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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2000.
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ________ TO ________.
------------------------
COMMISSION FILE NUMBER 000-25949
------------------------
CAREERBUILDER, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
DELAWARE 54-1779164
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
10790 PARKRIDGE BLVD 20191
SUITE 200 (ZIP CODE)
RESTON, VIRGINIA
(ADDRESS OF PRINCIPAL EXECUTIVE
OFFICES)
</TABLE>
703-259-5500
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE:
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No ____
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
<TABLE>
<S> <C>
Common Stock, $0.001 par value 23,883,294 Shares
(Class) (Outstanding at July 31, 2000)
</TABLE>
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CAREERBUILDER, INC.
INDEX TO QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 2000
<TABLE>
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Unaudited Condensed Statements of Operations -- Three and
Six Months Ended June 30, 2000 and 1999................ 3
Condensed Balance Sheets -- June 30, 2000 (unaudited) and
December 31, 1999 ..................................... 4
Unaudited Condensed Statements of Cash Flows-Six Months
Ended June 30, 2000 and 1999........................... 5
Notes to Unaudited Condensed Interim Financial
Statements............................................. 6
Management's Discussion and Analysis of Financial Condition
Item 2. and Results of Operations................................. 10
Quantitative and Qualitative Disclosures about Market
Item 3. Risk...................................................... 27
PART II. OTHER INFORMATION
Item 1. Legal Proceedings........................................... 28
Item 2. Use of Proceeds............................................. 28
Item 4. Submission of Matters to a Vote of Security Holders......... 28
Item 5. Other Information........................................... 29
Exhibits, Financial Statement Schedules, and Reports on Form
Item 6. 8-K....................................................... 31
Signatures........................................................... 32
Index of Exhibits.................................................... 33
</TABLE>
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PART I.
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CAREERBUILDER, INC.
CONDENSED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
UNAUDITED
<TABLE>
<CAPTION>
{THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------- -------------------
2000 1999 2000 1999
--------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues............................................. $ 6,872 $ 3,263 $ 12,481 $ 6,069
Cost of revenues..................................... 3,642 1,462 6,617 2,578
-------- ------- -------- --------
Gross profit.................................... 3,230 1,801 5,864 3,491
-------- ------- -------- --------
Operating expenses:
Product development................................ 814 455 1,444 1,084
General and administrative......................... 1,575 1,036 3,040 1,745
Sales and marketing (excluding equity-based
expense below).................................. 11,835 5,094 23,284 9,715
Equity-based expense............................... 960 715 1,920 791
-------- ------- -------- --------
Total operating expenses................... 15,184 7,300 29,688 13,335
-------- ------- -------- --------
Loss from operations................................. (11,954) (5,499) (23,824) (9,844)
-------- ------- -------- --------
Net interest income (expense)........................ 680 344 1,413 240
-------- ------- -------- --------
Loss before income taxes............................. (11,274) (5,155) (22,411) (9,604)
Income taxes......................................... -- -- -- --
-------- ------- -------- --------
Net loss............................................. (11,274) (5,155) (22,411) (9,604)
-------- ------- -------- --------
Preferred stock dividend requirements................ -- (271) -- (737)
-------- ------- -------- --------
Net loss available to common stockholders............ $(11,274) $(5,426) $(22,411) $(10,341)
======== ======= ======== ========
Basic and diluted net loss per share................. $ (0.47) $ (0.38) $ (0.94) $ (1.07)
Weighted average shares outstanding.................. 23,795 14,396 23,773 9,688
Unaudited pro forma basic and diluted net loss per
share.............................................. $ (0.25) $ (0.52)
Weighted average shares used to compute unaudited pro
forma net loss per share........................... 20,390 18,318
</TABLE>
See accompanying notes to unaudited condensed interim financial statements.
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CAREERBUILDER, INC.
CONDENSED BALANCE SHEET
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
JUNE 30, 2000 DECEMBER 31, 1999
------------- -----------------
(UNAUDITED)
<S> <C> <C>
Current assets:
Cash and cash equivalents.............................. $ 44,780 $ 63,589
Accounts receivable, net of allowance of $534 and $422,
respectively......................................... 3,834 3,029
Prepaid expenses....................................... 1,022 1,040
Other.................................................. 46 48
-------- --------
Total current assets.............................. 49,682 67,706
Property and equipment, net of accumulated depreciation and
amortization of $3,047 and $2,449 respectively............ 3,672 2,028
Deposits.................................................... 262 2,028
Other....................................................... 538 766
-------- --------
Total assets...................................... $ 54,154 $ 72,528
======== ========
Current liabilities
Accounts payable....................................... 340 2,022
Accrued payroll and related expenses................... 2,059 1,649
Accrued expenses....................................... 5,974 3,340
Deferred revenue....................................... 824 418
-------- --------
Total current liabilities......................... 9,197 7,429
-------- --------
Total liabilities............................ 9,197 7,429
-------- --------
Commitments and contingencies
Stockholders' equity:
Common stock, $.001 par value.......................... 24 24
Additional paid in capital............................. 113,101 110,832
Accumulated deficit.................................... (68,168) (45,757)
-------- --------
Total stockholders' equity........................ 44,957 65,099
-------- --------
$ 54,154 $ 72,528
======== ========
</TABLE>
See accompanying notes to the unaudited condensed interim financial statements.
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CAREERBUILDER, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
------------------
2000 1999
-------- -------
(UNAUDITED)
<S> <C> <C>
Cash flows used by operating activities:
Net loss.................................................. $(22,411) $(9,604)
Adjustments to reconcile net loss to net cash used by
operating activities:
Noncash items included in net income (loss):
Depreciation and amortization........................ 876 547
Allowance for doubtful accounts and sales returns.... 112 241
Loss on disposition of assets........................ 279 --
Equity-based expense................................. 1,920 791
(Increase) decrease in assets:
Accounts receivable.................................. (917) (295)
Other operating assets............................... 20 (1,398)
Increase (decrease) in liabilities:
Accounts payable..................................... (1,682) (405)
Accrued expenses..................................... 3,044 2,164
Deferred revenue..................................... 406 (973)
-------- -------
Net cash used by operating activities............. (18,353) (8,932)
-------- -------
Cash flows used by investing activities:
Purchases of property and equipment....................... (2,799) (871)
Decrease in deposits and other assets..................... 1,994 42
-------- -------
Net cash provided (used) by investing
activities...................................... (805) (829)
-------- -------
Cash flows from financing activities:
Proceeds from issuance of preferred stock................. -- 10,986
Initial public offering, net of expenses.................. 59,975
Investment from Microsoft................................. 17,846
Proceeds from exercise of stock options................... 349 53
Advances on line of credit................................ -- 390
Payoff of line of credit, net............................. (3,840)
-------- -------
Net cash provided by financing activities......... 349 85,410
-------- -------
Net change in cash and cash equivalents..................... $(18,809) $75,649
Cash and cash equivalents, beginning of period.............. $ 63,589 $ 2,709
-------- -------
Cash and cash equivalents, end of period.................... $ 44,780 $78,358
======== =======
Supplemental cash flow information:
Interest and income taxes paid:
Interest paid.......................................... $ -- $ 388
Taxes paid............................................. -- --
</TABLE>
See accompanying notes to unaudited condensed interim financial statements.
5
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CAREERBUILDER, INC.
NOTES TO UNAUDITED CONDENSED INTERIM FINANCIAL STATEMENTS
NOTE 1 -- BASIS OF PRESENTATION
The condensed financial statements include the accounts of CareerBuilder,
Inc. ("CareerBuilder" or the "Company"). The condensed balance sheet as of June
30, 2000, the condensed statements of operations for the three and six months
ended June 30, 2000 and 1999, and the condensed statements of cash flows for the
six months ended June 30, 2000 and 1999 have been prepared by the Company,
without audit. In the opinion of management, all adjustments have been made,
which include normal recurring adjustments necessary to present fairly the
interim financial statements. Operating results for the three and six months
ended June 30, 2000, are not necessarily indicative of the operating results for
the full year. Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted. The Company believes that the
disclosures provided are adequate to make the information presented not
misleading. These financial statements should be read in conjunction with the
audited financial statements and the related notes included in the Company's
Form 10-K filed with the Securities and Exchange Commission on March 28, 2000.
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) REVENUE RECOGNITION
Revenue consists of the sale of classified employment advertising on
Company-owned and affiliate websites and is recognized ratably over the
subscription period.
Deferred revenue represents amounts billed or payments received in advance
of the subscription period.
(b) COST OF REVENUE
Cost of revenue includes costs associated with hosting the network,
including depreciation expense and commissions and fees paid to ADP, Inc.
("ADP") and affiliates. Amounts incurred for affiliates and ADP commissions were
approximately $2.6 million and $4.9 million for the three and six months ended
June 30, 2000, respectively. Total affiliate and ADP commission expense for the
three and six months ended June 30, 1999 were $1.0 million and $1.7 million,
respectively.
(c) CASH EQUIVALENTS
The Company considers all highly liquid investments with an original
maturity of three months or less to be cash equivalents. The carrying amounts
reported in the balance sheets for cash and cash equivalents approximate their
fair value.
(d) EQUITY BASED EXPENSE
Equity based expense represents the amortization of the fair value of
warrants issued to ADP, NBC and Microsoft. The warrants are amortized using the
straight-line method over the life of the respective agreements.
(e) NET INCOME (LOSS) PER SHARE
The Company computes net income (loss) per share in accordance with SFAS
No. 128, "Earnings Per Share" and SEC Staff Accounting Bulletin No. 98 ("SAB
98"). Under the provisions of SFAS No. 128 and SAB 98, basic net income (loss)
per share is computed by dividing the net
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CAREERBUILDER, INC.
NOTES TO UNAUDITED CONDENSED INTERIM FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
income (loss) to common stockholders (after deducting preferred dividend
requirements) for the period by the weighted average number of common shares
outstanding during the period. Diluted net income (loss) available per share is
computed by dividing the net income (loss) available to common stockholders for
the period by the weighted average number of common and dilutive common
equivalent shares outstanding during the period. The Company has presented
historical basic and diluted net income (loss) per share in accordance with SFAS
No. 128. As the Company had a net loss in each of the periods presented, basic
and diluted net income (loss) per share is the same. Pro forma basic and diluted
net income (loss) per share for 1999, has been calculated assuming the
conversion of all shares of preferred stock into common stock, as if the shares
had converted immediately upon their issuance.
