULLY CONSIDER THE RISKS DESCRIBED BELOW BEFORE MAKING AN
INVESTMENT DECISION. THE RISKS AND UNCERTAINTIES DESCRIBED BELOW ARE NOT THE
ONLY ONES FACING OUR COMPANY. OUR BUSINESS, FINANCIAL CONDITION OR RESULTS OF
OPERATIONS COULD BE HARMED BY ANY OF THE FOLLOWING RISKS. THE TRADING PRICE OF
OUR COMMON STOCK COULD DECLINE DUE TO ANY OF THE FOLLOWING RISKS, AND YOU MIGHT
LOSE ALL OR PART OF YOUR INVESTMENT.
RISKS RELATED TO OUR BUSINESS
WE HAVE A LIMITED OPERATING HISTORY. Although our predecessor business, iWorld,
began operating in December 1994, internet.com was only formed in November 1998.
Thus, we have a limited operating history upon which you can evaluate our
business. We are subject to the risks, expenses and uncertainties frequently
encountered by companies in the new and rapidly evolving markets for Internet
products and services. For example:
- we might fail to continue to develop and extend our Internet-based
content offerings and services;
- our services may be rejected by Internet users, vendors or
advertisers;
- we might be unable to maintain and increase the levels of traffic
on our network;
- our competitors may develop or may already have developed similar
or superior services or products;
- the market might fail to continue to accept the Internet as an
advertising medium;
- we might not be able to successfully sell Internet advertising;
- market prices for Internet advertising may drop as a result of
competition or other factors;
- we might not effectively integrate the technology and operations of
any acquired businesses or technologies with our operations;
- the technologies we use in our operations might fail or operate
poorly; and
- we might be unable to identify, attract, retain and motivate
qualified personnel.
We might not be successful in addressing these risks or other risks we may face.
If we are unable to adequately address these risks, our business, results of
operations and financial condition would suffer.
WE ANTICIPATE CONTINUED LOSSES. We had net losses of approximately $1.2 million
for the year ended September 30, 1996, $2.1 million for the year ended September
30, 1997, $2.7 million for the year ended September 30, 1998 and $3.2 million
for the three months ended March 31, 1999. As of March 31, 1999, we had an
accumulated deficit of approximately $6.1 million and, as a result of the
formation of internet.com in November 1998, we had intangible assets, net, of
$18.6 million. We cannot assure you that our revenues will continue at their
current level or increase in the future. We have not achieved profitability on a
quarterly or annual basis to date and we anticipate that we will continue to
incur net losses for the foreseeable future. Our failure to achieve
profitability could deplete our current capital resources and reduce our ability
to raise additional capital. We expect to increase our operating expenses
significantly, expand our sales and marketing operations and continue to develop
and expand our content offerings and services. If these expenses are not
accompanied by increased revenues, we
8
<PAGE>
may not be able to recover the recorded amounts of our intangible assets and our
business, results of operations and financial condition would suffer.
OUR QUARTERLY OPERATING RESULTS ARE SUBJECT TO SIGNIFICANT FLUCTUATIONS. Our
quarterly operating results may fluctuate significantly in the future because of
a variety of factors, many of which are outside our control. These factors
include:
- the level of Internet usage;
- traffic levels on our network;
- the demand for advertising on our network, as well as on the
Internet in general;
- changes in rates paid for Internet advertising resulting from
competition or other factors;
- our ability to enter into or renew key agreements with our
advertisers and vendors;
- the amount and timing of costs related to marketing efforts or
other initiatives;
- costs incurred as we expand operations;
- our ability to successfully introduce new content offerings and
services;
- new services introduced by us or our competitors;
- technical difficulties or system downtime affecting the Internet
generally or the operation of our network; and
- economic conditions specific to the Internet as well as general
economic conditions.
Therefore, operating results for any particular quarter might not be indicative
of future operating results. We expect to depend primarily on advertising
revenues for the foreseeable future. As a result, the level of advertising
revenues in each quarter is likely to significantly affect our quarterly
revenues and operating results. Our advertising, promotion and selling and
general and administrative expenses are based on expectations of future revenues
and are relatively fixed in the short term. These expenses totaled approximately
$1.7 million during the three months ended March 31, 1999. If our advertising
and other revenues are lower than expected, we might not be able to quickly
reduce spending. In addition, we intend to significantly increase operating
expenses to expand our business. Any shortfall in revenues would have a direct
impact on operating results for a particular quarter and these fluctuations
could affect the market price of our common stock.
THERE ARE RISKS ASSOCIATED WITH OUR BUSINESS, WHICH IS DEPENDENT ON INTERNET
ADVERTISING. We have derived approximately 99% of our revenues from
impression-based advertising for each of the three years ended September 30,
1996, 1997 and 1998. No standards have been widely accepted to measure the
effectiveness of Internet advertising. If such standards do not develop,
existing advertisers might not continue their current levels of Internet
advertising. Furthermore, advertisers that have traditionally relied upon other
advertising media may be reluctant to advertise on the Internet. In addition,
advertisers that have already invested substantial resources in other
advertising methods may be reluctant to adopt a new strategy. Our business would
suffer if the market for Internet advertising fails to continue to develop or
develops more slowly than expected. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Business--Our Business
Strategy" and "--Marketing and Sales."
9
<PAGE>
It is difficult to predict which, if any, of the pricing models currently used
to sell advertising on the Internet will emerge as the industry standard, which
makes it difficult to project future advertising rates and revenues. For
example, insistence by advertisers that advertising rates be based on the number
of click throughs, or user requests for additional information made by clicking
on the advertisement, instead of rates based solely on the number of advertising
impressions, or the number of times an advertisement is displayed, could
adversely affect revenues. Advertising revenues would suffer if we cannot adapt
to new Internet advertising pricing models. Moreover, filtering software
programs that limit or prevent advertising from being delivered to an Internet
user's computer are available. Widespread adoption of this filtering software by
Internet users could adversely affect the commercial viability of Internet
advertising, which would harm our business.
It is important to advertisers that we accurately measure the size and
demographics of our user base and accurately verify the number of advertising
impressions we deliver. We depend on third parties to provide these measurement
services. If they cannot provide these services in the future, we will be
required to perform them ourselves or obtain them from another provider. This
could cause us to incur additional costs or cause interruptions in business
during the time we are replacing these services.
WE DEPEND ON A LIMITED NUMBER OF ADVERTISERS. Our largest advertiser,
International Business Machines Corporation, accounted for 17% of our total
revenues for the six months ended March 31, 1999. Our top 20 advertisers
together accounted for 50% of our total revenues during the same period. We
expect that a limited number of advertisers will continue to account for a
significant portion of our revenues. Moreover, we typically sell advertisements
under purchase order agreements. These agreements are subject to cancellation by
our advertisers with no minimum notice requirement. If we lose one or more of
the advertisers that represent a material portion of the revenues we have
generated to date, our business, results of operations and financial condition
would suffer. In addition, if a significant advertiser fails to pay amounts it
owes us, or does not pay those amounts on time, our business, results of
operations and financial condition would suffer. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations."
THE SEASONALITY OF OUR ADVERTISING REVENUES COULD CAUSE OUR OVERALL REVENUES TO
FLUCTUATE. We believe that advertising sales in traditional media, such as print
publishing, generally are lower in the first and third calendar quarters of each
year due to buying patterns of advertisers. Therefore, we believe that the
growth of our advertising revenues, which constitute a significant portion of
our total revenues, may be lower in the first and third quarters of each year.
If the Internet makes the transition from an emerging to a more developed
advertising medium, we may experience similar seasonal patterns as those in the
traditional media industry. As a result, our stock price may be lower after the
announcement of our results for the first and third quarters than at other times
of the year.
WE DEPEND ON AN EFFECTIVE DIRECT SALES FORCE. We depend on our direct sales
force to sell advertising on our Web sites, e-mail newsletters, online
discussion forums and moderated e-mail discussion lists. We also depend on our
sales force to enter into e-commerce agreements. This dependence involves a
number of risks, including:
- the need to increase the size of our direct sales force;
- the need to hire, retain, integrate and motivate additional sales
and sales support personnel;
- lack of experience at internet.com of our new sales personnel; and
- competition from other companies in hiring and retaining sales
personnel.
10
<PAGE>
Our business may suffer if we do not maintain an effective direct sales force.
WE FACE INTENSE COMPETITION. The market for Internet-based content offerings and
services is relatively new, intensely competitive and rapidly changing. Since
the advent of commercial services on the Internet, the number of online services
competing for users' attention and spending has proliferated. We expect that
competition will continue to intensify. We compete with other companies that
direct some of their overall Web content and services at the Internet
professional community, such as Ziff-Davis Inc.'s ZDNet, C/NET, Inc., CMP Media
Inc., EarthWeb Inc. and Wired Digital Inc. We also compete for circulation and
advertising impressions with general interest portal and destination Web sites
as well as traditional media.
An important part of our strategy is to develop and increase the reputation of
our brand names. If we are unable to do so, or if our competitors develop their
brand names more successfully than we do, our future growth, and our business,
results of operations and financial condition would suffer.
Many of our current and potential competitors have longer operating histories,
larger customer bases, greater brand recognition and significantly greater
financial, marketing and other resources than we have. These competitors may be
able to respond more quickly to new or emerging technologies and changes in
customer requirements and to devote greater resources to the development,
promotion and sale of their products and services than we can. We might not be
able to compete successfully against our current or future competitors. See
"Business--Competition."
WE MIGHT NOT BE ABLE TO ADEQUATELY MANAGE OUR GROWTH. Our recent growth has
placed, and will continue to place, a significant strain on our managerial,
operational and financial resources. We must continue to implement and improve
our operational and financial systems and to expand, train and manage our
employee base to manage this future growth. We also intend to establish or
acquire additional Web sites, e-mail newsletters, online discussion forums and
moderated e-mail discussion lists which will create additional operational and
management complexities. In addition, we expect that our operational and
management systems will face increased strain as a result of the expansion of
our content offerings and services. We might not be able to manage effectively
the expansion of our operations and systems, and our procedures and controls
might not be adequate to support our operations. In addition, our management
might not be able to make and execute decisions rapidly enough to exploit market
opportunities for the expansion of our content offerings and services. If we are
unable to manage growth effectively, our business, results of operations and
financial condition would suffer.
WE MIGHT BE UNABLE TO SUCCESSFULLY IMPLEMENT OUR ACQUISITION STRATEGY. We have
acquired and intend to continue to acquire complementary Web sites, e-mail
newsletters, online discussion forums and moderated e-mail discussion lists,
companies, technologies, services or products as appropriate opportunities
arise. If we identify an appropriate acquisition opportunity, we might not be
able to negotiate the terms of that acquisition successfully, finance it, or
integrate its personnel and operations. We may also have difficulty continuing
to acquire Web sites and other Internet media properties at the prices
historically paid due to the escalation of Internet media valuations. If we make
acquisitions outside of our core business, assimilating the acquired technology,
services or products into our operations could be difficult. This may cause a
disruption in our ongoing business, distract management and make it difficult to
maintain standards, controls and procedures. In addition, we might be required
to incur debt or issue equity securities to pay for any future acquisitions. If
the market price for acquisition targets increases substantially, our future
growth could be harmed.
OUR SYSTEMS ARE SUBJECT TO DAMAGE FROM NATURAL DISASTERS, TELECOMMUNICATION
FAILURES, ELECTRONIC BREAK-INS AND SIMILAR PROBLEMS. Most of our communications
and other computer hardware operations are located
11
<PAGE>
at our facility in Westport, Connecticut. These systems could be damaged by
fire, floods, earthquakes, power loss, telecommunication failures, electronic
break-ins and similar events. Our network could also be affected by computer
viruses, electronic break-ins or other similar disruptive problems. Any of these
occurrences could harm our business. Our insurance policies have limited
coverage levels and therefore insurance may not adequately compensate us for any
losses that may occur due to any failures or interruptions in our systems. See
"--The failure of computer systems and software products to be Year 2000
compliant could hurt our business" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Year 2000 Compliance."
OUR SYSTEMS MAY FAIL OR EXPERIENCE A SLOWDOWN AND OUR USERS DEPEND ON OTHERS FOR
ACCESS TO OUR NETWORK. Our network of Web sites, e-mail newsletters, online
discussion forums and moderated e-mail discussion lists must accommodate a high
volume of traffic and deliver frequently updated information. Our network has in
the past, and may in the future, experience slower response times or decreased
traffic for a variety of reasons. There have been two instances where
internet.com as a whole has been inaccessible, in each instance for
approximately 30 minutes. Slower response times, which have occurred more
frequently, can result from general Internet problems, routing and equipment
problems by third-party Internet access providers, problems with third-party
advertising servers and increased traffic to our servers. We also depend on
information providers to provide information and data feeds on a timely basis.
Our network could experience interruptions in service due to the failure or
delay in the transmission or receipt of this information. In addition, our
community of Internet users depends on Internet service providers, online
service providers and other Web sites' operators for access to our network.
Those providers have experienced outages in the past, and may experience outages
or delays in the future. Moreover, our Internet infrastructure might not be able
to support continued growth of our network. Any of these problems could harm our
business.
THE FAILURE OF COMPUTER SYSTEMS AND SOFTWARE PRODUCTS TO BE YEAR 2000 COMPLIANT
WOULD HURT OUR BUSINESS. Our business will suffer if the computer systems we
use, as well as the computer systems used by our Internet users, advertisers and
vendors, do not correctly process the change in year from "99" to "00" on
January 1, 2000. We are working to avoid such problems and to obtain assurances
from our advertisers, vendors and other service providers that they are taking
similar steps. We believe that our computer systems will successfully handle the
Year 2000 issue, but there may be parts of our computer systems and aspects of
the Year 2000 issue, including the potential cost of addressing the Year 2000
issue, that we have failed to consider. If our efforts and the efforts of our
users, advertisers, vendors and other service providers to address the Year 2000
issue are not successful, our business will be harmed. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--Year
2000 Compliance."
WE DEPEND ON THE CONTINUED SERVICE OF OUR CHAIRMAN AND CHIEF EXECUTIVE OFFICER,
AND OUR PRESIDENT AND CHIEF OPERATING OFFICER, AND WE FACE INTENSE COMPETITION
FOR PERSONNEL. We depend on the continued service of Alan M. Meckler, our
Chairman and Chief Executive Officer, and Christopher S. Cardell, our President
and Chief Operating Officer. While we maintain key person life insurance for
Messrs. Meckler and Cardell, our business would suffer if we were to lose their
services.
We expect that we will need to hire additional personnel in all areas. The
competition for personnel in the Internet industry is intense. Any of our
personnel may terminate their employment at any time for any reason. If we do
not succeed in attracting new personnel or retaining and motivating our current
personnel, our business would be harmed.
WE HAVE LIMITED PROTECTION OF OUR INTELLECTUAL PROPERTY. Trademarks, copyrights
and other proprietary rights are important to our success and competitive
position. We seek protection of our editorial content,
12
<PAGE>
logos, brands and software relating to our Web sites, e-mail newsletters, online
discussion forums and moderated e-mail discussion lists, but our actions may be
inadequate to protect our trademarks, copyrights and other proprietary rights or
to prevent others from claiming violations of their trademarks and other
proprietary rights. In seeking to protect our trademarks, copyrights and other
proprietary rights, or defending ourselves against claims of infringement
brought by others, with or without merit, we could face costly litigation and
the diversion of our management's attention and resources. This could harm our
business. We are currently involved in proceedings opposing the application of
International Data Group, Inc., or IDG, to register the "internet.com"
trademark. See "Business--Intellectual Property" and "--Legal Proceedings." If
we are unable to successfully oppose this trademark application, we might be
required to cease using the "internet.com" trademark, as a result of which our
business would suffer.
THERE ARE A NUMBER OF RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS THAT COULD
HARM OUR BUSINESS. One component of our growth strategy is to further expand
into international markets. We have launched Web sites for Canada, the United
Kingdom, Israel, Australia and Asia. Our international operations are at an
early stage of development and have an extremely limited operating history. In
addition, the markets in which we have undertaken international expansion have
technology and online industries that are less developed than in the United
States.
There are risks inherent in doing business in international markets, such as the
following:
- uncertainty of product acceptance by different cultures;
- unforeseen changes in regulatory requirements;
- difficulties in staffing and managing multinational operations;
- government-imposed restrictions on the repatriation of funds;
- currency fluctuations;
- difficulties in finding appropriate foreign licensees or joint
venture partners; and
- potentially adverse tax consequences.
These factors could harm our ability to successfully operate internationally and
could harm our business.
RISKS RELATED TO THE INTERNET INDUSTRY
OUR FUTURE RESULTS DEPEND ON CONTINUED GROWTH IN THE USE OF THE INTERNET. Our
market is new and rapidly evolving. Our business could suffer if Internet usage
does not continue to grow. Internet usage may be inhibited for a number of
reasons, including:
- inadequate network infrastructure;
- security concerns;
- inconsistent quality of service;
- lack of availability of cost-effective and high-speed service; and
- changes in government regulation of the Internet.
13
<PAGE>
If Internet usage grows, the Internet infrastructure might not be able to
support the demands placed on it by this growth or its performance and
reliability may decline. In addition, future outages and other interruptions
occurring throughout the Internet could lead to decreased use of our network and
would therefore harm our business.
WE COULD BE SUED FOR INFORMATION RETRIEVED FROM THE INTERNET. We may face
liability for defamation, negligence, copyright or trademark infringement,
personal injury, or other claims due to the nature of content on our network of
Web sites, e-mail newsletters, online discussion forums and moderated e-mail
discussion lists, including content placed on our network by others. Such claims
may also include, among others, claims that by providing hypertext links to Web
sites operated by third parties, we are liable for wrongful actions by those
third parties through such Web sites. Similar claims have been brought, and
sometimes successfully asserted, against online services. It is also possible
that users could make claims against us for losses incurred in reliance on
information provided on our network. Although we carry general liability
insurance, and set forth our terms and conditions of use on our network, our
insurance might not cover potential claims of this type or might not be adequate
to fully protect us. Also, the legal effectiveness of our terms and conditions
of use is uncertain. Any liability or legal defense expenses that are not
covered by insurance would harm our business, results of operations and
financial condition.
GOVERNMENT REGULATION AND LEGAL UNCERTAINTIES COULD ADD ADDITIONAL COSTS AND
RISKS TO DOING BUSINESS ON THE INTERNET. There are currently few laws or
regulations that specifically regulate communications or commerce on the
Internet. However, laws and regulations may be adopted in the future that
address issues such as user privacy, pricing and the characteristics and quality
of products and services. For example, although it was held unconstitutional,
the Telecommunications Act of 1996 prohibited certain types of information and
content from being transmitted over the Internet. Several other nations have
taken actions to restrict the free flow of material deemed to be objectionable
on the Internet. In addition, local telephone carriers have argued before the
Federal Communications Commission, or FCC, that Internet service providers and
online service providers should be required to pay fees for access to local
telephone networks in a manner similar to long distance telephone carriers. If
these efforts are successful, costs for Internet access could increase sharply.
Moreover, it may take years to determine the extent to which existing laws
relating to issues such as property ownership, libel and personal privacy are
applicable to the Internet. Any new laws or regulations relating to the Internet
could harm our business.
REGULATION COULD REDUCE THE VALUE OF OUR DOMAIN NAMES. We own the Internet
domain name "internet.com," as well as numerous other domain names both in the
United States and internationally. Domain names generally are regulated by
Internet regulatory bodies. The regulation of domain names in the United States
and in foreign countries is subject to change. Regulatory bodies could establish
additional top-level domains, appoint additional domain name registrars or
modify the requirements for holding domain names. As a result, we might not
acquire or maintain the "internet.com" or comparable domain names in all the
countries in which we conduct business, which could harm our business.
Furthermore, the relationship between regulations governing domain names and
laws protecting trademarks and similar proprietary rights is unclear and still
evolving. Therefore, we might be unable to prevent third parties from acquiring
domain names that infringe or otherwise decrease the value of our trademarks and
other proprietary rights. If this occurred, our business would suffer.
THE INTERNET INDUSTRY IS CHARACTERIZED BY RAPID TECHNOLOGICAL CHANGE. Rapid
technological developments, evolving industry standards and user demands, and
frequent new product introductions and enhancements characterize the market for
Internet products and services. These market characteristics are exacerbated by
the emerging nature of the market and the fact that many companies are expected
14
<PAGE>
to introduce new Internet products and services in the near future. Our future
success will depend on our ability to continually improve our content offerings
and services. In addition, the widespread adoption of developing
multimedia-enabling technologies could require fundamental and costly changes in
our technology and could fundamentally affect the nature, viability and
measurability of Internet-based advertising, which could harm our business.
RISKS RELATED TO THIS OFFERING
THERE HAS BEEN NO PUBLIC TRADING MARKET FOR OUR STOCK PRIOR TO THIS OFFERING AND
OUR STOCK PRICE COULD BE EXTREMELY VOLATILE. There has not previously been a
public market for our common stock. We cannot predict the extent to which
investor interest in our company will lead to the development of a trading
market or how liquid any trading market might become. The initial public
offering price for the shares of our common stock will be determined by
negotiations between internet.com and the representatives of our underwriters
and might not reflect prices that will prevail in the trading market. The stock
market has experienced extreme price and volume fluctuations and the market
prices of securities of technology companies, particularly Internet-related
companies, have been highly volatile. Investors might not be able to resell
their shares at or above the initial public offering price. In the past,
following periods of volatility in the market price of a company's securities,
securities class action litigation has often been instituted against such a
company. Such litigation could result in substantial costs and a diversion of
our management's attention and resources.
OUR STOCK OWNERSHIP WILL BE CONCENTRATED IN ALAN M. MECKLER, OUR CHAIRMAN AND
CHIEF EXECUTIVE OFFICER. As of March 31, 1999, the present directors, executive
officers, greater than 5% stockholders and their affiliates beneficially owned
approximately 80.8% of our outstanding common stock, after giving effect to this
offering. As of March 31, 1999, Alan M. Meckler beneficially owned approximately
55.2% of our outstanding common stock, after giving effect to this offering. As
a result of his beneficial ownership, Mr. Meckler, acting alone or with others,
will be able to control all matters requiring stockholder approval, including
the election of directors and approval of significant transactions. This
concentration of ownership may also have the effect of delaying or preventing a
change in control of internet.com. See "Principal and Selling Stockholders."
OUR CHARTER DOCUMENTS AND THE DELAWARE GENERAL CORPORATION LAW MAY INHIBIT A
TAKEOVER. Our Amended and Restated Certificate of Incorporation, bylaws and the
Delaware General Corporation Law could make it more difficult for a third party
to acquire us, even if a change in control would be beneficial to our
stockholders. Our Amended and Restated Certificate of Incorporation allows our
board of directors to issue preferred stock which may have rights and
preferences that are superior to those of our common stock, thereby deterring a
potential acquiror. Our bylaws provide that a special meeting of stockholders
may only be called by our Board, Chairman of the Board, Chief Executive Officer
or President or at the request of the holders of a majority of the outstanding
shares of our common stock. See "Description of Capital Stock--Delaware
Anti-takeover Law and Certain Charter and Bylaw Provisions."
SHARES ELIGIBLE FOR PUBLIC SALE AFTER THIS OFFERING WOULD HURT OUR STOCK PRICE.
After this offering there will be outstanding 23,400,000 shares of our common
stock. Of these shares, the shares sold in this offering will be freely
tradeable except for any shares purchased by our "affiliates" as that term is
defined in Rule 144 under the Securities Act of 1933, as amended. The remaining
20,000,000 shares held by our directors, officers, employees, current outside
stockholders, greater than 5% stockholders and their affiliates will be
"restricted securities" and will become eligible for sale on the first
anniversary of the closing of this offering, subject to the volume limitations
and other conditions of Rule 144. In addition, 180 days after this offering, at
least 13,500 shares will be issuable upon the exercise of options (based
15
<PAGE>
on options outstanding as of May 18, 1999). Sales of a large number of shares
would hurt the market price for our common stock. See "Certain Transactions" and
"Shares Eligible for Future Sale."
None of our directors, officers or greater than 5% stockholders has any
restrictions on selling any of our securities held by him or her, other than as
provided in lock-up agreements with U.S. Bancorp Piper Jaffray Inc., William
Blair & Company, L.L.C. and DLJDIRECT Inc. and under applicable securities laws.
In addition, Internet World Media, a wholly-owned subsidiary of Penton Media,
can require us to register its shares of our common stock for public sale if we
register any more of our equity securities after this offering (with some
exceptions, such as if we register securities issuable under our stock incentive
plan). Any sales by Internet World Media following this offering could hurt the
trading price of our common stock. See "Certain Transactions--Registration
Rights Agreement" and "Shares Eligible for Future Sale."
YOU WILL INCUR IMMEDIATE DILUTION IN THIS OFFERING. The initial public offering
price of our common stock is substantially higher than the net tangible book
value per share of the outstanding common stock immediately after this offering.
Therefore, if you purchase our common stock in this offering, you will incur
immediate dilution of approximately $ in the net tangible book value per
share of common stock from the price you pay for such common stock (based upon
an assumed initial public offering price of $ per share). See "Dilution."
16
<PAGE>
USE OF PROCEEDS
The net proceeds from the sale of the 3,400,000 shares of our common stock
offered by internet.com are estimated to be $ million. This assumes an
initial public offering price of $ per share and also reflects a deduction
for the estimated underwriting discounts and commissions and estimated offering
expenses. The principal purposes of this offering are to obtain additional
capital, create a public market for internet.com common stock and facilitate our
future access to the public capital markets.
We intend to use a portion of the net proceeds for repayment of debt incurred
under our line of credit agreement (approximately $3.1 million as of April 30,
1999). This debt matures on November 15, 1999 and bears interest at a rate based
on the lower of prime plus 1% or LIBOR plus .65% (5.7% as of April 30, 1999). We
expect to use the remainder of the net proceeds for potential strategic
acquisitions and general corporate purposes, including working capital and
expansion of editorial, marketing and sales activities. The amounts actually
expended for such working capital purposes may vary significantly and will
depend on a number of factors, including the amount of our future revenues and
the other factors described under "Risk Factors." Accordingly, our management
will retain broad discretion in the allocation of the net proceeds of this
offering. Pending such uses, the net proceeds of this offering will be invested
in short-term, interest-bearing, investment grade securities.
DIVIDEND POLICY
We have not in the past paid any dividends on our equity securities and
anticipate that we will retain any future earnings for use in the expansion and
operation of our business. We do not anticipate paying any cash dividends in the
foreseeable future. Any determination to pay dividends in the future will be at
the discretion of our board of directors and will depend upon our financial
condition, results of operations and capital requirements.
17
<PAGE>
CAPITALIZATION
The following table sets forth our historical capitalization (assuming the
conversion of internet.com LLC into internet.com Corporation) as of March 31,
1999, which has been adjusted, on a pro forma basis, to reflect the sale of
3,400,000 shares of common stock offered hereby at an assumed offering price of
$ per share and the exercise by Internet World Media of its warrant to
purchase 2,075,634 shares of our common stock immediately prior to the closing
of this offering.
<TABLE>
<CAPTION>
MARCH 31, 1999
----------------------
PRO FORMA
ACTUAL AS ADJUSTED
--------- -----------
(IN THOUSANDS)
<S> <C> <C>
Borrowings under line of credit (1)....................................................... $ 1,851 $ --
--------- -----------
Preferred stock, $0.01 par value; 4,000,000 shares authorized, no shares issued and
outstanding, actual..................................................................... -- --
Common stock, $0.01 par value; 75,000,000 shares authorized, 17,924,366 shares issued and
outstanding, actual; 23,400,000 shares issued and outstanding, pro forma as adjusted ... 179
Additional paid-in capital................................................................ 23,963
Accumulated deficit....................................................................... (6,097) (6,097)
--------- -----------
Total stockholders' equity........................................................ 18,045
--------- -----------
Total capitalization............................................................ $ 19,896 $
--------- -----------
--------- -----------
</TABLE>
- ---------------------------------------------
(1) See Note 6 of notes to internet.com LLC financial statements for a
description of borrowings under line of credit.
18
<PAGE>
DILUTION
Our net tangible book value as of March 31, 1999, assuming the conversion of
internet.com LLC into internet.com Corporation as of that date, was $(539,000),
or $(0.03) per share of common stock. Pro forma net tangible book value per
share represents the amount of total tangible assets less total liabilities,
divided by the pro forma shares of common stock outstanding as of March 31,
1999. Our pro forma net tangible book value as of March 31, 1999 would have been
$ , or $ per share. These amounts reflect the issuance and sale of our
common stock offered hereby at an assumed initial public offering price of
$ per share and deductions for estimated underwriting discounts,
commissions and offering expenses. This represents an immediate increase in pro
forma net tangible book value of $ per share to existing stockholders and
an immediate dilution of $ per share to new investors. The following table
illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share..............................
Net tangible book value per share at March 31, 1999........................ $ (0.03)
Increase in pro forma net tangible book value per share attributable to new
investors................................................................
---------
Pro forma net tangible book value per share after offering (as adjusted).....
---------
Dilution per share to new investors.......................................... $
---------
---------
</TABLE>
The table below summarizes, on a pro forma basis, as of March 31, 1999, the
following differences between our existing stockholders and new investors
purchasing our common stock in this offering:
- the number of shares purchased from internet.com;
- the aggregate cash consideration paid; and
- the average price per share paid.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
----------------------- ------------------------ AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
------------ --------- ------------- --------- ---------------
<S> <C> <C> <C> <C> <C>
Existing stockholders (1)(2).................... 20,000,000 85.5% $ 27,712,859 % $ 1.39
New investors................................... 3,400,000 14.5
------------ --------- ------------- --------- -----
Total....................................... 23,400,000 100.0% $ 100.0% $
------------ --------- ------------- --------- -----
------------ --------- ------------- --------- -----
</TABLE>
- ---------------------------------------------
(1) Reflects the conversion of internet.com LLC into internet.com Corporation
as if it had occurred as of the inception of internet.com LLC on November
24, 1998.
(2) Amounts reflect the exercise by Internet World Media of its warrant to
purchase 2,075,634 shares of our common stock.
19
<PAGE>
SELECTED FINANCIAL DATA
(in thousands, except per share amounts)
The following selected financial data should be read in conjunction with the
financial statements of internet.com, the accompanying notes and "Management's
Discussion and Analysis of Financial Condition and Results of Operations." The
selected financial data of the iWorld division of Mecklermedia for the period
from inception (December 7, 1994) through September 30, 1995, the years ended
September 30, 1996, 1997 and 1998, the period from October 1, 1998 through
November 23, 1998 and for the three months ended March 31, 1998, as well as the
balance sheet data as of March 31, 1998, are derived from financial statements
of the iWorld division of Mecklermedia. The selected financial data for the
period from November 24, 1998 through December 31, 1998 and for the three months
ended March 31, 1999, as well as the balance sheet data as of March 31, 1999,
are derived from the financial statements of internet.com. These financial
statements, except for the selected statements of operations data for the period
from inception (December 7, 1994) through September 30, 1995, the three months
ended March 31, 1998 and the three months ended March 31, 1999 as well as the
balance sheet data as of March 31, 1998 and March 31, 1999, have been audited by
Arthur Andersen LLP, independent public accountants. See "Index to Financial
Statements."
The financial information of the iWorld division of Mecklermedia included herein
is not necessarily indicative of the results of operations, financial position
and cash flows of internet.com had it been a stand-alone entity at such times.
It is also not necessarily indicative of the results of operations, financial
position and cash flows of internet.com in the future. The share information
reflects the conversion of internet.com from a limited liability company into a
corporation as if such conversion had occurred at the beginning of each period
indicated.
<TABLE>
<CAPTION>
INCEPTION
(DEC. 7, FISCAL YEAR ENDED OCT. 1
1994) THROUGH ------------------------------------- THROUGH
SEPT. 30, SEPT. 30, SEPT. 30, SEPT. 30, NOV. 23,
1995(1) 1996(1) 1997(1) 1998(1) 1998(1)
--------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues........................................... $ 123 $ 498 $ 1,479 $ 3,544 $ 778
Cost of revenues................................... 39 536 1,171 2,171 456
------ ----------- ----------- ----------- -----------
Gross profit................................... 84 (38) 308 1,373 322
Operating expenses
Advertising, promotion and selling............... 69 285 881 1,406 441
General and administrative....................... 419 727 751 1,349 195
Depreciation..................................... -- 85 326 429 67
Amortization..................................... -- 109 505 920 86
Purchased in-process research and development.... -- -- -- -- --
------ ----------- ----------- ----------- -----------
Total operating expenses....................... 488 1,206 2,463 4,104 789
------ ----------- ----------- ----------- -----------
Operating loss..................................... (404) (1,244) (2,155) (2,731) (467)
Interest expense, net.............................. -- -- -- -- --
------ ----------- ----------- ----------- -----------
Net loss........................................... $ (404) $ (1,244) $ (2,155) $ (2,731) $ (467)
------ ----------- ----------- ----------- -----------
------ ----------- ----------- ----------- -----------
Basic and diluted net loss per share...............
Common shares used to compute basic and diluted net
loss per share...................................
<CAPTION>
NOV. 24 THREE MONTHS ENDED
THROUGH ------------------------
DEC. 31, MARCH 31, MARCH 31,
1998(2) 1998(1) 1999(2)
----------- ----------- -----------
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues........................................... $ 772 $ 831 $ 1,612
Cost of revenues................................... 403 567 1,117
----------- ----------- -----------
Gross profit................................... 369 264 495
Operating expenses
Advertising, promotion and selling............... 239 283 928
General and administrative....................... 449 348 773
Depreciation..................................... 15 102 82
Amortization..................................... 566 222 1,869
Purchased in-process research and development.... 2,000 -- --
----------- ----------- -----------
Total operating expenses....................... 3,269 955 3,652
----------- ----------- -----------
Operating loss..................................... (2,900) (691) (3,157)
Interest expense, net.............................. (8) -- (32)
----------- ----------- -----------
Net loss........................................... $ (2,908) $ (691) $ (3,189)
----------- ----------- -----------
----------- ----------- -----------
Basic and diluted net loss per share............... $ (0.18)
-----------
-----------
Common shares used to compute basic and diluted net
loss per share................................... 17,924
-----------
-----------
</TABLE>
<TABLE>
<CAPTION>
AS OF
-------------------------------------
SEPT. 30, SEPT. 30, MARCH 31,
1997(1) 1998(1) 1998(1)
----------- ----------- -----------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents........................................................... $ -- $ -- $ --
Working capital (deficit)........................................................... (166) 286 1,058
Total assets........................................................................ 2,812 7,225 5,430
Borrowings under line of credit..................................................... -- -- --
Total equity........................................................................ 2,144 6,252 4,519
<CAPTION>
MARCH 31,
1999(2)
-----------
<S> <C>
BALANCE SHEET DATA:
Cash and cash equivalents........................................................... $ 236
Working capital (deficit)........................................................... (2,207)
Total assets........................................................................ 22,682
Borrowings under line of credit..................................................... 1,851
Total equity........................................................................ 18,045
</TABLE>
- ---------------------------------------------------
(1) Represents the financial data of the iWorld division of Mecklermedia
Corporation.
(2) Represents the financial data of internet.com.
20
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with our financial
statements and the accompanying notes which appear elsewhere in this prospectus.
This prospectus contains forward-looking statements that involve risks and
uncertainties. These statements relate to our future plans, objectives, beliefs,
expectations and intentions. These statements may be identified by the use of
words such as "expects," "anticipates," "believes," "intends," "plans" and
similar expressions. Our actual results could differ materially from those
discussed in these statements. Factors that could cause or contribute to these
differences include those discussed below and in "Risk Factors" and elsewhere in
this prospectus.
OVERVIEW
We own and operate a leading network of integrated business-to-business vertical
content Web sites, e-mail newsletters, online discussion forums and moderated
e-mail discussion lists focused solely on the Internet industry. Our network
consists of nine integrated business-to-business vertical content channels that
contain 61 Web sites, 43 e-mail newsletters, 55 online discussion forums and 52
moderated e-mail discussion lists focused solely on the Internet industry.
During the month of April 1999, we delivered 42.1 million page views to
approximately 1.7 million unique visitors and 8.1 million copies of our e-mail
newsletters to 700,000 subscribers, and 31.2 million postings were generated by
51,000 subscribers to our moderated e-mail discussion lists.
We were formed in November 1998 following the acquisition of Mecklermedia by
Penton Media. As part of the acquisition, Penton Media agreed to contribute all
the assets of Mecklermedia's Internet media business division, iWorld, to a
newly formed limited liability company, internet.com LLC. As part of this
acquisition agreement, we reserved 4% of our total membership units for
discretionary grants to our employees. The grants were completed in March 1999,
at which time the fair value of the membership units granted was $1.6 million.
As these membership units will vest upon the completion of an initial public
offering, we will record a $1.6 million compensation charge concurrent with the
completion of this offering. Prior to the acquisition of Mecklermedia by Penton
Media, iWorld operated as one of three business lines which comprised
Mecklermedia. Our predecessor Web sites, MecklerWeb and iWorld.com, were also
dedicated to covering Internet developments. See "Certain
Transactions--Formation Transactions."
We generate revenues from the following primary sources:
- advertising on our Web sites, e-mail newsletters, online discussion
forums and moderated e-mail discussion lists;
- e-commerce agreements;
- paid subscription services; and
- licensing of our editorial content, brands and software.
We barter portions of the unsold advertising impressions generated by our
network for advertising and promotion in media properties owned by Penton Media
and other third parties. We do not record any revenues or expenses for such
barter because we do not receive or expend any cash, nor do we incur any costs
to fulfill such barter, and because such unsold advertising impressions would
otherwise have no value. Therefore, the recording of any barter would result in
an overstatement of revenues and expenses. We also believe that not recording
any revenues or expenses for barter more accurately
21
<PAGE>
reflects our actual results of operations and as a result provides a more
meaningful presentation to the users of our financial statements.
For the three months ended March 31, 1999, approximately 94% of our revenues
were from the sale of advertising. We recognize advertising revenue ratably in
the period the advertising is displayed, provided that no significant company
obligations remain outstanding and collection of the resulting receivable is
probable. Such obligations typically include guarantees of a minimum number of
advertising impressions, or times an advertisement is displayed. We use a direct
sales force to sell advertising to companies and advertising agencies.
Our e-commerce agreements generally include advertising on our Web sites or
revenue sharing for sales made by the e-commerce vendors as a result of links
from our network, or in some cases both advertising and revenue sharing. We
recognize the advertising component of these agreements ratably in the period
the advertising is displayed, provided that no significant company obligations
remain and collection of the remaining receivable is probable. We recognize the
revenue sharing component of these agreements as revenue in the period that the
underlying sales are made by the e-commerce vendor.
Paid subscription services relate to customer subscriptions to our paid e-mail
newsletters, Internet Stock Report's Monthly HotWatch, Internet StockTracker and
SearchEngineWatch, which are sold through our network and through affiliate
relationships. Revenue from subscriptions is recognized ratably over the
subscription period. Deferred revenues relate to the portion of collected
subscription fees which has not yet been recognized as revenue.
Our licensing agreements vary in structure, with internet.com generating fixed
fees, royalties or both for access to our editorial content, brands or software.
We generally license our editorial content, brands and software to offline and
online media companies.
Since July 1995, we have made 28 acquisitions of Internet media properties,
consisting of 37 Websites, 29 e-mail newsletters, 16 online discussion forums
and four moderated e-mail discussion lists. We have made 17 of these 28
acquisitions since March 1, 1998. We expect to continue to pursue strategic
acquisitions to strengthen our content, community and commerce offerings.
We believe that advertising sales in traditional media, such as print
publishing, generally are lower in the first and third calendar quarters of each
year due to buying patterns of advertisers. If the Internet makes the transition
from an emerging to a more developed advertising medium, we may experience
similar seasonal patterns as those in the traditional media industry. See "Risk
Factors--The seasonality of our advertising revenues could cause our overall
revenues to fluctuate."
We have sustained losses on a quarterly and annual basis in the past. We expect
to incur significantly higher costs, particularly advertising, promotion and
selling expense, to grow our business. As a result, we expect to incur
significant operating losses for the foreseeable future and because costs are
largely fixed in the short term, we expect to be vulnerable to significant
fluctuations in operating losses if actual revenues fall below anticipated
levels. Furthermore, given the rapidly evolving nature of our business and our
limited operating history, our operating results are difficult to forecast and
period-to-period comparison of our operating results will not be meaningful and
should not be relied upon as any indication of future performance. Due to these
and other factors, many of which are outside our control, quarterly operating
results may fluctuate significantly in the future. See "Risk Factors--We have a
limited operating history," "--We anticipate continued losses" and "--Our
quarterly operating results are subject to significant fluctuations."
22
<PAGE>
RESULTS OF OPERATIONS
Costs have been allocated to the iWorld division of Mecklermedia based on our
management's estimate of the costs attributable to its operations. Such
allocations are not necessarily indicative of the costs that would have been
incurred if the iWorld division of Mecklermedia had been a stand-alone entity.
The following table sets forth certain statement of operations data as a
percentage of revenues for the periods indicated:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED OCT. 1
------------------------------------- THROUGH
SEPT. 30, SEPT. 30, SEPT. 30, NOV. 23,
1996(1) 1997(1) 1998(1) 1998(1)
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues.............................................................. 100% 100% 100% 100%
Cost of revenues...................................................... 108 79 61 59
----------- ----------- ----------- -----
Gross profit.......................................................... (8) 21 39 41
----------- ----------- ----------- -----
Operating expenses:
Advertising, promotion and selling.................................. 57 60 40 57
General and administrative.......................................... 146 51 38 25
Depreciation........................................................ 17 22 12 8
Amortization........................................................ 22 34 26 11
Purchased in-process research and development....................... -- -- -- --
----------- ----------- ----------- -----
Total operating expenses.............................................. 242 167 116 101
----------- ----------- ----------- -----
Operating loss........................................................ (250) (146) (77) (60)
----------- ----------- ----------- -----
Interest expense, net................................................. -- -- -- --
----------- ----------- ----------- -----
Net loss.............................................................. (250)% (146 )% (77 )% (60)%
----------- ----------- ----------- -----
----------- ----------- ----------- -----
<CAPTION>
NOV. 24 THREE MONTHS ENDED
THROUGH ------------------------
DEC. 31, MARCH 31, MARCH 31,
1998(2) 1998(1) 1999(2)
----------- ----------- -----------
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues.............................................................. 100% 100% 100%
Cost of revenues...................................................... 52 68 69
----- ----- -----
Gross profit.......................................................... 48 32 31
----- ----- -----
Operating expenses:
Advertising, promotion and selling.................................. 31 34 58
General and administrative.......................................... 58 42 48
Depreciation........................................................ 2 12 5
Amortization........................................................ 73 27 116
Purchased in-process research and development....................... 259 -- --
----- ----- -----
Total operating expenses.............................................. 423 115 227
----- ----- -----
Operating loss........................................................ (375) (83) (196)
----- ----- -----
Interest expense, net................................................. (1) -- (2)
----- ----- -----
Net loss.............................................................. (376 )% (83 )% (198 )%
----- ----- -----
----- ----- -----
</TABLE>
- ---------------------------------------------
(1) Represents the financial data of the iWorld division of Mecklermedia
Corporation.
(2) Represents the financial data of internet.com.
THREE MONTHS ENDED MARCH 31, 1998 AND 1999
REVENUES. We generate revenues from advertising on our Web sites, e-mail
newsletters, online discussion forums and moderated e-mail discussion lists;
e-commerce agreements; licensing of our editorial content, brands and software;
and paid subscription services. Revenues were $831,000 for the three months
ended March 31, 1998 and approximately $1.6 million for the three months ended
March 31, 1999, representing an increase of 94%. This increase was primarily due
to increased advertising on our network of Web sites, e-mail newsletters, online
discussion forums and moderated e-mail discussion lists. While we anticipate
that advertising revenues will continue to represent a substantial majority of
our revenues for the foreseeable future, we believe that revenues from e-
commerce agreements, licensing, paid subscription services, seminars, opt-in
e-mail list rentals and venture fund management will expand and diversify our
future revenue streams.
COST OF REVENUES. Cost of revenues primarily consists of expenses associated
with editorial, communications infrastructure and Web site hosting. Cost of
revenues was $567,000 for the three months ended March 31, 1998 and
approximately $1.1 million for the three months ended March 31, 1999,
representing an increase of 97%. This change was primarily due to the increased
hiring of editorial, technology and operations personnel and expenses for
freelance contributors. As a percentage of revenues, cost of revenues was 68%
for the three months ended March 31, 1998 and 69% for the three months ended
March 31, 1999. We anticipate that our cost of revenues will continue to
increase in absolute dollars as we continue to strengthen our existing content
offerings and services. We anticipate hiring additional editorial, technology
and operations personnel, as well as freelance
23
<PAGE>
contributors, as we acquire additional Web sites, e-mail newsletters, online
discussion forums and moderated e-mail discussion lists and expand our
proprietary content.
ADVERTISING, PROMOTION AND SELLING. Advertising, promotion and selling expenses
primarily consist of costs related to sales and marketing staff, sales
commissions and promotion costs. Advertising, promotion and selling expenses
were $283,000 for the three months ended March 31, 1998 and $928,000 for the
three months ended March 31, 1999, representing a 228% increase. This change was
primarily due to increased hiring of advertising sales personnel. As a
percentage of revenues, advertising, promotion and selling expenses were 34% for
the three months ended March 31, 1998 and 58% for the three months ended March
31, 1999. We anticipate that our advertising, promotion and selling expenses
will continue to increase in absolute dollars, primarily due to our planned
hiring of additional sales personnel in an effort to increase our advertising
sales as well as increased expenses for the promotion of our content offerings
and services to our community of Internet users, advertisers and vendors.
GENERAL AND ADMINISTRATIVE. General and administrative expenses primarily
consist of salaries, professional fees, facilities costs and bad debt expense.
General and administrative expenses were $348,000 for the three months ended
March 31, 1998 and $773,000 for the three months ended March 31, 1999,
representing a 122% increase. This change was primarily due to the hiring of
additional personnel and increased professional fees. As a percentage of
revenues, general and administrative expenses were 42% for the three months
ended March 31, 1998 and 48% for the three months ended March 31, 1999. We
expect that our general and administrative expenses will continue to increase in
absolute dollars, but these expenses are expected to decrease as a percentage of
revenues. We anticipate hiring additional personnel and incurring additional
costs related to being a public company, including directors' and officers'
liability insurance, investor relations programs and professional services fees.
DEPRECIATION AND AMORTIZATION. Depreciation of property and equipment was
$102,000 for the three months ended March 31, 1998 and $82,000 for the three
months ended March 31, 1999, representing a 20% decrease. As a percentage of
revenues, depreciation of property and equipment was 12% for the three months
ended March 31, 1998 and 5% for the three months ended March 31, 1999.
Amortization
of intangibles was $222,000 for the three months ended March 31, 1998 and
approximately $1.9 million for the three months ended March 31, 1999,
representing a 742% increase. This increase was primarily due to the
amortization of the goodwill associated with the formation of internet.com LLC.
As a percentage of revenues, amortization of intangibles was 27% for the three
months ended March 31, 1998 and 116% for the three months ended March 31, 1999.
We anticipate that depreciation and amortization will continue to increase as we
acquire additional Web sites, e-mail newsletters, online discussion forums and
moderated e-mail discussion lists. We also anticipate increasing our capital
expenditures to support the current and expected growth of our business.
INTEREST EXPENSE, NET. Interest expense, net of interest income, related to
borrowings under our line of credit was $32,000 for the three months ended March
31, 1999.
PERIOD FROM NOVEMBER 24, 1998 THROUGH DECEMBER 31, 1998
REVENUES. Revenues were $772,000 for the period from November 24, 1998 through
December 31, 1998.
COST OF REVENUES. Cost of revenues was $403,000 for the period from November 24,
1998 through December 31, 1998. As a percentage of revenues, cost of revenues
was 52% for the period from November 24, 1998 through December 31, 1998.
24
<PAGE>
ADVERTISING, PROMOTION AND SELLING. Advertising, promotion and selling expenses
were $239,000 for the period from November 24, 1998 through December 31, 1998.
As a percentage of revenues, advertising, promotion and selling expenses were
31% for the period from November 24, 1998 through December 31, 1998.
GENERAL AND ADMINISTRATIVE. General and administrative expenses were $449,000
for the period from November 24, 1998, through December 31, 1998. As a
percentage of revenues, general and administrative expenses were 58% for the
period from November 24, 1998 through December 31, 1998.
DEPRECIATION AND AMORTIZATION. Depreciation of property and equipment was
$15,000 for the period from November 24, 1998 through December 31, 1998. As a
percentage of revenues, depreciation of property and equipment was 2% for the
period from November 24, 1998 through December 31, 1998. Amortization of
intangibles was $566,000 for period from November 24, 1998 through December 31,
1998. As a percentage of revenues, amortization of intangibles was 73% for the
period from November 24, 1998 through December 31, 1998.
PURCHASED IN-PROCESS RESEARCH AND DEVELOPMENT. In connection with our formation
on November 24, 1998, we recorded a $2.0 million charge for purchased in-process
research and development projects initiated by our predecessor entity that had
not reached technological feasibility and had no probable alternative future
uses. This amount, which was determined by an independent appraiser, was
expensed at our date of inception. Management believes that the assumptions used
in the independent appraiser's valuation of the purchased in-process research
and development are reasonable. However, no assurance can be given that
commercial or technological viability of these projects will be achieved or that
actual results will not deviate from those assumptions in future periods.
INTEREST EXPENSE, NET. Interest expense, net of interest income, related to
borrowings under our line of credit was $8,000 for the period from November 24,
1998 through December 31, 1998.
PERIOD FROM OCTOBER 1, 1998 THROUGH NOVEMBER 23, 1998
REVENUES. Revenues were $778,000 for the period from October 1, 1998 through
November 23, 1998.
COST OF REVENUES. Cost of revenues was $456,000 for the period from October 1,
1998 through November 23, 1998. As a percentage of revenues, cost of revenues
was 59% for the period from October 1, 1998 through November 23, 1998.
ADVERTISING, PROMOTION AND SELLING. Advertising, promotion and selling expenses
were $441,000 for the period from October 1, 1998 through November 23, 1998. As
a percentage of revenues, advertising, promotion and selling expenses were 57%
for the period from October 1, 1998 through November 23, 1998.
GENERAL AND ADMINISTRATIVE. General and administrative expenses were $195,000
for the period from October 1, 1998 through November 23, 1998. As a percentage
of revenues, general and administrative expenses were 25% for the period from
October 1, 1998 through November 23, 1998.
DEPRECIATION AND AMORTIZATION. Depreciation of property and equipment was
$67,000 for the period from October 1, 1998 through November 23, 1998. As a
percentage of revenues, depreciation of property and equipment was 8% for the
period from October 1, 1998 through November 23, 1998. Amortization of
intangibles was $86,000 for the period from October 1, 1998 through November 23,
1998. As a percentage of revenues, amortization of intangibles was 11% for the
period from October 1, 1998 through November 23, 1998.
