<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 16, 1999
REGISTRATION NO. 333-80915
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 4
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
HEADHUNTER.NET, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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<S> <C> <C>
GEORGIA 7370 58-2403177
(STATE OR OTHER JURISDICTION (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
OF INCORPORATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
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ROBERT M. MONTGOMERY, JR.
PRESIDENT AND CHIEF EXECUTIVE OFFICER
HEADHUNTER.NET, INC.
6410 ATLANTIC BOULEVARD, SUITE 160
NORCROSS, GEORGIA 30071
TELEPHONE: (770) 300-9272
FACSIMILE: (770) 300-9298
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES AND AGENT FOR SERVICE)
------------------------
COPIES TO:
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<S> <C>
JOEL J. HUGHEY, ESQ. GLENN W. STURM, ESQ.
ADAM V. BATTANI, ESQ. JAMES WALKER IV, ESQ.
SCOTT L. O'MELIA, ESQ. SUSAN L. SPENCER, ESQ.
ALSTON & BIRD LLP NELSON MULLINS RILEY & SCARBOROUGH, L.L.P.
ONE ATLANTIC CENTER FIRST UNION PLAZA
1201 WEST PEACHTREE STREET 999 PEACHTREE STREET, N.E., SUITE 1400
ATLANTA, GEORGIA 30309-3424 ATLANTA, GEORGIA 30309
TELEPHONE: (404) 881-7000 TELEPHONE: (404) 817-6000
FACSIMILE: (404) 881-7777 FACSIMILE: (404) 817-6050
</TABLE>
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: as soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this Form is filed to register additional securities for any offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ] ------------------
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] ------------------
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] ------------------
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. [ ]
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION ACTING PURSUANT TO SAID SECTION 8(a)
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL SECURITIES, AND WE ARE NOT SOLICITING OFFERS TO BUY THESE SECURITIES, IN
ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION, DATED AUGUST 16, 1999
PROSPECTUS
3,000,000 SHARES
(HEADHUNTER.NET LOGO)
COMMON STOCK
HeadHunter.NET is offering 3,000,000 shares of its common stock. This is our
initial public offering and no public market currently exists for our shares. We
anticipate that the initial public offering price will be between $12.00 and
$14.00 per share.
------------------------
We have applied to list our common stock on The Nasdaq Stock Market's
National Market under the symbol "HHNT."
------------------------
INVESTING IN OUR COMMON STOCK INVOLVES MATERIAL RISKS. SEE "RISK FACTORS"
BEGINNING ON PAGE 5.
------------------------
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UNDERWRITING PROCEEDS TO
PRICE TO PUBLIC DISCOUNT HEADHUNTER.NET
--------------- ------------ --------------
<S> <C> <C> <C>
Per Share......................................... $ $ $
Total............................................. $ $ $
</TABLE>
THE SECURITIES AND EXCHANGE COMMISSION AND STATE SECURITIES REGULATORS HAVE
NOT APPROVED OR DISAPPROVED THESE SECURITIES, OR DETERMINED IF THIS PROSPECTUS
IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
Two selling shareholders have granted the underwriters the right to
purchase up to an additional 450,000 shares of common stock to cover
over-allotments. The underwriters expect to deliver the shares of common stock
to purchasers on or about , 1999.
------------------------
FIRST UNION CAPITAL MARKETS CORP.
J.C. BRADFORD & CO.
WACHOVIA SECURITIES, INC.
DLJdirect INC.
, 1999.
<PAGE> 3
INSIDE COVER GRAPHICS:
The HeadHunter.NET logo, a spiral and a picture of two people working together
appear at the top of the first inside cover page. The following text appears
below the logo:
What is Headhunter.net?
Headhunter.net provides a leading online recruiting service to employers,
recruiters, and job seekers via our web site at www.headhunter.net. We
empower users on two different levels:
(1) We enable employers and recruiters to advertise jobs and review resumes
across a wide variety of occupations.
(2) We enable job seekers to identify, research, and evaluate a broad range
of job opportunities online, and post their resume for employers to
review.
A graphic of the HeadHunter.NET home page appears here, including the
HeadHunter.NET logo.
The graphic is followed by the following notation:
*All statistics noted in this page are as of 8/1/99. Statistics are subject
to change daily.
The second inside cover page has the following text at the top of the page:
We provide employers and recruiters with . . .
- The ability to improve the placement and increase the exposure of an
advertised job listing through upgrades.
Below this bullet point is a graphic of a job search result on the
HeadHunter.NET web page with a pullout graphic depicting three upgraded job
opportunities appearing above two non-upgraded job opportunities in the search
result.
A box with the following text is connected to the pull-out graphic:
Job posters can elevate the job position in a search result through
upgrading to attract the attention of our more than 100,000 users per
business day.
The following text appears in the middle of the second inside cover page:
- The ability to track, measure, and analyze the results of their online
recruiting efforts through detailed statistics provided in billing
statements and in real-time on our web site.
Below this bullet point is a graphic of a web page from the "My Stuff" section
of the HeadHunter.NET website with two pull-out graphics demonstrating some of
the information on this web page.
Three boxes containing the following text are connected to the two pull-out
graphics:
Job posters can modify, update or remove jobs in real-time.
Access posting performance statistics online, including number of times
viewed and number of online applications.
Keep an online record of candidates that have responded to each job listing
and view their resumes and cover letters.
The HeadHunter.NET logo and a spiral appear at the bottom of the second inside
cover page. The following text appears below the spiral:
This is the way to work.
The third inside cover page has the following text at the top of the page
followed by three bullet points:
Our site allows job seekers to . . .
- Post their resumes and conduct searches free of charge.
<PAGE> 4
- Conduct highly focused job searches using our advanced search
capabilities.
- Respond online to job opportunities.
On the right-hand side of this page is a graphic of a web page from the "Find
Jobs" section of the HeadHunter.NET web site with two pull-out graphics
demonstrating the job search criteria.
A box containing the following text is attached to the two pull-out graphics:
Jobs can be searched by geography, salary, professional category,
experience level, keywords, and more.
On the bottom left-hand side of this page is a graphic of a web site from the
"Find Jobs" section of the HeadHunter.NET web site demonstrating detailed
information of a single job opportunity with a pull-out section demonstrating
some of the detail.
A box containing the following text is attached to the pull-out graphics:
Candidates can instantly send their resumes in response to a job listing.
At the bottom of the third inside cover page is a graphic with a photograph of
people working.
The inside back cover page has graphics, which include the HeadHunter.NET logo,
a spiral and a picture of a person working at a keyboard. Above the logo and
next to the photograph is the following text:
Reach Hire
Basic Listings
Upgrades
VIP Resume Reserve
EaseEPost
Our Products
<PAGE> 5
TABLE OF CONTENTS
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PAGE
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Prospectus Summary.................... 1
Risk Factors.......................... 5
Special Note Regarding Forward-Looking
Statements.......................... 14
Use of Proceeds....................... 15
Dividend Policy....................... 15
Dilution.............................. 16
Capitalization........................ 17
Selected Financial Data............... 18
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 19
</TABLE>
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PAGE
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Business.............................. 28
Management............................ 36
Related Party Transactions............ 42
Principal and Selling Shareholders.... 44
Description of Capital Stock.......... 45
Shares Eligible For Future Sale....... 49
Underwriting.......................... 51
Legal Matters......................... 52
Experts............................... 53
Available Information................. 53
Index to Financial Statements......... F-1
</TABLE>
------------------------
You should rely only on the information contained in this prospectus. We
have not authorized anyone to provide you with information different from that
which is contained in this prospectus. We are offering to sell shares of common
stock and seeking offers to buy shares of common stock only in jurisdictions
where offers and sales are permitted. The information contained in this
prospectus is accurate only as of the date of this prospectus, regardless of the
time of delivery of this prospectus or of any sale of our common stock.
<PAGE> 6
PROSPECTUS SUMMARY
This summary highlights selected information contained elsewhere in this
prospectus. This summary may not contain all of the information that you should
consider before buying shares in this offering. We urge you to read the entire
prospectus carefully, including the information set forth under "Risk Factors,"
before making an investment decision.
OUR BUSINESS
We provide a leading online recruiting service to employers, recruiters and
job seekers via our web site at www.headhunter.net. Our web site enables
employers and recruiters to advertise job opportunities and review resumes and
enables job seekers to identify, research and evaluate a broad range of job
opportunities. We believe that we provide a superior online recruiting service
to employers, recruiters and job seekers based on the benefits our service
provides to each of them.
We provide employers and recruiters with:
- access to a large number of job seekers -- as evidenced by our average of
over 100,000 users per business day during June 1999;
- an innovative method of pricing our services that enables employers and
recruiters to improve the placement and increase the exposure of
advertised job opportunities by paying an upgrade fee to elevate the
position of a job opportunity in a search result; and
- the ability to track, measure and analyze the results of their online
recruiting efforts through detailed statistics we provide in billing
statements and in real-time on our web site.
Advantages from our web site to job seekers include:
- detailed and current information regarding a large number of
geographically dispersed job opportunities representing a wide variety of
industries and occupations;
- access to job opportunities posted by recruiters, as well as employers,
which increases the breadth of available job opportunities;
- its ease of use and functionality; and
- the ability to conduct highly focused job searches using our advanced
search capabilities.
We base our position as a leading online recruiting service on data
compiled by interbiznet.com in its 1999 Electronic Recruiting Index and the
Media Metrix statistics for June 1999. According to the 1999 Electronic
Recruiting Index, our web site ranked first in "Customer Satisfaction,"
"Quality" and "Quality of Resumes Generated" among recruiting web sites that
feature job opportunities from multiple industries, including sites such as
Monster.com, HotJobs.com and CareerBuilder.com. During June 1999, based on
statistics provided by Media Metrix, our web site ranked first in terms of
average unique pages viewed per user and average minutes spent per user on the
site, and tied for first with Monster.com in terms of return traffic, when
compared to recruiting web sites that feature job opportunities from multiple
industries. In addition, based on June 1999 statistics from Media Metrix, when
compared to the same web sites, our web site ranked fourth in terms of reach and
unique visitors, two measures of traffic volume.
At June 30, 1999, over 4,200 employers and recruiters were paying for our
online recruiting services. We generate our revenues primarily from fees paid by
employers and recruiters to post job opportunities and to improve the position
of their job opportunities in search results. We also generate revenues from
employers and recruiters who pay an additional fee to exclusively review
recently submitted or reserved resumes. In addition, we derive revenues from the
sale of banner advertising.
1
<PAGE> 7
THE MARKET OPPORTUNITY FOR ONLINE RECRUITING
The emergence of the Internet and the growth in its use have made it an
attractive medium for online recruiting. We believe online recruiting is
superior to traditional means of recruiting and job searching because it is
interactive, easily accessible, timely and more cost-effective. As Internet
usage becomes more widespread, we expect companies from a broad range of
industries to increase their online recruiting efforts. According to Forrester
Research, the size of the online recruiting market will increase from $105
million in 1998 to $1.7 billion in 2003. As the online recruiting market
matures, we believe that employers and recruiters will increasingly utilize
those online recruiting services that enable them to access a large number of
job seekers and exercise a high degree of control over the exposure of their job
opportunities. We believe our easy-to-use, cost-effective online recruiting
service positions us to take advantage of this market opportunity.
OUR GROWTH STRATEGY
Our objective is to be the leading provider of online recruiting services
to employers and recruiters. The key elements of our strategy to accomplish this
objective include the following:
Increase Awareness of the HeadHunter.NET Brand. We plan to increase
awareness of the HeadHunter.NET brand through an aggressive marketing campaign
that combines online and traditional advertising, direct marketing and strategic
relationships.
Aggressively Expand Our Sales Force. We plan to rapidly expand our direct
sales and telephone sales efforts by increasing the size of our existing sales
force in Atlanta and Chicago and by opening additional sales offices in major
metropolitan areas to further penetrate these markets.
Enhance Web Site Functionality. We intend to continue to make the process
of posting and searching job opportunities on our web site easier and faster by
increasing the functionality of our web site.
Develop Alternative Channels of Distribution Through Strategic
Relationships. We have entered into and continuously evaluate strategic
relationships as a means to increase traffic to our web site, enhance visibility
of job opportunities, increase awareness of the HeadHunter.NET brand, and
provide marketing and cross-promotional opportunities.
Pursue Strategic Acquisitions of Complementary Businesses or
Technologies. We will explore acquisition or investment opportunities if we
believe they will enable us to accelerate our growth, add new content, develop
new technologies or penetrate new markets.
CORPORATE INFORMATION
Our principal executive offices are located at 6410 Atlantic Boulevard,
Suite 160, Norcross, Georgia 30071, and our telephone number is (770) 300-9272.
Our web site at www.headhunter.net was launched in October 1996. The information
on our web site is not incorporated by reference into this prospectus and you
should only rely on the information contained in this prospectus in making an
investment decision.
2
<PAGE> 8
THE OFFERING
Common stock offered................. 3,000,000 shares
Common stock to be outstanding after
the offering......................... 10,744,500 shares(1)
Use of proceeds...................... We currently intend to use the majority
of the net proceeds to expand our sales,
advertising and marketing efforts, to
develop strategic relationships, to fund
our working capital needs and for other
general corporate purposes. We also
intend to use a portion of the net
proceeds to repay our credit facility
with ITC. See "Use of Proceeds" and
"Related Party Transactions."
Proposed Nasdaq National Market
symbol............................... HHNT
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(1) Excludes 911,500 shares of common stock issuable upon the exercise of
outstanding options at a weighted average exercise price of $1.45 per share
and 416,667 shares of common stock issuable upon the exercise of an
outstanding warrant at an exercise price of $1.50 per share.
This prospectus includes statistical data regarding HeadHunter.NET, the
Internet and the online recruiting industry. This data is based on our records
or is taken or derived from information published or prepared by various
sources, including interbiznet.com, Forrester Research and Media Metrix, Inc.
Our logo and certain titles of our service offerings mentioned in this
prospectus are our service marks and trademarks. All other brand names or
trademarks appearing in this prospectus are the property of their respective
holders.
Unless otherwise indicated, all information in this prospectus assumes (1)
the shares of common stock will be sold at $13.00 per share, (2) the
underwriters will not exercise their over-allotment option and (3) all
outstanding shares of our Class A preferred stock convert into 5,404,500 shares
of common stock.
3
<PAGE> 9
SUMMARY FINANCIAL DATA
Set forth below is summary financial data for the year ended December 31,
1998, which we have derived from our audited financial statements, and the other
periods indicated, which we have derived from our unaudited financial
statements. You should read this summary financial data in conjunction with "Use
of Proceeds," "Selected Financial Data," "Management's Discussion and Analysis
of Financial Condition and Results of Operations," our financial statements and
related notes, and the other financial data included elsewhere in this
prospectus. The weighted average shares outstanding data does not give effect to
the conversion of our Class A preferred stock into our common stock. Loss per
share for the three months ended March 31, 1999 includes a one-time non-cash
charge to accumulated deficit of approximately $21.7 million for the difference
between the fair value and the conversion price of the loan and security
agreement related to conversion of this instrument from debt to equity in
January 1999. This was accounted for as a distribution to the Class A preferred
shareholders and, therefore, an increase in net loss attributable to common
shareholders. See Notes 2 and 3 to our financial statements for further
discussion. As adjusted data reflects our sale of 3,000,000 shares of common
stock in this offering, the conversion of the Class A preferred stock into
5,404,500 shares of our common stock and the application of the estimated net
proceeds from this offering. See "Use of Proceeds."
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THREE MONTHS ENDED
YEAR ENDED --------------------------------------------------------------------------------
DECEMBER 31, MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, MARCH 31, JUNE 30,
1998 1998 1998 1998 1998 1999 1999
------------ --------- --------- ------------- ------------ ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues.................. $ 1,099,868 $ 79,569 $ 198,482 $ 392,577 $ 429,240 $ 828,027 $ 1,584,928
Costs and expenses:
Costs of revenues....... 86,963 18,220 19,319 26,201 23,223 25,433 34,822
Marketing and selling... 2,719,330 158,549 349,831 1,220,301 990,649 1,232,352 1,647,577
General and
administrative........ 1,714,756 189,018 478,373 687,851 359,514 492,270 714,236
Stock compensation
expense(1)............ 205,574 -- 32,705 95,113 77,756 2,861,676 1,688,912
Depreciation and
amortization.......... 276,706 55,080 63,003 74,062 84,561 88,895 109,347
----------- --------- --------- ----------- ----------- ----------- -----------
Total costs and
expenses................ 5,003,329 420,867 943,231 2,103,528 1,535,703 4,700,626 4,194,894
----------- --------- --------- ----------- ----------- ----------- -----------
Operating loss............ (3,903,461) (341,298) (744,749) (1,710,951) (1,106,463) (3,872,599) (2,609,966)
Other income (expense).... (442,407) 7,533 11 (165,683) (284,268) (9,423) (31,492)
----------- --------- --------- ----------- ----------- ----------- -----------
Net loss.................. $(4,345,868) $(333,765) $(744,738) $(1,876,634) $(1,390,731) $(3,882,022) $(2,641,458)
=========== ========= ========= =========== =========== =========== ===========
LOSS PER SHARE:
Basic and diluted......... $ (1.98) $ (.15) $ (.34) $ (.85) $ (.63) $ (11.63) $ (1.17)
WEIGHTED AVERAGE SHARES
OUTSTANDING:
Basic and diluted......... 2,200,000 2,200,000 2,200,000 2,200,000 2,200,000 2,200,000 2,252,889
</TABLE>
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<CAPTION>
AS OF JUNE 30, 1999
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ACTUAL AS ADJUSTED
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<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................... $ 202,874 $33,842,874
Working capital (deficit)................................... (1,294,844) 33,975,156
Total assets................................................ 2,881,114 36,521,114
Total debt, including current maturities.................... 1,630,000 --
Total shareholders' equity.................................. 245,915 35,515,915
</TABLE>
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(1) See note 6 to our financial statements for further information regarding the
stock compensation expense.
4
<PAGE> 10
RISK FACTORS
You should carefully consider the following risks before making an
investment decision. If any of the following risks actually occur, our business,
financial condition or results of operations could be seriously harmed. In that
case, the trading price of our common stock could decline, and you could lose
all or part of your investment. You also should refer to the other information
in this prospectus, including our financial statements and the related notes.
RISKS RELATED TO OUR BUSINESS
WE ARE AN EARLY-STAGE COMPANY, AND OUR LIMITED OPERATING HISTORY MAKES
EVALUATING OUR BUSINESS AND PROSPECTS DIFFICULT.
We launched our web site in October 1996 and have substantially modified it
since that time. As a result, we have a limited operating history upon which you
can base an evaluation of our business and prospects. You must consider the
risks, expenses and problems frequently encountered by companies in their early
stages of development, particularly companies in new and rapidly evolving
markets such as online recruiting. Some of the risks which we may face as an
early stage company include our ability to:
- implement our business model and strategy and adapt them as needed;
- attract employers, recruiters and job seekers to our web site; and
- develop strategic relationships with industry-focused Internet sites.
If we fail to successfully manage these risks, expenses and problems, and
the other risks described below, current evaluations of our business and
prospects may prove to be inaccurate.
WE HAVE A HISTORY OF LOSSES, WE ANTICIPATE FUTURE LOSSES AND WE MAY NEVER
ACHIEVE PROFITABILITY.
We have a history of losses and may never be profitable. We incurred net
losses of $35,000, $176,000 and $4.3 million for the ten months ended October
31, 1997, two months ended December 31, 1997 and year ended December 31, 1998,
respectively. As of June 30, 1999, we had an accumulated deficit of
approximately $32.7 million. We expect operating losses and negative cash flow
to continue for the foreseeable future. We anticipate our losses will increase
significantly from current levels because we expect to incur additional costs
and expenses related to:
- increased marketing and advertising to strengthen brand awareness;
- rapid expansion of our sales and other personnel;
- continued development of our web site and service offerings; and
- development of strategic relationships with industry-focused Internet
sites.
Our ability to become profitable depends on our ability to generate and
maintain greater revenues while incurring reasonable expenses. Our ability to
generate greater revenues depends on:
- our ability to convince employers and recruiters to utilize our web site
for their online recruiting needs;
- the growth of acceptance of the Internet as a recruiting tool;
- the number of job seekers who visit our web site; and
- the number of job opportunities posted on our web site.
If we do achieve profitability, we cannot be certain that we will be able
to sustain or increase profitability on a quarterly or annual basis in the
future. Our inability to achieve or maintain profitability or positive cash flow
could result in disappointing financial results, impede implementation of our
growth strategy or cause the market price of our common stock to decrease.
5
<PAGE> 11
WE HAVE RECENTLY CHANGED OUR METHOD OF PRICING OUR SERVICES, WHICH HAS DECREASED
AND MAY FURTHER DECREASE THE NUMBER OF JOB OPPORTUNITIES AND USERS ON OUR WEB
SITE AND MAY RESULT IN DECREASED REVENUE.
Until recently, employers and recruiters could post job opportunities on
our web site free of charge. Since June 1, 1999, they must pay a fee for each
job opportunity they post on our web site. As a result of this pricing change,
the number of job opportunities posted on our web site has decreased by
approximately 48%. In the event the number of job opportunities in our database
further decreases, job seekers may find that our web site is not as useful as
other online recruiting sites. A decrease in the number of job seekers on our
web site may cause employers and recruiters to further reduce the number of job
opportunities they post, or the upgrade fees that they are willing to pay. These
decreases may reduce our revenue.
OUR FUTURE REVENUES ARE UNPREDICTABLE, AND OUR FINANCIAL RESULTS MAY FLUCTUATE,
WHICH MAY ADVERSELY AFFECT OUR STOCK PRICE.
Our revenue and results of operations are difficult to predict, and we
expect them to fluctuate significantly from quarter to quarter. If our revenue
or results of operations fall below the expectations of investors or public
market analysts, the price of our common stock could fall substantially. Our
revenue and results of operations may fluctuate significantly in response to the
following factors, many of which are beyond our control:
- the cancellation of a significant number of customer accounts;
- changes in the demand for our service offerings;
- changes in our pricing policies or those of our competitors;
- the timing and effectiveness of marketing campaigns;
- the hiring cycles of employers;
- our ability to hire and retain qualified sales people;
- seasonal trends in user traffic;
- introduction of additional, or enhancement of existing, service offerings
by us or our competitors;
- the incurrence of costs related to acquisitions of businesses or
technologies;
- the costs of establishing, and the timing of, strategic relationships;
and
- general economic conditions, including the effects of a recession.
ONE OF OUR STRATEGIES IS TO INCREASE AWARENESS OF THE HEADHUNTER.NET BRAND, AND
IF WE FAIL TO FURTHER DEVELOP OUR BRAND, WE MAY NOT BE ABLE TO SUSTAIN OR
INCREASE THE NUMBER OF EMPLOYERS, RECRUITERS AND JOB SEEKERS USING OUR WEB SITE.
We believe that maintaining and strengthening the HeadHunter.NET brand is
an important aspect of our business. Our brand name is critical in our efforts
to sustain or increase the number of employers, recruiters and job seekers who
use our web site. We believe that the importance of brand recognition will
increase due to the continued growth in the number of competitors entering the
online recruiting market. Our ability to promote and position our brand depends
largely on the success of our marketing efforts and our ability to effectively
satisfy the needs of employers, recruiters and job seekers. To promote our
brand, we intend to substantially increase our marketing budget. If we fail to
successfully promote and maintain our brand, or if we incur excessive expenses
attempting to promote and maintain our brand, we may be unable to implement our
business plan and our financial results may suffer.
6
<PAGE> 12
THE ONLINE RECRUITING MARKET IS INTENSIVELY COMPETITIVE AND WE MAY BE UNABLE TO
COMPETE SUCCESSFULLY AGAINST EXISTING AND FUTURE COMPETITORS, WHICH MAY MAKE IT
MORE DIFFICULT TO GROW OUR BUSINESS.
The market for online recruiting is highly fragmented and intensely
competitive. We compete on the Internet with other online recruiting sites,
corporate Internet sites, Internet portal sites, Internet sites that provide
their users with access to content, commonly known as Internet content
providers, and nonprofit professional organizations. Many of our competitors
have longer operating histories in the online recruiting market, significantly
greater financial, technical and marketing resources, more users and larger
databases than we do. We also compete with traditional recruiting methods, such
as classified advertising, radio, television and traditional recruiting firms
for a share of the total recruiting budgets of employers and recruiters.
Presently, the barriers to entry by competitors in the market for online
recruiting are low. Current and new competitors can launch new Internet sites
and add substantial content on their sites at a low cost within a short time
period. Therefore, we expect competition to continue to intensify, and the
number of competitors could increase significantly in the near future. If we are
unable to compete successfully against existing and future competitors, we may
not benefit from the projected growth in the online recruiting market.
IF WE LOSE THE SERVICES OF OUR PRESIDENT AND CHIEF EXECUTIVE OFFICER, OR IF WE
CANNOT RECRUIT AND RETAIN ADDITIONAL SKILLED PERSONNEL, OUR BUSINESS MAY SUFFER.
We depend on the continued services and performance of Robert M.
Montgomery, Jr., our President and Chief Executive Officer for our future
success. We do not have an employment agreement with Mr. Montgomery, and we are
not the beneficiaries of any key person life insurance covering him or any other
executive officer.
Competition for personnel with experience in online recruiting and commerce
is intense. If we are unsuccessful in attracting and training new employees, or
retaining and motivating our current and future employees, our business could
suffer significantly.
WE DO NOT HAVE LONG-TERM AGREEMENTS WITH EMPLOYERS AND RECRUITERS, WHICH MAY
CAUSE OUR REVENUE TO FLUCTUATE.
We derive a substantial majority of our revenues from employers and
recruiters that pay to post job opportunities on our web site and purchase
upgrades to their listings or other service offerings. Generally, these
employers and recruiters post their job opportunities on a monthly basis. They
have no obligation to purchase any upgrades or other service offerings, or to
post any job opportunities for more than a month at a time. As a result, an
employer or recruiter that generates substantial revenue for us in one month may
not do so in a later month. We must continually maintain existing accounts and
establish and develop new accounts with employers and recruiters. If we fail to
do so, our revenue could fluctuate, which may cause us to fail to meet
expectations in the marketplace and our stock price may decline.
WE MAY BE UNABLE TO EFFECTIVELY MANAGE OUR RAPID GROWTH, WHICH IS PLACING AND
MAY CONTINUE TO PLACE A STRAIN ON OUR RESOURCES.
We have rapidly expanded our operations and anticipate that further
expansion will be required to execute our growth strategy. Our rapid growth has
placed significant demands on our management, financial, technical and other
resources. These demands are likely to continue and increase. To manage our
future growth, we must adapt to changing business conditions and improve
existing systems or implement new systems for our financial and management
controls, reporting systems and procedures. In addition, in order to achieve
rapid growth, we may acquire technologies or products or enter into strategic
alliances. For us to succeed, we must make our existing technology, business and
systems work effectively with those of any strategic partners without undue
expense, management distraction or other disruptions to our business. If we fail
to manage any of the above growth challenges successfully, we may be unable to
implement our business plan and our financial results may suffer.
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<PAGE> 13
WE DEPEND ON THIRD PARTIES TO FACILITATE ACCESS TO OUR WEB SITE, AND FACE RISKS
OF CAPACITY CONSTRAINTS, WHICH COULD INCREASE OUR EXPENSES OR REDUCE OUR
REVENUES UNEXPECTEDLY.
We depend on Internet service providers and other web site operators, which
may experience Internet connectivity outages. Such outages may cause users to
experience difficulties in accessing our web site. Any system failures at these
third parties may cause an interruption in service or a decrease in
responsiveness of our web site and may impair users' perceptions of our web
site. Any failure to handle current or increased volumes of traffic on our web
site may impede our ability to sustain or increase the number of employers,
recruiters and job seekers who use our web site.