(f) USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results may differ from those estimates.
NOTE 3 -- LINES OF CREDIT
The Company has a revolving credit facility in the amount of $2,000,000,
for a term of 2 years, expiring in February 2002 secured by its cash balance
collateral. The line of credit bears interest at the bank's prime rate plus
1/2%. The Company has issued a $1,600,000 letter of credit thereby reducing the
Company's available credit by that amount. No other borrowings against this line
of credit have been taken as of June 30, 2000.
NOTE 4 -- EQUITY BASED EXPENSE
In connection with the execution of the joint marketing and sales
representative agreement with ADP in January 1998, the Company granted warrants
to purchase up to 1,140,000 shares of the Company's common stock at an exercise
price of $5.00 per share. The warrants contain anti-dilution provisions, which
increase the number of shares ratably in connection with certain additional
equity issuances by the Company. In connection with the issuance of Class E
convertible redeemable preferred stock in July 1998, warrants in December 1998
and Class F convertible redeemable preferred stock in January 1999, the number
of shares purchasable under the warrants was increased to 1,294,052.
On March 5, 1999, the Company and ADP amended their joint marketing and
sales representative agreement, extending the initial term of the agreement
through January 2002. The Company amended and restated the warrant granted in
January 1998, and warrants to purchase 380,000 shares of common stock, at an
exercise price of $12.00 per share, were vested at that time. The estimated
value of the warrant at the vesting date of $1,699,000 is being recognized as
equity-based expense ratably over the extended term of the agreement, which is
thirty-seven months. Warrants for the second and third installments of up to
380,000 shares of common stock each will vest on March 31, 2001 and March 31,
2002, respectively, based on ADP achieving specified revenue-based milestones.
The revenue-based milestones are measured for a specific time period, by
7
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CAREERBUILDER, INC.
NOTES TO UNAUDITED CONDENSED INTERIM FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 4 -- EQUITY BASED EXPENSE -- (CONTINUED)
subtracting sales commissions paid to ADP from total revenue received from
customers for which ADP has acted as a sales agent. In order for the minimum
number of shares under the March 2001 installment of the warrant to vest,
revenue minus sales commissions for the period from April 1, 2000 through March
31, 2001 must exceed $10.2 million, with $20.4 million required for the maximum
number of shares issuable under the installment to vest. In order for the
minimum number of shares under the March 2002 installment to vest, the milestone
of revenue minus sales commission for the period from April 1, 2001 through
March 31, 2002 must exceed $23.0 million, with $30.0 million required for the
maximum number of shares issuable under the installment to vest. The exercise
price for the second and third installments is $5.00 per share. In the event
that ADP does not meet the specified sales levels, the associated warrants
expire. If the Company issues additional equity securities primarily for
financing purposes, excluding the shares of common stock sold in an underwritten
public offering or through the Company's stock option plan, the number of shares
of common stock issuable upon exercise of the warrant will increase for each of
the second and third installments.
If and when it becomes probable that the net revenue the Company will
receive from ADP will reach the necessary level for either of the remaining
installments of the warrant to vest, the Company would begin to record an
expense reflecting the fair value of the warrants, which will be determined in
part based on the then current market price of the common stock. The Company
would begin to recognize this expense on the determination of probability that
the revenue targets would be achieved, continuing through the actual vesting
date. The Company would initially estimate the amount of the expense at the time
of the determination that achievement is probable, based in part on the market
price of the common stock at that time. At the time of actual vesting, the fair
value of the warrant would be remeasured and, if different from the value used
in initially estimating the expense, the difference would be reflected as an
additional charge or credit at that time.
As of June 30, 2000, the Company believes it is not yet probable that ADP
will achieve the necessary sales level to earn the warrants to purchase the
additional 914,052 shares of common stock.
On March 5, 1999, the Company entered into an agreement with NBC
Multimedia. Under this agreement, the Company will host the NBC Interactive
career sites for participating NBC affiliates and NBC.com. Under this agreement,
CareerBuilder granted warrants to purchase 93,750 shares of common stock at an
exercise price of $8.00 per share and 53,571 shares at an exercise price of
$14.00 per share. The warrants become exercisable in various amounts on the
first, second, and third anniversaries of the agreement and expire five years
from the date of grant. The estimated value of the warrants at the grant date of
$706,000 is being recognized as equity-based expense ratably over the term of
the agreement, which is two years. In addition, the Company is required to make
certain mandatory minimum payments totaling $750,000 to NBC Interactive in 1999
and 2000. For the quarter ended June 30, 2000, $93,750 has been recognized as
sales and marketing expense related to mandatory minimum payments. For the six
months ended June 30, 2000, $187,500 has been recognized as mandatory minimum
payments.
In May 1999, the Company entered into a strategic arrangement with
Microsoft Corporation. As part of its strategic arrangement, Microsoft invested
$17,846,621, or $13.00 per share, for 1,372,817 shares of the Company's common
stock. The Company also issued a warrant to Microsoft to purchase 873,534 shares
of Common Stock at an exercise price of $13.00 per share. The Company is
recognizing approximately $5.8 million of expense related to the warrant ratably
between 1999 and 2001, reflecting the term of the strategic agreement.
8
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CAREERBUILDER, INC.
NOTES TO UNAUDITED CONDENSED INTERIM FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 4 -- EQUITY BASED EXPENSE -- (CONTINUED)
In December 1998, the Company granted warrants to purchase 40,568 shares of
common stock at an exercise price of $4.93 per share as consideration for
obtaining a line of credit. The warrants expire in ten years. The estimated
value of the warrants of approximately $109,000 was recorded as an other asset
with the offsetting amount recorded as additional paid-in capital.
NOTE 5 -- MERGER AGREEMENT
On July 16, 2000, CareerBuilder, Inc. (the "Company"), entered into an
Agreement and Plan of Merger (the "Merger Agreement") with Career Holdings, Inc.
and CB Acquisition Corp. (the "Sub"), each a newly formed Delaware corporation
that is directly or indirectly owned jointly by Tribune Company ("TC"), a
Delaware corporation, and Knightridder.com ("KR"), a Delaware corporation and
wholly owned subsidiary of Knight Ridder, Inc. Under the Merger Agreement, Sub
commenced on July 25, 2000, a tender offer (the "Offer") to purchase all of the
outstanding shares of common stock, par value $0.001 per share, of the Company
(the "Shares"), at a purchase price of $8.00 per Share, net to the seller in
cash, without interest thereon (the "Offer Price").
Pursuant to the Merger Agreement, following the completion of the Offer and
the satisfaction or waiver of certain other conditions, Sub will be merged with
and into the Company (the "Merger") with the Company being the surviving
corporation. In the Merger, each outstanding Share (other than (i) Shares held
by the Company, (ii) Shares held by Parent or its wholly owned subsidiaries, and
(iii) Dissenting Shares (as defined in the Merger Agreement)) will be converted
into the right to receive the Offer Price. In connection with the Merger
Agreement, TC, KR and Parent entered into an Investment Agreement dated July 16,
2000 (the "Investment Agreement"), to which the Company is an express third
party beneficiary.
The Offer is conditioned on, among other things, Tribune and Knight Ridder
acquiring at least a majority of the outstanding stock of CareerBuilder on a
fully diluted basis. Holders of approximately 44% of the outstanding shares of
CareerBuilder have entered in stockholder agreements (the "Stockholder
Agreements") pursuant to which they have agreed to tender their shares in the
Offer and to vote their shares in favor of the merger agreement and against any
other transaction, subject to the provisions of the Stockholder Agreement. The
transaction is subject to other customary conditions, including
Hart-Scott-Rodino Act anti-trust clearance.
The Company, the members of its Board of Directors, Knight-Ridder, Inc. and
Tribune Company were named as defendants in two shareholder lawsuits, (i)
Caroline Teitelbaum v. Peter J. Barris, David C. Wetmore, Gary C. Butler, Robert
J. McGovern, James A. Tholen, CareerBuilder, Inc., CB Acquisition Corp., Career
Holdings, Inc., Knight-Ridder, Inc. and Tribune Company, and (ii) Charles Smith
v. Robert J. McGovern, James A. Winchester, Peter J. Barris, David C. Wetmore,
Gary C. Butler, CareerBuilder, Inc., Knight-Ridder, Inc. and Tribune Company,
filed on July 18 and July 25, 2000, respectively, in the Court of Chancery of
the state of Delaware in connection with the proposed acquisition of the Company
by affiliates of Knight-Ridder, Inc. and Tribune Company. Each of the lawsuits
in general alleges that the members of the Company's Board of Directors have
breached their fiduciary duties by approving the transaction and that the
consideration received by the Company's shareholders in connection with the
transaction would be inadequate. The plaintiffs seeks injunctive relief against
the transaction or if consummated, recission of the transaction and/or damages.
CareerBuilder believes that the lawsuits are without merit and intend to defend
the claims vigorously.
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ITEM 2.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
INFORMATION REGARDING FORWARD-LOOKING STATEMENTS
Certain statements contained in "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and other sections herein,
including statements regarding the development of the Company's business, the
markets for the Company's services, the Company's anticipated capital
expenditures, and other similar statements, are forward-looking statements (as
such term is defined in the Private Securities Litigation Reform Act of 1995)
which can be identified as any statement that does not relate strictly to
historical or current facts. Forward-looking statements use such words as
"plans", "expects", "will", "will likely result", "are expected to", "will
continue", "is anticipated", "estimate", "project", "believes", "anticipates",
"intends", "may", "should", "continue", "seek", "could" and other similar
expressions. Although the Company believes that its expectations are based on
reasonable assumptions, it can give no assurance that its expectations will be
achieved. The important factors that could cause actual results to differ
materially from those in the forward-looking statements herein (the "Cautionary
Statements") include, without limitation, those factors set forth below under
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Certain Factors That May Affect Future Results," as well as the
other risks referenced from time to time in the Company's filings with the
Securities and Exchange Commission, including the Company's Annual Report on
Form 10-K that the Company files in 2001. All subsequent written and oral
forward-looking statements attributable to the Company or persons acting on its
behalf are expressly qualified in their entirety by the Cautionary Statements.