25
<PAGE>
FISCAL YEARS ENDED SEPTEMBER 30, 1996, 1997 AND 1998
REVENUES. Revenues were $498,000 for the year ended September 30, 1996,
approximately $1.5 million for the year ended September 30, 1997 and $3.5
million for the year ended September 30, 1998, representing increases of 197%
from fiscal 1996 to fiscal 1997 and 140% from fiscal 1997 to fiscal 1998. The
197% increase from fiscal 1996 to fiscal 1997 was primarily due to an increase
in banner advertising. The 140% increase from fiscal 1997 to fiscal 1998 was
primarily due to an increase in banner advertising from a growing number of
advertisers as well as new revenue from e-commerce and licensing agreements.
COST OF REVENUES. Cost of revenues was $536,000 for the year ended September 30,
1996, approximately $1.2 million for the year ended September 30, 1997 and $2.2
million for the year ended September 30, 1998, representing increases of 118%
from fiscal 1996 to fiscal 1997 and 85% from fiscal 1997 to fiscal 1998. These
increases were primarily due to the increased payroll costs for editorial,
technology and operations personnel to support the current and anticipated
future growth of our network. As a percentage of revenues, cost of revenues was
108% for the year ended September 30, 1996, 79% for the year ended September 30,
1997 and 61% for the year ended September 30, 1998.
ADVERTISING, PROMOTION AND SELLING. Advertising, promotion and selling expenses
were $285,000 for the year ended September 30, 1996, $881,000 for the year ended
September 30, 1997 and approximately $1.4 million for the year ended September
30, 1998, representing increases of 209% from fiscal 1996 to fiscal 1997 and 60%
from fiscal 1997 to fiscal 1998. These increases were primarily due to the
hiring of additional advertising sales personnel and related sales commissions.
As a percentage of revenues, advertising, promotion and selling expenses were
57% for the year ended September 30, 1996, 60% for the year ended September 30,
1997 and 40% for the year ended September 30, 1998.
GENERAL AND ADMINISTRATIVE. General and administrative expenses were $727,000
for the year ended September 30, 1996, $751,000 for the year ended September 30,
1997 and approximately $1.3 million for the year ended September 30, 1998,
representing increases of 3% from fiscal 1996 to fiscal 1997 and 80% from fiscal
1997 to fiscal 1998. These increases were due primarily to increases in payroll
for administrative personnel and professional fees to support the growth of our
business and an increase in bad debt expense. As a percentage of revenues,
general and administrative expenses were 146% for the year ended September 30,
1996, 51% for the year ended September 30, 1997 and 38% for the year ended
September 30, 1998.
DEPRECIATION AND AMORTIZATION. Depreciation of property and equipment was
$85,000 for the year ended September 30, 1996, $326,000 for the year ended
September 30, 1997 and $429,000 for the year ended September 30, 1998,
representing increases of 284% from fiscal 1996 to fiscal 1997 and 32% from
fiscal 1997 to fiscal 1998. These increases were primarily due to our increased
capital expenditures which were required to support the current and anticipated
future growth of our network. As a percentage of revenues, depreciation expense
was 17% for the year ended September 30, 1996, 22% for the year ended September
30, 1997 and 12% for the year ended September 30, 1998. Amortization of
intangible assets was $109,000 for the year ended September 30, 1996, $505,000
for the year ended September 30, 1997 and $920,000 for the year ended September
30, 1998, representing increases of 363% from fiscal 1996 to fiscal 1997 and 82%
from fiscal 1997 to fiscal 1998. These increases were primarily due to our
acquisitions of Web sites, e-mail newsletters, online discussion forums and
moderated e-mail discussion lists. As a percentage of revenues, amortization
expense was 22% for the year ended September 30, 1996, 34% for the year ended
September 30, 1997 and 26% for the year ended September 30, 1998.
26
<PAGE>
QUARTERLY RESULTS OF OPERATIONS
The following tables set forth statements of operations data for the periods
presented, as well as the percentage of our revenues represented by each item.
All data is unaudited, except for the periods from October 1 through November
23, 1998 and from November 24 through December 31, 1998, which have been
audited. The data for the unaudited interim financial statements have been
prepared on the same basis as the audited financial statements and, in the
opinion of management, include all adjustments, consisting only of normal
recurring adjustments, considered necessary for a full presentation of such
information when read in conjunction with the financial statements and
accompanying notes appearing elsewhere in this prospectus.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
MARCH 31, JUNE 30, SEPT. 30, DEC. 31, MARCH 31, JUNE 30,
1997(1) 1997(1) 1997(1) 1997(1) 1998(1) 1998(1)
----------- ----------- ----------- ----------- ----------- -----------
(IN THOUSANDS, EXCEPT PERCENTAGE DATA)
STATEMENT OF OPERATIONS
Revenues................................... $ 346 $ 350 $ 460 $ 769 $ 831 $ 971
Cost of revenues........................... 339 299 277 343 567 577
----------- ----------- ----------- ----------- ----------- -----------
Gross profit............................... 7 51 183 426 264 394
----------- ----------- ----------- ----------- ----------- -----------
Operating expenses:
Advertising, promotion and selling....... 189 292 193 325 283 491
General and administrative............... 172 198 223 236 348 363
Depreciation............................. 91 94 99 101 102 109
Amortization............................. 84 156 207 208 222 238
Purchased in-process research and
development............................ -- -- -- -- -- --
----------- ----------- ----------- ----------- ----------- -----------
Total operating expenses................... 536 740 722 870 955 1,201
----------- ----------- ----------- ----------- ----------- -----------
Operating loss............................. (529) (689) (539) (444) (691) (807)
Interest expense, net...................... -- -- -- -- -- --
----------- ----------- ----------- ----------- ----------- -----------
Net loss................................... $ (529) $ (689) $ (539) $ (444) $ (691) $ (807)
----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- -----------
AS A PERCENTAGE OF REVENUES
Revenues................................... 100% 100% 100% 100% 100% 100%
Cost of revenues........................... 98 85 60 45 68 59
----------- ----------- ----------- ----------- ----------- -----------
Gross profit............................... 2 15 40 55 32 41
----------- ----------- ----------- ----------- ----------- -----------
Operating expenses:
Advertising, promotion and selling....... 55 83 42 42 34 51
General and administrative............... 50 57 48 31 42 37
Depreciation............................. 26 27 22 13 12 11
Amortization............................. 24 45 45 27 27 25
Purchased in-process research and
development............................ -- -- -- -- -- --
----------- ----------- ----------- ----------- ----------- -----------
Total operating expenses................... 155 212 157 113 115 124
----------- ----------- ----------- ----------- ----------- -----------
Operating loss............................. (153) (197) (117) (58) (83) (83)
Interest expense, net...................... -- -- -- -- -- --
----------- ----------- ----------- ----------- ----------- -----------
Net loss................................... (153)% (197 )% (117 )% (58 )% (83 )% (83)%
----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- -----------
<CAPTION>
<S> <C> <C> <C> <C>
THREE
OCT. 1 NOV. 24 MONTHS
THROUGH THROUGH ENDED
SEPT. 30, NOV. 23, DEC. 31, MARCH 31,
1998(1) 1998(1) 1998(2) 1999(2)
----------- --------- --------- -----------
STATEMENT OF OPERATIONS
Revenues................................... $ 973 $ 778 $ 772 $ 1,612
Cost of revenues........................... 684 456 403 1,117
----------- --------- --------- -----------
Gross profit............................... 289 322 369 495
----------- --------- --------- -----------
Operating expenses:
Advertising, promotion and selling....... 307 441 239 928
General and administrative............... 402 195 449 773
Depreciation............................. 117 67 15 82
Amortization............................. 252 86 566 1,869
Purchased in-process research and
development............................ -- -- 2,000 --
----------- --------- --------- -----------
Total operating expenses................... 1,078 789 3,269 3,652
----------- --------- --------- -----------
Operating loss............................. (789) (467) (2,900) (3,157)
Interest expense, net...................... -- -- (8) (32)
----------- --------- --------- -----------
Net loss................................... $ (789) $ (467) $ (2,908) $ (3,189)
----------- --------- --------- -----------
----------- --------- --------- -----------
AS A PERCENTAGE OF REVENUES
Revenues................................... 100% 100% 100% 100%
Cost of revenues........................... 70 59 52 69
----------- --------- --------- -----------
Gross profit............................... 30 41 48 31
----------- --------- --------- -----------
Operating expenses:
Advertising, promotion and selling....... 32 57 31 58
General and administrative............... 41 25 58 48
Depreciation............................. 12 8 2 5
Amortization............................. 26 11 74 116
Purchased in-process research and
development............................ -- -- 259 --
----------- --------- --------- -----------
Total operating expenses................... 111 101 424 227
----------- --------- --------- -----------
Operating loss............................. (81) (60) (376) (196)
Interest expense, net...................... -- -- (1) (2)
----------- --------- --------- -----------
Net loss................................... (81 )% (60)% (377)% (198 )%
----------- --------- --------- -----------
----------- --------- --------- -----------
</TABLE>
- ---------------------------------------------
(1) Represents the financial data of the iWorld division of Mecklermedia
Corporation.
(2) Represents the financial data of internet.com.
Our revenues have increased sequentially from quarter to quarter throughout the
periods since January 1, 1997 due to increased advertising on our network of Web
sites, e-mail newsletters, online
27
<PAGE>
discussion forums and moderated e-mail discussion lists. 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 harm
our business, results of operations and financial condition. We believe that
advertising sales in traditional media, such as print publishing, generally are
lower in the first and third calendar quarters of each year due to buying
patterns of advertisers. If the Internet makes the transition from an emerging
to a more developed medium, we may experience similar seasonal patterns as those
in the traditional media industry. As a result, our stock price may be lower
after the announcement of our results for the first and third quarters than at
other times of the year.
Due to the foregoing factors, quarterly revenues and results of operations are
difficult to forecast. We do not believe that period-to-period comparison of our
operating results will necessarily be meaningful, and they should not be relied
upon as indicators of future performance. In one or more future quarters,
results of operations may fall below the expectations of securities analysts and
investors. In such event, the trading price of our common stock could decrease
significantly.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, we have funded operations primarily with cash from borrowings
under our line of credit, the capital contributions of members of internet.com
LLC and cash from revenues. As of March 31, 1998, internet.com had total current
assets of $2.4 million and total current liabilities of $4.6 million, or a
working capital deficit of $2.2 million.
Net cash used in operating activities was approximately $1.1 million for the
year ended September 30, 1996, $1.1 million for the year ended September 30,
1997, $1.8 million for the year ended September 30, 1998, $1.4 million for the
period from October 1, 1998 through November 23, 1999, $612,000 for the period
from November 24, 1998 through December 31, 1998, $495,000 for the three months
ended March 31, 1998 and $73,000 for the three months ended March 31, 1999. Net
cash used in operating activities was primarily a result of our net losses
adjusted for non-cash depreciation, amortization and purchased in-process
research and development, and increases in accounts receivable, offset by an
increase in accounts payable and accrued expenses.
Net cash used in investing activities was approximately $642,000 for the year
ended September 30, 1996, $2.4 million for the year ended September 30, 1997,
$5.0 million for the year ended September 30, 1998, $2.5 million for the period
from October 1, 1998 through November 23, 1998, $1.1 million for the period from
November 24, 1998 through December 31, 1998, $1.4 million for the three months
ended March 31, 1998 and $1.5 million for the three months ended March 31, 1999.
Net cash used in investing activities was primarily a result of acquisitions of
Web sites and related Internet media properties and capital expenditures.
Net cash provided by financing activities was approximately $1.8 million for the
year ended September 30, 1996, $3.5 million for the year ended September 30,
1998, $3.9 million for the period from October 1, 1998 through November 23,
1998, $1.9 million for the period from November 24, 1998 through December 31,
1998, $1.9 million for the three months ended March 31, 1998 and $1.6 million
for the three months ended March 31, 1999. Net cash provided by financing
activities was a result of borrowings under our line of credit, a private
placement of equity securities and contributions from Mecklermedia.
Capital expenditures were $315,000 for the year ended September 30, 1996,
$740,000 for the year ended September 30, 1997, $934,000 for the year ended
September 30, 1998, $91,000 for the period from October 1, 1998, through
November 23, 1998, $546,000 for the period from November 24, 1998
28
<PAGE>
through December 31, 1998, $178,000 for the three months ended March 31, 1998
and $370,000 for the three months ended March 31, 1999. We anticipate that we
will increase our capital expenditures consistent with our anticipated growth in
operations, infrastructure and personnel.
We have a $6.0 million line of credit with a bank secured by a personal
guarantee from Alan M. Meckler, our Chairman and Chief Executive Officer. We had
outstanding borrowings under the line of credit of approximately $1.9 million as
of March 31, 1999. Interest expense on this line is based on the lower of prime
plus 1% or LIBOR plus .65% (5.7% as of March 31, 1999). This line of credit
expires on November 15, 1999. Upon completion of this offering, we anticipated
terminating this line of credit.
We believe that the net proceeds from this offering and our cash from revenues
will be sufficient to meet our anticipated cash needs for working capital and
capital expenditures for at least 12 months following this offering. Thereafter,
if cash generated from operations is insufficient to satisfy our liquidity
requirements, we might need to raise additional funds through public or private
financing, strategic relationships or other arrangements. There can be no
assurance that such additional funding, if needed, will be available on terms
which we believe are attractive to internet.com, or at all. If we fail to raise
capital when needed, it could harm our business, operating results and
finanacial condition. If we raise additional funds through the issuance of
equity securities, the percentage ownership of our stockholders would be
reduced.
YEAR 2000
The Year 2000 issue is the potential for system and processing failures of
date-related data as a result of computer-controlled systems using two digits
rather than four to define the applicable year. For example, computer programs
that have time-sensitive software may recognize a date using "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, an inability to process transactions, send invoices or engage in similar
normal business activities. We may be affected by Year 2000 issues related to
non-compliant information technology systems or non-information technology
systems operated by us or third parties. Our information technology systems
consist of software and data developed either in-house or purchased from third
parties, and hardware purchased from vendors.
STATE OF READINESS. We have completed a preliminary assessment of our
information technology systems, which includes but is not limited to the
hardware and software necessary to provide and deliver our services. We are
continuing to perform assessments of our non-information technology systems,
which include many of the building and office equipment systems. To date, our
assessment has consisted of the following steps:
- identifying and evaluating all software and hardware upon which we
are dependent;
- contacting third-party vendors of hardware, software and services
that we utilize;
- contacting material non-information technology systems and service
providers; and
- developing and formalizing procedures to implement necessary
remedial measures.
As of the end of the first quarter of 1999 we have performed the following:
- our management has reviewed all functional areas of our business
and has identified various systems and software programs that are
not Year 2000 compliant;
- we will continue to perform Year 2000 simulations on our systems
and services to test our system and service readiness;
29
<PAGE>
- we have revised and continue to revise our systems as necessary to
improve their Year 2000 compliance based on the results of our Year
2000 simulation tests;
- we are continuing to upgrade and test all other hardware and
software used in our operations;
- we have identified all vendors of material hardware and software
components of our information technology systems, have contacted
our principal vendors of hardware, software and data providers, and
have obtained confirmation from these vendors, either in writing or
from information available on their Web sites, regarding their Year
2000 compliance;
- our management is continuing the process of working with our
hardware and software providers to assure that we are prepared for
the Year 2000; and
- we are currently assessing our non-information technology systems.
At this point in our assessment, we are not currently aware of any Year 2000
problems relating to these systems which would have a material effect on our
business, financial condition or results of operations. We plan to complete our
Year 2000 assessment during the summer of 1999.
COST. To date, we have not incurred any material costs in connection with
identifying and evaluating Year 2000 compliance issues. Most of our expenses
have been related to, and are expected to continue to relate to, the operating
costs associated with time spent by employees in the evaluation process and Year
2000 compliance matters. At this time, we do not possess the information
necessary to estimate the potential costs of the replacement of third party
software, hardware or services that are determined not to be Year 2000
compliant. Although we do not anticipate those amounts will be material, if such
expenses are higher than anticipated, our business, financial condition and
operating results would suffer.
RISKS. Although our assessment may be finalized without identifying any
additional material non-compliant information technology or systems operated by
us or by third parties, a systemic failure beyond our control, such as a
prolonged telecommunications or electrical failure, is possible. This type of
failure could prevent us from operating our business, prevent users from
accessing our network, or change the behavior of advertising customers or
persons accessing our network. We believe that the primary business risks, in
the event of such failure, would include but not be limited to lost advertising
revenues, lost business revenues, increased operating costs, loss of customers
or persons accessing our network and servers, or other business interruptions of
a material nature, as well as claims of mismanagement, misrepresentation or
breach of contract.
CONTINGENCY PLAN. As discussed above, we are engaged in an ongoing Year 2000
assessment. The results of our further testing and the responses we receive from
third-party vendors, service providers and customers will be taken into account
in determining the nature and extent of any contingency plans.
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISKS
We are exposed to market risk from changes in interest rates on borrowings under
our line of credit that bears interest from time to time at the lower of the
lending bank's prime rate plus 1% or LIBOR plus .65%. Because we do not believe
that the maximum available borrowings under the line of credit are material, and
because we anticipate terminating this line of credit upon the completion of
this offering, we do not believe this risk will be material.
30
<PAGE>
We have no derivative financial instruments or derivative commodity instruments
in our cash and cash equivalents and investments. We invest our cash and cash
equivalents and investments in short-term, interest-bearing, investment grade
securities. We anticipate investing our net proceeds from this offering in
similar investment grade investments pending their use as described in this
prospectus. See "Use of Proceeds." Our transactions are generally conducted, and
our accounts are denominated, in United States dollars. Accordingly, we are not
exposed to significant foreign currency risk.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards No. 131, "Disclosures about Segments of an
Enterprise and Related Information" ("SFAS No. 131"), which establishes
standards for reporting information about operating segments in annual financial
statements. It also establishes standards for related disclosures about products
and services, geographic areas and major customers. SFAS No. 131 is effective
for fiscal years beginning after December 15, 1997. The adoption of this
standard is not expected to have an impact on the presentation of our financial
statements.
In March 1998, the American Institute of Certified Public Accountants ("AICPA")
issued Statement of Position 98-1, "Accounting for the Cost of Computer Software
Developed or Obtained for Internal Use" ("SOP 98-1"). SOP 98-1 is effective for
financial statements for years beginning after December 15, 1998. SOP 98-1
provides guidance over accounting for computer software developed or obtained
for internal use including the requirement to capitalize specified costs and
amortization of such costs. The adoption of this standard is not expected to
have a material effect on our 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
fiscal years beginning after December 15, 1998, provides guidance on the
financial reporting of start-up costs and organization costs. It requires costs
of start-up activities and organization costs to be expensed as incurred. As we
have expensed these costs historically, the adoption of this statement is not
expected to have a significant impact on our results of operations, financial
position or cash flows.
31
<PAGE>
BUSINESS
OVERVIEW
internet.com owns and operates a leading network of integrated
business-to-business vertical content Web sites, e-mail newsletters, online
discussion forums and moderated e-mail discussion lists focused solely on the
Internet industry. Our community of Internet users includes Internet industry
and Internet technology professionals, Web developers and experienced Internet
users. The internet.com network provides Internet users with proprietary
content, including:
- - real-time Internet industry news
- - tutorials, training and skills development
- - Internet market research
- - buyer's guides and products reviews
- - archives of definitive industry publications
- - discussion forums
- - software downloads
- - expert advice
Our network of Internet media properties consists of nine business-to-business
vertical content channels that contain 61 Web sites, 43 e-mail newsletters, 55
online discussion forums and 52 moderated e-mail discussion lists. During the
month of April 1999, we delivered 42.1 million page views to approximately 1.7
million unique visitors and 8.1 million copies of our e-mail newsletters to
700,000 subscribers, and 31.2 million postings were generated by 51,000
subscribers to our moderated e-mail discussion lists.
INDUSTRY BACKGROUND
GROWTH OF THE INTERNET. The Internet has emerged as a global distribution
network for real-time news and information, an environment for online
communities and a market place in which commerce is conducted. IDC estimates
that the number of Internet users will grow from 159 million in 1998 to 509
million in 2003 and estimates that the number of URLs will grow from
approximately 925 million in 1998 to 13.1 billion in 2003. To best exploit the
rapid growth of the Internet, businesses must stay abreast of Internet-related
technologies and products as well as develop and maintain the skills necessary
to utilize these technologies and products. A broader set of executive
management and business professionals are increasingly participating in Internet
technology implementation decisions with information technology professionals.
As a result, Internet-related topics need to be addressed from a variety of
business as well as technology perspectives to effectively communicate the value
of deploying and integrating Internet technologies.
The increasing use of the Internet is dramatically affecting the operating
methods of profit and not-for-profit businesses and other organizations. These
businesses and organizations are dedicating an increasing amount of personnel
and financial resources to integrating and effectively using the Internet to
expand and enhance their operations. As a result, these businesses and
organizations have a rapidly growing need for personnel with specialized skills
and knowledge in Internet technologies who can effectively build and manage
their Internet infrastructures.
NEED FOR A COMPREHENSIVE RESOURCE FOR INTERNET INDUSTRY AND INTERNET TECHNOLOGY
PROFESSIONALS. With the rapid change and increasing complexity of Internet
technology and the industries surrounding it, Internet industry and Internet
technology professionals need a comprehensive resource to provide the most
recent Internet news and information as well as tutorials in Internet
technologies. To date, these professionals have relied upon general business and
information technology publishers, software and hardware vendors and training
service providers to stay abreast of the latest Internet industry
32
<PAGE>
developments and Internet technology trends. We believe these traditional
resources are inadequate for Internet professionals for several reasons,
including an inability to provide real-time Internet news and information,
training in the latest Internet technologies and communities focused on specific
interests.
Internet industry and Internet technology professionals have developed a
critical need for a timely and comprehensive resource that provides a broad
range of independent, in-depth and easy-to-access content to keep them
up-to-date in the rapidly evolving Internet industry. Internet industry and
Internet technology professionals require current information covering Internet
business and technical information, including:
- news;
- analysis;
- tutorials, training and skills development;
- market information about emerging products and technologies;
- buyers' guides and product reviews;
- Internet market research; and
- expert advice.
These professionals also need a focused online community to share information
with one another, work together to find solutions to common problems, learn
about upcoming conferences and other industry events, seek employment and hire
personnel. In addition, Internet industry and Internet technology professionals
are frequently responsible for purchasing Internet technologies for their
companies. In order to make informed purchasing decisions, these professionals
must devote considerable time, effort and financial resources to researching new
Internet technologies. To date, they have had to rely on fragmented and
disparate sources, such as technical books and print magazines, and training
materials provided by service providers and traditional software retailers. None
of these sources has provided a comprehensive and timely solution for Internet
professionals' need for content, community and commerce.
NEED FOR ADVERTISERS AND VENDORS TO REACH INTERNET INDUSTRY AND INTERNET
TECHNOLOGY PROFESSIONALS. Advertisers and vendors have realized that Internet
industry and Internet technology professionals represent a highly attractive
audience and need a medium through which they can reach this audience in a
focused and effective manner. Internet advertising permits advertisers to gather
demographic information, through voluntary registration and user surveys, and
direct messages at targeted groups of users. It also enables advertisers to
measure the effectiveness of their advertising campaigns and revise them in
response to real-time feedback, market factors and current events. Traditional
forms of advertising are not as targeted and do not permit evaluation of results
in as timely and accurate a manner. Internet advertising is growing rapidly and
is projected to experience significant growth in the future. Forrester Research,
Inc. estimates that:
- worldwide Internet advertising will grow from $1.5 billion in 1998
to $10.9 billion in 2002; and
- business-to-business Internet advertising will grow from $290
million in 1998 to $2.6 billion in 2002.
Vendors of goods and services via the Internet benefit from the ability to reach
a global audience and to operate with minimal physical infrastructure, reduced
overhead and greater economies of scale. The number of transactions taking place
over the Internet is growing rapidly and is expected to increase as
33
<PAGE>
vendors improve Internet-based transaction processing technology and as
consumers become more accustomed to buying online. Forrester Research estimates
that:
- e-commerce will grow from $55 billion in 1998 to $1.1 trillion in
2002; and
- business-to-business e-commerce will grow from $17 billion in 1998
to $327 billion in 2002.
In summary, the evolution and growth of the Internet has created a rapidly
expanding group of Internet professionals with a critical need for timely
content, community and commerce resources. These Internet professionals
represent a select, focused and attractive group of potential purchasers for
advertisers and vendors to target.
THE INTERNET.COM SOLUTION
We provide our community of Internet users with a wide variety of content,
community and commerce products and services to aid them in their daily work and
purchasing decisions. Our solution addresses the needs of three
constituencies--Internet users, advertisers and vendors.
BENEFITS FOR OUR COMMUNITY OF INTERNET USERS
CONTENT. Our network of Web sites, e-mail newsletters, online discussion forums
and moderated e-mail discussion lists provides Internet news and information
which is updated on a daily basis. This Internet news and information helps our
community of Internet users to enhance their job performance by providing them
with up-to-date information and resources about the Internet industry. Our
network consists of proprietary content as well as services for the Internet
industry, including:
- news;
- analysis;
- tutorials, training and skills development;
- market information about emerging products and technologies;
- buyers' guides and product reviews;
- Internet market research; and
- expert advice.
Unlike traditional media, our network provides our community of Internet users
with real-time Internet news and information. These users can easily search our
network by using a host of search and navigation tools.
COMMUNITY. Our network of Web sites, e-mail newsletters, online discussion
forums and moderated e-mail discussion lists provides our community of Internet
users the ability to discuss and solve technical problems and share information.
We provide means by which users can contribute materials and communicate with
each other. Users submit and share software code and development tools that are
then published and archived on our network. We believe that creating a sense of
community through these services fosters loyalty and affinity among our
community of Internet users and increases the amount of time they spend using
our services. These services include:
- ONLINE DISCUSSION FORUMS. We offer 55 online discussion forums,
categorized by vertical content areas for the Internet industry,
that enable users to share information and resources in order to
help each other solve technical problems. We archive these online
discussion forums, creating an online knowledge repository for
future reference.
34
<PAGE>
- MODERATED E-MAIL DISCUSSION LISTS. We offer 52 moderated e-mail
discussion lists and have over 51,000 subscribers to these lists,
which are categorized by focused vertical content areas for the
Internet industry. These forums, which enable subscribers to
conveniently share information and resources and solve technical
problems, are moderated by skilled internet.com personnel.
- QUESTION AND ANSWER SERVICES. We offer question and answer services
that enable users to submit technical questions related to the
Internet industry and our content offerings and services. Answers
from skilled internet.com personnel are published online in
searchable formats.
- TECHNICAL JOB LISTINGS. Through SILICONALLEYJOBS.COM and an
agreement with CareerBuilder, Inc., JOBS.INTERNET.COM, we provide
our community of Internet users with access to Internet industry
and Internet technology job openings. These Web sites can be
searched by job type, salary range and geographic location.
COMMERCE. Our network of Web sites, e-mail newsletters, online discussion forums
and moderated e-mail discussion lists provides our community of Internet users
the ability to evaluate, compare and purchase Internet-related products and
services. Our commerce offerings, produced in cooperation with third party
e-commerce vendors, provide our users with access to the following goods and
services:
- software and hardware;
- technical books and training materials;
- Internet research reports;
- employment classifieds;
- opt-in e-mail list brokerage;
- online press release distribution;
- online banking and credit card registration services;
- online travel services; and
- online scheduling.
BENEFITS FOR ADVERTISERS AND VENDORS
We provide advertisers and vendors with targeted channels to reach our highly
focused community of Internet users, many of whom either make or influence
purchasing decisions. We believe that our Internet users represent a large,
targeted and highly influential online community of Internet industry and
Internet technology professionals, Web developers and experienced Internet
users. We believe our advertisers and vendors can enhance the effectiveness of
their advertising by customizing advertisements and placing them on targeted
channels and pages on our network. We also provide vendors with a much needed
distribution channel and the ability to focus their marketing efforts cost
effectively.
Our Web sites, e-mail newsletters, online discussion forums and moderated e-mail
discussion lists attract a focused community of business and professional
Internet users, as compared to more broadly focused Web sites. According to a
survey we commissioned from Informative LLC, which was
35
<PAGE>
conducted from August 1998 through February 1999, some key demographics of our
community of Internet users include:
- 83% are involved in purchasing Internet products and services for
their companies and organizations, including hardware, software,
networking and Internet access;
- 67% purchased products online in the six months ended February 28,
1999;
- 53% have Internet technology or information technology job titles;
another 19% are in corporate management;
- the average household income of the group exceeds $65,000 annually;
- 61% are in the desirable 25-44 age group; and
- 72% have at least one college degree.
OUR BUSINESS STRATEGY
Our objective is to maintain and strengthen our position as a provider of
integrated, business-to-business vertical content focused solely on the Internet
industry. We intend to achieve this objective by continuing to execute the
following key strategies:
INCREASE OUR PROPRIETARY CONTENT OFFERINGS AND SERVICES. We will strengthen our
existing content offerings and services by continuing to improve our proprietary
content available for our community of Internet users. Our editorial team,
comprised of 33 employees and over 50 freelance contributors as of April 30,
1999, creates proprietary content for our network on a daily basis. In April
1999, our editorial team authored more than 700 news articles published in
InternetNews, over 50 technical tutorials, over 140 product or book reviews and
various other publications. We will continue to identify emerging topics of
interest and then create and aggregate content for those topics through internal
development and acquisitions of additional Web sites, e-mail newsletters, online
discussion forums and moderated e-mail discussion lists.
GROW THROUGH TARGETED ACQUISITIONS. Since July 1995, we have made 28
acquisitions, which included 37 Web sites, 29 e-mail newsletters, 16 online
discussion forums and four moderated e-mail discussion lists. Since March 1,
1998, we have made 17 acquisitions, which included 26 Web sites, 22 e-mail
newsletters, nine online discussion forums and three moderated e-mail discussion
lists. We expect to continue to pursue strategic acquisitions to strengthen our
content, community and commerce offerings. We may also acquire Internet media
properties to obtain valuable brands, expertise or access to new users,
advertisers and vendors. We believe that by acquiring Internet media properties,
we can integrate them into our network and improve their traffic and revenue
results. In addition, we believe that acquiring Web sites, e-mail newsletters,
online discussion forums and moderated e-mail discussion lists generally has
increased the overall traffic on our existing network. We intend to use our
experience gained from our numerous acquisitions in order to identify, evaluate,
acquire and integrate Web sites, e-mail newsletters, online discussion forums
and moderated e-mail discussion lists which are complementary to our network.
INCREASE TRAFFIC AND ENHANCE WORLDWIDE BRAND RECOGNITION. We will continue to
expand the combination of online and offline advertising and promotional
campaigns to enhance the brand recognition of internet.com. We intend to promote
the internet.com brand as a leading source of online content focused solely on
the Internet industry. In addition, we will promote our branded Internet
services, such as Web Developer and The Electronic Commerce Guide, under the
internet.com network through online and offline advertising, strategic marketing
relationships, such as our arrangement with Penton Media, and other promotional
activities. Our marketing and branding campaigns are designed to
36
<PAGE>
increase overall brand awareness. This increased brand awareness will help drive
additional traffic to our network and create additional advertising impressions,
which in turn will create additional advertising and e-commerce revenue
opportunities. As a result, this growth in user traffic should make our network
more valuable to advertisers and vendors. Our marketing and branding campaigns
will reinforce to users, advertisers and vendors that the internet.com brand
represents technical competence, comprehensiveness, timeliness and objectivity.
EXPAND REVENUE OPPORTUNITIES. For the three months ended March 31, 1999, 74% of
our revenues were derived from banner advertising. We believe that the increase
in the number of advertising impressions available for sale resulting from the
growth of subscribers to our e-mail newsletters and moderated e-mail discussion
lists will increase advertising revenues in the future. We are continuing to
develop additional revenue sources, including e-commerce agreements; content,
brand and software licensing; paid subscription services; seminars; opt-in
e-mail list rentals; and venture capital management. See "--Revenue
Opportunities."
INCREASE OUR INTERNATIONAL PRESENCE. The Internet is also rapidly growing
internationally and we intend to utilize our experience to continue to develop
and acquire Web sites, e-mail newsletters, online discussion forums and
moderated e-mail discussion lists with an international focus in order to expand
our global presence. We currently have internet.com country and regional Web
sites for Asia, Australia, Canada, Israel and the United Kingdom. These English
language editions are produced by our employees and freelance contributors in
the geographic areas they serve and provide daily Internet news from the country
or region. We also have licensed the internet.com brand and content for
non-English language editions. We are aggressively seeking opportunities in
other countries and regions to produce additional non-English language editions.
We intend to continue to develop and acquire English and non-English language
Internet media properties to increase our global presence.
REVENUE OPPORTUNITIES
ADVERTISING. For the three months ended March 31, 1999, 87% of our revenues were
derived from advertising, of which 91% of these advertising revenues were
generated from advertising on our Web sites and online discussion forums. With
the growth in subscribers to our e-mail newsletters and moderated e-mail
discussion lists, these media properties are also expected to contribute to
increased advertising revenues in the future.
E-COMMERCE AGREEMENTS. We have entered into a number of e-commerce agreements,
which generally include a fixed fee for advertising or revenue sharing of up to
50% of the sales made by the e-commerce vendor as a result of links from our
network, or in some cases both advertising and revenue sharing. E-commerce
agreements typically are a minimum of six months in duration. During the three
months ended March 31, 1999, 7% of our revenues were derived from e-commerce
agreements. Our current e-commerce vendors include:
<TABLE>
<S> <C> <C> <C>
- - Biztravel.com, Inc. - FatBrain.com, Inc. (formerly Computer Literacy, Inc.)
- - CareerBuilder, Inc. - Hewlett-Packard Company
- - CompuBank, N.A. - Internet Wire Inc.
- - Digital River, Inc. - Jintek, LLC
</TABLE>
LICENSING AGREEMENTS. We license our editorial content and brands to third
parties for fixed fees and royalties based on the licensee's revenues generated
by the licensed content. We also provide access to limited versions of our
editorial content to others at no charge, to promote our brands and generate
37
<PAGE>
traffic. We have paid licensing arrangements with America Online, Inc.,
Ziff-Davis Inc., One Galaxy Solution, Inc., Upside Media Inc.'s UPSIDE MAGAZINE
and MBNA America Bank, N.A., among others. We also license our editorial content
and brands in exchange for promotional consideration to other Web sites,
including YAHOO.COM and SNAP.COM.
We license selected portions of our editorial content to print publishers. In
March 1999, we entered into an agreement with the Los Angeles Times Syndicate
International to license our editorial content to print periodicals. We also
license one-time rights to reprint individual articles, online or in print, to
third parties through licensing of reprints and copyright permission requests.
We have licensed our ISDEX, The Internet Stock Index, to the Kansas City Board
of Trade for the creation of futures and futures options contracts which are
expected to be traded on this exchange. We also offer our proprietary software
for license to third parties that offer services that are similar to, but do not
compete with, internet.com. For example, our NewsLinx software provides a highly
efficient and cost-effective means by which Internet content publishers can
abstract and aggregate news and information for any vertical subject area. For
the three months ended March 31, 1999, 2% of our revenues were derived from
licensing agreements.
PAID SUBSCRIPTION SERVICES. We currently publish three paid e-mail subscription
publications, Internet Stock Report's Hotwatch, Internet StockTracker and
SearchEngineWatch, which have a combined total of more than 9,000 paying
subscribers. We believe that our other content areas may attract audiences with
specialized interests that would pay subscription fees for unique proprietary
content and we will launch additional paid subscription services when
appropriate. In particular, we anticipate launching additional paid subscription
services in our Internet Stock, Internet Marketing and Web Developer Channels.
For the three months ended March 31, 1999, 4% of our revenues were derived from
paid subscription services.
SEMINARS. As a result of recent acquisitions, we plan to offer offline seminars
focused on several Internet-specific topics which are of interest to our
community of Internet users. We are able to efficiently promote these seminars
through our network. We anticipate generating revenues from attendee
registrations as well as from advertiser and vendor sponsorships. We have not
yet generated any revenues from seminars.
OPT-IN E-MAIL LIST RENTALS. Through a third-party agent, we currently offer for
rental our opt-in e-mail list names relating to 25 Internet-specific topics.
Members of our community of Internet users volunteer, or "opt in," to be
included on these lists to receive e-mail product offerings and information
relevant to their Internet interests. Subscribers to these opt-in e-mail lists
receive e-mail announcements of special offers relating to each topic
subscribed. For the three months ended March 31, 1999, 1% of our revenues were
derived from opt-in e-mail list rentals.
VENTURE FUND MANAGEMENT. We are the portfolio manager of internet.com Venture
Fund I LLC, a $5.0 million venture fund formed in April 1999, that will invest
in early-stage content-based Internet properties that are not competitive with
internet.com. We earn management fees for the day to day operation and general
management of the fund. We also earn 20% of the realized gains on investments
made by this fund. We committed to invest $600,000 in this fund at its
inception. The remaining $4.4 million was committed to by third party investors.
internet.com and all other investors contributed 15% of their total investments
to the fund at its inception. Remaining commitments will be called by the fund
as investments are actually made by the fund. We have not yet generated any
revenues from the management of this fund. See "Certain Transactions--Venture
Capital Fund."
38
<PAGE>
CONTENT OFFERINGS AND SERVICES
We offer a broad range of content offerings and services to serve the needs of
our community of Internet users for content, community and commerce, as well as
the needs of advertisers and vendors in targeting our community of Internet
users. Our network is organized into the following nine vertical content
categories, or channels:
- INTERNETNEWS CHANNEL--Provides real-time coverage of Internet
industry news events from around the world. Our staff of over 25
analysts and journalists file approximately 25 original items daily
in the following vertical Internet news categories: business,
finance, Internet service provider, or ISP, Web developer,
E-commerce, Internet advertising and Internet stocks. We enhance
our original coverage of Internet industry news events through
agreements with Reuters NewMedia Inc. and USA TODAY to carry
selected Internet news items.
- INTERNET TECHNOLOGY CHANNEL--Provides access to Internet news,
analyses, tutorials, reviews and resource guides to help our users
integrate evolving Internet technologies. Internet media properties
in the Internet Technology Channel cover many topics, including
Microsoft Active Server Pages, corporate intranet implementation,
Web servers and Internet technology products.
- WEB DEVELOPER CHANNEL--Provides our users who are responsible for
building and maintaining Web sites with communication services and
the latest information and trends for Web site development. We
provide tutorials, applets and script downloads and online resource
directories to Web developers. In addition, we provide community-
building resources through online discussion forums, frequently
asked questions and moderated e-mail discussion lists.
- INTERNET MARKETING CHANNEL--Provides Internet marketers with
information resources, market research and sales and marketing
techniques. This channel includes tutorials for gaining better
placement in search engines, summaries of the latest Internet
market research and information about Internet advertising and
promotion.
- INTERNET RESOURCES CHANNEL--Provides access to Internet job
listings, an online dictionary of Internet and technology terms,
subscription services to our e-mail newsletters, information about
Internet industry events including Internet World and ISPCON trade
shows and other Internet resources.
- ISP RESOURCES CHANNEL--Provides information for professionals in
the ISP industry, including the online edition of BOARDWATCH
magazine, and ISP-Lists, a collection of 38 e-mail discussion lists
used by more than 33,000 professionals in the ISP industry to
communicate with their colleagues. This channel also provides
sophisticated Internet users with information about Internet access
through THE LIST: THE DEFINITIVE ISP BUYER'S GUIDE.
- INTERNET STOCKS CHANNEL--Provides stock and financial news,
information and analysis about Internet companies. This channel
includes the Internet Stock Report, which includes daily analysis
of Internet stocks; ISDEX, The Internet Stock Index, a proprietary
index of 50 publicly traded Internet stocks; InternetStockList, a
directory of publicly traded Internet companies; IPO Watch, a
directory of Internet companies which have filed to go public; and
IPODEX, a directory of Internet companies which have recently gone
public.
39
<PAGE>
- INTERNATIONAL CHANNEL--Provides Internet news and information for
specific countries or regions, including Asia, Australia, Canada,
Israel, the Middle East and the United Kingdom.
- DOWNLOAD CHANNEL--Helps experienced Internet users evaluate and
retrieve freeware and shareware software in a variety of
categories, including business, developer, utilities, multimedia
and games.
40
<PAGE>
INTERNET.COM WEB SITES AND RELATED INTERNET MEDIA PROPERTIES
In addition to our 61 Web sites, the Internet media properties presented on
these channels include 43 e-mail newsletters, which are periodical publications
delivered by electronic mail; 55 online discussion forums, which are electronic
message centers where members of specific interest groups review messages left
by others and leave their own messages; and 52 moderated e-mail discussion
lists, which are similar to online discussion forums, except that members'
messages are transmitted and received by e-mail broadcast. Our network of
Internet media properties consists of the following:
<TABLE>
<CAPTION>
ONLINE E-MAIL
E-MAIL DISCUS- DISCUS-
INTERNET WEB NEWS- SION SION
MEDIA PROPERTY DESCRIPTION SITE LETTERS FORUMS LISTS
- ------------------------------ ---------------------------------------------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
<CAPTION>
INTERNETNEWS CHANNEL
<S> <C> <C> <C> <C> <C>
internetnews Real-time, global coverage of Internet
WWW.INTERNETNEWS.COM industry news and analysis reported by our
staff covering business, finance, ISP, Web
development, e-commerce, advertising, stocks
and international news
NewsLinx Provides continuous updates of Internet news
WWW.NEWSLINX.COM headlines with links to the related articles
from leading news Web sites
atnewyork Provides news and analysis for the New York
WWW.ATNEWYORK.COM City Internet industry
internetnews radio Daily audio Internet news broadcast
STREAM.INTERNET.COM
<CAPTION>
INTERNET TECHNOLOGY CHANNEL
<S> <C> <C> <C> <C> <C>
The Electronic Commerce Guide News, tutorials, reviews and opinions for
E-COMMERCE.INTERNET.COM e-commerce professionals
<CAPTION>
<S> <C> <C> <C> <C> <C>
ServerWatch Reviews of Web server hardware and software
WWW.SERVERWATCH.COM
<CAPTION>
<S> <C> <C> <C> <C> <C>
Internet ProductWatch Searchable directory of commercial Internet
WWW.PRODUCTWATCH.COM product listings
<CAPTION>
<S> <C> <C> <C> <C> <C>
15 seconds Tutorials, discussion lists and newsletters
WWW.15SECONDS.COM for Microsoft Active Server Pages developers
<CAPTION>
<S> <C> <C> <C> <C> <C>
AllNet Devices News and reviews of devices that perform
WWW.ALLNETDEVICES.COM specialized Internet and intranet tasks
<CAPTION>
<S> <C> <C> <C> <C> <C>
BotSpot Directory of information and resources about
WWW.BOTSPOT.COM automated Internet data retrieval
<CAPTION>
<S> <C> <C> <C> <C> <C>
WebServer Compare Directory of Web servers listing technical
WWW.WEBSERVERCOMPARE.COM specifications
<CAPTION>
<S> <C> <C> <C> <C> <C>
Intranet Design Magazine Tutorials and product reviews for intranet
IDM.INTERNET.COM managers
<CAPTION>
<S> <C> <C> <C> <C> <C>
The Web Design List Directory of more than 1,000 Web design firms
DESIGNLIST.INTERNET.COM
<CAPTION>
<S> <C> <C> <C> <C> <C>
Swynk News and information for system administrators
WWW.SWYNK.COM
<CAPTION>
<S> <C> <C> <C> <C> <C>
LinuxPlanet Linux news and tutorials for system
WWW.LINUXPLANET.COM administrators
<CAPTION>
<S> <C> <C> <C> <C> <C>
WinPlanet Microsoft Windows software news, tutorials,
WWW.WINPLANET.COM opinions, reviews and tips
<CAPTION>
<S> <C> <C> <C> <C> <C>
Internet Technology Forums Discussion forums about Internet technology
FORUMS.INTERNET.COM topics
<CAPTION>
<S> <C> <C> <C> <C> <C>
Internet World Archives of Internet World newspaper
WWW.IW.COM
<CAPTION>
<CAPTION>
ACQUIRED,
INTERNALLY
INTERNET DEVELOPED
MEDIA PROPERTY OR LICENSED
- ------------------------------ -----------
<S> <C>
INTERNETNEWS CHANNEL
<S> <C>
internetnews Internally
WWW.INTERNETNEWS.COM Developed
NewsLinx Acquired
WWW.NEWSLINX.COM 11/98
atnewyork Acquired
WWW.ATNEWYORK.COM 4/99
internetnews radio Internally
STREAM.INTERNET.COM Developed
INTERNET TECHNOLOGY CHANNEL
<S> <C>
The Electronic Commerce Guide Acquired
E-COMMERCE.INTERNET.COM 11/95
<S> <C>
ServerWatch Acquired
WWW.SERVERWATCH.COM 7/96
<S> <C>
Internet ProductWatch Acquired
WWW.PRODUCTWATCH.COM 1/96
<S> <C>
15 seconds Acquired
WWW.15SECONDS.COM 12/98
<S> <C>
AllNet Devices Internally
WWW.ALLNETDEVICES.COM Developed
<S> <C>
BotSpot Acquired
WWW.BOTSPOT.COM 1/99
<S> <C>
WebServer Compare Acquired
WWW.WEBSERVERCOMPARE.COM 7/96
<S> <C>
Intranet Design Magazine Acquired
IDM.INTERNET.COM 9/98
<S> <C>
The Web Design List Internally
DESIGNLIST.INTERNET.COM Developed
<S> <C>
Swynk Acquired
WWW.SWYNK.COM 4/99
<S> <C>
LinuxPlanet Acquired
WWW.LINUXPLANET.COM 5/99
<S> <C>
WinPlanet Acquired
WWW.WINPLANET.COM 5/99
<S> <C>
Internet Technology Forums Internally
FORUMS.INTERNET.COM Developed
<S> <C>
Internet World Licensed
WWW.IW.COM
</TABLE>
41
<PAGE>
<TABLE>
<CAPTION>
ONLINE E-MAIL
E-MAIL DISCUS- DISCUS-
INTERNET WEB NEWS- SION SION
MEDIA PROPERTY DESCRIPTION SITE LETTERS FORUMS LISTS
- ------------------------------ ---------------------------------------------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
<CAPTION>
WEB DEVELOPER CHANNEL
<S> <C> <C> <C> <C> <C>
WebDeveloper News, reviews and tutorials for Web developers
WWW.WEBDEVELOPER.COM
<CAPTION>
<S> <C> <C> <C> <C> <C>
WebReference Tutorials, technical information and reviews
WWW.WEBREFERENCE.COM for Web developers
<CAPTION>
<S> <C> <C> <C> <C> <C>
Web Developer's Virtual Tutorials and technical information for Web
Library developers
WWW.WDVL.COM
<CAPTION>
<S> <C> <C> <C> <C> <C>
WebDeveloper101 Web developer resource for novices and experts
WWW.WEBDEVELOPER101.COM
<CAPTION>
<S> <C> <C> <C> <C> <C>
BrowserWatch News and information for technical
WWW.BROWSERWATCH.COM professionals about Web browsers
<CAPTION>
<S> <C> <C> <C> <C> <C>
StreamingMediaWorld Tutorials and information resources for
WWW.STREAMINGMEDIAWORLD.COM streaming media developers
<CAPTION>
<S> <C> <C> <C> <C> <C>
JustSMIL Tutorials, information resources and forums
WWW.JUSTSMIL.COM for streaming media developers
<CAPTION>
<S> <C> <C> <C> <C> <C>
Java Boutique Collection of over 360 Java applets available
WWW.JAVABOUTIQUE.COM for download
<CAPTION>
<S> <C> <C> <C> <C> <C>
The JavascriptSource Collection of over 300 Javascripts available
WWW.JAVASCRIPTSOURCE.COM for download
<CAPTION>
<S> <C> <C> <C> <C> <C>
ScriptSearch Links to more than 5,000 C++, PERL, VBScript
WWW.SCRIPTSEARCH.COM and other programs online
<CAPTION>
<S> <C> <C> <C> <C> <C>
Web Developer Forums Discussion forums about Web development topics
FORUMS.INTERNET.COM
<CAPTION>
INTERNET MARKETING CHANNEL
<S> <C> <C> <C> <C> <C>
SearchEngineWatch How-to site for Internet marketers and users
WWW.SEARCHENGINEWATCH.COM about search engine operations
<CAPTION>
<S> <C> <C> <C> <C> <C>
CyberAtlas Searchable repository of Internet-related
WWW.CYBERATLAS.COM research abstracts
<CAPTION>
<S> <C> <C> <C> <C> <C>
Internet Day Daily tutorial for Internet marketers and
WWW.INTERNETDAY.COM professionals
<CAPTION>
<S> <C> <C> <C> <C> <C>
Internet Advertising Report Highlights top Internet marketing and
WWW.INTERNETNEWS.COM/IAR advertising news and events
<CAPTION>
<S> <C> <C> <C> <C> <C>
Ad Resource Collection of Internet advertising resources
WWW.ADRESOURCE.COM for Internet marketers
<CAPTION>
<S> <C> <C> <C> <C> <C>
Refer-It Directory of Web site affiliate, referral and
WWW.REFER-IT.COM revenue sharing programs
<CAPTION>
<S> <C> <C> <C> <C> <C>
AllNetResearch Directory of Internet industry research
WWW.ALLNETRESEARCH.COM reports available for online purchase
<CAPTION>
<S> <C> <C> <C> <C> <C>
INTERNET RESOURCES CHANNEL
<CAPTION>
<S> <C> <C> <C> <C> <C>
Webopedia Dictionary and search engine containing more
WWW.WEBOPEDIA.COM than 7,500 Internet and technology definitions
and terms
<CAPTION>
<S> <C> <C> <C> <C> <C>
Internet Radio List Directory of Internet radio stations
WWW.INTERNETRADIOLIST.COM
<CAPTION>
<S> <C> <C> <C> <C> <C>
CoolCentral Recommendations for useful and entertaining
WWW.COOLCENTRAL.COM Web sites
<CAPTION>
<S> <C> <C> <C> <C> <C>
InternetShopper Directory of shopping Web sites listed by
WWW.INTERNETSHOPPER.COM category, daily listings of free and
discounted items available online and an
Internet shopping agent
<CAPTION>
<S> <C> <C> <C> <C> <C>
Internet Jobs Provides searchable access to Internet
JOBS.INTERNET.COM industry and Internet technology job openings
<CAPTION>
<S> <C> <C> <C> <C> <C>
silicon alley Jobs Provides searchable access to Internet
WWW.SILICONALLEYJOBS.COM industry and Internet technology job openings
<CAPTION>
<S> <C> <C> <C> <C> <C>
My Desktop Information site for experienced Internet
WWW.MYDESKTOP.COM users
<CAPTION>
<S> <C> <C> <C> <C> <C>
Virtual Dr Technical support for Internet and personal
WWW.VIRTUALDR.COM computer users
<CAPTION>
<S> <C> <C> <C> <C> <C>
Hardware Central Comprehensive hardware information including
WWW.HARDWARECENTRAL.COM advice on optimization and troubleshooting
<CAPTION>
<S> <C> <C> <C> <C> <C>
Internet Forums Directory of online discussion forums about a
FORUMS.INTERNET.COM variety of Internet topics
<CAPTION>
<S> <C> <C> <C> <C> <C>
Events.internet.com Information about Internet World and ISPCON
EVENTS.INTERNET.COM trade shows
<CAPTION>
<CAPTION>
ACQUIRED,
INTERNALLY
INTERNET DEVELOPED
MEDIA PROPERTY OR LICENSED
- ------------------------------ -----------
<S> <C>
WEB DEVELOPER CHANNEL
<S> <C>
WebDeveloper Internally
WWW.WEBDEVELOPER.COM Developed
<S> <C>
WebReference Acquired
WWW.WEBREFERENCE.COM 11/97
<S> <C>
Web Developer's Virtual Acquired
Library 3/98
WWW.WDVL.COM
<S> <C>
WebDeveloper101 Acquired
WWW.WEBDEVELOPER101.COM 5/99
<S> <C>
BrowserWatch Acquired
WWW.BROWSERWATCH.COM 5/96
<S> <C>
StreamingMediaWorld Internally
WWW.STREAMINGMEDIAWORLD.COM Developed
<S> <C>
JustSMIL Acquired
WWW.JUSTSMIL.COM 11/98
<S> <C>
Java Boutique Acquired
WWW.JAVABOUTIQUE.COM 5/97
<S> <C>
The JavascriptSource Acquired
WWW.JAVASCRIPTSOURCE.COM 7/98
<S> <C>
ScriptSearch Acquired
WWW.SCRIPTSEARCH.COM 9/98
<S> <C>
Web Developer Forums Internally
FORUMS.INTERNET.COM Developed
INTERNET MARKETING CHANNEL
<S> <C>
SearchEngineWatch Acquired
WWW.SEARCHENGINEWATCH.COM 11/97
<S> <C>
CyberAtlas Acquired
WWW.CYBERATLAS.COM 8/98
<S> <C>
Internet Day Acquired
WWW.INTERNETDAY.COM 11/98
<S> <C>
Internet Advertising Report Internally
WWW.INTERNETNEWS.COM/IAR Developed
<S> <C>
Ad Resource Acquired
WWW.ADRESOURCE.COM 11/98
<S> <C>
Refer-It Acquired
WWW.REFER-IT.COM 4/99
<S> <C>
AllNetResearch Internally
WWW.ALLNETRESEARCH.COM Developed
<S> <C>
INTERNET RESOURCES CHANNEL
<S> <C>
Webopedia Acquired
WWW.WEBOPEDIA.COM 3/98
<S> <C>
Internet Radio List Internally
WWW.INTERNETRADIOLIST.COM Developed
<S> <C>
CoolCentral Acquired
WWW.COOLCENTRAL.COM 11/97
<S> <C>
InternetShopper Internally
WWW.INTERNETSHOPPER.COM Developed
<S> <C>
Internet Jobs Internally
JOBS.INTERNET.COM Developed
<S> <C>
silicon alley Jobs Acquired
WWW.SILICONALLEYJOBS.COM 4/99
<S> <C>
My Desktop Acquired
WWW.MYDESKTOP.COM 5/99
<S> <C>
Virtual Dr Acquired
WWW.VIRTUALDR.COM 5/99
<S> <C>
Hardware Central Acquired
WWW.HARDWARECENTRAL.COM 5/99
<S> <C>
Internet Forums Internally
FORUMS.INTERNET.COM Developed
<S> <C>
Events.internet.com Internally
EVENTS.INTERNET.COM Developed
</TABLE>
42
<PAGE>
<TABLE>
<CAPTION>
ONLINE E-MAIL
E-MAIL DISCUS- DISCUS-
INTERNET WEB NEWS- SION SION
MEDIA PROPERTY DESCRIPTION SITE LETTERS FORUMS LISTS
- ------------------------------ ---------------------------------------------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
<CAPTION>
ISP RESOURCES CHANNEL
<S> <C> <C> <C> <C> <C>
ISP-Planet News and information for the ISP industry
WWW.ISP-PLANTET.COM
<CAPTION>
<S> <C> <C> <C> <C> <C>
ISP-Lists E-mail discussion lists and Web sites serving
WWW.ISP-LISTS.COM ISP industry professionals
<CAPTION>
<S> <C> <C> <C> <C> <C>
The List Buyer's guide containing terms of service for
WWW.THELIST.COM more than 6,700 Internet Service Providers
worldwide
<CAPTION>
<S> <C> <C> <C> <C> <C>
ISP News Real-time, global coverage of Internet Service
WWW.INTERNETNEWS.COM/ISP-NEWS Provider industry news
<CAPTION>
<S> <C> <C> <C> <C> <C>
Boardwatch Archives of Boardwatch magazine
WWW.BOARDWATCH.COM
<CAPTION>
<S> <C> <C> <C> <C> <C>
ISPCON Information site for ISPCON events
WWW.ISPCON.COM
<CAPTION>
<S> <C> <C> <C> <C> <C>
Directory of Internet Service Directory of Internet Service Providers
Providers
BOARDWATCH.INTERNET.COM/ISP
<CAPTION>
INTERNET STOCKS CHANNEL
<S> <C> <C> <C> <C> <C>
Internet Stock Report Intraday analysis of Internet stocks
WWW.INTERNETNEWS.COM/STOCKS
<CAPTION>
<S> <C> <C> <C> <C> <C>
ISDEX, The Internet Stock Proprietary index of 50 publicly traded
Index Internet stocks
WWW.ISDEX.COM
<CAPTION>
<S> <C> <C> <C> <C> <C>
InternetStockList Directory of publicly traded Internet
WWW.INTERNETSTOCKLIST.COM companies, including related news, information
and analysis
<CAPTION>
<S> <C> <C> <C> <C> <C>
IPO Watch Directory of Internet companies that have
WWW.INTERNETNEWS.COM/STOCKS/IPO filed to go public, including related news,
information and analysis
<CAPTION>
<S> <C> <C> <C> <C> <C>
IPODEX Directory of Internet companies that have
WWW.IPODEX.COM recently gone public
<CAPTION>
<S> <C> <C> <C> <C> <C>
Internet Stock Forums Discussion forums about Internet stocks and
FORUMS.INTERNET.COM investing
<CAPTION>
INTERNATIONAL CHANNEL
<S> <C> <C> <C> <C> <C>
Arabia Daily Internet news and information about the
ARABIA.INTERNET.COM Middle East
<CAPTION>
<S> <C> <C> <C> <C> <C>
Asia Daily Internet news and information about Asia
ASIA.INTERNET.COM
<CAPTION>
<S> <C> <C> <C> <C> <C>
Australia Daily Internet news and information about
AUSTRALIA.INTERNET.COM Australia
<CAPTION>
<S> <C> <C> <C> <C> <C>
Canada Daily Internet news and information about
CANADA.INTERNET.COM Canada
<CAPTION>
<S> <C> <C> <C> <C> <C>
Israel Daily Internet news and information about
ISRAEL.INTERNET.COM Israel
<CAPTION>
<S> <C> <C> <C> <C> <C>
United Kingdom Daily Internet news and information about the
UK.INTERNET.COM United Kingdom
<CAPTION>
DOWNLOAD CHANNEL
<S> <C> <C> <C> <C> <C>
Jumbo! Software Web site with over 300,000 programs
WWW.JUMBO.COM available for download
<CAPTION>
<S> <C> <C> <C> <C> <C>
CWSApps Reviews and downloads for Microsoft Windows-
WWW.CWSAPPS.COM based Internet software
<CAPTION>
<S> <C> <C> <C> <C> <C>
NewApps Links to new software programs available for
WWW.NEWAPPS.COM download
<CAPTION>
<S> <C> <C> <C> <C> <C>
FileFarm Reviews and downloads for business software
WWW.FILEFARM.COM
<CAPTION>
<CAPTION>
ACQUIRED,
INTERNALLY
INTERNET DEVELOPED
MEDIA PROPERTY OR LICENSED
- ------------------------------ -----------
<S> <C>
ISP RESOURCES CHANNEL
<S> <C>
ISP-Planet Internally
WWW.ISP-PLANTET.COM Developed
<S> <C>
ISP-Lists Acquired
WWW.ISP-LISTS.COM 10/98
<S> <C>
The List Acquired
WWW.THELIST.COM 8/95
<S> <C>
ISP News Internally
WWW.INTERNETNEWS.COM/ISP-NEWS Developed
<S> <C>
Boardwatch Licensed
WWW.BOARDWATCH.COM
<S> <C>
ISPCON Licensed
WWW.ISPCON.COM
<S> <C>
Directory of Internet Service Licensed
Providers
BOARDWATCH.INTERNET.COM/ISP
INTERNET STOCKS CHANNEL
<S> <C>
Internet Stock Report Internally
WWW.INTERNETNEWS.COM/STOCKS Developed
<S> <C>
ISDEX, The Internet Stock Internally
Index Developed
WWW.ISDEX.COM
<S> <C>
InternetStockList Internally
WWW.INTERNETSTOCKLIST.COM Developed
<S> <C>
IPO Watch Internally
WWW.INTERNETNEWS.COM/STOCKS/IP Developed
<S> <C>
IPODEX Internally
WWW.IPODEX.COM Developed
<S> <C>
Internet Stock Forums Internally
FORUMS.INTERNET.COM Developed
INTERNATIONAL CHANNEL
<S> <C>
Arabia Licensed
ARABIA.INTERNET.COM
<S> <C>
Asia Internally
ASIA.INTERNET.COM Developed
<S> <C>
Australia Internally
AUSTRALIA.INTERNET.COM Developed
<S> <C>
Canada Internally
CANADA.INTERNET.COM Developed
<S> <C>
Israel Internally
ISRAEL.INTERNET.COM Developed
<S> <C>
United Kingdom Internally
UK.INTERNET.COM Developed
DOWNLOAD CHANNEL
<S> <C>
Jumbo! Acquired
WWW.JUMBO.COM 11/98
<S> <C>
CWSApps Acquired
WWW.CWSAPPS.COM 12/96
<S> <C>
NewApps Acquired
WWW.NEWAPPS.COM 11/98
<S> <C>
FileFarm Acquired
WWW.FILEFARM.COM 5/99
</TABLE>
Penton Media has licensed the online publishing rights for its INTERNET WORLD,
BOARDWATCH and DIRECTORY OF INTERNET SERVICE PROVIDERS print publications, as
well as information about its Internet World and ISPCON trade shows, to
internet.com. See "Certain Transactions--Services Agreement."