We derive a substantial majority of our revenues from employers and
recruiters that pay to post and upgrade their job opportunities. The amounts
they are willing to pay to post and upgrade their job opportunities depend to a
significant degree on the number of job seekers who visit our web site. We
depend on the performance, reliability and availability of our web site to
attract and retain these job seekers. Capacity constraints could prevent them
from accessing our web site for extended periods of time and decrease our
traffic. Decreased traffic could result in fewer employers and recruiters
posting job opportunities on our web site or buying fewer upgrades and other
enhanced services. This would result in decreased revenues. In addition, if the
number of employers, recruiters and job seekers on our web site increases
substantially, we may experience capacity constraints and need to expand or
upgrade our technology at a time when we do not have adequate funds to do so, or
when that technology is not readily available.
ONE OF OUR GROWTH STRATEGIES IS TO PURSUE ACQUISITIONS AND WE MAY FACE RISKS IN
ACQUIRING AND INTEGRATING OTHER BUSINESSES AND TECHNOLOGIES.
One element of our growth strategy is to acquire other businesses and
technologies that we believe will complement our business. Acquiring other
businesses and technologies involves numerous risks, including:
- difficulties in integrating the operations, services, products and
personnel of the acquired company into ours;
- diversion of our management's attention from other business concerns;
- inability to retain and motivate key personnel of the acquired business;
- entry into markets in which we have little or no direct prior experience;
and
- inability to retain clients or goodwill of the acquired business.
In pursuing acquisitions, we may compete with competitors that may be
larger and have greater financial and other resources than we have. Competition
for these acquisition targets could result in increased prices of acquisition
targets.
In the future, we may take accounting charges in connection with
acquisitions. We cannot guarantee that the costs and expenses actually incurred
will not exceed the estimates we use to take the accounting charges.
WE MAY NOT BE ABLE TO PROTECT AND ENFORCE OUR INTELLECTUAL PROPERTY RIGHTS,
WHICH COULD RESULT IN THE LOSS OF OUR RIGHTS, LOSS OF BUSINESS OR INCREASED
COSTS.
Our success and ability to compete depend to a significant degree on our
internally developed proprietary technology and on our brand, marks and domain
names. We rely on trademark, patent and other intellectual property laws, and on
confidentiality and non-disclosure agreements with our employees and third
parties, to establish and protect our proprietary rights. We cannot assure you
that the steps we have taken to protect our proprietary rights will be adequate
or that we will be able to defend our marks or obtain patents for any of our
internally developed systems. If we are unable to secure or protect our marks
and systems, it could result in the loss of our rights to our marks and systems,
or the loss of business.
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<PAGE> 14
Third parties may claim that our business activities infringe upon their
proprietary rights. From time to time in the ordinary course of business we have
been, and expect to continue to be, subject to claims of infringement of third
parties' trademarks and other intellectual property rights. Although such claims
have not had a material adverse effect on our business, such claims could
subject us to significant liability and result in invalidation of our
proprietary rights. These claims could also be time-consuming and expensive to
defend, even if we ultimately are not found liable. In addition, these claims
could divert our management's time and attention.
OUR BUSINESS MAY SUFFER IF USERS CONFUSE SIMILAR DOMAIN NAMES WITH
HEADHUNTER.NET.
We cannot assure you that potential users of our web site will not confuse
our domain name with other similar domain names such as headhunters.com,
headhunter.org or headhunters.org. If any confusion occurs, we may lose business
to a competitor, or some of our users may have negative experiences with these
other web sites that they mistakenly associate with us.
WE FACE RISKS RELATED TO YEAR 2000 FAILURES, WHICH COULD INCREASE OUR
LIABILITIES OR EXPENSES.
The risks posed by year 2000 issues could adversely affect our business in
a number of significant ways. Our internally developed proprietary software and
our critical information technology systems, which are substantially comprised
of third party software and hardware, could fail due to year 2000 issues. In
addition, we rely on the systems of third party vendors to host our servers and
provide us with connections to the Internet, which systems may be subject to
year 2000 failures. As a result of the failure of any of our critical internal
systems or the systems of our third party vendors, we could lose users, incur
significant disruption in our business or our ability to generate revenues, or
incur substantial liabilities or expenses. In addition, the Internet could face
serious disruptions arising from year 2000 issues, which generally may have an
adverse impact on traffic and commerce on the Internet. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations -- Year
2000 Readiness and Disclosure."
We cannot assure you that:
- our critical information technology and non-information technology
systems, or the systems of third party vendors on which we rely, will be
year 2000 ready in a timely manner, or that there will not be significant
problems with any of these systems;
- users will be able to access our web site without serious disruptions
arising from year 2000 issues;
- disruptions with other Internet sites and our strategic partners will not
adversely affect our business;
- our costs and liabilities related to year 2000 issues will be
insignificant; or
- we will not become a party to litigation related to the year 2000 issue.
OUR RELATIONSHIP WITH ITC MAY PRESENT POTENTIAL CONFLICTS OF INTEREST, WHICH MAY
RESULT IN DECISIONS WHICH FAVOR ITC OVER OUR OTHER SHAREHOLDERS.
Our controlling shareholder, ITC Holding Company, Inc., is the parent of,
or a significant investor in, a group of companies involved in a wide range of
activities, including broadband cable services, telecommunications services,
conference calling and videoconferencing, and Internet access and content
services. Our Chairman and most of our other directors (Messrs. Scott,
Montgomery, Cox, Misikoff and Weber and Ms. Thompson) are directors, officers or
stockholders of ITC. In addition, Robert Montgomery, our Chief Executive Officer
and President, previously served as Chief Executive Officer of another
subsidiary of ITC. When the interests of ITC and its affiliates diverge from our
interests, ITC and its affiliates may exercise their influence in their own best
interests. Some decisions concerning our operations or finances may present
conflicts of interest between us and ITC or its affiliates. There is no
mechanism in place to resolve these conflicts of interest, except that it is our
policy that transactions with affiliated parties be approved by a majority, but
not fewer than two, of our disinterested directors. Nevertheless, due to the
extensive relationships between ITC and us, we may make decisions that
9
<PAGE> 15
potentially favor ITC or its affiliates at our expense. Furthermore, Georgia law
may prohibit you from successfully challenging these decisions, if the decision
received the affirmative vote of a majority, but not less than two, of our
"qualified directors," or disinterested directors, who received full disclosure
of the existence and nature of the conflict.
OUR ARTICLES OF INCORPORATION AND BYLAWS AND GEORGIA LAW CONTAIN PROVISIONS THAT
COULD DISCOURAGE A TAKEOVER OF OUR COMPANY.
Our articles of incorporation and bylaws contain provisions that could make
it more difficult for another company to acquire us, even if that acquisition
would benefit our shareholders. Further, we have adopted provisions of Georgia
law that could delay, prevent or make more difficult a merger, tender offer or
proxy contest involving HeadHunter.NET. See "Description of Capital Stock."
RISKS RELATED TO OUR INDUSTRY
WE DEPEND ON THE ACCEPTANCE OF THE INTERNET AS A RECRUITING MEDIUM.
The Internet is a relatively new medium for recruiting, and employers,
recruiters and job seekers have not reached any consensus that online recruiting
is an effective means for satisfying their recruitment needs. A large number of
employers and recruiters have only limited experience in using the Internet for
recruitment. They are not yet spending a significant amount of their recruiting
budgets on online recruiting or committing to doing so over a long period. As a
result, our sales force spends a substantial amount of time and resources
retaining existing accounts, and educating employers and recruiters about our
services and the online recruiting market. We may be unable to persuade a large
number of employers, recruiters and job seekers that our services will satisfy
their needs more successfully than traditional recruiting methods. If we cannot
meet the needs of employers, recruiters and job seekers or adapt our services to
meet their demands, we may be unable to implement our business plan. Further, if
the market for online recruiting does not grow as projected we may not be able
to grow our business.
OUR MARKET IS SUBJECT TO RAPID CHANGE AND WE MAY NOT SUCCESSFULLY ADAPT TO THIS
CHANGE.
Our market is characterized by rapidly changing technology, introductions
and enhancements of competitive services, and changing user demands.
Accordingly, our future success depends on our ability to adapt to such rapid
changes in technology and improve the features, reliability and functionality of
our service offerings in response to our competitors. We cannot assure you that
we will succeed in addressing these issues.
WE MAY BECOME SUBJECT TO BURDENSOME GOVERNMENT REGULATION, WHICH MAY ADD
ADDITIONAL COSTS TO OPERATING OUR BUSINESS ON THE INTERNET OR DECREASE DEMAND
FOR OUR SERVICES.
We are subject to various laws and regulations relating to our business,
although there are few laws or regulations that apply directly to Internet-based
services. However, due to the increasing popularity and use of the Internet, it
is possible that additional laws and regulations may be adopted covering user
privacy, freedom of expression, pricing, content, quality of products and
services, taxation, advertising, intellectual property rights and information
security. For example, we believe that more than 200 pieces of legislation
relating to privacy issues and the Internet have been, or will be, introduced
during 1999 by various legislative bodies. Moreover, the applicability to the
Internet of existing laws governing intellectual property ownership and
infringement, copyright, trademark, trade secret, obscenity, libel, employment
and personal privacy is uncertain and developing. The nature and effect of any
proposed legislation or regulation, or the application or interpretation of
existing laws, cannot be fully determined. Any new law or regulation pertaining
to the Internet, or the application or interpretation of existing laws, could
decrease the demand for our services or increase our operational costs.
The adoption of any such legislation could also dampen the growth in use of
the Internet generally and decrease its acceptance as a communications,
commercial and advertising medium. Any legislation
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<PAGE> 16
which has an adverse impact on the growth of the Internet could cause us to
incur additional operating expenses or decrease the demand for our services.
BECAUSE OUR BUSINESS INVOLVES THE TRANSMISSION OF INFORMATION, WE MAY INCUR
LIABILITY FOR INFORMATION RETRIEVED FROM OR TRANSMITTED OVER THE INTERNET.
We may be sued for defamation, obscenity, negligence, copyright or
trademark infringement or other legal claims relating to information that is
posted or made available on our web site. Other claims may be brought based on
the nature, publication or distribution of our content or based on errors or
false or misleading information provided on our web site. We could also be sued
for the content that is accessible from our web site through links to other
Internet sites. We currently maintain insurance in amounts up to $2.0 million
for general aggregate claims and $1.0 million for personal injury claims. Our
insurance may not adequately protect us against claims related to information on
our web site. In addition, we could incur significant costs in investigating and
defending such claims, even if we ultimately are not found liable.
CONCERNS REGARDING SECURITY OF TRANSACTIONS AND TRANSMITTING CONFIDENTIAL
INFORMATION OVER THE INTERNET MAY NEGATIVELY IMPACT OUR ELECTRONIC COMMERCE
BUSINESS.
We believe that concern regarding the security of confidential information
transmitted over the Internet, such as credit card numbers, prevents many
potential customers from engaging in online transactions. If we do not add
sufficient security features to our web site, our services may not gain market
acceptance or there may be additional legal exposure to us. We have included
basic security features in some of our products to protect the privacy and
integrity of customer data, such as password requirements to access some data.
Despite the measures we have taken, our infrastructure is potentially
vulnerable to physical or electronic break-ins or similar problems. If a person
circumvents our security measures, he or she could misappropriate proprietary
information or cause interruptions in our operations. Security breaches that
result in access to confidential information could damage our reputation and
expose us to a risk of loss or liability. We may be required to make significant
investments and efforts to protect against or remedy security breaches.
Additionally, as electronic commerce becomes more prevalent, our customers will
become more concerned about security. If we do not adequately address these
concerns we may incur liability and we may not be able to sustain or increase
the number of employers, recruiters and job seekers using our services.
COMPUTER VIRUSES MAY CAUSE OUR SYSTEMS TO INCUR DELAYS OR INTERRUPTIONS AND MAY
INCREASE OUR EXPENSES OR LIABILITIES.
Computer viruses may cause our systems to incur delays or other service
interruptions, which may cause us to incur additional operating expenses to
correct problems we may experience. In addition, the inadvertent transmission of
computer viruses could expose us to a material risk of loss or litigation and
possible liability. Moreover, if a computer virus affecting our system is
publicly disclosed, our reputation could be materially damaged and our visitor
traffic may decrease. In addition, our sales and marketing efforts could be
impeded due to dissatisfaction among employers, recruiters and job seekers.
A RECESSION COULD ADVERSELY IMPACT OUR BUSINESS.
Online recruiting is a relatively new industry and we do not know how
sensitive it is to general economic conditions. The level of economic activity
and employment in the United States may significantly and adversely affect the
demand for online recruiting services. A recession could cause employers and
recruiters to reduce or postpone their recruiting efforts generally, and their
online recruiting efforts in particular. If a recession or significant economic
downturn occurs in the United States, our business could suffer.
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<PAGE> 17
RISKS RELATED TO THIS OFFERING
WE MAY BE UNABLE TO MEET OUR FUTURE CAPITAL REQUIREMENTS, WHICH MAY PREVENT US
FROM IMPLEMENTING OUR BUSINESS PLAN.
Based on our current operating plan, we anticipate that the net proceeds of
this offering, together with our available funds, will be sufficient to satisfy
our anticipated needs for working capital, including our increased marketing
expenses, capital expenditures and business expansion for at least the next 12
months. After that time, or in the event that we do not meet our operating plan,
we may need additional capital. Alternatively, we may need to raise additional
funds prior to such time in order to fund more rapid expansion, to increase
brand development and market awareness, to develop new or enhanced technology,
to respond to competitive pressures or to establish strategic relationships. If
we raise additional funds by issuing equity or convertible debt securities, the
percentage ownership of our shareholders will be diluted. Any new securities
could have rights, preferences and privileges senior to those of our common
stock.
We currently do not have any commitments for additional financing. We
cannot be certain that additional financing will be available when and to the
extent required or that, if available, it will be on acceptable terms. If
adequate funds are not available on acceptable terms, we may not be able to fund
our expansion, increase brand development and market awareness, develop or
enhance our service offerings, respond to competitive pressures or establish
strategic relationships.
OUR MANAGEMENT HAS BROAD DISCRETION OVER USE OF PROCEEDS FROM THIS OFFERING AND
MAY FAIL TO USE THEM EFFECTIVELY TO GROW OUR BUSINESS.
The net proceeds of this offering are estimated to be approximately $35.3
million. Management has allocated approximately $1.8 million of the net proceeds
of the offering for repayment of debt to ITC. Our management will retain broad
discretion regarding the allocation of the remainder of the net proceeds of this
offering. Our management intends to use a majority of the remainder of the net
proceeds for increased sales, advertising and marketing expenses. They may use
the net proceeds ineffectively or for purposes with which you disagree.
Management's failure to apply the proceeds effectively could impede our ability
to grow our business.
OUR EXISTING SHAREHOLDERS WILL CONTROL SHAREHOLDER ACTION AFTER THIS OFFERING,
AND THEY MAY VOTE THEIR SHARES IN WAYS IN WHICH YOU DISAGREE.
Upon completion of the offering and conversion of all outstanding shares of
Class A preferred stock, ITC and Warren L. Bare will beneficially own 49.3% and
18.8%, respectively, of our outstanding common stock. Mr. Bare will beneficially
own 16.8% of our outstanding common stock if the over-allotment option is
exercised in full. As a result, these shareholders, voting together, will
possess the ability to elect all of the members of our board of directors and to
approve significant corporate transactions. This control or share ownership may
also have the effect of delaying or preventing a change in control of our
company, impeding a merger, consolidation, takeover or other business
combination involving us or discouraging a potential acquiror from making a
tender offer or otherwise attempting to obtain control of us.
OUR COMMON STOCK PRICE MAY BE VOLATILE, WHICH COULD RESULT IN SUBSTANTIAL LOSSES
FOR INDIVIDUAL SHAREHOLDERS.
Prior to this offering, you could not buy or sell our common stock
publicly. An active public market for our common stock may not develop or be
sustained after the offering. We negotiated and determined the initial public
offering price with the underwriters based on several factors. This price may
vary from the market price of the common stock after this offering. The market
price of the common stock may fluctuate significantly in response to the
following factors, some of which are beyond our control:
- variations in quarterly operating results;
- changes in financial estimates by securities analysts;
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<PAGE> 18
- our announcements of significant contracts, milestones, acquisitions,
strategic relationships or capital commitments;
- additions or departures of key personnel;
- sales of common stock or termination of stock transfer restrictions; and
- fluctuations in stock market price and volume, which are particularly
common among securities of Internet companies.
In the past, following periods of volatility in the market price of a
company's securities, securities class action litigation often has been
instituted against that company. Such litigation is expensive and diverts
management's attention and resources.
YOU WILL EXPERIENCE IMMEDIATE AND SUBSTANTIAL DILUTION AND PAY A HIGHER PRICE
FOR OUR COMMON STOCK THAN EXISTING SHAREHOLDERS.
The initial public offering price will be substantially higher than the pro
forma tangible book value per share of our outstanding common stock and the
price per share paid by existing shareholders. If you purchase our common stock
in this offering, the shares you buy will experience an immediate and
substantial dilution in tangible book value per share. The shares of common
stock owned by our existing shareholders will receive a material increase in the
tangible book value per share. The dilution to investors in this offering will
be approximately $9.72 per share. See "Dilution."
SALES OF SUBSTANTIAL AMOUNTS OF OUR COMMON STOCK AFTER THE OFFERING COULD CAUSE
THE MARKET PRICE OF OUR COMMON STOCK TO DECLINE.
Sales of a substantial number of shares of common stock in the public
market, or the perception that these sales may occur, could adversely affect the
market price of our common stock. This could also impair our ability to raise
additional capital through the sale of our equity securities. After this
offering, we will have 10,744,500 shares of common stock outstanding. The shares
sold in this offering will be freely tradeable. The remaining 7,744,500 shares
(7,294,500 shares if the underwriters exercise their over-allotment option in
full) are "restricted shares" and will become eligible for sale in the public
market at various times after 180 days after the date of this prospectus,
subject to the limitations and conditions of Rule 144.
In addition, ITC and Warren L. Bare have registration rights regarding the
shares held by each of them at the time they exercise those rights, if ever.
Currently, ITC beneficially owns 5,500,000 shares of our common stock and Mr.
Bare beneficially owns 2,025,000 shares of our common stock (1,800,000 shares if
the underwriters exercise their over-allotment option in full). These
registration rights will allow them to sell their shares of our common stock in
the market simultaneously with any future public offerings by us of our equity
securities. See "Shares Eligible for Future Sale."
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<PAGE> 19
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements. All statements
regarding future events, our financial performance and operating results, our
business strategy and our financing plans are forward-looking statements. In
some cases you can identify forward-looking statements by terminology, such as
"may," "will," "would," "should," "could," "expect," "intend," "plan,"
"anticipate," "believe," "estimate," "predict," "potential" or "continue," the
negative of such terms or other comparable terminology. These statements are
only predictions. Known and unknown risks, uncertainties and other factors could
cause actual results to differ materially from those contemplated by the
statements. In evaluating these statements, you should specifically consider
various factors, including the risks outlined under "Risk Factors." These
factors may cause our actual results to differ materially from any
forward-looking statements.
Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, performance or achievements. We are under no duty to update any of the
forward-looking statements after the date of this prospectus to conform those
statements to actual results or to changes in our expectations.
This prospectus contains market data related to our business and the
Internet. This data is based on a number of assumptions and contains projections
and estimates related to the Internet and the online recruiting industry. We
cannot guarantee that any of the assumptions from which this data has been
developed are complete or will prove to be correct. Projections, assumptions and
estimates of our future performance and the future performance of our industry
are necessarily subject to a high degree of uncertainty and risk due to a
variety of factors, including those described in the "Risk Factors" section and
elsewhere in this prospectus. Actual results may differ materially or
significantly from the projections and estimates. For instance, the
Internet-related markets may not grow over the next three to four years at the
rates projected by this market data, or at all. The failure of these markets to
grow at these projected rates or the failure of any other projections or
estimates to be realized may have a material adverse impact on our business and
the market price of our common stock.
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<PAGE> 20
USE OF PROCEEDS
We will receive an estimated $35.3 million in net proceeds from the sale of
the 3,000,000 shares of common stock offered by us in this offering after
deducting the underwriting discount and other estimated offering expenses. We
will not receive any proceeds from the sale of common stock by the selling
shareholders if the underwriters exercise the over-allotment option.
The principal purposes of this offering are to increase our working
capital, to create a public market for our common stock, to facilitate our
future access to the public capital markets, and to increase our visibility in
the online recruiting marketplace.
We have no current specific plans for the majority of the net proceeds of
this offering, other than to use approximately $1.8 million of the net proceeds
to repay our credit facility with ITC. We currently intend to use the balance of
the net proceeds to:
- expand our sales, advertising and marketing efforts;
- develop strategic relationships; and
- fund working capital and other general corporate purposes.
The amount of funds that we actually use for these purposes may vary
significantly based upon many factors, especially changes to our business plans
and material variances in projected revenue and expenses. Accordingly, our
management will have broad discretion in the application of the net proceeds.
Pending such uses, we intend to invest the net proceeds from this offering in
interest-bearing, investment-grade securities. See "Risk Factors -- Our
management has broad discretion over use of proceeds from this offering and may
fail to use them effectively to grow our business."
The credit facility with ITC provides for advances to us of up to $3.0
million and is payable in full on the closing of this offering. Amounts
outstanding under the credit facility accrue interest at an annual rate of 11%.
We used the funds that we borrowed under this credit facility for working
capital and other general corporate purposes.
DIVIDEND POLICY
In November 1997, our predecessor company made a distribution to a
corporation wholly-owned by one of our principal shareholders in the amount of
$100,000. See "Related Party Transactions." We do not intend to pay any cash
dividends on our common stock in the foreseeable future because we intend to
retain our earnings, if any, to finance our growth and for general corporate
purposes.
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<PAGE> 21
DILUTION
Our net tangible book value at June 30, 1999 was approximately $(407,000),
or $(0.18) per share. Net tangible book value per share represents the amount of
our total tangible assets reduced by the amount of our total liabilities, and
divided by the number of outstanding shares of common stock. After giving effect
to the conversion of all outstanding shares of Class A preferred stock, the sale
of the 3,000,000 shares of common stock offered in this offering and the
application of the net proceeds as set forth under "Use of Proceeds," our pro
forma net tangible book value as of June 30, 1999 would have been approximately
$34.8 million, or $3.28 per share. This represents an immediate increase of
$3.46 in net tangible book value per share to existing shareholders and an
immediate dilution of $9.72 in net tangible book value per share to investors in
this offering. The following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price....................... $13.00
Net tangible book value at June 30, 1999.................. $(0.18)
Increase attributable to new investors.................... 3.46
Pro forma net tangible book value after the offering........ 3.28
------
Dilution per share to new investors......................... $ 9.72
======
</TABLE>
The following table sets forth the number of shares of common stock
purchased from us, the total consideration paid and the average price per share
paid by our existing shareholders and to be paid by new investors in this
offering.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
--------------------- ---------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
----------- ------- ------------ ------- ---------
<S> <C> <C> <C> <C> <C>
Existing shareholders.............. 7,744,500 72.1 $ 6,186,750 13.7 $ 0.80
New investors...................... 3,000,000 27.9 39,000,000 86.3 13.00
----------- --- ------------ ---
Total.............................. 10,744,500 100% $ 45,186,750 100%
=========== === ============ ===
</TABLE>
The above tables assume no exercise of outstanding stock options or
warrants. As of June 30, 1999, we had outstanding options to purchase 892,000
shares of common stock at a weighted average exercise price of $1.25 per share
and an outstanding warrant to purchase 416,667 shares of common stock at an
exercise price of $1.50 per share. To the extent any of these options and
warrants are exercised, new investors will incur further dilution.
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<PAGE> 22
CAPITALIZATION
The following table sets forth our capitalization at June 30, 1999: (1) on
a historical basis and (2) as adjusted to give effect to our sale of 3,000,000
shares of common stock offered in this offering, the conversion of 5,404,500
shares of our Class A preferred stock into our common stock and the application
of the net proceeds from the offering. See "Use of Proceeds." This table should
be read in conjunction with our financial statements and related notes,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the other financial data appearing elsewhere in this prospectus.
<TABLE>
<CAPTION>
JUNE 30, 1999
--------------------------
ACTUAL AS ADJUSTED
----------- -----------
<S> <C> <C>
Short-term borrowings....................................... $ 1,630,000 $ --
Shareholders' equity:
Class A preferred stock, $0.01 par value, 7,500,000 shares
authorized, 5,404,500 shares issued and outstanding
(actual), none outstanding (as adjusted)............... 54,045 --
Class B serial preferred stock, $0.01 par value, 5,000,000
shares authorized, none issued and outstanding......... -- --
Common stock, $0.01 par value, 45,500,000 shares
authorized, 2,340,000 shares issued and outstanding
(actual), 10,744,500 shares issued and outstanding (as
adjusted)(1)........................................... 23,400 107,445
Additional paid-in capital................................ 37,620,688 72,860,688
Accumulated deficit....................................... (32,745,736) (32,745,736)
Stock warrants............................................ 341,834 341,834
Deferred compensation(2).................................. (5,048,316) (5,048,316)
----------- -----------
Total shareholders' equity............................. 245,915 35,515,915
----------- -----------
Total capitalization.............................. $ 1,875,915 $35,515,915
=========== ===========
</TABLE>
- ---------------
(1) Excludes 892,000 shares of common stock that were subject to outstanding
options at June 30, 1999 at a weighted average exercise price of $1.25 per
share and an outstanding warrant to purchase 416,667 shares of common stock
at an exercise price of $1.50 per share.
(2) See note 6 to our financial statements for further information regarding
deferred compensation.
17
<PAGE> 23
SELECTED FINANCIAL DATA
The following table sets forth our selected financial data as of and for our
inception period (October 10, 1995 to December 31, 1995), the year ended
December 31, 1996, the ten months ended October 31, 1997, the two months ended
December 31, 1997 and the year ended December 31, 1998, which have been derived
from the audited financial statements of the predecessor and our audited
financial statements. The selected financial data as of and for the six months
ended June 30, 1998 and 1999 have been derived from our unaudited financial
statements and, in the opinion of our management, include all adjustments,
consisting of normal recurring accruals, necessary for a fair presentation of
such information. Operating results for the six months ended June 30, 1999 are
not necessarily indicative of the results that may be expected for the entire
year. The selected financial data set forth below should be read in conjunction
with "Use of Proceeds," "Management's Discussion and Analysis of Financial
Condition and Results of Operations," our financial statements and related notes
and the other financial data included elsewhere in this prospectus. The weighted
average shares outstanding data does not give effect to the conversion of our
Class A preferred stock into our common stock. Loss per share for the six months
ended June 30, 1999 includes a one-time non-cash charge to accumulated deficit
of approximately $21.7 million for the difference between the fair value and the
conversion price of the loan and security agreement related to conversion of
this instrument from debt to equity in January 1999. This was accounted for as a
distribution to the Class A preferred shareholders and, therefore, an increase
in net loss attributable to common shareholders. See Notes 2 and 3 to our
financial statements for further discussion. As adjusted data reflects our sale
of 3,000,000 shares of common stock offered in this offering, the conversion of
the Class A preferred stock into 5,404,500 shares of our common stock and the
application of the estimated net proceeds from this offering.