The Company does not undertake any obligation to release publicly any revisions
to such forward-looking statements to reflect events or circumstances after the
date hereof or to reflect the occurrence of unanticipated events.
The following discussion and analysis of the Company's financial condition
and results of operations should be read in conjunction with the Company's
Condensed Financial Statements and Notes thereto appearing elsewhere in this
Quarterly Report. This discussion and analysis contains forward-looking
statements that involve risks, uncertainties and assumptions. The Company's
actual results may differ materially from those anticipated in these
forward-looking statements as a result of certain factors, including those set
forth under "Certain Factors That May Affect Future Results" and elsewhere in
this Quarterly Report.
OVERVIEW
CareerBuilder, Inc. ("CareerBuilder" or "the Company") provides
comprehensive online recruitment offerings for employers, major media companies
and job seekers. CareerBuilder was founded in November 1995 and has grown from 7
employees at June 30, 1996 to 257 employees at June 30, 2000. During the period
from inception in November 1995 to September 1996, CareerBuilder had
insignificant revenue and was primarily engaged in developing online recruiting
technology, specifically TeamBuilder Software and the CareerBuilder.com career
site. During July and August of 1996, CareerBuilder expanded its operations by
adding direct sales and marketing personnel. CareerBuilder's sales commenced in
September 1996. CareerBuilder began generating more significant revenue in the
fourth quarter of 1996 through the sale of perpetual licenses for TeamBuilder
Software and through customer service fees for monthly subscriptions. In May
1998, CareerBuilder launched the CareerBuilder Network by hosting the career
sites located on the Internet sites of interactive media companies.
The Company completed its initial public offering of Common Stock, at a
price of $13.00 per share in May, 1999, and received net proceeds (after
expenses of the offering) of approximately $60 million.
In addition, on May 4, 1999 CareerBuilder entered into a service and
distribution agreement with Microsoft. As part of this transaction,
CareerBuilder agreed to provide career sites for the
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Microsoft Network. These career sites have become members of the CareerBuilder
Network. Microsoft purchased approximately 1.4 million shares of CareerBuilder's
Common Stock for an aggregate purchase price of approximately $17.8 million, at
$13.00 per share. In addition, for no additional cash consideration,
CareerBuilder issued a warrant to Microsoft representing the right to purchase
873,534 shares of Common Stock with an exercise price of $13.00 per share. The
warrant is immediately exercisable in full. The net proceeds of approximately
$77.8 million from both the initial public offering and the Microsoft investment
were added to the working capital of the Company.
CareerBuilder's revenue is derived principally from subscription fees and
individual posting fees. Customers typically subscribe for three-, six- or
twelve-month subscriptions for multiple job postings. Customers may also
subscribe on an individual posting basis for a one month period. The
subscription fees are recognized ratably over the subscription period. For the
quarter ended June 30, 2000, approximately 92% of CareerBuilder subscription
revenue was derived from multiple-month subscriptions and approximately 8% of
CareerBuilder subscription revenue was derived from individual postings. Other
services included in revenue are advertising fees and recruiting service fees.
Customers can post job advertisements on CareerBuilder.com as well as the
career sites of the members of the CareerBuilder Network. The members of the
CareerBuilder Network receive a portion of the subscription fee from customers
that choose to post job advertisements on their respective career sites. The
portion of the subscription fee paid to members of the CareerBuilder Network is
included in cost of revenue. In addition, CareerBuilder pays fees, including
advertising and marketing fees, to three current CareerBuilder Network members.
CareerBuilder is party to a joint marketing and sales representative
agreement with Automatic Data Processing, Inc. ("ADP"). Pursuant to the joint
marketing and sales representative agreement, ADP receives a percentage of the
total monthly revenue received by CareerBuilder from orders procured by ADP.
This sales commission fee is included in CareerBuilder's cost of revenue and
ranges from 33% to 50%. The sales commission fee as a percentage of revenue
varies based on the relative job posting activity of these customers between
CareerBuilder.com and the other sites on the CareerBuilder Network.
CareerBuilder recognizes all of the revenue derived from the ADP sales channel.
ADP is generally responsible for billing and collecting from these customers on
CareerBuilder's behalf. Revenue from orders procured by ADP accounted for
approximately 35% of CareerBuilder's total revenue for both the quarter ended
June 30, 2000 and for the six months ended June 30, 2000.
CareerBuilder's cost of revenue as a percentage of total revenue has
increased in 2000 relative to 1999. This increase primarily resulted from an
increase in fees paid to members of the CareerBuilder Network due to network
revenue growth.
In connection with the execution of the joint marketing and sales
representative agreement and its amendment and the sale of shares of Series D
preferred stock to ADP, CareerBuilder issued a warrant to ADP, which vests in
three installments. The first installment of 380,000 shares vested at the
signing of the amendment. In addition, if and when ADP achieves specified
revenue milestones, CareerBuilder could incur additional equity-based expenses
that could be substantial. For more information regarding the ADP warrant and
these potential expenses, see "Certain Factors That May Affect Future
Results -- We could be required to record significant expenses if ADP achieves
revenue goals." In addition to the ADP and Microsoft warrants, CareerBuilder
also issued two warrants representing the right to purchase up to an aggregate
of 147,321 shares of Common Stock in connection with an agreement with NBC
Multimedia, Inc., an affiliate member of the CareerBuilder Network.
CareerBuilder recognized approximately $960,000 of expense related to the ADP,
NBC, and Microsoft warrants in the second quarter of 2000 and expects to
recognize approximately $5.5 million of expense related to these warrants
between 2000 and 2002, ratably, based on the duration of these agreements.
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Under its service and distribution agreement with Microsoft, CareerBuilder
may be required to pay Microsoft up to $3.0 million in 2000 and up to $1.8
million in 2001 if Microsoft achieves agreed upon web site traffic goals. The
Microsoft career site was launched in late September 1999 and as of June 30,
2000, approximately $1.2 million in fees due Microsoft had been incurred and
$878,000 had been paid.
CareerBuilder has incurred substantial net losses in every fiscal period
since its inception in November 1995 and as of June 30, 2000 had an accumulated
deficit of $68.2 million. Such net losses and the accumulated deficit resulted
from CareerBuilder's significant costs incurred in developing and marketing its
online recruitment offerings, including establishing the CareerBuilder Network.
On July 16, 2000, CareerBuilder, Inc. (the "Company"), entered into an
Agreement and Plan of Merger (the "Merger Agreement") with Career Holdings, Inc.
and CB Acquisition Corp. (the "Sub"), each a newly formed Delaware corporation
that is directly or indirectly owned jointly by Tribune Company ("TC"), a
Delaware corporation, and Knightridder.com ("KR"), a Delaware corporation and
wholly owned subsidiary of Knight Ridder, Inc. Under the Merger Agreement, Sub
commenced on July 25, 2000, a tender offer (the "Offer") to purchase all of the
outstanding shares of common stock, par value $0.001 per share, of the Company
(the "Shares"), at a purchase price of $8.00 per Share, net to the seller in
cash, without interest thereon (the "Offer Price").
Pursuant to the Merger Agreement, following the completion of the Offer and
the satisfaction or waiver of certain other conditions, Sub will be merged with
and into the Company (the "Merger") with the Company being the surviving
corporation. In the Merger, each outstanding Share (other than (i) Shares held
by the Company, (ii) Shares held by Parent or its wholly owned subsidiaries, and
(iii) Dissenting Shares (as defined in the Merger Agreement)) will be converted
into the right to receive the Offer Price. In connection with the Merger
Agreement, TC, KR and Parent entered into an Investment Agreement dated July 16,
2000 (the "Investment Agreement"), to which the Company is an express third
party beneficiary.
The Offer is conditioned on, among other things, Tribune and Knight Ridder
acquiring at least a majority of the outstanding stock of CareerBuilder on a
fully diluted basis. Holders of approximately 44% of the outstanding shares of
CareerBuilder have entered in stockholder agreements (the "Stockholder
Agreements") pursuant to which they have agreed to tender their shares in the
Offer and to vote their shares in favor of the merger agreement and against any
other transaction, subject to the provisions of the Stockholder Agreement. The
transaction is subject to other customary conditions, including
Hart-Scott-Rodino Act anti-trust clearance.
The Company, the members of its Board of Directors, Knight-Ridder, Inc. and
Tribune Company were named as defendants in two shareholder lawsuits, (i)
Caroline Teitelbaum v. Peter J. Barris, David C. Wetmore, Gary C. Butler, Robert
J. McGovern, James A. Tholen, CareerBuilder, Inc., CB Acquisition Corp., Career
Holdings, Inc., Knight-Ridder, Inc. and Tribune Company, and (ii) Charles Smith
v. Robert J. McGovern, James A. Winchester, Peter J. Barris, David C. Wetmore,
Gary C. Butler, CareerBuilder, Inc., Knight-Ridder, Inc. and Tribune Company,
filed on July 18 and July 25, 2000, respectively, in the Court of Chancery of
the state of Delaware in connection with the proposed acquisition of the Company
by affiliates of Knight-Ridder, Inc. and Tribune Company. Each of the lawsuits
in general alleges that the members of the Company's Board of Directors have
breached their fiduciary duties by approving the transaction and that the
consideration received by the Company's shareholders in connection with the
transaction would be inadequate. The plaintiffs seeks injunctive relief against
the transaction or if consummated, recission of the transaction and/or damages.
CareerBuilder believes that the lawsuits are without merit and intend to defend
the claims vigorously.
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A copy of each of the Merger Agreement, the Investment Agreement, a form of
the Stockholder Agreement and the press release announcing the transaction are
filed on a current report on Form 8-K filed by the company on July 18, 2000.
Please note that there can be no assurance that the conditions to the Offer
will be met or that the Merger will be consummated.
RESULTS OF OPERATIONS
THREE AND SIX-MONTH COMPARISONS
REVENUE
CareerBuilder total revenue increased 111% from $3.3 million for the
quarter ended June 30, 1999 to $6.9 million for the quarter ended June 30, 2000.