43
<PAGE>
SELECTED CASE STUDIES
INTERNETNEWS.COM. We created internetnews.com in November 1995. internetnews.com
publishes, on a real-time basis throughout each business day, approximately 25
original Internet news items which are produced by our staff of over 25 editors,
freelance contributors and analysts, and supplemented by content from Reuters
NewMedia Inc. and USA TODAY. The editorial philosophy of internetnews.com is to
provide members of our community of Internet users with current Internet
industry information. Monthly page views for internetnews.com increased 275%
from 746,000 in March 1998 to approximately 2.8 million in March 1999.
WEBDEVELOPER.COM. We launched WebDeveloper.com as a print publication with a
companion Web site in September 1995. In May 1997, Web Developer.com was
reconstituted as an exclusively online resource. WebDeveloper.com provides news,
software and book reviews, tutorials, and question and answer features for Web
developers. WebDeveloper.com appeals to professionals who are responsible for
building and maintaining Web sites. WebDeveloper.com also provides links to
other resources, many of which are within our network, containing reference
information on Web development topics. Monthly page views for WebDeveloper.com
increased 203% from 288,000 in March 1998 to 873,000 in March 1999.
THE LIST--"THE DEFINITIVE ISP BUYER'S GUIDE". We acquired The List in August
1995 and have continued to enhance its content offerings and services, making
The List a leading directory of ISPs on the Internet. The List currently
provides access to information detailing the service offerings and rates of
6,700 ISPs in more than 200 countries worldwide. The List is based on a
contributory system that allows ISPs to enter information about rates and
services offered. The List offers ISPs a targeted method of acquiring
subscribers through sponsoring or providing advertising on specific pages
corresponding to area codes in which they provide service, allowing them to
effectively reach potential customers. In April 1999, we launched a program of
selling enhanced listings and sponsorships that allows ISPs to add their logos
to The List and more effectively target new customers. Monthly page views for
The List increased 69% from approximately 1.3 million in March 1998 to
approximately 2.2 million in March 1999.
SEARCHENGINEWATCH. We acquired SearchEngineWatch in November 1997.
SearchEngineWatch serves two audiences: marketers who want to have their
companies' Web sites listed prominently in search engines and sophisticated
Internet users who want to make informed selections when choosing a search
engine to use. In addition to advertising and sponsorship revenue,
SearchEngineWatch offers a paid subscription newsletter on its Web site. Since
acquiring and integrating SearchEngineWatch into our network in November 1997,
we have rapidly increased the number of paid subscribers while at the same time
increasing the annual subscription rate for this service from $25 to $44.
Monthly page views for SearchEngineWatch increased 109% from 573,000 in March
1998 to approximately 1.2 million in March 1999.
EDITORIAL
We maintain editorial offices in Westport, Connecticut; New York, New York;
Lexington, Kentucky; and Ann Arbor, Michigan. In addition, editorial personnel
work from home offices throughout the United States and in Hong Kong. Freelance
contributors and analysts are also located both domestically and in 13 countries
worldwide.
Our editorial team, comprised of 33 employees and over 50 freelance contributors
as of April 30, 1999, creates considerable proprietary content each month. For
example, in April 1999, our editorial team:
44
<PAGE>
- authored more than 700 news articles published in InternetNews;
- authored more than 50 technical tutorials;
- authored more than 100 market analysis reports;
- reviewed more than 140 products and books;
- created more than 450 editions of 43 separate e-mail newsletters;
- moderated over 50 e-mail discussion lists and over 50 online
discussion forums;
- catalogued and evaluated more than 1,300 software programs; and
- maintained more than 10,000 directory listings of Internet-related
products, services and companies.
In addition, our editorial staff also maintains an online dictionary,
WWW.WEBOPEDIA.COM, of 7,500 Internet and technology terms, writes question and
answer columns and creates directories of scripts for major Internet
technologies. We also have an exclusive agreement to serve as the Internet
publisher of Penton Media's INTERNET WORLD, BOARDWATCH and DIRECTORY OF INTERNET
SERVICE PROVIDERS print publications, as well as information about Penton
Media's Internet World and ISPCON trade shows. See "Certain
Transactions--Services Agreement."
MARKETING AND SALES
MARKETING. We employ a combination of online and offline advertising and
promotional campaigns to promote our content offerings and services to our
community of Internet users, advertisers and vendors. User advertising includes
cross-promotion on our network, advertising in trade publications and at trade
shows and promotional links from Web sites that attract demographically similar
audiences. We believe that this strategy maintains the high quality and unique
focus of our community of Internet users. We have participated in various
Internet industry events, including Internet World and ISPCON trade shows. We
have also used print advertising, which has appeared in INTERNET WORLD,
BOARDWATCH, UPSIDE, INTERNET WEEK, DATA COMMUNICATIONS, TELE.COM, SILICON ALLEY
REPORTER and ADWEEK, among other publications.
Our marketing efforts are directed largely at acquiring advertising clients and
commerce agreements. We principally use offline and online advertising, direct
mail and event sponsorships for customer acquisition. ADVERTISING AGE, ADWEEK,
MARKETING COMPUTERS, CLICKZ, CHANNELSEVEN.COM and the ONLINE ADVERTISING
DISCUSSION LIST are among the venues used to deliver our promotional messages.
In addition, we have a strategic agreement with Penton Media, a significant
investor in internet.com, which provides for an exchange of services to be
provided by each party. This agreement expires on November 23, 2001 and is
automatically renewable for subsequent three year terms unless terminated by
either party.
Services provided by Penton Media to us under this agreement include the
following:
- one full-page advertisement at no charge in each issue of INTERNET
WORLD newspaper and BOARDWATCH magazine;
- exhibit and sales office space at no charge for each U.S. Internet
World and ISPCON trade show; and
- prominent listing as a sponsor in all promotional materials and for
appropriate conference tracks, as well as prominent hanging media
banners for Internet World and ISPCON trade shows.
45
<PAGE>
Services we provide to Penton Media under this agreement include the following:
- Web site archives of INTERNET WORLD and BOARDWATCH print
publications and information about Internet World and ISPCON trade
shows and conferences; and
- a minimum of 2.3 million advertising impressions each month on our
network.
ADVERTISING SALES. We believe that we have been able to obtain revenue from
advertising on our Web sites and online discussion forums because we enable
clients to efficiently and effectively reach targeted segments of the Internet
community. Based on a survey we commissioned which was conducted from August
1998 through February 1999, 83% of our community of Internet users report that
they either make or influence purchasing decisions. We believe that targeting
this influential audience allows us to sell advertising space at rates that are
higher than the average rates charged by online services aimed at more general
audiences. Based upon publicly available banner advertisement rate cards, we
believe that our actual rates are approximately 1.4 to 4.0 times higher than the
published rates of Go2Net, Inc., Netscape Communications Corp., Yahoo! Inc. and
Infoseek Corporation as of April 1999, which we believe to be a representative
group of Internet-based services aimed at more general audiences.
We also offer advertisers the opportunity to advertise on our e-mail newsletters
and moderated e-mail discussion lists. In April 1999, we distributed 8.1 million
copies of our e-mail newsletters to over 700,000 subscribers. We also
distributed 31.2 million messages to more than 51,000 moderated e-mail
discussion list subscribers.
Our sales force is organized by geographic regions as follows: New England, New
York Metro, Mid-Atlantic/Southeast, Midwest, West, Canada, Europe and Israel.
Over 450 advertisers have placed advertisements on our network. For the six
months ended March 31, 1999, International Business Machines Corporation
accounted for 17% of our revenues, and our top 20 advertisers together accounted
for 50% of our revenues during the same period. The following were our top 20
advertisers during the six months ended March 31, 1999:
Allaire Corporation
Apple Computer, Inc.
Ariel Corporation
Biztravel.com, Inc.
Dell Computer Corporation
Digital River, Inc.
Earthlink Networks, Inc.
GoTo.com, Inc.
Hewlett-Packard Company
Inktomi Corporation
International Business Machines
Lucent Technologies Inc.
Macromedia Inc.
Microsoft Corporation
Northern Telecom Limited
Oracle Corporation
OrderTrust LLC
Surfree.com Inc.
Transarc Corporation
Ubid, Inc.
E-COMMERCE SALES, LICENSING AND BUSINESS DEVELOPMENT. We offer e-commerce,
licensing and other business development arrangements to maximize the potential
of our proprietary content and community of Internet users. We identify
potential e-commerce vendors, licensees and other potential business development
opportunities and generally enter into contracts of six to 12 months' duration.
E-commerce agreements generally include a fixed fee for advertising as well as
revenue sharing of up to 50% of the sales made by the e-commerce vendor as a
result of links from our network. These activities are conducted by a staff of
three employees separate from our advertising sales force.
Licensing arrangements allow third parties to reproduce our editorial content
and brands either for print or online use. We are typically paid per-use in the
case of book and print rights, including reprints of articles published on our
network, and monthly in cases where our editorial content is published in
46
<PAGE>
electronic form. We also offer our proprietary software for license to third
parties that offer services that are similar to, but do not compete with,
internet.com.
COMPETITION
We believe we compete on the basis of our brand recognition and our proprietary
content offerings and services focused solely on the Internet industry. We
believe that we are differentiated relative to our competitors due to our
vertical focus of providing content, community and commerce to Internet industry
and Internet technology professionals, Web developers and experienced Internet
users.
The market for Internet-based services is relatively new, intensely competitive
and rapidly changing. Since the advent of commercial services on the Internet,
the number of online services competing for users' attention and spending has
proliferated. We expect that competition will continue to intensify. We compete
with other companies which direct a portion of their overall Web content at the
Internet professional community, such as Ziff-Davis Inc.'s ZDNet, C/NET, CMP
Media Inc., EarthWeb Inc. and Wired Digital Inc. We also compete for circulation
and advertising impressions with general interest portal and destination Web
sites as well as traditional media.
Many of our current and potential competitors have longer operating histories,
larger customer bases, greater brand recognition and significantly greater
financial, marketing and other resources than we have. These competitors may be
able to respond more quickly to new or emerging technologies and changes in
customer requirements and to devote greater resources to the development,
promotion and sale of their products and services than we can. The number of
companies competing for the attention and spending of our community of Internet
users has increased and we expect it to continue to increase. See "--Industry
Overview" and "Risk Factors--We face intense competition."
TECHNOLOGY AND OPERATIONS
We have developed an expandable operations infrastructure using open standard
hardware and software systems. We make our Web sites, e-mail newsletters, online
discussion forums and moderated e-mail discussion lists available using multiple
Sun Microsystems, Inc. and Wintel-based servers that run on Sun Solaris and
Microsoft NT operating systems. We license software from the following parties,
among others: Web and e-mail servers from Netscape; Web and database servers
from Microsoft Corporation; an advertising management system from NetGravity,
Inc.; a content management system from Vignette Corporation; a log and traffic
analysis system from net.Genesis Corp.; a streaming media server from
RealNetworks, Inc.; a spidering, content indexing, personalization and
categorization system from Autonomy, Inc.; and a firewall from Network
Associates Inc.
We maintain a data center with redundant production and staging servers. In the
event that all of the production servers fail, the staging servers are capable
of supporting our services. Our redundant Internet circuits are diversely routed
to different points within our providers' networks, so that interruptions will
be minimized if a failure in one network segment occurs. All of our servers are
powered by uninterruptible power supplies. In addition, all of our production
systems are copied to backup tapes each night and stored at an off-site storage
facility each business day. In the event of a disaster at the production
facility, arrangements are in place to resume production at an off-site center
maintained by International Business Machines. We maintain a quality assurance
process to constantly monitor our servers, processes and network connectivity.
We have implemented these redundancies and backup systems in order to minimize
the risk associated with damage from fire, power loss, telecommunications
failure, break-ins, computer viruses and other events beyond our control. See
"Risk Factors--Our systems are subject to damage from natural disasters,
telecommunication failures, electronic break-ins and similar problems."
47
<PAGE>
INTELLECTUAL PROPERTY
We regard our content, logos, brands and software as proprietary and attempt to
protect them by relying on trademark, copyright, trade secret and other laws and
restrictions. We currently have no patents or patents pending and do not
anticipate that patents will become a significant part of our intellectual
property in the foreseeable future. We pursue the registration of our trademarks
and service marks in the United States and internationally, and have applied for
registration in the United States and numerous other countries for a number of
our trademarks and service marks. We also pursue copyright registration of our
content in the United States. We might not be able to obtain effective
trademark, copyright and trade secret protection in every country in which we
distribute our services or make them available through the Internet, and it is
difficult for us to police unauthorized use of our proprietary information. We
seek protection of our content, logos, brands and software relating to our Web
sites, e-mail newsletters, online discussion forums and moderated e-mail
discussion lists.
We have applied for registration of our trademarks and service marks in the
United States and in over 60 other countries. We have encountered obstacles to
registration of some marks in several of these countries.
We are opposing an application by IDG to register the trademark "internet.com"
in the United States Patent and Trademark Office. IDG has filed an intent-to-use
application that predates our applications to register this trademark for
substantially similar goods and services. We have, however, been using this
trademark for several years, and we believe that our actual use predates IDG's
intent-to-use application. The Patent and Trademark Office must decide whether
our actual use of the internet.com trademark predates the IDG intent-to-use
application date and whether such use amounts to actual trademark use. We
believe that we will be successful in opposing IDG's intent-to-use application
on these grounds, but there can be no guarantee of this outcome. If we are
unsuccessful in opposing IDG's intent-to-use application, IDG could limit the
scope of our use of the internet.com trademark, could use the internet.com
trademark simultaneously with our use or could charge a fee for such use,
although we would have the option of pursuing our rights in federal court in
that event.
Legal standards relating to the validity, enforceability and scope of protection
of proprietary rights in Internet-related businesses are uncertain and still
evolving. As a result, we cannot assure the future viability or value of our
proprietary rights. We might not have taken adequate steps to prevent the
misappropriation or infringement of our intellectual property. Any such
infringement or misappropriation, should it occur, might harm our business,
results of operations and financial condition. In addition, we may have to file
lawsuits in the future to perfect or enforce our intellectual property rights,
to protect our trade secrets or to determine the validity and scope of the
proprietary rights of others. These lawsuits could result in substantial costs
and divert our resources and the attention of our management. As a result, our
business, results of operations and financial condition would suffer.
Our business activities may infringe upon the proprietary rights of others, and
other parties might assert infringement claims against us. From time to time, we
have been, and expect to continue to be, subject to claims in the ordinary
course of our business including claims of alleged infringement of the
trademarks, service marks and other intellectual property rights of third
parties. If similar claims are made against us in the future, those claims and
any resultant litigation might subject us to liability for damages, result in
invalidation of our proprietary rights and, even if not meritorious, could be
time consuming and expensive to defend and could result in the diversion of our
resources and the attention of our management. As a result, our business,
results of operations and financial condition would suffer.
48
<PAGE>
We generally obtain our content and some of our technology from our employees or
pursuant to work-for-hire arrangements. We also license technology and content
from third parties. In such license arrangements, we generally obtain
representations as to origin and ownership of such content and technology and
the licensors have generally agreed to defend, indemnify and hold us harmless
from any third party claims that such technology or content violates the rights
of another. We cannot be sure that these third party technology and content
protections will be effective or sufficient or that we will be able to maintain
such content or technology on commercially reasonable terms. As a result, our
business, results of operations and financial condition would suffer.
We have licensed in the past, and expect to license in the future, proprietary
rights, such as trademarks or copyrighted material, to third parties. While we
attempt to ensure that the quality of our brands and content are maintained by
such licensees, we cannot be sure that such licensees will not take actions that
might decrease the value of our brands, proprietary rights or reputation, which
would harm our business, prospects, financial condition and results of
operations.
DOMAIN NAMES
We own the Internet domain name "internet.com," as well as numerous other domain
names both in the United States and internationally. Domain names generally are
regulated by Internet regulatory bodies. The regulation of domain names in the
United States and in foreign countries is subject to change. Regulatory bodies
could establish additional top-level domains, appoint additional domain name
registrars or modify the requirements for holding domain names. As a result, we
might not acquire or maintain the "internet.com" or comparable domain name in
all the countries in which we conduct business.
The relationship between regulations governing domain names and laws protecting
trademarks and similar proprietary rights is unclear and still evolving.
Therefore, we might be unable to prevent third parties from acquiring domain
names that infringe or otherwise decrease the value of our trademarks and other
proprietary rights. See "Risk Factors--Regulation could reduce the value of our
domain names."
EMPLOYEES
The following table sets forth a breakdown of our employees as of April 30,
1999:
<TABLE>
<CAPTION>
NUMBER OF
EMPLOYEES
-------------
<S> <C>
Editorial........................................................................... 33
Marketing and sales................................................................. 35
Technology and operations........................................................... 19
Administration...................................................................... 10
---
Total........................................................................... 97
---
---
</TABLE>
We have never had a work stoppage and no personnel are represented under
collective bargaining agreements. We consider our relations with our personnel
to be good.
FACILITIES
Our principal administrative, editorial, sales, marketing and information
technology facilities are located in Westport, Connecticut and are rented from
Penton Media. See "Certain Transactions." We believe that our current facilities
will be adequate to meet our needs for the foreseeable future.
49
<PAGE>
The following table sets forth a summary of our leased and subleased office
facilities as of April 30, 1999:
<TABLE>
<CAPTION>
LOCATION SQUARE FEET LEASED THROUGH
- --------------------------------------------------------------- ------------- ------------------
<S> <C> <C>
Westport, Connecticut.......................................... 7,000 December 1999
New York, New York............................................. 3,400 November 2000
Burlingame, California......................................... 1,800 December 2000
Ann Arbor, Michigan............................................ 1,000 December 2000
Lexington, Kentucky............................................ 1,000 December 1999
</TABLE>
LEGAL PROCEEDINGS
We are engaged in trademark opposition proceedings before trademark offices in
the United States and other jurisdictions, including our opposition to the
application of IDG to register the mark "internet.com." See
"Business--Intellectual Property."
50
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth certain information regarding our executive
officers, directors and nominees for election to our board:
<TABLE>
<CAPTION>
NAME AGE POSITION
- --------------------------------------- --- ------------------------------------------------------------------
<S> <C> <C>
Alan M. Meckler 53 Director, Chairman and Chief Executive Officer
Christopher S. Cardell 39 Director, President and Chief Operating Officer
Christopher J. Baudouin 32 Chief Financial Officer
Gilbert F. Bach(1) 67 Director
Michael J. Davies(1) 54 Director
</TABLE>
- ---------------------------------------------
(1) Will become a director on our board and a member of the compensation and
audit committees of our board upon the closing of this offering.
OTHER MANAGEMENT EMPLOYEES
The following table sets forth the names and positions of other management
employees:
<TABLE>
<CAPTION>
NAME AGE POSITION
- --------------------------------------- --- ------------------------------------------------------------------
<S> <C> <C>
Christopher S. Elwell 38 Vice President and General Manager
Susan F. Leiterstein 47 Vice President and Publisher
Augustine Venditto 43 Editor-in-Chief
Mark J. Berns 45 Chief Technology Officer
David M. Arganbright 57 Vice President of Commerce and Licensing
Mitchell S. Eisenberg 35 General Counsel
</TABLE>
ALAN M. MECKLER has been a director, Chairman of the Board and Chief Executive
Officer of internet.com since its inception. Previously, Mr. Meckler had been
Chairman of the Board and Chief Executive Officer of Mecklermedia since December
1993 and had been President and a director from 1971 through November 1997. Mr.
Meckler also held the office of Chairman of the Board of Mecklermedia since
1971, and was the only person to have held the offices of Chairman of the Board
or Chief Executive Officer since Mecklermedia's founding.
CHRISTOPHER S. CARDELL has been a director, President and Chief Operating
Officer of internet.com since its inception. Previously, Mr. Cardell was
President and Chief Operating Officer of Mecklermedia since November 1997, and a
director since February 1997. Prior to November 1997, Mr. Cardell held the
office of Executive Vice President, Chief Operating Officer and Chief Financial
Officer of Mecklermedia. He joined Mecklermedia as Senior Vice President and
Chief Financial Officer in January 1996. Prior to that time, Mr. Cardell was a
Senior Manager with Arthur Andersen LLP.
CHRISTOPHER J. BAUDOUIN has been Chief Financial Officer of internet.com since
its inception. Mr. Baudouin served as Chief Financial Officer of Mecklermedia
since June 1998. He joined Mecklermedia as Controller in June 1997. Prior to
that time, Mr. Baudouin was a Manager with Arthur Andersen LLP.
GILBERT F. BACH will become a director of internet.com upon its conversion to a
corporation immediately before the closing of this offering. Mr. Bach retired on
January 1, 1997 from Lehman Bros., where he held various positions from 1979
through 1996, most recently as a Managing Director. From 1955 to 1979, Mr. Bach
held various positions at Hirsch & Co. and Loeb Rhoades & Co. Mr. Bach was also
a
51
<PAGE>
director of Mecklermedia from February 1997 until it was acquired by Penton
Media in November 1998.
MICHAEL J. DAVIES will become a director of internet.com upon its conversion to
a corporation immediately before the closing of this offering. Mr. Davies has
been President of Fox Hill Consulting LLC since February 1998 and a director of
PROVANT Inc. since April 1998. He was a special limited partner with American
Business Partners from July 1997 to April 1998. Prior to that he was a Managing
Director, Corporate Finance, of the investment bank Legg Mason Wood Walker,
Incorporated since 1993. Before joining Legg Mason, Mr. Davies was the Publisher
of the Baltimore Sun between 1990 and 1993. Mr. Davies was also a director of
Mecklermedia since January 1996 until it was acquired by Penton Media in
November 1998.
CHRISTOPHER S. ELWELL has been Vice President and General Manager of
internet.com and its predecessor business since January 1997. Mr. Elwell is
responsible for the editorial, sales and marketing operations of internet.com.
Mr. Elwell was employed at Cowles Business Media Company's Simba Information
division, a publisher of newsletters and market research about the media
industry from January 1991 to December 1996, most recently as the Publisher.
Prior to becoming the Publisher, Mr. Elwell served in a variety of editorial,
product development and management roles.
SUSAN F. LEITERSTEIN has been Vice President and Publisher for internet.com and
its predecessor business since February 1997. Ms. Leiterstein is responsible for
developing and implementing strategies for building the advertising sales force
and continuing the constant growth of sales revenue. Ms. Leiterstein came to
internet.com from Cowles Business Media Company where she was responsible for
small space advertising for both traditional and online media from October 1994
to January 1997. She was the Vice President and Publisher of The McGraw-Hill
Companies Sweet's Group from July 1989 to June 1994.
AUGUSTINE VENDITTO has been editor-in-chief of internet.com and its predecessor
business since January 1998. He has been writing about computers since 1984 and
is best known for his columns and articles in INTERNET WORLD, PC MAGAZINE, HOME
PC, and PC WEEK. In 1992, he was the founding editor-in-chief of Ziff-Davis'
WINDOWS SOURCES magazine. He is the author of six books and over 300 magazine
articles. Mr. Venditto began his career in 1977 with the Scott Meredith Literary
Agency.
MARK J. BERNS has served as Chief Technology Officer of internet.com since its
inception. Mr. Berns was Director of Information Technology for Mecklermedia
from July 1998 through November 1998. Prior to that, Mr. Berns was the
Technology Manager responsible for Internet development at The Associated Press
from October 1995 to June 1998. Mr. Berns also served as Director of Product
Development in The Associated Press's Technology Department, where he was
responsible for development and support of a number of news delivery services
from June 1992 to September 1995.
DAVID M. ARGANBRIGHT has been Vice President of Commerce and Licensing of
internet.com and its predecessor business since June 1998. He initiated and is
responsible for internet.com's Commerce Affiliates Program. Prior to joining
internet.com, Mr. Arganbright was President of Grolier Interactive, a division
of the Lagardere Group's Grolier, Inc. and publisher of the GROLIER MULTIMEDIA
ENCYCLOPEDIA from October 1985 to February 1998. Prior to joining Grolier, Mr.
Arganbright held senior level general management and marketing positions at
Philips Electronics and the RCA Corporation.
MITCHELL S. EISENBERG has served as General Counsel of internet.com since its
inception. In addition to overseeing all of internet.com's legal matters, he is
active in developing license and other e-commerce agreements. Previously, Mr.
Eisenberg was General Counsel to Mecklermedia since January 1997. Prior to that
time, Mr. Eisenberg was Commercial Counsel to Framatome Connectors USA, Inc.
from January 1994 to December 1996.
52
<PAGE>
BOARD OF DIRECTORS AND BOARD COMMITTEES
Our board of directors will be comprised of four directors upon the closing of
this offering. Directors are elected by the stockholders at each annual meeting
of stockholders and serve until their successors are duly elected and qualified.
All executive officers are elected by, and serve at the discretion of, the board
of directors.
The audit committee has the responsibility to review audited financial
statements and accounting practices of internet.com, and to consider and
recommend the employment of, and approve the fee arrangements with, independent
accountants for both audit functions and for advisory and other consulting
services. Upon the closing of this offering, the audit committee will be
comprised of Messrs. Bach and Davies.
The compensation committee reviews and approves the compensation and benefits
for our key executive officers, administers our employee benefit plans and makes
recommendations to the board regarding such matters. Upon the closing of this
offering, the compensation committee will be comprised of Messrs. Bach and
Davies.
DIRECTOR COMPENSATION
Directors of internet.com who are also employees or officers of internet.com do
not receive any compensation specifically related to their activities as
directors, other than reimbursement for expenses incurred in connection with
their attendance at board meetings. Other directors will be paid an annual
stipend of $4,000. For each board meeting they attend, these other directors
will receive $1,000 and will be reimbursed for their expenses incurred in
connection with the meeting. In addition, each of these other directors will
receive, upon becoming a director, options for 5,000 shares of common stock,
which vest over a period of three years. Each of these other directors will also
receive options for 1,000 shares of common stock, which also vest over a period
of three years, for each year of service as a director. See "--1999 Stock
Incentive Plan."
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Prior to this offering, our board did not have a compensation committee.
Compensation decisions were made by Mr. Meckler. Upon completion of this
offering, the compensation committee will make all compensation decisions. No
interlocking relationship exists between the board or compensation committee and
the board of directors or compensation committee of any other company, nor has
any such interlocking relationship existed in the past.
EMPLOYMENT CONTRACTS AND CHANGE OF CONTROL ARRANGEMENTS
Each of Christopher S. Cardell and Christopher J. Baudouin has an employment
agreement with internet.com which provides for severance pay equal to one year
and six months, respectively, of his annual salary if his employment with
internet.com is terminated. Pursuant to our 1999 Stock Incentive Plan, the
vesting of stock options will be accelerated upon certain changes of control of
internet.com.
53
<PAGE>
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE. The following table sets forth, for the period from
inception (November 24, 1998) through December 31, 1998, cash and certain other
compensation paid or accrued by internet.com for the Chief Executive Officer of
internet.com in all capacities in which he served. The table also sets forth
cash and certain other compensation paid to or accrued by internet.com for the
period from inception through December 31, 1998 for the President and Chief
Operating Officer and the Chief Financial Officer of internet.com.
SUMMARY COMPENSATION TABLE
PERIOD FROM INCEPTION (NOVEMBER 24, 1998) THROUGH DECEMBER 31, 1998
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
---------------------------------------------------
NAME AND PRINCIPAL POSITION YEAR SALARY($) OTHER ANNUAL COMPENSATION
- ---------------------------------------------------------------- --------- ----------- ---------------------------
<S> <C> <C> <C>
Alan M. Meckler................................................. 1998 12,164(1) --
Chairman and Chief Executive Officer
Christopher S. Cardell.......................................... 1998 17,740(2) --
President and Chief Operating Officer
Christopher J. Baudouin......................................... 1998 12,164(3) --
Chief Financial Officer
</TABLE>
- ---------------------------------------------
(1) Mr. Meckler's current annual salary is $120,000.
(2) Mr. Cardell's current annual salary is $175,000.
(3) Mr. Baudouin's current annual salary is $120,000.
1999 STOCK INCENTIVE PLAN
On April 15, 1999, we adopted the internet.com Corporation 1999 Stock Incentive
Plan. We will issue options to purchase 510,500 shares of our common stock to
our directors, officers and employees concurrently with the closing of this
offering. The exercise price of options granted under the 1999 Stock Incentive
Plan will not be less than the fair market value of the shares of our common
stock on the date of grant. The purpose of the plan is to provide stock-based
incentive compensation to these individuals to further align their interests
with the interests of our stockholders. We have reserved 2,000,000 shares of
common stock for issuance pursuant to the exercise or vesting of awards under
the plan.
The plan allows for the discretionary grant of restricted stock, non-qualified
stock options, incentive stock options as defined in Section 422 of the Internal
Revenue Code of 1986, as amended, and other stock-based awards. In addition, the
plan provides for the automatic grant of non-qualified stock options to our
directors who are not also employees or officers of internet.com. Only
directors, key employees and consultants may receive discretionary awards under
the plan.
The plan will be administered by the compensation committee of our board of
directors. The compensation committee will make the determination with respect
to the discretionary awards under the plan, including which eligible individuals
are to receive awards under the plan and the specific terms, vesting conditions,
if any, and number of shares of stock to which each award relates.
The compensation committee may grant awards with different terms and conditions.
The compensation committee can also accelerate the vesting of outstanding awards
and can reprice any option at any
54
<PAGE>
time. At the time options are granted, the compensation committee will set the
price at which options can be exercised to purchase shares of common stock.
Option holders will not have any rights as stockholders until and to the extent
they have exercised their options. The exercise price for options may either be
paid in cash or check or, at the discretion of the compensation committee, by
tendering shares having a value equal to the exercise price. The number of
shares of common stock covered by awards will be adjusted in the event of any
stock split, merger, recapitalization or similar corporate event.
The board of directors may terminate or amend the stock plan at any time, except
that the board may not, without the approval of our stockholders, increase the
maximum number of shares for which options may be granted under the stock plan
or expand the class of individuals eligible to participate in the plan.
Immediately after this offering, we intend to file a registration statement
under the Securities Act covering the 2,000,000 shares of common stock reserved
for issuance under the plan. See "Shares Eligible for Future Sale--Stock
Options."
55
<PAGE>
INDEMNIFICATION OF DIRECTORS AND EXECUTIVE OFFICERS AND LIMITATION OF LIABILITY
Our Amended and Restated Certificate of Incorporation will include a provision
that eliminates the personal liability of our directors for monetary damages for
breach of fiduciary duty as a director, except for liability:
- for any breach of the director's duty of loyalty to internet.com or
its stockholders;
- for acts or omissions not in good faith or that involve intentional
misconduct or a knowing violation of law;
- under Section 174 of the Delaware General Corporation Law regarding
unlawful dividends and stock purchases; and
- for any transaction from which the director derived an improper
personal benefit.
Our Amended and Restated Certificate of Incorporation will also provide that:
- we must indemnify our directors, officers, other employees and
agents to the fullest extent permitted by the Delaware General
Corporation Law, subject to certain very limited exceptions; and
- we must pay expenses of our directors, and may pay expenses of our
officers, other employees, agents or trustees, incurred in
connection with a legal proceeding before the final disposition of
such proceeding.
These provisions are permitted under the Delaware General Corporation Law. In
addition, our Bylaws provide that we must indemnify our directors and officers
to the fullest extent permitted by the Delaware General Corporation Law.
Prior to the completion of this offering, we intend to enter into indemnity
agreements with each of our directors and executive officers to give them
additional contractual assurances regarding the scope of the indemnification
described above and to provide additional procedural protections. In addition,
we intend to obtain directors' and officers' insurance providing indemnification
for our directors, officers and management employees for liabilities arising as
a result of their employment at internet.com. We believe that these
indemnification provisions and agreements are necessary to attract and retain
qualified directors and officers.
The limitation of liability and indemnification provisions in our Amended and
Restated Certificate of Incorporation and Bylaws may discourage stockholders
form bringing a lawsuit against directors for breach of their fiduciary duty.
They may also reduce the likelihood of derivative litigation against directors
and officers, even though such an action, if successful, might otherwise benefit
us and our stockholders. Furthermore, a stockholder's investment may be
adversely affected to the extent we pay the costs of settlement and damage
awards against directors and officers pursuant to these indemnification
provisions.
At present, there is no pending litigation or proceeding involving any of our
directors, officers or employees regarding which indemnification is sought, nor
are we aware of any threatened litigation that may result in claims for
indemnification.
56
<PAGE>
CERTAIN TRANSACTIONS
FORMATION TRANSACTIONS
internet.com LLC was formed as part of the acquisition of Mecklermedia
Corporation by Internet World Media, a wholly-owned subsidiary of Penton Media
(a publicly-owned corporation). During the negotiation of this acquisition,
Penton Media indicated that it did not wish to retain all of iWorld Corporation,
Mecklermedia's Internet business, because it believed that the Internet business
was inconsistent with its planned strategic direction. However, Penton Media
indicated that it wanted Internet World Media to maintain a minority interest in
the Internet business due to its belief that the Internet business had the
potential to become profitable in the future. As a result, Alan M. Meckler,
Mecklermedia's Chairman and Chief Executive Officer, agreed to purchase an 80.1%
interest in the Internet business from Internet World Media for a total of $18.0
million in cash immediately following the acquisition of Mecklermedia by
Internet World Media. On November 24, 1998, Mecklermedia, was acquired by
Internet World Media in an all-cash tender offer. Following its purchase of
Mecklermedia, Internet World Media caused iWorld Corporation to be merged into
internet.com LLC, a newly-formed Delaware limited liability company. Internet
World Media then sold 80.1% of its membership interest in internet.com to Alan
M. Meckler (including four trusts for the benefit of his children) for a total
of $18.0 million in cash. Internet World Media retained a 19.9% interest in
internet.com LLC and a warrant to acquire up to an additional 128 membership
units in internet.com LLC (representing 2,075,634 shares of our common stock)
for up to $3.0 million. The following chart summarizes the organizational events
from the acquisition of Mecklermedia by Penton Media to the closing of this
offering:
[LOGO]
57
<PAGE>
In March 1999, internet.com sold additional membership units to Internet World
Media and to several additional investors, some of whom are employees, officers
or directors of internet.com. In addition, in March 1999, we granted 49.33, or
4%, of internet.com's total membership units at the time (assuming full
dilution, including the exercise of the Internet World Media warrant) to 15 of
our employees. The following table summarizes the number of units sold in March
1999, the number of shares of internet.com Corporation common stock into which
those units will be converted immediately prior to the consummation of this
offering, and the resulting price per share:
<TABLE>
<CAPTION>
SHARES OF COMMON STOCK PRICE PER SHARE ASSUMING
NUMBER OF UNITS SOLD UPON CONVERSION CONVERSION
- ------------------------- ----------------------- -------------------------
<S> <C> <C>
56.02 908,461 $ 2.47
</TABLE>
The units purchased by Internet World Media and by our employees, officers and
directors in this transaction were purchased at the same price as the price we
negotiated with our four unaffiliated new investors.
The following table summarizes the number of units granted to our employees in
March 1999, the number of shares of internet.com Corporation common stock into
which those units will be converted immediately prior to the consummation of
this offering, and the resulting price per share:
<TABLE>
<CAPTION>
NUMBER OF UNITS SHARES OF COMMON STOCK TOTAL VALUE OF GRANTS
GRANTED UPON CONVERSION ASSUMING PER SHARE
- --------------------- ----------------------- -------------------------
<S> <C> <C>
49.33 799,930 $
</TABLE>
LIMITED LIABILITY COMPANY AGREEMENT. On November 24, 1998, Mr. Meckler and
Internet World Media entered into an Amended and Restated Limited Liability
Company Agreement governing internet.com LLC. Membership interests in
internet.com LLC are represented by membership units in the records of
internet.com LLC. As discussed above, additional membership units in
internet.com LLC were sold and granted after November 24, 1998, and a Second
Amended and Restated Limited Liability Company Agreement was entered into in
March 1999, which included as members the holders of the membership units issued
after November 24, 1998. This Agreement also contains provisions relating to,
among other things, the management of internet.com LLC, allocations of profits
and losses, transfer restrictions, anti-dilution provisions, rights of first
refusal, co-sale rights and drag-along rights. This Agreement will be of no
further force and effect upon the conversion of internet.com LLC to a
corporation immediately prior to the closing of this offering.
WARRANT AGREEMENT. On November 24, 1998, we issued a warrant to Internet World
Media to acquire up to 128 additional membership units in internet.com LLC for
up to $3.0 million. Upon the conversion of internet.com LLC into a corporation,
this warrant will entitle Internet World Media to purchase up to 2,075,634
shares of our common stock at an exercise price of approximately $1.45 per
share. Internet World Media has informed us that it intends to exercise this
warrant prior to the closing of this offering of common stock. As a result of
such exercise, following this offering, Internet World Media will hold 5,483,383
shares of our common stock, or approximately 23.4% of the total shares of our
common stock which will be outstanding immediately following this offering
(assuming the underwriters do not exercise their over-allotment option). If
Internet World Media does not exercise its warrant prior to the consummation of
this offering, the warrant will expire upon consummation of this offering.
REGISTRATION RIGHTS AGREEMENT. On November 24, 1998, we entered into a
registration rights agreement with Internet World Media. Internet World Media
has "piggyback" registration rights if we register any of our equity securities
under the Securities Act following the offering of common stock made by this
58
<PAGE>
Prospectus. For a further discussion of these registration rights, see
"Description of Capital Stock-- Registration Rights."
SERVICES AGREEMENT. On November 24, 1998, we entered into a Services Agreement
with Penton Media and Internet World Media. Penton Media and Internet World
Media provide us with a royalty-free license to use intellectual property and
promotional, advertising and display rights, and we provide to Penton Media and
Internet World Media, a royalty-free license to use intellectual property,
advertising rights on our network of Web sites and related Internet media
properties and the inclusion of back issues of INTERNET WORLD AND BOARDWATCH
print publications on our network. See "Business--Marketing and Sales."
TRADEMARK CO-LICENSE AGREEMENT. On November 24, 1998, we entered into a
Trademark Co-License Agreement with Internet World Media. Internet World Media
provides us with a royalty-free license to use several of its trademarks in
connection with our inclusion of those trademarks on our network. We provide
Internet World Media with a royalty-free license to use several of our
trademarks in Internet World Media's INTERNET WORLD, BOARDWATCH and DIRECTORY OF
INTERNET SERVICE PROVIDERS print publications, at Internet World Media's
Internet World and ISPCON trade shows and conferences and in promotional
materials for those print publications, trade shows and conferences.
COPYRIGHT CO-LICENSE AGREEMENT. On November 24, 1998, we entered into a
Copyright Co-License Agreement with Internet World Media. Internet World Media
provides us with a royalty-free license to use several of its copyrights in
connection with our inclusion of those copyrights and material protected by
those copyrights on our network. We provide Internet World Media with a
royalty-free license to use several of our copyrights and the material protected
by those copyrights in Internet World Media's INTERNET WORLD, BOARDWATCH and
DIRECTORY OF INTERNET SERVICE PROVIDERS print publications.
REORGANIZATION TRANSACTIONS
Immediately prior to the closing of this offering, we will convert our business
form to a corporation. We will effect the reorganization by merging internet.com
LLC into a newly-formed Delaware corporation called internet.com Corporation. In
connection with this reorganization, our Operating Agreement will terminate.
Each member of internet.com LLC will receive shares of our common stock in
exchange for his or her membership units at a rate of 16,215.891 shares per
membership unit. For more information on the stock ownership after the
reorganization of those members who are officers, directors or greater than 5%
stockholders of internet.com, see "Principal and Selling Stockholders."
OFFICE LEASES
Since November 24, 1998, internet.com has occupied space in Penton Media
facilities in Westport, Connecticut to house our corporate headquarters and in
Burlingame, California to house a portion of our sales force. Rent expense was
$22,000 for the use of these locations for the period from inception (November
24, 1998) through March 31, 1999. We are obligated to pay a proportionate share
of all electricity, heating, ventilation and air conditioning costs for these
premises. These leases are governed by the Services Agreement between
internet.com and Penton Media; we have not executed separate leases with Penton
Media regarding these premises.
VENTURE CAPITAL FUND
We organized and are the portfolio manager of internet.com Venture Fund I LLC, a
$5.0 million venture capital fund formed on April 12, 1999, that invests in
early-stage content-based Internet properties that are not competitive with
internet.com. We earn management fees for the day to day operation and general
management of the fund. We also earn a percentage of the realized gains on
investments made by this fund. We committed to invest $600,000 in this fund at
its inception.
59
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information with respect to the
beneficial ownership of our common stock as of April 30, 1999 and as adjusted to
reflect the sale of the shares of common stock offered hereby by: (a) each
person who is known by internet.com to own beneficially more than 5% of our
common stock, (b) each director and director nominee of internet.com, (c) each
Named Executive Officer of internet.com and (d) all executive officers and
directors of internet.com as a group.
<TABLE>
<CAPTION>
PERCENTAGE OF SHARES
BENEFICIALLY
OWNED(1)(2)(3)
------------------------
NUMBER OF PRIOR TO AFTER
NAME OF BENEFICIAL OWNER SHARES OFFERING OFFERING
- ----------------------------------------------------------------------------- ------------ ----------- -----------
<S> <C> <C> <C>
Alan M. Meckler.............................................................. 12,907,850(4) 64.5% 55.2%
Penton Media, Inc.