<TABLE>
<CAPTION>
PREDECESSOR TO OUR COMPANY OUR COMPANY
----------------------------------------- -------------------------------------------------------
FROM
INCEPTION TEN
(OCTOBER 10, MONTHS TWO MONTHS SIX MONTHS ENDED
1995) TO YEAR ENDED ENDED ENDED YEAR ENDED JUNE 30,
DECEMBER 31, DECEMBER 31, OCTOBER 31, DECEMBER 31, DECEMBER 31, -------------------------
1995 1996 1997 1997 1998 1998 1999
------------ ------------ ----------- ------------ ------------ ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues.................... $50,754 $190,146 $124,437 $ 29,591 $ 1,099,868 $ 278,051 $ 2,412,955
Costs and expenses:
Costs of revenues......... -- -- 29,390 2,906 86,963 37,539 60,255
Marketing and selling..... -- 2,740 23,301 41,123 2,719,330 508,380 2,879,929
General and
administrative.......... 5,073 52,105 95,967 126,268 1,714,756 667,391 1,206,506
Stock compensation
expense................. -- -- -- -- 205,574 32,705 4,550,588
Depreciation and
amortization............ 516 6,842 10,099 41,912 276,706 118,083 198,242
------- -------- -------- --------- ----------- ----------- -----------
Total costs and expenses.... 5,589 61,687 158,757 212,209 5,003,329 1,364,098 8,895,520
------- -------- -------- --------- ----------- ----------- -----------
Operating income (loss)..... 45,165 128,459 (34,320) (182,618) (3,903,461) (1,086,047) (6,482,565)
------- -------- -------- --------- ----------- ----------- -----------
Net income (loss)........... $45,165 $128,623 $(35,163) $(176,392) $(4,345,868) $(1,078,503) $(6,523,480)
======= ======== ======== ========= =========== =========== ===========
LOSS PER SHARE:
Basic and diluted........... $ (0.08) $ (1.98) $ (0.49) $ (12.68)
WEIGHTED AVERAGE SHARES OUTSTANDING:
Basic and diluted........... 2,200,000 2,200,000 2,200,000 2,226,444
</TABLE>
<TABLE>
<CAPTION>
PREDECESSOR TO
OUR COMPANY OUR COMPANY
----------------- -----------------------------------------------------
AT DECEMBER 31, AT DECEMBER 31, AT JUNE 30, 1999
----------------- ------------------------- -------------------------
1995 1996 1997 1998 ACTUAL AS ADJUSTED
------- ------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents........................ $14,326 $25,973 $ 853,989 $ 254,937 $ 202,874 $33,842,874
Working capital (deficit)........................ 31,214 33,706 788,976 (3,446,422) (1,294,844) 33,975,156
Total assets..................................... 43,030 58,550 1,922,915 2,225,180 2,881,114 36,521,114
Total debt, including current maturities......... -- -- -- 3,500,000 1,630,000 --
Total shareholders' equity (deficit)............. 42,865 55,500 1,830,517 (1,967,943) 245,915 35,515,915
</TABLE>
18
<PAGE> 24
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
You should read the following discussion in conjunction with our financial
statements and related notes, and other financial information appearing
elsewhere in this prospectus.
OVERVIEW
We provide online recruiting services to employers, recruiters and job
seekers via our website. HNET, Inc., our predecessor, was founded in October
1995 and was wholly-owned by Warren L. Bare. From its inception until late 1996,
HNET, Inc. derived all of its revenues from web site development consulting
services. As a result of the experience that it gained during this period, HNET,
Inc. identified online recruiting as an emerging industry. It launched the
www.headhunter.net web site in October 1996, and began to focus on growing its
online recruiting service business.
In October 1997, HNET, Inc. entered into an investment agreement with ITC
under which:
- HeadHunters, L.L.C. was formed;
- HNET, Inc. contributed all of its assets related to the operation of the
web site in exchange for a 45% interest in HeadHunters, L.L.C.; and
- ITC contributed $1.1 million in cash in exchange for a 55% interest in
HeadHunters, L.L.C.
This transaction was accounted for as a purchase.
In July 1998, HeadHunters, L.L.C., ITC and Warren L. Bare entered into a
contribution agreement under which:
- HeadHunter.NET, Inc. was incorporated;
- Mr. Bare contributed all of the outstanding stock of HNET, Inc. to us in
exchange for 2,200,000 shares of our common stock and 50,000 shares of
our Class A preferred stock; and
- ITC contributed its 55% interest in HeadHunters, L.L.C. to us in exchange
for 2,750,000 shares of our Class A preferred stock.
This transaction was accounted for in a manner similar to a pooling of interest.
As a result of this transaction, HeadHunters, L.L.C. and HNET, Inc. became our
wholly-owned subsidiaries.
We derive revenue primarily from fees paid by employers and recruiters to
post a job opportunity on our web site and improve the placement of a job
opportunity by purchasing our upgrade service, which elevates the position of a
job opportunity in a search result. See "Business -- Our Services -- Upgrading
Job Opportunities." To a lesser extent, we earn revenue from fees paid by
employers and recruiters for additional services and from the sale of banner
advertisements. Initially, we charged one flat fee for a combination of our
services, although we did not charge employers and recruiters to post job
opportunities on our web site. As a result, revenue was earned principally from
a combination of upgrade fees and the sale of banner advertisements on our web
site, with sales of banner advertising comprising a more significant percentage
of our revenues. We modified our pricing structure effective as of August 1,
1998 and began offering upgrade services on a per job basis. As a result of this
pricing change and the growth of our sales force, revenue from upgrade fees has
continued to grow as a percentage of our revenues.
On June 1, 1999, we began to charge employers and recruiters a fee to post
job opportunities on our web site. Employers and recruiters can post job
opportunities by paying a flat fee of approximately $20 per job opportunity for
a 30-day basic listing. Employers and recruiters who want to improve the
placement of their jobs in a search result in order to increase the visibility
and exposure of their job opportunity can pay an additional fee. Upgrades are
purchased for 30-day periods and start at $25 per job opportunity, with
increases in $25 increments. We generally provide favorable pricing terms to
employers and recruiters that post a significant number of job opportunities. As
a result of the pricing change, the number of job opportunities on our web site
decreased approximately 48% in the month of June. However, revenues
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<PAGE> 25
earned from the remaining jobs posted on the site increased 49% during June as
compared to May. We believe that job posting fees and upgrade fees will account
for a substantial majority of our revenues for the foreseeable future.
We implemented our "VIP Resume Reserve" service in April 1999. We hold all
resumes in our VIP Resume Reserve for seven days before we post them for general
review on our web site. The reserve also contains resumes that job seekers
specifically request to remain in the reserve instead of being posted for
general review. This service allows employers and recruiters to pay a quarterly
or annual subscription fee to access our VIP Resume Reserve.
We record advance billings prior to the delivery of services or the display
of an advertisement as deferred revenues and recognize them as revenue ratably
when the services are provided or the advertisements are displayed. At June 30,
1999, we had approximately $103,777 of deferred revenues.
Our costs and expenses include:
- costs of revenues, consisting of bandwidth access fees, co-location costs
and Internet connection charges;
- marketing and selling expenses, consisting primarily of salaries and
commissions for sales, marketing and customer service personnel,
advertising costs and other marketing-related expenses (including
strategic relationship and product design costs);
- general and administrative expenses, consisting primarily of salaries and
related costs for general corporate functions, including finance and
accounting personnel, software development and technical personnel,
office facilities and fees for professional services; and
- depreciation and amortization, including depreciation of computer and
other equipment and amortization of goodwill.
We have recently made significant changes to our pricing policy.
Accordingly, we have an extremely limited operating history on which you can
base an evaluation of our company. Thus, period-to-period comparisons of our
operating results are not particularly meaningful, and you should not rely on
the results for any period as an indication of our future performance. We have
experienced, and expect to continue to experience, seasonality in our user
traffic, with lower traffic during the summer vacation and year-end holiday
periods. Because our business model is new, we do not know if our results of
operations are subject to seasonal fluctuations. We believe that revenue from
classified advertising and other traditional recruiting services is generally
lower in the months of July, November and December because of vacation periods
and holiday seasons. As the online recruiting market develops, we believe that
we may experience similar seasonal patterns or discover other seasonal patterns.
We have a history of losses and at June 30, 1999, we had an accumulated
deficit of approximately $32.7 million, which includes a one-time non-cash
charge of approximately $21.7 million for the difference between the fair value
and the conversion price of the loan and security agreement related to
conversion of this instrument from debt to equity in January 1999. This was
accounted for as a distribution to the Class A preferred shareholders and,
therefore, an increase in net loss attributable to common shareholders. See
Notes 2 and 3 to our financial statements for further discussion. We expect to
continue to incur losses and negative cash flow for the foreseeable future. In
addition, to foster our planned growth, we expect to continue to significantly
increase our operating expenses in the areas of marketing, sales and technology.
RESULTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1999 COMPARED TO THE SIX MONTHS ENDED JUNE 30, 1998
Revenues. Our revenues increased $2.1 million, or 755%, from $278,000 for
the six months ended June 30, 1998 to $2.4 million for the six months ended June
30, 1999. Revenues from job posting and upgrade fees grew from $76,000 to
approximately $2.1 million. This increase primarily resulted from the
20
<PAGE> 26
pricing change that was implemented on June 1, 1999, the growth of our direct
sales force from five people as of June 30, 1998 to 32 people as of June 30,
1999, and a more aggressive marketing campaign. During the same time frame, our
advertising revenue grew from $202,000 to $364,000. This growth resulted from an
increase in traffic to our web site over the same period last year, which
enabled us to sell more banner advertisements on our web site.
Costs of revenues. Our costs of revenues increased $22,000, or 58%, from
$38,000 for the six months ended June 30, 1998 to $60,000 for the six months
ended June 30, 1999. Costs of revenues increased primarily due to increased
bandwidth access fees, co-location costs and Internet connection charges to
accommodate the growth in user traffic and content on our web site. However, as
a percentage of revenue, our costs of revenues decreased from 14% for the six
months ended June 30, 1998 to 3% for the comparable period in 1999. The decrease
in costs as a percentage of revenues was primarily due to economies of scale.
Marketing and selling expenses. Marketing and selling expenses increased
$2.4 million, or 472%, from $508,000 for the six months ended June 30, 1998 to
$2.9 million for the six months ended June 30, 1999. Marketing expenses
increased $1.3 million, or 382%, from $340,000 for the six months ended June 30,
1998 to $1.6 million for the six months ended June 30, 1999. This increase is
primarily the result of aggressive advertising and marketing campaigns designed
to attract more employers, recruiters and job seekers to our web site. Selling
expenses increased $1.1 million, or 655%, from $168,000 for the six months ended
June 30, 1998 to $1.2 million for the six months ended June 30, 1999. This
increase is primarily due to the addition of 27 direct sales personnel to our
sales force from June 30, 1998 through June 30, 1999, and sales management and
administrative personnel hired to support our sales effort.
General and administrative expenses. General and administrative expenses
increased $533,000, or 80%, from $667,000 for the six months ended June 30, 1998
to $1.2 million for the six months ended June 30, 1999. The increase in these
expenses was primarily due to an increase of $236,000 for salaries, benefits and
other employee-related costs due to the hiring of additional personnel and an
increase of $151,000 for accounting and legal fees related to our year-end audit
and organizational changes. We expect general and administrative expenses to
continue to grow as we hire additional personnel and incur additional expenses
to support the growth of our operations.
Stock compensation expense. Stock compensation expense was $4.6 million
for the six months ended June 30, 1999. During the six months ended June 30,
1999, we sold 271,167 shares of Class A preferred stock and 140,000 shares of
common stock to a group of ten executive officers, key employees and directors
at $1.50 per share and $2.00 per share, respectively. In accordance with
Accounting Principles Board Opinion No. 25, we recognized $3.8 million in
compensation expense related to the difference between the purchase price and
the estimated fair value of the shares of Class A preferred stock and common
stock. Further, we recognized $796,000 of compensation expense in the six months
ended June 30, 1999 related to option grants.
Depreciation and amortization. Depreciation and amortization increased
$80,000, or 68%, from $118,000 for the six months ended June 30, 1998 to
$198,000 for the six months ended June 30, 1999. The increase in depreciation
was primarily the result of the purchase of additional capital equipment. The
amortization expense remained relatively level and relates to goodwill of
approximately $1.0 million created upon the formation of HeadHunters, L.L.C.
RESULTS FOR THE YEAR ENDED DECEMBER 31, 1998; THE TWO MONTHS ENDED DECEMBER 31,
1997; THE TEN MONTHS ENDED OCTOBER 31, 1997; AND THE YEAR ENDED DECEMBER 31,
1996
Revenues. We generated revenues of $1.1 million for the year ended
December 31, 1998, $30,000 for the two months ended December 31, 1997, $124,000
for the ten months ended October 31, 1997 and $190,000 for the year ended
December 31, 1996. Our revenues consisted of upgrade fees of $462,000, $14,000,
$42,000, and $0, banner advertising sales of $661,000, $16,000, $9,000 and $0,
and consulting revenues of $0, $0, $52,000 and $184,000, respectively for such
periods. The increase in revenues from upgrade fees and sales of banner
advertising and the corresponding decrease in consulting revenues from
21
<PAGE> 27
1996 through 1998 resulted primarily from the change from a web site development
consulting business to an online recruiting business which commenced with the
launch of our web site in October 1996. Our predecessor company generated
revenues primarily from providing consulting services, which we no longer
provide. As a result, we do not believe a comparison of our predecessor
company's operating results to current operations is meaningful.
Costs of revenues. Our costs of revenues were $87,000 for the year ended
December 31, 1998, $3,000 for the two months ended December 31, 1997, $29,000
for the ten months ended October 31, 1997 and $0 for the year ended December 31,
1996. Costs of revenues grew primarily due to increased Internet connectivity
and co-location expenses following the launch of our web site related to growth
in content and traffic on our web site.
Marketing and selling expenses. Our marketing and selling expenses were
$2.7 million for the year ended December 31, 1998, $41,000 for the two months
ended December 31, 1997, $23,000 for the ten months ended October 31, 1997 and
$3,000 for the year ended December 31, 1996. The substantial increase in these
expenses beginning in late 1997 relates primarily to the development of our
sales force and increased advertising spending.
General and administrative expenses. Our general and administrative
expenses were $1.7 million for the year ended December 31, 1998, $126,000 for
the two months ended December 31, 1997, $96,000 for the ten months ended October
31, 1997 and $52,000 for the year ended December 31, 1996. The increase in these
expenses in 1998 from prior periods was primarily due to our hiring of
additional personnel and accounting and professional fees incurred in connection
with our previously contemplated initial public offering.
Depreciation and amortization. Our depreciation and amortization expenses
were $277,000 for the year ended December 31, 1998, $42,000 for the two months
ended December 31, 1997, $10,000 for the ten months ended October 31, 1997 and
$7,000 for the year ended December 31, 1996. The increase in depreciation
expense in 1998 and the two months ended December 31, 1997 was primarily the
result of our purchase of additional capital equipment, and the increase in
amortization expense in such periods primarily relates to goodwill of
approximately $1.0 million created upon the formation of HeadHunters, L.L.C.
Other income (expense). Other income (expense) was $(442,000) for the year
ended December 31, 1998, $6,000 for the two months ended December 31, 1997,
$(800) for the ten months ended October 31, 1997 and $200 for the year ended
December 31, 1996. The increase in other loss in 1998 was primarily the result
of increased interest expense related to the warrant issued to ITC and increased
outstanding balance under the credit facility with ITC.
22
<PAGE> 28
QUARTERLY RESULTS OF OPERATIONS
The following table sets forth unaudited statement of operations data for
our six most recent quarters. This quarterly information has been derived from
our unaudited financial statements and, in the opinion of management, includes
all adjustments, consisting only of normal recurring adjustments, necessary for
a fair presentation of the information for the periods covered. The quarterly
data should be read in conjunction with our financial statements and related
notes. The operating results for any quarter are not necessarily indicative of
the operating results for any future period.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
--------------------------------------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, MARCH 31, JUNE 30,
STATEMENT OF OPERATIONS DATA: 1998 1998 1998 1998 1999 1999
- ----------------------------- --------- --------- ------------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Revenues................... $ 79,569 $ 198,482 $ 392,577 $ 429,240 $ 828,027 $ 1,584,928
Costs and expenses:
Costs of revenues........ 18,220 19,319 26,201 23,223 25,433 34,822
Marketing and selling.... 158,549 349,831 1,220,301 990,649 1,232,352 1,647,577
General and
administrative......... 189,018 478,373 687,851 359,514 492,270 714,236
Stock compensation
expense................ -- 32,705 95,113 77,756 2,861,676 1,688,912
Depreciation and
amortization........... 55,080 63,003 74,062 84,561 88,895 109,347
--------- --------- ----------- ----------- ----------- -----------
Total costs and expenses... 420,867 943,231 2,103,528 1,535,703 4,700,626 4,194,894
--------- --------- ----------- ----------- ----------- -----------
Operating loss............. (341,298) (744,749) (1,710,951) (1,106,463) (3,872,599) (2,609,966)
Other income (expense)..... 7,533 11 (165,683) (284,268) (9,423) (31,492)
--------- --------- ----------- ----------- ----------- -----------
Net loss................... $(333,765) $(744,738) $(1,876,634) $(1,390,731) $(3,882,022) $(2,641,458)
========= ========= =========== =========== =========== ===========
</TABLE>
Our quarterly revenue and results of operations may fluctuate significantly
from quarter to quarter, which may cause the price of our common stock to fall
substantially if they do not match the expectations of investors or securities
analysts. Factors which may cause these fluctuations include:
- changes in the demand for our service offerings;
- the cancellation of significant numbers of customer accounts;
- changes in our pricing policies or those of our competitors;
- the introduction of additional, or enhancement of existing, service
offerings by us or our competitors;
- seasonal trends in user traffic;
- the hiring cycles of employers; and
- the impact of acquisitions of businesses or technologies.
LIQUIDITY AND CAPITAL RESOURCES
From our inception until November 1997, we financed our operations
primarily through revenue generated from providing web site development
consulting services. Since November 1997, we have financed our operations and
capital needs principally from an equity investment by and borrowings from ITC.
In January 1999, we agreed to convert $3.5 million of outstanding principal
under a revolving credit facility with ITC into 2,333,333 shares of our Class A
preferred stock and terminated that credit facility. At that time, we also paid
in cash approximately $100,100 of accrued and unpaid interest under the
facility. On January 28, 1999, we entered into another loan and security
agreement with ITC under which ITC provides a revolving line of credit of up to
$3.0 million. As of June 30, 1999, the outstanding balance borrowed against the
line of credit facility was $1.6 million, with remaining available borrowings of
$1.4
23
<PAGE> 29
million. All outstanding amounts under this new facility will be repaid at the
closing of this offering and the facility will terminate. See "Use of Proceeds."
In addition, during the quarter ended March 31, 1999, some of our officers and
directors purchased approximately $400,000 of our Class A preferred stock, and
during the quarter ended June 30, 1999, some of our officers and directors
purchased approximately $280,000 of our common stock. As of June 30, 1999, we
had approximately $203,000 in cash.
Net cash used in operating activities was $2.0 million for the six months
ended June 30, 1999 and $3.6 million for the year ended December 31, 1998. Net
cash used in operating activities primarily consisted of the net loss for the
periods and increases in accounts receivable.
Capital expenditures were approximately $393,000 for the six months ended
June 30, 1999 and $434,000 for the year ended December 31, 1998. The majority of
the capital purchases relate to telecommunications and computer equipment to
build our network infrastructure and office furniture to accommodate our
increased personnel. We currently have no material commitments for capital
expenditures other than in the ordinary course of business.
We have incurred losses and negative cash flows from operations since
inception as a result of efforts to build out our network infrastructure,
increase staffing, and develop our systems. We currently estimate that our
working capital generated from operations and the net proceeds of the offering
will be sufficient to meet our anticipated operating and capital expenditure
needs for at least the next 12 months. After this period of time, we may need to
seek to raise additional funds through borrowings or the issuance of equity or
debt securities.
Our ability to grow will depend in part on our ability to expand and
improve our Internet operations, the effectiveness of our sales and marketing
efforts, and our customer support capabilities. We may need to raise additional
funds in order to take advantage of new opportunities, to react to unforeseen
difficulties or to otherwise respond to competitive pressures. If we raise
additional funds by issuing equity or convertible debt securities, the
percentage ownership of our existing shareholders will be reduced, shareholders
may experience additional dilution, and such securities may have rights,
preferences or privileges senior to those of our common stock.
YEAR 2000 READINESS DISCLOSURE
The year 2000 issue refers to the potential failures that computer systems
may incur as a result of the date change from 1999 to 2000, such as the
inability of such computer systems to properly recognize date-sensitive data
resulting in the creation of erroneous information or system failure. These
problems generally arise from the fact that most computer hardware and software
has historically used only two digits to identify the year in a date, often
meaning that the computer will recognize a code of "00" as the year 1900 rather
than the year 2000.
Our business could suffer if the systems on which we depend to conduct our
operations are not year 2000 ready. Our potential areas of exposure include:
- information technology, including computers, software and systems that we
have developed internally or purchased or licensed from third parties,
such as our billing system and accounts receivable system, and software
that manages our web site content and usage;
- non-information technology, including telephone systems and other
equipment that we use internally; and
- external, third party systems, particularly the systems that comprise the
Internet and those products and services that allow our users to access
the Internet.
If our production and operational systems that support our web site are not
year 2000 ready by December 31, 1999, our services may become unavailable to
visitors to our web site.
24
<PAGE> 30
State of Readiness
To address our year 2000 issues we have formed a Program Office consisting
of three members, which has overall responsibility and authority for our year
2000 plan and which reports periodically to our board of directors about our
progress towards achieving year 2000 readiness.
Our overall plan to achieve year 2000 readiness includes the following
phases with respect to our information technology and non-information technology
systems:
- assessment of repair requirements, which includes creating awareness of
the issue throughout our company and assessment of all systems,
significant business processes and external interfaces and dependencies;
- remediation, which includes updating or modifying systems which are
identified as critical to our efforts to become year 2000 ready;
- testing of systems which have been altered or replaced as part of our
efforts to become year 2000 ready; and
- contingency planning.
We have substantially completed our assessment phase, including the
determination of whether the system we were reviewing was:
- internally developed;
- a third party system critical to our operations; or
- a non-critical system or piece of software or hardware.
We believe that we are approximately 80% complete with the remediation
phase of our plan with respect to our critical internal information technology
systems, and 50% complete with respect to our non-critical information
technology systems and non-information technology systems. We consider any
information technology systems to be "critical" if the failure of such system
would result in a significant portion of our users being unable to access our
web site, or prevent us from billing customers. We currently expect to
substantially complete our remediation efforts regarding all of our systems by
the end of the third quarter of 1999.
We have made a substantial start with the testing phase of our year 2000
plan, but estimate that we are less than 50% complete with all testing that we
intend to conduct with respect to all of our critical information technology and
non-information technology systems. We currently anticipate that we will
complete our testing phase with respect to all of our critical information
technology and non-information technology systems prior to October 31, 1999.
During the course of our year 2000 plan, we reviewed publicly available
disclosures and in some cases have requested written certification from the
third parties who provide hardware and software that comprise our critical
information technology systems or who operate third party systems on which we
rely. We are currently evaluating the publicly available information and the
responses we have received so far and, where appropriate, requesting additional
information. Approximately 40% of all of our third party vendors and providers
have indicated that their hardware, software or systems are, or will be, year
2000 ready. We are currently working with some vendors and providers to further
evaluate possible year 2000 readiness issues and to determine the expected
completion dates of their year 2000 readiness plans. Some examples of the types
of critical third party vendors and providers are companies that host our
servers and companies that provide us with connections to the Internet. If any
of these critical third party vendors or providers fail to address timely any
year 2000 issue, we could lose our connection to the Internet, or our users
could have reduced access to our web site.
In general, we are vulnerable to a significant supplier's or vendor's
inability to remedy its own year 2000 issues. We cannot assure you that the
components of our information technology systems provided by third parties, or
the external third party systems on which we rely, will be year 2000 ready in a
timely manner.
25
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We have not entered into any material contracts with external contractors
to complete our year 2000 plan. We expect to engage consultants to assist our
efforts in the remediation, testing and contingency planning phases of our year
2000 plan.
Costs
At June 30, 1999, we had incurred approximately $6,900 in costs associated
with the year 2000 issue and the implementation of our year 2000 plan. We expect
that we will incur at least $300,000 in additional year 2000 expenses during the
remainder of 1999, of which approximately $190,000 will be used to purchase
back-up servers, software and other equipment and $20,000 will be paid to a
consultant that we intend to engage in the third quarter of 1999.
To date, we have not incurred any material expenses in connection with our
assessment, remediation or testing of our program to achieve year 2000
readiness. We expense as incurred all costs associated with our year 2000
compliance program.
Risks
Our failure to correct a material year 2000 problem could result in an
interruption in, or a failure of, normal business activities or operations.
Presently, however, we perceive that our most reasonably likely worst case
scenario related to the year 2000 is associated with potential concerns with
third party services or products.
In order for users to access our web site through the Internet, we are
dependent upon Internet service providers, providers of telecommunication and
data services, government agencies, utility companies, and other third party
service providers over which we can assert little control. If any of these
entities fail to correct their year 2000 issues, our users may be unable to
access our web site, and our operations would suffer. We also have not
identified any business activity that we believe will suffer a material
disruption as a result of a year 2000 related event. See "Risk Factors -- We
face risks related to year 2000 failures, which could increase our liabilities
or expenses."
Contingency Plans
We are currently developing and reviewing our contingency plans with
respect to our critical information technology and non-information technology
systems. As part of our contingency plans we expect to implement redundant
systems for our critical information technology systems. We do not currently
have a contingency plan to deal with what we reasonably believe will be our most
likely worst case scenario. We intend to complete development of our contingency
plans by the end of the third quarter of 1999. As noted above, we have not
identified any specific business activity that we believe will be materially at
risk of significant year 2000 related disruptions. As we identify specific risks
to our operations, we plan to develop contingency plans to address such risks.
The estimates and conclusions included in this discussion contain
forward-looking statements and are based on our management's best estimates of
future events. Our expectations about risks, future costs and the timely
completion of our required year 2000 modifications may turn out to be incorrect
and any variance from these expectations could cause actual results to differ
materially from our above discussion. Factors that could influence risks, amount
of future costs and the effective timing of remediation efforts include our
success in identifying and correcting potential year 2000 issues and the ability
of third parties to address their year 2000 issues. The discussion above is a
"Year 2000 Readiness Disclosure" as defined in the Year 2000 Information and
Readiness Disclosure Act of 1998, however, compliance with this act does not
preclude any claims against us that arise under the federal securities laws.
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QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISKS
We believe our exposure to market risks is immaterial. We hold no market
risk sensitive instruments for trading purposes. At present, we do not employ
any derivative financial instruments, other financial instruments or derivative
commodity instruments to hedge any market risks and we do not currently plan to
employ them in the future.
RECENT ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board has issued Statement No. 133,
Accounting for Derivative Instruments and Hedging Activities, which must be
adopted by the year 2000. This statement establishes accounting and reporting
standards for derivative instruments -- including derivative instruments
embedded in other contracts -- and for hedging activities. Adoption of this
statement is not expected to have a material impact on our financial statements.
In March 1998, the American Institute of Certified Public Accountants
issued Statement of Position No. 98-1, Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use. This statement requires
capitalization of costs of internal-use software. Adoption of this statement is
not expected to have a material impact on our financial statements.
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BUSINESS
OVERVIEW OF OUR BUSINESS
We provide a leading online recruiting service to employers, recruiters,
and job seekers via our web site at www.headhunter.net. Through our service,
employers and recruiters advertise job opportunities and review resumes online,
and job seekers identify, research and evaluate a broad range of job
opportunities online.
THE MARKET OPPORTUNITY FOR ONLINE RECRUITING
Based on data from interbiznet.com's 1999 Electronic Recruiting Index, we
estimate that businesses in the United States spent approximately $11 billion on
recruitment advertising during 1997. We believe that factors such as the
increasing labor shortage and employee turnover are forcing employers to
increase spending for recruiting efforts in order to maintain and grow their
workforce.