Total revenue also increased 106% from $6.1 million for the six months ended
June 30, 1999 to $12.5 million for the six months ended June 30, 2000. The
increases in total revenue were primarily due to an increase in subscriptions to
the CareerBuilder Network as well as an increase in revenue per customer. This
was a result of increased direct and telesales efforts and increased marketing
and promotional activities. Revenue derived from ADP's efforts comprised 39% of
total revenue for the quarter ended June 30, 1999 and 35% for the quarter ended
June 30, 2000; revenues derived from ADP's efforts comprised of 37% of total
revenue for the six months ended June 30, 1999 and 35% for the six months ended
June 30, 2000.
COST OF REVENUE
Cost of revenue consists of commissions paid to ADP for its sales of
CareerBuilder's online recruitment offerings, fees paid to CareerBuilder Network
affiliates, and expense associated with the cost of hosting the career sites on
the CareerBuilder Network, including depreciation. Cost of revenue also includes
expenses associated with customer support and the delivery of professional
services. Cost of revenue increased 149% from $1.5 million for the quarter ended
June 30, 1999 to $3.6 million for the quarter ended June 30, 2000 and as a
percentage of total revenue increased from 45% for 1999 to 53% for the quarter
ended June 30, 2000. Cost of revenue increased 157% from $2.6 million for the
six months ended June 30, 1999 to $6.6 million for the six months ended June 30,
2000 and as a percentage of revenue increased from 42% for the six months ended
June 30, 1999 to 53% for the six months ended June 30, 2000. These increases
were primarily due to commissions paid to ADP and fees paid to the members of
the CareerBuilder Network which increase in absolute dollars as revenues
increased. Other expenses include depreciation associated with hosting the
career sites on the CareerBuilder Network and expenses associated with customer
support and network operations.
OPERATING EXPENSES
Sales and Marketing. Sales and marketing expenses consist primarily of
salaries and related benefits for sales and marketing personnel, advertising and
promotional expenses, trade show expenses, advertising and marketing fees paid
to members of the CareerBuilder Network and depreciation expense on sales and
marketing related assets. Sales and marketing expenses increased 132% from $5.1
for the quarter ended June 30, 1999 to $11.8 million for quarter ended June 30,
2000. Sales and marketing expenses increased 140% from $9.7 million for the six
months ended June 30, 1999 to $23.3 million for the six months ended June 30,
2000. The increase in sales and marketing expenses for the quarter ended June
30, 2000 was primarily due to an increase in costs related to the development of
CareerBuilder's marketing and branding campaigns and hiring additional sales and
marketing personnel.
Product Development. Product development expenses include expenses for
research, design and development of CareerBuilder's proprietary technology
incorporated in the CareerBuilder Network
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offerings, and expenses associated with operating the CareerBuilder Network.
Product development expenses increased 79% from approximately $455,000 for the
quarter ended June 30, 1999 to $814,000 for the quarter ended June 30, 2000.
Product development expenses increased 33% from $1.1 million for the six months
ended June 30, 1999 to $1.4 million for the six months ended June 30, 2000.
General and Administrative. General and administrative expenses consist
primarily of compensation for administrative, technical support and executive
staff, fees for professional services, bad debt expense, depreciation expense
for property and equipment not associated with hosting career sites and general
office expenses. General and administrative expenses increased 52% from $1.0
million for the quarter ended June 30, 1999 to $1.6 million for the quarter
ended June 30, 2000. General and administrative expenses increased 74% from $1.7
million for the six months ended June 30, 1999 to $3.0 million for the six
months ended June 30, 2000. The increase in general and administrative expenses
was due primarily to the costs associated with developing the infrastructure
necessary for supporting a growing public company such as directors and officers
insurance, increased legal fees and an increase in administrative personnel. In
February, 2000 the Company relocated its corporate headquarters which resulted
in a loss on the disposal of furniture and fixtures and the write-off of
leasehold improvements totaling $279,000.
EQUITY-BASED EXPENSE
Equity-based expense of $960,000 for the quarter ended June 30, 2000, and
$1.9 million for the six months ended June 30, 2000 consists of expenses related
to the issuance of warrants to Microsoft, ADP and NBC. Equity based expense for
the quarter ended June 30, 1999 amounted to $715,000 and for the six months
ended June 30, 1999 amounted to $791,000.
NET INTEREST INCOME (EXPENSE)
Net interest income was approximately $344,000 for the quarter ended June
30, 1999 and $680,000 for the quarter ended June 30, 2000. Net interest income
was approximately $240,000 for the six months ended June 30, 1999 and $1.4
million for the six months ended June 30, 2000. Interest income was attributable
to cash, cash equivalents and short-term investments primarily attributable to
the net proceeds received by CareerBuilder from its initial public offering of
Common Stock and from the Microsoft investment in May 1999.
TAXES
CareerBuilder has incurred significant operating losses for all periods
from its inception in November 1995 through June 30, 2000. CareerBuilder has
recorded a valuation allowance for 100% of its net deferred tax assets as the
future realization of the tax benefit is not sufficiently assured. Accordingly,
no income tax benefits have been recognized in any periods. Due to the Company's
initial public offering in 1999, a change in control as defined under section
382 of the Internal Revenue Code of 1986, as amended, has occurred. This change
in control limits the amount of net operating loss that the Company will be able
to carry forward and potentially utilize. The pending merger will further limit
the carry forward of net operating losses.
LIQUIDITY AND CAPITAL RESOURCES
Since its inception, CareerBuilder has financed its activities primarily
through proceeds from private placements of equity securities, and its initial
public offering, totaling approximately $107.7 million through May 17, 1999.
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Net cash used in operating activities was $8.9 million and $18.4 million
for the six months ended June 30, 1999 and June 30, 2000, respectively. Net cash
used in operating activities resulted from net operating losses and increases in
accounts receivable, partially offset by increases in accrued expenses.
Cash provided by financing activities was $85.4 million and $349,000 for
the six months ended June 30, 1999 and June 30, 2000, respectively. Net cash
provided by financing activities for the six months ended June 30, 2000, was due
to the exercise of stock options. For the six months ended June 30, 1999, net
cash provided by financing activities was due primarily to proceeds from the
initial public offering and the investment from Microsoft Corporation.
In February 2000, the Company entered into a new revolving line of credit
facility with PNC Bank. The revolving credit facility is in the amount of
$2,000,000, for a term of 2 years, which expires in February 2002 and is secured
by its cash balance collateral at an interest rate of the bank's prime rate plus
1/2%. The Company has issued a $1,600,000 letter of credit thereby reducing the
Company's available credit by that amount. No other borrowings against this line
of credit have been taken of June 30, 2000.
As of June 30, 2000, CareerBuilder had $44.8 million of cash and cash
equivalents.
CareerBuilder anticipates it will spend up to $4.1 million for capital
equipment in the remainder of 2000. CareerBuilder has also entered into
agreements to pay advertising and marketing fees to three of its current
CareerBuilder Network affiliates of $485,000 in the second quarter of 2000. In
addition, under its service and distribution agreement with Microsoft,
CareerBuilder may be required to pay to Microsoft up to $3.0 million in 2000 and
up to $1.8 million in 2001 if Microsoft achieves agreed upon website traffic
goals. The Microsoft career site was launched in late September 1999 and as of
June 30, 2000, $1.2 million has been incurred under the agreement and
CareerBuilder has paid $878,000 to Microsoft.
CareerBuilder believes its existing cash and cash equivalents will be
sufficient to meet its anticipated cash requirements for working capital and
capital expenditures for at least the next 12 months. Although CareerBuilder
currently believes that it has sufficient capital resources to meet its
anticipated working capital and capital expenditure requirements beyond the next
12 months, unanticipated events and opportunities may make it necessary for
CareerBuilder to return to the public markets, increase its current credit
facilities or establish new credit facilities or raise capital in private
transactions in order to meet its capital requirements. However, there can be no
assurance that the Company will be successful in raising additional capital
resources, or that such amounts will be sufficient to meet anticipated working
capital and capital expenditure requirements.
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CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS
WE ARE A YOUNG COMPANY SO WE HAVE ONLY A LIMITED OPERATING HISTORY WITH WHICH
YOU CAN EVALUATE OUR BUSINESS AND PROSPECTS
We commenced operations in November of 1995, recorded our first revenue in
the third quarter of 1996 and introduced the first commercial version of
TeamBuilder Online in November 1997. Accordingly, we have only a limited
operating history with which you can evaluate our business and prospects. In
addition, our prospects must be considered in light of the uncertainties
encountered by companies in the early stages of development in new and rapidly
evolving markets, specifically the online recruitment market. Some of the
uncertainties we face include:
- our ability to attract and retain a larger number of employers to recruit
online using the CareerBuilder Network instead of other online
recruitment providers and traditional recruiting methods;
- our ability to attract a larger number of job seekers to the
CareerBuilder.com flagship site and our interactive media company
affiliates' ability to continue to attract potential job seekers to the
other sites on the CareerBuilder Network; and
- our ability to maintain our current, and add new, online interactive
media companies to the CareerBuilder Network.
If we fail to manage these risks successfully, our business, results of
operations and financial condition will be materially and adversely affected.
WE HAVE A HISTORY OF LOSSES AND MAY NOT BE PROFITABLE IN THE FUTURE
We have incurred substantial net losses in every fiscal period since we
began operations. For the quarter ended June 30, 2000, our net loss was $11.3
million as of June 30, 2000, our accumulated deficit was approximately $68.2
million. We are not certain when we will become profitable, if at all. Even if
we do achieve profitability, we may not sustain or increase profitability on a
quarterly or annual basis. Failure to achieve or maintain profitability may
materially and adversely affect the market price of our common stock. We have
generated relatively small amounts of revenue until recent fiscal quarters,
while increasing operating expenditures in all areas, particularly in sales and
marketing. If revenues grow more slowly than we anticipate, or if operating
expenses exceed our expectations or cannot be adjusted accordingly, our
business, results of operations and financial condition will be materially and
adversely affected.