1100 Superior Avenue, N.E.
Cleveland, Ohio 44114........................................................ 5,483,383 (5) 27.4 23.4
Christopher S. Cardell....................................................... 441,889 2.2 1.9
Gilbert F. Bach(6)........................................................... -- -- --
Michael J. Davies(6)......................................................... -- -- --
Christopher J. Baudouin...................................................... 70,439 * *
All executive officers and directors as a group (five persons)............... 13,420,178 67.1% 57.4%
</TABLE>
- ---------------------------------------------
* Represents beneficial ownership of less than 1%.
(1) Percentage ownership is based on 20,000,000 shares outstanding as of April
30, 1999, assuming the conversion of internet.com from a limited liability
company into a corporation (which is to occur immediately prior to the
effectiveness of this offering) had occurred as of such date. Shares of
common stock subject to options currently exercisable or exercisable within
60 days of April 30, 1999 are deemed outstanding for the purpose of
computing the percentage ownership of the person holding such options but
are not deemed outstanding for computing the percentage ownership of any
other person. Unless otherwise indicated below, the persons and entities
named in the table have sole voting and sole investment power with respect
to all shares beneficially owned by them, subject to community property laws
where applicable.
(2) Assumes exercise by Internet World Media, a wholly-owned subsidiary of
Penton Media, of a warrant to purchase up to 2,075,634 shares. See "Certain
Transactions."
(3) Assumes the underwriters do not exercise their over-allotment option to
purchase up to 510,000 shares from Internet World Media.
(4) Includes 1,443,214 shares held in trusts established for the benefit of Mr.
Meckler's four children. Mr. Meckler exercises investment control over these
trusts.
(5) Penton Media's beneficial ownership set forth above is based on the record
ownership of these shares by Internet World Media which is a wholly-owned
subsidiary of Penton Media.
(6) Will become a director upon the closing of this offering.
60
<PAGE>
DESCRIPTION OF CAPITAL STOCK
Upon the closing of this offering, we will have authorized capital stock
consisting of 75,000,000 shares of common stock, $0.01 par value per share, and
4,000,000 shares of preferred stock, $0.01 par value per share. As of March 31,
1999, assuming the conversion of our business form into a corporation, the
simultaneous conversion of limited liability company membership units into
shares of common stock and the exercise by Internet World Media of a warrant to
purchase up to 2,075,634 shares of common stock, there were outstanding
20,000,000 shares of common stock, each with a par value of $0.01, held of
record by 25 stockholders.
The following description of internet.com's Amended and Restated Certificate of
Incorporation, Bylaws and the Registration Rights Agreement is only a summary,
and does not purport to be complete. For a full understanding of these documents
and the terms of our capital stock, you should read the original documents,
which are included as exhibits to the registration statement of which this
prospectus forms a part.
COMMON STOCK
Subject to preferences that may be applicable to any preferred stock outstanding
at the time, the holders of outstanding shares of common stock are entitled to
receive dividends out of assets legally available therefor at such times and in
such amounts as the board from time to time may determine. Holders of common
stock are entitled to one vote for each share held on all matters submitted to a
vote of shareholders. Cumulative voting for the election of directors is not
authorized by internet.com's Amended and Restated Certificate of Incorporation,
which means that the holders of a majority of the shares voted can elect all of
the directors then standing for election. The common stock is not entitled to
preemptive rights and is not subject to conversion or redemption. Upon
liquidation, dissolution or winding up of internet.com, the assets legally
available for distribution to stockholders are distributable ratably among the
holders of the common stock after payment of liquidation preferences, if any, on
any outstanding preferred stock and payment of other claims of creditors. Each
outstanding share of common stock is, and all shares of common stock to be
outstanding upon completion of this offering will upon payment therefor be, duly
and validly issued, fully paid and nonassessable.
PREFERRED STOCK
The board is authorized, subject to any limitations prescribed by the Delaware
General Corporation Law, to issue preferred stock in one or more series. The
board can fix the rights, preferences and privileges of the shares of each
series and any qualifications, limitations or restrictions thereon.
The board may authorize the issuance of preferred stock with voting or
conversion rights that could adversely affect the voting power or other rights
of the holders of common stock. The issuance of preferred stock, while providing
flexibility in connection with possible acquisitions and other corporate
purposes, could, among other things, have the effect of delaying, deferring or
preventing a change in control of internet.com. We have no current plans to
issue any shares of preferred stock. See "Risk Factors--Our charter documents
and the Delaware General Corporation Law may inhibit a takeover."
WARRANTS
On November 24, 1998, we issued a warrant to Internet World Media which will
entitle Internet World Media to acquire additional shares of common stock prior
to the closing of this offering. See "Certain Transactions--Formation
Transactions--Warrant Agreement."
61
<PAGE>
REGISTRATION RIGHTS
We entered into a Registration Rights Agreement with Internet World Media at the
closing of the acquisition of Mecklermedia by Internet World Media. Internet
World Media has piggyback registration rights if we register any of our equity
securities under the Securities Act of 1933, as amended, other than the common
stock offered by this prospectus, securities relating to employee benefits
plans, securities registered pursuant to Rule 145 of the Securities Act of 1933,
as amended, in connection with reclassifications, mergers, acquisitions and
asset transfers and registrations which do not permit secondary sales. If we
register additional equity securities in the future, Internet World Media will
have the right to have all or a part of its internet.com common stock included
in the registration, including any shares of common stock acquired by Internet
World Media by the exercise of its warrant. However, the managing underwriter,
if any, of any such offering has the right to limit the number of securities
that Internet World Media may include in such registration if the managing
underwriter determines that marketing factors require such a limitation.
Internet World Media is entitled to unlimited piggyback registrations.
We would bear all registration expenses incurred in connection with these
registrations. Internet World Media would pay all underwriting discounts and
selling commissions applicable to the sale of its securities.
DELAWARE ANTI-TAKEOVER LAW AND CERTAIN CHARTER AND BYLAW PROVISIONS
EFFECT OF DELAWARE ANTI-TAKEOVER STATUTE. We are subject to Section 203 of the
Delaware General Corporation Law, which, subject to certain exceptions,
prohibits a publicly held Delaware corporation from engaging in any "business
combination" with any "interested stockholder" for a period of three years
following the date that such stockholder became an interested stockholder,
unless:
- prior to such date, the board of directors of the corporation
approved either the business combination or the transaction that
resulted in the stockholder becoming an interested stockholder;
- upon consummation of the transaction that resulted in the
stockholder becoming an interest stockholder, the interested
stockholder owned at least 85% of the voting stock of the
corporation outstanding at the time the transaction commenced; and
- on or subsequent to such date, the business combination is approved
by the board of directors and authorized at an annual or special
meeting of stockholders, and not by written consent, by the
affirmative vote of at least 66 2/3% of the outstanding voting
stock that is not owned by the interested stockholder.
Section 203 defines "business combination" to include:
- any merger or consolidation involving the corporation and the
interested stockholder;
- any sale, transfer, pledge or other disposition of 10% or more of
the assets of the corporation involving the interested stockholder;
- subject to certain exceptions, any transaction that results in the
issuance or transfer by the corporation of any stock of the
corporation to the interested stockholder;
- any transaction involving the corporation that has the effect of
increasing the proportionate share of the stock of any class or
series of the corporation beneficially owned by the interested
stockholder; and
62
<PAGE>
- the receipt by the "interested stockholder" of the benefit of any
loans, advances, guarantees, pledges or other financial benefits
provided by or through the corporation.
In general, Section 203 defines an interested stockholder as an entity or person
beneficially owning 15% or more of the outstanding voting stock of the
corporation and any entity or person affiliated with or controlling or
controlled by such entity or person.
This statute could prohibit or delay mergers or other takeover or
change-in-control attempts with respect to internet.com and, accordingly, may
discourage attempts to acquire us.
Our Bylaws provide that any action required or permitted to be taken by our
stockholders at an annual meeting or special meeting may only be taken if it is
properly brought before such meeting. The Amended and Restated Certificate of
Incorporation and the Bylaws provide that special meetings of the stockholders
may only be called by the Chairman of the board, the Chief Executive Officer,
the board or by the President, who will call a meeting at the request of any
stockholder or stockholders holding together at least a majority of the
outstanding voting stock. Such provisions may have the effect of delaying or
preventing a change-in-control.
The board is authorized, subject to any limitations prescribed by the Delaware
General Corporation Law, to issue preferred stock in one or more series. The
board can fix the rights, preferences and privileges of the shares of each
series and any qualifications, limitations or restrictions thereon. The board
may authorize the issuance of preferred stock with voting or conversion rights
that could adversely affect the voting power or other rights of the holders of
common stock. The issuance of preferred stock, while providing flexibility in
connection with possible acquisitions and other corporate purposes, could, among
other things, have the effect of delaying, deferring or preventing a change in
control of internet.com.
LIMITATIONS ON LIABILITY AND INDEMNIFICATION OF OFFICERS AND DIRECTORS. Our
Amended and Restated Certificate of Incorporation and our Bylaws limit liability
of directors to the fullest extent permitted by the Delaware General Corporation
Law. See "Indemnification of Directors and Executive Officers and Limitation of
Liability."
TRANSFER AGENT AND REGISTRAR. The transfer agent and registrar for our common
stock is American Stock Transfer and Trust Company. Its address is 40 Wall
Street, New York, New York 10005, and its telephone number at this location is
(212) 936-5100.
LISTING. We have applied to list our common stock on the Nasdaq National Market
under the trading symbol "INTM."
63
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon the completion of this offering, we will have outstanding an aggregate
23,400,000 shares of our common stock, assuming no exercise of outstanding
options. Of these shares, all of the shares sold in this offering will be freely
tradable without restriction or further registration under the Securities Act of
1933, as amended, unless such shares are purchased by "affiliates" as that term
is defined in Rule 144 under the Securities Act of 1933, as amended. The
remaining 20,000,000 shares of common stock held by existing stockholders are
"restricted securities" as that term is defined in Rule 144 under the Securities
Act of 1933, as amended. Restricted securities may be sold in the public market
only if registered or if they qualify for an exemption from registration under
Rule 144 or 701 promulgated under the Securities Act of 1933, as amended, which
rules are summarized below.
As a result of the contractual restrictions described below and the provisions
of Rule 144 and 701, the restricted securities will be available for sale in the
public market on the date which is one year from the date of the effectiveness
of the registration statement of which this prospectus forms a part, subject to
the volume limitations and other conditions of Rule 144.
LOCK-UP AGREEMENTS. Our officers, directors and all of our remaining
stockholders have signed lock-up agreements under which they agreed not to
transfer or dispose of, directly or indirectly, any shares of common stock or
any securities convertible into or exercisable or exchangeable for shares of
common stock, for a period of 180 days after the date of this prospectus,
subject to certain exceptions. Transfers or dispositions can be made sooner with
the prior written consent of U.S. Bancorp Piper Jaffray Inc.
RULE 144. In general, under Rule 144 as currently in effect, beginning 90 days
after the date of this Prospectus, a person who has beneficially owned shares of
our common stock for at least one year would be entitled to sell within any
three-month period a number of shares that does not exceed the greater of:
- 1% of the number of shares of common stock then outstanding, which
will equal 234,000 shares immediately after this offering; or
- the average weekly trading volume of the common stock on the Nasdaq
National Market during the four calendar weeks preceding the filing
of a notice on Form 144 with respect to such sale.
Sales under Rule 144 are also subject to certain manner of sale provisions and
notice requirements and to the availability of current public information about
us.
RULE 144(K). Under Rule 144(k), a person who is not deemed to have been one of
our affiliates at any time during the 90 days preceding a sale, and who has
beneficially owned the shares proposed to be sold for at least two years,
including the holding period of any prior owner other than an affiliate, is
entitled to sell such shares without complying with the manner of sale, public
information, volume limitation or notice provisions of Rule 144.
RULE 701. In general, under Rule 701 of the Securities Act as currently in
effect, any of our employees, consultants or advisors who purchase shares from
us in connection with a compensatory stock or option plan or other written
agreement is eligible to resell such shares 90 days after the effective date of
this offering in reliance on Rule 144, but without compliance with certain
restrictions, including the holding period, contained in Rule 144.
REGISTRATION RIGHTS. Upon completion of this offering, Internet World Media,
which will (assuming the exercise of its warrant but assuming no exercise of the
underwriters' over-allotment option) hold
64
<PAGE>
5,483,383 shares of our common stock, or its transferees, will be entitled to
rights with respect to the registration of such shares under the Securities Act
of 1933, as amended, if we register additional equity securities under the
Securities Act. See "Description of Capital Stock--Registration Rights." After
such a registration, any shares registered would become freely tradable without
restriction under the Securities Act of 1933, as amended. Internet World Media
would then not have any obligation or other restrictions on resale with respect
to our common stock, other than restrictions imposed by lock-up agreements
described above and applicable securities laws.
STOCK OPTIONS. Immediately after this offering, we intend to file a registration
statement under the Securities Act of 1933, as amended, covering the 2,000,000
shares of common stock reserved for issuance under our 1999 Stock Incentive
Plan. Immediately prior to the consummation of this offering, we will issue
options to purchase 510,500 shares of common stock, of which 13,500 shares will
vest immediately. Upon the expiration of the lock-up agreements describe above,
at least 13,500 shares of common stock will be subject to vested options, based
on the number of options to be issued immediately prior to the consummation of
this offering. Such registration statement is expected to be filed and become
effective as soon as practicable after the effective date of this offering.
Accordingly, shares registered under such registration statement will, subject
to vesting provisions and Rule 144 volume limitations applicable to our
affiliates, be available for sale in the open market immediately after the
lock-up agreements expire.
65
<PAGE>
UNDERWRITING
The underwriters named below, for whom U.S. Bancorp Piper Jaffray Inc., William
Blair & Company, L.L.C. and DLJDIRECT Inc. are acting as representatives, have
agreed to buy, subject to the terms of the purchase agreement, the number of
shares listed opposite their names below. The underwriters are committed to
purchase and pay for all of the shares if any are purchased, other than those
shares covered by the over-allotment option described below.
<TABLE>
<CAPTION>
UNDERWRITERS NUMBER OF SHARES
- ----------------------------------------------------------- -----------------
<S> <C>
U.S. Bancorp Piper Jaffray Inc.............................
William Blair & Company, L.L.C.............................
DLJDIRECT Inc..............................................
-----------------
Total................................................ 3,400,000
-----------------
-----------------
</TABLE>
internet.com estimates that the total expenses of this offering, excluding
underwriting discounts and commissions, will be approximately $ .
The underwriters propose to offer the shares of common stock directly to the
public at the initial public offering price set forth on the cover page of this
prospectus and to certain dealers at that price less a concession not in excess
of $ per share. The underwriters may allow and these dealers may reallow
a concession not in excess of $ per share to certain other dealers. After
the initial public offering of the shares has been completed, the offering price
and other selling terms may be changed by the representatives of the
underwriters. The representatives have informed internet.com that the
underwriters do not intend to confirm discretionary sales in excess of 5% of the
shares of common stock offered by this prospectus.
An electronic prospectus is available on the Web site maintained by DLJDIRECT
Inc., a selected dealer, which is facilitating the Internet distribution of the
shares of common stock being offered by this prospectus.
Internet World Media, a wholly-owned subsidiary of Penton Media, has granted to
the underwriters an option to purchase up to an additional 510,000 shares of our
common stock, at the same price to the public, and with the same underwriting
discount, as set forth in the table above. The underwriters may exercise this
option any time during the 30-day period after the date of this prospectus, but
only to cover over-allotments, if any. To the extent the underwriters exercise
the option, each underwriter will become obligated, subject to certain
conditions, to purchase approximately the same percentage of the additional
shares as it was obligated to purchase under the purchase agreement.
66
<PAGE>
The following table shows the underwriting fees to be paid to the underwriters
in connection with this offering. These amounts are shown assuming both no
exercise and full exercise of the over-allotment option.
<TABLE>
<CAPTION>
FULL
NO EXERCISE EXERCISE
----------- ------------
<S> <C> <C>
Per share.......................................... $ $
Total.............................................. $ $
</TABLE>
We and the selling stockholder have agreed to indemnify the underwriters against
certain liabilities, including civil liabilities under the Securities Act of
1933, as amended, or to contribute to payments that the underwriters may be
required to make in respect of those liabilities.
We and each of our directors, executive officers and stockholders have agreed to
certain restrictions on our ability to sell additional shares of our common
stock for a period of 180 days after the date of this prospectus. We have agreed
not to directly or indirectly offer for sale, sell, contract to sell, grant any
option for the sale of, or otherwise issue or dispose of, any shares of common
stock, options or warrants to acquire shares of common stock, or any related
security or instrument, without the prior written consent of the
representatives. The agreements provide exceptions for (1) sales to the
underwriters pursuant to the purchase agreement, (2) our sales in connection
with the exercise of options granted and the granting of options to purchase
shares under the existing stock option plan and (3) other exceptions specified
in the purchase agreement and lock-up agreements.
Of the 3,400,000 shares of common stock offered by us, 170,000 shares will be
reserved for sale to persons designated by us. Total shares reserved for sale to
persons designated by us will not exceed 5% of the total shares offered. Shares
not sold to these persons will be reoffered immediately by the underwriters to
the public at the initial public offering price.
Prior to the offering, there has been no established trading market for the
common stock. The initial public offering price for the shares of common stock
offered by this prospectus was negotiated by us and the underwriters. The
factors considered in determining the initial public offering price include the
history of and the prospects for the industry in which we compete, our past and
present operations, our historical results of operations, our prospects for
future earnings, the recent market prices of securities of generally comparable
companies and the general condition of the securities markets at the time of the
offering and other relevant factors. There can be no assurance that the initial
public offering price of the common stock will correspond to the price at which
the common stock will trade in the public market subsequent to this offering or
that an active public market for the common stock will develop and continue
after this offering.
PRICING OF THIS OFFERING
Prior to this offering, there has been no public market for our common stock.
Consequently, the initial public offering price for our common stock was
determined by negotiation among internet.com and the representatives of the
underwriters. Among the factors considered in determining the public offering
price were:
- prevailing market conditions;
- our results of operations in recent periods;
- the present stage of our development;
- the market capitalizations and stages of development of other
companies which we and the representatives of the underwriters
believe to be comparable to internet.com; and
- estimates of our business potential.
67
<PAGE>
LEGAL MATTERS
The validity of the shares of common stock offered hereby will be passed upon
for internet.com by Willkie Farr & Gallagher, New York, New York. Certain legal
matters in connection with this offering will be passed upon for the
underwriters by Cooley Godward LLP, San Francisco, California.
EXPERTS
The audited financial statements and schedules included in this prospectus and
elsewhere in the registration statement have been audited by Arthur Andersen
LLP, independent public accountants, as indicated in their reports with respect
thereto, and are included herein in reliance upon the authority of said firm as
experts in giving said reports.
68
<PAGE>
WHERE YOU CAN FIND MORE INFORMATION
We have filed a registration statement on Form S-1 with the Securities and
Exchange Commission for the stock we are offering by this prospectus. This
prospectus does not include all of the information contained in the registration
statement. You should refer to the registration statement and its exhibits for
additional information. Whenever we make reference in this prospectus to any of
our contracts, agreements or other documents, the references are not necessarily
complete and you should refer to the exhibits attached to the registration
statement for copies of the actual contract, agreement or other document. When
we complete this offering, we will also be required to file annual, quarterly
and special reports, proxy statements and other information with the Securities
and Exchange Commission.
You can read our Securities and Exchange Commission filings, including the
registration statement, over the Internet at the Securities and Exchange
Commission's Web site at http://www.sec.gov. You may also read and copy any
document we file with the Securities and Exchange Commission at its public
reference facilities at 450 Fifth Street, NW, Washington, DC 20549, 7 World
Trade Center, Suite 1300, New York, New York 10048 and Citicorp Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661-2511. You may also obtain
copies of the documents at prescribed rates by writing to the Public Reference
Section of the Securities and Exchange Commission at 450 Fifth Street, NW,
Washington, DC 20549. Please call the Securities and Exchange Commission at
1-800-SEC-0330 for further information on the operation of the public reference
facilities. Our Securities and Exchange Commission filings are also available at
the office of the Nasdaq National Market. For further information on obtaining
copies of our public filings at the Nasdaq National Market, you should call
(212) 656-5060.
69
<PAGE>
INTERNET.COM LLC
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----------
<S> <C>
Report of Independent Public Accountants................................................................... F-2
Balance Sheets as of December 31, 1998 and March 31, 1999 (unaudited)...................................... F-3
Statements of Operations for the Period from Inception (November 24, 1998) through December 31, 1998 and
for the Three Months Ended March 31, 1999 (unaudited).................................................... F-4
Statements of Changes in Members' Capital for the Period from Inception (November 24, 1998) through
December 31, 1998 and for the Three Months Ended March 31, 1999 (unaudited).............................. F-5
Statements of Cash Flows for the Period from Inception (November 24, 1998) through December 31, 1998 and
for the Three Months Ended March 31, 1999 (unaudited).................................................... F-6
Notes to Financial Statements.............................................................................. F-7
</TABLE>
IWORLD DIVISION OF MECKLERMEDIA CORPORATION
(PREDECESSOR BUSINESS)
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Report of Independent Public Accountants................................................................... F-15
Balance Sheets as of September 30, 1997 and 1998........................................................... F-16
Statements of Operations for the Years ended September 30, 1996, 1997 and 1998 and for the Period from
October 1, 1998 through November 23, 1998 and for the Three Months Ended March 31, 1998 (unaudited)...... F-17
Statements of Changes in Division Equity for the Years ended September 30, 1996, 1997 and 1998 and for the
Period from October 1, 1998 through November 23, 1998 and for the Three Months Ended March 31, 1998
(unaudited).............................................................................................. F-18
Statements of Cash Flows for the Years ended September 30, 1996, 1997 and 1998 and for the Period from
October 1, 1998 through November 23, 1998 and for the Three Months Ended March 31, 1998 (unaudited)...... F-19
Notes to Financial Statements.............................................................................. F-20
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of internet.com LLC:
We have audited the accompanying balance sheet of internet.com LLC (a Delaware
limited liability company) as of December 31, 1998, and the related statements
of operations, changes in members' capital and cash flows for the period from
inception (November 24, 1998) through December 31, 1998. These financial
statements are the responsibility of the company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of internet.com LLC as of December
31, 1998, and the results of its operations and its cash flows for the period
from inception (November 24, 1998) through December 31, 1998, in conformity with
generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Stamford, Connecticut
April 5, 1999
F-2
<PAGE>
INTERNET.COM LLC
BALANCE SHEETS
DECEMBER 31, 1998 AND MARCH 31, 1999 (UNAUDITED)
(IN THOUSANDS, EXCEPT UNIT AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1998 1999
------------ -----------
<S> <C> <C>
(UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents........................................................... $ 129 $ 236
Accounts receivable, net of allowances of $42 and $109, respectively................ 1,723 1,663
Prepaid expenses and other.......................................................... 312 531
------------ -----------
Total current assets............................................................ 2,164 2,430
PROPERTY AND EQUIPMENT, net........................................................... 1,380 1,668
INTANGIBLE ASSETS, net................................................................ 20,043 18,584
------------ -----------
Total assets.................................................................... $ 23,587 $ 22,682
------------ -----------
------------ -----------
LIABILITIES AND MEMBERS' CAPITAL
CURRENT LIABILITIES:
Accounts payable.................................................................... $ 482 $ 584
Accrued payroll and related expenses................................................ 296 490
Accrued Web site acquisition payments............................................... 775 100
Accrued expenses and other.......................................................... 462 1,180
Deferred revenues................................................................... 122 432
Borrowings under line of credit..................................................... 1,886 1,851
------------ -----------
Total current liabilities....................................................... 4,023 4,637
COMMITMENTS AND CONTINGENCIES......................................................... -- --
MEMBERS' CAPITAL:
Members' capital, 1,000 and 1,105 units issued and outstanding, respectively........ 22,472 24,713
Members' capital receivable......................................................... -- (571)
Accumulated deficit................................................................. (2,908) (6,097)
------------ -----------
Total members' capital.......................................................... 19,564 18,045
------------ -----------
Total liabilities and members' capital.......................................... $ 23,587 $ 22,682
------------ -----------
------------ -----------
</TABLE>
See notes to financial statements.
F-3
<PAGE>
INTERNET.COM LLC
STATEMENTS OF OPERATIONS
FOR THE PERIOD FROM INCEPTION (NOVEMBER 24, 1998) THROUGH DECEMBER 31, 1998 AND
FOR THE THREE MONTHS ENDED MARCH 31, 1999 (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
NOVEMBER 24, 1998 THREE MONTHS
THROUGH ENDED
DECEMBER 31, 1998 MARCH 31, 1999
----------------- -----------------
<S> <C> <C>
(UNAUDITED)
REVENUES................................................................... $ 772 $ 1,612
COST OF REVENUES........................................................... 403 1,117
------- -------
GROSS PROFIT............................................................... 369 495
------- -------
OPERATING EXPENSES:
Advertising, promotion and selling....................................... 239 928
General and administrative............................................... 449 773
Depreciation............................................................. 15 82
Amortization............................................................. 566 1,869
Purchased in-process research and development............................ 2,000 --
------- -------
TOTAL OPERATING EXPENSES................................................... 3,269 3,652
------- -------
OPERATING LOSS............................................................. (2,900) (3,157)
INTEREST EXPENSE, NET...................................................... (8) (32)
------- -------
NET LOSS................................................................... $ (2,908) $ (3,189)
------- -------
------- -------
</TABLE>
See notes to financial statements.
F-4
<PAGE>
INTERNET.COM LLC
STATEMENTS OF CHANGES IN MEMBERS' CAPITAL
FOR THE PERIOD FROM INCEPTION (NOVEMBER 24, 1998) THROUGH DECEMBER 31, 1998 AND
FOR THE THREE MONTHS ENDED MARCH 31, 1999 (UNAUDITED)
(IN THOUSANDS, EXCEPT UNIT AMOUNTS)
<TABLE>
<CAPTION>
MEMBERS' CAPITAL
MEMBERS' CAPITAL RECEIVABLE TOTAL
-------------------- -------------------- ACCUMULATED MEMBERS'
UNITS AMOUNT UNITS AMOUNT DEFICIT CAPITAL
--------- --------- --------- --------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT INCEPTION (November 24, 1998).......... 1,000 $ 22,472 -- $ -- $ -- $ 22,472
Net loss.......................................... -- -- -- -- (2,908) (2,908)
--------- --------- --------- --------- ------------ ---------
BALANCE AT DECEMBER 31, 1998...................... 1,000 22,472 -- -- (2,908) 19,564
Capital contributions............................. 56 2,241 (14) (571) -- 1,670
Issuance of membership units...................... 49 -- -- -- -- --
Net loss.......................................... -- -- -- -- (3,189) (3,189)
--------- --------- --------- --------- ------------ ---------
BALANCE AT MARCH 31, 1999......................... 1,105 $ 24,713 (14) $ (571) $ (6,097) $ 18,045
--------- --------- --------- --------- ------------ ---------
--------- --------- --------- --------- ------------ ---------
</TABLE>
See notes to financial statements.
F-5
<PAGE>
INTERNET.COM LLC
STATEMENTS OF CASH FLOWS
FOR THE PERIOD FROM INCEPTION (NOVEMBER 24, 1998) THROUGH DECEMBER 31, 1998 AND
FOR THE THREE MONTHS ENDED MARCH 31, 1999 (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
NOVEMBER 24, 1998 THREE MONTHS
THROUGH ENDED
DECEMBER 31, 1998 MARCH 31, 1999
----------------- --------------
<S> <C> <C>
(UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.................................................................... $ (2,908) $ (3,189)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization............................................. 581 1,951
Purchased in-process research and development............................. 2,000 --
Changes in operating assets and liabilities:
Accounts receivable, net................................................ (553) 60
Prepaid expenses and other.............................................. (23) (219)
Accounts payable........................................................ 183 102
Accrued expenses and other.............................................. 34 912
Deferred revenues....................................................... 74 310
------- -------
Net cash used in operating activities................................. (612) (73)
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment......................................... (546) (370)
Acquisitions of Web sites, related Internet media properties and other...... (599) (1,085)
------- -------
Net cash used in investing activities................................. (1,145) (1,455)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under line of credit............................................. 1,886 1,465
Payments for line of credit................................................. -- (1,500)
Capital contributions....................................................... -- 1,670
------- -------
Net cash provided by financing activities............................. 1,886 1,635
------- -------
Net change in cash............................................................ 129 107
Cash at beginning of period................................................... -- 129
------- -------
Cash at end of period......................................................... $ 129 $ 236
------- -------
------- -------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW:
Cash paid for interest...................................................... $ 8 $ 32
------- -------
------- -------
Cash paid for income taxes.................................................. $ -- --
------- -------
------- -------
</TABLE>
See notes to financial statements.
F-6
<PAGE>
INTERNET.COM LLC
NOTES TO FINANCIAL STATEMENTS
FOR THE PERIOD FROM INCEPTION (NOVEMBER 24, 1998) THROUGH DECEMBER 31, 1998 AND
FOR THE THREE MONTHS ENDED MARCH 31, 1999 (UNAUDITED)
1. ORGANIZATION AND NATURE OF BUSINESS
Immediately prior to the closing of this offering, internet.com LLC will convert
its business form to a corporation. This reorganization will be effected by
merging internet.com LLC into a newly-formed Delaware corporation called
internet.com Corporation. Each member of internet.com LLC will receive shares of
internet.com Corporation common stock in exchange for his or her membership
units at a rate of 16,215.891 shares per membership unit. internet.com
Corporation currently is a shell entity and will remain as such until the
conversion of internet.com LLC into a corporation. internet.com Corporation
currently has no assets, liabilities, revenues nor expenses.
HISTORY. internet.com LLC was formed as part of the acquisition of Mecklermedia
Corporation by Internet World Media, a wholly-owned subsidiary of Penton Media
(a publicly-owned corporation). During the negotiation of this acquisition,
Penton Media indicated that it did not wish to retain all of iWorld Corporation,
Mecklermedia's Internet business, because it believed that the Internet business
was inconsistent with its strategic direction. However, Penton Media indicated
that it wanted Internet World Media to maintain a minority interest in the
Internet business due to its belief that the Internet business had the potential
to become profitable in the future. As a result, Alan M. Meckler, Mecklermedia's
Chairman and Chief Executive Officer, agreed to purchase an 80.1% interest in
the Internet business from Internet World Media for a total of $18.0 million in
cash immediately following the acquisition of Mecklermedia by Internet World
Media which imputed a purchase price of $22.5 million. On November 24, 1998,
Mecklermedia was acquired by Internet World Media in an all-cash tender offer.
Following its purchase of Mecklermedia, Internet World Media caused iWorld
Corporation to be merged into internet.com LLC, a newly-formed Delaware limited
liability company. Internet World Media then sold 80.1% of its membership
interest in internet.com to Alan M. Meckler (including four trusts for the
benefit of his children) for a total of $18.0 million in cash. Internet World
Media retained a 19.9% interest in internet.com LLC and a warrant to acquire up
to an additional 128 membership units in internet.com LLC (representing
2,075,634 shares of our common stock) for up to $3.0 million.
The preliminary allocation of the purchase price is as follows (in thousands):
<TABLE>
<S> <C>
Accounts receivable................................................ $ 1,170
Prepaid expenses and other......................................... 289
Property and equipment............................................. 850
Goodwill........................................................... 19,760
Trademarks......................................................... 250
Purchased in-process research and development...................... 2,000
Accounts payable................................................... (299)
Accrued payroll and related expenses............................... (136)
Accrued Web site acquisition payments.............................. (485)
Accrued expenses and other......................................... (242)
Borrowings under line of credit.................................... (685)
---------
$ 22,472
---------
---------
</TABLE>
F-7
<PAGE>
INTERNET.COM LLC
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE PERIOD FROM INCEPTION (NOVEMBER 24, 1998) THROUGH DECEMBER 31, 1998 AND
FOR THE THREE MONTHS ENDED MARCH 31, 1999 (UNAUDITED)
Upon consummation of the acquisition in November 1998, internet.com immediately
expensed $2.0 million, which was determined by an independent appraiser,
representing a purchased in-process research and development project that had
not yet reached technological feasibility and had no alternative future use.
This project related to a system that integrates Web site content management and
an application server environment. Estimated costs to complete this project,
which are expected to be incurred in 1999, are approximately $300,000. The
development of the in-process project is expected to be completed during 1999.
The value assigned to in-process technology was determined by estimating the
costs to develop the purchased in-process technology into a viable product,
estimating the percentage of completion of the project, estimating the resulting
net cash flows from the project and discounting the net cash flows back to their
present values. The discount rate includes a factor that takes into account the
uncertainty surrounding the successful development of the purchased in-process
technology. The following assumptions were used, among others, to estimate
discounted net cash flows:
- The project was approximately 75% complete at the time of the
Second Merger. The remaining work to be performed relates to a
combination of designing and coding, content conversion and
testing.
- The projected cost savings were based on management's estimates of
the time costs savings and life expectancy for the product. The
average compound annual growth rates for the projected cost savings
are estimated to be 200% in 2000 and 20% in 2001. The projected
cost of revenues, advertising, promotion and selling expenses,
general and administrative expenses and income taxes were estimated
by management based on expected and historical operating
characteristics. In addition, the appraiser performed due diligence
on management's estimates to test their reasonableness.
- A risk-adjusted discount rate was used to discount the net cash
flows back to their present value. Giving primary consideration to
rates of return required for venture capital investments, an
overall 50% after-tax discount rate was selected as the basis for
discounting net cash flows to arrive at indications of value for
determining the appropriate discount rate to be used in the
valuation of the project. Cash flows were adjusted to reflect the
75% completion level based on interpretation of recent guidance
from the Securities and Exchange Commission regarding the
allocation of purchased in-process research and development.
- If this project is not successfully developed within a reasonable
period of time or on a timely basis, the results of operations of
internet.com would suffer in future periods. Management believes
that the assumptions used in the valuation of the purchased in-
process research and development reasonably estimate the future
benefits attributable to the purchased in-process technology.
However, no assurance can be given that technological viability of
this project will be achieved or that actual results will not
deviate from those assumptions in future periods.
Since all of internet.com's products and services relate to providing
Internet-related information to Internet industry and Internet technology
professionals, Web developers and experienced Internet users, its success is
dependent on the continued growth of the Internet.
F-8
<PAGE>
INTERNET.COM LLC
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE PERIOD FROM INCEPTION (NOVEMBER 24, 1998) THROUGH DECEMBER 31, 1998 AND
FOR THE THREE MONTHS ENDED MARCH 31, 1999 (UNAUDITED)
On April 13, 1999, the Board of Directors authorized internet.com to proceed
with an initial public offering ("IPO") of our common stock.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
REVENUE RECOGNITION. internet.com barters portions of the unsold advertising
impressions generated by its Web sites, e-mail newsletters, online discussion
forums and moderated e-mail discussion lists for advertising and promotion in
media properties owned by Penton Media and other third parties. internet.com
does not record any revenues or expenses for such barter because it does not
receive or expend any cash, nor does it incur any costs to fulfill such barter
and because such unsold advertising impressions would otherwise have no value.
Therefore, the recording of any barter would result in an overstatement of
revenues and expenses. Management also believes that not recording any revenues
or expenses for barter more accurately reflects its actual results of operations
and as a result provides a more meaningful presentation to the users of its
financial statements.
internet.com generates its revenues from four primary sources: the sale of
advertising on its Web sites, e-mail newsletters, online discussion forums and
moderated e-mail discussion lists; e-commerce agreements; licensing of editorial
content, brands and software; and subscriptions to paid e-mail newsletters.
ADVERTISING REVENUES. Advertising revenue is recognized ratably in the
period the advertising is displayed, provided that no significant company
obligations remain and collection of the resulting receivable is
probable. Company obligations typically include guarantees of a minimum
number of advertising impressions, or times that an advertisement is
viewed by users of internet.com's Web sites and related Internet media
properties.
E-COMMERCE REVENUES. E-commerce agreements generally include a fixed fee
for advertising and/or revenue sharing for sales made by the e-commerce
vendors. The advertising component of these agreements is recognized
ratably in the period the advertising is displayed, provided that no
significant company obligations remain and collection of the remaining
receivable is probable. The revenue sharing component of these agreements
is recognized as revenue in the period that the underlying sale is made
by the e-commerce vendor.
LICENSING REVENUES. The licensing agreements vary, with internet.com
generating fixed fees and royalties for monthly access to editorial
content, brands and software produced by internet.com. Such amounts are
recognized as revenue in the month earned.
PAID SUBSCRIPTION REVENUES. Subscription revenue relates to customer
subscriptions to our paid e-mail newsletters. Revenue from subscriptions
is recognized ratably over the subscription period. Deferred revenues
relate to the portion of collected subscription fees which have not yet
been recognized as revenue.
USE OF ESTIMATES IN THE FINANCIAL STATEMENTS. The preparation of financial
statements in conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
F-9
<PAGE>
INTERNET.COM LLC
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE PERIOD FROM INCEPTION (NOVEMBER 24, 1998) THROUGH DECEMBER 31, 1998 AND
FOR THE THREE MONTHS ENDED MARCH 31, 1999 (UNAUDITED)
INTERIM FINANCIAL DATA. The accompanying financial statements as of, and for the
three months ended, March 31, 1999 are unaudited. In the opinion of management,
these interim statements have been prepared on the same basis as the audited
financial statements and include all adjustments, consisting only of normal
recurring adjustments, necessary for the fair presentation of the results of the
interim periods. The financial and other data disclosed in these notes to the
financial statements for these periods are also unaudited. The results of the
operations for the interim periods are not necessarily indicative of the results
to be expected for any future periods.
CONCENTRATION OF CREDIT RISK. Financial instruments that potentially subject
internet.com to a significant concentration of credit risk consist primarily of
cash and accounts receivable. internet.com deposits all its cash with a single
financial institution. Most of internet.com's accounts receivable as of December
31, 1998 and March 31, 1999 are from Internet-related businesses.
At December 31, 1998, three customers accounted for 38% of accounts receivable.
At March 31, 1999, three customers accounted for 21% of accounts receivable. For
the period from inception (November 24, 1998) through December 31, 1998, one
customer accounted for 25% of revenues. For the three months ended March 31,
1999, one customer accounted for 13% of revenues.
CASH AND CASH EQUIVALENTS. internet.com considers all highly liquid investments
purchased with original maturities of three months or less to be cash
equivalents. At December 31, 1998 and March 31, 1999, internet.com had no
investments with maturities greater than three months.
FINANCIAL INSTRUMENTS. The recorded amounts of financial instruments such as
cash and cash equivalents, accounts receivable, accounts payable and debt
approximate their fair values due to their short maturities.
PROPERTY AND EQUIPMENT. Depreciation of computer equipment and software is
provided for by the straight-line method over estimated useful lives ranging
from three to five years. Depreciation of furniture, fixtures and equipment is
provided for by the straight-line method over estimated useful lives ranging
from five to ten years.
Maintenance and repair expenditures are charged to appropriate expense accounts
in the period incurred; replacements, renewals and betterments are capitalized.
Upon the sale or other disposition of property, the cost and accumulated
depreciation of such properties are eliminated from the accounts and the gains
or losses thereon are reflected in operations.
INTANGIBLE ASSETS. Intangible assets, primarily consisting of goodwill, are
being amortized using the straight-line method over three years.
IMPAIRMENT OF LONG-LIVED ASSETS. Long-lived assets and certain identifiable
intangibles are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. An impairment loss is recognized when the sum of undiscounted
expected future cash flows is less than the carrying amount of such assets. The
measurement for such impairment loss is based on the fair value of the assets.
internet.com believes no such impairment exists as of March 31, 1999.
F-10
<PAGE>
INTERNET.COM LLC
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE PERIOD FROM INCEPTION (NOVEMBER 24, 1998) THROUGH DECEMBER 31, 1998 AND
FOR THE THREE MONTHS ENDED MARCH 31, 1999 (UNAUDITED)
ACCRUED WEB SITE ACQUISITION PAYMENTS. Accrued Web site acquisition payments
consist of future amounts payable under purchase agreements for Web sites and
related Internet media properties.
INCOME TAXES. internet.com accounts for income taxes in accordance with the
provisions of Statement of Financial Accounting Standards No. 109, "Accounting
for Income Taxes" ("SFAS 109"). SFAS 109 requires an asset and liability
approach which requires the recognition of deferred tax assets and deferred tax
liabilities for the expected future tax consequences of temporary differences
between the carrying amounts and the tax bases of assets and liabilities.
Valuation allowances will be established when necessary to reduce deferred tax
assets to the amount expected to be realized.
No benefit for federal and state income taxes is reported in the financial
statements as internet.com has elected to be taxed as a partnership prior to the
reorganization of the limited liability company into a corporation, which will
take effect immediately prior to the closing of the IPO. Therefore, the federal
and state income tax effects of internet.com's results of operations are
recorded by the members in their respective income tax returns.
ADVERTISING COSTS. internet.com expenses advertising costs as incurred.
Advertising expense was $44,000 for the period from inception (November 24,
1998) through December 31, 1998 and $189,000 for the three months ended March
31, 1999.
RECENT ACCOUNTING PRONOUNCEMENTS. In June 1997, the Financial Accounting
Standards Board ("FASB") issued Statement of Financial Accounting Standards No.
131, "Disclosures about Segments of an Enterprise and Related Information"
("SFAS No. 131"), which establishes standards for reporting information about
operating segments in annual financial statements. It also establishes standards
for related disclosures about products and services, geographic areas and major
customers. SFAS No. 131 is effective for fiscal years beginning after December
15, 1997. The adoption of this standard is not expected to have an impact on the
presentation of the financial statements of internet.com.
In March 1998, the American Institute of Certified Public Accountants ("AICPA")
issued Statement of Position 98-1, "Accounting for the Cost of Computer Software
Developed or Obtained for Internal Use" ("SOP 98-1"). SOP 98-1 is effective for
financial statements for years beginning after December 15, 1998. SOP 98-1
provides guidance over accounting for computer software developed or obtained
for internal use including the requirement to capitalize specified costs and
amortization of such costs. The adoption of this standard is not expected to
have a material effect on internet.com'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
fiscal years beginning after December 15, 1998, provides guidance on the
financial reporting of start-up costs and organization costs. It requires costs
of start-up activities and organization costs to be expensed as incurred. As
internet.com has expensed these costs historically, the adoption of this
statement is not expected to have a significant impact on internet.com's results
of operations, financial position or cash flows.
F-11
<PAGE>
INTERNET.COM LLC
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE PERIOD FROM INCEPTION (NOVEMBER 24, 1998) THROUGH DECEMBER 31, 1998 AND
FOR THE THREE MONTHS ENDED MARCH 31, 1999 (UNAUDITED)
3. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1998 1999
------------- -----------
<S> <C> <C>
Computer equipment and software....................................... $ 1,248 $ 1,590
Furniture, fixtures and equipment..................................... 147 175
------ -----------
1,395 1,765
Less: Accumulated depreciation........................................ (15) (97)
------ -----------
Property and equipment, net........................................... $ 1,380 $ 1,668
------ -----------
------ -----------
</TABLE>
4. INTANGIBLE ASSETS
Intangible assets consisted of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1998 1999
------------ -----------
<S> <C> <C>
Goodwill.............................................................. $ 22,340 $ 22,515
Trademarks............................................................ 269 504
------------ -----------
22,609 23,019
Less: Accumulated amortization........................................ (2,566) (4,435)
------------ -----------
Intangibles, net...................................................... $ 20,043 $ 18,584
------------ -----------
------------ -----------
</TABLE>
5. ACQUISITIONS OF ASSETS
internet.com made two acquisitions for a total of $580,000 during the period
from inception (November 24, 1998) through December 31, 1998 and one acquisition
for $175,000 during the three months ended March 31, 1999. These acquisitions
were accounted for as purchases. Two of these acquisitions provide for
contingent payments to be made one year after the acquisition date based upon
the achievement of certain objectives. The acquired Web sites and related
Internet media properties had no tangible assets or liabilities. Therefore, the
entire purchase price has been recorded as goodwill and is being amortized over
its estimated useful life for these acquisitions. The pro forma results for the
period from inception (November 24, 1998) through December 31, 1998 and for the
three months ended March 31, 1999, assuming these acquisitions had been made at
the beginning of the period, would not be materially different from reported
results.
6. LINE OF CREDIT
internet.com has a $6.0 million line of credit with a bank secured by a personal
guarantee from Alan M. Meckler, Chairman and Chief Executive Officer of
internet.com. internet.com had outstanding borrowings under the line of credit
of approximately $1.9 million as of December 31, 1998 and March 31, 1999.
Interest expense on this line is based on the lower of prime plus 1% or LIBOR
plus .65% (5.7% as of December 31, 1998). This line of credit expires on
November 15, 1999.
F-12
<PAGE>
INTERNET.COM LLC
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE PERIOD FROM INCEPTION (NOVEMBER 24, 1998) THROUGH DECEMBER 31, 1998 AND
FOR THE THREE MONTHS ENDED MARCH 31, 1999 (UNAUDITED)
7. COMMITMENTS AND CONTINGENCIES
Since November 24, 1998, internet.com has occupied space in Penton Media, Inc.
facilities in Westport, Connecticut to house its corporate headquarters and in
Burlingame, California to house a portion of its sales force. Rent expense for
this space was approximately $7,000 for the period from inception (November 24,
1998) through December 31, 1998 and $15,000 for the three months ended March 31,
1999. internet.com is obligated to pay its proportionate share of all
electricity, heating, ventilation and air conditioning costs for these premises.
Future annual minimum lease payments under all operating leases as of December
31, 1998 were as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
- ----------------------------------------------------------------------------------------
<S> <C>
1999.................................................................................... $ 236
2000.................................................................................... 131
---------
$ 367
---------
---------
</TABLE>
internet.com has entered into employment agreements with two of its officers
with terms ranging from six months to one year.
internet.com has made a $180,000 non-interest bearing loan to one of its
members.
internet.com is subject to legal proceedings and claims which arise in the
ordinary course of its business. In the opinion of management, the amount of
ultimate liability with respect to these actions will not materially affect the
financial position of internet.com.
8. EMPLOYEE BENEFIT PLAN
internet.com has a defined contribution plan which qualifies under Section
401(k) of the Internal Revenue Code for employees meeting certain service
requirements. The plan allows eligible employees to contribute up to 15% of
their compensation to the plan. At the discretion of the Board of Directors,
internet.com may also make contributions dependent on profits each year for the
benefit of all eligible employees under the plan. There were no discretionary
contributions for the period from inception (November 24, 1998) through December
31, 1998 and for the three months ended March 31, 1999.
9. RELATED PARTY TRANSACTIONS
internet.com, Internet World Media, Inc. and Penton Media, Inc. entered into a
Services Agreement dated November 24, 1998, whereby internet.com agreed to
provide certain services to Internet World Media, Inc. and Penton Media, Inc. in
return for services to be provided to internet.com by Internet World Media, Inc.
and Penton Media, Inc. The Services Agreement expires November 24, 2001 and will
automatically renew for three-year terms unless canceled by either party.
On November 24, 1998, internet.com entered into a Trademark Co-License Agreement
with Internet World Media. Internet World Media provides internet.com with a
royalty-free license to use several of its trademarks in connection with the
inclusion of those trademarks on internet.com's network of Web sites and related
Internet media properties. internet.com provides Internet World Media with a
royalty-free license to use several of internet.com's trademarks in Internet
World Media's INTERNET
F-13
<PAGE>
INTERNET.COM LLC
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE PERIOD FROM INCEPTION (NOVEMBER 24, 1998) THROUGH DECEMBER 31, 1998 AND
FOR THE THREE MONTHS ENDED MARCH 31, 1999 (UNAUDITED)
WORLD, BOARDWATCH and DIRECTORY OF INTERNET SERVICE PROVIDERS print
publications, at Internet World Media's Internet World and ISPCON trade shows
and conferences and in promotional materials for those print publications, trade
shows and conferences.
On November 24, 1998, internet.com entered into a Copyright Co-License Agreement
with Internet World Media. Internet World Media provides internet.com with a
royalty-free license to use several of its copyrights in connection with the
inclusion of those copyrights and material protected by those copyrights on
internet.com's network of Web sites and related Internet media properties.
internet.com provides Internet World Media with a royalty-free license to use
several of internet.com's copyrights and the material protected by those
copyrights in Internet World Media's INTERNET WORLD, BOARDWATCH and DIRECTORY OF
INTERNET SERVICE PROVIDERS print publications.
Since November 24, 1998, internet.com has occupied space in Penton Media, Inc.
facilities in Westport, Connecticut to house its corporate headquarters and in
Burlingame, California to house a portion of its sales force. Rent expense for
this space was $7,000 for the period from inception (November 24, 1998) through
December 31, 1998 and $15,000 for the three months ended March 31, 1999.
internet.com is obligated to pay its proportionate share of all electricity,
heating, ventilation and air conditioning costs for these premises.
10. SUBSEQUENT EVENTS
ISSUANCE OF ADDITIONAL MEMBERSHIP UNITS. Since December 31, 1998, internet.com
has sold additional membership units for an aggregate of approximately
$2,241,000 to Internet World Media and to several additional investors,
including certain of internet.com's employees, officers and directors. In
addition, in March 1999, internet.com granted 4% of its total membership units
at the time (assuming full dilution, including the exercise of the Internet
World Media warrant) to certain of its employees. The fair value of the
membership units at the date of grant in March 1999 was $1.6 million. As these
membership units will vest upon the completion of an IPO, internet.com will
record a $1.6 million compensation charge concurrent with the completion of its
IPO.
STOCK INCENTIVE PLAN. In April 1999, internet.com established a stock incentive
plan under which internet.com may issue qualified incentive or nonqualified
stock options to key employees, including officers, and consultants and
directors up to an aggregate of 2,000,000 shares of common stock, of which
510,500 options will be granted immediately prior to the consummation of this
offering under the plan. The exercise price of the options granted under the
stock incentive plan will not be less than the fair market value of the shares
of internet.com's common stock on the date of grant. The plan will terminate on
April 15, 2009.
VENTURE CAPITAL FUND. In April 1999, internet.com established internet.com
Venture Fund I LLC, a $5.0 million venture fund that will invest in early-stage
content-based Internet properties that are not competitive with internet.com.
internet.com earns management fees for the day to day operation and general
management of the fund. internet.com will also earn a percentage of the realized
gains on investments made by this fund. internet.com has committed to invest
$600,000 in this fund at its inception.
F-14
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of internet.com LLC:
We have audited the accompanying balance sheets of the iWorld division of
Mecklermedia Corporation, as of September 30, 1997 and 1998, and the related
statements of operations, changes in division equity and cash flows for each of
the three years in the period ended September 30, 1998 and for the period
October 1, 1998 through November 23, 1998. These financial statements are the
responsibility of the company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of the iWorld division of
Mecklermedia Corporation, as of September 30, 1997 and 1998, and the results of
its operations and its cash flows for each of the three years in the period
ended September 30, 1998, and for the period October 1, 1998 through November
23, 1998, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Stamford, Connecticut
April 5, 1999
F-15
<PAGE>
IWORLD DIVISION OF MECKLERMEDIA CORPORATION
(PREDECESSOR BUSINESS)
BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SEPTEMBER 30,
--------------------
1997 1998
--------- ---------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Accounts receivable, net of allowances of $17 and $149, respectively......................... $ 432 $ 1,002
Prepaid expenses and other................................................................... 70 257
--------- ---------
Total current assets..................................................................... 502 1,259
PROPERTY AND EQUIPMENT, net.................................................................... 831 1,336
INTANGIBLE ASSETS, net......................................................................... 1,479 4,630
--------- ---------
Total assets............................................................................. $ 2,812 $ 7,225
--------- ---------
--------- ---------
LIABILITIES AND DIVISION EQUITY
CURRENT LIABILITIES:
Accounts payable............................................................................. $ 162 $ 316
Accrued payroll and related expenses......................................................... 475 625
Accrued expenses............................................................................. 31 32
--------- ---------
Total current liabilities................................................................ 668 973
DIVISION EQUITY................................................................................ 2,144 6,252
--------- ---------
Total liabilities and division equity.................................................... $ 2,812 $ 7,225
--------- ---------
--------- ---------
</TABLE>
See notes to financial statements.