The Internet has emerged as a global mass communications medium enabling
millions of people worldwide to share information, communicate and conduct
business electronically. Forrester Research projects that the number of U.S.
households with Internet access will grow from 24.5 million at the beginning of
1998 to 52.8 million by the end of 2003. This growth is a result of several
factors, including the continued increase in personal computer use in the home
and at the office, the development of easier and faster ways to access the
Internet, and the increase in information, services and capabilities provided on
the Internet.
We believe that the demand for recruiting services generally, coupled with
the rapid increase in online users, has made the Internet an attractive medium
for online recruiting. Forrester Research estimates that the size of the online
recruiting market will increase from $105 million in 1998 to $1.7 billion by
2003. We believe that online recruiting has a number of advantages over
traditional means of recruiting and job searching because it:
- is interactive, allowing immediate links to additional information;
- provides information about local and geographically dispersed job seekers
and job opportunities;
- allows employers, recruiters and job seekers to conduct more focused
searches;
- allows employers, recruiters and job seekers to research and gather
information anonymously;
- is more cost-effective; and
- is accessible at any time by employers, recruiters and job seekers.
As Internet usage becomes more widespread, we expect companies from a broad
range of industries to increase their online recruiting efforts. As the demand
for online recruiting services expands, we believe employers and recruiters will
increasingly deploy their online recruiting efforts in the most efficient manner
possible. Currently, employers and recruiters advertising job opportunities
across several geographic regions or industries are likely to post these job
opportunities on multiple recruiting web sites. Each web site offers these
employers or recruiters different services and varying degrees of control to
manage their online recruiting. As a result, they must spend significant time
and resources to manage numerous relationships and understand various
technologies and posting processes. We believe that employers and recruiters
will increasingly utilize those online recruiting services that enable them to
access a large number of job seekers and exercise a high degree of control over
the exposure of their job opportunities.
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THE HEADHUNTER.NET SOLUTION
We believe that we provide a superior online recruiting service to
employers, recruiters and job seekers by providing them a wide array of
benefits. These include the following:
A Large Number of Qualified Job Seekers. We believe that employers and
recruiters consider access to a large number of qualified job seekers a critical
factor in determining which online recruiting service to use. Our online
recruiting service attracts a large number of job seekers. During June 1999,
based on data we compiled from our server log files, our web site averaged over
100,000 users and more than 1.2 million page views per business day. We analyze
our server log files daily to determine the number of users and pages viewed on
our web site.
Based on data compiled by interbiznet.com in its 1999 Electronic Recruiting
Index, our web site ranked first in "Quality of Resumes Generated" among
recruiting web sites that feature job opportunities from multiple industries. In
addition, based on Media Metrix statistics for June 1999, our web site rated
first in terms of average unique pages viewed per user and average minutes spent
per user on the site, and was tied for first with Monster.com in terms of return
traffic, when compared to web sites that feature job opportunities from multiple
industries. Media Metrix calculates the number of users on a web site by
monitoring the monthly activity of selected user groups and expanding the
results across the number of potential users.
Our log file statistics referred to above are not comparable to statistics
provided by Media Metrix. We believe log file analysis results in more accurate
statistics regarding actual user traffic on a web site, because the Media Metrix
sample method does not account for return users during the month, international
traffic, or browser caching from America Online users. Generally, the Internet
industry uses Media Metrix statistics to compare user traffic among comparable
web sites because those statistics allow a more relative comparison than
individual log file data.
Employers and Recruiters Can Improve the Placement and Increase Exposure of
Their Job Opportunities. Due to the breadth of job opportunities posted on our
web site, a single focused job search can return numerous job opportunities on
several pages. In order to enhance the visibility of their job opportunities, we
enable employers and recruiters to improve their placement in a search result by
purchasing upgrades. We list job postings in a search result according to the
amount of upgrade fees paid for each job opportunity. The higher the upgrade fee
paid for a job opportunity, the closer to the top of the list it appears in a
search result. Our data shows that job seekers view upgraded job opportunities
more than twice as often as those not upgraded. These upgrades are purchased in
30-day increments for an additional fee and can be increased at any time. We
believe these upgrade services provide employers and recruiters with a high
degree of flexibility to manage their online recruiting needs.
Employers and Recruiters Can Track, Measure and Analyze Results of Their
Online Recruiting Efforts. We provide employers and recruiters with information
in their monthly billing statement regarding the number of times (1) each of
their job opportunities was retrieved by a job search, (2) the page containing
each of their job opportunities was viewed, (3) job seekers viewed more
information online about their job opportunities, and (4) job seekers responded
online to their job opportunities. Employers and recruiters may also access
current information through our web site regarding click-throughs and responses
and can use this information to frequently evaluate the results of each job
opportunity posted and to better manage their online recruiting needs.
Breadth of Job Opportunities Available on Our Web Site. We enable
employers, recruiters and job seekers to fulfill their recruiting and job search
needs through a single web site. Our web site provides information regarding a
large number of geographically diverse job opportunities representing a wide
variety of industries and occupations. We provide access to job opportunities
posted by recruiters, as well as employers, which increases the breadth of
available job opportunities.
Ease of Use and Functionality of Our Web Site. We make the process of
posting job opportunities and searching for jobs on our web site easy and fast.
Based on data compiled by interbiznet.com, our web site ranked first in terms of
"Ease of Use of the Posting Process" among recruiting web sites that feature
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job opportunities from multiple industries. Employers and recruiters can post
job opportunities and instantly update them online, eliminating delays
associated with paperwork and telephone or facsimile confirmations. This allows
employers and recruiters to better manage their online recruiting needs because
they can post job opportunities quickly and adjust them at any time.
Advanced Search Capabilities On Our Web Site. We believe we provide
employers, recruiters and job seekers with the most extensive searching
capabilities in the online recruiting industry, allowing them to conduct more
efficient and focused searches. Employers and recruiters can search resumes and
job seekers can search job opportunities using a wide array of search criteria
including keyword, job type, education, geographic location and compensation.
OUR GROWTH STRATEGY
Our objective is to be the leading provider of online recruiting services
to employers and recruiters. The key elements of our strategy to accomplish this
objective include the following:
Increase Awareness of the HeadHunter.NET Brand. We plan to increase
awareness of the HeadHunter.NET brand through an aggressive marketing campaign
that combines online and traditional advertising, direct marketing and strategic
relationships. Building the HeadHunter.NET brand is important to our success
because we believe it will increase the number of job seekers using our online
recruiting service and, as a result, we believe that employers and recruiters
will be more willing to use our services. We also believe that increasing the
awareness of our brand among employers and recruiters will increase the
effectiveness of our sales efforts. We plan to use a significant portion of the
proceeds from this offering to support our branding efforts.
Aggressively Expand Our Sales Force. We plan to rapidly expand our direct
sales and telesales efforts by increasing the size of our existing sales force
in Atlanta and Chicago and opening additional sales offices in major
metropolitan areas, such as Boston, Dallas, Los Angeles, New York City, San
Francisco and Washington, D.C., in order to further penetrate those markets. We
believe that local market presence gives us a better understanding of that
market's particular recruiting needs.
Enhance Web Site Functionality. We believe that our web site currently
provides an easy, efficient and cost-effective method of conducting online
recruiting. Employers and recruiters can post job opportunities and update or
change them in real-time. We intend to add enhancements that increase the
functionality of our web site for employers and recruiters. Additionally, we
intend to enhance the design and functionality of our web site so that job
seekers can conduct faster, more focused and more accurate searches.
Develop Alternative Channels of Distribution Through Strategic
Relationships. We have entered into and continuously evaluate strategic
relationships as a means to increase traffic to our web site, enhance visibility
of job opportunities, increase awareness of the HeadHunter.NET brand, and
provide marketing and promotional opportunities. For example, we plan to
establish strategic relationships with industry specific web sites.
Pursue Strategic Acquisitions of Complementary Businesses and
Technologies. We plan to evaluate possible acquisitions of complementary
businesses, products and technologies. We will explore acquisition or investment
opportunities if we believe they will enable us to accelerate our growth, add
new content, develop new technologies or penetrate new markets. We do not
currently have any commitments or understandings for any acquisitions or
investments.
OUR SERVICES
We offer three paid services, which enable employers and recruiters to: (1)
post job opportunities; (2) upgrade job postings; and (3) access recently
submitted or reserved resumes. We also allow job seekers to post their resumes
and access our database of job opportunities free of charge.
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Services to Employers and Recruiters.
Posting Job Opportunities. Employers and recruiters post job opportunities
on our web site for a minimum of 30 days. They can post job opportunities and
instantly update, change or remove them online without delay. Each job posting
is available to the large number of qualified job seekers who use our web site
and is also cross-posted to other web sites with which we have relationships.
Employers and recruiters who post job opportunities with us can access
statistics online regarding the number of times users viewed additional
information online about each job opportunity and the number of online responses
to each job opportunity. Employers and recruiters use this information to
quickly evaluate the results of any posted job opportunity. They can also
receive online applications from job seekers who respond to job opportunities
posted on our web site.
Upgrading Job Opportunities. Due to the breadth of job opportunities on
our web site, a single focused job search can return numerous job opportunities
on several pages. In order to enhance the visibility of their job opportunities,
we enable employers and recruiters to improve their placement in a search result
by purchasing upgrades. We list job postings in a search result according to the
amount of upgrade fees paid for each job opportunity. The higher the upgrade fee
paid for a job opportunity, the closer it appears to the top of the list in a
search result. Our data shows that job seekers view upgraded job opportunities
more than twice as often as those not upgraded. These upgrades are purchased in
30-day increments for an additional fee and can be increased at any time. We
believe this service provides employers and recruiters with a high degree of
flexibility to manage their online recruiting needs.
VIP Resume Reserve. We hold all resumes in our VIP Resume Reserve for
seven days before we post them for general review on our web site. The reserve
also contains resumes that job seekers specifically request to remain in the
reserve instead of being posted for general review. Employers and recruiters can
purchase access to our VIP Resume Reserve for periods of three months or one
year for an additional fee.
Account Options for Employers and Recruiters.
Employers and recruiters can purchase our services through one of the
following accounts:
- EaseEPost. EaseEPost allows employers and recruiters immediate access to
any of our services online using a credit card. This completely automated
account is designed for employers and recruiters with occasional
recruiting needs. Employers and recruiters pay a monthly fee for job
postings and upgrades, and an annual or quarterly fee for access to the
VIP Resume Reserve.
- Reach Hire. Reach Hire provides employers and recruiters with a package
of services tailored to meet their needs. This service is designed for
employers and recruiters that regularly post multiple job opportunities
on our web site. Reach Hire participants receive monthly billing
statements containing statistical information that they can use to track
and measure the success of their online recruiting efforts. In addition,
we provide Reach Hire participants with a link from their job posting to
their web site, so that job seekers can easily click-through for more
information about them. Employers and recruiters using this service may
also establish company profiles containing key information about them,
which job seekers may access from a job posting. Through our Reach Hire
service, employers and recruiters can also establish job banks listing
all of their job opportunities posted on our web site. In addition, they
can automatically post a large number of job opportunities on our web
site at one time. Reach Hire participants pay a negotiated monthly fee
for the package of services they choose.
Services to Job Seekers.
Job seekers may post their resumes and conduct searches free of charge. We
believe this attracts a large number of job seekers who explore, evaluate and
compare job opportunities on our web site, making our web site a valuable tool
for employers and recruiters to reach job seekers. Job seekers can also request
that we hold their resume in the VIP Resume Reserve to be viewed only by those
employers and recruiters who choose to purchase that service. We offer an online
monthly newsletter called CareerBytes, which provides online career advice and
information for job seekers.
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OUR CUSTOMERS
Our customers are employers and recruiters who have a large number of
geographically dispersed job opportunities representing a wide variety of
industries and occupations. At June 30, 1999, over 4,200 employers and
recruiters were paying for our online recruiting services. Our customers have
month-to-month accounts and typically do not sign long-term agreements for our
services. No single customer accounts for 5% or more of our revenues.
OUR SALES FORCE AND SUPPORT SERVICES
As of June 30, 1999, we employed 32 full-time sales personnel located in
Atlanta and Chicago. We plan to rapidly expand our direct sales and telesales
efforts by increasing the size of our existing sales force in Atlanta and
Chicago and opening additional sales offices in major metropolitan areas, such
as Boston, Dallas, Los Angeles, New York City, San Francisco and Washington,
D.C., in order to further penetrate those markets.
Our sales force engages in a blend of direct sales and telesales to reach
prospective employers and recruiters. We work closely with employers and
recruiters in order to customize service packages to meet their online
recruiting needs. By taking a consultative approach, we believe that we are able
to build and maintain stronger relationships with the employers and recruiters
that utilize our services. The majority of our sales to date have been through
telesales. Telesales is an effective sales method because our sales
representatives and prospective customers can simultaneously view our web site
while our sales representatives explain and demonstrate its use and features.
Because we believe that local market presence gives us a better understanding of
that market's particular recruiting needs, we plan to place a greater emphasis
on direct sales as we increase the number of our sales personnel and open new
sales offices.
We believe that one of the most important services our sales personnel
provides to employers and recruiters is ongoing consulting services. Our sales
staff consults regularly with employers and recruiters to customize our service
offerings to meet their recruiting needs. We compensate our sales personnel for
maintaining and expanding relationships with the employers and recruiters who
already use our web site.
We believe that our support services are a key component in attracting and
retaining employers, recruiters and job seekers. We solicit questions and
feedback from employers, recruiters and job seekers who use our web site, and
our support staff responds by e-mail to inquiries concerning technical aspects
of our web site and service offerings. We also provide telephone support to
employers and recruiters regarding our service offerings, billing and technical
aspects on our web site.
ADVERTISING AND MARKETING
Our advertising and marketing strategy is designed to establish
www.headhunter.net as the leading recruiting web site. We use multiple channels
to advertise, market and promote our web site, including online advertising,
traditional advertising and direct marketing. We plan to use a significant
portion of the proceeds of this offering to increase our advertising and
marketing efforts through each of these channels. See "Use of Proceeds."
Online Advertising
We advertise online to increase market awareness of the HeadHunter.NET
brand. We advertise on web sites of major Internet content providers, including
America Online, AltaVista, Lycos, Excite and GoTo.com, that enable us to target
potential job seekers and allow them to click-through to www.headhunter.net. We
also purchase keyword targeted banners and permanent buttons or links to our web
site whenever they are available at reasonable rates. Generally, our agreements
to purchase advertising are short-term and we receive a guaranteed number of
banner advertisement impressions for a fixed fee.
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Traditional Advertising
We believe that traditional advertising is also an effective means of
increasing awareness of the HeadHunter.NET brand and attracting employers,
recruiters and job seekers. Our traditional advertising efforts have included:
- advertisements in recruitment magazines, information technology consumer
magazines and specialty newspapers;
- advertisements on billboards and truck and bus exteriors; and
- radio traffic report sponsorships.
Having run successful pilot programs in targeted metropolitan areas, we
plan to expand our billboard advertising and radio traffic report sponsorships
in these and other metropolitan markets later this year. We also plan to run
television advertisements in various markets later this year.
Direct Marketing
Our direct marketing efforts include direct mail, fax and e-mail campaigns
aimed at human resources executives, recruiters and recruitment advertising
agencies. We also publish two monthly newsletters via e-mail, CareerBytes for
job seekers and Hireadigm for employers and recruiters. In addition, we actively
market at trade shows, job seminars and career fairs to reach employers and
recruiters and inform them of the benefits of our web site.
OUR TECHNOLOGY AND WEB SITE MANAGEMENT
We use an internally developed software system that is scalable and
specifically designed to support a high volume of web site traffic and searches,
as well as immediate additions, modifications and deletions of job opportunities
and resumes. We deliver content from our web servers to the Internet via leased
high speed telecommunications lines from Pentium-based servers installed at
multiple locations. We contract co-location services from third party providers.
We maintain location redundancy such that in the event one location experiences
service interruption, the delivery speed of our web site will not be
significantly impacted.
We route requests for information from our web site to the closest server
with available capacity. This architecture balances the user load across diverse
geographic locations and provides fault tolerance. We route requests for
information away from any location that may be suffering from a network outage.
This architecture allows our web site to remain available 24-hours-a-day,
seven-days-a-week. If any server needs routine maintenance, we can temporarily
route requests for information to alternate servers.
We distribute job opportunities and resumes submitted to our web site to
all of our servers simultaneously, using an internally developed proprietary
technology. This technology is essential to maintaining consistency across a
collection of geographically dispersed parallel servers while still providing
employers, recruiters and job seekers with immediate access to new and changing
job opportunities and resumes.
OUR COMPETITION
The market for online recruiting services is relatively new, intensely
competitive and rapidly evolving. There are minimal barriers to entry, and
current and new competitors can launch new web sites and add content at
relatively low costs within relatively short time periods. We expect competition
to persist and intensify and the number of competitors to increase significantly
in the future. We compete against other online recruiting services, such as
Monster.com, HotJobs.com, CareerBuilder.com, Career Path and Career Mosaic, as
well as corporate Internet sites, and not-for-profit web sites operated by
individuals, educational institutions and governments. In addition to this
online competition, we compete against a variety of companies that provide
similar content through one or more media, such as classified advertising, radio
and television. Many of our current and potential competitors, including those
mentioned above, have significantly greater financial, technical and marketing
resources, longer operating histories, better name
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recognition and more experience than we do. Many of our competitors also have
established relationships with employers, recruiters and other job posters.
To compete successfully, we must attract more employers, recruiters and job
seekers, and generate fees. The competitive factors attracting employers,
recruiters and job seekers to our web site include the quality of presentation
and the relevance, timeliness, depth and breadth of recruiting information and
services offered on, and the ease of use of, our web site. The competitive
factors also include, among others, the fees charged to list job opportunities,
the cost of upgrades and other services and the cost and accessibility of
similar services through the Internet or competing media. Our competitors'
services may be sufficiently attractive to employers, recruiters and job seekers
to dissuade them from using our web site. If we are unable to attract a
significant number of employers, recruiters and job seekers to our web site, our
business, financial condition and results of operations will suffer.
GOVERNMENT REGULATION AND LEGAL UNCERTAINTIES
There is an increasing number of laws and regulations pertaining to the
Internet, including laws or regulations relating to user privacy, liability for
information retrieved from or transmitted over the Internet, online content
regulation, user privacy and domain name registration. Moreover, the
applicability to the Internet of existing laws governing issues such as
intellectual property ownership and infringement, copyright, patent, trademark,
trade secret, obscenity, libel, employment and personal privacy is uncertain and
developing. See "Risk Factors -- We may become subject to burdensome government
regulation, which may add additional costs to operating our business on the
Internet or decrease demand for our services."
Privacy Concerns. Government agencies are considering adopting regulations
regarding the collection and use of personal identifying information obtained
from individuals when accessing web sites. While we have implemented and intend
to implement additional programs designed to enhance the protection of the
privacy of its users, these programs may not conform to any regulations adopted
by these agencies. In addition, these regulatory and enforcement efforts may
adversely affect our ability to collect demographic and personal information
from users, which could have an adverse effect on our ability to provide
advertisers with demographic information. The European Union has adopted a
directive that imposes restrictions on the collection and use of personal data.
The directive could impose restrictions that are more stringent than current
Internet privacy standards in the United States. The directive may adversely
affect the activities of businesses that engage in data collection from users in
European Union member countries.
Domain Names. Domain names are the user's Internet "addresses." The
current system for registering, allocating and managing domain names has been
the subject of litigation and of proposed regulatory reform. Although we have
applied to register "HeadHunter.NET" as a trademark, third parties may bring
claims for infringement against us for the use of this trademark. There can be
no assurance that our domain name will not lose its value, or that we will not
have to obtain entirely new domain names in addition to or in lieu of our
current domain names if reform efforts result in a restructuring in the current
system.
Jurisdictions. Due to the global nature of the Internet, it is possible
that, although our transmissions over the Internet originate primarily in
Atlanta, the governments of other states and foreign countries might attempt to
regulate our business activities. In addition, because our service is available
over the Internet in multiple states and foreign countries, these jurisdictions
may require us to qualify to do business as a foreign corporation in each of
these states or foreign countries, which could subject us to taxes and other
regulations.
INTELLECTUAL PROPERTY
Our success and ability to compete depends significantly on our internally
developed proprietary technology and on our brand and marks. We rely upon
trademark, patent and other intellectual property laws, and on confidentiality
and non-disclosure agreements with our employees and third parties to
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establish and protect our proprietary rights. We have obtained a federal
registered mark for "HeadHunters," and we have a pending federal trademark
application for "HeadHunter.NET." We have also made U.S. patent applications on
our proprietary variable pricing program. We cannot assure you that any of our
trademark registrations or patent applications will be approved or granted or,
if granted, that they will not be successfully challenged by others or
invalidated through administrative process or litigation. If our registration of
HeadHunter.NET is not approved or granted due to the prior issuance of
trademarks to third parties or for other reasons, there can be no assurance that
we will be able to enter into arrangements on commercially reasonable terms to
allow us to continue to use that trademark.
In addition, we seek to protect our proprietary rights through the use of
confidentiality agreements with employees, consultants, advisors and others. We
cannot assure you that these agreements will provide adequate protection for our
proprietary rights if there is any unauthorized use or disclosure of our
proprietary information or if our employees, consultants, advisors or others
fail to maintain the confidentiality of our proprietary information. We also
cannot assure you that our proprietary information will not otherwise become
known, or be independently developed, by competitors. See "Risk Factors -- We
may not be able to protect and enforce our intellectual property rights, which
could result in the loss of our rights, loss of business or increased costs."
EMPLOYEES
As of June 30, 1999, we had 78 full-time employees, most of whom are based
at our executive offices. Of these employees, 52 are in sales and marketing, 15
are in technology and operations and 11 are performing general and
administrative functions. None of our employees are represented by a labor union
and we consider our employee relations to be good.
FACILITIES
Our executive offices are located in Norcross, Georgia, at 6410 Atlantic
Boulevard. We believe that our current executive office space will be adequate
for our needs for the remainder of 1999. We are currently evaluating lease
options for additional executive office space to accommodate our needs after
1999. We also sublease office space in Chicago, Illinois, and we plan to
evaluate lease options for additional office space to expand our direct sales
and telephone sales efforts in select major metropolitan markets. See "Related
Party Transactions."
LEGAL PROCEEDINGS
We are not currently a party to any legal proceedings. From time to time,
we may be subject to legal proceedings and claims in the ordinary course of
business. Such claims, even if not meritorious, could result in the expenditure
of significant financial and managerial resources.
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MANAGEMENT
EXECUTIVE OFFICERS, KEY EMPLOYEES AND DIRECTORS
The following table sets forth specific information regarding our executive
officers, key employees and directors as of the date of this prospectus:
<TABLE>
<CAPTION>
NAME AGE CLASS(1) POSITION
- ---- --- --------- --------
<S> <C> <C> <C>
William H. Scott, III(2)............. 52 III Chairman of the Board and Director
Robert M. Montgomery, Jr............. 41 I President, Chief Executive Officer and
Director
Warren L. Bare....................... 34 III Vice Chairman of the Board and Director
Mark W. Partin....................... 31 -- Chief Financial Officer and Assistant
Secretary
Judith G. Hackett.................... 39 -- Senior Vice President -- Marketing
James R. Canfield.................... 40 -- Vice President of Sales
C. Eric Presley...................... 32 -- Vice President of Technology
Mark W. Fouraker..................... 37 -- Vice President of Operations
Burton B. Goldstein, Jr.(2)(3)....... 51 I Director
Donald W. Weber(3)................... 62 II Director
J. Douglas Cox(3).................... 48 II Director
Michael G. Misikoff(2)............... 46 I Director
Kimberley E. Thompson................ 41 II Director and Secretary
</TABLE>
- ---------------
(1) Class II term expires at the annual meeting of shareholders in 2000, Class
III term expires at the annual meeting of shareholders in 2001, and Class I
term expires at the annual meeting of shareholders in 2002.
(2) Member of the Compensation Committee.
(3) Member of the Audit Committee.
William H. Scott, III has served as a director of HeadHunter.NET since
October 1997 and became Chairman of the board of directors in July 1998. Since
December 1991, Mr. Scott has served as President of ITC Holding Company, Inc., a
diversified telecommunications and technology holding company and principal
shareholder of HeadHunter.NET, and has served on its board of directors since
May 1989. Mr. Scott serves as a director of Powertel, Inc., a wireless
telecommunications services company; KNOLOGY Holdings, Inc., a broadband
telecommunications services provider; Mindspring Enterprises, Inc., an Internet
service provider; ITC'DeltaCom, Inc., a regional telecommunications services
provider; Innotrac Corporation, a provider of customized technology-based
marketing and support services; and nFront, Inc., a provider of full-service
Internet banking solutions for community banks.
Robert M. Montgomery, Jr. has served as a director of HeadHunter.NET since
January 1998, our President since January 1999 and our Chief Executive Officer
since March 1999. Since 1992, Mr. Montgomery has served as a Vice President of
ITC Holding Company, Inc. In 1991, Mr. Montgomery founded InterCall, Inc., a
teleconferencing company and a wholly-owned subsidiary of ITC Holding Company,
Inc., and served as its President and Chief Executive Officer until April 1999.
From 1993 to April 1999, Mr. Montgomery has served as Chairman of the Board and
a director of InterCall's United Kingdom division. From 1986 to 1991, Mr.
Montgomery served in various capacities with Telecom USA (which was purchased by
MCI Communications Corp.), including President of the Conference Calling
Division. Currently, Mr. Montgomery serves as a director of InterCall, Inc.
Warren L. Bare founded HeadHunter.NET in October 1995 and has served as a
member of our board of directors since inception. Mr. Bare has served as our
Vice Chairman of the board since March 1999 and currently serves as a consultant
to HeadHunter.NET. From October 1995 to January 1999, Mr. Bare served as our
President and from October 1995 to March 1999, Mr. Bare served as our Chief
Executive Officer. From 1992 to October 1995, Mr. Bare served as the Director of
Technology at United Systems,
36
<PAGE> 42
Inc., an Atlanta-based software development and consulting company. Prior to
1992, Mr. Bare held management and technical positions at Progress Software
Corporation and Computer Advisory Services.
Mark W. Partin has served as our Chief Financial Officer and Assistant
Secretary since May 1999. From 1997 to 1999, Mr. Partin served as Vice President
of Finance at Sunchoice Medical Supply, Inc., a national medical supply company.
From 1995 to 1997, Mr. Partin was controller/director of mergers and
acquisitions for Williams Group International, a diversified holding company.
From 1991 to 1995, Mr. Partin worked in the audit and operational consulting
divisions of Arthur Andersen LLP. Mr. Partin is a certified public accountant.
Judith G. Hackett has served as our Senior Vice President -- Marketing
since May 1998. From 1995 to 1998, Ms. Hackett was the Senior Vice
President -- Advertising and Marketing with TBS Superstation, Inc., a national
cable network. From 1994 to 1995, Ms. Hackett was General Marketing Manager and
Creative Director of a CBS affiliate television station, WOIO in Cleveland, and
from 1988 to 1994 she served as its Creative Services Director while it was part
of the FOX broadcasting network.
James R. Canfield has served as our Vice President of Sales since September
1998. From May 1998 to August 1998, Mr. Canfield served as Vice President of
Sales and Marketing for Abaxis, Inc., a manufacturer of point-of-care blood
analyzers. From December 1994 to May 1998, Mr. Canfield served in various
positions, including Director of Sales, Director of Marketing, Vice President of
Sales and Marketing Idexx Informatics, and Vice President/General Manager Idexx
Veterinary Services at Idexx Laboratories, Inc., a manufacturer and distributor
of animal health diagnostic products. From December 1989 to December 1994, Mr.