OUR QUARTERLY RESULTS MAY FLUCTUATE, WHICH COULD CAUSE THE PRICE OF OUR COMMON
STOCK TO FALL
Our quarterly revenue and results of operations are difficult to predict
and may fluctuate significantly from quarter to quarter. If our quarterly
revenue or results of operations fall below expectations of investors or public
market analysts, the price of our common stock could fall substantially. Our
quarterly revenue is difficult to predict and our results of operations may
fluctuate for several reasons, including:
- the online recruitment market is at an early stage of development and
therefore it is difficult to predict customer demand for online
recruitment offerings;
- ADP is our principal sales channel for customers with 100 to 1,000
employees and represented approximately 35% of our total revenue for the
quarter ended June 30, 2000; we have no control over ADP's selling
efforts and these efforts will significantly affect our results of
operations in any quarter;
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- customers may choose to pay for our services on a per-job posting basis,
instead of a multi-month subscription basis; to the extent a greater
proportion of our revenue is attributable to customers who choose to pay
on a per-job posting basis, our operating results may fluctuate to a
greater extent from period to period; revenue attributable to customers
who chose to pay on a per-job posting basis accounted for approximately
8% of our total revenue for the quarter ended June 30, 2000;
- our cost of revenue, and therefore our operating results, are affected by
the allocation of our customers' job advertisements among the
CareerBuilder.com site and the other sites on the CareerBuilder Network;
and
- our cost of revenue is affected by the relative mix of sales between our
sales force and sales made through ADP; for the six months ended June 30,
2000, we paid sales commissions to ADP of $1.8 million.
A significant percentage of our expenses, such as employee compensation and
rent, are relatively fixed. Moreover, our expense levels are based, in part, on
our expectations of future revenue. As a result, any shortfall in revenue in
relation to our expectations could cause significant changes in our results of
operations from quarter to quarter and could result in increased or continued
quarterly losses.
Because of these factors, we believe that period to period comparisons of
our results of operations are not necessarily meaningful, and therefore you
should not rely on our quarterly revenue and results of operations to predict
our future performance.
OUR EARNINGS MAY FLUCTUATE SEASONALLY, WHICH MAY AFFECT OUR FINANCIAL RESULTS
Because our online recruitment business model is new, we do not know if the
online recruitment market is subject to seasonal fluctuations. We believe that
revenue from print media, recruiting search firms and other traditional
recruiting services are generally lower in the months of August, November and
December because of reduced recruiting and job search activity during vacation
periods and holiday seasons. As the online recruitment market develops, we may
find that similar seasonal and cyclical patterns characterize online recruiting
or we may discover other seasonal patterns. In addition, we believe that we may
experience lower sales through our ADP sales channel from November through
January because of a year-end focus by ADP's sales force on ADP's core business,
which may adversely affect our revenue. If seasonal fluctuations develop in the
online recruitment market or as a result of ADP's selling efforts, our business,
results of operations and financial condition could be materially and adversely
affected.
OUR BUSINESS COULD BE ADVERSELY AFFECTED BY A RECESSION, WHICH MAY AFFECT OUR
FINANCIAL RESULTS
Online recruitment is a new industry and we do not know how sensitive our
industry is to general economic conditions. Demand for online recruitment
offerings may be significantly and adversely affected by the level of economic
activity and employment in the United States and abroad. A recession could cause
employers to reduce or postpone their recruiting efforts generally, and their
online recruiting efforts in particular. Therefore, if a significant economic
downturn or recession occurs in the United States or abroad, our business,
results of operations and financial condition could be materially and adversely
affected.
WE ARE DEPENDENT ON ADP'S SALES FORCE FOR A SIGNIFICANT PORTION OF OUR REVENUE
ADP is our principal sales channel for customers with between 100 and 1,000
employees. Sales of our offerings by ADP accounted for approximately 35% of our
total revenue for the quarter ended June 30, 2000. Our existing agreement with
ADP may be terminated by ADP at any time after
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January 2002 upon 120 days notice. It is possible that ADP's sales force will
not continue to market our services beyond January 2002.
ADP may not continue to market our services at the current levels even
during the remaining term of the agreement. Under our agreement, ADP is not
required to achieve specific revenue targets. ADP must meet revenue-based
milestones for installments under a warrant we issued to ADP to purchase shares
of our common stock to vest. Our agreement with ADP generally prohibits us from
entering into any reseller, distribution or similar agreement with any other
payroll or benefits administration provider. Moreover, under the terms of the
ADP agreement, if ADP determines that the CareerBuilder Network has material
inadequacies that reduce their ability to perform competitively in relation to
other online recruiting products, we must correct the deficiencies specified by
ADP. If we fail to correct those deficiencies, ADP is free to market alternative
online recruitment services, including those of our competitors, during the term
of our agreement. Even after the termination of our agreement with ADP, ADP will
continue to receive its share of recurring sales commission revenue derived from
customers originally identified by ADP in its capacity as a sales agent for as
long as these customers continue to receive any of our services for which orders
were procured by ADP.
We may not be able to attract a sufficient number of employer customers
without the ADP sales channel. In addition, we may compete with ADP for sales of
our services to companies employing between 100 and 1,000 persons. It is
possible that we may not manage this channel conflict effectively and that our
relationship with ADP could be materially and adversely affected. If our
relationship with ADP is discontinued or damaged, or if the level of sales
through the ADP channel is lower than expected, our business, results of
operations and financial condition would be materially and adversely affected.
WE COULD BE REQUIRED TO RECORD SIGNIFICANT EXPENSES IF ADP ACHIEVES REVENUE
GOALS
If ADP achieves specified revenue-based milestones, a warrant to purchase
shares of common stock will become exercisable to purchase up to 380,000 shares
of common stock commencing on each of March 31, 2001 and March 31, 2002 at an
exercise price of $5.00 per share. The revenue-based milestones are measured for
a specific time period by subtracting from total revenue received from customers
for which ADP has acted as sales agent, sales commissions paid to ADP. In order
for the minimum number of shares under the March 2001 installment of the warrant
to vest, revenue minus sales commission for the period from April 1, 2000
through March 31, 2001 must exceed $10.2 million, with $20.4 million required
for the maximum number of shares issuable under the installment to vest. In
order for the minimum number of shares under the March 2002 installment to vest,
revenue minus sales commission for the period from April 1, 2001 through March
31, 2002 must exceed $23.0 million, with $30.0 million required for the maximum
number of shares issuable under the installment to vest. These milestones are
not projections but are solely milestones ADP must achieve for their warrants to
vest. The ADP warrant contains provisions that increase the number of shares for
which the warrant is exercisable if we issue additional shares, particularly for
financing purposes. The maximum number of shares that are issuable upon exercise
of each remaining installment of the warrant is currently 516,824 shares based
on current antidilution calculations. These provisions are limited so that the
number of shares of common stock for which each of the installments of the
warrant may be exercisable is limited to a maximum of 568,506 shares.
If and when it becomes probable that the net revenue we will receive from
ADP will reach the necessary level for either installment of the warrant to
vest, we would begin to record an expense reflecting the fair value of the
warrant, which will be determined in part based on the market price of the
common stock. We would begin to recognize this expense on the determination of
probability that
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the revenue targets would be achieved, continuing through the actual vesting
date. We would initially estimate the amount of the expense at the time of the
determination that achievement is probable, based in part on the market price of
the common stock at that time. At the time of actual vesting, the fair value of
the warrant would be re-measured and, if different from the value used in
initially estimating the expense, the difference would be reflected as an
additional charge or credit at that time. Accordingly, the higher our stock
price is at the time probability is determined, or the actual vesting occurs,
the more significant would be the expense we would be required to record. That
expense could be spread over multiple quarters or concentrated in one quarter.
If we are required to record significant expense, our results of operations for
that period could fall below the expectations of our investors or public market
analysts, which could cause the price of our common stock to fall substantially.
THE INTERNET IS UNPROVEN AS A RECRUITING MEDIUM
Our future is highly dependent on a significant increase in the use of the
Internet as a recruiting medium. The online recruitment market is new and
rapidly evolving, and we cannot yet gauge its effectiveness as compared to
traditional recruiting methods. As a result, demand and market acceptance of
online recruitment offerings are uncertain. Most of our current and potential
employer customers have little or no experience using the Internet for
recruiting purposes and have allocated only a limited portion of their
recruiting budgets to online recruiting. The adoption of online recruiting,
particularly by those entities that have historically relied upon traditional
methods of recruiting, requires the acceptance of a new way of conducting
business, exchanging information and advertising for jobs. Such customers may
find online recruiting to be less effective for meeting their hiring needs
relative to traditional methods of recruiting employees. We cannot assure you
that the online recruitment market will continue to emerge or become
sustainable. If the online recruitment market fails to develop or develops more
slowly than we expect, our business, results of operations and financial
condition would be materially and adversely affected.
OUR BUSINESS MODEL IS UNPROVEN
We first recorded revenue in September 1996 from sales of TeamBuilder
Software. At that time, software sales were a significant component of our
revenue. Beginning in late 1997, we began offering online subscriptions by means
of TeamBuilder Online and software sales became a smaller component of our
revenue. In May 1998, we again evolved our business model when we introduced the
CareerBuilder Network, enabling our customers to advertise job openings across a
network of affiliate sites. Accordingly, our business model and profit potential
are unproven. To be successful, we must develop and market online recruitment
offerings that achieve broad market acceptance by employers, job seekers and
interactive media companies. In addition, CareerBuilder.com and the
CareerBuilder Network affiliate sites must generate sufficient job seeker
traffic with demographic characteristics attractive to our employer customers.
It is possible that we will be required to further adapt our business model
in response to additional changes in the online recruitment market or if our
current business model is not successful. If we are not able to anticipate
changes in the online recruitment market or if our business model is not
successful, our business, financial condition and results of operations would be
materially and adversely affected.