F-16
<PAGE>
IWORLD DIVISION OF MECKLERMEDIA CORPORATION
(PREDECESSOR BUSINESS)
STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED SEPTEMBER OCTOBER 1, 1998
30, THREE MONTHS THROUGH
------------------------------- ENDED MARCH 31, NOVEMBER 23,
1996 1997 1998 1998 1998
--------- --------- --------- --------------- ---------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUES..................................... $ 498 $ 1,479 $ 3,544 $ 831 $ 778
COST OF REVENUES............................. 536 1,171 2,171 567 456
--------- --------- --------- ----- -----
GROSS PROFIT................................. (38) 308 1,373 264 322
--------- --------- --------- ----- -----
OPERATING EXPENSES:
Advertising, promotion and selling......... 285 881 1,406 283 441
General and administrative................. 727 751 1,349 348 195
Depreciation............................... 85 326 429 102 67
Amortization............................... 109 505 920 222 86
--------- --------- --------- ----- -----
TOTAL OPERATING EXPENSES..................... 1,206 2,463 4,104 955 789
--------- --------- --------- ----- -----
NET LOSS..................................... $ (1,244) $ (2,155) $ (2,731) $ (691) $ (467)
--------- --------- --------- ----- -----
--------- --------- --------- ----- -----
</TABLE>
See notes to financial statements.
F-17
<PAGE>
IWORLD DIVISION OF MECKLERMEDIA CORPORATION
(PREDECESSOR BUSINESS)
STATEMENTS OF CHANGES IN DIVISION EQUITY
FOR THE YEARS ENDED SEPTEMBER 30, 1996, 1997 AND 1998
AND FOR THE PERIOD FROM OCTOBER 1, 1998 THROUGH NOVEMBER 23, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
<S> <C>
BALANCE AT SEPTEMBER 30, 1995.......................................................................... $ 265
Contributions from Mecklermedia Corporation............................................................ 1,787
Net loss............................................................................................... (1,244)
---------
BALANCE AT SEPTEMBER 30, 1996.......................................................................... 808
Contributions from Mecklermedia Corporation............................................................ 3,491
Net loss............................................................................................... (2,155)
---------
BALANCE AT SEPTEMBER 30, 1997.......................................................................... 2,144
Contributions from Mecklermedia Corporation............................................................ 6,839
Net loss............................................................................................... (2,731)
---------
BALANCE AT SEPTEMBER 30, 1998.......................................................................... 6,252
Contributions from Mecklermedia Corporation............................................................ 3,877
Net loss............................................................................................... (467)
---------
BALANCE AT NOVEMBER 23, 1998........................................................................... $ 9,662
---------
---------
</TABLE>
See notes to financial statements.
F-18
<PAGE>
IWORLD DIVISION OF MECKLERMEDIA CORPORATION
(PREDECESSOR BUSINESS)
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED OCTOBER 1, 1998
SEPTEMBER 30, THREE MONTHS THROUGH
------------------------------- ENDED MARCH NOVEMBER 23,
1996 1997 1998 31, 1998 1998
--------- --------- --------- -------------- ---------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss...................................... $ (1,244) $ (2,155) $ (2,731) $ (691) $ (467)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization............... 194 831 1,349 324 153
Changes in operating assets and liabilities:
Accounts receivable, net.................. (142) (261) (570) (104) (326)
Prepaid expenses and other................ 26 (41) (187) 14 (28)
Accounts payable and accrued expenses..... 21 534 305 (38) (725)
--------- --------- --------- ------- -------
Net cash used in operating activities... (1,145) (1,092) (1,834) (495) (1,393)
--------- --------- --------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment........... (315) (740) (934) (178) (91)
Acquisitions of Web sites, related Internet
media properties and other.................. (327) (1,659) (4,071) (1,199) (2,393)
--------- --------- --------- ------- -------
Net cash used in investing activities... (642) (2,399) (5,005) (1,377) (2,484)
--------- --------- --------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Contributions from Mecklermedia Corporation... 1,787 3,491 6,839 1,872 3,877
--------- --------- --------- ------- -------
Net cash provided by financing
activities............................ 1,787 3,491 6,839 1,872 3,877
--------- --------- --------- ------- -------
Net change in cash.............................. -- -- -- -- --
--------- --------- --------- ------- -------
Cash at beginning of period..................... -- -- -- -- --
--------- --------- --------- ------- -------
Cash at end of period........................... $ -- $ -- $ -- $ -- $ --
--------- --------- --------- ------- -------
--------- --------- --------- ------- -------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW:
Cash paid for interest.......................... $ -- $ -- $ -- $ -- $ --
--------- --------- --------- ------- -------
--------- --------- --------- ------- -------
Cash paid for income taxes...................... $ -- $ -- $ -- $ -- $ --
--------- --------- --------- ------- -------
--------- --------- --------- ------- -------
</TABLE>
See notes to financial statements.
F-19
<PAGE>
IWORLD DIVISION OF MECKLERMEDIA CORPORATION
(PREDECESSOR BUSINESS)
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED SEPTEMBER 30, 1996, 1997 AND 1998
AND FOR THE PERIOD FROM OCTOBER 1, 1998 THROUGH NOVEMBER 23, 1998
AND FOR THE THREE MONTHS ENDED MARCH 31, 1998 (UNAUDITED)
1. ORGANIZATION AND NATURE OF BUSINESS
The accompanying financial statements and related notes reflect the carved-out
historical results of operations and financial position of the iWorld division
of Mecklermedia Corporation ("iWorld"). The Statements of Operations include all
revenues and costs directly attributable to iWorld, including costs for
facilities, functions and services used by iWorld at shared sites and
allocations of costs for certain administrative functions and services performed
by centralized departments within Mecklermedia Corporation.
iWorld consisted of a network of Web sites and related Internet media properties
that delivered the latest news and resources for the Internet industry,
directories of Internet products and services, back issues of the Mecklermedia
Corporation's print publications, and information about Mecklermedia
Corporation's trade shows.
Costs were allocated to iWorld based on management's estimate of costs
attributable to the operation of the business. Such costs are not necessarily
indicative of the costs that would have been incurred if iWorld had been a
separate entity.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
REVENUE RECOGNITION. iWorld bartered portions of the unsold advertising
impressions generated by its Web sites, e-mail newsletters, online discussion
forums and moderated e-mail discussion lists for advertising and promotion in
media properties owned by third parties. iWorld did not record any revenues or
expenses for such barter because it did not receive or expend any cash, nor does
it incur any costs to fulfill such barter and because such unsold advertising
impressions would otherwise have no value. Therefore, the recording of any
barter would result in an overstatement of revenues and expenses. Management
also believed that not recording any revenues or expenses for barter more
accurately reflected its actual results of operations and as a result provided a
more meaningful presentation to the users of its financial statements.
iWorld generated its revenues from four primary sources: the sale of advertising
on its Web sites, e-mail newsletters, online discussion forums and moderated
e-mail discussion lists; e-commerce agreements; licensing of editorial content,
brands and software; and subscriptions to paid e-mail newsletters.
ADVERTISING REVENUES. Advertising revenue is recognized ratably in the
period the advertising is displayed, provided that no significant company
obligations remain and collection of the resulting receivable is probable.
Company obligations typically include guarantees of a minimum number of
advertising impressions, or times that an advertisement is viewed by users
iWorld's Web sites and related Internet media properties.
E-COMMERCE REVENUES. E-commerce agreements generally include a fixed fee
for advertising and/or revenue sharing for sales made by the e-commerce
vendors. The advertising component of these agreements is recognized
ratably in the period the advertising is displayed, provided
F-20
<PAGE>
IWORLD DIVISION OF MECKLERMEDIA CORPORATION
(PREDECESSOR BUSINESS)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED SEPTEMBER 30, 1996, 1997 AND 1998
AND FOR THE PERIOD FROM OCTOBER 1, 1998 THROUGH NOVEMBER 23, 1998
AND FOR THE THREE MONTHS ENDED MARCH 31, 1998 (UNAUDITED)
that no significant company obligations remain and collection of the
remaining receivable is probable. The revenue sharing component of these
agreements is recognized as revenue in the period that the underlying sale
is made by the e-commerce vendor.
LICENSING REVENUES. The licensing agreements vary, with iWorld typically
generating fixed fees and royalties for monthly access to editorial
content produced by iWorld. Such amounts are recognized as revenue in the
month earned.
PAID SUBSCRIPTION REVENUES. Subscription revenue relates to customer
subscriptions to our paid e-mail newsletters. Revenue from subscriptions
is recognized ratably over the subscription period. Deferred revenues
relate to the portion of collected subscription fees which have not yet
been recognized as revenue.
USE OF ESTIMATES IN THE FINANCIAL STATEMENTS. The preparation of financial
statements in conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
INTERIM FINANCIAL DATA. The accompanying financial statements for the three
months ended March 31, 1998 are unaudited. In the opinion of management, these
interim statements have been prepared on the same basis as the audited financial
statements and include all adjustments, consisting only of normal recurring
adjustments, necessary for the fair presentation of the results of the interim
periods. The financial and other data disclosed in these notes to the financial
statements for these periods are also unaudited. The results of the operations
for the interim periods are not necessarily indicative of the results to be
expected for any future periods.
CONCENTRATION OF CREDIT RISK. Financial instruments that potentially subject
iWorld to a significant concentration of credit risk consist primarily of cash
and accounts receivable. iWorld deposits all its cash primarily with a single
financial institution. Most of iWorld's accounts receivable as of September 30,
1996, 1997, and 1998 are from Internet-related businesses.
At September 30, 1997, and 1998, four and three customers accounted for 33% and
28% of accounts receivable, respectively. For the year ended September 30, 1996,
one customer accounted for 15% of revenues. For the year ended September 30,
1997, two customers accounted for 38% of revenues. For the year ended September
30, 1998, one customer accounted for 17% of revenues. For the three months ended
March 31, 1998, one customer accounted for 14% of revenues. For the period from
October 1, 1998 through November 23, 1998, one customer accounted for 21% of
revenues.
FINANCIAL INSTRUMENTS. The recorded amounts of financial instruments such as
cash and cash equivalents, accounts receivable and accounts payable approximate
their fair values due to their short maturities.
PROPERTY AND EQUIPMENT. Depreciation of computer equipment and software is
provided for by the straight-line method over estimated useful lives ranging
from three to five years. Depreciation of
F-21
<PAGE>
IWORLD DIVISION OF MECKLERMEDIA CORPORATION
(PREDECESSOR BUSINESS)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED SEPTEMBER 30, 1996, 1997 AND 1998
AND FOR THE PERIOD FROM OCTOBER 1, 1998 THROUGH NOVEMBER 23, 1998
AND FOR THE THREE MONTHS ENDED MARCH 31, 1998 (UNAUDITED)
furniture, fixtures and equipment is provided for by the straight-line method
over estimated useful lives ranging from five to ten 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.
Maintenance and repair expenditures are charged to appropriate expense accounts
in the period incurred; replacements, renewals and betterments are capitalized.
Upon the sale or other disposition of property, the cost and accumulated
depreciation of such properties are eliminated from the accounts and the gains
or losses thereon are reflected in operations.
INTANGIBLE ASSETS. Intangible assets, primarily consisting of goodwill,
resulting from acquisitions of Web sites and related Internet media properties
are being amortized using the straight-line method over periods ranging from
three to five years.
INCOME TAXES. The taxable losses of iWorld for each of the three years in the
period ended September 30, 1998 and for the period October 1, 1998 through
November 23, 1998 were included in the Mecklermedia Corporation's consolidated
income tax returns. For all periods presented, deferred income taxes and related
income tax expenses have been recorded by applying the asset and liability
approach to each component of iWorld as if it were a separate taxpayer. Under
this approach, deferred tax assets and liabilities represent the expected future
tax consequences of carryforwards and temporary differences between the carrying
amounts and the tax bases of assets and liabilities.
ADVERTISING COSTS. iWorld expensed advertising costs as incurred. Advertising
expense was $62,000, $163,000, $320,000, $41,000 and $167,000 for the three
years ended September 30, 1996, 1997, 1998, for the three months ended March 31,
1998 and for the period October 1, 1998 through November 23, 1998, respectively.
3. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30,
--------------------
<S> <C> <C>
1997 1998
--------- ---------
Computer equipment........................................................... $ 1,124 $ 1,694
Furniture, fixtures and equipment............................................ 142 420
Leasehold improvements....................................................... 48 134
--------- ---------
1,314 2,248
Less: Accumulated depreciation............................................... (483) (912)
--------- ---------
Property and equipment, net.................................................. $ 831 $ 1,336
--------- ---------
--------- ---------
</TABLE>
F-22
<PAGE>
IWORLD DIVISION OF MECKLERMEDIA CORPORATION
(PREDECESSOR BUSINESS)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED SEPTEMBER 30, 1996, 1997 AND 1998
AND FOR THE PERIOD FROM OCTOBER 1, 1998 THROUGH NOVEMBER 23, 1998
AND FOR THE THREE MONTHS ENDED MARCH 31, 1998 (UNAUDITED)
4. INTANGIBLES ASSETS
Intangible assets consisted of the following (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30,
--------------------
<S> <C> <C>
1997 1998
--------- ---------
Goodwill..................................................................... $ 1,787 $ 5,690
Trademarks................................................................... 306 474
--------- ---------
2,093 6,164
Less: Accumulated amortization............................................... (614) (1,534)
--------- ---------
Intangible assets, net....................................................... $ 1,479 $ 4,630
--------- ---------
--------- ---------
</TABLE>
5. ACQUISITIONS OF ASSETS
iWorld acquired six, two, nine, two and four Web sites and related Internet
media properties for $230,000, $1.4 million, $3.9 million, $1.2 million and $2.4
million during the years ended September 30, 1996, 1997, 1998, the three months
ended March 31, 1998 and the period from October 1, 1998 through November 23,
1998, respectively. These acquisitions were accounted for as purchases. Certain
of these acquisitions provide for contingent payments to be made one year after
the acquisition dates based upon the achievement of certain objectives. The
acquired Web sites and related Internet media properties had no tangible assets
or liabilities and therefore the entire purchase price has been recorded as
goodwill and is being amortized over its estimated useful life. The pro forma
results for the years ended September 30, 1996, 1997 and 1998 and the period
from October 1, 1998 through November 23, 1998, assuming these acquisitions had
been made at the beginning of the period, would not be materially different from
reported results.
6. INCOME TAXES
The operating results of iWorld were included in the consolidated tax returns of
Mecklermedia. The methodology for allocating income tax expense to iWorld is set
forth in Note 2. For all periods presented, valuation allowances were recorded
against income tax benefits generated from the losses from iWorld.
F-23
<PAGE>
IWORLD DIVISION OF MECKLERMEDIA CORPORATION
(PREDECESSOR BUSINESS)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED SEPTEMBER 30, 1996, 1997 AND 1998
AND FOR THE PERIOD FROM OCTOBER 1, 1998 THROUGH NOVEMBER 23, 1998
AND FOR THE THREE MONTHS ENDED MARCH 31, 1998 (UNAUDITED)
The provision (benefit) for income taxes consisted of the following (in
thousands):
<TABLE>
<CAPTION>
FOR THE YEARS ENDED SEPTEMBER OCTOBER 1,
30, 1998 THROUGH
------------------------------- NOVEMBER 23,
1996 1997 1998 1998
--------- --------- --------- THREE MONTHS -------------
ENDED
MARCH 31, 1998
-----------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Current provision (benefit):
Federal............................................ $ (18) $ (11) $ (37) $ (10) $ 43
State.............................................. (5) (3) (9) (2) 11
--------- --------- --------- --- ------
(23) (14) (46) (12) 54
Deferred provision (benefit):
Federal............................................ 18 11 37 10 (43)
State.............................................. 5 3 9 2 (11)
--------- --------- --------- --- ------
$ -- $ -- $ -- $ -- $ --
--------- --------- --------- --- ------
--------- --------- --------- --- ------
</TABLE>
At September 30, 1996, 1997 and 1998 and November 23, 1998, iWorld had future
federal and state income tax benefits as follows (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30, NOVEMBER 23,
------------------------------- -------------
1996 1997 1998 1998
--------- --------- --------- -------------
<S> <C> <C> <C> <C>
Net operating losses................................................. $ 602 $ 1,390 $ 2,388 $ 2,559
Excess of amortization of intangibles for financial reporting
purposes over income taxes......................................... 46 114 314 307
Excess of depreciation of property and equipment for income tax
purposes over financial reporting.................................. (13) (44) (58) (58)
Reserves recorded for financial reporting purposes................... 9 41 38 99
--------- --------- --------- -------------
Total future federal and state income tax benefits................... 644 1,501 2,682 2,907
Less valuation allowances............................................ (644) (1,501) (2,682) (2,907)
--------- --------- --------- -------------
Deferred income tax asset............................................ $ -- $ -- $ -- $ --
--------- --------- --------- -------------
--------- --------- --------- -------------
</TABLE>
At November 23, 1998, iWorld had available net operating loss carryforwards for
its federal income tax purposes of approximately $7.0 million which will expire
beginning in 2009.
F-24
<PAGE>
IWORLD DIVISION OF MECKLERMEDIA CORPORATION
(PREDECESSOR BUSINESS)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED SEPTEMBER 30, 1996, 1997 AND 1998
AND FOR THE PERIOD FROM OCTOBER 1, 1998 THROUGH NOVEMBER 23, 1998
AND FOR THE THREE MONTHS ENDED MARCH 31, 1998 (UNAUDITED)
A reconciliation setting forth the difference between the effective income tax
rate of iWorld and the U.S. Federal statutory tax rate is as follows (in
thousands):
<TABLE>
<CAPTION>
OCTOBER 1,
FOR THE YEARS ENDED SEPTEMBER 1998
30, THROUGH
------------------------------- NOVEMBER 23,
1996 1997 1998 1998
--------- --------- --------- THREE MONTHS -------------
ENDED
MARCH 31, 1998
-----------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Federal statutory tax rate.......................... $ 423 $ 733 $ 928 $ 235 $ 159
State taxes......................................... 61 105 133 37 23
Losses without income tax benefits.................. (487) (841) (1,064) (273) (183)
Provision for non-deductible expenses............... 3 3 3 1 1
--------- --------- --------- ----- -------------
$ -- $ -- $ -- $ -- $ --
--------- --------- --------- ----- -------------
--------- --------- --------- ----- -------------
</TABLE>
7. EMPLOYEE BENEFIT PLAN
iWorld participated in Mecklermedia's defined contribution plan which qualified
under Section 401(k) of the Internal Revenue Code for employees meeting certain
service requirements. The plan allowed eligible employees to contribute up to
15% of their compensation to the plan. At the discretion of Mecklermedia's board
of directors, Mecklermedia was also able to make contributions dependent on
profits each year for the benefit of all eligible employees under the plan.
There were no discretionary contributions for any of the periods presented.
8. RELATED PARTY TRANSACTIONS
The accompanying financial statements include costs for cash management,
accounting, legal and network operations that were provided to iWorld by
Mecklermedia, in addition to allocated costs for facility charges at shared
sites, including rent and equipment usage. Costs for cash management accounting,
legal and network operations have been allocated to iWorld based on internet.com
management's estimated percentage of the time spent by Mecklermedia employees on
iWorld to total department time. The costs for facility charges are based on the
percentage of usage by the iWorld Division of Mecklermedia to the overall costs.
Such allocations are not necessarily indicative of the costs that would have
been incurred if iWorld had been a stand-alone entity.
Costs allocated to iWorld by Mecklermedia were approximately $440,000, $777,000,
$1,185,000, $331,000 and $150,000 for the years ended September 30, 1996, 1997,
1998, for the three months ended March 31, 1998 and for the period from October
1, 1998 through November 23, 1998, respectively. For the year ended September
30, 1996, allocated costs of $23,000 and $417,000 were included in cost of
revenues and general and administrative expenses, respectively. For the three
months ended March 31, 1998, allocated costs of $26,000 and $305,000 were
included in cost of revenues and general and administrative expenses,
respectively. For the year ended September 30, 1997, allocated costs of $67,000
and $710,000 were included in cost of revenues and general and administrative
expenses, respectively. For the year ended September 30, 1998, allocated costs
of $100,000 and $1,085,000 were included in cost of revenues and general and
administrative expenses, respectively. All of the allocated costs for the period
from October 1, 1998 through November 23, 1998, were included in general and
administrative expenses. Management believes the allocation methods used are
reasonable.
F-25
<PAGE>
IWORLD DIVISION OF MECKLERMEDIA CORPORATION
(PREDECESSOR BUSINESS)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED SEPTEMBER 30, 1996, 1997 AND 1998
AND FOR THE PERIOD FROM OCTOBER 1, 1998 THROUGH NOVEMBER 23, 1998
AND FOR THE THREE MONTHS ENDED MARCH 31, 1998 (UNAUDITED)
Mecklermedia funded the working capital requirements of iWorld based upon a
centralized cash management system. Division Equity, included in the
accompanying financial statements, consists of funding for net losses, working
capital requirements and acquisitions. There is no liability to Mecklermedia for
these amounts. In addition, no interest has been charged on these transactions.
Division equity consisted of the following (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30,
------------------------------- NOVEMBER 23,
1996 1997 1998 1998
--------- --------- --------- -------------
<S> <C> <C> <C> <C>
Division equity at beginning of period.......................... $ 265 $ 808 $ 2,144 $ 6,252
Net losses...................................................... (1,244) (2,155) (2,731) (467)
Working capital................................................. 1,145 1,092 1,834 1,393
Acquisitions.................................................... 642 2,399 5,005 2,484
--------- --------- --------- -------------
Division equity at end of period................................ $ 808 $ 2,144 $ 6,252 $ 9,662
--------- --------- --------- -------------
--------- --------- --------- -------------
</TABLE>
F-26
<PAGE>
3,400,000 SHARES
INTERNET.COM CORPORATION
COMMON STOCK
[LOGO]
THE E-BUSINESS AND INTERNET TECHNOLOGY NETWORK
---------------------
PROSPECTUS
----------------
Until , 1999, all dealers that effect transactions in these
securities, whether or not participating in this offering, may be required to
deliver a prospectus. This is in addition to the dealers' obligation to deliver
a prospectus when acting as underwriters and with respect to their unsold
allotments or subscriptions.
U.S. BANCORP PIPER JAFFRAY
WILLIAM BLAIR & COMPANY
DLJDIRECT INC.
, 1999
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The expenses to be paid by the Registrant in connection with this offering are
as follows. All amounts other than the Securities and Exchange Commission
registration fee, National Association of Securities Dealers filing fee and
Nasdaq National Market application fee are estimates.
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee............................. $13,427.40
National Association of Securities Dealers filing fee........................... 5,330.00
Nasdaq National Market listing fee.............................................. *
Printing........................................................................ *
Legal fees and expenses......................................................... *
Accounting fees and expenses.................................................... *
Road show expenses.............................................................. *
Blue Sky fees and expenses...................................................... *
Transfer agent and registrar fees............................................... *
Miscellaneous................................................................... *
---------
Total..................................................................... $ *
---------
---------
</TABLE>
- ---------------------------------------------
* To be filed by amendment
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the Delaware General Corporation Law authorizes a court to award,
or a corporation's board of directors to grant, indemnity to directors and
officers in terms sufficiently broad to permit such indemnification under
certain circumstances for liabilities including reimbursement for expenses
incurred arising under the Securities Act of 1933, as amended.
As permitted by the Delaware General Corporation Law, the Registrant's Amended
and Restated Certificate of Incorporation includes a provision that eliminates
the personal liability of its directors for monetary damages for breach of
fiduciary duty as a director, except for liability (i) for any breach of the
director's duty of loyalty to the Registrant or its stockholders, (ii) for acts
or omissions not in good faith or that involve intentional misconduct or a
knowing violation of law, (iii) under section 174 of the Delaware General
Corporation Law regarding unlawful dividends and stock purchases or (iv) for any
transaction from which the director derived an improper personal benefit.
As permitted by the Delaware General Corporation Law, the Bylaws of the
Registrant provide that (i) the Registrant is required to indemnify its
directors and officers to the fullest extent permitted by the Delaware General
Corporation Law, subject to certain very limited exceptions, (ii) the Registrant
may indemnify its other employees and agents as set forth in the Delaware
General Corporation Law, (iii) the Registrant is required to advance expenses,
as incurred, to its directors and executive officers in connection with a legal
proceeding to the fullest extent permitted by the Delaware General Corporation
Law, subject to certain very limited exceptions and (iv) the rights conferred in
the Bylaws are not exclusive.
The Registrant intends to enter into Indemnification Agreements with each of its
directors and executive officers to give such directors and officers additional
contractual assurances regarding the scope of the indemnification set forth in
the Registrant's Amended and Restated Certificate of Incorporation and to
provide additional procedural protections. At present, there is no pending
II-1
<PAGE>
litigation or proceeding involving a director, officer or employee of the
Registrant regarding which indemnification is sought, nor is the Registrant
aware of any threatened litigation that may result in claims for
indemnification.
Reference is also made to Section 6 of the purchase agreement, which provides
for the indemnification of officers, directors and controlling persons of the
Registrant against certain liabilities. The indemnification provision in the
Registrant's Amended and Restated Certificate of Incorporation, Bylaws and the
Indemnification Agreements entered into between the Registrant and each of its
directors and executive officers may be sufficiently broad to permit
indemnification of the Registrant's directors and executive officers for
liabilities arising under the Securities Act of 1933, as amended.
The Registrant, with approval by the Registrant's Board of Directors, expects to
obtain directors' and officers' liability insurance.
Reference is made to the following documents filed as exhibits to this
registration statement regarding relevant indemnification provisions described
above and elsewhere herein:
<TABLE>
<CAPTION>
DOCUMENT EXHIBIT NUMBER
- ------------------------------------------------------------------------------- ---------------
<S> <C>
Purchase Agreement (draft dated May 19, 1999).................................. 1.01
Form of Amended and Restated Certificate of Incorporation of Registrant........ 3.02
Bylaws of Registrant........................................................... 3.03
Form of Indemnification Agreement.............................................. 10.01
</TABLE>
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
Upon the closing of this offering, internet.com LLC will be converted into a
corporation and all membership interests will be converted into common stock of
the Registrant at the rate of 16,215.891 shares per membership unit. The share
numbers in this table give effect to the conversion of internet.com LLC into a
corporation immediately prior to the closing of this offering.
All sales were made in reliance on Rule 506 of Regulation D promulgated under
the Securities Act of 1933, as amended. These sales were made without general
solicitation or advertising. Each purchaser was an "accredited investor" or a
sophisticated investor with access to all relevant information necessary to
evaluate the investment who represented to the Registrant that the shares were
being acquired for investment.
<TABLE>
<CAPTION>
NUMBER OF
SHARES
DATE(S) OF TITLE OF NUMBER OF ASSUMING AGGREGATE FORM OF
NAME SALE SECURITIES UNITS CONVERSION PURCHASE PRICE CONSIDERATION
- ------------------------------ -------------- ----------- ----------- ----------- -------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
William A. Schutzer........... March 1999 Units 25 405,397 $ 1,000,000 Cash
Internet World Media, Inc..... March 1999 Units 11.149 180,772 $ 445,949 Cash
James S. Mulholland III....... March 1999 Units 3.125 50,675 $ 125,000 Cash
Marie Mulholland Flatness..... March 1999 Units 3.125 50,675 $ 125,000 Cash
New River Capital Partners.... March 1999 Units 3.125 50,675 $ 125,000 Cash
Certain Employees, Officers
and Directors of the
Registrant.................. March 1999 Units 10.5 170,267 $ 420,000 Cash
</TABLE>
II-2
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits:
<TABLE>
<CAPTION>
EXHIBIT NUMBER EXHIBIT TITLE
- ----------------- -------------------------------------------------------------------------------------------------
<C> <S>
1.01 Form of Purchase Agreement to be entered into by and among the Registrant, U.S. Bancorp Piper
Jaffray Inc., William Blair & Company, L.L.C. and DLJDIRECT Inc.
2.01 Form of Merger Agreement to be entered into by internet.com LLC and the Registrant
3.01 Registrant's Certificate of Incorporation+
3.02 Form of Registrant's Amended and Restated Certificate of Incorporation
3.03 Registrant's Bylaws+
4.01 Form of Specimen Stock Certificate for the Registrant's Common Stock
4.02 Registration Rights Agreement, dated as of November 24, 1998, by and among internet.com LLC and
Internet World Media, Inc.+
4.03 Warrant to purchase units of internet.com LLC, issued to Internet World Media, Inc. on November
24, 1998+
5.01 Opinion of Willkie Farr & Gallagher regarding the legality of the securities being registered*
10.01 Form of Indemnification Agreement to be entered into between the Registrant and each of its
directors and executive officers
10.02 Second Amended and Restated Limited Liability Company Agreement of internet.com LLC, dated as of
March 25, 1999+
10.03 Services Agreement by and among Penton Media, Inc., Internet World Media, Inc. and internet.com
LLC, dated as of November 24, 1998+
10.04 Trademark Co-License Agreement by and between Internet World Media, Inc. and internet.com LLC,
dated as of November 24, 1998+
10.05 Copyright Co-License Agreement by and between Internet World Media, Inc. and internet.com LLC,
dated as of November 24, 1998+
10.06 Form of Registrant's 1999 Stock Incentive Plan
10.07 Employment Agreement between the Registrant and Christopher S. Cardell, dated as of November 24,
1998
10.08 Employment Agreement between the Registrant and Christopher J. Baudouin, dated as of November 24,
1998
10.09 Specimen Advertising Insertion Order
21.01 Subsidiaries of the Registrant
23.01 Consent of Willkie Farr & Gallagher (included in Exhibit 5.01)*
23.02 Consent of Arthur Andersen LLP
24.01 Power of Attorney+
27.01 Financial Data Schedule (EDGAR Version Only)+
99.01 Consent of Gilbert F. Bach
99.02 Consent of Michael J. Davies+
</TABLE>
- ---------------------------------------------
* To be supplied by amendment.
+ Previously filed.
(b) Financial Statement Schedule
II-3
<PAGE>
ITEM 17. UNDERTAKINGS.
The undersigned Registrant hereby undertakes to provide to the underwriters at
the closing specified in the purchase agreement certificates in such
denominations and registered in such names as required by the underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act of
1933, as amended, may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the provisions described under Item 14
above, 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 of 1933, as amended, and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act of 1933, as amended, and will be
governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of 1933,
as amended, the information omitted from the form of prospectus filed as
part of this registration statement in reliance upon Rule 430A and contained
in a form of prospectus filed by the Registrant pursuant to Rule 424(b)(1)
or (4) or 497(h) under the Securities Act of 1933, as amended, shall be
deemed to be part of this registration statement as of the time it was
declared effective.
(2) For the purpose of determining any liability under the Securities Act of
1933, as amended, 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.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the Town of Westport,
State of Connecticut, on the 19th day of May 1999.
INTERNET.COM CORPORATION
By: /s/ ALAN M. MECKLER
-----------------------------------------
Alan M. Meckler
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
In accordance with the requirements of the Securities Act of 1933, as amended,
this registration statement was signed by the following persons in the
capacities and on the dates indicated.
NAME TITLE(S) DATE
- ------------------------------ --------------------------- -------------------
/s/ ALAN M. MECKLER Director, Chairman and
- ------------------------------ Chief Executive Officer May 19, 1999
Alan M. Meckler
* Director, President and
- ------------------------------ Chief Operating Officer May 19, 1999
Christopher S. Cardell
* Chief Financial Officer
- ------------------------------ May 19, 1999
Christopher J. Baudouin
<TABLE>
<S> <C> <C> <C>
*By: /s/ ALAN M. MECKLER
------------------------- Attorney-in-Fact May 19, 1999
Alan M. Meckler
</TABLE>
II-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NUMBER EXHIBIT TITLE
- ----------------- -------------------------------------------------------------------------------------------------
<C> <S>
1.01 Form of Purchase Agreement to be entered into by and among the Registrant, U.S. Bancorp Piper
Jaffray Inc., William Blair & Company, L.L.C. and DLJDIRECT Inc.
2.01 Form of Merger Agreement to be entered into by internet.com LLC and the Registrant
3.01 Registrant's Certificate of Incorporation+
3.02 Form of Registrant's Amended and Restated Certificate of Incorporation
3.03 Registrant's Bylaws+
4.01 Form of Specimen Stock Certificate for the Registrant's Common Stock
4.02 Registration Rights Agreement, dated as of November 24, 1998, by and among internet.com LLC and
Internet World Media, Inc.+
4.03 Warrant to purchase units of internet.com LLC, issued to Internet World Media, Inc. on November
24, 1998+
5.01 Opinion of Willkie Farr & Gallagher regarding the legality of the securities being registered*
10.01 Form of Indemnification Agreement to be entered into between the Registrant and each of its
directors and executive officers
10.02 Second Amended and Restated Limited Liability Company Agreement of internet.com LLC, dated as of
March 25, 1999+
10.03 Services Agreement by and among Penton Media, Inc., Internet World Media, Inc. and internet.com
LLC, dated as of November 24, 1998+
10.04 Trademark Co-License Agreement by and between Internet World Media, Inc. and internet.com LLC,
dated as of November 24, 1998+
10.05 Copyright Co-License Agreement by and between Internet World Media, Inc. and internet.com LLC,
dated as of November 24, 1998+
10.06 Form of Registrant's 1999 Stock Incentive Plan
10.07 Employment Agreement between the Registrant and Christopher S. Cardell, dated as of November 24,
1998
10.08 Employment Agreement between the Registrant and Christopher J. Baudouin, dated as of November 24,
1998
10.09 Specimen Advertising Insertion Order
21.01 Subsidiaries of the Registrant
23.01 Consent of Willkie Farr & Gallagher (included in Exhibit 5.01)*
23.02 Consent of Arthur Andersen LLP
24.01 Power of Attorney+
27.01 Financial Data Schedule (EDGAR Version Only)+
99.01 Consent of Gilbert F. Bach
99.02 Consent of Michael J. Davies+
</TABLE>
- ------------------------------------
* To be supplied by amendment.
+ Previously filed.
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
ON FINANCIAL STATEMENT SCHEDULE
To the Board of Directors of internet.com LLC:
We have audited in accordance with generally accepted auditing standards the
financial statements of internet.com LLC included in this registration statement
and have issued our report thereon dated April 5, 1999. Our audit was made for
the purpose of forming an opinion on the basic financial statements taken as a
whole. The financial statement schedule on the following page is the
responsibility of the company's management and is presented for purposes of
complying with the Securities and Exchange Commission's rules and is not part of
the basic financial statements. This schedule has been subjected to the auditing
procedures applied in the audit of the basic financial statements and, in our
opinion, fairly states in all material respects the financial data required to
be set forth therein in relation to the basic financial statements taken as a
whole.
ARTHUR ANDERSEN LLP
Stamford, Connecticut
April 5, 1999
<PAGE>
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
ALLOWANCE FOR DOUBTFUL ACCOUNTS
INTERNET.COM LLC
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
INCEPTION MARCH 31, 1999
(NOVEMBER 24, 1998) THROUGH -------------------------
(IN THOUSANDS) DECEMBER 31, 1998
------------------------------- (UNAUDITED)
<S> <C> <C>
Balance at beginning of period............................... $ -- $ 42
Additions charged to statement of operations................. 42 67
--- -----
Balance at end of period..................................... $ 42 $ 109
--- -----
--- -----
</TABLE>
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
ON FINANCIAL STATEMENT SCHEDULE
To the Board of Directors of internet.com LLC:
We have audited in accordance with generally accepted auditing standards the
financial statements of the iWorld division of Mecklermedia Corporation included
in this registration statement and have issued our report thereon dated April 5,
1999. Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The financial statement schedule on the
following page is the responsibility of the company's management and is
presented for purposes of complying with the Securities and Exchange
Commission's rules and is not part of the basic financial statements. This
schedule has been subjected to the auditing procedures applied in the audits of
the basic financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Stamford, Connecticut
April 5, 1999
<PAGE>
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
ALLOWANCE FOR DOUBTFUL ACCOUNTS
IWORLD DIVISION OF MECKLERMEDIA CORPORATION
(PREDECESSOR BUSINESS)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED SEPTEMBER OCTOBER 1,
30, 1998 THROUGH
------------------------------- NOVEMBER 23,
(IN THOUSANDS) 1996 1997 1998 1998
--------- --------- --------- ---------------
<S> <C> <C> <C> <C>
Balance at beginning of period.............................................. $ -- $ 9 $ 17 $ 149
Additions charged to statement of operations................................ 9 8 152 17
Deductions from reserves.................................................... -- -- (20) --
--------- --------- --------- -----
Balance at end of period.................................................... $ 9 $ 17 $ 149 $ 166
--------- --------- --------- -----
--------- --------- --------- -----
</TABLE>
<PAGE>
Exhibit 1.01
DRAFT
-----
3,400,000 SHARES1
INTERNET.COM CORPORATION
COMMON STOCK
PURCHASE AGREEMENT
___________ __, 1999
U.S. BANCORP PIPER JAFFRAY INC.
WILLIAM BLAIR & COMPANY L.L.C.
DLJdirect Inc.
As Representatives of the several
Underwriters named in Schedule I hereto
c/o U.S. Bancorp Piper Jaffray Inc.
Piper Jaffray Tower
222 South Ninth Street
Minneapolis, Minnesota 55402
Gentlemen:
internet.com Corporation, a Delaware corporation (the "Company"),
proposes to sell to the several Underwriters named in Schedule I hereto (the
"Underwriters") an aggregate of 3,400,000 shares (the "Firm Shares") of Common
Stock, $0.01 par value per share (the "Common Stock"), of the Company. The
respective amounts of the Firm Shares to be so purchased by the several
Underwriters are set forth opposite their names in Schedule I hereto. The Firm
Shares consist of 3,400,000 authorized but unissued shares of Common Stock to be
issued and sold by the Company. For the sole purpose of covering over-allotments
in connection with the sale of the Firm Shares, at the option of the
Underwriters, Internet World Media, Inc., a stockholder of the Company (the
"Selling Stockholder"), proposes to sell to the Underwriters up to an additional
510,000 shares of Common Stock on the terms and for the purposes set forth in
Section 3 hereof (the "Option Shares"). The Firm Shares and any Option Shares
purchased pursuant to this Purchase Agreement are herein collectively called the
"Securities."
The Company and the Selling Stockholder hereby confirm their agreement
with respect to the sale of the Securities to, and purchase of the Securities
by, the several Underwriters, for whom you are acting as Representatives (the
"Representatives").
1. REGISTRATION STATEMENT AND PROSPECTUS. A registration statement
on Form S-1 (File No. 333-76331) with respect to the Securities, including a
preliminary form of prospectus, has been prepared by the Company in conformity
with the requirements of the Securities Act of 1933, as amended (the "Act"), and
the rules and regulations ("Rules and Regulations") of the Securities and
Exchange Commission (the "Commission") thereunder and has been filed with the
- ----------
1 Plus an option to purchase up to 510,000 additional shares from the Selling
Stockholder to cover over-allotments.
1.
<PAGE>
Commission; one or more amendments to such registration statement have also been
so prepared and have been, or will be, so filed; and, if the Company has elected
to rely upon Rule 462(b) of the Rules and Regulations to increase the size of
the offering registered under the Act, the Company will prepare and file with
the Commission a registration statement with respect to such increase pursuant
to Rule 462(b). Copies of such registration statement(s) and amendments and each
related preliminary prospectus have been delivered to you.
If the Company has elected not to rely upon Rule 430A of the Rules and
Regulations, the Company has prepared and will promptly file an amendment to the
registration statement and an amended prospectus (including a term sheet meeting
the requirements of Rule 434 of the Rules and Regulations). If the Company has
elected to rely upon Rule 430A of the Rules and Regulations, it will prepare and
file a prospectus (or a term sheet meeting the requirements of Rule 434)
pursuant to Rule 424(b) that discloses the information previously omitted from
the prospectus in reliance upon Rule 430A. Such registration statement as
amended at the time it is or was declared effective by the Commission, and, in
the event of any amendment thereto after the effective date and prior to the
First Closing Date (as hereinafter defined), such registration statement as so
amended (but only from and after the effectiveness of such amendment), including
a registration statement (if any) filed pursuant to Rule 462(b) of the Rules and
Regulations increasing the size of the offering registered under the Act and
information (if any) deemed to be part of the registration statement at the time
of effectiveness pursuant to Rules 430A(b) and 434(d) of the Rules and
Regulations, is hereinafter called the "Registration Statement." The prospectus
included in the Registration Statement at the time it is or was declared
effective by the Commission is hereinafter called the "Prospectus," except that
if any prospectus (including any term sheet meeting the requirements of Rule 434
of the Rules and Regulations provided by the Company for use with a prospectus
subject to completion within the meaning of Rule 434 in order to meet the
requirements of Section 10(a) of the Rules and Regulations) filed by the Company
with the Commission pursuant to Rule 424(b) (and Rule 434, if applicable) of the
Rules and Regulations or any other such prospectus provided to the Underwriters
by the Company for use in connection with the offering of the Securities
(whether or not required to be filed by the Company with the Commission pursuant
to Rule 424(b) of the Rules and Regulations) differs from the prospectus on file
at the time the Registration Statement is or was declared effective by the
Commission, the term "Prospectus" shall refer to such differing prospectus
(including any term sheet within the meaning of Rule 434 of the Rules and
Regulations) from and after the time such prospectus is filed with the
Commission or transmitted to the Commission for filing pursuant to such Rule
424(b) (and Rule 434, if applicable) or from and after the time it is first
provided to the Underwriters by the Company for such use. The term "Preliminary
Prospectus" as used herein means any preliminary prospectus included in the
Registration Statement prior to the time it becomes or became effective under
the Act and any prospectus subject to completion as described in Rule 430A or
434 of the Rules and Regulations.
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE SELLING
STOCKHOLDER.
(A) The Company represents and warrants to, and agrees with, the
several Underwriters as follows:
2.
<PAGE>
DRAFT
-----
(I) No order preventing or suspending the use of any
Preliminary Prospectus has been issued by the Commission and each Preliminary
Prospectus, at the time of filing thereof, 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; except that the
foregoing shall not apply to statements in or omissions from any Preliminary
Prospectus in reliance upon, and in conformity with, written information
furnished to the Company by you, or by any Underwriter through you, specifically
for use in the preparation thereof.
(II) As of the time the Registration Statement is or was
declared effective by the Commission, upon the filing or first delivery to the
Underwriters of the Prospectus (or any supplement to the Prospectus (including
any term sheet meeting the requirements of Rule 434 of the Rules and
Regulations)) and at the First Closing Date and Second Closing Date (as
hereinafter defined), (A) the Registration Statement and Prospectus (in each
case, as so amended and/or supplemented) conformed or will conform in all
material respects to the requirements of the Act and the Rules and Regulations,
(B) the Registration Statement (as so amended) did not or will not include 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 not misleading,
and (C) the Prospectus (as so supplemented) did not or will not include 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 light of the
circumstances in which they are or were made, not misleading; except that the
foregoing shall not apply to statements in or omissions from any such document
in reliance upon, and in conformity with, written information furnished to the
Company by you, or by any Underwriter through you, specifically for use in the
preparation thereof. If the Registration Statement has been declared effective
by the Commission, no stop order suspending the effectiveness of the
Registration Statement has been issued, and no proceeding for that purpose has
been initiated or, to the Company's knowledge, threatened by the Commission.
(III) The financial statements of the Company, together with
the notes thereto, set forth in the Registration Statement and Prospectus comply
in all material respects with the requirements of the Act and fairly present the
financial condition of the Company as of the dates indicated and the results of
operations and changes in cash flows for the periods therein specified in
conformity with generally accepted accounting principles consistently applied
throughout the periods involved (except as otherwise stated therein); and the
supporting schedules included in the Registration Statement present fairly the
information required to be stated therein. No other financial statements or
schedules are required to be included in the Registration Statement or
Prospectus. Arthur Andersen LLP, which has expressed its opinion with respect to
the financial statements and schedules filed as a part of the Registration
Statement and included in the Registration Statement and Prospectus, are
independent public accountants as required by the Act and the Rules and
Regulations.
(IV) Each of the Company and its subsidiaries has been duly
organized and is validly existing as a corporation in good standing under the
laws of its jurisdiction of incorporation. Each of the Company and its
subsidiaries has full corporate power and authority to own its properties and
conduct its business as currently being carried on and as described in the
Registration Statement and Prospectus, and is duly qualified to do business as a
foreign
3.
<PAGE>
DRAFT
-----
corporation in good standing in each jurisdiction in which it owns or leases
real property or in which the conduct of its business makes such qualification
necessary and in which the failure to so qualify would have a material adverse
effect upon the business, condition (financial or otherwise) or properties of
the Company and its subsidiaries, taken as a whole ("Material Adverse Effect").
(V) Except as contemplated in the Prospectus, subsequent to
the respective dates as of which information is given in the Registration
Statement and the Prospectus, neither the Company nor any of its subsidiaries
has incurred any material liabilities or obligations, direct or contingent, or
entered into any material transactions, or declared or paid any dividends or
made any distribution of any kind with respect to its capital stock; and there
has not been any change in the capital stock (other than a change in the number
of outstanding shares of Common Stock due to the issuance of shares upon the
exercise of outstanding options or warrants), or any material change in the
short-term or long-term debt, or any issuance of options, warrants, convertible
securities or other rights to purchase the capital stock, of the Company or any
of its subsidiaries, or any material adverse change, or any development
involving a prospective material adverse change, in the general affairs,
condition (financial or otherwise), business, key personnel, property, net worth
or results of operations of the Company and its subsidiaries, taken as a whole.
(VI) Except as set forth in the Prospectus, there is not
pending or, to the knowledge of the Company, threatened or contemplated, any
action, suit or proceeding to which the Company or any of its subsidiaries is a
party before or by any court or governmental agency, authority or body, or any
arbitrator, which might result in a Material Adverse Effect.
(VII) There are no contracts or documents of the Company or
any of its subsidiaries that are required to be filed as exhibits to the
Registration Statement by the Act or by the Rules and Regulations that have not
been so filed.
(VIII) This Agreement has been duly authorized, executed and
delivered by the Company, and constitutes a valid, legal and binding obligation
of the Company, enforceable in accordance with its terms, except as rights to
indemnity hereunder may be limited by federal or state securities laws and
except as such enforceability may be limited by bankruptcy, insolvency,
reorganization or similar laws affecting the rights of creditors generally and
subject to general principles of equity. The execution, delivery and performance
of this Agreement and the consummation of the transactions herein contemplated
will not result in a breach or violation of any of the terms and provisions of,
or constitute a default under, any statute, any agreement or instrument to which
the Company is a party or by which it is bound or to which any of its property
is subject, the Company's charter or by-laws, or any order, rule, regulation or
decree of any court or governmental agency or body having jurisdiction over the
Company or any of its properties; no consent, approval, authorization or order
of, or filing with, any court or governmental agency or body is required for the
execution, delivery and performance of this Agreement or for the consummation of
the transactions contemplated hereby, including the issuance or sale of the
Securities by the Company, except such as may be required under the Act or state
securities or blue sky laws; and the Company has full power and authority to
enter into this Agreement and to authorize, issue and sell the Securities as
contemplated by this Agreement.
4.
<PAGE>
DRAFT
-----
(IX) All of the issued and outstanding shares of capital
stock of the Company, including the outstanding shares of Common Stock, are duly
authorized and validly issued, fully paid and nonassessable, have been issued in
compliance with all federal and state securities laws, were not issued in
violation of or subject to any preemptive rights or other rights to subscribe
for or purchase securities, and the holders thereof are not subject to personal
liability by reason of being such holders; the Securities which may be sold
hereunder by the Company have been duly authorized and, when issued, delivered
and paid for in accordance with the terms hereof, will have been validly issued
and will be fully paid and nonassessable, and the holders thereof will not be
subject to personal liability by reason of being such holders; and the capital
stock of the Company, including the Common Stock, conforms to the description
thereof in the Registration Statement and Prospectus. Except as otherwise stated
in the Registration Statement and Prospectus, there are no preemptive rights or
other rights to subscribe for or to purchase, or any restriction upon the voting
or transfer of, any shares of Common Stock pursuant to the Company's charter,
by-laws or any agreement or other instrument to which the Company is a party or
by which the Company is bound. Neither the filing of the Registration Statement
nor the offering or sale of the Securities as contemplated by this Agreement
gives rise to any rights for or relating to the registration of any shares of
Common Stock or other securities of the Company. All of the issued and
outstanding shares of capital stock of each of the Company's subsidiaries have
been duly and validly authorized and issued and are fully paid and
nonassessable, and, except as otherwise described in the Registration Statement
and Prospectus and except for any directors' qualifying shares, the Company owns
of record and beneficially, free and clear of any security interests, claims,
liens, proxies, equities or other encumbrances, all of the issued and
outstanding shares of such stock. Except as described in the Registration
Statement and the Prospectus, there are no options, warrants, agreements,
contracts or other rights in existence to purchase or acquire from the Company
or any subsidiary of the Company any shares of the capital stock of the Company
or any subsidiary of the Company. The Company has an authorized and outstanding
capitalization as set forth in the Registration Statement and the Prospectus.
(X) The Company and each of its subsidiaries holds, and is
operating in compliance in all material respects with, all franchises, grants,
authorizations, licenses, permits, easements, consents, certificates and orders
of any governmental or self-regulatory body required for the conduct of its
business, except where the failure to hold or be in compliance could not
reasonably be expected to have a Material Adverse Effect, and all such
franchises, grants, authorizations, licenses, permits, easements, consents,
certifications and orders are valid and in full force and effect, except where
the failure to hold or be in compliance could not reasonably be expected to have
a Material Adverse Effect; and the Company and each of its subsidiaries is in
compliance in all material respects with all applicable federal, state, local
and foreign laws, regulations, orders and decrees, except where the failure to
hold or be in compliance could not reasonably be expected to have a Material
Adverse Effect.
(XI) The Company and its subsidiaries have good and
marketable title to all property described in the Registration Statement and
Prospectus as being owned by them, in each case free and clear of all liens,
claims, security interests or other encumbrances except such as are described in
the Registration Statement and the Prospectus; the property held under lease by
the Company and its subsidiaries is held by them under valid, subsisting and
enforceable leases with only such exceptions with respect to any particular
lease as do not interfere in any
5.