Canfield served as Area Manager Microscan Division, Area Vice President Baxter
Diagnostics and Region Vice President Baxter Distribution for Baxter Healthcare
Corporation, a multinational medical products company.
C. Eric Presley has served as our Vice President of Technology since
October 1998. From December 1997 to April 1998, Mr. Presley served as our
Manager of Technology and from April 1998 to October 1998, he served as our
Director of Technology. From 1993 to 1997, Mr. Presley held several positions at
Advance Technology Corporation, a technology solutions provider, including
Senior Consultant and System Architect. From 1988 to 1993, Mr. Presley was Lead
Developer at Northern Telecom Limited, a global communications network solutions
provider.
Mark W. Fouraker has served as our Vice President of Operations since
October 1998. From April 1998 to October 1998, Mr. Fouraker served as our
Director of Operations. In 1989, Mr. Fouraker co-founded Advance Technology
Corporation and, from that time until April 1998, he held several positions
there including Director of Systems Architecture, Vice President of Operations
and Director of Information Technology. From 1988 to 1989, Mr. Fouraker served
as Manager of Technical Services for Canada Dry/ Sunkist, a diversified soft
drink company. From 1985 to 1988, Mr. Fouraker was an Information Systems
Coordinator with the Georgia Institute of Technology.
Burton B. Goldstein, Jr. has served as a director of HeadHunter.NET since
July 1998. Mr. Goldstein is currently President of netWorth Partners, LLC, an
Internet venture capital fund. Mr. Goldstein co-founded Information America,
Inc., an online information services company in 1982, and served as its
President from November 1982 to June 1998. From 1996 until June 1998, Mr.
Goldstein served on the executive committee of West Group, a division of The
Thomson Corporation, an information and publishing company. Mr. Goldstein serves
as a director of Tunes.com. Inc., an online music network.
Donald W. Weber has served as a director of HeadHunter.NET since July 1998.
Since 1997, Mr. Weber has been a consultant and private investor. Since 1995,
Mr. Weber has served as a director of ITC Holding Company, Inc.. From 1993 to
1997, Mr. Weber served as President and Chief Executive Officer of ViewStar
Entertainment Services, Inc., a digital satellite services company. From 1987 to
1991, Mr. Weber held various executive positions, including President and Chief
Executive Officer, at and served as a director of Contel Corporation, a
telecommunications company. Currently, Mr. Weber serves as a director of
Powertel, Inc., Pegasus Communications Corporation, a media and communications
company, KNOLOGY Holdings, Inc., and HIE, Inc., a health care software provider.
37
<PAGE> 43
J. Douglas Cox has served as a director of HeadHunter.NET since October
1997. Since September 1997, Mr. Cox has served as Senior Vice
President -- Corporate Development of ITC Holding Company, Inc. He has also
served as Chief Financial Officer and Vice President (Finance) of ITC Holding
Company, Inc. and several of its subsidiaries beginning in March 1987. From 1980
to 1987, Mr. Cox was a partner in the accounting firm of Cox & Rumsey, Certified
Public Accountants. From 1972 to 1979, Mr. Cox was employed by Arthur Andersen &
Co., specializing in regulated industries.
Michael G. Misikoff has served as a director of HeadHunter.NET since May
1999. Since February 1999, Mr. Misikoff has also served as a consultant to
HeadHunter.NET. From January 1995 to February 1999, Mr. Misikoff served as Vice
President, Chief Financial Officer, Secretary, Treasurer and a director of
Mindspring Enterprises, Inc. From January 1992 to December 1994, Mr. Misikoff
was the acting Chief Financial Officer and a director of InterCall, Inc.
Kimberley E. Thompson has served as a director of HeadHunter.NET and our
Secretary since May 1999. Since September 1997, Ms. Thompson has served as
Senior Vice President, General Counsel and Secretary of ITC Holding Company,
Inc. and from June 1996 to September 1997, she served as its Vice President,
General Counsel and Secretary. From 1989 to 1996, Ms. Thompson was a partner
with Hogan & Hartson L.L.P., a Washington D.C. law firm.
BOARD COMMITTEES
In July 1998, our board of directors established a Compensation Committee
and an Audit Committee. The Compensation Committee reviews and recommends to the
board of directors all compensation and benefit arrangements of our executive
officers and also administers our incentive and stock option plans. The Audit
Committee recommends to the board of directors the engagement of our independent
auditors and reviews and consults with the independent auditors regarding the
scope and results of the audits, our internal accounting controls, audit
practices and the professional services furnished by the independent auditors.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Prior to establishing the Compensation Committee in July 1998, our board of
directors determined executive compensation. Except for Mr. Scott, none of our
executive officers currently serves as a member of the Compensation Committee or
as a director of any entity of which any of our directors serve as an executive
officer. Mr. Scott is a director of ITC for which Mr. Cox and Ms. Thompson are
executive officers. Mr. Montgomery was a member of the Compensation Committee
until April 1999.
DIRECTOR COMPENSATION
Our bylaws allow our board of directors to determine from time to time the
compensation that directors may receive for their services as directors.
However, since inception, our directors have served without compensation, except
for reimbursement of out-of-pocket expenses for each meeting attended.
Concurrently with their respective elections to the board of directors, Messrs.
Scott, Montgomery, Cox, Weber, Goldstein and Misikoff, and Ms. Thompson were
granted options to purchase 10,000 shares of common stock at exercise prices of
$0.40, $0.40, $0.40, $1.40, $1.40, $2.00, and $2.00, respectively. Directors are
eligible to receive options and awards under the HeadHunter.NET, Inc. 1998
Long-Term Incentive Plan.
EXECUTIVE COMPENSATION
The following table sets forth information concerning all cash and non-cash
compensation awarded to, earned by or paid to our Chief Executive Officer and
our three most highly compensated executive officers for services rendered to us
during the year ended December 31, 1998. Except as set forth in the table below,
no other executive officer's salary and bonus exceeded $100,000 during the year
ended December 31, 1998.
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<PAGE> 44
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION ---------------------
--------------------------- SECURITIES UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) OPTIONS(#) COMPENSATION($)
- --------------------------- ---- --------- -------- --------------------- ---------------
<S> <C> <C> <C> <C> <C>
Warren L. Bare(1)................ 1998 $ 75,600 $22,680 -- --
President and Chief Executive
Officer
Kenneth E. Dopher(2)............. 1998 108,157 13,500 100,000 $28,000(5)
Chief Financial Officer and
Secretary
Judith G. Hackett(3)............. 1998 76,564 12,253 50,000 --
Senior Vice
President -- Marketing
James R. Canfield(4)............. 1998 29,167 3,375 100,000 --
Vice President of Sales
</TABLE>
- ---------------
(1) Mr. Bare served as our President from October 1995 to January 1999 and our
Chief Executive Officer from October 1995 to March 1999.
(2) Mr. Dopher served as our Chief Financial Officer and Secretary from January
1998 to May 1999.
(3) Ms. Hackett began serving as our Senior Vice President -- Marketing in May
1998.
(4) Mr. Canfield began serving as our Vice President of Sales in September 1998.
(5) Consists of relocation expenses paid by us.
OPTION GRANTS IN YEAR ENDED DECEMBER 31, 1998
The following table sets forth summary information concerning individual
grants of stock options made during the year ended December 31, 1998 to each of
the executive officers named in the Summary Compensation Table. We granted all
options at the market value on the date of grant as determined by our board of
directors. Amounts reported in the "Potential Realizable Value Rates of Stock
Price Appreciation for Options Terms" columns represent hypothetical amounts
that may be realized on exercise of options immediately prior to the expiration
of their term assuming the specified compounded rates of appreciation of our
common stock over the term of the options. These numbers are calculated based on
rules promulgated by the SEC and do not reflect our estimate of future stock
price growth. Actual gains, if any, on stock option exercises and common stock
holdings are dependent on the timing of such exercises and the future
performance of our common stock. We cannot assure you that we can achieve the
rates of appreciation assumed in this table or that the individuals in this
table will receive the amounts reflected.
<TABLE>
<CAPTION>
PERCENT OF
TOTAL POTENTIAL REALIZABLE
NUMBER OF OPTIONS VALUE RATES OF STOCK
SECURITIES GRANTED TO EXERCISE PRICE APPRECIATION
UNDERLYING EMPLOYEES OR BASE FOR OPTIONS TERMS
OPTIONS IN FISCAL PRICE EXPIRATION ---------------------
NAME GRANTED(#) YEAR ($/SH) DATE 5%($) 10%($)
- ---- ---------- ---------- --------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Warren L. Bare................... -- -- -- -- -- --
Kenneth E. Dopher................ 100,000 19.9% 0.40 01/14/08 1,822,000 2,790,000
Judith G. Hackett................ 50,000 10.0% 1.40 05/21/08 861,000 1,345,000
James R. Canfield................ 100,000 19.9% 1.50 10/22/08 1,712,000 2,680,000
</TABLE>
FISCAL YEAR-END OPTION VALUES
The following table sets forth information regarding the:
- number of unexercised options held by the executive officers named in the
Summary Compensation Table at December 31, 1998; and
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<PAGE> 45
- aggregate dollar value of unexercised options held at December 31, 1998.
The values of the unexercised in-the-money options have been calculated by
subtracting the option exercise price from the assumed initial public offering
price of $13.00 per share, and multiplying that figure by the total number of
exercisable/unexercisable options.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS AT
OPTIONS AT FY END FY-END($)
---------------------------- ----------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Warren L. Bare............................. -- -- -- --
Kenneth E. Dopher.......................... -- 100,000 -- 1,260,000
Judith G. Hackett.......................... -- 50,000 -- 580,000
James R. Canfield.......................... -- 100,000 -- 1,150,000
</TABLE>
EMPLOYMENT AGREEMENTS
We have entered into employment agreements with some of our executive
officers which set forth their initial annual salary and bonus, and provide for
the grant of an option. We have entered into these agreements with Messrs.
Partin and Canfield, and Ms. Hackett under which we have agreed to pay them
initial annual salaries of $95,000, $100,000 and $125,000, respectively. Under
these agreements, Messrs. Partin and Canfield, and Ms. Hackett are eligible for
initial annual bonuses of $20,000, $50,000 and $20,000, respectively. Our board
of directors and Compensation Committee periodically review such salaries and
bonuses and, from time to time, elect to increase an officer's salary or bonus
based on individual performance and our overall performance. None of our
employment agreements contains provisions requiring payments to an officer upon
severance or a change-of-control of our company.
HEADHUNTERS, L.L.C. EMPLOYEE COMMON UNIT OPTION PLAN
We assumed the options that had been granted by HeadHunters, L.L.C. to
purchase its common units under the HeadHunters, L.L.C. Employee Common Unit
Option Plan. Such options have been converted into options to purchase an equal
number of shares of our common stock. The converted options will be administered
by our board of directors or our Compensation Committee substantially in
accordance with the terms of the assumed common unit option plan. As of the date
of this prospectus, 19 persons hold outstanding converted options to purchase a
total of 309,750 shares of our common stock. Ms. Hackett holds a converted
option to purchase 50,000 shares of common stock at an exercise price of $1.40
per share, and Messrs. Scott, Montgomery and Cox each hold a converted option to
purchase 10,000 shares of common stock at an exercise price of $0.40. See
"-- Director Compensation." We do not intend to grant any additional options
pursuant to this plan.
HEADHUNTER.NET, INC. 1998 LONG-TERM INCENTIVE PLAN
On July 15, 1998, our board of directors adopted the HeadHunter.NET, Inc.
1998 Long-Term Incentive Plan and on July 16, 1998, our shareholders approved
this plan. We amended the plan in April 1999 to increase the number of shares
available for issuance under the plan and the shareholders approved such
amendment to the plan in April 1999. We have reserved 1,000,000 shares of common
stock for issuance in connection with options and awards granted under this
plan. We may grant options and awards to our officers and employees, and to our
non-employee directors and consultants after our common stock is listed on the
Nasdaq National Market. As of the date of this prospectus, there are 78 persons
holding outstanding options to purchase 561,750 shares of common stock that we
granted under the incentive plan. The incentive plan authorizes the granting of
awards to eligible participants in the form of:
- options to purchase shares of common stock, which may be incentive stock
options or non-qualified stock options;
- stock appreciation rights;
- performance shares;
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<PAGE> 46
- restricted stock awards;
- dividend equivalents; or
- other stock-based awards.
The incentive plan is administered by our board of directors or the Compensation
Committee in accordance with its terms.
401(K) PLAN
We have established the HeadHunter.NET 401(k) Plan effective April 1, 1999.
The 401(k) plan is intended to qualify under Section 401 of the Internal Revenue
Code so that contributions by employees or by us, and income earned thereon, are
not taxable until withdrawn and so that contributions by us will be deductible
by us when made.
The 401(k) plan provides that each participant may reduce his or her
pre-tax gross compensation by up to 15% (up to a statutorily prescribed annual
limit of $10,000 in 1999) and have that amount contributed to the 401(k) plan.
Employees become eligible to participate in the 401(k) plan after six months of
employment with us. Participants are fully vested in all amounts they contribute
under the 401(k) plan and in the earnings on such amounts.
In addition to the employee salary deferrals described above, the 401(k)
plan permits us to make contributions under the 401(k) plan on behalf of the
participants. These contributions include a discretionary matching contribution
on behalf of participants who make elective deferrals under the plan. For the
1999 plan year, we will match at least 20% of the first 6% of salary deferral
contributions made by each participant. Participants are fully vested
immediately in matching contributions and employer contributions.
Employee participants may elect to invest their accounts under the 401(k)
Plan in various established funds.
41
<PAGE> 47
RELATED PARTY TRANSACTIONS
We believe that all of the following transactions were made on terms no
less favorable to us than could have been obtained from unaffiliated third
parties. All future transactions, including loans, between us and our officers,
directors, principal shareholders and their affiliates will be approved by a
majority, but not fewer than two, of our disinterested directors, and will
continue to be on terms no less favorable to us than could be obtained from
unaffiliated third parties.
In October 1997, HNET, Inc., a corporation wholly-owned by Warren L. Bare,
contributed all of its assets and liabilities related to our web site to
HeadHunters, L.L.C. in exchange for a 45% equity interest, and ITC contributed
$1,100,000 in cash in exchange for a 55% equity interest, under an investment
agreement between Mr. Bare, HNET, Inc. and ITC.
In November 1997, HeadHunters, L.L.C. paid a dividend of $100,000 to a
corporation wholly-owned by Warren L. Bare, which was included in the initial
contribution of cash by ITC to HeadHunters, L.L.C. under the terms of an
investment agreement between Mr. Bare, HNET, Inc. and ITC.
In January 1998, we entered into an arrangement with ITC'DeltaCom, Inc.
under which ITC'DeltaCom, Inc. serves as our Internet service provider and our
local and long-distance telephone services provider. Internet access and
long-distance telephone charges totaled $72,028 for the year ended December 31,
1998. ITC'DeltaCom, Inc. is related to ITC through both common ownership and
board membership. Based on ITC'DeltaCom, Inc.'s publicly-available filings with
the Securities and Exchange Commission, and ITC's web site, eight of the ten
members of ITC's board of directors serve on the nine-member board of directors
of ITC'DeltaCom, Inc. In addition, three directors of ITC each beneficially own
greater than five percent of the outstanding common stock of ITC'DeltaCom, Inc.
See "Management -- Executive Officers, Key Employees and Directors."
On July 15, 1998, HeadHunters, L.L.C., ITC and Mr. Bare entered into a
contribution agreement under which Mr. Bare contributed all of the outstanding
stock of HNET, Inc. to us in exchange for 2,200,000 shares of our common stock
and 50,000 shares of our Class A preferred stock, and ITC contributed its 55%
interest in HeadHunters, L.L.C. to us in exchange for 2,750,000 shares of our
Class A preferred stock. Under this contribution agreement, ITC and Mr. Bare
were also granted registration rights relating to their shares of our Class A
preferred stock and our common stock. Under the contribution agreement, ITC and
Mr. Bare received shares of our Class A preferred stock and our common stock
reflecting the same percentage ownership interests as their direct and indirect
ownership interests in HeadHunters, L.L.C.
On July 16, 1998, we entered into an amended and restated credit facility
with ITC, which was amended in October 1998, under which ITC made available to
us a revolving line of credit of up to $3.5 million until December 31, 1998. In
connection with this credit facility, we issued a warrant to ITC to purchase
416,667 shares of common stock at an exercise price of $1.50 per share. This
warrant vested upon issuance and is exercisable for a term of 10 years. In
January 1999, the outstanding principal of $3.5 million under this credit
facility was converted at a rate of $1.50 per share into 2,333,333 shares of
Class A preferred stock, which were issued to ITC. In January 1999, we paid ITC
in cash the total accrued interest of $100,100 with respect to the credit
facility.
On January 28, 1999, we entered into a loan and security agreement with ITC
pursuant to which ITC made available to us a revolving line of credit of up to
$3.0 million. Principal amounts outstanding under the credit facility bear
interest at an annual rate of 11%. On the closing date of this offering, we will
use a portion of the net proceeds to repay all outstanding principal balance and
interest under this facility, which will then terminate. Assuming this offering
closes on August 31, 1999, we estimate the outstanding amounts under the
facility will be approximately $1.8 million, including interest of approximately
$75,000.
In January 1999, we sold a total of 271,167 shares of Class A preferred
stock at $1.50 per share to James R. Canfield, Kenneth E. Dopher, Mark W.
Fouraker, Judith G. Hackett, Robert M. Montgomery, Jr., C. Eric Presley, Donald
W. Weber and Burton R. Goldstein, Jr., all of whom were directors or officers at
the time of the sale.
42
<PAGE> 48
In February 1999, in connection with Mr. Bare's resignation as our Chief
Executive Officer, we entered into a separation agreement with him. As part of
this agreement, Mr. Bare will remain a consultant to us until March 1, 2001 for
an annual fee of $75,000. If Mr. Bare chooses to discontinue his consulting
services during the term of the agreement, we have agreed to pay him $50,000 a
year until March 1, 2001. Mr. Bare provides consulting services to us with
respect to our network architecture and infrastructure, and software purchasing.
In May 1999, we sold Messrs. Montgomery, Partin and Misikoff 100,000,
20,000 and 20,000 shares of our common stock, respectively, at $2.00 per share.
On June 1, 1999, we entered into a month-to-month arrangement with
InterCall, Inc., a wholly-owned subsidiary of ITC, for office space in Chicago,
Illinois, under which we pay rent of $5,455 per month. Mr. Montgomery is a
director of InterCall, Inc.
\
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<PAGE> 49
PRINCIPAL AND SELLING SHAREHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of our common stock as of the date of this prospectus, and as adjusted
to reflect the sale of our common stock in this offering with respect to: (1)
each of our directors, (2) our Chief Executive Officer, Chief Financial Officer
and each of the executive officers named in the Summary Compensation Table; (3)
all of our executive officers and directors as a group; and (4) each person
known by us to own beneficially more than 5% of our common stock. Warren L. Bare
and the Bare Family Trust will sell up to 450,000 shares of common stock if the
underwriters exercise their over-allotment option. The table assumes full
conversion of the Class A preferred stock prior to and after this offering and
no exercise of the underwriters' over-allotment option.
<TABLE>
<CAPTION>
PERCENTAGE BENEFICIALLY OWNED
SHARES ---------------------------------
NAME BENEFICIALLY OWNED BEFORE OFFERING AFTER OFFERING
- ---- ------------------ --------------- --------------
<S> <C> <C> <C>
ITC Holding Company, Inc.(1)....................... 5,500,000 67.4% 49.3%
ITC Service Company(2)............................. 416,667 5.1 3.7
Warren L. Bare(3).................................. 2,025,000 26.1 18.8
William H. Scott, III(7)........................... 5,500,000 67.4 49.3
Robert M. Montgomery, Jr.(4)....................... 233,333 3.0 2.2
Mark W. Partin..................................... 20,000 * *
Judith G. Hackett.................................. 10,000 * *
James R. Canfield(5)............................... 100,000 1.3 *
J. Douglas Cox(7).................................. 5,500,000 67.4 49.3
Burton B. Goldstein, Jr............................ 16,667 * *
Donald W. Weber(7)................................. 5,520,000 71.3 51.4
Michael G. Misikoff................................ 20,000 * *
Kimberley E. Thompson(7)........................... 5,500,000 67.4 49.3
Kenneth E. Dopher(6)............................... 7,500 * *
All directors and executive officers as a group (11
persons)......................................... 7,945,000 97.0 71.0
</TABLE>
- ---------------
* Less than 1%
(1) ITC's address is 1239 O.G. Skinner Drive, West Point, Georgia 31833.
Includes 416,667 shares of common stock subject to a warrant held by ITC
Service Company, a wholly-owned subsidiary, exercisable within 60 days of
the date of this prospectus.
(2) ITC Service Company's address is 1239 O.G. Skinner Drive, West Point,
Georgia 31833. Consists of 416,667 shares of common stock subject to a
warrant exercisable within 60 days of the date of this prospectus.
(3) Mr. Bare resigned as President in January 1999 and as Chief Executive
Officer in March 1999. Excludes 225,000 shares held by the Bare Family Trust
all of which will be sold to the underwriters if they exercise the
over-allotment option in full. Mr. Bare disclaims beneficial ownership of
the shares held by the Bare Family Trust. Mr. Bare's address is 1430
Boundary Boulevard, Suwanee, Georgia 30024. Mr. Bare has granted the
underwriters an option to purchase up to 225,000 shares to cover
over-allotments. The purchase price for the shares will equal the initial
price of this offering minus the underwriting discount. If the underwriters
exercise the over-allotment option in full, Mr. Bare will beneficially own
1,800,000 shares, or 16.8% of our common stock after this offering.
(4) Includes 33,333 shares subject to options exercisable within 60 days of the
date of this prospectus.
(5) Includes 30,000 shares held in an individual retirement account.
(6) Mr. Dopher resigned as Chief Financial Officer in May 1999.
(7) Includes 5,500,000 shares beneficially owned by ITC, with respect to which
Messrs. Scott, Weber and Cox, and Ms. Thompson, as executive officers and/or
directors of ITC, may be deemed to be the beneficial owner. Messrs. Scott,
Weber and Cox, and Ms. Thompson disclaim beneficial ownership of all such
shares.
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<PAGE> 50
DESCRIPTION OF CAPITAL STOCK
GENERAL
Our authorized capital stock consists of 45,500,000 shares of common stock,
$0.01 par value per share, 7,500,000 shares of Class A preferred stock, $0.01
par value per share, and 5,000,000 shares of Class B serial preferred stock,
$0.01 par value per share.
As of June 30, 1999, we had 2,340,000 shares of common stock outstanding
held by five shareholders of record, 5,404,500 shares of Class A preferred stock
outstanding held by 10 shareholders of record, and no shares of Class B serial
preferred stock outstanding. Upon the closing of this offering, and after giving
effect to the conversion of the Class A preferred stock and the issuance of
shares of common stock in this offering, we will have 10,744,500 shares common
stock outstanding and no shares of Class A preferred stock and Class B serial
preferred stock outstanding.
COMMON STOCK
Holders of common stock are entitled to one vote per share owned of record
on all matters upon which such holders are entitled to vote. Subject to any
preferential rights of holders of Class B serial preferred stock that may
adversely affect the rights, preferences and privileges of holders of common
stock, the holders of common stock are entitled to receive ratably such
dividends as may be declared by our board of directors, in its sole discretion,
out of funds legally available for distribution, and are further entitled to
share ratably in any distribution of our assets, after payment of all of our
debts and other liabilities, upon our liquidation, dissolution or winding up.
The holders of common stock have no preemptive rights, rights to cumulative
voting, rights to redeem such shares or to convert such shares into other
securities of HeadHunter.NET.
There is currently no active trading market for our common stock. We have
applied to list our common stock for quotation on the Nasdaq National Market
under the symbol "HHNT."
PREFERRED STOCK
Class A Preferred Stock. Upon the closing of this offering, each share of
Class A preferred stock will automatically convert into one share of common
stock, and there will be no shares of Class A preferred stock outstanding. Prior
to this offering, holders of Class A preferred stock were entitled to one vote
per share owned of record on all matters upon which such holders are entitled to
vote.
Class B Serial Preferred Stock. Our board of directors has the authority,
without further shareholder approval, to issue up to 5,000,000 shares of Class B
serial preferred stock in one or more series and to fix the relative rights,
preferences, privileges, qualifications, limitations and restrictions of these
shares including dividend rights, dividend rates, conversion rights, voting
rights, terms of redemption, redemption prices, liquidation preferences and the
number of shares constituting any series or the designation of such series. The
issuance of Class B serial preferred stock could have the effect of delaying,
deferring or preventing a change in control of HeadHunter.NET, may discourage
bids for our common stock at a premium over the market price of our common stock
and may adversely affect the market price and the voting and other rights of
holders of our common stock. We have no present plans to issue any shares of
Class B serial preferred stock.
PROVISIONS OF THE ARTICLES OF INCORPORATION, BYLAWS AND GEORGIA LAW REGARDING
SHAREHOLDERS' RIGHTS AND RELATED MATTERS
Shareholders' rights and related matters are governed by the Georgia
Business Corporation Code and our articles of incorporation and bylaws. The
provisions of the articles of incorporation, bylaws and Georgia law summarized
below could have the effect of preventing, hindering, or delaying a change in
control of HeadHunter.NET or a change in management.
45
<PAGE> 51
Classified Board of Directors; Removal of Directors
Our board of directors is divided into three classes of directors, serving
staggered three-year terms. As a result, approximately one-third of our board of
directors will be elected each year. In addition, members of the board of
directors may only be removed for cause and then only at a special meeting of
shareholders called for such purpose by the affirmative vote of at least
two-thirds of the then-outstanding shares of common stock. The classification of
directors, together with the limitation on the removal of directors, and the
ability of the remaining directors to fill any vacancies on the board of
directors, has the effect of making it more difficult for shareholders to change
the composition of the board of directors.
Advance Notice of New Business and Director Nominations
Our bylaws provide that any shareholder proposals or director nominations
must be provided to us in writing at least 120 days before the date of an annual
meeting of shareholders or, in the case of a special meeting of shareholders,
within 10 days after notice of such special shareholders' meeting was sent by us
to the shareholders. Such provision may preclude shareholders from bringing
matters before the shareholders at an annual meeting or from making nominations
for directors at an annual meeting.
Anti-Takeover Provisions and Georgia Law
The Georgia Code generally restricts a company from entering into specified
business combinations with an interested shareholder, which is defined as any
person or entity that is the beneficial owner of at least 10% of a company's
voting stock, or its affiliates for a period of five years after the date on
which such shareholder became an interested shareholder, unless:
- its board of directors approves the business combination or the
transaction in which the shareholder became an interested shareholder,
prior to the date the shareholder became an interested shareholder;
- the interested shareholder acquires 90% of the company's voting stock in
the same transaction in which it exceeds 10%; or
- subsequent to becoming an interested shareholder, such shareholder
acquires 90% of the company's voting stock and the business combination
is approved by the holders of a majority of the voting stock entitled to
vote thereon. The business combination statute applies only if a
corporation's bylaws specifically provide that it applies. We have
elected to be covered by the business combination statute.
The Georgia Code also contains provisions that impose certain fair price
and other procedural requirements applicable to specified business combinations
with any person who owns 10% or more of the common stock. These statutory
requirements restrict business combinations with, and accumulations of shares of
voting stock of, some Georgia corporations. The fair price statute applies only
if a corporation elects to be covered by its restrictions. We have elected to be
covered by the fair price statute.