WE MAY BE UNABLE TO CONTINUE TO BUILD AWARENESS OF THE "CAREERBUILDER.COM" BRAND
NAME
We believe that continuing to build awareness of the "CareerBuilder.com"
brand name is critical to achieving widespread acceptance of our online
recruitment offerings. Brand recognition is a key differentiating factor among
providers of online recruitment offerings and we believe it could become more
important as competition in the online recruitment market increases. From
November 1995 to
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June 30, 2000, we have recorded approximately $68.8 million in sales and
marketing expenses. We may find it necessary to accelerate expenditures on our
sales and marketing efforts or otherwise increase our financial commitment to
creating and maintaining brand awareness among potential customers. If we fail
to successfully promote and maintain our brand or incur significant expenses in
promoting our brand, our business, results of operations and financial condition
could be materially and adversely affected.
WE MAY HAVE DIFFICULTY MAINTAINING AND EXPANDING THE CAREERBUILDER NETWORK
We believe that a primary reason the CareerBuilder Network is valuable to
employers is that the websites of the premier interactive media companies who
have executed agreements with us for the development of career sites to be a
part of the CareerBuilder Network appeal to a variety of distinct Internet user
communities in strategic broad-based, vertical, geographic and diversity
categories. Our agreements with these CareerBuilder Network affiliate members
generally have one-year terms, subject to extension. Although we do not know of
any of our affiliate member's intent not to renew their current agreements,
affiliate members have declined to renew in the past and we cannot be sure that
in the future all affiliate agreements will be renewed. In addition, one of our
key business strategies is to expand the CareerBuilder Network by adding
additional interactive media affiliates targeting a variety of distinct online
audiences. If an affiliate member declines to renew its agreement with us and
withdraws from the CareerBuilder Network, and if we are unable to find a
suitable replacement for that affiliate member, or if we otherwise are not
successful in our efforts to expand the CareerBuilder Network, the CareerBuilder
Network may be less valuable to employers, and our business, results of
operations and financial condition could be materially and adversely affected.
OUR PLANS FOR INTERNATIONAL EXPANSION MAY NOT SUCCEED
Our strategy includes expansion into international markets through a
combination of partnerships, acquisitions and internal business expansion. Our
future international operations might not succeed for a number or reasons,
including:
- difficulties in staffing and managing foreign operations;
- competition from local and foreign-based recruitment services;
- legal uncertainties inherent in transnational operations such as export
and import regulations, tariffs and other trade barriers;
- taxation issues;
- unexpected changes in trading policies, regulatory requirements and
exchange rates;
- operational issues such as longer customer payment cycles and greater
difficulties in collecting accounts receivable;
- seasonal reductions in business activity;
- language and cultural differences;
- issues relating to uncertainties of laws and enforcement relating to the
protection of intellectual property; and
- general political and economic trends.
Accordingly, we may not be able to successfully execute our business plan
in foreign markets. If revenue from international ventures is not adequate to
cover our investment in those ventures, our business, results of operations and
financial condition could be materially and adversely affected.
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WE MAY HAVE DIFFICULTY IN IDENTIFYING AND COMPETING FOR ACQUISITION
OPPORTUNITIES
Our business strategy includes the pursuit of strategic acquisitions. From
time to time, we have engaged in discussions with third parties concerning
potential acquisitions of product lines, technologies and businesses.
In executing our acquisition strategy, we may be unable to identify
suitable acquisition candidates. In addition, we expect to face competition from
other providers of online recruitment solutions for acquisition candidates,
making it more difficult to acquire suitable companies on favorable terms.
PURSUING AND COMPLETING POTENTIAL ACQUISITIONS COULD DIVERT MANAGEMENT ATTENTION
AND FINANCIAL RESOURCES AND MAY NOT PRODUCE THE DESIRED BUSINESS RESULTS
If we pursue any acquisition, our management could spend a significant
amount of time and effort in identifying, negotiating and completing the
acquisition. If we complete an acquisition, we may have to devote a significant
amount of time and management and financial resources to integrate the acquired
business with our existing business. To pay for an acquisition, we might use
capital stock, or cash, or a combination of both. Alternatively, we may borrow
money from a bank or other lender. If we use capital stock, our stockholders
will experience dilution. If we use cash or debt financing, our financial
liquidity will be reduced. In addition, from an accounting perspective, an
acquisition may involve non-recurring charges or involve amortization of
significant amounts of goodwill that could adversely affect our results of
operations.
Despite the investment of these management and financial resources, an
acquisition may not produce the revenue, earnings or business synergies that we
anticipated, and an acquired service or technology may not perform as expected
for a variety of reasons, including:
- difficulties in the assimilation of the operations, technologies,
products and personnel of the acquired company;
- risks of entering markets in which we have no or limited prior
experience;
- the applicability of rules and regulations that might restrict our
ability to operate; and
- the potential loss of key employees of the acquired company.
Accordingly, our acquisition efforts may not succeed, and the time, capital
and management and other resources spent on an acquisition that failed to meet
our expectations could cause our business, results of operations and financial
condition to be materially and adversely affected.
WE ARE EXPERIENCING RAPID GROWTH, WHICH MAY STRAIN OUR RESOURCES
Our rapid growth has sometimes strained, and may in the future strain, our
managerial and other resources. Our acquisition strategy and plans for
international expansion could further increase our growth and place additional
burdens on our resources. Our ability to manage growth will depend, in part, on
our ability to continue to enhance our operating, financial and management
information systems. Our personnel, systems, procedures and controls may not be
adequate to support our growth. If we are unable to manage growth effectively,
our business, results of operations and financial condition could be materially
and adversely affected.
IF WE LOSE THE SERVICES OF A NUMBER OF KEY EXECUTIVES, OUR BUSINESS COULD SUFFER
Our future success depends upon the skills, experience and efforts of our
executive officers and key technical employees, in particular Robert J.
McGovern, our Chairman of the Board, President and Chief Executive Officer. Mr.
McGovern founded CareerBuilder in 1995 and has been
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<PAGE> 22
instrumental in determining our structure, direction and focus. None of our
employees have employment agreements with us. If we lose the services of Mr.
McGovern or any of our other executive officers or other key employees, our
business, results of operations and financial condition could be materially and
adversely affected.
WE MAY NOT BE ABLE TO HIRE AND RETAIN HIGHLY SKILLED EMPLOYEES, WHICH COULD
AFFECT OUR ABILITY TO COMPETE EFFECTIVELY
We depend upon the ability to attract, hire, train and retain highly
skilled technical, sales and marketing, and support personnel, particularly with
expertise in Internet solutions and online recruiting. Competition for qualified
personnel throughout our industry is intense. If we fail to attract, hire or
retain such personnel, our business, results of operations and financial
condition could be materially and adversely affected. We may experience
difficulty providing the proper level of service to our customers or incur
increased costs due to rising salary and benefit levels. In particular, we plan
to expand our sales and marketing and customer support organizations. Based on
our experience, it takes an average of four months for a new salesperson to
achieve targeted levels of productivity. If we are not successful in hiring
additional qualified salespeople or increasing the productivity of our existing
sales force, our business, results of operations and financial condition could
be materially and adversely affected.
WE MAY LOSE BUSINESS IF WE FAIL TO KEEP PACE WITH RAPIDLY CHANGING TECHNOLOGIES
Our success is dependent on our ability to develop new and enhanced
software, services and related products to meet rapidly evolving requirements
for online recruitment software and solutions. Trends that could have a critical
impact on our success include:
- rapidly changing technology in the area of online recruiting;
- evolving industry standards, including both formal and de facto standards
relating to online recruiting;
- developments and changes relating to the Internet;
- competing products and services that offer increased functionality; and
- changes in employer and job seeker requirements.
If we are unable to develop and introduce new products and services, or
enhancements to existing products and services, in a timely and successful
manner, our business, results of operations and financial condition could be
materially and adversely affected.
WE HAVE SIGNIFICANT COMPETITION FROM A VARIETY OF SOURCES
We compete with companies, including recruiting search firms, which offer a
single database "job board" solution, such as Monster.com and Hotjobs.com, as
well as newspapers, magazines and other traditional media companies that provide
online job search services, such as CareerPath.com. We also compete with large
Internet information hubs, or portals, such as AOL.com. We may experience
competition from potential customers to the extent that they develop their own
online recruitment solutions internally. In addition, we compete with
traditional recruiting services, such as newspapers and employee recruiting
agencies, for a share of employers' total recruiting budgets. We expect to face
additional competition as other established and emerging companies, including
print media companies and employee recruiting agencies with established brands,
enter the online recruitment market.
Many of our current and potential competitors have longer operating
histories, significantly greater financial, technical, marketing and other
resources, greater brand recognition and a larger
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<PAGE> 23
installed customer base than we do. In addition, current and potential
competitors may make strategic acquisitions or establish cooperative
relationships to expand their offerings and to offer more comprehensive
solutions.
We believe that there will be rapid business consolidation in the online
recruitment industry. Accordingly, competitors may rapidly acquire significant
market share. In addition, new technologies will likely increase the competitive
pressures that we face. The development of competing technologies by market
participants or the emergence of new industry standards may adversely affect our
competitive position. As a result of these and other factors, if we are not able
to compete effectively with current or future competitors, our business, results
of operations and financial condition could be materially and adversely
affected.
OUR COMPUTER SYSTEMS AND THE COMPUTER SYSTEMS OF OUR CAREERBUILDER NETWORK
AFFILIATES COULD FAIL OR OVERLOAD
The success of our online recruitment offerings is highly dependent on the
efficient and uninterrupted operation of our computer and communications
hardware systems. Our communications hardware and other computer hardware
operations that maintain the CareerBuilder Network are located at Global
Center's facilities in Herndon, Virginia. Fire, floods, earthquakes, power loss,
telecommunications failures and similar events could damage or cause
interruptions in these systems. Computer viruses, electronic break-ins or other
similar disruptive problems could also adversely affect CareerBuilder.com or
other sites on the CareerBuilder Network. If our systems or the systems of any
of the Internet sites of the members of the CareerBuilder Network are affected
by any of these occurrences, our business, results of operations and financial
condition could be materially and adversely affected. Our insurance policies may
not cover, or if covered, may not adequately compensate us for, any losses that
may occur due to any failures or interruptions in our systems or the systems of
the Internet sites of the members of the CareerBuilder Network. We do not
presently have any secondary "off-site" systems or a formal disaster recovery
plan.