<PAGE>
DRAFT
-----
material respect with the conduct of the business of the Company or its
subsidiaries; the Company and each of its subsidiaries owns or possesses all
patents, patent applications, trademarks, service marks, tradenames, trademark
registrations, service mark registrations, copyrights, licenses, inventions,
trade secrets and rights necessary for the conduct of the business of the
Company and its subsidiaries as currently carried on and as described in the
Registration Statement and Prospectus; except as stated in the Registration
Statement and Prospectus, no name which the Company or any of its subsidiaries
uses and no other aspect of the business of the Company or any of its
subsidiaries will involve or give rise to any infringement of, or license or
similar fees for, any patents, patent applications, trademarks, service marks,
tradenames, trademark registrations, service mark registrations, copyrights,
licenses, inventions, trade secrets or other similar rights of others material
to the business of the Company, except where the failure to hold or be in
compliance could not reasonably be expected to have a Material Adverse Effect,
and neither the Company nor any of its subsidiaries has received any notice
alleging any such infringement or fee.
(XII) Neither the Company nor any of its subsidiaries is in
violation of its respective charter or by-laws or in breach of or otherwise in
default in the performance of any material obligation, agreement or condition
contained in any bond, debenture, note, indenture, loan agreement or any other
material contract, lease or other instrument to which it is subject or by which
any of them may be bound, or to which any of the material property or assets of
the Company or any of its subsidiaries is subject, except for breaches or
defaults that could not reasonably be expected to have a Material Adverse
Effect.
(XIII) The Company has filed all federal, state, local and
foreign income and franchise tax returns required to be filed, and the Company's
subsidiaries have filed all federal, state and local income and franchise tax
returns required to be filed (except for the failure to file tax returns as
could not reasonably be expected to have a Material Adverse Effect) and neither
the Company nor any of its subsidiaries is in default in the payment of any
taxes which were payable pursuant to said returns or any assessments with
respect thereto, other than any which the Company or any of its subsidiaries is
contesting in good faith.
(XIV) The Company has not distributed and will not distribute
any prospectus or other offering material in connection with the offering and
sale of the Securities other than any Preliminary Prospectus or the Prospectus
or other materials permitted by the Act to be distributed by the Company.
(XV) The Securities have been conditionally approved for
quotation on the Nasdaq National Market and, on the date the Registration
Statement became or becomes effective, the Company's Registration Statement on
Form 8-A or other applicable form under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), became or will become effective.
(XVI) Other than the subsidiaries of the Company listed in
Exhibit 21.01 to the Registration Statement, the Company owns no capital stock
or other equity or ownership or proprietary interest in any corporation,
partnership, association, trust or other entity.
6.
<PAGE>
DRAFT
-----
(XVII) The Company maintains a system of internal accounting
controls sufficient to provide reasonable assurances that (i) transactions are
executed in accordance with management's general or specific authorization; (ii)
transactions are recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting principles and to
maintain accountability for assets; (iii) access to assets is permitted only in
accordance with management's general or specific authorization; and (iv) the
recorded accountability for assets is compared with existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.
(XVIII) Other than as contemplated by this Agreement, the
Company has not incurred any liability for any finder's or broker's fee or
agent's commission in connection with the execution and delivery of this
Agreement or the consummation of the transactions contemplated hereby.
(XIX) Neither the Company nor any of its affiliates is
presently doing business with the government of Cuba or with any person or
affiliate located in Cuba.
(XX) The Company is not an "investment company" as defined
in the Investment Company Act of 1940, and is not required to register as an
investment adviser as defined in the Investment Advisers Act of 1940.
(XXI) The merger between the Company and internet.com LLC
(the "Predecessor") was effective as of _________, 1999 upon the filing of a
merger agreement with the Delaware Secretary of State in accordance with
Section 264 of the Delaware General Corporation Law. Pursuant to such merger,
the separate existence of the Predecessor ceased as of the time of such
filing, the membership interest of each member of the Predecessor outstanding
immediately prior to such merger, and each outstanding option and warrant to
acquire any such membership interests, which constituted all of the
outstanding equity interests, options and warrants with respect to the
Predecessor as of such time, was converted into shares of the Company's
Common Stock and options and warrants to purchase shares of the Company's
Common Stock, respectively, and the Company succeeded to and assumed all of
the rights and obligations of the Predecessor in effect immediately prior to
such merger. All corporate action on the part of the Company, the Predecessor
and their respective directors, stockholders, managers and members, as
applicable, necessary for the consummation of such merger had been obtained
as of the time of such filing. The consummation of such merger did not
violate or contravene any provision of (i) the Certificate of Incorporation,
Bylaws or Operating Agreement of the Company or the Predecessor, as
applicable, (ii) any laws, rules or regulations applicable to, or any order,
writ, judgment, injunction, decree, determination or award entered against,
the Company or the Predecessor or (iii) any agreement or instrument to which
the Company or the Predecessor is or was a party or by which the Company or
the Predecessor is or was bound. All necessary consents, approvals,
authorizations or orders of, and filings, registrations and qualifications
with any regulatory authority or governmental body required for the
consummation of such merger were timely made or obtained. To the best of the
Company's knowledge, there is no action, proceeding or investigation pending
or threatened that questions the validity of such merger, nor is there any
basis therefor.
7.
<PAGE>
DRAFT
-----
(B) The Selling Stockholder represents and warrants to, and agrees
with, the several Underwriters as follows:
(I) Such Selling Stockholder is the record and beneficial
owner of, and has, and on the Second Closing Date, will have, valid and
marketable title to the Option Shares to be sold by such Selling Stockholder,
free and clear of all security interests, claims, liens, restrictions on
transferability, legends, proxies, equities or other encumbrances; and upon
delivery of and payment for such Option Shares hereunder, the several
Underwriters will acquire valid and marketable title thereto, free and clear of
any security interests, claims, liens, restrictions on transferability, legends,
proxies, equities or other encumbrances. Such Selling Stockholder is selling the
Option Shares to be sold by such Selling Stockholder for such Selling
Stockholder's own account and is not selling such Option Shares, directly or
indirectly, for the benefit of the Company, and no part of the proceeds of such
sale received by such Selling Stockholder will inure, either directly or
indirectly, to the benefit of the Company other than as described in the
Registration Statement and Prospectus.
(II) Such Selling Stockholder has duly authorized, executed
and delivered a Letter of Transmittal and Custody Agreement ("Custody
Agreement"), which Custody Agreement is a valid and binding obligation of such
Selling Stockholder, to [FULL NAME OF CUSTODIAN], as Custodian (the
"Custodian"); pursuant to the Custody Agreement the Selling Stockholder has
placed in custody with the Custodian, for delivery under this Agreement, the
certificates representing the Option Shares to be sold by such Selling
Stockholder; such certificates represent validly issued, outstanding, fully paid
and nonassessable shares of Common Stock; and such certificates were duly and
properly endorsed in blank for transfer, or were accompanied by all documents
duly and properly executed that are necessary to validate the transfer of title
thereto, to the Underwriters, free of any legend, restriction on
transferability, proxy, lien or claim, whatsoever.
(III) Such Selling Stockholder has the power and authority to
enter into this Agreement and to sell, transfer and deliver the Option Shares to
be sold by such Selling Stockholder; and such Selling Stockholder has duly
authorized, executed and delivered to ____________________ and _______________,
as attorneys-in-fact (the "Attorneys-in-Fact"), an irrevocable power of attorney
(a "Power of Attorney") authorizing and directing the Attorneys-in-Fact, or
either of them, to effect the sale and delivery of the Option Shares being sold
by such Selling Stockholder, to enter into this Agreement and to take all such
other action as may be necessary hereunder.
(IV) This Agreement, the Custody Agreement and the Power of
Attorney have each been duly authorized, executed and delivered by or on behalf
of such Selling Stockholder and each constitutes a valid and binding agreement
of such Selling Stockholder, enforceable in accordance with its terms, except as
rights to indemnity hereunder or thereunder may be limited by federal or state
securities laws and except as such enforceability may be limited by bankruptcy,
insolvency, reorganization or laws affecting the rights of creditors generally
and subject to general principles of equity. The execution and delivery of this
Agreement, the Custody Agreement and the Power of Attorney and the performance
of the terms hereof and thereof and the consummation of the transactions herein
and therein contemplated will not result in a breach or violation of any of the
terms and provisions of, or constitute a
8.
<PAGE>
DRAFT
-----
default under, any agreement or instrument to which such Selling Stockholder is
a party or by which such Selling Stockholder is bound, or any law, regulation,
order or decree applicable to such Selling Stockholder; no consent, approval,
authorization or order of, or filing with, any court or governmental agency or
body is required for the execution, delivery and performance of this Agreement,
the Custody Agreement and the Power of Attorney or for the consummation of the
transactions contemplated hereby and thereby, including the sale of the Option
Shares being sold by such Selling Stockholder, except such as may be required
under the Act or state securities laws or blue sky laws.
(V) Such Selling Stockholder has not distributed and will
not distribute any prospectus or other offering material in connection with the
offering and sale of the Option Shares other than any Preliminary Prospectus or
the Prospectus or other materials permitted by the Act to be distributed by such
Selling Stockholder.
(VI) Such Selling Stockholder has reviewed the Registration
Statement and the Prospectus and to the best knowledge of such Selling
Stockholder neither the Registration Statement nor the Prospectus contains any
untrue statement of a material fact or omits to state any material fact required
to be stated therein or necessary to make the statements therein not misleading
regarding such Selling Stockholder, the Company or otherwise.
(VII) To the best knowledge of such Selling Stockholder, the
representations and warranties of the Company contained in paragraph (a) of this
Section 2 are true and correct.
(C) Any certificate signed by any officer of the Company and
delivered to you or to counsel for the Underwriters shall be deemed a
representation and warranty by the Company to each Underwriter as to the matters
covered thereby; any certificate signed by or on behalf of the Selling
Stockholder as such and delivered to you or to counsel for the Underwriters
shall be deemed a representation and warranty by the Selling Stockholder to each
Underwriter as to the matters covered thereby.
3. PURCHASE, SALE AND DELIVERY OF SECURITIES.
(A) On the basis of the representations, warranties and agreements
herein contained, but subject to the terms and conditions herein set forth, the
Company agrees to issue and sell 3,400,000 Firm Shares to the several
Underwriters, and each Underwriter agrees, severally and not jointly, to
purchase from the Company the number of Firm Shares set forth opposite the name
of such Underwriter in Schedule I hereto. The purchase price for each Firm Share
shall be $_____ per share. The obligation of each Underwriter to the Company
shall be to purchase from the Company that number of Firm Shares (to be adjusted
by the Representatives to avoid fractional shares) which represents the same
proportion of the number of Firm Shares to be sold by the Company pursuant to
this Agreement as the number of Firm Shares set forth opposite the name of such
Underwriter in Schedule I hereto represents to the total number of Firm Shares
to be purchased by all Underwriters pursuant to this Agreement. In making this
Agreement, each Underwriter is contracting severally and not jointly; except as
provided in paragraph (c) of this Section 3 and in Section 8 hereof, the
agreement of each Underwriter is to purchase only the respective number of Firm
Shares specified in Schedule I.
9.
<PAGE>
DRAFT
-----
The Firm Shares will be delivered by the Company to you for the
accounts of the several Underwriters against payment of the purchase price
therefor by certified or official bank check or other next day funds payable to
the order of the Company at the offices of U.S. Bancorp Piper Jaffray Inc.,
Piper Jaffray Tower, 222 South Ninth Street, Minneapolis, Minnesota, or such
other location as may be mutually acceptable, at 9:00 a.m. Central time on the
third (or if the Securities are priced, as contemplated by Rule 15c6-1(c) under
the Exchange Act, after 4:30 p.m. Eastern time, the fourth) full business day
following the date hereof, or at such other time and date as you and the Company
determine pursuant to Rule 15c6-1(a) under the Exchange Act, such time and date
of delivery being herein referred to as the "First Closing Date." If the
Representatives so elect, delivery of the Firm Shares may be made by credit
through full fast transfer to the accounts at The Depository Trust Company
designated by the Representatives. Certificates representing the Firm Shares, in
definitive form and in such denominations and registered in such names as you
may request upon at least two business days' prior notice to the Company, will
be made available for checking and packaging not later than 10:30 a.m., Central
time, on the business day next preceding the First Closing Date at the offices
of U.S. Bancorp Piper Jaffray Inc., Piper Jaffray Tower, 222 South Ninth Street,
Minneapolis, Minnesota, or such other location as may be mutually acceptable.
(B) On the basis of the representations, warranties and agreements
herein contained, but subject to the terms and conditions herein set forth, the
Selling Stockholder hereby grants to the several Underwriters an option to
purchase all or any portion of the Option Shares at the same purchase price as
the Firm Shares, for use solely in covering any over-allotments made by the
Underwriters in the sale and distribution of the Firm Shares. The option granted
hereunder may be exercised at any time (but not more than once) within 30 days
after the effective date of this Agreement upon notice (confirmed in writing) by
the Representatives to the Attorneys-in-Fact setting forth the aggregate number
of Option Shares as to which the several Underwriters are exercising the option,
the names and denominations in which the certificates for the Option Shares are
to be registered and the date and time, as determined by you, when the Option
Shares are to be delivered, such time and date being herein referred to as the
"Second Closing" and "Second Closing Date", respectively; PROVIDED, HOWEVER,
that the Second Closing Date shall not be earlier than the First Closing Date
nor earlier than the second business day after the date on which the option
shall have been exercised. The number of Option Shares to be purchased by each
Underwriter shall be the same percentage of the total number of Option Shares to
be purchased by the several Underwriters as the number of Firm Shares to be
purchased by such Underwriter is of the total number of Firm Shares to be
purchased by the several Underwriters, as adjusted by the Representatives in
such manner as the Representatives deem advisable to avoid fractional shares. No
Option Shares shall be sold and delivered unless the Firm Shares previously have
been, or simultaneously are, sold and delivered.
The Option Shares will be delivered by the Custodian to you for the
accounts of the several Underwriters against payment of the purchase price
therefor by certified or official bank check or other next day funds payable to
the order of the Custodian at the offices of U.S. Bancorp Piper Jaffray Inc.,
Piper Jaffray Tower, 222 South Ninth Street, Minneapolis, Minnesota, or such
other location as may be mutually acceptable at 9:00 a.m., Central time, on the
Second Closing Date. If the Representatives so elect, delivery of the Option
Shares may be made by credit through full fast transfer to the accounts at The
Depository Trust Company designated by the Representatives. Certificates
representing the Option Shares in definitive form
10.
<PAGE>
DRAFT
-----
and in such denominations and registered in such names as you have set forth in
your notice of option exercise, will be made available for checking and
packaging not later than 10:30 a.m., Central time, on the business day next
preceding the Second Closing Date at the office of U.S. Bancorp Piper Jaffray
Inc., Piper Jaffray Tower, 222 South Ninth Street, Minneapolis, Minnesota, or
such other location as may be mutually acceptable.
(C) It is understood that you, individually and not as
Representatives of the several Underwriters, may (but shall not be obligated to)
make payment to the Company or the Selling Stockholder, as the case may be, on
behalf of any Underwriter for the Securities to be purchased by such
Underwriter. Any such payment by you shall not relieve any such Underwriter of
any of its obligations hereunder. Nothing herein contained shall constitute any
of the Underwriters an unincorporated association or partner with the Company or
the Selling Stockholder.
4. COVENANTS.
(A) The Company covenants and agrees with the several Underwriters as
follows:
(I) If the Registration Statement has not already been
declared effective by the Commission, the Company will use its best efforts to
cause the Registration Statement and any post-effective amendments thereto to
become effective as promptly as possible; the Company will notify you promptly
of the time when the Registration Statement or any post-effective amendment to
the Registration Statement has become effective or any supplement to the
Prospectus (including any term sheet within the meaning of Rule 434 of the Rules
and Regulations) has been filed and of any request by the Commission for any
amendment or supplement to the Registration Statement or Prospectus or
additional information; if the Company has elected to rely on Rule 430A of the
Rules and Regulations, the Company will prepare and file a Prospectus (or term
sheet within the meaning of Rule 434 of the Rules and Regulations) containing
the information omitted therefrom pursuant to Rule 430A of the Rules and
Regulations with the Commission within the time period required by, and
otherwise in accordance with the provisions of, Rules 424(b), 430A and 434, if
applicable, of the Rules and Regulations; if the Company has elected to rely
upon Rule 462(b) of the Rules and Regulations to increase the size of the
offering registered under the Act, the Company will prepare and file a
registration statement with respect to such increase with the Commission within
the time period required by, and otherwise in accordance with the provisions of,
Rule 462(b); the Company will prepare and file with the Commission, promptly
upon your request, any amendments or supplements to the Registration Statement
or Prospectus (including any term sheet within the meaning of Rule 434 of the
Rules and Regulations) that, in your opinion, may be necessary or advisable in
connection with the distribution of the Securities by the Underwriters; and the
Company will not file any amendment or supplement to the Registration Statement
or Prospectus (including any term sheet within the meaning of Rule 434 of the
Rules and Regulations) to which you shall reasonably object by notice to the
Company after having been furnished a copy a reasonable time prior to the
filing.
(II) The Company will advise you, promptly after it shall
receive notice or obtain knowledge thereof, of the issuance by the Commission of
any stop order
11.
<PAGE>
DRAFT
-----
suspending the effectiveness of the Registration Statement, of the suspension of
the qualification of the Securities for offering or sale in any jurisdiction, or
of the initiation or threatening of any proceeding for any such purpose; and the
Company will promptly use its best efforts to prevent the issuance of any stop
order or to obtain its withdrawal if such a stop order should be issued.
(III) Within the time during which a prospectus (including
any term sheet within the meaning of Rule 434 of the Rules and Regulations)
relating to the Securities is required to be delivered under the Act, the
Company will comply as far as it is able with all requirements imposed upon it
by the Act, as now and hereafter amended, and by the Rules and Regulations, as
from time to time in force, so far as necessary to permit the continuance of
sales of or dealings in the Securities as contemplated by the provisions hereof
and the Prospectus. If during such period any event occurs as a result of which
the Prospectus would include an untrue statement of a material fact or omit to
state a material fact necessary to make the statements therein, in the light of
the circumstances then existing, not misleading, or if during such period it is
necessary to amend the Registration Statement or supplement the Prospectus to
comply with the Act, the Company will promptly notify you and will amend the
Registration Statement or supplement the Prospectus (at the expense of the
Company) so as to correct such statement or omission or effect such compliance.
(IV) The Company will use its best efforts to qualify the
Securities for sale under the securities laws of such jurisdictions as you
reasonably designate and to continue such qualifications in effect so long as
required for the distribution of the Securities, except that the Company shall
not be required in connection therewith to qualify as a foreign corporation or
to execute a general consent to service of process in any state.
(V) The Company will furnish to the Underwriters copies of
the Registration Statement (three of which will be signed and will include all
exhibits), each Preliminary Prospectus, the Prospectus, and all amendments and
supplements (including any term sheet within the meaning of Rule 434 of the
Rules and Regulations) to such documents, in each case as soon as available and
in such quantities as you may from time to time reasonably request.
(VI) During a period of five years commencing with the date
hereof, the Company will furnish to the Representatives, and to each Underwriter
who may so request in writing, copies of all periodic and special reports
furnished to the stockholders of the Company and all information, documents and
reports filed with the Commission, the National Association of Securities
Dealers, Inc., Nasdaq or any securities exchange.
(VII) The Company will make generally available to its
security holders as soon as practicable, but in any event not later than 15
months after the end of the Company's current fiscal quarter, an earnings
statement (which need not be audited) covering a 12-month period beginning after
the effective date of the Registration Statement that shall satisfy the
provisions of Section 11 (a) of the Act and Rule 158 of the Rules and
Regulations.
(VIII) The Company, whether or not the transactions
contemplated hereunder are consummated or this Agreement is prevented from
becoming effective under the provisions of Section 9(a) hereof or is terminated,
will pay or cause to be paid (A) all expenses
12.
<PAGE>
DRAFT
-----
(including transfer taxes allocated to the respective transferees) incurred in
connection with the delivery to the Underwriters of the Securities, (B) all
expenses and fees (including, without limitation, fees and expenses of the
Company's accountants and counsel but, except as otherwise provided below, not
including fees of the Underwriters' counsel) in connection with the preparation,
printing, filing, delivery, and shipping of the Registration Statement
(including the financial statements therein and all amendments, schedules, and
exhibits thereto), the Securities, each Preliminary Prospectus, the Prospectus,
and any amendment thereof or supplement thereto, and the printing, delivery, and
shipping of this Agreement and other underwriting documents, including Blue Sky
Memoranda, (C) all filing fees and fees and disbursements of the Underwriters'
counsel incurred in connection with the qualification of the Securities for
offering and sale by the Underwriters or by dealers under the securities or blue
sky laws of the states and other jurisdictions which you shall designate in
accordance with Section 4(d) hereof, (D) the fees and expenses of any transfer
agent or registrar, (E) the filing fees and fees and disbursements of counsel
incident to any required review by the National Association of Securities
Dealers, Inc. of the terms of the sale of the Securities, (F) Nasdaq listing
fees, if any, and (G) all other costs and expenses incident to the performance
of its obligations hereunder that are not otherwise specifically provided for
herein. If the sale of the Securities provided for herein is not consummated by
reason of action by the Company pursuant to Section 9(a) hereof which prevents
this Agreement from becoming effective, or by reason of any failure, refusal or
inability on the part of the Company to perform any agreement on its part to be
performed, or because any other condition of the Underwriters' obligations
hereunder required to be fulfilled by the Company is not fulfilled unless
such failure to perform or fulfill is due solely to the default or omission
of any Underwriter, the Company will reimburse the several Underwriters for
all out-of-pocket disbursements (including reasonable fees and disbursements
of counsel) incurred by the Underwriters in connection with their
investigation, preparing to market and marketing the Securities or in
contemplation of performing their obligations hereunder. The Company shall
not in any event be liable to any of the Underwriters for loss of anticipated
profits from the transactions covered by this Agreement.
(IX) The Company will apply the net proceeds from the sale
of the Securities to be sold by it hereunder for the purposes set forth in the
Prospectus and will file such reports with the Commission with respect to the
sale of the Securities and the application of the proceeds therefrom as may be
required in accordance with Rule 463 of the Rules and Regulations.
(X) The Company will not, without your prior written
consent, offer for sale, sell, contract to sell, grant any option for the sale
of or otherwise issue or dispose of any Common Stock or any securities
convertible into or exchangeable for, or any options or rights to purchase or
acquire, Common Stock, except to the Underwriters pursuant to this Agreement for
a period of 180 days following the date of the Prospectus; PROVIDED, HOWEVER,
that the Company may (i) issue shares upon the exercise of options and warrants
granted prior to the date of the Prospectus, provided such options and warrants
are disclosed in the Prospectus, (ii) grant options under the Company's 1999
Stock Incentive Plan, provided such options are not exercisable during the
180-day period following the date of the Prospectus, (iii) issue 13,500 shares
upon exercise of options previously issued in connection with acquisitions by
the Company, [AND (IV) ISSUE SHARES OF COMMON STOCK IN CONNECTION WITH
ACQUISITION [TO BE DISCUSSED]].
13.
<PAGE>
DRAFT
-----
(XI) The Company either has caused to be delivered to you
or will cause to be delivered to you prior to the effective date of the
Registration Statement a letter (the "Lock-Up Agreement") from each of the
Company's directors, officers and stockholders stating that such person
agrees that he or she will not, without your prior written consent, offer for
sale, sell, contract to sell or otherwise dispose of any shares of Common
Stock beneficially owned (within the meaning of Rule 13d-3 of the Exchange
Act) by him or her prior to the date of the Prospectus through the end of
such 180-day period, or rights to purchase Common Stock, except to the
Underwriters pursuant to this Agreement, for a period of 180 days after the
date of the Prospectus, other than (i) as a bona fide gift or gifts, provided
the donee or donees thereof agree to be bound by the Lock-Up Agreement, (ii)
as a distribution to limited partners or stockholders of such person,
provided that the distributees thereof agree in writing to be bound by the
terms of the Lock-Up Agreement, (iii) in connection with a bona fide third
party tender or exchange offer open to all holders of Common Stock, or (iv)
with the prior written consent of U.S. Bancorp Piper Jaffray Inc.
(XII) The Company has not taken and will not take, directly
or indirectly, any action designed to or which might reasonably be expected to
cause or result in, or which has constituted, the stabilization or manipulation
of the price of any security of the Company to facilitate the sale or resale of
the Securities, and has not effected any sales of Common Stock which are
required to be disclosed in response to Item 701 of Regulation S-K under the Act
which have not been so disclosed in the Registration Statement.
(XIII) The Company will not incur any liability for any
finder's or brokers fee or agent's commission in connection with the execution
and delivery of this Agreement or the consummation of the transactions
contemplated hereby.
(XIV) The Company will inform the Florida Department of
Banking and Finance at any time prior to the consummation of the distribution of
the Securities by the Underwriters if it commences engaging in business with the
government of Cuba or with any person or affiliate located in Cuba. Such
information will be provided within 90 days after the commencement thereof or
after a change occurs with respect to previously reported information.
(B) The Selling Stockholder covenants and agrees with the several
Underwriters as follows:
(I) Except as otherwise agreed to by the Company and the
Selling Stockholder, such Selling Stockholder will pay all taxes, if any, on the
transfer and sale, respectively, of the Option Shares being sold by such Selling
Stockholder and the fees of such Selling Stockholder's counsel; PROVIDED,
HOWEVER, that the Selling Stockholder severally agrees to reimburse the Company
for any reimbursement made by the Company to the Underwriters pursuant to
Section 4(a)(viii) hereof to the extent such reimbursement resulted from the
failure or refusal on the part of such Selling Stockholder to comply under the
terms or fulfill any of the conditions of this Agreement.
(II) If this Agreement shall be terminated by the
Underwriters because of any failure, refusal or inability on the part of such
Selling Stockholder to perform any
14.
<PAGE>
DRAFT
-----
agreement on such Selling Stockholder's part to be performed, or because any
other condition of the Underwriters' obligations hereunder required to be
fulfilled by such Selling Stockholder is not fulfilled, such Selling Stockholder
agrees to reimburse the several Underwriters for all out-of-pocket disbursements
(including reasonable fees and disbursements of counsel for the Underwriters)
incurred by the Underwriters in connection with their investigation, preparing
to market and marketing the Option Shares or in contemplation of performing
their obligations hereunder. The Selling Stockholder shall not in any event be
liable to any of the Underwriters for loss of anticipated profits from the
transactions covered by this Agreement.
(III) The Option Shares to be sold by such Selling
Stockholder, represented by the certificates on deposit with the Custodian
pursuant to the Custody Agreement of such Selling Stockholder, are subject to
the interest of the several Underwriters; the arrangements made for such custody
are, except as specifically provided in the Custody Agreement, irrevocable; and
the obligations of such Selling Stockholder hereunder shall not be terminated,
except as provided in this Agreement or in the Custody Agreement, by any act of
such Selling Stockholder, by operation of law, whether by the liquidation,
dissolution or merger of such Selling Stockholder, by the death of such Selling
Stockholder, or by the occurrence of any other event. If such Selling
Stockholder should liquidate, dissolve or be a party to a merger or if any other
such event should occur before the delivery of the Option Shares hereunder,
[CERTIFICATES] for the Option Shares deposited with the Custodian shall be
delivered by the Custodian in accordance with the terms and conditions of this
Agreement as if such liquidation, dissolution, merger or other event had not
occurred, whether or not the Custodian shall have received notice thereof.
(IV) Such Selling Stockholder will not, without your prior
written consent, offer for sale, sell, contract to sell, grant any option for
the sale of or otherwise dispose of any Common Stock or any securities
convertible into or exchangeable for, or any options or rights to purchase or
acquire, Common Stock, except to the Underwriters pursuant to this Agreement,
for a period of 180 days after the commencement of the public offering of the
Securities by the Underwriters.
(V) Such Selling Stockholder has not taken and will not
take, directly or indirectly, any action designed to 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 Securities,
and has not effected any sales of Common Stock which, if effected by the
Company, would be required to be disclosed in response to Item 701 of Regulation
S-K.
(VI) Such Selling Stockholder shall immediately notify you
if any event occurs, or of any change in information relating to such Selling
Stockholder or the Company or any new information relating to the Company or
relating to any matter stated in the Prospectus or any supplement thereto
(including any term sheet within the meaning of Rule 434 of the Rules and
Regulations), which results in the Prospectus (as supplemented) including an
untrue statement of a material fact or omitting to state any material fact
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading.
5. CONDITIONS OF UNDERWRITERS' OBLIGATIONS. The obligations of the
several Underwriters hereunder are subject to the accuracy, as of the date
hereof and at each of the First
15.
<PAGE>
DRAFT
-----
Closing Date and the Second Closing Date (as if made at such Closing Date), of
and compliance with all representations, warranties and agreements of the
Company and the Selling Stockholder contained herein, to the performance by the
Company and the Selling Stockholder of their respective obligations hereunder
and to the following additional conditions:
(A) The Registration Statement shall have become effective not later
than 5:00 p.m., Central time, on the date of this Agreement, or such later time
and date as you, as Representatives of the several Underwriters, shall approve
and all filings required by Rules 424, 430A and 434 of the Rules and Regulations
shall have been timely made; no stop order suspending the effectiveness of the
Registration Statement or any amendment thereof shall have been issued; no
proceedings for the issuance of such an order shall have been initiated or
threatened; and any request of the Commission for additional information (to be
included in the Registration Statement or the Prospectus or otherwise) shall
have been complied with to your satisfaction.
(B) No Underwriter shall have advised the Company that the
Registration Statement or the Prospectus, or any amendment thereof or supplement
thereto (including any term sheet within the meaning of Rule 434 of the Rules
and Regulations), contains an untrue statement of fact which, in your opinion,
is material, or omits to state a fact which, in your opinion, is material and is
required to be stated therein or necessary to make the statements therein not
misleading.
(C) Except as contemplated in the Prospectus, subsequent to the
respective dates as of which information is given in the Registration Statement
and the Prospectus, neither the Company nor any of its subsidiaries shall have
incurred any material liabilities or obligations, direct or contingent, or
entered into any material transactions, or declared or paid any dividends or
made any distribution of any kind with respect to its capital stock; and there
shall not have been any change in the capital stock (other than a change in the
number of outstanding shares of Common Stock due to the issuance of shares upon
the exercise of outstanding options or warrants), or any material change in the
short-term or long-term debt of the Company, or any issuance of options,
warrants, convertible securities or other rights to purchase the capital stock
of the Company or any of its subsidiaries, or any material adverse change or any
development involving a prospective material adverse change (whether or not
arising in the ordinary course of business), in the condition (financial or
otherwise), business, key personnel, property, prospects, net worth or results
of operations of the Company and its subsidiaries, taken as a whole, that, in
your judgment, makes it impractical or inadvisable to offer or deliver the
Securities on the terms and in the manner contemplated in the Prospectus.
(D) On each Closing Date, there shall have been furnished to you, as
Representatives of the several Underwriters, the opinion of Willkie Farr &
Gallagher, counsel for the Company, dated such Closing Date and addressed to
you, to the effect that:
(I) The Company has been duly organized and is validly
existing as a corporation in good standing under the laws of its jurisdiction of
incorporation. The Company has all requisite corporate power and authority to
own, lease and operate its properties and conduct its business as currently
being conducted and as described in the Registration Statement and Prospectus,
and is duly qualified to do business as a foreign corporation and is in good
16.
<PAGE>
DRAFT
-----
standing in each jurisdiction in which the conduct of its business makes such
qualification necessary except where the failure to so qualify would not have a
Material Adverse Effect.
(II) The capital stock of the Company conforms as to legal
matters to the description thereof contained in the Prospectus under the caption
"Description of Capital Stock." All of the issued and outstanding shares of the
capital stock of the Company have been duly authorized and validly issued and
are fully paid and nonassessable, and the holders thereof are not subject to
personal liability by reason of being such holders. The Securities to be issued
and sold by the Company hereunder have been duly authorized and, when issued,
delivered and paid for in accordance with the terms of this Agreement, will have
been validly issued and will be fully paid and nonassessable, and the holders
thereof will not be subject to personal liability by reason of being such
holders. Except as otherwise stated in the Registration Statement and
Prospectus, to such counsel's knowledge, there are no preemptive rights or other
rights to subscribe for or to purchase, or any restriction upon the voting or
transfer of, any shares of Common Stock pursuant to the Company's charter or
by-laws or any agreement or other instrument to which the Company is a party or
by which the Company is bound. To such counsel's knowledge, neither the filing
of the Registration Statement nor the offering or sale of the Securities as
contemplated by this Agreement gives rise to any rights for or relating to the
registration of any shares of Common Stock or other securities of the Company
other than rights that have been effectively waived.
(III) The Registration Statement has become effective under
the Act and, to the best of such counsel's knowledge, 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 such
counsel, threatened by the Commission.
(IV) The descriptions (a) in the Prospectus under the
captions "Risk Factors - Government regulation and legal uncertainties could
add additional costs and risks to doing business on the Internet"; "-Our
charter documents and Delaware General Corporate Law may inhibit a takeover";
"-Shares eligible for public sale after this offering could hurt our stock
price"; "Management's Discussion and Analysis and Results of Operations -
Liquidity and Capital Resources"; "Business - Intellectual Property; Domain
Names"; "Management - Employment Contracts and Change of Control
Arrangements"; "-1999 Stock Incentive Plan"; "-Indemnification of Directors
and Executive Officers and Limitation of Liability"; "Certain Transactions";
"Description of Capital Stock"; "Shares Eligible for Future Sale"; and (b) in
the Registration Statement in Items 14 and 15, in each case insofar as such
statements constitute summaries of legal matters or documents (or provisions
thereof) referenced therein, fairly present the information required to be
disclosed with respect to such legal matters and documents (or provisions
thereof) and fairly summarize in all material respects such legal matters and
documents (or provisions thereof) required to be disclosed.
(V) The Company has all requisite corporate power and
authority to enter into this Agreement, and this Agreement has been duly
authorized, executed and delivered by the Company; the execution, delivery and
performance of this Agreement and the consummation of the transactions herein
contemplated will not result in a breach or violation of any of the terms and
provisions of, or constitute a default under, (a) any statute, rule or
regulation (other than state securities or blue sky laws as to which such
counsel need not express any
17.
<PAGE>
DRAFT
-----
opinion) applicable to the Company, (b) any agreement or instrument to which the
Company is a party or by which it is bound or to which any of its property is
subject which is filed as an exhibit to the Registration Statement or of which
such counsel is aware, (c) the Company's certificate of incorporation or
by-laws, or (d) or any order or decree known to such counsel of any court or
governmental agency or body having jurisdiction over the Company or any of its
respective properties; and no consent, approval, authorization or order of, or
filing with, any court or governmental agency or body is required for the
execution, delivery and performance by the Company of this Agreement or for the
consummation of the transactions contemplated hereby, including the issuance or
sale of the Securities by the Company, except such as has been obtained under
the Act or as may be required under blue sky laws or state securities laws (as
to which such counsel need not express any opinion).
(VI) To such counsel's knowledge, the Company is not in
violation of its charter or by-laws. To such counsel's knowledge, the Company is
not in breach of or otherwise in default in the performance of any obligation,
agreement or condition contained in any bond, debenture, note, indenture, loan
agreement or any other material contract, lease or other instrument to which it
is subject or by which it may be bound, or to which any of the property or
assets of the Company is subject, except for such breach or default which could
not reasonably be expected to have a Material Adverse Effect.
(VII) The Registration Statement and the Prospectus (except
for the financial statements and the notes thereto and the other financial,
statistical and accounting data included in the Registration Statement or the
Prospectus, as to which such counsel need not express an opinion) comply as to
form in all material respects with the requirements of the Act and the Rules and
Regulations.
(VIII) The merger between the Company and internet.com LLC
was effective as of _________, 1999 upon the filing of a merger agreement
with the Delaware Secretary of State in accordance with Section 264 of the
Delaware General Corporation Law. Pursuant to such merger, the separate
existence of the Predecessor ceased as of the time of such filing, the
membership interest of each member of the Predecessor outstanding immediately
prior to such merger, and each outstanding option and warrant to acquire any
such membership interests, which constituted all of the outstanding equity
interests, options and warrants with respect to the Predecessor as of such
time, was converted into shares of the Company's Common Stock and options and
warrants to purchase shares of the Company's Common Stock, respectively, and
the Company succeeded to and assumed all of the rights and obligations of the
Predecessor in effect immediately prior to such merger. All corporate action
on the part of the Company, the Predecessor and their respective directors,
stockholders, managers and members, as applicable, necessary for the
consummation of such merger had been obtained as of the time of such filing.
The consummation of such merger did not violate or contravene any provision
of (i) the Certificate of Incorporation, Bylaws or Operating Agreement of the
Company or the Predecessor, as applicable, (ii) any laws, rules or
regulations applicable to, or any order, writ, judgment, injunction, decree,
determination or award entered against, the Company or the Predecessor or
(iii) any agreement or instrument to which the Company or the Predecessor is
or was a party or by which the Company or the Predecessor is or was bound.
All necessary consents, approvals, authorizations or orders of, and filings,
registrations and qualifications with any regulatory authority or
governmental body required for the
18.
<PAGE>
DRAFT
-----
consummation of such merger were timely made or obtained. To the best of such
counsel's knowledge, there is no action, proceeding or investigation pending or
threatened that questions the validity of such merger, nor is there any basis
therefor.
In addition, such counsel shall state that such counsel has
participated in conferences with officers of the Company, other representatives
of the Company, the Representatives, Underwriters' Counsel and the independent
certified public accountants of the Company, examined documents referred to in
the Registration Statement and Prospectus and performed such other procedures as
such counsel deemed appropriate, and, although such counsel has not
independently verified and is not passing upon and assumes no responsibility for
the accuracy, completeness or fairness of the statements contained in the
Registration Statement or the Prospectus, nothing has come to the attention of
such counsel that causes such counsel to believe that the Registration Statement
or any amendment thereof, at the time the Registration Statement became
effective and as of such Closing Date (including any Registration Statement
filed under Rule 462(b) of the Rules and Regulations), contained any untrue
statement of a material fact or omitted to state any material fact required to
be stated therein or necessary to make the statements therein not misleading or
that the Prospectus (as of its date and as of such Closing Date), as amended or
supplemented, includes any untrue statement of material fact or omits to state a
material fact necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading; it being understood
that such counsel need express no opinion as to the financial statements and the
notes thereto or other financial, statistical and accounting data included in
any of the documents mentioned in this clause.
In rendering such opinion such counsel may rely (i) as to matters of
law other than New York, Delaware corporate and federal law, upon the opinion or
opinions of local counsel PROVIDED THAT the extent of such reliance is specified
in such opinion and that such counsel shall state that such opinion or opinions
of local counsel are satisfactory to them and that they believe they and you are
justified in relying thereon and (ii) as to matters of fact, to the extent such
counsel deems reasonable upon certificates of officers of the Company and its
subsidiaries PROVIDED THAT the extent of such reliance is specified in such
opinion.
(E) On each Closing Date, there shall have been furnished to you, as
Representatives of the several Underwriters, the opinion of Jones, Day, Reavis &
Pogue, counsel for the Selling Stockholder, dated such Closing Date and
addressed to you, to the effect that:
(I) The Selling Stockholder is the sole record and
beneficial owner of the Option Shares to be sold by such Selling Stockholder and
delivery of the [CERTIFICATES] for the Option Shares to be sold by such Selling
Stockholder pursuant to this Agreement, upon payment therefor by the
Underwriters, will pass marketable title to such Option Shares to the
Underwriters and the Underwriters will acquire all the rights of such Selling
Stockholder in the Option Shares (assuming the Underwriters have no knowledge of
an adverse claim), free and clear of any security interests, claims, liens or
other encumbrances.
(II) The Selling Stockholder has the power and authority to
enter into the Custody Agreement, the Power of Attorney and this Agreement and
to perform and discharge such Selling Stockholder obligations thereunder and
hereunder; and this Agreement, the Custody Agreements and the Powers of Attorney
have been duly and validly authorized, executed and
19.
<PAGE>
DRAFT
-----
delivered by (or by the Attorneys-in-Fact, or either of them, on behalf of) the
Selling Stockholder and are valid and binding agreements of the Selling
Stockholder, enforceable in accordance with their respective terms (except as
rights to indemnity hereunder or thereunder may be limited by federal or state
securities laws and except as such enforceability may be limited by bankruptcy,
insolvency, reorganization or similar laws affecting creditors' rights generally
and subject to general principles of equity).
(III) The execution and delivery of this Agreement, the
Custody Agreement and the Power of Attorney and the performance of the terms
hereof and thereof and the consummation of the transactions herein and therein
contemplated will not result in a breach or violation of any of the terms and
provisions of, or constitute a default under, any statute, rule or regulation,
or any agreement or instrument known to such counsel to which such Selling
Stockholder is a party or by which such Selling Stockholder is bound or to which
any of its property is subject, any such Selling Stockholder's charter or
by-laws, or any order or decree known to such counsel of any court or government
agency or body having jurisdiction over such Selling Stockholder or any of its
respective properties; and no consent, approval, authorization or order of, or
filing with, any court or governmental agency or body is required for the
execution, delivery and performance of this Agreement, the Custody Agreement and
the Power of Attorney or for the consummation of the transactions contemplated
hereby and thereby, including the sale of the Option Shares being sold by such
Selling Stockholder, except such as may be required under the Act or state
securities laws or blue sky laws.
(IV) Such other matters as you may reasonably request.
In rendering such opinion such counsel may rely (i) as to matters of
law other than Delaware law and federal law, upon the opinion or opinions of
local counsel PROVIDED THAT the extent of such reliance is specified in such
opinion and that such counsel shall state that such opinion or opinions of local
counsel are satisfactory to them and that they believe they and you are
justified in relying thereon and (ii) as to matters of fact, to the extent such
counsel deems reasonable upon certificates of officers of the Selling
Stockholder PROVIDED THAT the extent of such reliance is specified in such
opinion.
(F) On each Closing Date, there shall have been furnished to you, as
Representatives of the several Underwriters, such opinion or opinions from
Cooley Godward LLP, counsel for the several Underwriters, dated such Closing
Date and addressed to you, with respect to the formation of the Company, the
validity of the Securities, the Registration Statement, the Prospectus and other
related matters as you reasonably may request, and such counsel shall have
received such papers and information as they request to enable them to pass upon
such matters.
(G) On each Closing Date you, as Representatives of the several
Underwriters, shall have received a letter of Arthur Andersen LLP, dated such
Closing Date and addressed to you, confirming that they are independent public
accountants within the meaning of the Act and are in compliance with the
applicable requirements relating to the qualifications of accountants under Rule
2-01 of Regulation S-X of the Commission, and stating, as of the date of such
letter (or, with respect to matters involving changes or developments since the
respective dates as of which specified financial information is given in the
Prospectus, as of a date not more than five
20.
<PAGE>
DRAFT
-----
days prior to the date of such letter), the conclusions and findings of said
firm with respect to the financial information and other matters covered by its
letter delivered to you concurrently with the execution of this Agreement, and
the effect of the letter so to be delivered on such Closing Date shall be to
confirm the conclusions and findings set forth in such prior letter.
(H) On each Closing Date, there shall have been furnished to you, as
Representatives of the Underwriters, a certificate, dated such Closing Date and
addressed to you, signed by the chief executive officer and by the chief
financial officer of the Company, to the effect that:
(I) The representations and warranties of the Company in
this Agreement are true and correct, in all material respects, as if made at and
as of such Closing Date, and the Company has complied with all the agreements
and satisfied all the conditions on its part to be performed or satisfied at or
prior to such Closing Date;
(II) No stop order or other order suspending the
effectiveness of the Registration Statement or any amendment thereof or the
qualification of the Securities for offering or sale has been issued, and no
proceeding for that purpose has been instituted or, to the best of their
knowledge, is contemplated by the Commission or any state or regulatory body;
and
(III) The signers of said certificate have carefully examined
the Registration Statement and the Prospectus, and any amendments thereof or
supplements thereto (including any term sheet within the meaning of Rule 434 of
the Rules and Regulations), and (A) such documents contain all statements and
information required to be included therein, the Registration Statement, or any
amendment thereof, does not 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, does not include any untrue statement of 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, (B) since the
effective date of the Registration Statement, there has occurred no event
required to be set forth in an amended or supplemented prospectus which has not
been so set forth, (C) subsequent to the respective dates as of which
information is given in the Registration Statement and the Prospectus, and
except for the reverse stock split and merger of the Predecessor with and into
the Company, neither the Company nor any of its subsidiaries has incurred any
material liabilities or obligations, direct or contingent, or entered into any
material transactions, not in the ordinary course of business, or declared or
paid any dividends or made any distribution of any kind with respect to its
capital stock, and except as disclosed in the Prospectus, there has not been any
change in the capital stock (other than a change in the number of outstanding
shares of Common Stock due to the issuance of shares upon the exercise of
outstanding options or warrants), or any material change in the short-term or
long-term debt, or any issuance of options, warrants, convertible securities or
other rights to purchase the capital stock, of the Company, or any of its
subsidiaries, or any material adverse change or any development involving a
prospective material adverse change (whether or not arising in the ordinary
course of business), in the condition (financial or otherwise), business, key
personnel, property, prospects, net worth or results of operations of the
Company, and (D) except as stated in the Registration Statement and the
Prospectus, there is not pending, or, to the knowledge of the Company,
threatened or contemplated, any action, suit or proceeding to which the Company
21.
<PAGE>
DRAFT
-----
is a party before or by any court or governmental agency, authority or body, or
any arbitrator, which might result in any material adverse change in the
condition (financial or otherwise), business, prospects or results of operations
of the Company.
(I) On each Closing Date, there shall have been furnished to you, as
Representatives of the several Underwriters, a certificate or certificates,
dated such Closing Date and addressed to you, signed by the Selling Stockholder
or either of such Selling Stockholder's Attorneys-in-Fact to the effect that the
representations and warranties of such Selling Stockholder contained in this
Agreement are true and correct as if made at and as of such Closing Date, and
that such Selling Stockholder has complied with all the agreements and satisfied
all the conditions on such Selling Stockholder part to be performed or satisfied
at or prior to such Closing Date.
(J) The Company shall have furnished to you and counsel for the
Underwriters such additional documents, certificates and evidence as you or they
may have reasonably requested.
(K) The Securities have been conditionally approved for quotation on
the Nasdaq National Market.
All such opinions, certificates, letters and other documents will be
in compliance with the provisions hereof only if they are satisfactory in form
and substance to you and counsel for the Underwriters. The Company will furnish
you with such conformed copies of such opinions, certificates, letters and other
documents as you shall reasonably request.
6. INDEMNIFICATION AND CONTRIBUTION.
(A) The Company and the Selling Stockholder, jointly and severally,
agree to indemnify and hold harmless each Underwriter against any losses,
claims, damages or liabilities, joint or several, to which such Underwriter may
become subject, under the Act or otherwise (including in settlement of any
litigation if such settlement is effected with the written consent of the
Company and/or the Selling Stockholder, as the case may be), insofar as such
losses, claims, damages or liabilities (or actions in respect thereof) arise out
of or are based upon an untrue statement or alleged untrue statement of a
material fact contained in the Registration Statement, including the information
deemed to be a part of the Registration Statement at the time of effectiveness
pursuant to Rules 430A and 434(d) of the Rules and Regulations, if applicable,
any Preliminary Prospectus, the Prospectus, or any amendment or supplement
thereto (including any term sheet within the meaning of Rule 434 of the Rules
and Regulations), or arise out of or are based upon the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, and will reimburse each
Underwriter for any legal or other expenses reasonably incurred by it in
connection with investigating or defending against such loss, claim, damage,
liability or action; PROVIDED, HOWEVER, that neither the Company nor the Selling
Stockholder shall be liable in any such case to the extent that any such loss,
claim, damage, liability or action arises out of or is based upon an untrue
statement or alleged untrue statement or omission or alleged omission made in
the Registration Statement, any Preliminary Prospectus, the Prospectus, or any
such amendment or supplement, in reliance upon and in conformity with written
information furnished to the
22.
<PAGE>
DRAFT
-----
Company by you, or by any Underwriter through you, specifically for use in the
preparation thereof; and FURTHER PROVIDED, HOWEVER, that in no event shall the
Selling Stockholder be liable under the provisions of this Section 6 for any
amount in excess of the aggregate amount of proceeds such Selling Stockholder
received from the sale of the Securities pursuant to this Agreement; PROVIDED,
FURTHER, THAT, to the extent any such losses, claims, damages or liabilities to
which such Underwriter may become subject arise under Section 12 of the Act, the
foregoing indemnity agreement with respect to any Preliminary Prospectus shall
not inure to the benefit of any Underwriter from whom the person asserting such
losses, claims, damages or liabilities purchased Securities, if a copy of the
Prospectus (as then amended or supplemented if the Company shall have furnished
any amendments or supplements thereto) was not sent or given by or on behalf of
such Underwriter to such person, if required by law so to have been delivered,
at or prior to the written confirmation of the sale of the Securities to such
person, and if the Prospectus (as so amended or supplemented) would have cured
the defect giving rise to such losses, claims, damages or liabilities arising
under Section 12 of the Act.
In addition to their other obligations under this Section 6(a), the
Company and the Selling Stockholder agree that, as an interim measure during the
pendency of any claim, action, investigation, inquiry or other proceeding
arising out of or based upon any statement or omission, or any alleged statement
or omission, described in this Section 6(a), they will reimburse each
Underwriter on a monthly basis for all reasonable legal fees or other expenses
incurred in connection with investigating or defending any such claim, action,
investigation, inquiry or other proceeding, notwithstanding the absence of a
judicial determination as to the propriety and enforceability of the Company's
and/or the Selling Stockholder's obligation to reimburse the Underwriters for
such expenses and the possibility that such payments might later be held to have
been improper by a court of competent jurisdiction. To the extent that any such
interim reimbursement payment is so held to have been improper, the Underwriter
that received such payment shall promptly return it to the party or parties that
made such payment, together with interest, compounded daily, determined on the
basis of the prime rate (or other commercial lending rate for borrowers of the
highest credit standing) announced from time to time by U.S. Bancorp (the "Prime
Rate"). Any such interim reimbursement payments which are not made to an
Underwriter within 30 days of a request for reimbursement shall bear interest at
the Prime Rate from the date of such request. This indemnity agreement shall be
in addition to any liabilities which the Company or the Selling Stockholder may
otherwise have.
(B) Each Underwriter will indemnify and hold harmless the Company and
the Selling Stockholder against any losses, claims, damages or liabilities to
which the Company and the Selling Stockholder may become subject, under the Act
or otherwise (including in settlement of any litigation, if such settlement is
effected with the written consent of such Underwriter), insofar as such losses,
claims, damages or liabilities (or actions in respect thereof) arise out of or
are based upon an untrue statement or alleged untrue statement of a material
fact contained in the Registration Statement, any Preliminary Prospectus, the
Prospectus, or any amendment or supplement thereto (including any term sheet
within the meaning of Rule 434 of the Rules and Regulations), or arise out of or
are based upon the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, in each case to the extent, but only to the extent, that such untrue
statement or alleged untrue statement or omission or alleged omission was made
in the Registration Statement, any Preliminary Prospectus, the Prospectus, or
any such amendment or supplement,
23.
<PAGE>
DRAFT
-----
in reliance upon and in conformity with written information furnished to the
Company by you, or by such Underwriter through you, specifically for use in the
preparation thereof, and will reimburse the Company and the Selling Stockholder
for any legal or other expenses reasonably incurred by the Company or the
Selling Stockholder in connection with investigating or defending against any
such loss, claim, damage, liability or action.