Ability to Consider Other Constituencies
Our articles of incorporation permit our board of directors to consider the
interests of our employees, customers, suppliers and creditors, the communities
in which our offices or other establishments are located and all other factors
the directors consider pertinent, in addition to considering the effects of any
actions on us and our shareholders, when determining what is in the best
interests of our shareholders. Pursuant to this provision, the board of
directors may consider numerous judgmental or subjective factors affecting a
proposal, including certain non-financial matters, and on the basis of these
considerations may oppose a business combination or other transaction which,
viewed exclusively from a financial perspective, might be attractive to some, or
even a majority, of our shareholders.
46
<PAGE> 52
INDEMNIFICATION AND LIMITATION OF LIABILITY
Our articles of incorporation eliminate the personal liability of our
directors to HeadHunter.NET or our shareholders for monetary damage for any
breach of duty as a director, provided that we cannot eliminate or limit the
liability of a director for:
- a breach of duty involving appropriation of a business opportunity of
HeadHunter.NET;
- an act or omission which involves intentional misconduct or a knowing
violation of law;
- any transaction from which the director receives an improper personal
benefit; or
- unlawful corporate distributions.
In addition, if at any time the Georgia Code is amended to authorize
further elimination or limitation of the personal liability of a director, then
the liability of each of our directors shall be eliminated or limited to the
fullest extent permitted by such provisions, as so amended, without further
action by the shareholders, unless otherwise required. These provisions of the
articles of incorporation will limit the remedies available to a shareholder in
the event of breaches of any director's duties to such shareholder or
HeadHunter.NET.
Under our bylaws, we must indemnify any director or officer who was, is or
is threatened to be made, a party to any legal proceeding, whether civil,
criminal, administrative or investigative (including any action or suit by or in
our right) because such person is or was a director or officer, against
liability incurred in such proceeding. Our bylaws do not require such
indemnification for any liability incurred in a proceeding in which the director
or officer is adjudged liable to us or is subjected to injunctive relief in our
favor for:
- any appropriation, in violation of such director's or officer's duties,
of any business opportunity of HeadHunter.NET;
- acts or omissions which involve intentional misconduct or a knowing
violation of law;
- unlawful corporate distributions; or
- any transaction from which such officer or director received an improper
personal benefit.
In addition, our bylaws provide that we must advance funds to pay or
reimburse the reasonable expenses incurred by a director or officer who is a
party to a proceeding because such person is a director or officer, if such
director or officer satisfies the conditions contained in our bylaws, and may
indemnify and advance expenses to our employees or agents who are not also
directors or officers to the same extent that we could to a director.
We have entered into separate indemnity agreements with each of our
directors and certain of our executive officers, under which we agree to
indemnify them and to advance them expenses in a manner and subject to terms and
conditions similar to those set forth in the articles of incorporation and
bylaws. There is no pending litigation or proceeding involving our directors,
officers, employees or other agents as to which indemnification is being sought,
nor are we aware of any pending or threatened litigation that may result in
claims for indemnification by any director, officer, employee or other agent.
REGISTRATION RIGHTS
Under a contribution agreement dated July 15, 1998, we granted to ITC and
Warren L. Bare registration rights regarding their shares of common stock. If we
undertake any registered public offering of our common stock, other than this
offering or an offering registered on Form S-8 or S-4, we must provide written
notice to ITC and Mr. Bare not less than 30 days prior to the proposed filing
date of such registration statement. At either's written request, we shall
include in such registered offering, all shares of common stock as are set forth
in the written request provided by them within 15 days after receipt of the
written notice from us; provided, however, that if our managing underwriters
advise us in writing that, in their opinion, the number of shares of common
stock requested to be included in such registered offering
47
<PAGE> 53
exceeds the number which can be sold in such offering without adversely
affecting the marketability of such offering, we shall include in such
registered offering first, the primary shares of common stock that we propose to
sell, and second, the shares of common stock requested to be included in such
offering, pro rata between ITC and Mr. Bare on the basis of the number of shares
of common stock requested to be included by each.
TRANSFER AGENT AND REGISTRAR
Our transfer agent and registrar for our common stock is American Stock
Transfer & Trust.
48
<PAGE> 54
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no public market for our common
stock, and no prediction can be made as to the effect, if any, that the sale of
shares or the availability of shares for sale will have on the market price
prevailing from time to time. Nevertheless, sales of substantial amounts of
common stock in the public market could adversely affect prevailing market
prices and our ability to raise equity capital in the future.
Upon completion of this offering, we will have 10,744,500 shares of common
stock outstanding, assuming no exercise of outstanding options and warrants. Of
these shares, the 3,000,000 shares sold in this offering (3,450,000 shares if
the underwriters' over-allotment option is exercised in full) will be freely
tradable without restriction by persons other than affiliates of HeadHunter.NET.
The remaining 7,744,500 shares of common stock outstanding (7,294,500 shares if
the underwriters exercise the over-allotment option in full) will be
"restricted" securities within the meaning of Rule 144 under the Securities Act
of 1933 and may not be sold in the absence of registration, unless an exemption
from registration is available, including the safe harbor provisions set forth
in Rule 144.
ITC, all of our executive officers and directors, and we have agreed not to
sell or otherwise dispose of any shares of common stock for a period of 180 days
after the date of this prospectus without the prior written consent of First
Union Capital Markets Corp., except for shares sold in this offering and except
that we may issue shares of common stock in connection with acquisitions.
In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this prospectus, a person who has beneficially owned restricted
shares for at least one year is entitled to sell within any three-month period a
number of shares that does not exceed the greater of:
- 1% of the number of shares of our common stock then outstanding; or
- the average weekly trading volume of our common stock during the four
calendar weeks preceding the filing of a notice on Form 144 with respect
to that sale.
Sales under Rule 144 also are subject to certain manner of sale provisions,
notice requirements and the availability of current public information about us.
Under Rule 144(k), a person who is not deemed an "affiliate" of ours at any
time during the 90 days preceding a sale and who has beneficially owned the
shares proposed to be sold for at least two years, including the holding period
of any prior owner other than an affiliate, would be entitled to sell such
shares without complying with the manner of sale, public information, volume
limitation or notice provisions of Rule 144. As of the date of this prospectus,
substantially all of the restricted shares are held by our affiliates and 180
days after this offering, approximately 7,600,000 restricted shares would become
eligible for resale pursuant to Rule 144, subject to the volume limitations and
other restrictions of Rule 144.
In general, under Rule 701 of the Securities Act of 1933, any of our
employees, officers or directors who exercise an option are eligible to resell
those shares 90 days after the effective date of this offering in reliance on
Rule 144, but without compliance with some of its restrictions, including the
holding period.
Our employees, officers, consultants and directors hold outstanding options
to purchase up to an aggregate of 911,500 shares of our common stock. We intend
to file a registration statement on Form S-8 to register the shares issuable
upon exercise of such options and options and awards granted in the future under
our stock option and incentive plans. Upon such registration, such shares will
be eligible for resale in the public market without restrictions by persons who
are not affiliates of HeadHunter.NET, and to the extent they are held by
affiliates, pursuant to Rule 144 without observance of the holding period
requirements.
ITC and Mr. Bare have registration rights regarding the shares held by each
of them at the time they exercise those rights, if ever. Currently ITC
beneficially owns 5,500,000 shares of our common stock and Class A preferred
stock and Mr. Bare beneficially owns 2,025,000 shares of our Class A preferred
stock and common stock (1,800,000 shares if the underwriters exercise the
over-allotment option in full).
49
<PAGE> 55
In connection with a prior credit facility provided by ITC to us, we
granted ITC a warrant to purchase a 416,667 shares of common stock. The warrant
vested upon issuance and is exercisable for a term of 10 years from the grant
date. We have not registered the warrant or the underlying shares. The shares of
common stock issuable upon exercise of the warrant would be deemed restricted
shares under Rule 144 and the resale of these shares would either have to be
registered or comply with the requirements of an exemption from registration.
50
<PAGE> 56
UNDERWRITING
The underwriters named below, acting through their representatives, First
Union Capital Markets Corp., J.C. Bradford & Co., Wachovia Securities, Inc., and
DLJdirect Inc., have severally agreed with us to purchase the number of shares
of common stock listed opposite their names below. The underwriters are
committed to purchase and pay for all such shares, if any are purchased.
<TABLE>
<CAPTION>
NUMBER
UNDERWRITER OF SHARES
- ----------- ---------
<S> <C>
First Union Capital Markets Corp............................
J.C. Bradford & Co..........................................
Wachovia Securities, Inc....................................
DLJdirect Inc...............................................
=========
Total............................................. 3,000,000
</TABLE>
The underwriters' representatives have advised us that they propose to
offer the shares of common stock to the public at the offering price given on
the cover page of this prospectus and to some dealers at such price less a
concession of not more than $ per share, of which $ may be
reallowed to other dealers. After completion of this offering, the public
offering price, concession and reallowance to dealers may be reduced by the
representatives.
The selling shareholders have granted the underwriters an option,
exercisable during the 30-day period after the date of this prospectus, to
purchase up to 450,000 shares of common stock at the initial public offering
price solely to cover over-allotments, if any. In the event of a default by a
selling shareholder, we have agreed to sell to the underwriters up to the number
of shares that a selling shareholder fails to sell and deliver upon any exercise
of the option. To the extent that the underwriters exercise the over-allotment
option, each of them will have a firm commitment to purchase approximately the
same percentage of such additional shares that the number of shares of common
stock to be purchased by it shown in the above table represents as a percentage
of the 3,000,000 shares offered by this prospectus. If purchased, the
underwriters will sell those additional shares on the same terms as those on
which the 3,000,000 shares are being sold.
We estimate that we will pay total offering costs, excluding underwriting
discounts and commissions, of approximately $1.0 million. The following table
summarizes the discount to be paid by us and, if the over-allotment option is
exercised in full, by the selling shareholders, to the underwriters in
connection with the offering.
<TABLE>
<CAPTION>
TO BE PAID
BY SELLING SHAREHOLDERS
WITH FULL
PER TO BE PAID OVER-ALLOTMENT
SHARE BY HEADHUNTER.NET EXERCISE
------- ----------------- -----------------------
<S> <C> <C> <C>
Underwriting Discounts.......................... $ $ $
</TABLE>
The underwriting agreement contains covenants of indemnity among the
underwriters and us against some civil liabilities, including liabilities under
the Securities Act of 1933 and liabilities arising from breaches of
representations and warranties contained in the underwriting agreement.
Each of our executive officers and directors and some of our shareholders
have agreed with the underwriters' representatives not to offer to sell,
contract to sell, or otherwise sell, dispose of, loan, pledge or grant any
rights with respect to any shares of common stock, any options or warrants to
purchase any shares of common stock, or any securities convertible into or
exchangeable for shares of common stock owned as of the date of this prospectus
or later acquired directly or indirectly by such holders for a period of 180
days following the date of this prospectus, without the prior written consent of
First Union Capital Markets Corp. First Union Capital Markets Corp. in its sole
discretion at any time or from time to time, without notice, may release all or
any portion of the securities subject to the lock-up agreements. Approximately
7,600,000 of such shares will be eligible for immediate public sale following
expiration of
51
<PAGE> 57
the lock-up period, subject to the provisions of Rule 144, including the volume
restrictions. See "Shares Eligible For Future Sale."
DLJdirect Inc. is making a prospectus in electronic format available on its
Internet web site. Other than the prospectus in electronic format, the
information on DLJdirect's web site is not part of this prospectus or the
registration statement of which this prospectus forms a part, has not been
approved and/or endorsed by us or any underwriter and should not be relied on by
prospective investors.
The underwriters' representatives have advised us that, pursuant to rules
promulgated by the SEC, some persons participating in the offering may engage in
transactions, including stabilizing bids, syndicate covering transactions or the
imposition of penalty bids, which may have the effect of stabilizing or
maintaining the market price of the common stock at a level above that which
might otherwise prevail in the open market. A "stabilizing bid" is a bid for or
the purchase of the common stock on behalf of the underwriters for the purpose
of fixing or maintaining the price of the common stock. A "syndicate covering
transaction" is the bid for or the purchase of the common stock on behalf of the
underwriters to reduce a short position incurred by the underwriters in
connection with the offering. A "penalty bid" is an arrangement permitting the
representatives to reclaim the selling concession otherwise accruing to an
underwriter or syndicate member in connection with the offering if the common
stock originally sold by such underwriter or syndicate member is repurchased by
the representatives in syndicate covering transactions, in stabilizing
transactions or otherwise. The representatives have advised us that such
transactions may be effected on the Nasdaq National Market or otherwise and, if
begun, may be discontinued at any time.
The underwriters' representatives have informed us that the underwriters do
not expect to make sales to accounts over which they exercise discretionary
authority in excess of 5% of the number of shares of common stock offered by
this prospectus.
At our request, the underwriters have currently reserved approximately
150,000 shares of our common stock for sale, at the initial public offering
price through a directed share program, to our directors, officers and employees
and ITC, and to selected companies and individuals that we believe contributed
to our success. There can be no assurance that any of the reserved shares will
be so purchased. The number of shares of common stock available for sale to the
general public in the public offering will be reduced to the extent these
persons purchase these reserved shares. Any reserved shares not so purchased
will be offered to the general public on the same basis as the other shares
offered in this offering.
Before this offering, no public market for our securities has existed. The
initial public offering price of the common stock will be determined by
negotiation among us and the underwriters' representatives. In determining the
initial public offering price, we expect to consider a number of factors in
addition to prevailing market conditions, including:
- the results of our operations in recent periods;
- market valuations of publicly traded companies that we and the
representatives believe to be comparable to us;
- estimates of our business potential;
- the present state of our development;
- the current state of the industry and the economy as a whole; and
- trends in our operations and in our industry.
LEGAL MATTERS
The validity of the issuance of the shares of common stock offered hereby
and other matters will be passed upon for HeadHunter.NET by Alston & Bird LLP,
Atlanta, Georgia. Other legal matters related to
52
<PAGE> 58
this offering will be passed upon for the underwriters by Nelson Mullins Riley &
Scarborough, L.L.P., Atlanta, Georgia.
EXPERTS
The consolidated financial statements of HeadHunter.NET and subsidiaries
for the years ended December 31, 1996, the ten months ended October 31, 1997,
the two months ended December 31, 1997 and the year ended December 31, 1998
included in this prospectus have been audited by Arthur Andersen LLP,
independent public accountants, as indicated in their reports with respect
thereto, and are included herein in reliance upon the authority of said firm as
experts in giving said reports.
AVAILABLE INFORMATION
We have filed with the SEC a registration statement on Form S-1 under the
Securities Act with respect to the common stock offered by this prospectus. This
prospectus does not contain all of the information set forth in such
registration statement and the exhibits thereto. Statements contained in this
prospectus regarding the contents of any contract or any other document to which
reference is made are not necessarily complete, and, in each instance where a
copy of such contract or other document has been filed as an exhibit to the
registration statement, reference is made to the copy so filed, each such
statement being qualified in all respects by such reference. A copy of the
registration statement and the exhibits thereto may be inspected without charge
at the Public Reference Room of the SEC at Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549; and copies of all or any part of the registration
statement may be obtained from the Public Reference Section of the SEC upon
payment of the fees prescribed by the SEC. The SEC also maintains a web site
(http://www.sec.gov) that contains reports, proxy, information statements, and
registration statements and other information electronically filed with the SEC.
We intend to provide our shareholders with annual reports containing
audited financial statements and quarterly reports containing unaudited
financial data for the first three quarters of each year.
53
<PAGE> 59
HEADHUNTER.NET, INC. AND SUBSIDIARIES
(SUCCESSOR COMPANY)
AND HNET.INC.
(PREDECESSOR COMPANY)
DECEMBER 31, 1997 AND 1998
AND JUNE 30, 1999
(UNAUDITED)
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Public Accountants.................... F-2
Consolidated Balance Sheets -- December 31, 1997 and 1998
and June 30, 1999 (unaudited)............................. F-3
Consolidated Statements of Operations for the Year Ended
December 31, 1996, the Ten Months Ended October 31, 1997,
the Two Months Ended December 31, 1997, the Year Ended
December 31, 1998, and the Six Months Ended June 30, 1998
and 1999 (unaudited)...................................... F-5
Consolidated Statements of Shareholders' Equity (Deficit)
for the Year Ended December 31, 1996, the Ten Months Ended
October 31, 1997, the Two Months Ended December 31, 1997,
the Year Ended December 31, 1998, and the Six Months Ended
June 30, 1999 (unaudited)................................. F-6
Consolidated Statements of Cash Flows for the Year Ended
December 31, 1996, the Ten Months Ended October 31, 1997,
and the Two Months Ended December 31, 1997, the Year Ended
December 31, 1998, and the Six Months Ended June 30, 1998
and 1999 (unaudited)...................................... F-7
Notes to Consolidated Financial Statements.................. F-9
</TABLE>
F-1
<PAGE> 60
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To HeadHunter.NET, Inc. and Subsidiaries:
We have audited the accompanying consolidated balance sheets of
HEADHUNTER.NET, INC. AND SUBSIDIARIES (Successor Company) AND HNET, INC.
(Predecessor Company) as of December 31, 1997 and 1998 and the related
consolidated statements of operations, shareholders' equity (deficit), and cash
flows for the year ended December 31, 1996, the ten months ended October 31,
1997, the two months ended December 31, 1997, and the year ended December 31,
1998. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of HeadHunter.NET, Inc. and
Subsidiaries (Successor Company) and HNET, Inc. (Predecessor Company) as of
December 31, 1997 and 1998 and the results of their operations and their cash
flows for the year ended December 31, 1996, the ten months ended October 31,
1997, the two months ended December 31, 1997, and the year ended December 31,
1998 in conformity with generally accepted accounting principles. As discussed
in Note 1 to the financial statements, effective October 31, 1997, ITC Holding
Company, Inc. acquired a majority ownership interest in HeadHunter.NET, Inc. in
a business combination accounted for as a purchase. As a result of this
acquisition, the financial information for the periods after the acquisition is
presented on a different cost basis than for periods before the acquisition and,
therefore, is not comparable.
/s/ Arthur Andersen LLP
Atlanta, Georgia
February 5, 1999
F-2
<PAGE> 61
HEADHUNTER.NET, INC. AND SUBSIDIARIES
(SUCCESSOR COMPANY)
AND HNET, INC.
(PREDECESSOR COMPANY)
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, JUNE 30,
1997 1998 1999
------------ ------------ -----------
(UNAUDITED)
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents........................... $ 853,989 $ 254,937 $ 202,874
Accounts receivable:
Trade, net of allowance for doubtful accounts of
$0, $37,346, and $86,019 at December 31, 1997
and 1998, and June 30, 1999, respectively...... 8,865 296,654 888,767
Affiliates (Note 4).............................. 5,100 -- 22,500
Prepaid expenses.................................... 13,420 195,110 226,214
---------- ---------- ----------
Total current assets........................ 881,374 746,701 1,340,355
---------- ---------- ----------
PROPERTY AND EQUIPMENT:
Telecommunications and computer equipment........... 66,082 376,558 747,660
Furniture and fixtures.............................. 28,664 152,539 174,588
---------- ---------- ----------
94,746 529,097 922,248
Accumulated depreciation and amortization........... (3,778) (81,772) (178,618)
---------- ---------- ----------
Total property and equipment, net........... 90,968 447,325 743,630
---------- ---------- ----------
GOODWILL, net of accumulated amortization of $32,633,
$228,428, and $326,325 at December 31, 1997 and
1998, and June 30, 1999, respectively............... 946,343 750,548 652,651
---------- ---------- ----------
OTHER NONCURRENT ASSETS............................... 4,230 280,606 144,478
---------- ---------- ----------
Total assets................................ $1,922,915 $2,225,180 $2,881,114
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
F-3
<PAGE> 62
HEADHUNTER.NET, INC. AND SUBSIDIARIES
(SUCCESSOR COMPANY)
AND HNET, INC.
(PREDECESSOR COMPANY)
CONSOLIDATED BALANCE SHEETS -- (CONTINUED)
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, JUNE 30,
1997 1998 1999
------------ ------------ -----------
(UNAUDITED)
<S> <C> <C> <C>
CURRENT LIABILITIES:
Accounts payable:
Trade............................................... $ 20,326 $ 397,425 $ 175,151
Affiliates (Note 4)................................. 23,843 -- --
Employees........................................... 36,454 -- --
Short-term borrowings -- affiliates (Notes 3 and 4).... -- 3,500,000 1,630,000
Accrued interest -- affiliates (Note 4)................ -- 100,100 38,314
Other accrued expenses................................. -- 128,098 665,506
Customer deposits...................................... -- 27,936 22,451
Deferred revenue....................................... 11,775 39,564 103,777
---------- ----------- -----------
Total current liabilities...................... 92,398 4,193,123 2,635,199
---------- ----------- -----------
COMMITMENTS AND CONTINGENCIES (Note 8)
SHAREHOLDERS' EQUITY (DEFICIT):
Convertible Class A preferred stock, $.01 par value;
2,800,000 shares authorized, issued, and outstanding
at December 31, 1997 and 1998; 7,500,000 shares
authorized and 5,404,500 shares issued and
outstanding at June 30, 1999 (unaudited)............ 28,000 28,000 54,045
Class B Serial preferred stock, $.01 par value;
5,000,000 shares authorized, 0 shares issued and
outstanding......................................... -- -- --
Common stock, $.01 par value; 50,200,000 shares
authorized, 2,200,000 shares issued and outstanding
at December 31, 1997 and 1998; 45,500,000 shares
authorized and 2,340,000 shares issued and
outstanding at June 30, 1999 (unaudited)............ 22,000 22,000 23,400
Additional paid-in capital............................. 1,956,909 4,507,859 37,620,688
Accumulated deficit.................................... (176,392) (4,522,260) (32,745,736)
Stock warrants (Note 3)................................ -- 341,834 341,834
Deferred compensation (Note 6)......................... -- (2,345,376) (5,048,316)
---------- ----------- -----------
Total shareholders' equity (deficit)........... 1,830,517 (1,967,943) 245,915
---------- ----------- -----------
Total liabilities and shareholders' equity..... $1,922,915 $ 2,225,180 $ 2,881,114
========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
F-4
<PAGE> 63
HEADHUNTER.NET, INC. AND SUBSIDIARIES
(SUCCESSOR COMPANY)
AND HNET, INC.
(PREDECESSOR COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PREDECESSOR COMPANY SUCCESSOR COMPANY
-------------------------- -------------------------------------------------------
TEN
MONTHS TWO MONTHS SIX MONTHS SIX MONTHS
YEAR ENDED ENDED ENDED YEAR ENDED ENDED ENDED
DECEMBER 31, OCTOBER 31, DECEMBER 31, DECEMBER 31, JUNE 30, JUNE 30,
1996 1997 1997 1998 1998 1999
------------ ----------- ------------ ------------ ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
REVENUES........................ $190,146 $124,437 $ 29,591 $ 1,099,868 $ 278,051 $ 2,412,955
-------- -------- --------- ----------- ----------- -----------
COSTS AND EXPENSES:
Costs of revenues............. -- 29,390 2,906 86,963 37,539 60,255
Marketing and selling......... 2,740 23,301 41,123 2,719,330 508,380 2,879,929
General and administrative.... 52,105 95,967 126,268 1,714,756 667,391 1,206,506
Stock compensation expense.... -- -- -- 205,574 32,705 4,550,588
Depreciation and
amortization................ 6,842 10,099 41,912 276,706 118,083 198,242
-------- -------- --------- ----------- ----------- -----------
Total costs and
expenses............. 61,687 158,757 212,209 5,003,329 1,364,098 8,895,520
-------- -------- --------- ----------- ----------- -----------
OPERATING INCOME (LOSS)......... 128,459 (34,320) (182,618) (3,903,461) (1,086,047) (6,482,565)
OTHER INCOME (EXPENSE).......... 164 (843) 6,226 (442,407) 7,544 (40,915)
-------- -------- --------- ----------- ----------- -----------
NET INCOME (LOSS)............... $128,623 $(35,163) $(176,392) $(4,345,868) $(1,078,503) $(6,523,480)
======== ======== ========= =========== =========== ===========
LOSS PER SHARE:
Basic and diluted............. $ (0.08) $ (1.98) $ (0.49) $ (12.68)
========= =========== =========== ===========
WEIGHTED AVERAGE SHARES
OUTSTANDING:
Basic and diluted............. 2,200,000 2,200,000 2,200,000 2,226,444
========= =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-5
<PAGE> 64
HEADHUNTER.NET, INC. AND SUBSIDIARIES
(SUCCESSOR COMPANY)
AND HNET, INC.
(PREDECESSOR COMPANY)
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
CONVERTIBLE CLASS A RETAINED
PREFERRED STOCK COMMON STOCK ADDITIONAL EARNINGS
------------------- ------------------- PAID-IN (ACCUMULATED) STOCK
SHARES AMOUNT SHARES AMOUNT CAPITAL (DEFICIT) WARRANTS
--------- ------- --------- ------- ----------- ------------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
PREDECESSOR COMPANY:
BALANCE, December 31, 1995................ -- $ -- 260 $ 260 $ 5,040 $ 37,565 $ --
Dividends............................... -- -- -- -- -- (115,988) --
Net income.............................. -- -- -- -- -- 128,623 --
--------- ------- --------- ------- ----------- ------------ --------
BALANCE, December 31, 1996................ -- -- 260 260 5,040 50,200 --
Capital contribution.................... -- -- -- -- 30,000 -- --
Dividends............................... -- -- -- -- -- (121,941) --
Net loss................................ -- -- -- -- -- (35,163) --
--------- ------- --------- ------- ----------- ------------ --------
BALANCE, October 31, 1997................. -- $ -- 260 $ 260 $ 35,040 $ (106,904) $ --
========= ======= ========= ======= =========== ============ ========
- --------------------------------------------------------------------------------------------------------------------------------
SUCCESSOR COMPANY:
Initial capitalization of HeadHunters,
L.L.C. ............................... -- $ -- -- $ -- $ 2,000,000 $ -- $ --
Acquisition of Predecessor Company...... -- -- (260) (260) (35,040) 106,904 --
Reorganization (Note 1)................. 2,800,000 28,000 2,200,000 22,000 (43,091) -- --
Net loss................................ -- -- -- -- -- (176,392) --
--------- ------- --------- ------- ----------- ------------ --------
BALANCE, December 31, 1997................ 2,800,000 28,000 2,200,000 22,000 1,956,909 (176,392) --
Issuance of stock warrants.............. -- -- -- -- -- -- 341,834
Issuance of stock options............... -- -- -- -- 2,550,950 -- --
Amortization of deferred compensation... -- -- -- -- -- -- --
Net loss................................ -- -- -- -- -- (4,345,868)
--------- ------- --------- ------- ----------- ------------ --------
BALANCE, December 31, 1998................ 2,800,000 28,000 2,200,000 22,000 4,507,859 (4,522,260) 341,834
Conversion of short-term borrowings to
Convertible Class A preferred stock... 2,333,333 23,333 -- -- 25,176,663 (21,699,996) --
Issuance of Class A preferred stock..... 271,167 2,712 -- -- 2,925,891 -- --
Issuance of common stock................ -- -- 140,000 1,400 1,510,600 -- --
Issuance of stock options............... -- -- -- -- 3,499,675 -- --
Amortization of deferred compensation... -- -- -- -- -- -- --
Net loss................................ -- -- -- -- -- (6,523,480) --
--------- ------- --------- ------- ----------- ------------ --------
BALANCE, June 30, 1999 (unaudited)........ 5,404,500 $54,045 2,340,000 $23,400 $37,620,688 $(32,745,736) $341,834
========= ======= ========= ======= =========== ============ ========
<CAPTION>
DEFERRED
COMPENSATION TOTAL
------------ -----------
<S> <C> <C>
PREDECESSOR COMPANY:
BALANCE, December 31, 1995................ $ -- $ 42,865
Dividends............................... -- (115,988)
Net income.............................. -- 128,623
----------- -----------
BALANCE, December 31, 1996................ -- 55,500
Capital contribution.................... -- 30,000
Dividends............................... -- (121,941)
Net loss................................ -- (35,163)
----------- -----------
BALANCE, October 31, 1997................. $ -- $ (71,604)
=========== ===========
- --------------------------------------------------------------------------------------
SUCCESSOR COMPANY:
Initial capitalization of HeadHunters,
L.L.C. ............................... $ -- $ 2,000,000
Acquisition of Predecessor Company...... -- 71,604
Reorganization (Note 1)................. -- 6,909
Net loss................................ -- (176,392)
----------- -----------
BALANCE, December 31, 1997................ -- 1,830,517
Issuance of stock warrants.............. -- 341,834
Issuance of stock options............... (2,550,950) --
Amortization of deferred compensation... 205,574 205,574
Net loss................................ -- (4,345,868)
----------- -----------
BALANCE, December 31, 1998................ (2,345,376) (1,967,943)
Conversion of short-term borrowings to
Convertible Class A preferred stock... -- 3,500,000
Issuance of Class A preferred stock..... -- 2,928,603
Issuance of common stock................ -- 1,512,000
Issuance of stock options............... (3,499,675) --
Amortization of deferred compensation... 796,735 796,735
Net loss................................ -- (6,523,480)
----------- -----------
BALANCE, June 30, 1999 (unaudited)........ $(5,048,316) $ 245,915
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-6
<PAGE> 65
HEADHUNTER.NET, INC. AND SUBSIDIARIES
(SUCCESSOR COMPANY)
AND HNET, INC.