In addition, CareerBuilder.com and the Internet sites of the other members
of the CareerBuilder Network must accommodate a high volume of traffic and
deliver frequently updated information. CareerBuilder.com and the Internet sites
of each of the members of the CareerBuilder Network have in the past and may in
the future experience slower response times or decreased traffic for a variety
of reasons. In addition, our users depend on Internet service providers and
other Internet site operators for access to CareerBuilder.com and the Internet
sites of the members of the CareerBuilder Network. Many of the Internet service
providers have experienced significant outages in the past, and could experience
outages, delays and other difficulties due to system failures unrelated to our
systems. If we experience any of these problems, our business, results of
operations and financial condition could be materially and adversely affected.
WE RELY ON TECHNOLOGY THAT IS OWNED BY THIRD PARTIES
We license technology that is incorporated into our services and related
products from third parties. In light of the rapidly evolving nature of Internet
technology, we may increasingly need to rely on technology from other vendors.
Technology from others may not continue to be available to us on commercially
reasonable terms, if at all. The loss or inability to access such technology
could result in delays in our development and introduction of new services and
related products or enhancements until equivalent or replacement technology
could be accessed, if available, or developed internally, if feasible. If we
experience such delays, our business, results of operations and financial
condition could be materially and adversely affected.
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<PAGE> 24
OUR BUSINESS COULD BE ADVERSELY AFFECTED IF OUR SOFTWARE CONTAINS BUGS
Our software products, including TeamBuilder Online and TeamBuilder
Software, could contain undetected errors or "bugs" that could adversely affect
their performance. Additionally, we regularly introduce new releases and
periodically introduce new versions of our software products. The occurrence of
errors in our current products or new products or enhancements could result in
loss of or delay in revenue, loss of market share, failure to achieve market
acceptance, diversion of development resources, injury to our reputation and
damage to our efforts to build brand awareness, any of which could cause our
business, results of operations and financial condition to be materially and
adversely affected.
OUR BUSINESS IS DEPENDENT ON THE DEVELOPMENT AND MAINTENANCE OF THE INTERNET
INFRASTRUCTURE
Our success will depend, in large part, upon the development and
maintenance of the Internet infrastructure as a reliable network backbone with
the necessary speed, data capacity and security, and timely development of
enabling products, such as high speed modems, for providing reliable Internet
access and services. We cannot assure you that the Internet infrastructure will
continue to effectively support the demands placed on it as the Internet
continues to experience increased numbers of users, greater frequency of use or
increased bandwidth requirements of users. Even if the necessary infrastructure
or technologies are developed, we may have to spend considerable resources to
adapt our offerings accordingly. Furthermore, in the past, the Internet has
experienced a variety of outages and other delays. Any future outages or delays
could affect the Internet sites on which our customers' job advertisements are
posted and the willingness of employers and job seekers to use our online
recruitment offerings. If any of these events occur, our business, results of
operations and financial condition could be materially and adversely affected.
BREACHES OF INTERNET SECURITY COULD ADVERSELY AFFECT OUR BUSINESS
The need to securely transmit confidential information over the Internet
has been a significant barrier to electronic commerce and communications over
the Internet. Any well-publicized compromise of security on the Internet could
deter more people from using the Internet or from using it to conduct
transactions that involve transmitting confidential information, such as a job
seeker's resume or an employer's hiring needs. We may be required to incur
significant costs to protect against the threat of security breaches to
CareerBuilder.com and the CareerBuilder Network or to alleviate problems caused
by such breaches. If any of these events occur, our business, results of
operations and financial condition could be materially and adversely affected.
WE MAY BE ADVERSELY AFFECTED BY GOVERNMENT REGULATIONS AND LEGAL UNCERTAINTIES
ASSOCIATED WITH THE INTERNET
Laws and regulations directly applicable to Internet communications,
commerce and advertising are becoming more prevalent, but the legislative and
regulatory treatment of the Internet remains largely unsettled. The U.S.
Congress recently adopted Internet laws regarding copyrights, taxation and the
protection of children. In addition, a number of other legislative and
regulatory proposals under consideration by federal, state, local and foreign
governments could lead to additional laws and regulations affecting electronic
commerce transactions, online content, user privacy, taxation, access charges
and liability for third-party activities, among other things. For example, the
growth and development of the market for Internet commerce may prompt calls for
more stringent consumer protection laws, both in the United States and abroad,
that may impose additional burdens on companies conducting business over the
Internet.
Although our transmissions originate from Virginia, the governments of
other states or foreign countries might attempt to regulate our transmissions or
levy sales or other taxes relating to our
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<PAGE> 25
activities. The European Union recently enacted its own privacy regulations that
may result in limits on the collection and use of user information. Courts in
the U.S. and abroad may seek to apply existing laws not explicitly relating to
the Internet in ways that could impact the Internet, and it may take years to
determine whether and how laws such as those governing intellectual property,
privacy, libel and taxation will affect the Internet and the online recruitment
industry.
Existing or future laws or regulations affecting the Internet and legal
uncertainties relating to the Internet could lessen the growth in use of the
Internet generally and decrease the acceptance of the Internet as a
communications, commercial and advertising medium, and could reduce the demand
for our services or increase our cost of doing business, all of which could
cause our business, financial condition and results of operations to be
materially and adversely affected.
WE MAY BE LIABLE FOR INFORMATION RETRIEVED FROM OR TRANSMITTED OVER THE INTERNET
We may be sued for defamation, negligence, copyright or trademark
infringement, personal injury or other legal claims relating to information that
is published or made available on CareerBuilder.com and the other sites on the
CareerBuilder Network. These types of claims have been brought, sometimes
successfully, against online services in the past. We could also be sued for the
content that is accessible from CareerBuilder.com and the other CareerBuilder
Network sites through links to other Internet sites or through content and
materials that may be posted by members in chat rooms or bulletin boards. We
also offer email services, which may subject us to potential risks, such as
liabilities or claims resulting from unsolicited email or spamming, lost or
misdirected messages, security breaches, illegal or fraudulent use of email, or
interruptions or delays in email service. Our insurance does not specifically
provide for coverage of these types of claims and therefore may not adequately
protect us against these types of claims. In addition, we could incur
significant costs in investigating and defending such claims, even if we
ultimately are not found liable. If any of these events occur, our business,
results of operations and financial condition could be materially and adversely
affected.
OUR BUSINESS COULD BE ADVERSELY AFFECTED IF WE ARE UNABLE TO PROTECT OUR
PROPRIETARY TECHNOLOGY
Our success depends to a significant degree upon the protection of our
proprietary technology, including that associated with the CareerBuilder
Network, Mega Job-Search and our Personal Search Agent. The unauthorized
reproduction or other misappropriation of our proprietary technology could
enable third parties to benefit from our technology without paying us for it. If
this were to occur, our business, results of operations and financial condition
could be materially and adversely affected.
We rely upon a combination of patents, copyright, trade secret and
trademark laws and non-disclosure and other contractual arrangements to protect
our proprietary rights. The steps we have taken to protect our proprietary
rights, however, may not be adequate to deter misappropriation of proprietary
information. We may not be able to detect unauthorized use of our proprietary
information and take appropriate steps to enforce our intellectual property
rights. Moreover, the laws of other countries in which we may market our
services in the future may afford little or no effective protection of our
intellectual property.
If we resort to legal proceedings to enforce our intellectual property
rights, the proceedings could be burdensome and expensive and could involve a
high degree of risk.
OTHERS COULD CLAIM THAT WE INFRINGE THEIR INTELLECTUAL PROPERTY
Although we attempt to avoid infringing known proprietary rights of third
parties, we are subject to the risk of claims alleging infringement of third
party proprietary rights. If we were to discover that any element of our online
recruitment offerings violates third party proprietary rights, we might not be
able to obtain licenses on commercially reasonable terms to continue offering
our entire online
25
<PAGE> 26
recruitment offerings without substantial reengineering and that any effort to
undertake such reengineering might not be successful. In addition, product
development is inherently uncertain in a rapidly evolving technological
environment in which there may be numerous patent applications pending, which
are confidential when filed, with regard to similar technologies.
Any claim of infringement could cause us to incur substantial costs
defending against the claim, even if the claim is invalid, and could distract
our management from our business. Furthermore, a party making such a claim could
secure a judgment that requires us to pay substantial damages. A judgment could
also include an injunction or other court order that could prevent us from
selling our products. If any of these events occurred, our business, results of
operations and financial condition could be materially and adversely affected.
IF WE ARE UNABLE TO OBTAIN ADDITIONAL CAPITAL AS NEEDED IN THE FUTURE, OUR
BUSINESS MAY BE ADVERSELY AFFECTED
As of June 30, 2000, the Company had cash and cash equivalents of $44.8
million. We anticipate that our available cash resources will be sufficient to
meet our anticipated working capital and capital expenditure requirements for at
least the next 12 months. We may need to raise additional capital, however, to
fund more rapid expansion, both in the United States and internationally, to
develop new and to enhance existing services to respond to competitive
pressures, and to acquire complementary services, businesses or technologies. We
have raised capital through the issuance of equity securities four times since
January 1998. If we raise additional funds through further issuances of equity
or convertible debt securities, the percentage of ownership of our current
stockholders will be reduced and such securities may have rights, preferences
and privileges senior to those of our current stockholders. In addition, we may
not be able to obtain additional financing on terms favorable to us, if at all.
If adequate funds are not available or are not available on terms favorable to
us, our business, results of operations and financial condition could be
materially and adversely affected.
IT MAY BE DIFFICULT FOR A THIRD PARTY TO ACQUIRE OUR COMPANY, AND THIS COULD
DEPRESS OUR STOCK PRICE
Delaware corporate law and our certificate of incorporation and by-laws
contain provisions that could have the effect of delaying, deferring or
preventing a change in control of CareerBuilder or our management without the
approval of the Board of Directors. These provisions could discourage proxy
contests and make it more difficult for you and other stockholders to elect
directors and take other corporate actions. These provisions could also limit
the price that investors might be willing to pay in the future for shares of our
common stock. These provisions include:
- authorize the issuance of "blank check" preferred stock, which is
preferred stock that can be created and issued by the Board of Directors
without prior stockholder approval, with rights senior to those of common
stock;
- provide for a staggered Board of Directors, so that it would take three
successive annual meetings to replace all directors;
- prohibit stockholder action by written consent; and
- establish advance notice requirements for submitting nominations for
election to the Board of Directors and for proposing matters that can be
acted upon by stockholders at a meeting.