(C) Promptly after receipt by an indemnified party under subsection
(a) or (b) above of notice of the commencement of any action, such indemnified
party shall, if a claim in respect thereof is to be made against the
indemnifying party under such subsection, notify the indemnifying party in
writing of the commencement thereof, but the omission so to notify the
indemnifying party shall not relieve the indemnifying party from any liability
that it may have to any indemnified party. In case any such action shall be
brought against any indemnified party, and it shall notify the indemnifying
party of the commencement thereof, the indemnifying party shall be entitled to
participate in, and, to the extent that it shall wish, jointly with any other
indemnifying party similarly notified, to assume the defense thereof, with
counsel satisfactory to such indemnified party, and after notice from the
indemnifying party to such indemnified party of the indemnifying party's
election so to assume the defense thereof, the indemnifying party shall not be
liable to such indemnified party under such subsection for any legal or other
expenses subsequently incurred by such indemnified party in connection with the
defense thereof other than reasonable costs of investigation; PROVIDED, HOWEVER,
that if, in the sole judgment of the Representatives, it is advisable for the
Underwriters to be represented as a group by separate counsel, the
Representatives shall have the right to employ a single counsel to represent the
Representatives and all Underwriters who may be subject to liability arising
from any claim in respect of which indemnity may be sought by the Underwriters
under subsection (a) of this Section 6, in which event the reasonable fees and
expenses of such separate counsel shall be borne by the indemnifying party or
parties and reimbursed to the Underwriters as incurred (in accordance with the
provisions of the second paragraph in subsection (a) above). An indemnifying
party shall not be obligated under any settlement agreement relating to any
action under this Section 6 to which it has not agreed in writing.
(D) If the indemnification provided for in this Section 6 is
unavailable or insufficient to hold harmless an indemnified party under
subsection (a) or (b) above, then each indemnifying party shall contribute to
the amount paid or payable by such indemnified party as a result of the losses,
claims, damages or liabilities referred to in subsection (a) or (b) above, (i)
in such proportion as is appropriate to reflect the relative benefits received
by the Company and the Selling Stockholder on the one hand and the Underwriters
on the other from the offering of the Securities or (ii) if the allocation
provided by clause (i) above is not permitted by applicable law, in such
proportion as is appropriate to reflect not only the relative benefits referred
to in clause (i) above but also the relative fault of the Company and the
Selling Stockholder on the one hand and the Underwriters on the other 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
Stockholder on the one hand and the Underwriters on the other shall be deemed to
be in the same proportion as the total net proceeds from the offering (before
deducting expenses) received by the Company and the Selling Stockholder bear to
the total underwriting discounts and commissions received by the Underwriters,
in each case as set forth in the table on the cover page of the Prospectus. The
relative fault shall be determined by reference to, among other things, whether
the untrue or
24.
<PAGE>
DRAFT
-----
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 or the
Underwriters, and the parties' relevant intent, knowledge, access to information
and opportunity to correct or prevent such untrue statement or omission. The
Company, the Selling Stockholder and the Underwriters agree that it would not be
just and equitable if contributions pursuant to this subsection (d) were to be
determined by pro rata allocation (even if the Underwriters were treated as one
entity for such purpose) or by any other method of allocation which does not
take account of the equitable considerations referred to in the first sentence
of this subsection (d). The amount paid by an indemnified party as a result of
the losses, claims, damages or liabilities referred to in the first sentence of
this subsection (d) shall be deemed to include any legal or other expenses
reasonably incurred by such indemnified party in connection with investigating
or defending against any action or claim which is the subject of this subsection
(d). Notwithstanding the provisions of this subsection (d), no Underwriter shall
be required to contribute any amount in excess of the amount by which the total
price at which the Securities 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 Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. The Underwriters' obligations in this subsection
(d) to contribute are several in proportion to their respective underwriting
obligations and not joint.
(E) The obligations of the Company and the Selling Stockholder under
this Section 6 shall be in addition to any liability which the Company and the
Selling Stockholder may otherwise have and shall extend, upon the same terms and
conditions, to each person, if any, who controls any Underwriter within the
meaning of the Act; and the obligations of the Underwriters under this Section 6
shall be in addition to any liability that the respective Underwriters may
otherwise have and shall extend, upon the same terms and conditions, to each
director of the Company (including any person who, with his consent, is named in
the Registration Statement as about to become a director of the Company), to
each officer of the Company who has signed the Registration Statement and to
each person, if any, who controls the Company within the meaning of the Act.
7. REPRESENTATIONS AND AGREEMENTS TO SURVIVE DELIVERY. All
representations, warranties and agreements of the Company herein or in
certificates delivered pursuant hereto, and the agreements of the several
Underwriters, the Company and the Selling Stockholder contained in Section 6
hereof, shall remain operative and in full force and effect regardless of any
investigation made by or on behalf of any Underwriter or any controlling person
thereof, or the Company or any of its officers, directors, or controlling
persons, or the Selling Stockholder or any controlling person thereof, and shall
survive delivery of, and payment for, the Securities to and by the Underwriters
hereunder.
8. SUBSTITUTION OF UNDERWRITERS.
(A) If any Underwriter or Underwriters shall fail to take up and pay
for the amount of Firm Shares agreed by such Underwriter or Underwriters to be
purchased hereunder, upon tender of such Firm Shares in accordance with the
terms hereof, and the amount of Firm Shares not purchased does not aggregate
more than 10% of the total amount of Firm Shares set
25.
<PAGE>
DRAFT
-----
forth in Schedule I hereto, the remaining Underwriters shall be obligated to
take up and pay for (in proportion to their respective underwriting obligations
hereunder as set forth in Schedule I hereto except as may otherwise be
determined by you) the Firm Shares that the withdrawing or defaulting
Underwriters agreed but failed to purchase.
(B) If any Underwriter or Underwriters shall fail to take up and pay
for the amount of Firm Shares agreed by such Underwriter or Underwriters to be
purchased hereunder, upon tender of such Firm Shares in accordance with the
terms hereof, and the amount of Firm Shares not purchased aggregates more than
10% of the total amount of Firm Shares set forth in Schedule I hereto, and
arrangements satisfactory to you for the purchase of such Firm Shares by other
persons are not made within 36 hours thereafter, this Agreement shall terminate.
In the event of any such termination the Company and the Selling Stockholder
shall not be under any liability to any Underwriter (except to the extent
provided in Section 4(a)(viii), Section 4(b)(ii) and Section 6 hereof) nor shall
any Underwriter (other than an Underwriter who shall have failed, otherwise than
for some reason permitted under this Agreement, to purchase the amount of Firm
Shares agreed by such Underwriter to be purchased hereunder) be under any
liability to the Company or the Selling Stockholder (except to the extent
provided in Section 6 hereof).
If Firm Shares to which a default relates are to be purchased by the
non-defaulting Underwriters or by any other party or parties, the
Representatives or the Company shall have the right to postpone the First
Closing Date for not more than seven business days in order that the necessary
changes in the Registration Statement, Prospectus and any other documents, as
well as any other arrangements, may be effected. As used herein, the term
"Underwriter" includes any person substituted for an Underwriter under this
Section 8.
9. EFFECTIVE DATE OF THIS AGREEMENT AND TERMINATION; DEFAULT.
(A) This Agreement shall become effective at 10:00 a.m., Central
time, on the first full business day following the effective date of the
Registration Statement, or at such earlier time after the effective time of the
Registration Statement as you in your discretion shall first release the
Securities for sale to the public; PROVIDED, THAT if the Registration Statement
is effective at the time this Agreement is executed, this Agreement shall become
effective at such time as you in your discretion shall first release the
Securities for sale to the public. For the purpose of this Section, the
Securities shall be deemed to have been released for sale to the public upon
release by you of the publication of a newspaper advertisement relating thereto
or upon release by you of telexes offering the Securities for sale to securities
dealers, whichever shall first occur. By giving notice as hereinafter specified
before the time this Agreement becomes effective, you, as Representatives of the
several Underwriters, or the Company may prevent this Agreement from becoming
effective without liability of any party to any other party, except that the
provisions of Section 4(a)(viii), Section 4(b)(ii) and Section 6 hereof shall at
all times be effective.
(B) You, as Representatives of the several Underwriters, shall have
the right to terminate this Agreement by giving notice as hereinafter specified
at any time at or prior to the First Closing Date, and the option referred to in
Section 3(b), if exercised, may be cancelled at any time prior to the Second
Closing Date, if (i) the Company shall have failed, refused or been unable, at
or prior to such Closing Date, to perform any agreement on its part to be
performed
26.
<PAGE>
DRAFT
-----
hereunder, (ii) any other condition of the Underwriters' obligations hereunder
is not fulfilled, (iii) trading on the New York Stock Exchange or the American
Stock Exchange shall have been wholly suspended, (iv) minimum or maximum prices
for trading shall have been fixed, or maximum ranges for prices for securities
shall have been required, on the New York Stock Exchange or the American Stock
Exchange, by such Exchange or by order of the Commission or any other
governmental authority having jurisdiction, (v) a banking moratorium shall have
been declared by Federal or New York authorities, or (vi) there has occurred any
material adverse change in the financial markets in the United States or an
outbreak of major hostilities (or an escalation thereof) in which the United
States is involved, a declaration of war by Congress, any other substantial
national or international calamity or any other event or occurrence of a similar
character shall have occurred since the execution of this Agreement that, in
your judgment, makes it impractical or inadvisable to proceed with the
completion of the sale of and payment for the Securities. Any such termination
shall be without liability of any party to any other party except that the
provisions of Section 4(a)(viii), Section 4(b)(ii) and Section 6 hereof shall at
all times be effective.
(C) If you elect to prevent this Agreement from becoming effective or
to terminate this Agreement as provided in this Section, the Company and an
Attorney-in-Fact, on behalf of the Selling Stockholder, shall be notified
promptly by you by telephone or telegram, confirmed by letter. If the Company
elects to prevent this Agreement from becoming effective, you and an
Attorney-in-Fact, on behalf of the Selling Stockholder, shall be notified by the
Company by telephone or telegram, confirmed by letter.
(D) If the Company shall fail at the First Closing Date to sell and
deliver the number of Securities which it is obligated to sell hereunder, then
this Agreement shall terminate without any liability on the part of any
non-defaulting party.
10. INFORMATION FURNISHED BY UNDERWRITERS. The statements set forth in the
last paragraph of the cover page and under the caption "Underwriting" in any
Preliminary Prospectus and in the Prospectus constitute the written information
furnished by or on behalf of the Underwriters referred to in Section 2 and
Section 6 hereof.
11. NOTICES. Except as otherwise provided herein, all communications
hereunder shall be in writing or by telegraph and, if to the Underwriters, shall
be mailed, telegraphed or delivered to the Representatives c/o U.S. Bancorp
Piper Jaffray Inc., Piper Jaffray Tower, 222 South Ninth Street, Minneapolis,
Minnesota 55402, except that notices given to an Underwriter pursuant to Section
6 hereof shall be sent to such Underwriter at the address stated in the
Underwriters' Questionnaire furnished by such Underwriter in connection with
this offering; if to the Company, shall be mailed, telegraphed or delivered to
it at internet.com Corporation, 20 Ketchum Street, Westport, Connecticut 06880,
Attention: Alan M. Meckler. All notices given by telegram shall be promptly
confirmed by letter. Any party to this Agreement may change such address for
notices by sending to the parties to this Agreement written notice of a new
address for such purpose.
12. PERSONS ENTITLED TO BENEFIT OF AGREEMENT. This Agreement shall inure
to the benefit of and be binding upon the parties hereto and their respective
successors and assigns and the controlling persons, officers and directors
referred to in Section 6. Nothing in this
27.
<PAGE>
DRAFT
-----
Agreement is intended or shall be construed to give to any other person, firm or
corporation any legal or equitable remedy or claim under or in respect of this
Agreement or any provision herein contained. The term "successors and assigns"
as herein used shall not include any purchaser, as such purchaser, of any of the
Securities from any of the several Underwriters.
13. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Minnesota.
14. COUNTERPARTS. This Agreement may be signed in counterparts, each of
which shall be enforceable against the party signing such counterpart, and all
of which shall be deemed one instrument.
28.
<PAGE>
DRAFT
-----
Please sign and return to the Company the enclosed duplicates of this
letter whereupon this letter will become a binding agreement between the Company
and the several Underwriters in accordance with its terms.
Very truly yours,
INTERNET.COM CORPORATION
By
---------------------------------
[Title]
INTERNET WORLD MEDIA, INC.
By
---------------------------------
[Title]
Confirmed as of the date first above
mentioned, on behalf of themselves
and the other several Underwriters
named in Schedule I hereto.
U.S. BANCORP PIPER JAFFRAY INC.
By
---------------------------------
Managing Director
WILLIAM BLAIR & COMPANY L.L.C.
By
---------------------------------
Managing Director
DLJdirect INC.
By
---------------------------------
Managing Director
29.
<PAGE>
DRAFT
-----
SCHEDULE I
<TABLE>
<CAPTION>
NUMBER OF FIRM NUMBER OF OPTION
UNDERWRITER SHARES (1) SHARES
<S> <C> <C>
U.S. Bancorp Piper Jaffray Inc.
William Blair & Company L.L.C.
DLJdirect Inc.
-------------- ----------------
Total............................
============== ================
</TABLE>
- ----------
(1) The Underwriters may purchase up to an additional 510,000 Option Shares,
to the extent the option described in Section 3(b) of the Agreement is
exercised, in the proportions and in the manner described in the
Agreement.
<PAGE>
Exhibit 2.01
MERGER AGREEMENT
OF
INTERNET.COM, LLC
WITH AND INTO
INTERNET.COM CORPORATION
This Merger Agreement (this "AGREEMENT") is dated as of _________,
1999 by and between internet.com LLC, a Delaware limited liability company
("LLC"), and internet.com Corporation, a Delaware corporation ("internet.com").
1. MERGER; EFFECTIVE TIME. Upon the terms and subject to the
conditions hereof, in accordance with the Delaware General Corporation Law (the
"DGCL") and the Delaware Limited Liability Company Act (the "DLLCA"), LLC will
be merged with and into internet.com (the "Merger"). internet.com will be the
surviving corporation (hereinafter referred to sometimes as the "Surviving
Corporation") of the Merger, and the separate existence of LLC shall cease. The
Merger will be effective as of the date and at such time as this Agreement and
any other documents necessary to effect the Merger in accordance with the DGCL
and DLLCA are duly filed with the Secretary of State of the State of Delaware
(the time the Merger becomes effective being referred to herein as the
"Effective Time").
2. EXCHANGE OF SECURITIES.
(a) CONVERSION OF LIMITED LIABILITY COMPANY INTERESTS. At the
Effective Time, each membership unit (a "Unit") or portion thereof representing
a membership interest in LLC of each member ("Member") thereof immediately prior
to the Effective Time will, by virtue of the Merger and without further action
on the part of any Member, be converted into [16,215.891] shares of fully paid
and nonassessable Common Stock, par value $0.01 per share, of internet.com
("internet.com Common Stock").
(b) SECURITIES OF INTERNET.COM OUTSTANDING. Each share of Common
Stock, par value $.01 per share, of internet.com issued and outstanding
immediately before the Effective Time shall thereafter represent one validly
issued, fully paid and nonassessable share of Common Stock, par value $.01 per
share, of the Surviving Corporation.
(c) ISSUANCE OF STOCK CERTIFICATES. Promptly following the
Effective Time, internet.com shall issue stock certificates representing the
internet.com Common Stock to the holders of the Units that were converted by
virtue of the Merger.
3. GOVERNING DOCUMENTS.
<PAGE>
(a) At the Effective Time, the Certificate of Incorporation of
internet.com in effect immediately prior to the Effective Time shall become the
Certificate of Incorporation of the Surviving Corporation and the Bylaws of
internet.com in effect immediately prior to the Effective Time shall become the
Bylaws of the Surviving Corporation.
(b) At the Effective Time, the Second Amended and Restated
Limited Liability Company Agreement of LLC (the "LLC Agreement") shall have no
further force and effect, except for those provisions which, by their terms,
survive the termination of the LLC Agreement.
4. PRINCIPAL OFFICE. The location of the principal office of
internet.com is 20 Ketchum Street, Westport, Connecticut 06880. The location of
the principal office of internet.com in the State of Delaware is c/o The
Corporation Trust Company, 1209 Orange Street, Wilmington, Delaware 19805. The
name of its registered agent in Delaware is The Corporation Trust Company.
5. DIRECTORS AND OFFICERS. At the Effective Time, the directors and
officers of internet.com immediately prior to the Effective Time shall be and
become the directors and officers (holding the same titles and positions) of the
Surviving Corporation, and after the Effective Time shall serve in accordance
with the Certificate of Incorporation and Bylaws of the Surviving Corporation.
6. EMPLOYEE BENEFIT PLANS. At the Effective Time, the obligations of
LLC under or with respect to every plan, trust, program and benefit then in
effect or administered by LLC for the benefit of the directors, officers and
employees of LLC, shall become the lawful obligations of internet.com and shall
be implemented and administered in the same manner and without interruption
until the same are amended or otherwise lawfully altered or terminated.
Effective at the Effective Time, internet.com hereby expressly adopts and
assumes all obligations of LLC under such employee benefit plans.
7. FURTHER ASSURANCES. After the Effective Time, internet.com and
its officers and directors may execute and deliver such deeds, assignments,
assurances and other documents and do all other things necessary or desirable to
vest, perfect or confirm title to LLC's property or rights in internet.com and
otherwise to carry out the purposes of the Merger in the name of LLC or
otherwise.
8. APPROVAL OF MERGER. The Merger has been duly approved by the
holders of the outstanding Units in LLC in accordance with the DLLCA and the LLC
Agreement, and has been duly approved by the Board of Directors of internet.com
in accordance with the DGCL.
-2-
<PAGE>
9. ASSIGNMENT. Neither party hereto may assign any of its rights or
obligations hereunder without the prior written consent of the other party
hereto. This Agreement will be binding upon and inure to the benefit of the
parties hereto and their respective successors and permitted assigns.
10. ABANDONMENT. At any time before the Effective Time, this
Agreement may be terminated and the Merger abandoned by the Managing Board of
LLC or the Board of Directors of internet.com, notwithstanding approval of this
Agreement by the holders of the outstanding Units in LLC and such Managing Board
and such Board of Directors.
11. AMENDMENT. At any time before the Effective Time, this Agreement
may be amended, modified or supplemented by the Managing Board of LLC and the
Board of Directors of internet.com, notwithstanding approval of this Agreement
by the holders of the outstanding Units in LLC; provided, however, that no such
amendment, modification or supplement not approved by the holders of the
outstanding Units in LLC may materially adversely affect the benefits intended
under this Agreement for the holders of the outstanding Units in LLC.
12. GOVERNING LAW. This Agreement will be governed by and construed
in accordance with the laws of the State of Delaware applicable to contracts
entered into and to be performed wholly within the State of Delaware without
regard to principles of conflict of laws.
13. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which will be an original as regards any party whose
signature appears thereon and all of which together will constitute one and the
same instrument.
-3-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed as of the date and year first above written.
INTERNET.COM CORPORATION INTERNET.COM LLC
By: By:
------------------------------ ------------------------------
Alan M. Meckler, Chairman Alan M. Meckler, Chairman
and Chief Executive Officer and Chief Executive Officer
Attest Attest
By: By:
------------------------------ ------------------------------
-4-
<PAGE>
Exhibit 3.02
FORM OF
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
INTERNET.COM CORPORATION
INTERNET.COM CORPORATION, a corporation organized and existing
under the laws of the State of Delaware, hereby certifies as follows:
1. The name of the corporation is internet.com Corporation.
The date of filing of its original Certificate of Incorporation with the
Secretary of State was April 5, 1999.
2. This Amended and Restated Certificate of Incorporation
restates and amends the Certificate of Incorporation of this corporation by
increasing the total number of shares of stock which the corporation shall have
authority to issue to 75,000,000 shares of common stock having a par value of
$.01 per share and 4,000,000 shares of preferred stock having a par value of
$.01 per share.
3. The text of the Certificate of Incorporation is amended and
restated hereby to read as herein set forth in full:
FIRST: The name of the corporation (the "CORPORATION") is
internet.com Corporation.
SECOND: The address of the registered office of the
Corporation in the State of Delaware is Corporation Trust Company, 1209 Orange
Street, in the City of Wilmington, County of New Castle. The name of its
registered agent at such address is The Corporation Trust Company.
THIRD: The purpose of the Corporation is to engage in any
lawful act or activity for which corporations may be organized under the General
Corporation Law of the State of Delaware as now in effect or as hereafter
amended.
FOURTH: The total number of shares of stock which the
Corporation shall have authority to issue is 75,000,000
<PAGE>
shares of common stock having a par value of $.01 per share and 4,000,000 shares
of preferred stock having a par value of $.01 per share. To the extent not
otherwise provided for by, and not inconsistent with, this Certificate of
Incorporation, there is hereby expressly vested in the Board of Directors the
authority to fix in the resolution or resolutions providing for the issue of
each series of such preferred stock, the voting power and the designations,
preferences and relative, participating, operational or other rights of each
such series, and the qualifications, limitations or restrictions thereof. Shares
of preferred stock may be issued from time to time in one or more series as may
from time to time be determined by the Board of Directors, each such series to
be distinctly designated.
FIFTH: The name and mailing address of the incorporator is as
follows:
NAME MAILING ADDRESS
Elliott M. Beard c/o Willkie Farr & Gallagher
787 Seventh Avenue
New York, NY 10019
SIXTH: In furtherance and not in limitation of the powers
conferred by statute, the By-Laws of the Corporation may be made, altered,
amended or repealed by the stockholders or by a majority of the entire Board of
Directors.
SEVENTH: Elections of directors need not be by written ballot.
EIGHTH: 1. INDEMNIFICATION. The Corporation shall indemnify to
the fullest extent permitted under and in accordance with the laws of the State
of Delaware any person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative (other than an action by or in
the right of the Corporation) by reason of the fact that he is or was a
director, officer, incorporator, employee or agent of the Corporation, or is or
was serving at the request of the Corporation as a director, officer, trustee,
employee or agent of or in any other similar capacity with another corporation,
partnership, joint venture, trust or other enterprise, against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by him in connection with such action, suit or
proceeding if he acted in good faith and in a manner he reasonably believed to
be in or not opposed to the best interests of the Corporation, and, with respect
to any criminal action or proceeding, had no reasonable cause to believe his
conduct was unlawful. The termination of any
-2-
<PAGE>
action, suit or proceeding by judgment, order, settlement, conviction, or upon a
plea of nolo contendere or its equivalent, shall not, of itself, create a
presumption that the person did not act in good faith and in a manner which he
reasonably believed to be in, or not opposed to, the best interests of the
Corporation, and, with respect to any criminal action or proceeding, shall not,
of itself, create a presumption that the person had reasonable cause to believe
that his conduct was unlawful.
2. PAYMENT OF EXPENSES. Expenses (including attorneys' fees)
incurred in defending any civil, criminal, administrative or investigative
action, suit or proceeding shall (in the case of any action, suit or proceeding
against a director of the Corporation) or may (in the case of any action, suit
or proceeding against an officer, trustee, employee or agent) be paid by the
Corporation in advance of the final disposition of such action, suit or
proceeding as authorized by the Board of Directors upon receipt of an
undertaking by or on behalf of the indemnified person to repay such amount if it
shall ultimately be determined that he is not entitled to be indemnified by the
Corporation as authorized in this Article EIGHTH.
3. NONEXCLUSIVITY OF PROVISION. The indemnification and other
rights set forth in this Article EIGHTH shall not be exclusive of any provisions
with respect thereto in the By-Laws or any other contract or agreement between
the Corporation and any officer, director, employee or agent of the Corporation.
4. EFFECT OF REPEAL. Neither the amendment nor repeal of this
Article EIGHTH, subparagraph 1, 2, or 3, nor the adoption of any provision of
this Certificate of Incorporation inconsistent with Article EIGHTH, subparagraph
1, 2, or 3, shall eliminate or reduce the effect of this Article EIGHTH,
subparagraphs 1, 2, and 3, in respect of any matter occurring before such
amendment, repeal or adoption of an inconsistent provision or in respect of any
cause of action, suit or claim relating to any such matter which would have
given rise to a right of indemnification or right to receive expenses pursuant
to this Article EIGHTH, subparagraph 1, 2, or 3, if such provision had not been
so amended or repealed or if a provision inconsistent therewith had not been so
adopted.
5. LIMITATION ON LIABILITY. No director or officer shall be
personally liable to the Corporation or any stockholder for monetary damages for
breach of fiduciary duty as a director or officer, except for any matter in
respect of which such director or officer (A) shall be liable under Section 174
of the General Corporation Law of the State of Delaware or any amendment thereto
or successor provision thereto, or (B) shall be liable by reason that, in
-3-
<PAGE>
addition to any and all other requirements for liability, he:
(i) shall have breached his duty of loyalty to the
Corporation or its stockholders;
(ii) shall not have acted in good faith or, in failing to act,
shall not have acted in good faith;
(iii) shall have acted in a manner involving intentional
misconduct or a knowing violation of law or, in failing to
act, shall have acted in a manner involving intentional
misconduct or a knowing violation of law; or
(iv) shall have derived an improper personal benefit.
If the General Corporation Law of the State of Delaware is amended after the
date of the filing of this Certificate of Incorporation to authorize corporate
action further eliminating or limiting the personal liability of directors, then
the liability of a director of the Corporation shall be eliminated or limited to
the fullest extent permitted by the General Corporation Law of the State of
Delaware, as so amended.
NINTH: Whenever a compromise or arrangement is proposed
between this Corporation and its creditors or any class of them and/or between
this Corporation and its stockholders or any class of them, any court of
equitable jurisdiction within the State of Delaware may, on the application in a
summary way of this Corporation or of any creditor or stockholder thereof on the
application of any receiver or receivers appointed for this Corporation under
the provisions of section 291 of Title 8 of the Delaware Code or on the
application of trustees in dissolution or of any receiver or receivers appointed
for the Corporation under the provisions of section 279 of Title 8 of the
Delaware Code, order a meeting of the creditors or class of creditors, and/or of
the stockholders or class of stockholders of the Corporation, as the case may
be, to be summoned in such manner as the said court directs. If a majority in
number representing three-fourths in value of the creditors or class of
creditors, and/or of the stockholders or class of stockholders of this
Corporation, as the case may be, agree to any compromise or arrangement and to
any reorganization of this Corporation as consequence of such compromise or
arrangement, the said compromise or arrangement and the said reorganization
shall, if sanctioned by the court to which the said application has been made,
be binding on all the creditors or class of creditors, and/or on all the
stockholders or class of stockholders, of this
-4-
<PAGE>
Corporation, as the case may be, and also on this Corporation.
4. This Amended and Restated Certificate of Incorporation was
duly adopted by unanimous written consent of the directors of the corporation in
accordance with the applicable provisions of Sections 141 and 241 of the General
Corporation Law of the State of Delaware.
-5-
<PAGE>
IN WITNESS WHEREOF, said INTERNET.COM CORPORATION has caused
this certificate to be signed and attested by Alan M. Meckler, its Chairman and
Chief Executive Officer, this ______ day of _____, 1999.
INTERNET.COM CORPORATION
By:
----------------------------------
Name: Alan M. Meckler
Title: Chairman and Chief
Executive Officer
-6-
<PAGE>
Exhibit 4.01
THIS CERTIFIES THAT
is the owner of
FULLY-PAID AND NONASSESSABLE SHARES OF THE COMMON STOCK, $.01 PAR VALUE, OF
internet.com Corporation (the "Corporation") transferable on the books of the
Corporation by the holder hereof in person or by duly authorized attorney,
upon surrender of this Certificate properly endorsed. This Certificate and
the shares represented hereby are subject to all of the terms and conditions
contained in the Certificate of Incorporation and all amendments thereto.
Upon request, the Corporation will furnish without charge to the holder
hereof a statement of the powers, designations, preferences and relative,
participating, optional or other special rights of each class of stock or
series thereof and the qualifications, limitations or restrictions of such
preferences and/or rights as may be established, from time to time, by the
Certificate of Incorporation of the Corporation and by any certificate of
designation, the number of shares constituting each class and series, and the
designations thereof. This Certificate is not valid unless countersigned and
registered by the Transfer Agent and Registrar.
WITNESS the facsimile seal of the Corporation and the facsimile signatures
of its duly authorized officers.
Dated:
Chairman and
Chief Executive Officer
President and
Chief Operating Officer
COUNTERSIGNED AND REGISTERED:
AMERICAN STOCK TRANSFER & TRUST COMPANY
TRANSFER AGENT AND REGISTRAR
<PAGE>
BY
AUTHORIZED SIGNATURE
The following abbreviations, when used in the inscription on the face of this
certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM -
TEN ENT -
JT TEN -
as tenants in common
as tenants by the entireties
as joint tenants with right
of survivorship and not as
tenants in common
UNIF GIFT MIN ACT Custodian
(Cust)
(Minor)
under Uniform Gifts to Minors
Act
(State)
Additional abbreviations may also be used though not in the above list.
For Value Received, hereby sell,
assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE OF ASSIGNEE)
Shares
of the common stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
Attorney
to transfer the said stock on the books of the within named Company with full
power of substitution in the premises.
Dated
NOTICE:
THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS WRITTEN UPON
THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR, WITHOUT ALTERATION OR
ENLARGEMENT OR ANY CHANGE WHATEVER.
Signature(s) Guaranteed:
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION
(BANKS, STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH
MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM), PURSUANT TO
S.E.C. RULE 17Ad-15.
<PAGE>
FORM OF INDEMNIFICATION AGREEMENT
THIS INDEMNIFICATION AGREEMENT ("Agreement"), dated as of _______, by and
between internet.com Corporation, a Delaware corporation (the "Corporation"),
and (the "Indemnitee").
RECITALS
WHEREAS, the Amended and Restated Certificate of Incorporation of the
Corporation (the "Charter") and the By-laws of the Corporation (the "By-laws")
provide for indemnification by the Corporation of its directors and officers as
provided therein, and the Indemnitee has agreed to serve as a director and/or
officer of the Corporation or has agreed to continue to serve as a director
and/or officer of the Corporation;
WHEREAS, to provide the Indemnitee with additional contractual assurance of
protection against personal liability in connection with certain proceedings
described below, the Corporation desires to enter into this Agreement;
WHEREAS, the General Corporation Law of the State of Delaware (the "DGCL")
expressly recognizes that the indemnification provisions of the DGCL are not
exclusive of any other rights to which a person seeking indemnification may be
entitled under the Charter or By-laws, a resolution of stockholders or
directors, an agreement or otherwise, and this Agreement is being entered into
pursuant to and in furtherance of the Charter and By-laws, as permitted by the
DGCL and as authorized by the Charter and the Board of Directors of the
Corporation;
WHEREAS, in order to induce the Indemnitee to serve or continue to serve as
a director and/or officer of the Corporation and in consideration of the
Indemnitee so serving, the Corporation desires to indemnify the Indemnitee and
to make arrangements pursuant to which the Indemnitee may be advanced or
reimbursed expenses incurred by the Indemnitee in certain proceedings described
below, according to the terms and conditions set forth below;
NOW, THEREFORE, in consideration of the Indemnitee's agreement to serve or
continue to serve as a director and/or officer of the Corporation and of other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the Corporation has agreed to the covenants set forth herein for
the purpose of further securing to the Indemnitee the indemnification provided
by the Charter and the By-laws:
1. INDEMNIFICATION.
<PAGE>
(a) In accordance with the provisions of paragraph (b) of this Section 1,
the Corporation shall hold harmless and indemnify the Indemnitee against any and
all expenses, liabilities and losses (including, without limitation,
investigation expenses, expert witnesses' and attorneys' fees and expenses,
judgments, penalties, fines, ERISA excise taxes, amounts paid or to be paid in
settlement and any federal, state, local or foreign taxes imposed on the
Indemnitee as a result of the actual or deemed receipt of any payments under
this Agreement, including all interest, assessments and other charges paid or
payable in connection with or in respect of such expenses, liabilities and
losses) actually incurred by the Indemnitee (net of any related insurance
proceeds or other amounts received by the Indemnitee or paid by or on behalf of
the Corporation on the Indemnitee's behalf) in connection with any threatened,
pending or completed action, suit, arbitration or proceeding or any hearing,
inquiry or investigation, whether brought by or in the right of the Corporation
or otherwise, that the Indemnitee in good faith believes might lead to the
institution of any such action, suit, arbitration or proceeding, whether civil,
criminal, administrative, investigative or other, or any appeal therefrom, in
which the Indemnitee was, is or becomes a party, witness or other participant,
or was, is or becomes threatened to be made a party, witness or other
participant, (a "Proceeding") based upon, arising from, relating to, or by
reason of the fact that the Indemnitee is, was, shall be, or shall have been a
director and/or officer of the Corporation (or any subsidiary of the
Corporation) or is or was serving, shall serve, or shall have served at the
request of the Corporation as a director, officer, partner, trustee, employee,
fiduciary or agent ("Affiliate Indemnitee") of another foreign or domestic
corporation or non-profit corporation, cooperative, partnership, joint venture,
trust, or other incorporated or unincorporated enterprise (each, a "Corporation
Affiliate"). All amounts payable by the Corporation pursuant to this Section 1
and Section 2 hereof are herein referred to as "Indemnified Amounts."
(b) In providing the foregoing indemnification, the Corporation shall, with
respect to a Proceeding, hold harmless and indemnify the Indemnitee to the
fullest extent required by the DGCL (including, without limitation, Section
145(c) of the DGCL) and to the fullest extent permitted by the Express Permitted
Indemnification Provisions (as hereinafter defined) of the DGCL. For purposes of
this Agreement, the Express Permitted Indemnification Provisions of the DGCL
shall mean indemnification as permitted by Section 145 of the DGCL or by any
amendment thereof or other statutory provisions expressly permitting such
indemnification which is adopted after the date hereof (but, in the case of any
such amendment, only to the extent that such amendment permits the Corporation
to provide broader indemnification rights than said law required or permitted
the Corporation to provide prior to such amendment).
-2-
<PAGE>
(c) Without limiting the generality of the foregoing, the Indemnitee shall
be entitled to the rights of indemnification provided in this Section 1 for any
expenses actually incurred in any Proceeding initiated by or in the right of the
Corporation unless the Indemnitee shall have been adjudged to be liable to the
Corporation; provided, however, that, despite the adjudication of liability but
in view of all the circumstances of the case, the Indemnitee shall be entitled
to any indemnification by the Corporation that the court or other decision maker
of any Proceeding deems proper, as permitted by Section 145(b) of the DGCL.
(d) If the Indemnitee is entitled under this Agreement to indemnification
by the Corporation for some or a portion of the Indemnified Amounts but not,
however, for all of the total amount thereof, the Corporation shall nevertheless
indemnify the Indemnitee for the portion thereof to which the Indemnitee is
entitled.
2. OTHER INDEMNIFICATION ARRANGEMENTS. The DGCL and the Charter and By-laws
permit the Corporation to purchase and maintain insurance or furnish similar
protection or make other arrangements, including, but not limited to, providing
a trust fund, letter of credit, or surety bond ("Indemnification Arrangements")
on behalf of the Indemnitee against any liability asserted against him or her or
incurred by or on behalf of him or her in such capacity as a director or officer
of the Corporation or an Affiliated Indemnitee, or arising out of his or her
status as such, whether or not the Corporation would have the power to indemnify
him or her against such liability under the provisions of this Agreement or
under the DGCL, as it may then be in effect. The purchase, establishment, and
maintenance of any such Indemnification Arrangement shall not in any way limit
or affect the rights and obligations of the Corporation or of the Indemnitee
under this Agreement except as expressly provided herein, and the execution and
delivery of this Agreement by the Corporation and the Indemnitee shall not in
any way limit or affect the rights and obligations of the Corporation or the
other party or parties thereto under any such Indemnification Arrangement.
3. ADVANCE PAYMENT OF INDEMNIFIED AMOUNTS.
(a) The Indemnitee hereby is granted the right to receive in advance of a
final, non-appealable judgment or other final adjudication of a Proceeding (a
"Final Determination") the amount of any and all expenses, including, without
limitation, investigation expenses, expert witnesses' and attorneys' fees and
expenses and other expenses expended or incurred, or expected to be expended or
incurred, by the Indemnitee in connection with any Proceeding or otherwise
expended or incurred by the Indemnitee (such amounts so expended or incurred, or
expected to be expended or incurred, being referred to as "Advanced Amounts").
-3-
<PAGE>
(b) In making any written request for Advanced Amounts, the Indemnitee
shall submit to the Corporation a schedule setting forth in reasonable detail
the dollar amount expended or incurred and expected to be expended or incurred.
Each such listing shall be supported by the bill, agreement, or other
documentation relating thereto, each of which shall be appended to the schedule
as an exhibit. In addition, before the Indemnitee may receive Advanced Amounts
from the Corporation, the Indemnitee shall provide to the Corporation (i) a
written affirmation of the Indemnitee's good faith belief that the applicable
standard of conduct required for indemnification by the Corporation has been
satisfied by the Indemnitee, and (ii) a written undertaking by or on behalf of
the Indemnitee to repay the Advanced Amount if it shall ultimately be determined
that the Indemnitee has not satisfied any applicable standard of conduct and is
not entitled to be indemnified by the Corporation. The written undertaking
required from the Indemnitee shall be an unlimited general obligation of the
Indemnitee but need not be secured. The Corporation shall pay to the Indemnitee
all Advanced Amounts within twenty (20) days after receipt by the Corporation of
all information and documentation required to be provided by the Indemnitee
pursuant to this paragraph.
4. PROCEDURE FOR PAYMENT OF INDEMNIFIED AMOUNTS.
(a) To obtain indemnification under this Agreement, the Indemnitee shall
submit to the Corporation a written request for payment of the appropriate
Indemnified Amounts, including with each request documentation and information
as is reasonably available to the Indemnitee and reasonably necessary to
determine whether and to what extent the Indemnitee is entitled to
indemnification. The Secretary of the Corporation shall, promptly upon receipt
of such a request for indemnification, advise the Board of Directors in writing
that the Indemnitee has requested indemnification.
(b) The Corporation shall pay the Indemnitee the appropriate Indemnified
Amounts unless it is established that the Indemnitee has not met any applicable
standard of conduct of the Express Permitted Indemnification Provisions. For
purposes of determining whether the Indemnitee is entitled to Indemnified
Amounts, in order to deny indemnification to the Indemnitee the Corporation has
the burden of proof in establishing that the Indemnitee did not meet the
applicable standard of conduct. In this regard, a termination of any Proceeding
by judgment, order or settlement does not create a presumption that the
Indemnitee did not meet the requisite standard of conduct; provided, however,
that the termination of any criminal proceeding by a conviction, a plea of nolo
contendere or its equivalent or an entry of an order of probation prior to
judgment, creates a rebuttable presumption that the Indemnitee did not meet the
applicable standard of conduct.
-4-
<PAGE>
(c) Any determination that the Indemnitee has not met the applicable
standard of conduct required to qualify for indemnification shall be made (i)
either by the Board of Directors by a majority vote of a quorum consisting of
directors who were not parties of such action, suit or proceeding; or (ii) by
independent legal counsel (who may be the outside counsel regularly employed by
the Corporation); provided that the manner in which (and, if applicable, the
counsel by which) the right to indemnification is to be determined shall be
approved in advance in writing by both the highest ranking executive officer of
the Corporation who is not party to such action (sometimes hereinafter referred
to as "Senior Officer") and by the Indemnitee. In the event that such parties
are unable to agree on the manner in which any such determination is to be made,
such determination shall be made by independent legal counsel retained by the
Corporation especially for such purpose, provided that such counsel be approved
in advance in writing by both the said Senior Officer and the Indemnitee and
provided further, that such counsel shall not be outside counsel regularly
employed by the Corporation. The fees and expenses of counsel in connection with
making said determination contemplated hereunder shall be paid by the
Corporation, and, if requested by such counsel, the Corporation shall give such
counsel an appropriate written agreement with respect to the payment of such
fees and expenses and such other matters as may be reasonably requested by
counsel.
(d) The Corporation will use its reasonable best efforts to conclude as
soon as practicable any required determination pursuant to subparagraph (c)
above and promptly will advise the Indemnitee in writing with respect to any
determination that the Indemnitee is or is not entitled to indemnification,
including a description of any reason or basis for which indemnification has
been denied. Payment of any applicable Indemnified Amounts will be made to the
Indemnitee within ten (10) days after any determination of the Indemnitee's
entitlement to indemnification.
(e) Notwithstanding the foregoing, the Indemnitee may, at any time after
sixty (60) days after a request for Indemnified Amounts has been submitted to
the Corporation (or upon receipt of written notice that a request for
Indemnified Amounts has been rejected, if earlier) and before three (3) years
after a request for Indemnified Amounts has been filed, petition a court of
competent jurisdiction to determine whether the Indemnitee is entitled to
indemnification under the provisions of this Agreement, and such court shall
thereupon have the exclusive authority to make such determination unless and
until such court dismisses or otherwise terminates such action without having
made such determination. The court shall, as petitioned, make an independent
determination of whether the Indemnitee is entitled to indemnification as
provided under this Agreement, irrespective of any prior determination made by
the Board of Directors or independent counsel. If the court shall determine that
the Indemnitee is entitled to indemnification as to any claim, issue or matter
involved in the Proceeding with respect to which there has been no prior
determination pursuant to this Agreement or with respect to which there
-5-
<PAGE>
has been a prior determination that the Indemnitee was not entitled to
indemnification hereunder, the Corporation shall pay all expenses (including
attorneys' fees and disbursements) actually incurred by the Indemnitee in
connection with such judicial determination.
(f) EXCLUDED COVERAGE. The Corporation shall have no obligation to
indemnify the Indemnitee for and hold him or her harmless from any loss or
expense which has been determined, by final adjudication by a court of competent
jurisdiction, to constitute an Excluded Claim (as hereinafter defined). For
purposes of this Agreement, an Excluded Claim shall mean any payment for losses
or expenses in connection with any claim:
(i) Based upon or attributable to the Indemnitee gaining in fact any
personal profit or advantage to which the Indemnitee is not entitled;
(ii) For the return by the Indemnitee of any remuneration paid to the
Indemnitee without the previous approval of the stockholders of the Corporation
which is illegal;
(iii) For an accounting of profits in fact made from the purchase or
sale by the Indemnitee of securities of the Corporation within the meaning of
Section 16 of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), or similar provisions of any state law;
(iv) Resulting from the Indemnitee's knowingly fraudulent, dishonest
or willful misconduct; or
(v) The payment of which by the Corporation under this Agreement is
not permitted by applicable law.
5. AGREEMENT NOT EXCLUSIVE; SUBROGATION ETC.
(a) This Agreement shall not be deemed exclusive of and shall not diminish
any other rights the Indemnitee may have to be indemnified or insured or
otherwise protected against any liability, loss, or expense by the Corporation,
any subsidiary of the Corporation, or any other person or entity under any
charter, by-laws, law, agreement, policy of insurance or similar protection,
vote of stockholders or directors, disinterested or not, or otherwise, whether
or not now in effect, both as to actions in the Indemnitee's official capacity,
and as to actions in another capacity while holding such office. The
Corporation's obligations to make payments of Indemnified Amounts hereunder
shall be satisfied to the extent that payments with respect to the same
Proceeding (or part thereof) have been made to or for the benefit of the
Indemnitee by reason of the indemnification of the Indemnitee pursuant to any
other arrangement made by the Corporation for the benefit of the Indemnitee;
provided, however, that in no event shall the Indemnitee be required to maintain
any
-6-
<PAGE>
other such arrangement or request payment pursuant to any other such arrangement
before seeking to be indemnified hereunder.
(b) In the event the Indemnitee shall receive payment from any insurance
carrier or from the plaintiff in any Proceeding against such Indemnitee in
respect of Indemnified Amounts after payments on account of all or part of such
Indemnified Amounts have been made by the Corporation pursuant hereto, such
Indemnitee shall promptly reimburse to the Corporation the amount, if any, by
which the sum of such payment by such insurance carrier or such plaintiff and
payments by the Corporation or pursuant to arrangements made by the Corporation
to the Indemnitee exceeds such Indemnified Amounts; provided, however, that such
portions, if any, of such insurance proceeds that are required to be reimbursed
to the insurance carrier under the terms of its insurance policy, such as
deductible or co-insurance payments, shall not be deemed to be payments to the
Indemnitee hereunder. In addition, upon payment of Indemnified Amounts
hereunder, the Corporation shall be subrogated to the rights of the Indemnitee
receiving such payments to the extent thereof against any insurance carrier (to
the extent permitted under such insurance policies) or in respect of such
Indemnified Amounts and the Indemnitee shall execute and deliver any and all
instruments and documents and perform any and all other acts or deeds which the
Corporation deems necessary or advisable to secure such rights. Such right of
subrogation shall be terminated upon receipt by the Corporation of the amount to
be reimbursed by the Indemnitee pursuant to the first sentence of this paragraph
(b).
6. INSURANCE COVERAGE. In the event that the Corporation maintains directors
and officers liability insurance to protect itself and any director or officer
of the Corporation against any expense, liability or loss, such insurance shall
cover the Indemnitee to at least the same extent as any other director or
officer of the Corporation.
7. ESTABLISHMENT OF TRUST. In the event of a potential business combination or
change in control of the Corporation of the type required to be reported under
Item 1 of Form 8-K promulgated under the Exchange Act (collectively, a "Change
in Control"), the Corporation shall, upon written request by the Indemnitee,
create a trust (the "Trust") for the benefit of the Indemnitee and from time to
time upon written request of the Indemnitee shall fund the Trust in an amount
sufficient to satisfy any and all Indemnified Amounts (including, without
limitation, Advanced Amounts) which are actually paid (but not as yet
reimbursed) or which the Indemnitee reasonably determines from time to time may
be payable by the Corporation under this Agreement. The amount or amounts to be
deposited in the Trust pursuant to the foregoing funding obligation shall be
determined by the independent legal counsel appointed under Section 4 hereof.
The terms of the Trust shall provide that following its establishment: (i) the
Trust shall not be revoked or the
-7-
<PAGE>
principal thereof invaded without the written consent of the Indemnitee; (ii)
the trustee of the Trust shall advance, within twenty (20) days of a request by
the Indemnitee, any and all Advanced Amounts to the Indemnitee (and the
Indemnitee hereby agrees to reimburse the Trust under the circumstances under
which the Indemnitee would be required to reimburse the Corporation under
Section 3(b)(ii) hereof; (iii) the Corporation shall continue to fund the Trust
from time to time in accordance with the funding obligations set forth above;
(iv) the trustee of the Trust shall promptly pay to the Indemnitee all
Indemnified Amounts for which the Indemnitee shall be entitled to
indemnification pursuant to this Agreement; and (v) all unexpended funds in the
Trust shall revert to the Corporation upon a final determination by a court of
competent jurisdiction in a final decision from which there is no further right
of appeal that the Indemnitee has been fully Indemnified under the terms of this
Agreement. The trustee of the Trust shall be chosen by the Indemnitee.
8. CONTINUATION OF INDEMNITY. All agreements and obligations of the
Corporation contained herein shall continue during the period the Indemnitee is
a director or officer, as the case may be, of the Corporation (or is serving at
the request of the Corporation as an Affiliate Indemnitee) and shall continue
thereafter so long as the Indemnitee shall be subject to any possible Proceeding
by reason of the fact that the Indemnitee was a director or officer of the
Corporation or was serving in any other capacity referred to herein.
9. SUCCESSORS; BINDING AGREEMENT. This Agreement shall be binding on and shall
inure to the benefit of and be enforceable by the parties hereto, by the
Corporation's successors and assigns and by the Indemnitee's personal or legal
representatives, executors, administrators, successors, assigns, heirs, spouses,
distributees, devisees, and legatees. The Corporation shall require and cause
any successor or assignee (whether direct or indirect, by purchase, merger,
consolidation, or otherwise) to all, substantially all or a substantial part of
the business and/or assets of the Corporation, by written agreement in form and
substance reasonably satisfactory to the Corporation and to the Indemnitee,
expressly to assume and agree to perform this Agreement in the same manner and
to the same extent that the Corporation would be required to perform if no such
succession or assignment had taken place.
10. ENFORCEMENT. The Corporation has entered into this Agreement and assumed
the obligations imposed on the Corporation hereby in order to induce the
Indemnitee to act as a director or officer, as the case may be, of the
Corporation, and acknowledges that the Indemnitee is relying upon this Agreement
in continuing in such capacity.
(a) The Indemnitee's right to indemnification shall be enforceable by the
Indemnitee only in the Chancery Court of the
-8-
<PAGE>
State of Delaware and shall be enforceable notwithstanding any adverse
determination, other than a determination which has been made by a final
adjudication of a court of competent jurisdiction. In any such action, if a
prior adverse determination has been made, the burden of proving that
indemnification is required under this Agreement shall be on the Indemnitee. The
Corporation shall have the burden of proving that indemnification is not
required under this Agreement if no prior adverse determination shall have been
made.
(b) In the event the Indemnitee is required to bring any action to enforce
rights or to collect moneys due under this Agreement and is successful in such
action, the Corporation shall reimburse the Indemnitee for all of the
Indemnitee's fees and expenses (including attorney's fees and expenses) in
bringing and pursuing such action. The Indemnitee shall be entitled to the
advancement of Indemnified Amounts to the full extent contemplated by Section 3
hereof in connection with such proceeding.
11. SEVERABILITY. In the event that any provision of this Agreement (including
any provision within a single section, paragraph or sentence) is determined by a
court of competent jurisdiction to require the Corporation to do or to fail to
do an act which is in violation of applicable law, such provision shall be
limited or modified in its application to the minimum extent necessary to avoid
a violation of law, and, as so limited or modified, such provision and the
balance of this Agreement shall be enforceable in accordance with their terms.
12. MISCELLANEOUS. No provision of this Agreement may be modified, waived, or
discharged unless such modification, waiver, or discharge is agreed to in
writing signed by the Indemnitee and either the Chairman of the Board, the Chief
Executive Officer or the President of the Corporation or another officer of the
Corporation specifically designated by the Board of Directors. No waiver by
either party at any time of any breach by the other party of, or of compliance
with, any condition or provision of this Agreement to be performed by such other
party shall be deemed a waiver of similar or dissimilar provisions or conditions
at the same time or at any prior or subsequent time. This Agreement sets forth
the entire understanding between the parties hereto and supersedes and merges
all previous negotiations, representations, commitments, understandings and
agreements (written, oral or otherwise, express or implied) with respect to the
subject matter hereof between the parties hereto. The validity, interpretation,
construction, and performance of this Agreement shall be governed by the laws of
the State of Delaware, without giving effect to the principles of conflicts of
laws thereof. The Indemnitee may bring an action seeking resolution of disputes
or controversies arising under or in any way related to this Agreement in the
state or federal court jurisdiction in which the Indemnitee resides or in which
his or her place of business is located, and in any related appellate courts,
and the
-9-
<PAGE>
Corporation consents to the jurisdiction of such courts and to such venue.
13. NOTICES. For the purposes of this Agreement, notices and all other
communications provided for in the Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by United States
registered mail, return receipt requested, postage prepaid, as follows:
If to the Indemnitee:
[Name]
[Address]
[Facsimile]
If to the Corporation:
internet.com Corporation
20 Ketchum Street
Westport, Connecticut 06880
Facsimile: (203) 222-1679
Attention: Christopher S. Cardell
or to such other address as either party may have furnished to the other in
writing in accordance herewith, except that notices of change of address shall
be effective only upon receipt.