(PREDECESSOR COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PREDECESSOR COMPANY SUCCESSOR COMPANY
-------------------------- -------------------------------------------------------
TEN MONTHS TWO MONTHS SIX MONTHS SIX MONTHS
YEAR ENDED ENDED ENDED YEAR ENDED ENDED ENDED
DECEMBER 31, OCTOBER 31, DECEMBER 31, DECEMBER 31, JUNE 30, JUNE 30,
1996 1997 1997 1998 1998 1999
------------ ----------- ------------ ------------ ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)..................... $ 128,623 $(35,163) $ (176,392) $(4,345,868) $(1,078,503) $(6,523,480)
--------- -------- ---------- ----------- ----------- -----------
Adjustments to reconcile net income
(loss) to net cash provided by (used
in) operating activities:
Depreciation and amortization....... 6,842 10,099 41,912 276,706 118,083 198,242
Amortization of debt issue costs.... -- -- -- 341,834 -- --
Compensation expense................ -- -- -- 205,574 32,705 4,550,588
Changes in current operating assets
and liabilities:
Accounts receivable............... 6,270 10,783 1,918 (287,789) (114,251) (592,113)
Due from affiliates............... -- -- (5,100) 5,100 5,100 (22,500)
Prepaid expenses.................. -- -- (13,420) (181,690) (15,260) (31,104)
Other assets...................... -- -- (4,230) (244,293) (152,467) 132,627
Accounts payable.................. 2,885 741 71,248 316,802 91,952 (222,274)
Accrued expenses.................. -- 2,548 -- 228,198 58,387 475,622
Customer deposits................. -- -- -- 27,936 -- (5,485)
Deferred revenue.................. -- -- 11,775 27,789 97,240 64,213
--------- -------- ---------- ----------- ----------- -----------
Total adjustments.............. 15,997 24,171 104,103 716,167 121,489 4,547,816
--------- -------- ---------- ----------- ----------- -----------
Net cash provided by (used in)
operating activities......... 144,620 (10,992) (72,289) (3,629,701) (957,014) (1,975,664)
--------- -------- ---------- ----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of Internet domain name...... -- -- -- (35,000) -- --
Purchases of property and equipment... (16,985) (14,830) (73,722) (434,351) (100,609) (393,149)
--------- -------- ---------- ----------- ----------- -----------
Net cash used in investing
activities................... (16,985) (14,830) (73,722) (469,351) (100,609) (393,149)
--------- -------- ---------- ----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Equity contribution................... -- 30,000 1,100,000 -- -- --
Proceeds from issuance of Convertible
Class A preferred stock............. -- -- -- -- -- 406,750
Proceeds from issuance of Common
Stock............................... -- -- -- -- -- 280,000
Proceeds from short-term borrowings... -- -- -- 3,500,000 400,000 1,630,000
Dividends paid (Note 4)............... (115,988) (21,941) (100,000) -- -- --
--------- -------- ---------- ----------- ----------- -----------
Net cash (used in) provided by
financing activities......... (115,988) 8,059 1,000,000 3,500,000 400,000 2,316,750
--------- -------- ---------- ----------- ----------- -----------
</TABLE>
F-7
<PAGE> 66
<TABLE>
<CAPTION>
PREDECESSOR COMPANY SUCCESSOR COMPANY
-------------------------- ---------------------------------------------------------
TEN MONTHS TWO MONTHS SIX MONTHS SIX MONTHS
YEAR ENDED ENDED ENDED YEAR ENDED ENDED ENDED
DECEMBER 31, OCTOBER 31, DECEMBER 31, DECEMBER 31, JUNE 30, JUNE 30,
1996 1997 1997 1998 1998 1999
------------ ----------- ------------ ------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS.................... 11,647 (17,763) 853,989 (599,052) (657,623) (52,063)
CASH AND CASH EQUIVALENTS, BEGINNING
OF PERIOD........................... $ 14,326 $ 25,973 $ -- $ 853,989 $ 853,989 $ 254,937
--------- -------- ---------- ----------- --------- -----------
CASH AND CASH EQUIVALENTS, END OF
PERIOD.............................. $ 25,973 $ 8,210 $ 853,989 $ 254,937 $ 196,366 $ 202,874
========= ======== ========== =========== ========= ===========
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest Paid....................... $ -- $ -- $ -- $ 18,165 $ -- $ 105,130
========= ======== ========== =========== ========= ===========
SUPPLEMENTAL CASH FLOW INFORMATION:
Initial noncash equity contributions
(Note 1).......................... $ -- $ -- $ 900,000 $ -- $ -- $ --
========= ======== ========== =========== ========= ===========
Conversion of short-term borrowings
to Convertible Class A preferred
stock............................. $ -- $ -- $ -- $ -- $ -- $ 3,500,000
========= ======== ========== =========== ========= ===========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-8
<PAGE> 67
HEADHUNTER.NET, INC. AND SUBSIDIARIES
(SUCCESSOR COMPANY)
AND HNET, INC.
(PREDECESSOR COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND NATURE OF BUSINESS
Organization
On October 10, 1995, HNET, Inc. ("HNI" or the "Predecessor Company"), a
Georgia S corporation, was established as a web site development consulting
firm. In October 1996, the HeadHunter.NET web site was launched.
On October 31, 1997, HeadHunters, L.L.C. ("LLC") was organized. Effective
November 1, 1997, in a transaction accounted for as a purchase, ITC Holding
Company, Inc. ("ITC"), contributed $1,100,000 in cash in exchange for a 55%
equity interest in LLC. HNI contributed all of its assets and liabilities
(including the right to use the name "HeadHunter.NET") in exchange for the
remaining 45% equity interest. The total fair market value of HNI's equity
contribution to LLC was $900,000, including $21,000 in furniture and fixtures,
$979,000 in goodwill, and $100,000 in dividends payable.
On July 13, 1998, HeadHunter.NET, Inc. (the "Company" or the "Successor
Company") was incorporated under the laws of the state of Georgia.
On July 15, 1998, HNI's sole shareholder and ITC reorganized LLC and HNI as
follows (the "Reorganization"):
a. ITC contributed its 55% ownership interest in LLC to the Company.
b. HNI's sole shareholder contributed 100% of HNI to the Company.
As a result of the Reorganization, LLC and HNI are now wholly owned
subsidiaries of the Company. The transaction has been accounted for in a manner
similar to a pooling of interest.
Nature of Business
HeadHunter.Net provides a leading online recruiting service via its web
site at www.headhunter.net. Employers and recruiters use the web site to
advertise job opportunities and review resumes. Job seekers use the web site to
identify, research, and evaluate a broad range of job opportunities.
The Company has incurred losses and negative cash flows from operations
since inception as a result of efforts to build out its network infrastructure,
increase internal staffing, and develop its systems. The Company expects to
continue to focus on increasing its customer base and expanding its operations.
Accordingly, the Company expects that its cost of revenues, marketing and
selling expenses, general and administrative expenses, and capital expenditures
will continue to increase significantly, all of which will have a negative
impact on short-term operating results. On January 28, 1999, under an extension
agreement between the Company and ITC Service Company, a revolving line of
credit of up to $3 million was made available to the Company and is payable in
full on December 31, 1999. Under the terms of the new agreement, the principal
balance outstanding under the Company's current line of credit was converted
into 2,333,333 shares of the Company's Convertible Class A preferred stock (Note
3). The Company also plans to complete an initial public offering (the
"Offering") of its common stock in the third quarter of 1999 (Note 9) to provide
additional funds for its expansion plans. In the event this proposed equity
offering is unsuccessful, in the opinion of management, the Company's current
cash position and available line of credit will be sufficient to meet the
capital and operating needs of the Company through at least 1999. However, there
can be no assurance that growth in the Company's revenue or customer base will
continue or that the Company will be able to achieve or sustain profitability
and/or positive cash flow.
F-9
<PAGE> 68
HEADHUNTER.NET, INC. AND SUBSIDIARIES
(SUCCESSOR COMPANY)
AND HNET, INC.
(PREDECESSOR COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Presentation
The accompanying consolidated financial statements have been prepared on
the accrual basis of accounting. The consolidated financial statements reflect
the Reorganization in a manner similar to a pooling of interests and include the
accounts of the Company and its wholly owned subsidiaries. All significant
intercompany accounts and transactions have been eliminated in consolidation.
Certain prior year amounts have been reclassified to conform to the current year
presentation.
As a result of ITC's acquisition of a majority interest in the Company as
discussed in Note 1, the capital structure of and the basis of accounting for
the Company differs from those of the Predecessor Company prior to ITC's
acquisition and the Reorganization. Financial data of the Company with respect
to all reporting periods subsequent to November 1, 1997 (the "Successor Period")
reflect ITC's acquisition under the purchase method. Therefore, financial data
with respect to HNI prior to the acquisition generally will not be comparable to
that of the Company with respect to the items described below.
As a result of ITC's acquisition of a majority interest in LLC, the
consolidated statements of operations for the Successor Period includes
amortization of goodwill. Also, as a result of purchase accounting, the fair
values of the property and equipment at the date of their acquisition became
their new "cost" bases with respect to the Company. Accordingly, the
depreciation of property and equipment for the Successor Period is based on the
newly established cost bases of these assets. Other effects of purchase
accounting in the Successor Period are not significant.
Accounting Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amount of assets and liabilities 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 could differ from those estimates.
Revenue Recognition
Revenues consist of job posting revenues, upgrading revenues, resume
reserve revenues. Job posting revenues, upgrading revenues and resume reserve
revenues are recognized over the service period. The Company also earns
advertising revenues by providing web advertisers access to users of the
Company's web site and recognizes these revenues in the month impressions are
delivered.
Deferred Revenue
Deferred revenue represents the liability for advance billings to
customers. Such amounts are recognized as revenues when the related services are
provided.
Cash and Cash Equivalents
The Company considers all short-term, highly liquid investments with an
original maturity date of three months or less to be cash equivalents. Cash and
cash equivalents are stated at cost, which approximates fair value.
F-10
<PAGE> 69
HEADHUNTER.NET, INC. AND SUBSIDIARIES
(SUCCESSOR COMPANY)
AND HNET, INC.
(PREDECESSOR COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Property and Equipment
Property and equipment are stated at cost and are depreciated using the
straight-line method over the estimated useful lives of the respective assets
for financial reporting purposes. Major additions and improvements are charged
to the property accounts while maintenance and repairs which do not improve or
extend the lives of the respective assets are expensed in the current period.
Estimated useful lives for the Company's assets are as follows:
<TABLE>
<S> <C>
Telecommunications and computer equipment................... Three years
Furniture and fixtures...................................... Three to five years
</TABLE>
Leasehold improvements are amortized using the straight-line method over the
shorter of the service lives of the improvements or the remaining term of the
lease. Depreciation expense was $9,279 and $77,994 for the two months ended
December 31, 1997 and the year ended December 31, 1998, respectively.
Goodwill
The Company has classified the cost in excess of fair value of the net
liabilities acquired in a transaction accounted for as a purchase as goodwill
(Note 1). Goodwill includes all rights to the HeadHunter.NET web site and is
being amortized on a straight-line basis over a period of five years.
Long-Lived Assets
The Company periodically reviews the values assigned to long-lived assets,
such as property and equipment and other long-term assets, to determine whether
any impairments are other than temporary. Management believes that the
long-lived assets in the accompanying consolidated balance sheets are
appropriately valued.
Other Assets
Other assets consist of the following at December 31, 1998:
<TABLE>
<S> <C>
Deposits.................................................... $248,523
Acquired Internet domain name, net.......................... 32,083
--------
$280,606
========
</TABLE>
In July 1998, the Company acquired the rights to the Internet domain name,
www.headhunter.com for $35,000. The Company is amortizing the intangible asset
on a straight-line basis over a period of five years. Amortization expense was
$2,917 for the year ended December 31, 1998.
Income Taxes
The sole shareholder of HNI elected for the Predecessor Company to be taxed
under S corporation status of the Internal Revenue Code (the "Code"). The Code
and certain applicable state statutes provide that the income and expenses of an
S corporation are not taxable separately to the corporation but rather accrue
directly to the shareholders. Accordingly, no provision for income taxes has
been reflected in the accompanying consolidated financial statements of the
Predecessor Company.
F-11
<PAGE> 70
HEADHUNTER.NET, INC. AND SUBSIDIARIES
(SUCCESSOR COMPANY)
AND HNET, INC.
(PREDECESSOR COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Prior to the Reorganization (Note 1), LLC, as a limited liability company,
was treated as a partnership for tax purposes. Therefore, the income tax
benefits generated by LLC were recorded by its members.
Following the Reorganization (Note 1), the Successor Company utilizes the
liability method of accounting for income taxes. Deferred tax assets and
liabilities are recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of existing assets
and liabilities and their respective tax basis. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. At the date of the Reorganization (Note 1), there were no
material effects on the Company's consolidated financial statements related to
tax consequences of the Reorganization.
Advertising Costs
The Company expenses the cost of advertising as incurred. Advertising
expenses included in marketing and selling expenses were $0 for the year ended
December 31, 1996, $2,632 for the ten months ended October 31, 1997, $28,240 for
the two months ended December 31, 1997, and $1,627,011 for the year ended
December 31, 1998. Prepaid advertising costs of approximately $2,900 and
$405,000 were recorded as assets in the accompanying consolidated balance sheets
as of December 31, 1997 and 1998, respectively.
Advertising expenses included in marketing and selling expenses were
$464,341 and $1,208,650 for the six months ended June 30, 1998 and 1999. Prepaid
advertising costs of approximately $185,000 were recorded as assets in the
accompanying consolidated balance sheets as of June 30, 1999 (unaudited).
Sources of Supplies
The Company relies on local telephone companies and other companies to
provide data communications capacity. Although management feels alternative
telecommunications facilities could be found in a timely manner, disruption of
these services for more than a brief period would have an adverse effect on
operating results.
Although the Company attempts to maintain multiple vendors for each
required product, its property and equipment, which are important components of
its operations, are each currently acquired from only a few sources. In
addition, some of the Company's suppliers have limited resources and production
capacity. If the suppliers are unable to meet the Company's needs as the Company
expands its network infrastructure and sells services, then delays and increased
costs in the expansion of the Company's network infrastructure or losses of
potential customers could result, which would adversely affect operating
results.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to
concentrations of credit risk consist principally of trade receivables. The
Company's cash investment polices limit investments to short-term, low-risk
instruments. Concentrations of credit risk with respect to trade receivables are
limited due to advance billings to customers for services and the ability to
terminate service on delinquent accounts. In addition, the number of customers
comprising the customer base mitigates the concentration of credit risk. The
carrying amount of the Company's receivables approximates their fair value.
F-12
<PAGE> 71
HEADHUNTER.NET, INC. AND SUBSIDIARIES
(SUCCESSOR COMPANY)
AND HNET, INC.
(PREDECESSOR COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Segmental Disclosures
The Company adopted Statement of Financial Accounting Standards ("SFAS")
No. 131, "Segmental Disclosures," effective December 31, 1998. The statement had
no effect as the Company has only one operating business segment.
Stock-Based Compensation Plans
The Company accounts for its stock-based compensation plans under
Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued
to Employees." Effective in 1997, the Company adopted the disclosure option of
SFAS No. 123, "Accounting for Stock-Based Compensation." SFAS No. 123 requires
that companies that do not choose to account for stock-based compensation as
prescribed by this statement shall disclose the pro forma effects on earnings
and earnings per share as if SFAS No. 123 had been adopted. Additionally,
certain other disclosures are required with respect to stock compensation and
the assumptions used to determine the pro forma effects of SFAS No. 123.
Net Loss Per Share
Pursuant to SFAS No. 128 "Computation of Earnings per Share," and
Securities and Exchange Commission Staff Accounting Bulletin No. 98, for the
periods prior to the Company's initial public offering (Note 9), basic net loss
per share is computed using the weighted average number of shares of common
stock outstanding during the period. Diluted net loss per share is computed
using the weighted average number of shares of common stock outstanding during
the period and nominal issuances of common stock and common stock equivalents,
regardless of whether they are antidilutive. The Company has presented basic and
diluted loss per share in accordance with SFAS No. 128. As the Company had a net
loss and no nominal issuances of common stock and common stock equivalents in
all periods presented, basic and diluted loss per share is the same. The
calculation of net loss per share does not include the effects of any contingent
warrants (Note 3). Net loss per share is not shown for the Predecessor Company,
as it is not comparable.
During the six months ended June 30, 1999, a one-time non-cash distribution
was recorded in conjunction with the conversion of the loan and security
agreement to equity (Note 3). The following table represents a reconciliation of
the net loss per the statement of operations to the net loss attributable to
common shareholders:
<TABLE>
<S> <C>
Net Loss.................................................... $ (6,523,480)
Distribution to preferred shareholders...................... (21,699,996)
------------
Net loss available to common shareholders......... $(28,223,476)
============
Weighted Average Shares Outstanding......................... 2,226,444
============
Net loss per share................................ $ (12.68)
------------
</TABLE>
3. CREDIT AGREEMENT
On October 31, 1997, the Company entered into a revolving credit agreement
(the "Credit Agreement") with ITC, which allowed the Company to draw up to
$1,000,000 at an interest rate approximating ITC's cost of debt capital. ITC had
the right to convert any outstanding balance at the end of the term into a fully
paid and nonassessable equity interest in the Company equal to 1% for each
$40,000 of the unpaid balance, including interest and penalties.
F-13
<PAGE> 72
HEADHUNTER.NET, INC. AND SUBSIDIARIES
(SUCCESSOR COMPANY)
AND HNET, INC.
(PREDECESSOR COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
On July 16, 1998, the Company, ITC and ITC Service Company, an affiliate of
ITC, amended and restated the Credit Agreement, pursuant to which ITC made
available to the Company an additional revolving line of credit of up to $2.5
million which was payable in full on December 31, 1998. On December 31, 1998,
the Company, ITC, and ITC Service Company amended the Credit Agreement to extend
the due date to January 31, 1999. Principal amounts outstanding under the credit
facility bear interest at an annual rate equal to ITC Service Company's cost of
debt capital as reasonably determined from time-to-time by ITC Service Company
(6.8%) on the first $1 million and at a fixed rate of 14% per annum on the
remaining $1.5 million. In connection with the amendments to the Credit
Agreement, the Company issued to ITC Service Company a warrant to purchase
$375,000 of common stock at a price of $1.50 per share, which was amended and
restated to $625,000 of common stock at a price of $1.50 per share in October of
1998. This warrant vested upon issuance and is exercisable for a term of ten
years. In connection with the warrant issued to ITC Service Company, the
estimated $342,000 fair value of the warrant was calculated under the
Black-Scholes option pricing model at the date of grant and was included in
stock warrants and interest expense. The assumptions used in the Black-Scholes
calculation were as follows: risk-free interest rate, 5.52%; expected dividend
yield, 0%; expected lives, three years; and expected volatility, 79%. Short-term
borrowings under the Credit Agreement were $3,500,000 for the year ended
December 31, 1998.
On January 28, 1999, the Company and ITC Service Company entered into a
revolving loan and security agreement (the "Loan and Security Agreement"),
pursuant to which ITC Service Company made available to the Company a revolving
line of credit of up to $3 million and is payable in full the earlier of (i)
December 31, 1999, (ii) the closing of an initial public offering of the
Company's common stock at a minimum aggregate offering price of $20 million, or
(iii) any sale, transfer, or exchange of the Company's common stock, not
requiring registration under the Securities and Exchange Commission, in excess
of $20 million. Principal amounts outstanding under the credit facility bear
interest at a fixed rate of 11% per annum. In the event of default, the Company
must issue to ITC Service Company a warrant to purchase $3,000,000 of the
Company's common stock at a contingent price per share equal to an initial
public or private equity offering, or at a fair market value determined by both
parties in the absence of any equity offering.
In conjunction with the Loan and Security Agreement, the principal balance
of $3.5 million outstanding under the Credit Agreement was converted into
2,333,333 shares of the Company's Convertible Class A preferred stock at a price
of $1.50 per share. As this represented an extinguishment of debt amongst
related parties, it was accounted for as a capital transaction. The difference
between the estimated fair value ($10.80) and the conversion price was recorded
to accumulated deficit as a one-time non-cash distribution to the preferred
shareholders with an offsetting amount recorded to additional paid-in capital.
Short-term borrowings under the Loan and Security Agreement were $1,630,000
for the six months ended June 30, 1999 (unaudited).
In January 1999, the Company decreased the authorized number of common
stock to 45,500,000 shares and increased the number of Convertible Class A
preferred shares to 7,500,000.
In January 1999, the Company sold 271,167 shares of Convertible Class A
preferred stock to certain executive officers, key employees and directors at
$1.50 per share. In accordance with APB No. 25, the Company recognized
$2,521,853 in compensation expense in January 1999 related to the difference
F-14
<PAGE> 73
HEADHUNTER.NET, INC. AND SUBSIDIARIES
(SUCCESSOR COMPANY)
AND HNET, INC.
(PREDECESSOR COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
between the purchase price and the estimated fair value of $10.80 with the
offset to additional paid in capital.
4. RELATED-PARTY TRANSACTIONS
On November 1, 1997, the Company paid $100,000 in satisfaction of a
dividend payable to the sole shareholder of HNI, which was included in the
initial equity contribution under the organization of the LLC.
As of December 31, 1997, approximately 40% of the Company's deferred
revenue was related to subscription sales to affiliates of ITC. Outstanding
receivables and payables for services provided to and rendered from ITC and its
affiliates were $5,100 and $20,000, respectively, at December 31, 1997.
Beginning in January 1998, the Company entered into an agreement with
ITC'DeltaCom, Inc. ("ITC'DeltaCom") to serve as the Company's Internet service
provider and host of the Company's web site. ITC'DeltaCom is related to ITC
through both common ownership and board membership. Internet access and
long-distance telephone charges totaled $72,028 for the year ended December 31,
1998.
Short-term borrowings under a revolving credit agreement with ITC (Note 3)
were $0 and $3,500,000 during the two months ended December 31, 1997 and for the
year ended December 31, 1998, respectively. Accrued interest related to the
revolving credit agreement was $100,100 at December 31, 1998.
The Company utilizes an entity for insurance coverage that is related to
ITC through common ownership. Insurance expense related to this entity for the
two months ended December 31, 1997 and the year ended December 31, 1998 was
$3,000 and $8,928, respectively.
5. SHAREHOLDERS' EQUITY
The Company has authorized 50,200,000 shares of common stock, par value
$0.01 and 2,800,000 shares of Convertible Class A preferred stock, par value
$0.01, and 5,000,000 shares of Class B serial preferred stock. The Class A
preferred stock is entitled to one vote per share owned of record on all matters
which shareholders are entitled to vote. Upon the closing of an Initial Public
Offering (Note 9) each share of Class A preferred stock will automatically
convert into one share of common stock and there will be no shares of Class A
preferred stock outstanding. The Company's board of directors has the authority
to issue up to 5,000,000 shares of Class B serial preferred stock in one or more
series. There are no shares of Class B serial preferred stock currently
outstanding.
In January 1999, the Company decreased the authorized number of common
stock to 45,500,000 shares and increased the number of Convertible Class A
preferred shares to 7,500,000.
As discussed in Note 1, the purpose of incorporating the Company was to
enable ITC and HNI's sole shareholder to complete a reorganization of LLC and
HNI. In return for the contribution of its 55% interest in LLC to the Company,
ITC received 2,750,000 shares of the Company's Convertible Class A preferred
stock. The sole shareholder of HNI received 2,200,000 shares of the Company's
common stock, $.01 par value, and 50,000 shares of the Company's Convertible
Class A preferred stock in return for the contribution of 100% of HNI.
6. EMPLOYEE BENEFIT PLANS
Common Unit Option Plan
In January 1998, LLC's board of managers approved the formation of an
incentive unit option plan and allocated 500,000 shares of common units to the
plan. Through the date of the Reorganization, at
F-15
<PAGE> 74
HEADHUNTER.NET, INC. AND SUBSIDIARIES
(SUCCESSOR COMPANY)
AND HNET, INC.
(PREDECESSOR COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
which time the plan was discontinued, the board of managers had granted 378,250
of these options to various employees of the Company. All options were granted
with an exercise price between $0.40 and $1.40 per share, which represents the
estimated fair value of the common units granted as determined by the board of
managers at the dates of grant. The options vest over a five-year period as
follows: (i) 40% at the second anniversary of the dates of grant and (ii) an
additional 20% at each of the next three anniversary dates. The options expire
ten years from the date of grant.
1998 Long-Term Incentive Plan
On July 15, 1998, the Company's board of directors adopted the Company's
1998 Long-Term Incentive Plan (the "Incentive Plan"). The Company has reserved
500,000 shares of its common stock for issuance in connection with options and
awards granted under the Incentive Plan. The Company may grant options and
awards to officers and employees of the Company, a parent or subsidiary, and to
nonemployee directors and consultants to the Company. The Incentive Plan
authorizes the granting of awards to eligible participants in the form of (i)
options to purchase shares of the Company's common stock, which may be incentive
stock options or nonqualified stock options, (ii) stock appreciation rights,
(iii) performance shares, (iv) restricted stock awards, (v) dividend
equivalents, or (vi) other stock-based awards. The Incentive Plan is
administered by the Company's board of directors or the board's compensation
committee in accordance with its term. Through December 31, 1998, the board of
directors has granted 172,500 of the options to various employees of the
Company. All options were granted with an exercise price of $1.50 per share,
which represents the estimated fair value of the options at the dates of grant.
The options vest over a five-year period as follows: (i) 40% at the second
anniversary of the dates of grant and (ii) an additional 20% at each of the next
three anniversary dates. The options expire ten years from the date of grant.
In connection with the Reorganization, the Company assumed options granted
under LLC's Common Unit Option Plan and has converted such options to purchase
an equal number of shares of common stock on identical terms.