For more information concerning the proposed acquisition of the Company,
see Part II, Item 5.
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<PAGE> 27
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company has no long term debt as of June 30, 2000. The Company invests
in money market funds and, under its current policies, the Company does not use
interest rate derivative instruments to manage its exposure to interest rate
changes.
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<PAGE> 28
PART II.
OTHER INFORMATION
ITEM 1: LEGAL PROCEEDINGS
The Company, the members of its Board of Directors, Knight-Ridder, Inc. and
Tribune Company were named as defendants in two shareholder lawsuits, (i)
Caroline Teitelbaum v. Peter J. Barris, David C. Wetmore, Gary C. Butler, Robert
J. McGovern, James A. Tholen, CareerBuilder, Inc., CB Acquisition Corp., Career
Holdings, Inc., Knight-Ridder, Inc. and Tribune Company, and (ii) Charles Smith
v. Robert J. McGovern, James A. Winchester, Peter J. Barris, David C. Wetmore,
Gary C. Butler, CareerBuilder, Inc., Knight-Ridder, Inc. and Tribune Company,
filed on July 18 and July 25, 2000, respectively, in the Court of Chancery of
the state of Delaware in connection with the proposed acquisition of the Company
by affiliates of Knight-Ridder, Inc. and Tribune Company. Each of the lawsuits
in general alleges that the members of the Company's Board of Directors have
breached their fiduciary duties by approving the transaction and that the
consideration received by the Company's shareholders in connection with the
transaction would be inadequate. The plaintiffs seeks injunctive relief against
the transaction or if consummated, recission of the transaction and/or damages.
CareerBuilder believes that the lawsuits are without merit and intend to defend
the claims vigorously.
ITEM 2: USE OF PROCEEDS
In connection with the Company's initial public offering of Common Stock
(the "Offering"), on May 11, 1999, the Company's Registration Statement on Form
S-1 (No. 333-73469) was declared effective by the Securities and Exchange
Commission. Credit Suisse First Boston Corporation, BancBoston Robertson
Stephens, Inc., Hambrecht & Quist LLC and Friedman, Billings, Ramsey & Co., Inc.
served as the managing underwriters of the Offering. On May 17, 1999, the
Company sold 5,175,000 shares of its Common Stock, including 100,000 shares sold
on behalf of certain stockholders, at $13.00 per share. The aggregate proceeds
to the Company from the Offering were $61.4 million.
As of June 30, 2000, approximately (i) $1,400,000 of the net proceeds of
the Offering had been used to pay expenses incurred in connection with the
Offering, (ii) $2,300,000 of the net proceeds had been used to pay all of the
principal and accrued interest on a note payable to PNC Bank in connection with
a bridge loan and (iii) $4,200,000 of the net proceeds had been used to purchase
property and equipment. The remainder of the net proceeds of the Offering have
been invested in short-term, interest-bearing, investment grade securities. The
entire amount of the net proceeds has been allocated for working capital and
general corporate purposes. None of the proceed amounts were paid directly or
indirectly to any director, officer, or general partner of the Company or its
associates, persons owning 10 percent or more of any class of equity securities
of the Company, or affiliate of the Company.
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The following matters were submitted to the stockholders at CareerBuilder's
Annual Meeting of Stockholders held on May 11, 2000. Each of these matters were
approved by a majority of the shares present at the meeting.
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<PAGE> 29
1. The uncontested election of two Class I directors for a three-year term
expiring in 2003 and until their successors are duly elected and qualified. The
following is a summary of the nominees and voting results:
<TABLE>
<CAPTION>
VOTES VOTES VOTES
FOR AGAINST WITHHELD
---------- ------- --------
<S> <C> <C> <C>
Peter J. Barris............................................ 18,090,780 42,276 0
David C. Wetmore........................................... 18,090,780 42,276 0
</TABLE>
CareerBuilder's Board of Directors is currently comprised of five members
that are divided into three classes with overlapping three-year terms. The term
for Class II director Gary C. Butler will expire at the annual meeting of
stockholders to be held in 2001, and the term for Class III directors Robert J.
McGovern and James A. Tholen will expire at the annual meeting of stockholders
to be held in 2002.
2. The ratification of the selection of KPMG LLP as the independent
auditors of CareerBuilder for the year ending December 31, 2000. Results of the
voting included 18,111,487 shares for, 12,050 shares against, and 9,519 shares
abstained.
ITEM 5: OTHER INFORMATION
On July 16, 2000, CareerBuilder, Inc. (the "Company"), entered into an
Agreement and Plan of Merger (the "Merger Agreement") with Career Holdings, Inc.
and CB Acquisition Corp. (the "Sub"), each a newly formed Delaware corporation
that is directly or indirectly owned jointly by Tribune Company ("TC"), a
Delaware corporation, and Knightridder.com ("KR"), a Delaware corporation and
wholly owned subsidiary of Knight Ridder, Inc. Under the Merger Agreement, Sub
commenced on July 25, 2000, a tender offer (the "Offer") to purchase all of the
outstanding shares of common stock, par value $0.001 per share, of the Company
(the "Shares"), at a purchase price of $8.00 per Share, net to the seller in
cash, without interest thereon (the "Offer Price").
Pursuant to the Merger Agreement, following the completion of the Offer and
the satisfaction or waiver of certain other conditions, Sub will be merged with
and into the Company (the "Merger") with the Company being the surviving
corporation. In the Merger, each outstanding Share (other than (i) Shares held
by the Company, (ii) Shares held by Parent or its wholly owned subsidiaries, and
(iii) Dissenting Shares (as defined in the Merger Agreement))will be converted
into the right to receive the Offer Price. In connection with the Merger
Agreement, TC, KR and Parent entered into an Investment Agreement dated July 16,
2000 (the "Investment Agreement"), to which the Company is an express third
party beneficiary.
The Offer is conditioned on, among other things, Tribune and Knight Ridder
acquiring at least a majority of the outstanding stock of CareerBuilder on a
fully diluted basis. Holders of approximately 44% of the outstanding shares of
CareerBuilder have entered in stockholder agreements (the "Stockholder
Agreements") pursuant to which they have agreed to tender their shares in the
offer and to vote their shares in favor of the merger agreement and against any
other transaction, subject to the provisions of the Stockholder Agreement. The
transaction is subject to other customary conditions, including
Hart-Scott-Rodino Act anti-trust clearance.
A copy of each of the Merger Agreement, the Investment Agreement, a form of
the Stockholder Agreement and the press release announcing the transaction are
filed on a current report on Form 8-K filed by the Company on July 18, 2000.
Please note that there can be no assurance that the conditions to the Offer
will be met or that they Merger will be consummated.
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<PAGE> 30
The Company, the members of its Board of Directors, Knight-Ridder, Inc. and
Tribune Company were named as defendants in two shareholder lawsuits, (i)
Caroline Teitelbaum v. Peter J. Barris, David C. Wetmore, Gary C. Butler, Robert
J. McGovern, James A. Tholen, CareerBuilder, Inc., CB Acquisition Corp., Career
Holdings, Inc., Knight-Ridder, Inc. and Tribune Company, and (ii) Charles Smith
v. Robert J. McGovern, James A. Winchester, Peter J. Barris, David C. Wetmore,
Gary C. Butler, CareerBuilder, Inc., Knight-Ridder, Inc. and Tribune Company,
filed on July 18 and July 25, 2000, respectively, in the Court of Chancery of
the state of Delaware in connection with the proposed acquisition of the Company
by affiliates of Knight-Ridder, Inc. and Tribune Company. Each of the lawsuits
in general alleges that the members of the Company's Board of Directors have
breached their fiduciary duties by approving the transaction and that the
consideration received by the Company's shareholders in connection with the
transaction would be inadequate. The plaintiffs seeks injunctive relief against
the transaction or if consummated, recission of the transaction and/or damages.
CareerBuilder believes that the lawsuits are without merit and intend to defend
the claims vigorously.
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<PAGE> 31
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
2.1* Agreement and Plan of Merger dated as of July 16, 2000 among
Career Holdings, Inc., CB Acquisition Corp. and
CareerBuilder, Inc.
27.1 Financial Data Schedule, which is submitted electronically
to the Securities and Exchange Commission for information
only and not filed.
99.1* Investment Agreement dated as of July 16, 2000 among Tribune
Company, Knightridder.com and Career Holdings, Inc.
99.2* Form of Stockholder Agreement
99.3* Text of Press Release dated July 17, 2000
</TABLE>
---------------
* Incorporated by reference to the exhibit of the same number filed with the
Company's Current Report on Form 8-K filed on July 18, 2000.
(b) Reports on Form 8-K.
While there were no 8-K forms filed for the three months ended June 30,
2000, there was an 8-K filed on July 18, 2000 for the tender offer filed by
Tribune Company and KnightRidder.com
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<PAGE> 32
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this form 10-Q to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: August 14, 2000 CAREERBUILDER, INC.
By: /s/ ROBERT J. MCGOVERN
------------------------------------
Robert J. McGovern
Chief Executive Officer
By: /s/ JAMES A. THOLEN
------------------------------------
James A. Tholen
Chief Financial Officer
(Principal Financial and Accounting
Officer)
32
<PAGE> 33
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
2.1* Agreement and Plan of Merger dated as of July 16, 2000 among
Career Holdings, Inc., CB Acquisition Corp. and
CareerBuilder, Inc.
27.1 Financial Data Schedule, which is submitted electronically
to the Securities and Exchange Commission for information
only and not filed.
99.1* Investment Agreement dated as of July 16, 2000 among Tribune
Company, Knightridder.com and Career Holdings, Inc.
99.2* Form of Stockholder Agreement
99.3* Text of Press Release dated July 17, 2000
</TABLE>
---------------
* Incorporated by reference to the exhibit of the same number filed with the
Company's Current Report on Form 8-K filed on July 18, 2000.
33