14. COUNTERPARTS. This Agreement may be executed in one or more counterparts,
each of which shall be deemed to be an original but all of which together shall
constitute one and the same instrument.
15. EFFECTIVENESS. This Agreement shall be effective as of the date first above
written.
-10-
<PAGE>
IN WITNESS WHEREOF, the undersigned have caused this Agreement to be
executed as of the day and year first above written.
INTERNET.COM CORPORATION
By:
Name:
Title:
INDEMNITEE
Name:
<PAGE>
Exhibit 10.06
INTERNET.COM CORPORATION
1999 STOCK INCENTIVE PLAN
1. PURPOSE
The purpose of the Plan is to provide a means through which the Company
and its Subsidiaries may attract able persons to become and remain directors of
the Company and enter and remain in the employ of the Company and its
Subsidiaries and to provide a means whereby employees, directors and consultants
of the Company and its Subsidiaries can acquire and maintain Common Stock
ownership, or be paid incentive compensation measured by reference to the value
of Common Stock, thereby strengthening their commitment to the welfare of the
Company and its Subsidiaries and promoting an identity of interest between
stockholders and these employees, directors and consultants.
So that the appropriate incentive can be provided, the Plan provides
for granting Incentive Stock Options, Nonqualified Stock Options, Restricted
Stock Awards, and other Stock-based Awards, or any combination of the foregoing.
2. DEFINITIONS
The following definitions shall be applicable throughout the Plan.
(a) "Affiliate" of any individual or entity means an individual or
entity that is directly or indirectly through one or more intermediaries
controlled by or under common control with the individual or entity specified.
(b) "Award" means, individually or collectively, any Incentive Stock
Option, Nonqualified Stock Option, Restricted Stock Award, or other Stock-based
Award.
(c) "Board" means the Board of Directors of internet.com Corporation.
(d) "Cause" means the Company or a Subsidiary having cause to terminate
a Participant's employment or service under any existing employment, consulting
or any other agreement between the Participant and the Company or a Subsidiary.
In the absence of any such an employment, consulting or other agreement, a
Participant shall be deemed to have been terminated for Cause if the Committee
determines that his termination of employment with the Company or a Subsidiary
is on account of (A) incompetence, fraud, personal dishonesty, embezzlement,
defalcation or acts of gross negligence or gross misconduct on the part of
Participant in the course of his employment or services, (B) a material breach
of Participant's fiduciary duty of loyalty to the Company or a Subsidiary, (C) a
Participant's engagement in conduct that
<PAGE>
is materially injurious to the Company or a Subsidiary, (D) a Participant's
conviction by a court of competent jurisdiction of, or pleading "guilty" or "no
contest" to, (x) a felony, or (y) any other criminal charge (other than minor
traffic violations) which could reasonably be expected to have a material
adverse impact on Company's or a Subsidiary's reputation and standing in the
community; (E) public or consistent drunkenness by a Participant or his illegal
use of narcotics which is, or could reasonably be expected to become, materially
injurious to the reputation or business of the Company or a Subsidiary or which
impairs, or could reasonably be expected to impair, the performance of a
Participant's duties to the Company or a Subsidiary; or (F) willful failure by a
Participant to follow the lawful directions of a superior officer or the Board,
representing disloyalty to the goals of the Company or a Subsidiary.
(e) "Change in Control" shall, unless the Board otherwise directs by
resolution adopted prior thereto or, in the case of a particular award, the
applicable Award agreement states otherwise, be deemed to occur if (i) any
"person" (as that term is used in Sections 13 and 14(d)(2) of the Exchange Act)
other than a Founder (as defined below) is or becomes the beneficial owner (as
that term is used in Section 13(d) of the Exchange Act), directly or indirectly,
of 50% or more of either the outstanding shares of Common Stock or the combined
voting power of internet.com Corporation's then outstanding voting securities
entitled to vote generally, (ii) during any period of two consecutive years
beginning on the date of the consummation of the IPO, individuals who constitute
the Board at the beginning of such period cease for any reason to constitute at
least a majority thereof, unless the election or the nomination for election by
internet.com Corporation's shareholders of each new director was approved by a
vote of at least three-quarters of the directors then still in office who were
directors at the beginning of the period or (iii) internet.com Corporation
undergoes a liquidation or dissolution or a sale of all or substantially all of
its assets. Neither the IPO nor any merger, consolidation or corporate
reorganization in which the owners of the combined voting power of the Company's
then outstanding voting securities entitled to vote generally prior to said
combination, own 50% or more of the resulting entity's outstanding voting
securities shall, by itself, be considered a Change in Control. As used herein,
"Founder" means Alan M. Meckler and any of his Affiliates.
(f) "Code" means the Internal Revenue Code of 1986, as amended.
Reference in the Plan to any section of the Code shall be deemed to include any
amendments or successor provisions to such section and any regulations under
such section.
(g) "Committee" means the Board, the Compensation Committee of the
Board or such other committee of at least two people as the Board may appoint to
administer the Plan.
2
<PAGE>
(h) "Common Stock" means the common stock par value [$0.01] per share,
of internet.com Corporation.
(i) "Company" means internet.com Corporation or internet.com LLC, as
applicable.
(j) "Date of Grant" means the date on which the granting of an Award is
authorized or such other date as may be specified in such authorization.
(k) "Disability", with respect to any particular Participant, means
disability as defined in such Participant's employment, consulting or other
relevant agreement with the Company or a Subsidiary or, in the absence of any
such agreement, disability as defined in the long-term disability plan of the
Company or a Subsidiary, as may be applicable to the Participant in question,
or, in the absence of such a plan, the complete and permanent inability by
reason of illness or accident to perform the duties of the occupation at which a
Participant was employed or served when such disability commenced or, if the
Participant was retired when such disability commenced, the inability to engage
in any substantial gainful activity, in either case as determined by the
Committee based upon medical evidence acceptable to it.
(l) "Disinterested Person" means a person who is (i) a "non-employee
director" within the meaning of Rule 16b-3 under the Exchange Act, or any
successor rule or regulation and (ii) an "outside director" within the meaning
of Section 162(m) of the Code; PROVIDED, HOWEVER, that clause (ii) shall apply
only with respect to grants of Awards with respect to which the Company's tax
deduction could be limited by Section 162(m) of the Code if such clause did not
apply.
(m) "Eligible Person" means any (i) person regularly employed by the
Company or a Subsidiary; PROVIDED, HOWEVER, that no such employee covered by a
collective bargaining agreement shall be an Eligible Person unless and to the
extent that such eligibility is set forth in such collective bargaining
agreement or in an agreement or instrument relating thereto; (ii) director of
the Company or a Subsidiary; or (iii) consultant to the Company or a Subsidiary.
(n) "Exchange Act" means the Securities Exchange Act of 1934.
(o) "Fair Market Value" on a given date means (i) if the Stock is
listed on a national securities exchange, the closing price on the primary
exchange with which the Stock is listed and traded on the date prior to such
date, or, if there is no such sale on that date, then on the last preceding date
on which such a sale was reported; (ii) if the Stock is not listed on any
national securities exchange but is quoted in the NASDAQ National
3
<PAGE>
Market System on a last sale basis, the closing price reported on the date prior
to such date, or, if there is no such sale on that date, then on the last
preceding date on which a sale was reported; (iii) if the Stock is not listed on
a national securities exchange nor quoted in the NASDAQ National Market System
on a last sale basis, the amount determined by the Committee to be the fair
market value based upon a good faith attempt to value the Stock accurately and
computed in accordance with applicable regulations of the Internal Revenue
Service; or (iv) notwithstanding clauses (i) - (iii) above, with respect to
Awards granted as of the consummation of the IPO, the price at which Stock is
initially offered to the public in the IPO.
(p) "Holder" means a Participant who has been granted an Award.
(q) "Incentive Stock Option" means an Option granted by the Committee
to a Participant under the Plan which is designated by the Committee as an
Incentive Stock Option pursuant to Section 422 of the Code.
(r) "IPO" means the initial underwritten offering of Common Stock to
the public through an effective registration statement.
(s) "IPO Option" means Non-Employee Director Options granted upon the
consummation of the IPO.
(t) "IPO Price" means the price per share that the Common Stock is
first offered to the public in the IPO.
(u) "Non-Employee Director" means a director of internet.com
Corporation who is not also an employee of the Company, Penton Media, Inc. or
Internet World Media, Inc.
(v) "Non-Employee Director Option" means an Option granted
automatically to Non-Employee Directors pursuant to Section 8.
(w) "Nonqualified Stock Option" means an Option granted under the Plan
which is not designated as an Incentive Stock Option.
(x) "Normal Termination" means termination of employment or service
with the Company and all Subsidiaries:
(i) Upon retirement pursuant to the retirement plan of the
Company or a Subsidiary, as may be applicable at the time to
the Participant in question;
(ii) On account of Disability;
(iii) With the written approval of the Committee; or
(iv) By the Company or a Subsidiary without Cause.
4
<PAGE>
(y) "Option" means an Award granted under Section 7 or 8 of the Plan.
(z) "Option Period" means the period described in Section 7(c).
(aa) "Option Price" means the exercise price set for an Option
described in Section 7(a).
(bb) "Participant" means an Eligible Person who has been selected by
the Committee to participate in the Plan and to receive an Award or a
Non-Employee Director who has received an automatic grant pursuant to Section 8.
(cc) "Plan" means the Company's 1999 Stock Incentive Plan.
(dd) "Restricted Period" means, with respect to any share of Restricted
Stock, the period of time determined by the Committee during which such Award is
subject to the restrictions set forth in Section 9.
(ee) "Restricted Stock" means shares of Stock issued or transferred to
a Participant subject to forfeiture and the other restrictions set forth in
Section 9.
(ff) "Restricted Stock Award" means an Award of Restricted Stock
granted under Section 9 of the Plan.
(gg) "Securities Act" means the Securities Act of 1933, as amended.
(hh) "Stock" means the Common Stock or such other authorized shares of
stock of the Company as from time to time may be authorized for use under the
Plan.
(ii) "Stock Option Agreement" means the agreement between the Company
and a Participant who has been granted an Option pursuant to Section 7 or 8
which defines the rights and obligations of the parties as required in Section
7(d) or 8.
(jj) "Subsidiary" means any subsidiary of the Company as defined in
Section 424(f) of the Code.
(kk) "Term" means the term of a Non-Employee Director Option as set
forth in Section 8.
3. EFFECTIVE DATE, DURATION AND SHAREHOLDER APPROVAL
The Plan is effective as of April 15, 1999, the date on which the Plan
was adopted by the Board.
5
<PAGE>
The expiration date of the Plan, after which no Awards may be granted
hereunder, shall be April 15, 2009; PROVIDED, HOWEVER, that the administration
of the Plan shall continue in effect until all matters relating to the payment
of Awards previously granted have been settled.
4. ADMINISTRATION
The Committee shall administer the Plan. Unless otherwise determined by
the Board, each member of the Committee shall, at the time he takes any action
with respect to an Award under the Plan, be a Disinterested Person. The majority
of the members of the Committee shall constitute a quorum. The acts of a
majority of the members present at any meeting at which a quorum is present or
acts approved in writing by a majority of the Committee shall be deemed the acts
of the Committee.
Subject to the provisions of the Plan, the Committee shall have
exclusive power to:
(a) Select the Eligible Persons to participate in the Plan;
(b) Determine the nature and extent of the Awards to be made to each
Eligible Person;
(c) Determine the time or times when Awards will be made to Eligible
Persons;
(d) Determine the duration of each Option Period and Restricted Period;
(e) Determine the conditions to which the payment of Awards may be
subject;
(f) Prescribe the form of Stock Option Agreement or other form or forms
evidencing Awards; and
(g) Cause records to be established in which there shall be entered,
from time to time as Awards are made to Participants, the date of each Award,
the number of Incentive Stock Options, Nonqualified Stock Options, shares of
Restricted Stock and other Stock-based Awards granted by the Committee to each
Participant, the expiration date, the Option Period and the duration of any
applicable Restricted Period.
The Committee shall have the authority to interpret the Plan and,
subject to the provisions of the Plan, to establish, adopt, or revise such rules
and regulations and to make all such determinations relating to the Plan as it
may deem necessary or advisable for the administration of the Plan. The
Committee's interpretation of the Plan or any documents evidencing Awards
granted pursuant thereto and all decisions and determinations by the Committee
with respect to the Plan shall be final, binding,
6
<PAGE>
and conclusive on all parties unless otherwise determined by the Board.
5. GRANT OF AWARDS; SHARES SUBJECT TO THE PLAN
The Committee may, from time to time, grant Awards of Options,
Restricted Stock and other Stock-based Awards to one or more Eligible Persons
and, unless otherwise determined by the Committee, Non-Employee Directors will
automatically receive Awards pursuant to the formula set forth in Section 8;
PROVIDED, HOWEVER, that:
(a) Subject to Section 12, the aggregate number of shares of Stock
reserved and available for issuance pursuant to Awards under the Plan
is 2,000,000;
(b) Except as set forth in Section 5(d), such shares shall be
deemed to have been used in payment of Awards only to the extent they
are actually delivered and not where the Fair Market Value equivalent
of such shares for a Stock-based Award is paid in cash. In the event
any Award shall be surrendered, terminate, expire, or be forfeited, the
number of shares of Stock no longer subject thereto shall thereupon be
released and shall thereafter be available for new Awards under the
Plan;
(c) Stock delivered by the Company in settlement of Awards under
the Plan may be authorized and unissued Stock or Stock held in the
treasury of the Company or may be purchased on the open market or by
private purchase; and
(d) Following the date that the exemption from the application of
Section 162(m) of the Code described in Section 16 (or any other
exemption having similar effect) ceases to apply to Awards, no
Participant may receive Options or stock appreciation rights under the
Plan with respect to more than 500,000 shares of Stock in any one year.
For this purpose, such shares shall be deemed to have been used in
payment of Awards whether they are actually delivered or where the Fair
Market Value equivalent of such shares for a stock appreciation right
is paid in cash.
6. ELIGIBILITY
Participation shall be limited to Eligible Persons who have received
written notification from the Committee, or from a person designated by the
Committee, that they have been selected to participate in the Plan and to
Non-Employee Directors who will receive automatic grants of Nonqualified Stock
Options pursuant to Section 8.
7. DISCRETIONARY GRANT OF STOCK OPTIONS
7
<PAGE>
The Committee is authorized to grant one or more Incentive Stock
Options or Nonqualified Stock Options to any Eligible Person; PROVIDED, HOWEVER,
that no Incentive Stock Options shall be granted to any Eligible Person who is
not an employee of internet.com Corporation or a Subsidiary. Each Option so
granted shall be subject to the following conditions, or to such other
conditions as may be reflected in the applicable Stock Option Agreement.
(a) OPTION PRICE. The exercise price ("Option Price") per share of
Stock for each Option shall be set by the Committee at the time of grant but
shall not be less than (i) in the case of an Incentive Stock Option, and subject
to Section 7(e), the Fair Market Value of a share of Stock at the Date of Grant,
and (ii) in the case of a Non-Qualified Stock Option, the par value per share of
Stock; PROVIDED, HOWEVER, that following the date that the exemption from the
application of Section 162(m) of the Code described in Section 16 (or any other
exemption having similar effect) ceases to apply to Options, all Options
intended to qualify as "performance-based compensation" under Section 162(m) of
the Code shall have an Option Price per share of Stock no less than the Fair
Market Value of a share of Stock on the Date of Grant.
(b) MANNER OF EXERCISE AND FORM OF PAYMENT. Options which have become
exercisable may be exercised by delivery of written notice of exercise to the
Committee accompanied by payment of the Option Price. The Option Price may be
payable in cash, by bank check (acceptable to the Committee) and/or shares of
Stock (valued at the Fair Market Value at the time the Option is exercised),
having in the aggregate a value equal to the aggregate Option Price or, in the
discretion of the Committee, either (i) in other property having a fair market
value on the date of exercise equal to the aggregate Option Price, or (ii) by
delivering to the Committee a copy of irrevocable instructions to a stockbroker
to deliver promptly to the Company an amount of sale or loan proceeds sufficient
to pay the aggregate Option Price.
(c) OPTION PERIOD AND EXPIRATION. Options shall vest and become
exercisable in such manner and on such date or dates determined by the Committee
and shall expire after such period, not to exceed ten years, as may be
determined by the Committee (the "Option Period"); PROVIDED, HOWEVER, that
notwithstanding any vesting dates set by the Committee, the Committee may in its
sole discretion accelerate the exercisability of any Option, which acceleration
shall not affect the terms and conditions of any such Option other than with
respect to exercisability. Unless otherwise specifically determined by the
Committee, the vesting of an Option shall occur only while the Participant is
employed or rendering services to the Company or its Subsidiaries and all
vesting shall cease upon a Holder's termination of
8
<PAGE>
employment or services for any reason. If an Option is exercisable in
installments, such installments or portions thereof which become exercisable
shall remain exercisable until the Option expires. Unless otherwise stated in
the applicable Option Agreement, the Option shall expire earlier than the end of
the Option Period in the following circumstances:
(i) If prior to the end of the Option Period, the Holder shall
undergo a Normal Termination, the Option shall expire on the
earlier of the last day of the Option Period or the date that
is three months after the date of such Normal Termination. In
such event, the Option shall remain exercisable by the Holder
until its expiration, but only to the extent the Option was
vested and exercisable at the time of such Normal
Termination.
(ii) If the Holder dies prior to the end of the Option Period and
while still in the employ or service of the Company or a
Subsidiary, or within three months of Normal Termination, the
Option shall expire on the earlier of the last day of the
Option Period or the date that is twelve months after the
date of death of the Holder. In such event, the Option shall
remain exercisable by the person or persons to whom the
Holder's rights under the Option pass by will or the
applicable laws of descent and distribution until its
expiration, but only to the extent the Option was vested and
exercisable by the Holder at the time of death.
(iii) If the Holder ceases employment or service with the Company
and all Subsidiaries for reasons other than Normal
Termination or death, the Option shall expire immediately
upon such cessation of employment or service.
(d) STOCK OPTION AGREEMENT - OTHER TERMS AND CONDITIONS. Each Option
granted under the Plan shall be evidenced by a Stock Option Agreement, which
shall contain such provisions as may be determined by the Committee and, except
as may be specifically stated otherwise in such Stock Option Agreement, which
shall be subject to the following terms and conditions:
(i) Each Option issued pursuant to this Section 7 or portion
thereof that is exercisable shall be exercisable for the full
amount or for any part thereof.
(ii) Each share of Stock purchased through the exercise of an
Option issued pursuant to this
9
<PAGE>
Section 7 shall be paid for in full at the time of the
exercise. Each Option shall cease to be exercisable, as to
any share of Stock, when the Holder purchases the share or
when the Option expires.
(iii) Options issued pursuant to this Section 7 shall not be
transferable by the Holder except by will or the laws of
descent and distribution and shall be exercisable during the
Holder's lifetime only by him; provided, however, that the
Committee may at any time upon the request of a Holder allow
for the transfer of any Option, subject to such conditions or
limitations as it may establish.
(iv) Each Option issued pursuant to this Section 7 shall vest and
become exercisable by the Holder in accordance with the
vesting schedule established by the Committee and set forth
in the Stock Option Agreement.
(v) Each Stock Option Agreement may contain a provision that,
upon demand by the Committee for such a representation, the
Holder shall deliver to the Committee at the time of any
exercise of an Option issued pursuant to this Section 7 a
written representation that the shares to be acquired upon
such exercise are to be acquired for investment and not for
resale or with a view to the distribution thereof. Upon such
demand, delivery of such representation prior to the delivery
of any shares issued upon exercise of an Option issued
pursuant to this Section 7 shall be a condition precedent to
the right of the Holder or such other person to purchase any
shares. In the event certificates for Stock are delivered
under the Plan with respect to which such investment
representation has been obtained, the Committee may cause a
legend or legends to be placed on such certificates to make
appropriate reference to such representation and to restrict
transfer in the absence of compliance with applicable federal
or state securities laws.
(vi) Each Incentive Stock Option Agreement shall contain a
provision requiring the Holder to notify the Company in
writing immediately after the Holder makes a disqualifying
disposition of any Stock acquired pursuant to the exercise of
such Incentive Stock Option. A disqualifying disposition is
any disposition (including any sale) of such Stock before the
later of (a) two
10
<PAGE>
years after the Date of Grant of the Incentive Stock Option
or (b) one year after the date the Holder acquired the Stock
by exercising the Incentive Stock Option.
(e) INCENTIVE STOCK OPTION GRANTS TO 10% STOCKHOLDERS. Notwithstanding
anything to the contrary in this Section 7, if an Incentive Stock Option is
granted to a Holder who owns stock representing more than 10% of the voting
power of all classes of stock of the Company or of a Subsidiary, the Option
Period shall not exceed five years from the Date of Grant of such Option and the
Option Price shall be at least 110% of the Fair Market Value (on the Date of
Grant) of the Stock subject to the Option.
(f) $100,000 PER YEAR LIMITATION FOR INCENTIVE STOCK OPTIONS. To the
extent the aggregate Fair Market Value (determined as of the Date of Grant) of
Stock for which Incentive Stock Options are exercisable for the first time by
any Participant during any calendar year (under all plans of the Company and its
Subsidiaries) exceeds $100,000, such excess Incentive Stock Options shall be
treated as Nonqualified Stock Options.
(g) VOLUNTARY SURRENDER. The Committee may permit the voluntary
surrender of all or any portion of any Nonqualified Stock Option issued pursuant
to this Section 7 to be conditioned upon the granting to the Holder of a new
Option for the same or a different number of shares as the Option surrendered or
require such voluntary surrender as a condition precedent to a grant of a new
Option to such Participant. Such new Option shall be exercisable at an Option
Price, during an Option Period, and in accordance with any other terms or
conditions specified by the Committee at the time the new Option is granted, all
determined in accordance with the provisions of the Plan without regard to the
Option Price, Option Period, or any other terms and conditions of the
Nonqualified Stock Option surrendered.
8. AUTOMATIC GRANT OF OPTIONS
Upon the consummation of the IPO each Non-Employee Director shall be
automatically granted an IPO Option to purchase 5,000 shares of Stock.
Thereafter, unless otherwise determined by the Committee, on the date any person
first becomes a Non-Employee Director, such person shall be automatically
granted without further action by the Board or the Committee a Nonqualified
Stock Option to purchase 5,000 shares of Stock. Thereafter, unless otherwise
determined by the Committee, for the remainder of the term of the Plan and
provided he remains a Non-Employee Director of the Company, on the date of each
of the Company's Annual Meeting of Stockholders, each Non-Employee Director who
has served at least six (6) months as a director as of such date shall be
automatically granted without further action by the Board or the Committee a
Nonqualified Stock Option to purchase
11
<PAGE>
1,000 shares of Stock. All such Options automatically granted to Non-Employee
Directors shall hereinafter be referred to as Non-Employee Director Options.
(a) OPTION PRICE; TERM. IPO Options shall have an Option Price per
share equal to the IPO Price. All other Non-Employee Director Options shall have
an Option Price per share equal to the Fair Market Value of a share of Stock on
the Date of Grant. All Non-Employee Director Options shall vest and become
exercisable over a period of three years at the rate of one-third of each grant
annually on each of the three consecutive anniversaries of the Date of Grant
directly following the Date of Grant provided the Non-Employee Director's
services as a director continues through each such anniversary. The term of each
Non-Employee Director Option ("Term"), after which each such Option shall
expire, shall be ten years from the date of Grant.
(b) EXPIRATION. If prior to the expiration of the Term of a
Non-Employee Director Option the Non-Employee Director shall cease to be a
member of the Board for any reason other than his death, the Non-Employee
Director Option shall expire on the earlier of the expiration of the Term or the
date that is three months after the date of such cessation. If prior to the
expiration of the Term of a Non-Employee Director Option a Non-Employee Director
shall cease to be a member of the Board by reason of his death or disability (as
determined by the Committee) or if the Non-Employee Director dies during the
three-month period following his termination as a director, the Non-Employee
Director Option shall become fully vested and exercisable and shall expire on
the earlier of the expiration of the Term or the date that is one year after the
date of death. In the event a Non-Employee Director ceases to be a member of the
Board for any reason, any unexpired Non-Employee Director Option shall
thereafter be exercisable until its expiration, but only to the extent that such
Option was vested and exercisable at the time of such cessation.
(c) STOCK OPTION AGREEMENT. Each Non-Employee Director Option shall be
evidenced by a Stock Option Agreement, which shall contain such provisions as
may be determined by the Committee.
(d) NONTRANSFERABILITY. Non-Employee Director Options shall not be
transferable except by will or the laws of descent and distribution and shall be
exercisable during the Non-Employee Director's lifetime only by him; provided,
however, that the Committee may at any time upon the request of a Holder allow
for the transfer of any Non-Employee Director Option, subject to such conditions
or limitations as it may establish.
12
<PAGE>
9. RESTRICTED STOCK AWARDS
(a) AWARD OF RESTRICTED STOCK.
(i) The Committee shall have the authority (1) to grant
Restricted Stock, (2) to issue or transfer
Restricted Stock to Eligible Persons, and (3) to
establish terms, conditions and restrictions
applicable to such Restricted Stock, including the
Restricted Period, which may differ with respect to
each grantee, the time or times at which Restricted
Stock shall be granted or become vested and the
number of shares to be covered by each grant.
(ii) The Holder of a Restricted Stock Award shall execute
and deliver to the Company an Award agreement with
respect to the Restricted Stock setting forth the
restrictions applicable to such Restricted Stock. If
the Committee determines that the Restricted Stock
shall be held in escrow rather than delivered to the
Holder pending the release of the applicable
restrictions, the Holder additionally shall execute
and deliver to the Company (i) an escrow agreement
satisfactory to the Committee, and (ii) the
appropriate blank stock powers with respect to the
Restricted Stock covered by such agreements. If a
Holder shall fail to execute a Restricted Stock
agreement and, if applicable, an escrow agreement
and stock powers, the Award shall be null and void.
Subject to the restrictions set forth in Section
9(b), the Holder shall generally have the rights and
privileges of a stockholder as to such Restricted
Stock, including the right to vote such Restricted
Stock. At the discretion of the Committee, cash
dividends and stock dividends, if any, with respect
to the Restricted Stock may be either currently paid
to the Holder or withheld by the Company for the
Holder's account. Unless otherwise determined by the
Committee no interest will accrue or be paid on the
amount of any cash dividends withheld. Unless
otherwise determined by the Committee, cash
dividends or stock dividends so withheld by the
Committee shall be subject to forfeiture to the same
degree as the shares of Restricted Stock to which
they relate.
(iii) Upon the Award of Restricted Stock, the Committee
shall cause a stock certificate registered in the
name of the Holder to be issued and, if it so
determines, deposited together with the stock powers
with an escrow agent designated by the
13
<PAGE>
Committee. If an escrow arrangement is used, the
Committee shall cause the escrow agent to issue to
the Holder a receipt evidencing any stock
certificate held by it registered in the name of the
Holder.
(b) RESTRICTIONS.
(i) Restricted Stock awarded to a Participant shall be
subject to the following restrictions until the
expiration of the Restricted Period, and to such
other terms and conditions as may be set forth in
the applicable Award agreement: (1) if an escrow
arrangement is used, the Holder shall not be
entitled to delivery of the stock certificate; (2)
the shares shall be subject to the restrictions on
transferability set forth in the Award agreement;
(3) the shares shall be subject to forfeiture to the
extent provided in Section 9(d) and the Award
Agreement and, to the extent such shares are
forfeited, the stock certificates shall be returned
to the Company, and all rights of the Holder to such
shares and as a shareholder shall terminate without
further obligation on the part of the Company.
(ii) The Committee shall have the authority to remove any
or all of the restrictions on the Restricted Stock
whenever it may determine that, by reason of changes
in applicable laws or other changes in circumstances
arising after the date of the Restricted Stock
Award, such action is appropriate.
(c) RESTRICTED PERIOD. The Restricted Period of Restricted Stock shall
commence on the Date of Grant and shall expire from time to time as to that part
of the Restricted Stock indicated in a schedule established by the Committee and
set forth in a written Award agreement.
(d) FORFEITURE PROVISIONS. Except to the extent determined by the
Committee and reflected in the underlying Award agreement, in the event a Holder
terminates employment with the Company and all Subsidiaries during a Restricted
Period, that portion of the Award with respect to which restrictions have not
expired ("Non-Vested Portion") shall be treated as follows.
(i) Upon the voluntary resignation of a Participant or
discharge by the Company or a Subsidiary for Cause,
the Non-Vested Portion of the Award shall be
completely forfeited.
14
<PAGE>
(ii) Upon Normal Termination, the Non-Vested Portion of
the Award shall be prorated for service during the
Restricted Period and shall be received as soon as
practicable following termination.
(iii) Upon death, the Non-Vested Portion of the Award
shall be prorated for service during the Restricted
Period and paid to the Participant's beneficiary as
soon as practicable following death.
(e) DELIVERY OF RESTRICTED STOCK. Upon the expiration of the Restricted
Period with respect to any shares of Stock covered by a Restricted Stock Award,
the restrictions set forth in Section 9(b) and the Award agreement shall be of
no further force or effect with respect to shares of Restricted Stock which have
not then been forfeited. If an escrow arrangement is used, upon such expiration,
the Company shall deliver to the Holder, or his beneficiary, without charge, the
stock certificate evidencing the shares of Restricted Stock which have not then
been forfeited and with respect to which the Restricted Period has expired (to
the nearest full share) and any cash dividends or stock dividends credited to
the Holder's account with respect to such Restricted Stock and the interest
thereon, if any.
(f) STOCK RESTRICTIONS. Each certificate representing Restricted Stock
awarded under the Plan shall bear the following legend until the end of the
Restricted Period with respect to such Stock:
"Transfer of this certificate and the shares represented
hereby is restricted pursuant to the terms of a Restricted Stock
Agreement, dated as of , between internet.com
Corporation and . A copy of such Agreement is on
file at the offices of internet.com Corporation."
Stop transfer orders shall be entered with the Company's transfer agent and
registrar against the transfer of legended securities.
10. OTHER STOCK-BASED AWARDS
The Committee may grant any other cash, stock or stock-related Awards
to any eligible individual under this Plan that the Committee deems appropriate,
including, but not limited to, stock appreciation rights, limited stock
appreciation rights, phantom stock Awards, the bargain purchase of Stock and
Stock bonuses. Any such benefits and any related agreements shall contain such
terms and conditions as the Committee deems appropriate. Such Awards and
agreements need not be identical. With respect to any benefit under which shares
of Stock are or may in the future be issued for consideration other than prior
15
<PAGE>
services, the amount of such consideration shall not be less than the amount
(such as the par value of such shares) required to be received by the Company in
order to comply with applicable state law.
11. GENERAL
(a) ADDITIONAL PROVISIONS OF AN AWARD. Awards under the Plan also may
be subject to such other provisions (whether or not applicable to the benefit
awarded to any other Participant) as the Committee determines appropriate
including, without limitation, provisions to assist the Participant in financing
the purchase of Stock upon the exercise of Options, provisions for the
forfeiture of or restrictions on resale or other disposition of shares of Stock
acquired under any Award, provisions giving the Company the right to repurchase
shares of Stock acquired under any Award in the event the Participant elects to
dispose of such shares, and provisions to comply with Federal and state
securities laws and Federal and state tax withholding requirements. Any such
provisions shall be reflected in the applicable Award agreement.
(b) PRIVILEGES OF STOCK OWNERSHIP. Except as otherwise specifically
provided in the Plan, no person shall be entitled to the privileges of stock
ownership in respect of shares of Stock which are subject to Awards hereunder
until such shares have been issued to that person.
(c) GOVERNMENT AND OTHER REGULATIONS. The obligation of the Company to
make payment of Awards in Stock or otherwise shall be subject to all applicable
laws, rules, and regulations, and to such approvals by governmental agencies as
may be required. Notwithstanding any terms or conditions of any Award to the
contrary, the Company shall be under no obligation to offer to sell or to sell
and shall be prohibited from offering to sell or selling any shares of Stock
pursuant to an Award unless such shares have been properly registered for sale
pursuant to the Securities Act with the Securities and Exchange Commission or
unless the Company has received an opinion of counsel, satisfactory to the
Company, that such shares may be offered or sold without such registration
pursuant to an available exemption therefrom and the terms and conditions of
such exemption have been fully complied with. The Company shall be under no
obligation to register for sale under the Securities Act any of the shares of
Stock to be offered or sold under the Plan. If the shares of Stock offered for
sale or sold under the Plan are offered or sold pursuant to an exemption from
registration under the Securities Act, the Company may restrict the transfer of
such shares and may legend the Stock certificates representing such shares in
such manner as it deems advisable to ensure the availability of any such
exemption.
16
<PAGE>
(d) TAX WITHHOLDING. Notwithstanding any other provision of the Plan,
the Company or a Subsidiary, as appropriate, shall have the right to deduct from
all Awards cash and/or Stock, valued at Fair Market Value on the date of
payment, in an amount necessary to satisfy all Federal, state or local taxes as
required by law to be withheld with respect to such Awards and, in the case of
Awards paid in Stock, the Holder or other person receiving such Stock may be
required to pay to the Company or a Subsidiary, as appropriate, prior to
delivery of such Stock, the amount of any such taxes which the Company or
Subsidiary is required to withhold, if any, with respect to such Stock. Subject
in particular cases to the disapproval of the Committee, the Company may accept
shares of Stock of equivalent Fair Market Value in payment of such withholding
tax obligations if the Holder of the Award elects to make payment in such
manner.
(e) CLAIM TO AWARDS AND EMPLOYMENT RIGHTS. No individual shall have any
claim or right to be granted an Award under the Plan or, having been selected
for the grant of an Award, to be selected for a grant of any other Award.
Neither the Plan nor any action taken hereunder shall be construed as giving any
individual any right to be retained in the employ or service of the Company or a
Subsidiary.
(f) DESIGNATION AND CHANGE OF BENEFICIARY. Each Participant may file
with the Committee a written designation of one or more persons as the
beneficiary who shall be entitled to receive the rights or amounts payable with
respect to an Award due under the Plan upon his death. A Participant may, from
time to time, revoke or change his beneficiary designation without the consent
of any prior beneficiary by filing a new designation with the Committee. The
last such designation received by the Committee shall be controlling; PROVIDED,
HOWEVER, that no designation, or change or revocation thereof, shall be
effective unless received by the Committee prior to the Participant's death, and
in no event shall it be effective as of a date prior to such receipt. If no
beneficiary designation is filed by the Participant, the beneficiary shall be
deemed to be his or her spouse or, if the Participant is unmarried at the time
of death, his or her estate.
(g) PAYMENTS TO PERSONS OTHER THAN PARTICIPANTS. If the Committee shall
find that any person to whom any amount is payable under the Plan is unable to
care for his affairs because of illness or accident, or is a minor, or has died,
then any payment due to such person or his estate (unless a prior claim therefor
has been made by a duly appointed legal representative) may, if the Committee so
directs the Company, be paid to his spouse, child, relative, an institution
maintaining or having custody of such person, or any other person deemed by the
Committee to be a proper recipient on behalf of such person otherwise entitled
to payment. Any such payment shall be a
17
<PAGE>
complete discharge of the liability of the Committee and the Company therefor.
(h) NO LIABILITY OF COMMITTEE MEMBERS. No member of the Committee shall
be personally liable by reason of any contract or other instrument executed by
such member or on his behalf in his capacity as a member of the Committee nor
for any mistake of judgment made in good faith, and the Company shall indemnify
and hold harmless each member of the Committee and each other employee, officer
or director of the Company to whom any duty or power relating to the
administration or interpretation of the Plan may be allocated or delegated,
against any cost or expense (including counsel fees) or liability (including any
sum paid in settlement of a claim) arising out of any act or omission to act in
connection with the Plan unless arising out of such person's own fraud or
willful bad faith; PROVIDED, HOWEVER, that approval of the Board shall be
required for the payment of any amount in settlement of a claim against any such
person. The foregoing right of indemnification shall not be exclusive of any
other rights of indemnification to which such persons may be entitled under the
Company's Articles of Incorporation or By-Laws, as a matter of law, or
otherwise, or any power that the Company may have to indemnify them or hold them
harmless.
(i) GOVERNING LAW. The Plan shall be governed by and construed in
accordance with the internal laws of the State of Delaware without regard to the
principles of conflicts of law thereof.
(j) FUNDING. No provision of the Plan shall require the Company, for
the purpose of satisfying any obligations under the Plan, to purchase assets or
place any assets in a trust or other entity to which contributions are made or
otherwise to segregate any assets, nor shall the Company maintain separate bank
accounts, books, records or other evidence of the existence of a segregated or
separately maintained or administered fund for such purposes. Holders shall have
no rights under the Plan other than as unsecured general creditors of the
Company, except that insofar as they may have become entitled to payment of
additional compensation by performance of services, they shall have the same
rights as other employees under general law.
(k) NONTRANSFERABILITY. A person's rights and interest under the Plan,
including amounts payable, may not be sold, assigned, donated, or transferred or
otherwise disposed of, mortgaged, pledged or encumbered except, in the event of
a Holder's death, to a designated beneficiary to the extent permitted by the
Plan, or in the absence of such designation, by will or the laws of descent and
distribution; PROVIDED, HOWEVER, the Committee may, in its sole discretion,
allow for transfer of Awards other than Incentive Stock Options to other persons
or entities, subject to such conditions or limitations as it may establish.
18
<PAGE>
(l) RELIANCE ON REPORTS. Each member of the Committee and each member
of the Board shall be fully justified in relying, acting or failing to act, and
shall not be liable for having so relied, acted or failed to act in good faith,
upon any report made by the independent public accountant of the Company and its
Subsidiaries and upon any other information furnished in connection with the
Plan by any person or persons other than himself.
(m) RELATIONSHIP TO OTHER BENEFITS. No payment under the Plan shall be
taken into account in determining any benefits under any pension, retirement,
profit sharing, group insurance or other benefit plan of the Company or any
Subsidiary except as otherwise specifically provided in such other plan.
(n) EXPENSES. The expenses of administering the Plan shall be borne by
the Company and its Subsidiaries.
(o) PRONOUNS. Masculine pronouns and other words of masculine gender
shall refer to both men and women.
(p) TITLES AND HEADINGS. The titles and headings of the sections in the
Plan are for convenience of reference only, and in the event of any conflict,
the text of the Plan, rather than such titles or headings shall control.
(q) TERMINATION OF EMPLOYMENT. For all purposes herein, a person who
transfers from employment or service with the Company to employment or service
with a Subsidiary or vice versa shall not be deemed to have terminated
employment or service with the Company or a Subsidiary.
12. CHANGES IN CAPITAL STRUCTURE
Awards granted under the Plan and any agreements evidencing such
Awards, the maximum number of shares of Stock subject to all Awards under the
Plan and the maximum number of shares of Stock with respect to which any one
person may be granted Options or stock appreciation rights during any year may
be subject to adjustment or substitution, as determined by the Committee in its
sole discretion, as to the number, price or kind of a share of Stock or other
consideration subject to such Awards or as otherwise determined by the Committee
to be equitable (i) in the event of changes in the outstanding Stock or in the
capital structure of internet.com Corporation by reason of stock dividends,
stock splits, reverse stock splits, recapitalizations, reorganizations, mergers,
consolidations, combinations, exchanges, or other relevant changes in
capitalization occurring after the Date of Grant of any such Award or (ii) in
the event of any change in applicable laws or any change in circumstances which
results in or would result in any substantial dilution or
19
<PAGE>
enlargement of the rights granted to, or available for, Participants in the
Plan, or (iii) for any other reason which the Committee, in its sole discretion,
determines otherwise warrants equitable adjustment because it interferes with
the intended operation of the Plan. Any adjustment to Incentive Stock Options
under this Section 12 shall take into account that adjustments which constitute
a "modification" within the meaning of Section 424(h)(3) of the Code may have an
adverse tax impact on such Incentive Stock Options and the Committee may, in its
sole discretion, provide for a different adjustment or no adjustment in order to
preserve the tax effects of Incentive Stock Options. Unless otherwise determined
by the Committee, in its sole discretion, any adjustments or substitutions under
this Section 12 shall be made in a manner which does not adversely affect the
exemption provided pursuant to Rule 16b-3 under the Exchange Act. Further,
following the date that the exemption from the application of Section 162(m) of
the Code described in Section 16 (or any other exemption having similar effect)
ceases to apply to Awards, with respect to Awards intended to qualify as
"performance-based compensation" under Section 162(m) of the Code, such
adjustments or substitutions shall, unless otherwise determined by the Committee
in its sole discretion, be made only to the extent that the Committee determines
that such adjustments or substitutions may be made without a loss of
deductibility for such Awards under Section 162(m) of the Code. The Company
shall give each Participant notice of an adjustment hereunder and, upon notice,
such adjustment shall be conclusive and binding for all purposes.
Notwithstanding the above, in the event of any of the following:
A. internet.com Corporation is merged or consolidated
with another corporation or entity such that after such merger
or consolidation internet.com Corporation is not the surviving
entity or the ultimate parent of the surviving entity;
B. All or substantially all of the assets of
internet.com Corporation or the Common Stock are acquired by
another person or entity;
C. The reorganization or liquidation of internet.com
Corporation; or
D. internet.com Corporation shall enter into a
written agreement to undergo an event described in clauses A,
B or C above,
then the Committee may, in its discretion and upon at least 10 days advance
notice to the affected persons, cancel any outstanding Awards and pay to the
Holders thereof, in cash or Stock, the value of such Awards based upon the price
per share of Stock received or to be received by other shareholders of
20
<PAGE>
internet.com Corporation in the event. The terms of this Section 12 may be
varied by the Committee in any particular Award agreement.
13. EFFECT OF CHANGE IN CONTROL
Except to the extent reflected in a particular Award agreement:
(a) In the event of a Change in Control, notwithstanding any vesting
schedule with respect to an Award of Options or Restricted Stock, such Option
shall become immediately exercisable with respect to 100% of the shares subject
to such Option, and the Restricted Period shall expire immediately with respect
to 100% of such shares of Restricted Stock.
(b) In the event of a Change in Control, all other Awards shall become
fully vested and or payable to the fullest extent of any Award or portion
thereof that has not then expired and any restrictions with respect thereto
shall expire. The Committee shall have full authority and discretion to
interpret this Section 13 and to implement any course of action with respect to
any Award so as to satisfy the intent of this provision.
(c) The obligations of the Company under the Plan shall be binding upon
any successor corporation or organization resulting from the merger,
consolidation or other reorganization of the Company, or upon any successor
corporation or organization succeeding to substantially all of the assets and
business of the Company.
14. NONEXCLUSIVITY OF THE PLAN
Neither the adoption of this Plan by the Board nor the submission of
this Plan to the stockholder of the Company for approval shall be construed as
creating any limitations on the power of the Board to adopt such other incentive
arrangements as it may deem desirable, including, without limitation, the
granting of stock options otherwise than under this Plan, and such arrangements
may be either applicable generally or only in specific cases.
15. AMENDMENTS AND TERMINATION
21
<PAGE>
The Board may at any time terminate the Plan. Subject to Section 12,
with the express written consent of an individual Participant, the Board or the
Committee may cancel or reduce or otherwise alter outstanding Awards if, in its
judgment, the tax, accounting, or other effects of the Plan or potential payouts
thereunder would not be in the best interest of the Company. The Board or the
Committee may, at any time, or from time to time, amend or suspend and, if
suspended, reinstate, the Plan in whole or in part; PROVIDED, HOWEVER, that
without further stockholder approval neither the Board nor the Committee shall
make any amendment to the Plan which would:
(a) Materially increase the maximum number of shares of Stock which may
be issued pursuant to Awards, except as provided in Section 12;
(b) Extend the maximum Option Period;
(c) Extend the termination date of the Plan; or
(d) Change the class of persons eligible to receive Awards under the
Plan.
16. EFFECT OF SECTION 162(M) OF THE CODE
The Plan, and all Awards issued thereunder, are intended to be exempt from the
application of Section 162(m) of the Code, which restricts under certain
circumstances the Federal income tax deduction for compensation paid by a public
company to named executives in excess of $1 million per year. The exemption is
based on Treasury Regulation Section 1.162-27(f) with the understanding that
such regulation generally exempts from the application of Section 162(m) of the
Code compensation paid pursuant to a plan that existed before a company becomes
publicly held. Under such Treasury Regulation, this exemption is available to
the Plan for the duration of the period that lasts until the earlier of (i) the
expiration or material modification of the Plan, (ii) the exhaustion of the
maximum number of shares of Stock available for Awards under the Plan, as set
forth in Section 5(a), or (iii) the year 2003 annual meeting of shareholders of
the Company. To the extent that the Committee determines as of the Date of Grant
of an Award that (i) the Award is intended to comply with Section 162(m) of the
Code and (ii) the exemption described above is no longer available with respect
to such Award, such Award shall not be effective until any stockholder approval
required under Section 162(m) of the Code has been obtained.
* * *
22
<PAGE>
As adopted by the Board of Directors of
internet.com Corporation as of
April 15, 1999.
By:
------------------------------------
Title:
---------------------------------
23
<PAGE>
Exhibit 10.07
November 24, 1998
To: Chris Cardell
From: Alan Meckler
Subject: Offer of Employment
The following is our offer of employment with internet.com LLC ("the Company"):
1. Title: President and Chief Operating Officer
2. Annual base salary: $175,000
3. Annual salary increases: A minimum 4% increase
4. Annual stock option grants: 5,000 share range
5. In the event of your termination due to a change of ownership of the
Company, you will be entitled to 12 months of severance to be paid in
monthly installments. This severance will be conditional on your not
divulging any information, including disparaging comments about the
Company, its personnel, financial or other proprietary information.
6. Vacation: Four weeks paid vacation
7. Other benefits:
- 401k participation
- major medical insurance coverage
- major dental insurance coverage
- disability insurance etc. commensurate with other Company
personnel
8. Immediate supervisor: Chairman and Chief Executive Officer
All terms of this agreement are effective upon the date of your signing
Very truly yours,
/s/ Alan M. Meckler
- ------------------------------------
Alan M. Meckler
Chairman and Chief Executive Officer
internet.com LLC
Agreed to by:
/s/ Christopher S. Cardell
- ------------------------------------
Christopher S. Cardell
November 24, 1998
<PAGE>
Exhibit 10.08
November 24, 1998
To: Chris Baudouin
From: Chris Cardell
Subject: Offer of Employment
The following is our offer of employment with internet.com LLC ("the Company"):
1. Title: Chief Financial Officer
2. Annual base salary: $120,000
3. In the event of your termination due to a change of ownership of the
Company, you will be entitled to six months of severance to be paid in
monthly installments. This severance will be conditional on your not
divulging any information, including disparaging comments about the
Company, its personnel, financial or other proprietary information.
4. Vacation: Three weeks paid vacation
5. Other benefits:
- 401k participation
- major medical insurance coverage
- major dental insurance coverage
- disability insurance etc. commensurate with other Company
personnel
6. Immediate supervisor: President and Chief Operating Officer
All terms of this agreement are effective upon the date of your signing
Very truly yours,
/s/ Christopher S. Cardell
Christopher S. Cardell
President and Chief Operating Officer
internet.com LLC
Agreed to by:
/s/ Christopher J. Baudouin
Christopher J. Baudouin
November 24, 1998
<PAGE>
[LOGO]
INTERNET.COM INSERTION ORDER
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ADVERTISER: AGENCY:
- ------------------------------------- ----------------------------------------
ADDRESS: ADDRESS:
- ------------------------------------- ----------------------------------------
CITY, ST, ZIP: CITY, ST, ZIP:
- ------------------------------------- ----------------------------------------
PHONE: PHONE:
- ------------------------------------- ----------------------------------------
FAX: FAX:
- ------------------------------------- ----------------------------------------
EMAIL: EMAIL:
- ------------------------------------- ----------------------------------------
CONTACT: CONTACT:
- --------------------------------------------------------------------------------
</TABLE>
DATE BEGIN DATE END POSITION & COMMENTS NET RATE/$
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
BANNER SIZE (Pixels) N E W S L E T T E R
/_/ 468 x 60 /_/ 125 Square /_/ E-mail Sponsorship Text
/_/ 234 x 60 ( homepage A&B) 6 lines of 60 characters each
GIF FILE To Follow____ Enclosed____
ISP * LISTs /_/ HTML E-mail Text Message
/_/ ISP-Lists Disc Group Sponsorship 5 lines of 60 characters each
3 lines of 66 characters each
/_/ ISP-CEO Sponsorship /_/ Classified Ad Text
30 lines of 66 characters each 3 lines of 66 characters each
</TABLE>
<TABLE>
<S> <C>
- ----------------------------- ----------------------------------------
URL LINK:
- ----------------------------- ----------------------------------------
ALT TEXT FOR BANNER:
- ----------------------------- ----------------------------------------
INVOICES SENT TO:
- ----------------------------- ----------------------------------------
BILLING COMMENTS:
- ----------------------------- ----------------------------------------
SEND WEEKLY STATS TO:
- ----------------------------- ----------------------------------------
EMAIL:
- ----------------------------- ----------------------------------------
FAX:
- ----------------------------- ----------------------------------------
</TABLE>
*SIGNATURES:
<TABLE>
<S> <C>
- -------------------------- ---------------------------------------------------
ACCOUNT EXECUTIVE
- -------------------------- ---------------------------------------------------
ADVERTISER AUTHORIZED
SIGNATURE
- -------------------------- ---------------------------------------------------
TITLE
- -------------------------- ---------------------------------------------------
DATE
- -------------------------- ---------------------------------------------------
</TABLE>
* C U S T O M E R A C T I O N I T E M S *
* EMAIL AD CREATIVE TO: [email protected]
* FAX THIS FORM TO:
* PLEASE ALSO FAX THE CREDIT CARD AUTHORIZATION FORM IF YOU ARE PAYING BY
CREDIT CARD
Internet.com * 20 Ketchum St. * Westport, CT 06880
TEL: 203-341-2997 * FAX: 203-222-1679 * URL: http://www.internet.com
SUBJECT TO INTERNET.COM'S ADVERTISING TERMS AND CONDITIONS.
<PAGE>
Exhibit 21.01
SUBSIDIARIES OF THE REGISTRANT
I-Venture Management LLC (a Delaware limited liability company)*
- --------------------------------------------------------------------------------
*I-Venture Management LLC is a wholly-owned subsidiary of internet.com LLC, and
will become a wholly-owned subsidiary of internet.com Corporation upon the
merger of internet.com LLC with and into internet.com Corporation immediately
prior to the consummation of this offering.
<PAGE>
EXHIBIT 23.02
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our reports
(and to all references to our firm) included in or made a part of this
registration statement.
ARTHUR ANDERSEN LLP
Stamford, Connecticut
May 19, 1999
<PAGE>
Exhibit 99.01
May 19, 1999
internet.com Corporation
20 Ketchum Street
Westport, Connecticut 06880
Dear Sirs:
I hereby consent to being named in internet.com Corporation's Registration
Statement on Form S-1 as a person who has agreed to be named as a Director of
such corporation.
Sincerely yours,
/s/ Gilbert F. Bach
- -------------------------------
Gilbert F. Bach