A summary of the status of the Company's stock options at December 31, 1998
and June 30, 1999 (unaudited) and changes during the year then ended is
presented in the following table:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
PRICE PER
SHARES SHARE
------- ---------
<S> <C> <C>
Outstanding at December 31, 1997............................ -- $ --
Granted................................................... 550,750 0.87
Forfeited................................................. (68,500) (0.43)
-------
Outstanding at December 31, 1998............................ 482,250 0.93
Granted................................................... 421,750 2.23
Forfeited................................................. (12,000) (1.45)
=======
Outstanding at June 30, 1999................................ 892,000 1.53
-------
Exercisable at December 31, 1998 and June 30, 1999
(unaudited)............................................... -- $ --
=======
</TABLE>
F-16
<PAGE> 75
HEADHUNTER.NET, INC. AND SUBSIDIARIES
(SUCCESSOR COMPANY)
AND HNET, INC.
(PREDECESSOR COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
During 1998, the Company granted options with exercise prices below the
fair value at the date of grant. The estimated fair value for options granted
February 1998 to December 1998 was $10.80. Accordingly, the Company recognized
deferred compensation of $2.5 million for options granted during the year ended
December 31, 1998. The Company amortizes deferred compensation over five years,
the vesting period of the options. The Company recognized $205,574 of
compensation expense for the year ended December 31, 1998 related to option
grants.
During the six months ended June 30, 1999, the Company granted options with
exercise prices below the fair value at the date of grant. The estimated fair
value for options granted during the six months ended June 30, 1999 was $10.80.
Accordingly, the Company recognized deferred compensation of $3.6 million for
options granted during the six months ended June 30, 1999. The Company amortizes
deferred compensation over five years, the vesting period of the options. The
Company recognized $796,735 of compensation expense for the six months ended
June 30, 1999 related to option grants (unaudited).
Statement of Financial Accounting Standards No. 123
The Company accounts for its stock-based compensation plans in accordance
with APB No. 25, "Accounting for Stock Issued to Employees." SFAS No. 123
encourages but does not require the use of a fair value-based method of
accounting for stock-based compensation plans under which the fair value of
stock options is determined on the date of grant and expensed over the vesting
period of the stock options. While the Company has elected to continue to apply
the provisions of APB No. 25, under which no compensation cost has been
recognized by the Company, SFAS No. 123 requires pro forma disclosure of net
loss and loss per share as if the fair value based method under SFAS No. 123 had
been adopted. The value of all options for shares of the Company's common stock
to employees of the Company has been determined using the minimum value option
pricing model and the following assumptions in 1998:
<TABLE>
<S> <C>
Risk-free interest rate..................................... 5.3%
Expected dividend yield..................................... 0%
Expected lives.............................................. Five years
Expected volatility......................................... 79%
</TABLE>
The total value of options granted during the year ended December 31, 1998
was computed as approximately $299,444, which would be amortized on a pro forma
basis over the vesting period of the options. No options were granted in 1997.
If the Company had accounted for these plans in accordance with SFAS No. 123,
the Company's net loss for the year ended December 31, 1998 would have increased
as follows:
<TABLE>
<CAPTION>
AS REPORTED PRO FORMA
----------- -----------
<S> <C> <C>
Net loss for the year ended December 31, 1998............. $(4,345,868) $(4,374,078)
Net loss per share for the year ended December 31, 1998:
Basic................................................... $ (1.98) $ (1.99)
Diluted................................................. (1.55) (1.50)
</TABLE>
F-17
<PAGE> 76
HEADHUNTER.NET, INC. AND SUBSIDIARIES
(SUCCESSOR COMPANY)
AND HNET, INC.
(PREDECESSOR COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. INCOME TAXES
Deferred income taxes reflect the net tax effect of temporary differences
between the carrying amount of assets and liabilities for financial reporting
purposes and income tax purposes. Significant components of the Company's
deferred tax assets and liabilities for federal and state income taxes as of
December 31, 1998 are as follows:
<TABLE>
<S> <C>
Deferred tax assets:
Net operating loss carryforwards.......................... $1,029,386
Accumulated amortization.................................. 61,692
Allowance for doubtful accounts........................... 14,938
Deferred revenues......................................... 15,826
Other..................................................... 20,912
----------
Total deferred tax assets......................... 1,142,754
Deferred tax liabilities:
Accelerated depreciation.................................. 16,354
----------
Net deferred tax asset...................................... 1,126,400
Valuation allowance......................................... (1,126,400)
----------
Net deferred taxes.......................................... $ 0
==========
</TABLE>
The Company's net operating loss carryforward will expire in the year 2018
unless utilized. Due to the fact that the Company is unable to conclude that it
is more likely than not that its deferred tax assets will be recognized, the
Company has provided a 100% valuation allowance against its net deferred tax
assets. In addition, the Company's ability to recognize the benefit from the net
operating loss carryforwards may be limited under the Code, as the ownership of
the Company has changed more than 50%, as defined.
A reconciliation of the income tax provision computed at statutory tax
rates to the income tax provision for the years ended December 31, 1998 is as
follows:
<TABLE>
<S> <C>
Income tax benefit at statutory rate........................ (34)%
State and local income taxes................................ (6)
Increase in valuation allowance............................. 40
---
Total income tax provision........................ 0%
===
</TABLE>
Prior to the Reorganization (Note 1), LLC, as a limited liability company,
was treated as a partnership for tax purposes. Therefore through June 1998, the
income tax benefits generated by LLC, were recorded by its members. Following
the Reorganization (Note 1) the Company recognized the income tax benefits
generated by its subsidiary in the accompanying statement of operations.
F-18
<PAGE> 77
HEADHUNTER.NET, INC. AND SUBSIDIARIES
(SUCCESSOR COMPANY)
AND HNET, INC.
(PREDECESSOR COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8. COMMITMENTS AND CONTINGENCIES
Operating Leases
Lease expense relates to the lease of office space. At December 31, 1998,
future minimum lease payments under this noncancelable operating lease are as
follows:
<TABLE>
<S> <C>
1999........................................................ $62,620
2000........................................................ 5,186
-------
$67,806
=======
</TABLE>
Rental expense under the operating lease amounted to $3,000 for the two
months ended December 31, 1997 and $45,050 for the year ended December 31, 1998.
Purchase Commitments
The Company has entered into various agreements with Internet companies to
purchase a minimum of $726,000 in banner advertisements in 1999. Purchase
commitments under the agreements are being expensed as the advertisements are
incurred.
Legal Proceedings
The Company is not currently a party to any legal proceedings. The Company,
from time to time, may be subject to legal proceedings and claims in the
ordinary course of business, including claims of alleged infringement of
trademarks and other intellectual property of third parties by the Company. Such
claims, even if not meritorious, could result in the expenditure of significant
financial and managerial resources.
Risks of Capacity Constraints
The Company derives a majority of revenues from employers and recruiters
that pay to post and upgrade their job opportunities. The amounts they are
willing to pay to post and upgrade their job opportunities depends to a
significant degree on the number of job seekers on the Company's web site. The
Company depends on the performance, reliability, and availability of its web
site to attract and retain job seekers. Capacity constraints could prevent them
from accessing the web site for extended periods of time and decrease the
Company's traffic. Decreased traffic could result in fewer employers and
recruiters posting job opportunities on the web site and buying fewer upgrades
and other enhanced services, which in turn would result in decreased revenues.
In addition, if the number of employers, recruiters, and job seekers on the web
site increases substantially, the Company may experience capacity constraints
and need to expand or upgrade its technology at a time when the Company does not
have adequate funds to do so, or when that technology is not readily available.
9. SUBSEQUENT EVENT (UNAUDITED)
Equity Transactions
In February 1999, the stockholders of HeadHunter.NET's Convertible Class A
preferred and common stock entered into a stockholders' agreement. This
agreement provides, among other things, for a right of first refusal to the
Company and each of the other stockholders of the Company to purchase any
selling
F-19
<PAGE> 78
HEADHUNTER.NET, INC. AND SUBSIDIARIES
(SUCCESSOR COMPANY)
AND HNET, INC.
(PREDECESSOR COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
stockholders' shares at a price equal to that agreed to by a third party. The
stockholders' agreement terminates upon (i) voluntary or involuntary dissolution
of the Company, (ii) initial public offering, or (iii) acquisition,
consolidation, or merger of the Company into or with another corporation that
results in the stockholders owning publicly traded securities.
In April 1999, the Company increased the common shares reserved for
issuance in connection with options and awards granted under the Incentive Plan
to 1,000,000 shares.
In May 1999, the Company sold 140,000 shares of common stock to certain
executive officers and a director at $2.00 per share. In accordance with APB No.
25, the Company recognized $1,232,000 in compensation expense in May 1999
related to the difference between the purchase price and the estimated fair
value of $10.80 with the offset to additional paid in capital.
Proposed Initial Public Offering
The Company is in the process of registering with the Securities and
Exchange Commission shares of its common stock. There can be no assurance that
this offering will be completed. In the event this offering is completed, all
outstanding amounts under the Loan and Security Agreement with ITC Service
Company (Note 3) will be repaid with the proceeds from the offering.
F-20
<PAGE> 79
3,000,000 SHARES
(HEADHUNTER.NET LOGO)
COMMON STOCK
------------------
PROSPECTUS
------------------
FIRST UNION CAPITAL MARKETS CORP.
J.C. BRADFORD & CO.
WACHOVIA SECURITIES, INC.
DLJdirect INC.
---------------------
, 1999
---------------------
You should rely only on the information contained in this prospectus. We
have not authorized anyone to provide you with information different from that
contained in this prospectus. HeadHunter.NET and the selling shareholder are
offering to sell, and seeking offers to buy, shares of common stock only in
jurisdictions where offers and sales are permitted. The information contained in
this prospectus is accurate only as of the date of this prospectus, regardless
of the time of delivery of this prospectus or of any sale of our common stock.
Until , 1999 (25 days after the date of this prospectus), all
dealers that buy, sell or trade in our common stock, whether or not
participating in this offering, may be required to deliver a prospectus. This
delivery requirement is in addition to the dealers' obligation to deliver a
prospectus when acting as underwriters and with respect to their unsold
allotments or subscriptions.
<PAGE> 80
PART II. INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the expenses in connection with the offering
described in the registration statement. All amounts are estimates except the
SEC registration fee, the NASD fees and the Nasdaq listing fees:
<TABLE>
<S> <C>
SEC registration fee........................................ $ 13,428
NASD fees................................................... 5,330
Nasdaq listing fees......................................... 78,875
Blue sky fees and expenses.................................. 5,000
Printing and engraving expenses............................. 250,000
Legal fees and expenses..................................... 275,000
Accounting fees and expenses................................ 150,000
Transfer agent fees......................................... 5,000
Miscellaneous expenses...................................... 217,367
----------
Total............................................. $1,000,000
==========
</TABLE>
- ---------------
* To be provided by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Our articles of incorporation eliminate the personal liability of our
directors to HeadHunter.NET or our shareholders for monetary damage for any
breach of duty as a director, provided that we cannot eliminate or limit the
liability of a director for:
- a breach of duty involving appropriation of a business opportunity of
HeadHunter.NET;
- an act or omission which involves intentional misconduct or a knowing
violation of law;
- any transaction from which the director receives an improper personal
benefit; or
- unlawful corporate distributions.
In addition, if at any time the Georgia Business Corporation Code is
amended to authorize further elimination or limitation of the personal liability
of a director, then the liability of each of our directors shall be eliminated
or limited to the fullest extent permitted by such provisions, as so amended,
without further action by the shareholders, unless otherwise required.
Our bylaws require us to indemnify any director or officer who was or is a
party or is threatened to be made a party, to any threatened, pending or
completed action, suit or proceeding whether civil, criminal, administrative or
investigative (including any action or suit by or in our right) because such
person is or was one of our directors or officers, against liability incurred by
the director of officer in such proceeding except for any liability incurred in
a proceeding in which the director or officer is adjudged liable to us or is
subjected to injunctive relief in our favor for:
- any appropriation, in violation of such director's or officer's duties,
of any business opportunity of HeadHunter.NET;
- acts or omissions which involve intentional misconduct or a knowing
violation of law;
- unlawful corporate distributions; or
- any transaction from which such officer or director received an improper
personal benefit.
Our board of directors also has the authority to extend to employees and
agents the same indemnification rights held by directors. Indemnified persons
would also be entitled to have us advance
II-1
<PAGE> 81
expenses prior to the final disposition of the proceeding. If it is ultimately
determined that they are not entitled to indemnification, however, such amounts
would be repaid. Insofar as indemnification for liability arising under the
Securities Act may be permitted to our officers and directors pursuant to these
provisions, the SEC has informed us that in its opinion such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable.
We have entered into separate indemnity agreements with each of our
directors and certain of our executive officers, whereby we agree to indemnify
them and to advance them expenses in a manner and subject to terms and
conditions similar to those set forth in our articles of incorporation and
bylaws.
We maintain a standard form of officers' and directors' liability insurance
policy which provides coverage to our officers and directors for certain
liabilities, including certain liabilities which may arise out of this
registration statement.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
Within the past three years, we have not sold any securities which were not
registered under the Securities Act except for:
- the issuance of 2,200,000 shares of common stock and 50,000 shares of
Class A preferred stock to Warren L. Bare and 2,750,000 shares of Class A
preferred stock to ITC Holding Company, Inc., pursuant to a Contribution
Agreement dated July 15, 1998, which issuance was exempt from registration under
Sections 4(2) and 4(6) of the Securities Act and Regulation D;
- the grant by HeadHunters, L.L.C. to certain of our employees, officers
and directors of options to purchase common units under the HeadHunters, L.L.C.
Employee Common Unit Option Plan, that HeadHunter.NET assumed and converted into
options to purchase an equal number of shares of common stock on July 15, 1998,
which transactions were exempt from registration under Section 3(a)(9) of the
Securities Act and Rule 701;
- our granting to certain of our employees, officers and directors of
options to purchase shares of common stock under individual stock option
agreements and the HeadHunter.NET, Inc. 1998 Long Term Incentive Plan since July
1998, which grants were exempt from registration under Rule 701;
- the issuance to ITC Service Company of a warrant to purchase 416,667
shares of common stock on October 28, 1998 in connection with a prior credit
facility with ITC Service Company, which issuance was exempt from registration
under Sections 4(2) and 4(6) of the Securities Act and Regulation D;
- the issuance of 2,333,333 shares of Class A preferred stock to ITC
Holding Company, Inc. on January 29, 1999 in connection with the conversion of
approximately $3.5 million of debt, at a conversion rate of $1.50 per share,
that was outstanding under our prior credit facility with ITC Service Company,
which issuance was exempt from registration under Sections (3)(a)(9) and 4(2) of
the Securities Act and Regulation D;
- the sale to certain of our executive officers and directors of a total of
271,167 shares of Class A preferred stock at a per share price of $1.50 on
January 29, 1999, which sales were exempt from registration under Sections 4(2)
and 4(6) of the Securities Act and Regulation D;
- the sale to certain of our executive officers and directors of a total of
140,000 shares of common stock at a per share price of $2.00 on May 2, 1999,
which sales were exempt from registration under Sections 4(2) and 4(6) of the
Securities Act and Regulation D.
The recipients of the securities in the above transactions represented
their intention to acquire the securities for investment purposes only and not
with a view to or for the sale in connection with any distribution thereof, and
appropriate legends were affixed to the share certificates issued in such
transactions. The recipients of these securities had adequate access, through
their relationship with us, to information about us.
II-2
<PAGE> 82
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(A) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C> <C>
1.1 -- Form of Underwriting Agreement**
3.1 -- Articles of Incorporation, as amended**
3.2 -- Bylaws**
4.1 -- Specimen common stock certificate**
4.2 -- Article II of the Articles of Incorporation, as amended
(filed as part of Exhibit 3.1)**
5.1 -- Opinion of Alston & Bird LLP**
10.1 -- HeadHunter.NET, Inc. 1998 Long-Term Incentive Plan, as
amended**
10.2 -- HeadHunters, L.L.C. Employee Common Unit Option Plan dated
January 14, 1998**
10.3 -- Loan and Security Agreement dated January 28, 1999 between
ITC Service Company and HeadHunter.NET**
10.4 -- Form of Indemnity Agreement between directors/executive
officers and HeadHunter.NET**
10.5 -- Contribution Agreement dated July 15, 1998 among ITC Holding
Company, Inc., Warren L. Bare and HeadHunter.NET**
10.6 -- WorkLife's Internet Content Partners Agreement between
WorkLife Solutions, Inc. and HeadHunter.NET**
10.7 -- Letter Agreement dated September 11, 1998 between James R.
Canfield and HeadHunter.NET**
10.8 -- Letter Agreement dated May 18, 1998 between Judith G.
Hackett and HeadHunter.NET**
10.9 -- Letter Agreement dated May 13, 1999 between Mark W. Partin
and HeadHunter.NET**
10.10 -- Amended and Restated Stock Purchase Warrant between ITC
Service Company and HeadHunter.NET**
10.11 -- Investment Agreement dated October 30, 1997 among ITC
Holding Company, Inc., Software Technology Corporation and
Warren L. Bare**
10.12 -- Form of Non-Employee Director Non-Qualified Stock Option
Agreement**
10.13 -- Lycos, Inc. Advertising Contract, as amended, between Lycos,
Inc. and HeadHunters,NET**+
10.14 -- Lease Agreement between AMB Property, L.P. and HeadHunters,
L.L.C. dated September 1, 1998, as amended by the First
Lease Extension and Modification Agreement dated January 27,
1999, as further amended by the Second Lease Extension and
Modification Agreement dated March 22, 1999.**
10.15 -- Intentionally omitted
10.16 -- Severance letter between HeadHunter.NET and Warren Bare
dated February 24, 1999**
10.17 -- Severance letter between HeadHunter.NET and Kenneth E.
Dopher dated April 15, 1999**
10.18 -- Form of Subscription Agreement between directors/executive
officers and HeadHunter.NET**
10.19 -- Form of Loan and Security Agreement between executive
officers and HeadHunter.NET**
10.20 -- DoubleClick Insertion Order Properties dated February 25,
1999**+
21.1 -- Subsidiaries of the Company**
23.1 -- Consent of Arthur Andersen LLP
23.2 -- Consent of Alston & Bird LLP (filed as part of Exhibit
5.1)**
24.1 -- Power of Attorney**
</TABLE>
II-3
<PAGE> 83
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C> <C>
24.2 -- Power of Attorney -- Burton B. Goldstein, Jr.**
27.1 -- Restated Financial Data Schedule (for SEC use only)**
27.2 -- Restated Financial Data Schedule (for SEC use only)
</TABLE>
- ---------------
** Previously filed
+ Confidential treatment has been requested for certain portions which have
been blanked out in the copy of the exhibit filed with the Securities and
Exchange Commission. The omitted information has been filed separately with
the Securities and Exchange Commission pursuant to the application for
confidential treatment.
(B) FINANCIAL SCHEDULES
Schedule II -- Valuation and Qualifying Accounts
ITEM 17. UNDERTAKINGS.
HeadHunter.NET hereby undertakes to provide to the underwriters at the
closing specified in the underwriting agreement, certificates in such
denominations and registered in such names as required by the underwriter to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of
HeadHunter.NET pursuant to the foregoing provisions, or otherwise,
HeadHunter.NET has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by
HeadHunter.NET of expenses incurred or paid by a director, officer or
controlling person of HeadHunter.NET in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, HeadHunter.NET will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
HeadHunter.NET hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in
a form of prospectus filed by HeadHunter.NET pursuant to Rule 424(b)(1) or
(4), or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-4
<PAGE> 84
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS AMENDMENT NO. 4 TO REGISTRATION STATEMENT TO BE SIGNED ON
ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF
ATLANTA, STATE OF GEORGIA, ON AUGUST 16, 1999.
HEADHUNTER.NET, INC.
By: /s/ Robert M. Montgomery, Jr.
------------------------------------
Robert M. Montgomery, Jr.
Chief Executive Officer and
President
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
NO. 4 TO REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES LISTED AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ Robert M. Montgomery, Jr. Chief Executive Officer, August 16, 1999
- --------------------------------------------------- President and Director
Robert M. Montgomery, Jr. (Principal Executive Officer)
/s/ Mark W. Partin Chief Financial Officer August 16, 1999
- --------------------------------------------------- (Principal Financial and
Mark W. Partin Accounting Officer)
* /s/ William H. Scott III Chairman of the Board and August 16, 1999
- --------------------------------------------------- Director
William H. Scott, III
* /s/ Warren L. Bare Vice Chairman of the Board and August 16, 1999
- --------------------------------------------------- Director
Warren L. Bare
* /s/ Burton B. Goldstein, Jr. Director August 16, 1999
- ---------------------------------------------------
Burton B. Goldstein, Jr.
* /s/ Donald W. Weber Director August 16, 1999
- ---------------------------------------------------
Donald W. Weber
* /s/ J. Douglas Cox Director August 16, 1999
- ---------------------------------------------------
J. Douglas Cox
* /s/ Michael G. Misikoff Director August 16, 1999
- ---------------------------------------------------
Michael G. Misikoff
</TABLE>
II-5
<PAGE> 85
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
* /s/ Kimberley E. Thompson Director August 16, 1999
- ---------------------------------------------------
Kimberley E. Thompson
*By: /s/ Mark W. Partin
----------------------------------------------
Mark W. Partin
Attorney-in-Fact
</TABLE>
II-6
<PAGE> 86
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS AS TO SCHEDULE
To HeadHunter.NET, Inc. and Subsidiaries:
We have audited in accordance with generally accepted auditing standards,
the financial statements of HEADHUNTER.NET, INC. AND SUBSIDIARIES (Successor
Company) and HNET, INC. (Predecessor Company) as of December 31, 1997 and 1998
and for the year ended December 31, 1996, the ten months ended October 31, 1997,
the two months ended December 31, 1997, and the year ended December 31, 1998,
and have issued our report thereon dated February 5, 1999. Our audits were made
for the purpose of forming an opinion on those statements taken as a whole. The
schedule listed under Schedule II herein as it relates to HeadHunter.Net, Inc.
(Successor Company) and HNET, Inc. (Predecessor Company) is the responsibility
of the Company's management and is presented for purposes of complying with the
Securities and Exchange Commission's rules and is not part of the basic
financial statements. This schedule has been subjected to the auditing
procedures applied in the audits of the basic financial statements and, in our
opinion, fairly states in all material respects the financial data required to
be set forth therein in relation to the basic financial statements taken as a
whole.
/s/ Arthur Andersen LLP
Atlanta, Georgia
February 5, 1999
II-7
<PAGE> 87
HEADHUNTER.NET, INC. AND SUBSIDIARIES
(SUCCESSOR COMPANY)
AND HNET, INC.
(PREDECESSOR COMPANY)
SCHEDULE II: VALUATION AND QUALIFYING ACCOUNTS FOR THE
YEAR ENDED DECEMBER 31, 1996, THE TEN MONTHS ENDED
OCTOBER 31, 1997, THE TWO MONTHS ENDED DECEMBER 31, 1997
AND THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
CHARGED TO
BEGINNING COSTS ENDING
DESCRIPTION AND BALANCES EXPENSE WRITE-OFFS BALANCE
----------- --------------- ------- ---------- -------
<S> <C> <C> <C> <C>
1996 allowance for doubtful accounts................. $ -- $ -- $ -- $ --
October 1997 allowance for doubtful accounts......... $ -- $ -- $ -- $ --
December 1997 allowance for doubtful accounts........ $ -- $ -- $ -- $ --
1998 allowance for doubtful accounts................. $ -- $37,346 $ -- $37,346
</TABLE>
II-8
<PAGE> 88
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C> <C>
1.1 -- Form of Underwriting Agreement**
3.1 -- Articles of Incorporation, as amended**
3.2 -- Bylaws**
4.1 -- Specimen common stock certificate**
4.2 -- Article II of the Articles of Incorporation, as amended
(filed as part of Exhibit 3.1)**
5.1 -- Opinion of Alston & Bird LLP**
10.1 -- HeadHunter.NET, Inc. 1998 Long-Term Incentive Plan, as
amended**
10.2 -- HeadHunters, L.L.C. Employee Common Unit Option Plan dated
January 14, 1998**
10.3 -- Loan and Security Agreement dated January 28, 1999 between
ITC Service Company and HeadHunter.NET**
10.4 -- Form of Indemnity Agreement between directors/executive
officers and HeadHunter.NET**
10.5 -- Contribution Agreement dated July 15, 1998 among ITC Holding
Company, Inc., Warren L. Bare and HeadHunter.NET**
10.6 -- WorkLife's Internet Content Partners Agreement between
WorkLife Solutions, Inc. and HeadHunter.NET**
10.7 -- Letter Agreement dated September 11, 1998 between James R.
Canfield and HeadHunter.NET**
10.8 -- Letter Agreement dated May 18, 1998 between Judith G.
Hackett and HeadHunter.NET**
10.9 -- Letter Agreement dated May 13, 1999 between Mark W. Partin
and HeadHunter.NET**
10.10 -- Amended and Restated Stock Purchase Warrant between ITC
Service Company and HeadHunter.NET**
10.11 -- Investment Agreement dated October 30, 1997 among ITC
Holding Company, Inc., Software Technology Corporation and
Warren L. Bare**
10.12 -- Form of Non-Employee Director Non-Qualified Stock Option
Agreement**
10.13 -- Lycos, Inc. Advertising Contract, as amended, between Lycos,
Inc. and HeadHunters,NET**+
10.14 -- Lease Agreement between AMB Property, L.P. and HeadHunters,
L.L.C. dated September 1, 1998, as amended by the First
Lease Extension and Modification Agreement dated January 27,
1999, as further amended by the Second Lease Extension and
Modification Agreement dated March 22, 1999.**
10.15 -- Intentionally omitted
10.16 -- Severance letter between HeadHunter.NET and Warren Bare
dated February 24, 1999**
10.17 -- Severance letter between HeadHunter.NET and Kenneth E.
Dopher dated April 15, 1999**
10.18 -- Form of Subscription Agreement between directors/executive
officers and HeadHunter.NET**
10.19 -- Form of Loan and Security Agreement between executive
officers and HeadHunter.NET**
</TABLE>
<PAGE> 89
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C> <C>
10.20 -- DoubleClick Insertion Order Properties dated February 25,
1999**+
21.1 -- Subsidiaries of the Company**
23.1 -- Consent of Arthur Andersen LLP
23.2 -- Consent of Alston & Bird LLP (filed as part of Exhibit
5.1)**
24.1 -- Power of Attorney**
24.2 -- Power of Attorney -- Burton B. Goldstein, Jr.**
27.1 -- Restated Financial Data Schedule (for SEC use only)**
27.2 -- Restated Financial Data Schedule (for SEC use only)
</TABLE>
- ---------------
** Previously filed
+ Confidential treatment has been requested for certain portions which have
been blanked out in the copy of the exhibit filed with the Securities and
Exchange Commission. The omitted information has been filed separately with
the Securities and Exchange Commission pursuant to the application for
confidential treatment.
<PAGE> 1
Exhibit 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our reports
and to all references to our firm included in or made part of this registration
statement.
/s/ Arthur Andersen LLP
Atlanta, Georgia
August 16, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 202,874
<SECURITIES> 0
<RECEIVABLES> 974,786
<ALLOWANCES> 86,019
<INVENTORY> 0
<CURRENT-ASSETS> 1,340,355
<PP&E> 922,248
<DEPRECIATION> 178,618
<TOTAL-ASSETS> 2,881,114
<CURRENT-LIABILITIES> 2,635,199
<BONDS> 0
0
54,045
<COMMON> 23,400
<OTHER-SE> 168,470
<TOTAL-LIABILITY-AND-EQUITY> 2,881,114
<SALES> 2,412,955
<TOTAL-REVENUES> 2,412,955
<CGS> 60,255
<TOTAL-COSTS> 8,835,265
<OTHER-EXPENSES> 40,915
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (6,523,480)
<INCOME-TAX> 0
<INCOME-CONTINUING> (6,523,480)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (6,523,480)
<EPS-BASIC> (12.68)
<EPS-DILUTED> (12.68)
</TABLE>
